<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO: 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GLOBAL ONE
DISTRIBUTION & MERCHANDISING INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 2741 95-4578632
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5548 LINDBERGH LANE
BELL, CALIFORNIA 90201-6410
(213) 980-4300
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
JOSEPH C. ANGARD
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
5548 LINDBERGH LANE
BELL, CALIFORNIA 90201-6410
(213) 980-4300
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
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T. Hale Boggs, Esq. Thomas R. King, Esq.
Manatt, Phelps & Phillips, LLP Fredrikson & Byron, P.A.
11355 West Olympic Boulevard 1100 International Centre
Los Angeles, California 90064 900 Second Avenue South
Minneapolis, Minnesota 55402-4140
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: UPON CONSUMMATION OF THE KRSI MERGER, AS DESCRIBED IN THIS REGISTRATION
STATEMENT.
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE (2) PRICE (1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................ 2,645,756 shares $2.00 $5,291,512 $1,824.66
</TABLE>
(1) Represents the approximate maximum number of shares issuable upon the KRSI
Merger as described in the Registration Statement, based upon (i) the
anticipated maximum number of outstanding shares of Kelly Russell Studios,
Inc. Common Stock at the KRSI Merger's Effective Time, and (ii) the
conversion ratio of one share of Global One Distribution & Merchandising
Inc. Common Stock issued for every two shares of Kelly Russell Studios, Inc.
Common Stock.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rules 457(c) and 457(f)(1) and based on the average of the high
and low sales prices of the Kelly Russell Studios, Inc. Common Stock quoted
on the Nasdaq SmallCap Market on May 21, 1996, a date within five (5)
business days of the date on which this Registration Statement was initially
filed.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-4
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FORM S-4 ITEM LOCATION IN PROSPECTUS
- ---------------------------------------- -------------------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Cover Page of Registration Statement; This
Cross Reference Sheet; Outside Front Cover
Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus............... Inside Front and Outside Back Cover Pages
of Proxy Statement/Prospectus; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and other
information....................... Proxy Statement/Prospectus Cover Page; Sum-
mary of Proxy Statement/Prospectus; Risk
Factors
4. Terms of the Transaction........... Proxy Statement/Prospectus Cover Page;
Proxy Statement/Prospectus Summary; The
KRSI Merger; Comparison of the Rights of
Holders of Global One Common Stock and
Kelly Russell Common Stock
5. Pro Forma Financial Information.... Pro Forma Condensed Consolidated Financial
Statements
6. Material Contacts with the Company
being Acquired.................... The KRSI Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters......... Not applicable
8. Interests of Named Experts and
Counsel........................... Not applicable
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Commission's Position on Indemnification
for Securities Act Liabilities
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<PAGE>
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<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
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B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3
Registrants....................... Not applicable
11. Incorporation of Certain
Information by Reference.......... Not applicable
12. Information with Respect to S-2 or
S-3 Registrants................... Not applicable
13. Incorporation of Certain
Information by Reference.......... Not applicable
14. Information with Respect to
Registrants Other Than S-2 or S-3
Registrants....................... Market Price of and Dividends on Global One
Common Stock and Kelly Russell Common
Stock; Summary Consolidated Financial Data
OSP Publishing Inc.; Management's Discus-
sion and Analysis of Financial Condition
and Results of Operations of OSP; Business
of Global One; Business of the Company;
Management of Global One; Financial
Statements of OSP Publishing, Inc.
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies......................... Not applicable
16. Information with Respect to S-2 or
S-3 Companies..................... Not applicable
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies......................... Summary Selected Financial Data, Kelly Rus-
sell Studios, Inc., Kelly Russell Studios,
Inc. Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business of Kelly Russell
Studios, Inc.; Market Price of and
Dividends on Global One Common Stock and
Kelly Russell Common Stock; Financial
Statements of Kelly Russell Studios, Inc.
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be
Solicited......................... Proxy Statement/Prospectus Cover Page; Sum-
mary of Proxy Statement/Prospectus;
General Information Regarding the Meeting;
The KRSI Merger; Business of Kelly Russell
Studios, Inc. -- Principal Shareholders
and Management of Kelly Russell;
Management of Global One
19. Information if Proxies, Consents or
Authorizations are Not to be
Solicited in an Exchange Offer.... Not applicable
</TABLE>
<PAGE>
[KELLY RUSSELL LETTERHEAD]
, 1996
Dear Kelly Russell Studios, Inc. Shareholder:
I am pleased to invite you to attend the Special Meeting of Shareholders of
Kelly Russell Studios, Inc., which will be held on , 1996, at
a.m., local time, at , , Minnesota. At
the meeting you will be asked to consider and vote upon a Final Amended and
Restated Agreement and Plan of Reorganization (the "Merger Agreement") by and
among Kelly Russell Studios, Inc. ("Kelly Russell"), Global One Distribution &
Merchandising Inc. ("Global One"), OSP Publishing, Inc. ("OSP"), OSP's
subsidiary, The Button Exchange, Ltd. ("BEx") OSP's shareholders, Joseph C.
Angard and Michael A. Malm (the "OSP Shareholders"), and the wholly owned
subsidiaries of Global One (the "Global One Subsidiaries"). Pursuant to the
Merger Agreement, Kelly Russell will be merged (the "KRSI Merger") with and into
KRSI Acquisition Corp. ("KRSI Acquisition") which is a wholly owned subsidiary
of Global One. Immediately prior to the KRSI Merger, OSP and BEx will be
reorganized as subsidiaries of Global One (the "Reorganization"). In connection
with the transactions contemplated by the Merger Agreement, Global One has
received subscriptions to purchase $6,756,351 (4,504,234 shares) of its common
stock, $0.01 par value per share (the "Global One Common Stock") in a private
placement (the "Private Placement"). The KRSI Merger, the Reorganization and the
Private Placement, the closing of each of which is conditioned upon the closing
of the others, are referred to herein as the "Transactions." If the Transactions
are consummated, KRSI Acquisition will change its name to and operate its
business as "Kelly Russell Studios, Inc." Kelly Russell shareholders will
receive one share of Global One Common Stock in exchange for each two shares of
Kelly Russell Common Stock held at the time of the KRSI Merger. Any Kelly
Russell shareholder entitled to receive a fractional share will receive one
whole share of Global One Common Stock in lieu of such fractional share. Options
and warrants to purchase Kelly Russell Common Stock will become options and
warrants to purchase Global One Common Stock on the same terms and subject to
the same conditions, except that such options and warrants shall be adjusted as
to number and exercise price. See "The KRSI Merger -- Treatment of Kelly Russell
Options and Warrants."
The attached Proxy Statement/Prospectus is intended to provide you with the
information that will enable you to make an informed decision regarding your
vote on the proposed KRSI Merger. It also serves as a Prospectus for Global One,
describing your investment in Global One if the KRSI Merger is approved and your
shares of Kelly Russell Common Stock are exchanged for shares of Global One
Common Stock. A copy of the Merger Agreement is attached to the Proxy
Statement/Prospectus as Appendix A. I urge you to carefully read this
information before voting on the proposed KRSI Merger.
THE BOARD OF DIRECTORS OF KELLY RUSSELL BELIEVES THAT THE PROPOSED
TRANSACTION IS FAIR AND IN THE BEST INTERESTS OF KELLY RUSSELL AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER AGREEMENT. The
Board believes that the KRSI Merger will, among other things, give Kelly Russell
shareholders the opportunity to continue their equity participation on a
tax-free basis in a larger, more diversified enterprise which has a more
extensive distribution network.
The Board of Directors of Kelly Russell have retained the investment banking
firm The Equisource Group to advise it with respect to the consideration to be
received in the KRSI Merger. The Equisource Group has advised the Board of
Directors that, in its opinion, the consideration to be received by the Kelly
Russell shareholders pursuant to the Merger Agreement is fair from a financial
point of view. A copy of the opinion is attached to the Proxy
Statement/Prospectus as Appendix B.
<PAGE>
The Merger Agreement must be approved by the holders of a majority of the
outstanding shares of Kelly Russell Common Stock. Your vote on this matter is
very important. We urge you to carefully review the enclosed material and to
return your proxy promptly.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY.
Sincerely,
George J. Vrabeck
CHIEF EXECUTIVE OFFICER
<PAGE>
KELLY RUSSELL STUDIOS, INC.
2905 NORTHWEST BOULEVARD, #220
PLYMOUTH, MINNESOTA 55441
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1996
------------------------
To the Shareholders of Kelly Russell Studios, Inc.:
A Special Meeting of the Shareholders of Kelly Russell Studios, Inc. ("Kelly
Russell") will be held at ,
, Minnesota, on , 1996, at a.m., local
time, to:
1. Consider and act upon a proposal to approve a Final Amended and Restated
Agreement and Plan of Reorganization (the "Merger Agreement"), a copy of
which is included as Appendix A to the Proxy Statement/Prospectus
accompanying this Notice. Pursuant to the Merger Agreement: (a) Kelly
Russell will be merged (the "KRSI Merger") with and into KRSI Acquisition
Corp., a wholly owned subsidiary of Global One Distribution &
Merchandising Inc. ("Global One"), which will change its name to "Kelly
Russell Studios, Inc." and (b) holders of Kelly Russell common stock, par
value $.01 per share ("Kelly Russell Common Stock"), will receive one
share of Global One common stock, par value $.01 per share ("Global One
Common Stock"), for each two shares of Kelly Russell Common Stock held at
the time of the KRSI Merger.
2. Transact such other business as may properly come before this Special
Meeting or any adjournment thereof.
Only shareholders of record as shown on the books of Kelly Russell at the
close of business on , 1996 are entitled to notice of and to vote at
the Meeting or any adjournments thereof.
Record and beneficial owners of shares of Kelly Russell Common Stock are
entitled to dissent from the KRSI Merger and to receive the payment determined
in a judicial proceeding if they comply with certain procedures specified in the
Minnesota Business Corporation Act and described in the accompanying Proxy
Statement/Prospectus. A copy of Sections 302A.471 and 302A.473 of said Act
relating to dissenters' rights is attached to the Proxy Statement/Prospectus as
Appendix C.
BY ORDER OF THE BOARD OF DIRECTORS
SECRETARY
, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED PROXY RETURN ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES
SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THE PROXY CARD
<PAGE>
PROXY STATEMENT/PROSPECTUS
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Kelly Russell Studios, Inc. Global One Distribution & Merchandising Inc.
2095 Northwest Boulevard, #220 5548 Lindbergh Lane
Plymouth, Minnesota 55441 Bell, California 90201-6410
Telephone: (612) 553-9992 Telephone: (213) 980-4300
Proxy Statement for Prospectus for shares
Meeting of Shareholders issuable in KRSI Merger
to be held on , 1996
</TABLE>
Global One Distribution & Merchandising Inc., a Delaware corporation
("Global One"), has filed this Prospectus of Global One and Proxy Statement of
Kelly Russell Studios, Inc. ("Kelly Russell") with the Securities and Exchange
Commission (the "Commission") as part of a Registration Statement on Form S-4
(the "Registration Statement"), pursuant to the Securities Act of 1933, as
amended (the "Securities Act"). The Registration Statement registers up to
2,645,756 shares of common stock, $.01 par value, of Global One ("Global One
Common Stock"), issuable to shareholders of Kelly Russell upon consummation of
the merger ("the KRSI Merger") of Kelly Russell with and into KRSI Acquisition
Corp., ("KRSI Acquisition"), a wholly owned subsidiary of Global One, pursuant
to the terms of the Final Amended and Restated Agreement and Plan of
Reorganization (the "Merger Agreement") between and among Kelly Russell, Global
One, OSP Publishing, Inc. ("OSP"), OSP's subsidiary, The Button Exchange, Inc.
("BEx"), the current shareholders of OSP, Joseph C. Angard and Michael A. Malm
(the "OSP Shareholders"), and the wholly owned subsidiaries of Global One (the
"Global One Subsidiaries"). Immediately prior to the KRSI Merger, OSP and BEx
will reorganize by merger with and into OSP Acquisition Corp. and BEx
Acquisition Corp., respectively, (the "Reorganization"). In connection with the
transactions contemplated by the Merger Agreement, Global One has received
subscriptions to purchase $6,756,351 (4,504,234 shares) of Global One Common
Stock in a private placement (the "Private Placement"). The KRSI Merger, the
Reorganization and the Private Placement, the closing of each of which is
conditioned upon the closing of the others, are referred to herein as the
"Transactions."
If the Transactions are consummated, KRSI Acquisition will change its name
to "Kelly Russell Studios, Inc." and will conduct its business under such name
as a wholly owned subsidiary of Global One. Kelly Russell's shareholders will be
entitled to receive one share of Global One Common Stock for each two shares of
Kelly Russell Common Stock held at the time of the KRSI Merger. Following the
KRSI Merger, assuming no Kelly Russell shareholders dissent from the KRSI
Merger, Kelly Russell shareholders will own approximately 16% of the outstanding
Global One Common Stock, without giving effect to the options and warrants to
purchase Global One Common Stock which will be outstanding following the KRSI
Merger.
This Proxy Statement/Prospectus is being furnished to the shareholders of
Kelly Russell in connection with the solicitation of proxies by the Board of
Directors of Kelly Russell for use at the Special Meeting of Shareholders of
Kelly Russell to be held on , 1996 (the "Meeting"). At the Meeting,
Kelly Russell Shareholders will be asked to (i) consider and vote upon a
proposal to approve the Merger Agreement; and (ii) transact such other business
as may properly come before the Meeting. Kelly Russell shareholders will have a
right to dissent from the KRSI Merger and receive the fair value of their shares
if they comply with certain procedures described herein. See "The KRSI Merger --
Rights of Dissenting Shareholders."
This Proxy Statement/Prospectus also serves as Global One's Prospectus under
the Securities Act with respect to the issuance of up to 2,645,756 shares of
Global One Common Stock pursuant to the Merger Agreement more fully described
herein.
This Proxy Statement/Prospectus does not cover any resales of Global One
Common Stock received by Kelly Russell Shareholders upon consummation of the
proposed KRSI Merger pursuant to the Merger Agreement, and no person is
authorized to make any use of this Proxy Statement/Prospectus in connection with
any such resale or in connection with the offer or sale of any other securities.
The consummation of the KRSI Merger is subject to the receipt of the
approval of the shareholders of Kelly Russell, as well as the fulfillment of
certain other conditions, as more fully described in this Proxy
Statement/Prospectus. See "The KRSI Merger -- Conditions to Consummation of the
KRSI Merger; -- Amendment, Waiver and Termination of Merger Agreement; --
Regulatory Approvals."
This Proxy Statement/Prospectus is being first mailed or delivered to
shareholders of Kelly Russell on or about , 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION
SUMMARY................................................................... 1
RISK FACTORS OF GLOBAL ONE DISTRIBUTION & MERCHANDISING INC............... 12
Reliance on License Agreements.......................................... 12
Market Acceptance of Licensed Properties................................ 12
Seasonality and Fluctuations in Operating Results....................... 13
Risk of Continued Operating Losses of Kelly Russell..................... 13
Concentrated Customer Base.............................................. 13
Dependence on Key Personnel............................................. 13
Control by Existing Shareholders........................................ 14
Trading Market Considerations........................................... 14
Sufficiency of Working Capital.......................................... 14
Undesignated Preferred Stock............................................ 14
Material Returns of Unsold Products..................................... 15
GENERAL INFORMATION REGARDING THE MEETING................................. 15
THE MERGER................................................................ 16
General................................................................. 16
Effective Time of the Merger............................................ 17
Background of the Merger................................................ 17
Kelly Russell Reasons for the Merger; Recommendation of the Kelly
Russell Board of Directors............................................. 19
Global One's Reasons for The Merger..................................... 20
Operations and Management After the Merger.............................. 20
Kelly Russell's Financial Advisors...................................... 20
Vote Required........................................................... 22
Conversion of Kelly Russell Common Stock in the Merger.................. 22
Treatment of Kelly Russell Options and Warrants......................... 23
OSP Common Stock and Warrants........................................... 23
Treatment of Common Stock, Options and Warrants of Global One following
the Merger............................................................. 23
Global One Common Stock Options and Warrants following the Merger....... 23
Exchange of Certificates in the Merger.................................. 23
Conduct of Business Pending the Merger.................................. 24
Conditions to Consummation of the Merger................................ 24
Amendment, Waiver and Termination of the Merger Agreement............... 25
Expenses and Fees....................................................... 26
Representation and Warranties........................................... 26
Interest of Certain Persons in the Merger............................... 27
Limitation on Negotiations.............................................. 28
Resale of Global One Common Stock....................................... 28
Accounting Treatment of The Merger...................................... 29
Certain Federal Income Tax Consequences................................. 29
Indemnification......................................................... 30
Regulatory Approvals.................................................... 30
Rights of Dissenting Shareholders....................................... 30
MARKET PRICE OF AND DIVIDENDS ON GLOBAL ONE COMMON STOCK AND KELLY RUSSELL
COMMON STOCK............................................................. 33
Market Information...................................................... 33
Shareholders............................................................ 34
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i
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Dividends............................................................... 34
COMPARISON OF THE RIGHTS OF HOLDERS OF GLOBAL ONE COMMON STOCK AND KELLY
RUSSELL COMMON STOCK..................................................... 35
Global One Common Stock................................................. 35
Kelly Russell Common Stock.............................................. 36
Comparison of Kelly Russell Common Stock and Global One Common Stock.... 36
Meetings of Shareholders................................................ 36
Action without Meetings of Shareholders................................. 37
Dividends and Repurchases of Stock...................................... 37
Inspection Rights....................................................... 37
Amendments to Charter................................................... 37
Amendment of By-laws.................................................... 38
Preemptive Rights....................................................... 38
Directors............................................................... 38
Personal Liability of Directors......................................... 38
Indemnification......................................................... 39
Control Share Acquisitions.............................................. 39
Business Combinations................................................... 40
Rights of Dissenting Shareholders....................................... 40
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............... 41
S CORPORATION DISTRIBUTIONS............................................... 48
SELECTED CONSOLIDATED FINANCIAL DATA OSP PUBLISHING, INC.................. 49
CAPITALIZATION............................................................ 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY................................................ 51
General................................................................. 51
Results of Operations................................................... 52
Discontinued Operations................................................. 54
Liquidity and Capital Resources......................................... 59
Effects of Inflation.................................................... 61
Seasonality............................................................. 61
BUSINESS OF GLOBAL ONE.................................................... 63
Corporate History....................................................... 63
General................................................................. 63
Business Strategy....................................................... 64
Overview of the Licensed Merchandise Industry........................... 64
Competition............................................................. 65
Products and Operating Subsidiaries..................................... 65
Licensing............................................................... 66
Design and Development.................................................. 69
Manufacturing........................................................... 69
Sales and Marketing..................................................... 69
Returns Policy.......................................................... 71
Backlog................................................................. 71
Government Regulation; Tariffs and Duties............................... 71
Employees............................................................... 71
Properties.............................................................. 71
Legal Proceedings....................................................... 71
Trademarks.............................................................. 71
</TABLE>
ii
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<TABLE>
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MANAGEMENT OF GLOBAL ONE.................................................. 72
Directors and Executive Officers........................................ 72
Compensation of Board of Directors...................................... 73
Executive Compensation.................................................. 74
Employment Agreements................................................... 74
Certain Relationships and Related Transactions.......................... 75
KELLY RUSSELL STUDIOS, INC. SELECTED FINANCIAL DATA....................... 76
KELLY RUSSELL STUDIOS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATION AND FINANCIAL CONDITION............................. 77
General................................................................. 77
Results of Operations................................................... 78
Seasonality............................................................. 80
Liquidity and Capital Resources......................................... 81
BUSINESS OF KELLY RUSSELL STUDIOS, INC.................................... 83
Products................................................................ 84
Marketing and Distribution.............................................. 85
License Agreements and Trademarks....................................... 86
Product Supply and Production........................................... 87
Competition............................................................. 88
Employees............................................................... 88
Environment............................................................. 88
Seasonality............................................................. 88
Description of Property................................................. 88
Legal Proceedings....................................................... 88
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OF KELLY RUSSELL.................... 89
Certain Relationships and Related Transactions.......................... 89
LEGAL MATTERS............................................................. 90
EXPERTS................................................................... 90
INDEX TO FINANCIAL STATEMENTS............................................. F-1
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS......................... II-1
SIGNATURES................................................................ S-1
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
This Proxy Statement/Prospectus is a prospectus of Global One delivered in
compliance with the Securities Act. Global One has filed a Registration
Statement on Form S-4 under the Act with the Commission with respect to the
shares of Global One Common Stock to be issued in connection with the KRSI
Merger. As permitted by the rules and regulations of the Commission, this Proxy
Statement/ Prospectus omits certain information contained in the Registration
Statement on file with the Commission. For further information pertaining to the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as a part thereof.
Kelly Russell is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements, and other
information with the Commission. The Registration Statement filed by Global One,
as well as reports, proxy and information statements, and other information
filed by Kelly Russell pursuant to the Exchange Act, can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and are also
available for inspection and copying at the regional offices of the Commission
located in Chicago, (Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661) and New York (7 World Trade Center, Suite 1300,
New York, New York 10048). Copies of such documents can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549 at prescribed rates.
Global One will furnish its shareholders with annual reports containing
audited financial statements and an opinion thereon expressed by independent
public accountants and with quarterly reports for the first three quarters of
each fiscal year containing unaudited summary financial information.
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS, THE APPENDICES HERETO, AND THE DOCUMENTS
INCORPORATED IN THIS PROXY STATEMENT/ PROSPECTUS BY REFERENCE. AS USED IN THIS
PROXY STATEMENT/PROSPECTUS, "THE COMPANY" REFERS TO OSP AND ITS SUBSIDIARIES,
STANLEY DESANTIS, INC. ("SDI") AND BEX, ON A CONSOLIDATED BASIS, WHILE "OSP"
REFERS TO OSP PUBLISHING, INC., ON AN UNCONSOLIDATED BASIS, UNLESS THE CONTEXT
INDICATES OTHERWISE.
DESCRIPTION OF THE TRANSACTIONS
The Boards of Directors of Kelly Russell Studios, Inc. ("Kelly Russell") and
OSP Publishing, Inc. (the "Company") have determined that it is in the best
interests of their respective corporations and shareholders to combine the
businesses of the two corporations within a single group of companies and to
concurrently raise additional equity capital for the combined businesses.
To effectuate these transactions, a new Delaware corporation, Global One
Distribution & Merchandising Inc. ("Global One"), has been formed, and Global
One has formed three subsidiary Delaware corporations, KRSI Acquisition Corp.
("KRSI Acquisition"), O.S.P. Acquisition Corp. ("OSP Acquisition") and BEx
Acquisition Corp. ("BEx Acquisition"). (KRSI Acquisition, OSP Acquisition and
BEx Acquisition are referred to herein as the "Global One Subsidiaries"). The
parties have entered into a Final Amended and Restated Agreement and Plan of
Reorganization dated May 28, 1996 effective as of March 27, 1996, between and
among Kelly Russell, Global One, OSP, OSP's subsidiary, The Button Exchange,
Ltd. ("BEx"), OSP's shareholders and the Global One Subsidiaries, (the "Merger
Agreement") pursuant to which OSP will be merged with and into OSP Acquisition
(the "OSP Merger"), BEx will be merged with and into BEx Acquisition (the "BEx
Merger"), and Kelly Russell will be merged with and into KRSI Acquisition (the
"KRSI Merger"). The OSP Merger and the BEx Merger, which will occur immediately
prior to the KRSI Merger, are referred to herein as the "Reorganization."
In connection with the foregoing, Global One has received subscriptions for
4,504,234 shares of its common stock, $0.01 par value ("Global One Common
Stock") in a private placement at $1.50 per share (the "Private Placement"). The
gross proceeds from the Private Placement will be $6,756,351. The KRSI Merger,
the Reorganization and the Private Placement, the closing of each of which is
conditioned on the closing of the others, are referred to herein as the
"Transactions." The Transactions will be consummated at a single closing (the
"Closing").
A portion of the proceeds of the Private Placement will be used to pay an
accrued cash dividend of $1,750,000 to Joseph C. Angard and Michael A. Malm (the
"OSP Shareholders"). In addition, if and to the extent that OSP's cash flow is
insufficient to make such payment, a portion of the proceeds of the Private
Placement will be used to pay an additional dividend of between $500,000 and
$600,000 to permit the OSP Shareholders to pay their respective tax liabilities
incurred as a result of OSP's profits generated during 1995 and that portion of
1996 prior to the Closing since, prior to the Closing, OSP has been taxed as an
S Corporation. Global One will use $375,000 of the proceeds of the Private
Placement to repay outstanding subordinated debt of the Company. After deducting
expenses of the Transactions of approximately $2,000,000, the approximately $2.6
million balance of the proceeds from the Private Placement will be used for
working capital purposes. See "Unaudited Pro Forma Financial Information."
At the Closing, KRSI Acquisition will change its name to and conduct its
business under the name "Kelly Russell Studios, Inc.," OSP Acquisition will
change its name to "OSP Publishing, Inc.," and BEx Acquisition will change its
name to "BEx Corp." As a result of the Transactions, Global One will become a
holding company for Kelly Russell, OSP and BEx. OSP's subsidiary, SDI will
continue to operate as a subsidiary of OSP.
1
<PAGE>
Following the Closing of the Transactions, there will be outstanding
approximately 12,993,509 shares (1) of Global One Common Stock and warrants,
options and other rights to acquire approximately 3,187,257 shares (2) of Global
One Common Stock.
<TABLE>
<S> <C>
PARTIES TO THE TRANSACTIONS
KELLY RUSSELL................... Kelly Russell is a Minnesota corporation which
was incorporated in 1992.
Kelly Russell creates, markets and distributes
sports and entertainment related art for the
collectible market. Kelly Russell's primary
strategy is to use its collection of original
art to create innovative, affordable products
with an artistic look, quality and
presentation that differentiates them from
other entertainment products, such as posters
and trading cards. Kelly Russell focuses on
products with a wide range of appeal that can
be quickly created, produced and sold through
mass merchants, distributors and specialty
retail stores. Almost all of Kelly Russell's
products are produced and sold under
non-exclusive licenses from major national
sports franchises and their related players'
association. In 1995, Kelly Russell introduced
and expanded its licensing agreements for the
movie, music, and television product line.
Kelly Russell's principal offices and
corporate headquarters are located at 2095
Northwest Blvd., #220, Plymouth, MN 55441,
telephone: (612) 553-9992.
GLOBAL ONE...................... Global One is a corporation formed under
Delaware law to serve as a holding company for
OSP and its subsidiaries, SDI and BEx, and to
acquire Kelly Russell through KRSI Acquisition
in the KRSI Merger. Following the Closing, the
business of Global One will be conducted
through the Global One Subsidiaries and SDI,
each of which conducts a distinct business.
Global One's principal offices and corporate
headquarters will be located at 5548 Lindbergh
Street, Bell, California 90201-6410,
telephone: (213) 980-4300.
THE COMPANY..................... OSP, which was formed in 1989, is the largest
domestic publisher of licensed posters. OSP
develops and markets posters, framed and
unframed wall decor, Wallet Cards and Book
Bites, each of which incorporates primarily
licensed images and characters from motion
pictures, television, animation, music, sports
and popular culture. OSP's subsidiary, SDI,
develops and markets licensed and non-licensed
T-shirts, sweatshirts, hats, boxer shorts and
mugs. OSP's other subsidiary, BEx, develops
and markets licensed and non-licensed buttons,
key rings and stickers.
The Company's principal offices and corporate
headquarters are located at 5548 Lindbergh
Lane, Bell, California 90201-6410, telephone:
(213) 980-4300.
</TABLE>
- ------------------------
(1) Assuming options, warrants and other rights to acquire 1,207,939 shares of
Kelly Russell Common Stock are outstanding immediately prior to the Closing.
(2) Includes the options, warrants and other rights to acquire shares of Kelly
Russell Common Stock and OSP common stock in effect immediately prior to the
Closing and options to acquire shares of Global One Common Stock to
directors and employees of Global One and warrants to financial advisors and
placement agents that will be granted concurrent with or immediately
following the Closing.
2
<PAGE>
<TABLE>
<S> <C>
THE GLOBAL ONE SUBSIDIARIES..... The Global One Subsidiaries, KRSI Acquisition,
OSP Acquisition and BEx Acquisition, are
Delaware corporations recently organized by
Global One for the purpose of effecting the
KRSI Merger and the Reorganization. The Global
One Subsidiaries have no material assets and
have not engaged in any activities except in
connection with the Transactions.
KELLY RUSSELL SHAREHOLDERS' MEETING
TIME, DATE, AND PLACE OF
MEETING........................ A special meeting of shareholders of Kelly
Russell will be held on , 1996, at
a.m., local time, at
, ,
Minnesota (the "Meeting").
PURPOSE OF THE MEETING.......... The purpose of the Meeting is to consider and
vote upon a proposal to approve the Final
Amended and Restated Agreement and Plan of
Reorganization dated May 28, 1996 effective as
of March 27, 1996 (the "Merger Agreement"),
attached hereto as Appendix A, providing for,
among other things, the KRSI Merger with KRSI
Acquisition as the surviving corporation. KRSI
Acquisition will change its name to and
conduct its business under the name "Kelly
Russell Studios, Inc." Other terms and
provisions related to the KRSI Merger are set
forth in the Merger Agreement and summarized
in this Proxy Statement/ Prospectus.
RECORD DATE..................... Only holders of record of Kelly Russell Common
Stock at the close of business on ,
1996 (the "Record Date"), will be entitled to
notice of and to vote at the Meeting or any
adjournment or adjournments thereof.
VOTE REQUIRED................... The affirmative vote by the holders of a
majority of the outstanding shares of Kelly
Russell Common Stock is required to approve
the Merger Agreement. As of the record date,
4,082,373 shares of Kelly Russell Common Stock
were outstanding and entitled to vote. Of such
shares, 477,166 shares (approximately 10.7% of
the shares entitled to vote at the Meeting)
are held by directors and executive officers
of Kelly Russell, all of whom have indicated
they plan to vote in favor of approval of the
Merger Agreement.
Global One and KRSI Acquisition have each
already taken such corporate action to approve
the Merger Agreement as is required under
Delaware law. See "The KRSI Merger -- Vote
Required."
DISSENTERS' RIGHTS.............. Under Minnesota law, holders of Kelly Russell
Common Stock who give proper notice to Kelly
Russell and do not vote in favor of the KRSI
Merger, have the right to receive in cash the
"fair value" of their Kelly Russell Common
Stock in lieu of Global One Common Stock
pursuant to the KRSI Merger. See "The KRSI
Merger -- Rights of Dissenting Shareholders."
DESCRIPTION OF THE KRSI MERGER
GENERAL......................... Upon consummation of the KRSI Merger, Kelly
Russell will be merged with and into KRSI
Acquisition, thereby causing the separate
existence of Kelly Russell to cease. As a
result of the KRSI Merger, KRSI Acquisition
will change its name to and conduct its
business under the
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
name "Kelly Russell Studios, Inc." Each two
shares of Kelly Russell Common Stock
outstanding immediately prior to the KRSI
Merger will be converted into one share (the
"Conversion Ratio") of Global One Common
Stock. As a result of the KRSI Merger, and
assuming no Kelly Russell shareholders dissent
from the KRSI Merger, Kelly Russell
shareholders will own approximately 16% of the
outstanding shares of Global One Common Stock,
without giving effect to any options and
warrants to be outstanding after the KRSI
Merger.
The Conversion Ratio is subject to appropriate
adjustment in the event of a stock split,
combination, dividend, or other distribution
of shares of the Global One Common Stock prior
to the Effective Time of the KRSI Merger. See
"The KRSI Merger."
Persons entitled to fractional shares of
Global One Common Stock upon such conversion
shall receive one full share of Common Stock
in lieu thereof. See "The KRSI Merger --
Exchange of Certificates in the KRSI Merger."
EFFECTIVE TIME OF THE KRSI
MERGER......................... The KRSI Merger shall become effective upon
the filing of a Certificate of Merger with the
Secretary of State of Delaware and Secretary
of State of Minnesota (the "Effective Time"),
which is expected to occur promptly as
practicable following approval of the Merger
Agreement by the requisite vote of the Kelly
Russell shareholders and the satisfaction or
waiver of the other conditions to the KRSI
Merger. See "The KRSI Merger -- Effective Time
of the KRSI Merger" and "-- Conditions to
Consummation of the KRSI Merger."
BACKGROUND OF THE KRSI MERGER... The terms of the Merger Agreement are the
result of arm's-length negotiations between
representatives of OSP and Kelly Russell. In
September 1995, Kelly Russell initiated
discussions with OSP regarding a possible
business combination. In various meetings
taking place from September 1995 to March
1996, representatives of OSP and Kelly Russell
continued their respective investigations of
the other's business and discussions regarding
a possible merger. In March 1996, the Kelly
Russell Board of Directors received a
preliminary opinion from The Equisource Group
("Equisource") to the effect that the proposed
merger is fair to Kelly Russell shareholders
from a financial point of view and the Board
of Directors authorized management to proceed
with the transaction. On March 27, 1996, OSP
and Kelly Russell executed the initial merger
agreement. On March 27, 1996, Kelly Russell
issued a press release regarding the execution
of that merger agreement. Certain revisions
were made to that merger agreement to reflect
the Reorganization, and a final Merger
Agreement was executed on May 28, 1996.
See "The KRSI Merger -- Kelly Russell's
Reasons for the KRSI Merger; Recommendation of
the Kelly Russell Board of Directors," "--
Global One's Reasons for the KRSI Merger," and
"-- Kelly Russell's Financial Advisors."
CONDITIONS TO KRSI MERGER....... The respective obligations of Kelly Russell,
the Company, Global One, the Global One
Subsidiaries and the OSP Shareholders to
consummate the KRSI Merger are subject to
satisfaction at or prior to the Effective Time
of a number of conditions, including, but not
limited to: (i) the
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
closing by Global One of the Private Placement
with gross proceeds of at least $6,000,000;
and (ii) the closing of the Reorganization.
See "The KRSI Merger -- Conditions to
Consummation of the KRSI Merger."
REASONS FOR THE KRSI MERGER..... In reaching its conclusions to approve the
Merger Agreement and to recommend the approval
of the Merger Agreement by the Kelly Russell
shareholders, the Kelly Russell Board of
Directors considered Kelly Russell's inability
to compete effectively with the Company in the
entertainment industry; Kelly Russell's lack
of effective distribution capability; the
competitive disadvantages of Kelly Russell
products; projected losses for 1996 even with
a significant increase in sales; the need for
additional financing; the advantages of
combining the Company's marketing, sales and
licensing expertise with Kelly Russell's
sports licenses and systems expertise; and the
likelihood that without additional financing,
Kelly Russell's ability to continue as a going
concern was uncertain. The Kelly Russell Board
of Directors also considered the opinion of
Equisource stating that the KRSI Merger is
fair from a financial point of view to the
shareholders of Kelly Russell.
THE BOARD OF DIRECTORS OF KELLY RUSSELL HAS
UNANIMOUSLY APPROVED THE KRSI MERGER, AND THE
BOARD RECOMMENDS THAT THE SHAREHOLDERS OF
KELLY RUSSELL VOTE IN FAVOR OF THE PROPOSAL
SUBMITTED FOR CONSIDERATION AT THE MEETING.
See "The KRSI Merger -- Kelly Russell's
Reasons for the Merger; Recommendation of the
Kelly Russell Board of Directors," "-- Global
One's Reasons for the KRSI Merger," and "--
Kelly Russell's Financial Advisors." For
information on the interests of certain
persons in the KRSI Merger, see "The KRSI
Merger -- Interest of Certain Persons in the
KRSI Merger."
KELLY RUSSELL'S FINANCIAL
ADVISORS....................... Equisource was retained by Kelly Russell to
act as a financial advisor to the Board of
Directors in connection with the KRSI Merger.
Equisource presented its opinion to the Board
of Directors that the consideration to be
received by Kelly Russell shareholders in
connection with the KRSI Merger is fair to
such shareholders from a financial point of
view. The opinion of Equisource, which
contains information as to the assumptions
made, matters considered and the scope and
limitations on the review undertaken, is set
forth as Appendix B to this Proxy
Statement/Prospectus and should be read in its
entirety. See "The KRSI Merger -- Kelly
Russell's Financial Advisors."
MARKETS AND MARKET PRICES....... There can be no assurance that a market for
Global One Common Stock will exist or develop
upon completion of the KRSI Merger, or if
developed, will be maintained. See "Market
Price of and Dividends on Global One Common
Stock and Kelly Russell Common Stock -- Market
Information."
Under the Merger Agreement, the Conversion
Ratio will not change based upon any change in
the market price of Kelly Russell Common
Stock. Therefore, the consideration received
by Kelly Russell shareholders does not reflect
the trading price of Kelly Russell Common
Stock as of the Effective Time of the KRSI
Merger. See "The KRSI Merger -- Conversion of
Kelly Russell Common Stock in the KRSI
Merger."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES................... It is anticipated that the KRSI Merger will be
treated as a tax-free reorganization within
the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Code"). Kelly Russell,
Global One and KRSI Acquisition will each be a
"party to the reorganization" within the
meaning of Section 368(b) of the Code.
No gain or loss will be recognized by the
shareholders of Kelly Russell upon their
receipt of Global One Common Stock in exchange
for their Kelly Russell Common Stock. See "The
KRSI Merger -- Certain Federal Income Tax
Consequences."
TERMINATION PROVISIONS.......... The Merger Agreement may be terminated at any
time prior to the Effective Time, either
before or after approval of the Merger
Agreement by the Kelly Russell shareholders by
mutual consent of the parties, by either party
if the KRSI Merger is not effected by August
31, 1996, and by either OSP or Kelly Russell
in the event of a breach of the Merger
Agreement or other circumstances. See "The
KRSI Merger -- Amendment, Termination and
Waiver of the Merger Agreement."
In the event the Merger Agreement is
terminated because: (i) the Effective Time has
not occurred on or before August 31, 1996 as a
result of a material breach by Kelly Russell
of the Merger Agreement; or (ii) the Kelly
Russell shareholders fail to approve the KRSI
Merger, Kelly Russell will be obligated to pay
liquidated damages in the amount of $250,000
to the Company. Kelly Russell has delivered
$100,000 to an escrow agent the ("Escrow
Agent") and is obligated to deliver an
additional $150,000 to the Escrow Agent. In
the event the Merger Agreement is terminated
as described above, the escrow agent may be
obligated to deliver the escrow funds to the
Company as liquidated damages for such
termination.
In addition, Kelly Russell, the Company, and
Global One have agreed not to initiate,
solicit or knowingly encourage any proposal
that competes with the transaction
contemplated by the Merger Agreement. However,
the Kelly Russell Board of Directors may,
subject to certain conditions, (i) furnish
information to or enter discussions with any
person that makes an unsolicited proposal to
acquire Kelly Russell; (ii) comply with
Exchange Act requirements; or (iii) withhold
or modify its recommendation to the
shareholders to approve the KRSI Merger, in
order to comply with the Board of Directors'
fiduciary duties to the shareholders. In the
event the Kelly Russell Board of Directors
withholds or modifies its recommendation to
its shareholders, and Kelly Russell enters
into an agreement to consummate a competing
transaction to the Merger Agreement within one
year after such withdrawal or failure, Kelly
Russell shall pay OSP $500,000 in cash,
including the $250,000 held pursuant to its
escrow obligations described above. See "The
KRSI Merger -- Amendment, Waiver and
Termination of the Merger Agreement."
ACCOUNTING TREATMENT............ The KRSI Merger will be accounted for under
the purchase method of accounting and the
Reorganization will be accounted for under the
pooling method of accounting. See "The KRSI
Merger -- Accounting Treatment."
TREATMENT OF STOCK OPTIONS AND
WARRANTS....................... After the Effective Time, all of the options,
warrants and rights to
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
acquire Kelly Russell Common Stock as of the
Effective Time will continue to have and be
subject to the same terms and conditions,
except that (i) each such option, warrant and
right will be fully vested and exercisable for
that number of shares of Global One Common
Stock which equals the number of shares of
Kelly Russell Common Stock covered by such
option, warrant and right immediately prior to
the Effective Time divided by two (2) and
rounded up to the nearest whole number; and
(ii) the exercise price per share under each
such option, warrant and right shall equal the
exercise price in effect immediately prior to
the Effective Time multiplied by two (2) and
rounded to the nearest cent. See "The KRSI
Merger -- Treatment of Kelly Russell Options
and Warrants."
INTEREST OF CERTAIN PERSONS IN
THE KRSI MERGER................ Mr. George Vrabeck, a director, President and
Chief Executive Officer of Kelly Russell, has
entered into an employment agreement with
Global One, providing that upon consummation
of the Transactions, Mr. Vrabeck will serve as
an Executive Vice President for a three (3)
year term at an initial base annual salary of
$200,000, plus bonuses and other benefits,
including a grant of options to acquire up to
300,000 shares of Global One Common Stock at
$1.50 per share. Mr. Vrabeck will retain his
current options to purchase up to 200,000
shares of Kelly Russell Common Stock which at
the Effective Time shall be converted into
options to purchase 100,000 shares of Global
One Common Stock. See "The KRSI Merger --
Treatment of Kelly Russell Options and
Warrants." See "The KRSI Merger -- Interest of
Certain Persons in the KRSI Merger" and
"Management of Global One -- Directors and
Executive Officers -- Employment Agreements."
Mr. Thomas R. King has served as a director of
Kelly Russell since March 1995 and Mr. King is
a shareholder at Fredrikson & Byron, P.A.,
which has served as legal counsel to Kelly
Russell, including matters in connection with
the KRSI Merger. Immediately after the
Effective Time, Mr. King will be a director of
Global One. See "The KRSI Merger -- Interest
of Certain Persons in the KRSI Merger," and
"Management of Global One -- Directors and
Executive Officers."
Miller, Johnson & Kuehn, Incorporated has
entered into a Placement Agent Agreement with
Global One. D.B. Johnson, a principal
shareholder of Kelly Russell, is an affiliate
of Miller, Johnson & Kuehn, Incorporated. See
"Business of Kelly Russell Studios, Inc. --
Principal Shareholders and Management of Kelly
Russell."
REGULATORY APPROVAL............. Global One and Kelly Russell are not aware of
any government, or regulatory requirements
relating to consummation of the KRSI Merger or
the proposals to be considered at the Meeting
other than compliance with applicable federal
and state securities laws. See "The KRSI
Merger -- Regulatory Approvals."
</TABLE>
COMPARISON OF RIGHTS OF GLOBAL ONE SHAREHOLDERS AND KELLY RUSSELL SHAREHOLDERS
Global One and Kelly Russell are incorporated under the laws of the States
of Delaware and Minnesota, respectively. The rights of Kelly Russell
shareholders are currently governed by the Restated Articles of Incorporation,
as amended and Bylaws, of Kelly Russell. Upon consummation of the KRSI Merger,
Kelly Russell shareholders will become shareholders of Global One and their
rights as such will be governed by the Certificate of Incorporation and Bylaws
of Global One. See "Comparison of the Rights of Holders of Global One Common
Stock and Kelly Russell Common Stock."
7
<PAGE>
RECENT PRICES OF GLOBAL ONE AND KELLY RUSSELL COMMON STOCK
The shares of Kelly Russell Common Stock are currently quoted on the Nasdaq
SmallCap Market under the symbol "KRSI;" however, Kelly Russell has been
informed by Nasdaq that its shares will be delisted from Nasdaq on June 10,
1996. Kelly Russell anticipates that the Kelly Russell Common Stock will
thereafter be traded in the national over-the-counter market. The shares of
Global One Common Stock prior to the Effective Time will not be publicly traded
on any exchange or Nasdaq. Application has been made for inclusion of Global
One's Common Stock issuable to Kelly Russell shareholders on the Nasdaq SmallCap
Market upon consummation of the KRSI Merger under the symbol "GOGO". See "Risk
Factors -- Trading Market Considerations."
On March 26, 1996 the last business day immediately proceeding the public
announcement of the proposed KRSI Merger, the closing sale price for Kelly
Russell Common Stock as reported on the Nasdaq SmallCap Market was $2.44 per
share. The Conversion Ratio will not change based upon any changes in the market
prices of Kelly Russell Common Stock prior to the Effective Time. See "The KRSI
Merger -- Conversion of Kelly Russell Common Stock in the KRSI Merger."
8
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
OSP PUBLISHING, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales.............................................. $ 16,173 $ 17,126 $ 38,108 $ 42,168 $ 38,228 $ 7,421 $ 8,941
Cost of sales...................................... 9,304 9,297 22,335 25,140 21,647 4,092 5,270
--------- --------- --------- --------- --------- --------- ---------
Gross profit....................................... 6,869 7,829 15,773 17,028 16,581 3,329 3,671
Operating expenses................................. 5,770 7,143 13,797 16,636 15,172 3,503 3,805
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations...................... 1,099 686 1,976 392 1,409 (174) (134)
Interest expense................................... 562 429 605 685 841 173 267
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations........... $ 537 $ 257 $ 1,371 $ (293) $ 568 $ (347) $ (401)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA INCOME FROM CONTINUING OPERATIONS DATA (1,
2):
Income (loss) before income taxes, minority
interest and discontinued operations, as
reported.......................................... $ 537 $ 257 $ 1,371 $ (293) $ 568 $ (347) $ (401)
Pro forma provision (benefit) for income taxes
(2)............................................... 255 266 344 (43) 114 (70) (85)
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (2)........................... $ 282 $ (9) $ 1,027 $ (250) $ 454 $ (277) $ (316)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Pro forma (loss) income from continuing operations
per share......................................... $ 0.06 $ (0.03) $ (0.04)
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding (3)............ 8,037 8,036 8,037
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH
AS OF DECEMBER 31, 31,
----------------------------------------------------- -----------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (1):
Working capital (deficiency)...................... $ 2,141 $ 1,587 $ 2,337 $ (197) $ 3,312 $ 3,285
Total assets...................................... 6,439 6,427 13,464 13,841 11,698 13,933
Total debt, including current portion............. 5,219 2,896 5,129 6,724 5,989 7,143
Shareholders' equity (deficiency)................. $ (1,075) $ 266 $ 637 $ (1,408) $ (1,299) $ (1,853)
</TABLE>
- ------------------------------
(1) In December 1994, the Company determined to discontinue its Top Banana
division. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company -- Discontinued Operations" and
Note 12 of Notes to Consolidated Financial Statements.
(2) The Company has been taxed as an S Corporation for federal and state income
tax purposes since 1989. Pro forma income taxes, pro forma loss from
continuing operations, and pro forma loss from continuing operations per
share reflect the pro forma effect of income taxes as if OSP had been taxed
as a C Corporation for all periods presented. Upon consummation of the
Transactions, Global One will be subject to federal and state income taxes.
See "S Corporation Distributions."
(3) Assumes as outstanding, during each of the periods indicated, 1,393,550
shares of the shares being offered by Global One, which represent the
approximate number of shares deemed to be sold by Global One to fund the
$1,750,000 S Corporation distribution described in "S Corporation
Distributions." See also Note 13 of Notes to Consolidated Financial
Statements.
9
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
KELLY RUSSELL STUDIOS, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- --------------------
1992 (1) 1993 1994 1995 1995 1996
--------- ---------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $ 187,766 $2,242,685 $ 2,767,196 $ 2,813,999 $ 512,863 $ 778,614
Cost of sales........................ 117,479 1,231,651 4,217,646 2,553,181 277,404 452,738
--------- ---------- ----------- ----------- --------- ---------
Gross profit (loss).................. 70,287 1,011,034 (1,450,450) 260,818 235,459 325,876
Operating expenses................... 221,998 1,196,125 3,734,527 2,133,939 451,950 708,401
--------- ---------- ----------- ----------- --------- ---------
Operating loss....................... (151,711) (185,091) (5,184,977) (1,873,121) (216,491) (382,525)
Other income......................... -- -- 119,395 40,079 -- --
Interest expense..................... (1,690) (53,151) (150,448) (7,218) -- (2,024)
--------- ---------- ----------- ----------- --------- ---------
Loss before income taxes and
extraordinary item.................. (153,401) (238,242) (5,216,030) (1,840,260) (216,491) (384,549)
Extraordinary item................... -- -- -- 296,994 246,697 --
--------- ---------- ----------- ----------- --------- ---------
Net income (loss).................... $(153,401) $ (238,242) $(5,216,030) $(1,543,266) $ 30,206 $(384,549)
--------- ---------- ----------- ----------- --------- ---------
--------- ---------- ----------- ----------- --------- ---------
NET LOSS PER COMMON SHARE:
Loss before extraordinary item....... $ (0.04) $ (0.07) $ (1.79) $ (0.52) $ (0.07) $ (0.09)
Extraordinary item................... -- -- -- 0.08 0.08 --
--------- ---------- ----------- ----------- --------- ---------
Net income (loss) per common share... $ (0.04) $ (0.07) $ (1.79) $ (0.44) $ 0.01 $ (0.09)
--------- ---------- ----------- ----------- --------- ---------
--------- ---------- ----------- ----------- --------- ---------
Weighted average number of common and
common equivalent shares
outstanding......................... 2,054,600 2,054,600 2,900,383 3,540,965 3,286,765 4,082,373
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995
--------- ---------- ----------- ----------- AT MARCH 31,
------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................ $ 364,809 $1,545,998 $ 1,831,596 $ 1,542,351 $1,119,005
Total assets.................................. 368,911 1,904,096 2,049,312 1,857,285 1,397,329
Current liabilities........................... 431,123 2,192,550 1,703,493 833,840 758,433
Total liabilities............................. 431,123 2,192,550 1,703,493 833,840 758,433
Accumulated deficit........................... (153,401) (391,643) (5,607,673) (7,150,939) (7,535,488)
Shareholders' equity (deficit)................ (62,212) (288,454) 345,819 1,023,445 638,896
</TABLE>
- ------------------------------
(1) Kelly Russell was formed in 1992.
10
<PAGE>
UNAUDITED PRO FORMA SELECTED CONDENSED COMBINED FINANCIAL DATA
The following table sets forth selected unaudited pro forma data regarding
the operating results and financial position of Global One based upon the
historical financial data of OSP and Kelly Russell as if the Transactions had
been consummated at January 1, 1995. The pro forma data set forth below should
be read in conjunction with the unaudited pro forma condensed combined financial
statements included elsewhere herein. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Pro Forma Combined:
Net sales.............................................................. $ 41,042 $ 9,720
Gross profit........................................................... 16,842 3,997
Operating expenses..................................................... 17,600 4,597
Operating loss......................................................... (758) (600)
Interest expense....................................................... 848 269
Loss before extraordinary item......................................... (1,732) (982)
PRO FORMA NET LOSS DATA:
Pro forma loss before extraordinary item............................... $ (1,923) $ (830)
Pro forma loss before extraordinary item per share..................... (0.15) (0.06)
Pro forma weighted average shares outstanding.......................... 12,994(1) 12,994(1)
<CAPTION>
MARCH 31, 1996
-------------------
<S> <C> <C>
BALANCE SHEET DATA:
Assets................................................................. $ 22,079
Liabilities............................................................ 16,169
Shareholders' equity................................................... 5,910
</TABLE>
- ------------------------
(1) Assumes the issuance of 2,041,187 shares of Global One Common Stock to
effect the KRSI Merger as well as 4,504,234 shares deemed to be sold in the
Private Placement.
11
<PAGE>
RISK FACTORS OF
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
Global One and Kelly Russell recommend that you review this entire Proxy
Statement/Prospectus in detail and that you pay careful attention to the
following:
RELIANCE ON LICENSE AGREEMENTS
Global One's business will be substantially dependent upon its development
of products that bear the names, likenesses, colors and other identifying marks
of characters and images that are licensed to Global One (or to one of its
subsidiaries). Substantially all of the Company's consolidated net sales in 1995
were attributable to products incorporating some licensed material. The
Company's license agreements generally limit both the products that can be
manufactured and the territory in which they can be marketed. Most of the
Company's major licenses are non-exclusive, and there can be no assurance that
major licensors will not in the future grant competing licenses. Also, licensors
typically retain the right to approve the designs and uses of products
manufactured by the Company. Such approvals are typically in the licensors' sole
discretion and may be time-consuming, as approvals are generally required at
each stage of the design and development process. See "Business of The Company
- -- Design and Development."
The Company's licenses generally are for a period of two years. As a result
of changing consumer preferences, in any given year a particular license may
account for a substantial portion of the Company's consolidated net sales. In
addition, the license agreements typically provide that the licensor may
terminate the license in the event of the licensee's failure to submit a
prototype of a licensed product within a specified time period, failure to
complete manufacturing of a licensed product within a specified time period,
failure to meet marketing or shipping dates specified in a license, failure to
actively continue marketing and distribution of a design or style, default under
any provisions of the license to provide statements of account and/or payments
or any other obligations of the licensee, the bankruptcy or insolvency of the
licensee, a change in control of the licensee without the prior written consent
of the licensor or late payment of license royalties. To date, the Company has
not suffered early termination of any of its major licenses. On many occasions,
however, the Company has not paid royalties to licensors on a timely basis and,
accordingly, certain licenses could be subject to termination. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation of The
Company -- Liquidity and Capital Resources." The non-renewal or termination of
one or more of the Company's major licenses could have a material adverse effect
on the Company. Also, as a result of increased competition for licenses, Global
One may, in the future, be required to pay licensors higher royalties and higher
minimum guaranteed payments in order to obtain attractive properties for the
development of existing and new product lines. See "Business of The Company --
Products" and "-- Operations and Licensing."
Products created under licenses from Disney Enterprises Inc. ("Disney")
accounted for approximately 22% of the Company's consolidated net sales during
1995. The Company's licenses from Disney, among others, are non-exclusive. The
loss of the Company's licenses with Disney or the grant by Disney of competing
licenses would have a material adverse effect on the Company's operations.
MARKET ACCEPTANCE OF LICENSED PROPERTIES
The successful marketing of Global One's products will generally require
Global One to anticipate and evaluate the popularity of licensed properties,
most of which are media related, before commercial introduction of the property
in which a licensed character appears. As most of the Company's promotional or
trend products are typically marketed successfully only for a limited period of
time, the success of the Company's marketing program has been dependent upon its
ability to continually acquire new, popular promotional licenses and develop
successful products tied to such licenses. For example, the Company recently
obtained licenses relating to Disney's film, "THE HUNCHBACK OF NOTRE DAME" and
Twentieth Century Fox's film, "INDEPENDENCE DAY," which are expected to be
released during the 1996 summer movie season. Whether such films, and the
licensed merchandise based on such films, are successful, cannot be predicted
with any certainty. There can be no assurance that
12
<PAGE>
Global One will be able to successfully develop new products or be able to
secure licenses for additional characters and images that will achieve a degree
of popularity comparable to the Company's existing licensed material. See
"Business of The Company -- Products" and "-- Operations and Licensing."
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
It is expected that sales of Global One's promotional products will tend to
be seasonal, due to the seasonality of major film releases. The Company's
consolidated net sales recorded during the second quarter of 1995, as a
percentage of the Company's annual sales in 1995, were 32.9%. Although films
that are anticipated to be major hits are often released in the summer, film
distribution companies frequently release major films in the autumn or during
the holidays. As a result, Global One's operating results may fluctuate
substantially from quarter to quarter, as revenues and results of operations may
be materially affected by the timing of development, introduction and market
acceptance of its products. Product development and marketing costs are often
incurred in periods before any revenues are recognized from the sales of
products. Operating costs have been higher during periods in which such product
development costs are incurred and marketing efforts are commenced. Such
fluctuation in sales typically result in corresponding fluctuations in the
Company's profitability, which is anticipated to similarly affect Global One in
the foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of The Company -- Seasonality." There can be
no assurance that the fluctuations in the Company's sales and profitability will
not negatively affect the market's perception and valuation of the Common Stock.
RISK OF CONTINUED OPERATING LOSSES OF KELLY RUSSELL
Kelly Russell's sales and marketing strategy has been largely unsuccessful
from its inception as planned growth in sales volume and profitability never
materialized. As a result, Kelly Russell's Board of Directors reorganized Kelly
Russell and has taken restructuring charges reflecting various changes,
including hiring new management, revising Kelly Russell's business plan and
operations, discontinuing sales of certain product lines, eliminating certain
distribution channels and substantially reducing its numbers of employees.
Notwithstanding these efforts, Kelly Russell has never shown a profit since
inception. In their report accompanying Kelly Russell's financial statements
included elsewhere herein, Kelly Russell's independent auditors have indicated
that the losses suffered by Kelly Russell to date and accumulated deficit raise
substantial doubt about Kelly Russell's ability to continue as a going concern.
Global One believes that the acquisition of Kelly Russell presents an
opportunity for Global One to increase immediately the array of products
available to customers of the Company and to enter the sports-related licensed
products business through acquisition of Kelly Russell's existing licenses.
Additionally, Global One believes that it will be well-positioned to more
effectively promote the sale of Kelly Russell's products through Global One's
current distribution channels and that the combined operations will result in
greater diversification opportunities and enhanced market penetration. However,
no assurances can be given that Global One will be able to operate Kelly Russell
profitably following the KRSI Merger.
CONCENTRATED CUSTOMER BASE
The five largest customers of the Company accounted for approximately 30% of
consolidated net sales during 1995. Sales to two of those customers, The
Musicland Group, Inc. ("Musicland") and K-Mart, each accounted for approximately
10% of net sales during 1995. During the first quarter of 1996, the Company's
five largest customers accounted for approximately 42% of consolidated net
sales. Two of those customers, Maurice's and Sears, accounted for 15% and 11% of
consolidated net sales in the first quarter. The Company does not have long-term
contracts with any of its major customers. The termination by one or more of
such customers of its relationship with the Company could have a material
adverse effect upon Global One. See "Business of The Company -- Sales and
Marketing."
DEPENDENCE ON KEY PERSONNEL
Global One's business will be dependent upon the expertise and services of
Joseph C. Angard and Michael A. Malm, its Chairman and Chief Executive Officer
and Chief Operating Officer, respectively.
13
<PAGE>
Messrs. Angard and Malm have each entered into three-year employment agreements
with Global One commencing at the Closing of the Transactions. Under their
employment agreements, Messrs. Angard and Malm will be required to devote
substantially all of their business time to Global One and are precluded from
competing with Global One during the term of the agreements. See "Management of
Global One -- Employment Agreements." The loss of the services of either or both
of Messrs. Angard and Malm could have a material adverse effect upon Global One.
CONTROL BY EXISTING SHAREHOLDERS
Immediately after consummation of the Transactions the OSP Shareholders will
own beneficially in excess of 50% of Global One's outstanding Common Stock.
Prior to the Effective Time of the KRSI Merger, the OSP Shareholders have agreed
to enter into a voting trust agreement, pursuant to which Mr. Angard will have
the power to direct the trustee as to the voting of all such shares.
Accordingly, acting in concert, the OSP Shareholders will, as a practical
matter, have the ability to determine the election of all of Global One's
directors and, in general, to determine the outcome of corporate transactions or
other matters submitted for stockholder approval, without the approval of Global
One's other stockholders. These matters include mergers, consolidations, the
sale of all or substantially all of Global One's assets or a change in control
of Global One.
TRADING MARKET CONSIDERATIONS
To date, there has been no trading in the Global One Common Stock. Global
One intends to file an application to include the Common Stock on the Nasdaq
SmallCap Market commencing at the Effective Time. Miller, Johnson & Kuehn,
Incorporated ("MJK") has indicated its intention to make a market in the Global
One Common Stock on the Nasdaq SmallCap Market, effective upon approval of the
Global One Common Stock for quotation on the Nasdaq SmallCap Market. However,
there can be no assurance that such application will be approved or that,
following the KRSI Merger, an active trading market for the Global One Common
Stock will develop or be sustained. In addition, if and to the extent that MJK
or another securities firm determines to make a market in the Global One Common
Stock, the market maker would be under no obligation to continue to make a
market and could discontinue such activity at any time.
SUFFICIENCY OF WORKING CAPITAL
Global One's business strategy provides for further expansion of its
business for which additional capital may be required. There can be no assurance
that the expansion of the Global One's business will be successfully
implemented. In addition, while the Company has been able to establish a working
capital line of credit and subordinated debt financing, there can be no
assurance that Global One will be able to maintain such relationships or to
establish new financing arrangements on satisfactory terms. The inability to
obtain necessary working capital could have a material adverse effect on Global
One's results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company -- Liquidity and
Capital Resources."
UNDESIGNATED PREFERRED STOCK
Global One's authorized capital consists of 50,000,000 shares of capital
stock, of which 30,000,000 shares are designated as Common Stock and 20,000,000
shares are undesignated preferred stock ("Preferred Stock"). Upon completion of
the Transactions, Global One will have no outstanding shares of Preferred Stock,
and there is no current plan to designate or issue any shares of Preferred
Stock. Nevertheless, Global One's Board of Directors has the power to issue any
or all of these shares of unissued stock, including the authority to establish
the rights and preferences of the unissued Preferred Stock, without shareholder
approval. Among other consequences, the power to issue additional stock and to
establish separate classes or series of Preferred Stock may, in certain
circumstances, deter or discourage take-over attempts and other changes in
control of Global One not approved by the Board of Directors of Global One. See
"Comparison of the Rights of Holders of Global One Common Stock and Kelly
Russell Common Stock -- Global One."
14
<PAGE>
MATERIAL RETURNS OF UNSOLD PRODUCTS
The Company has accepted product exchanges for credit from its retail
accounts on all posters, framed wall decor, buttons and key chains for which
there is a paid invoice. The Company obtains a credit on royalties and
commissions paid on product exchanges. Exchanges are not accepted from
distributors. In general, T-shirts are not returnable, except where the
merchandise is flawed. During 1995, the average returns rate was 12%. Management
believes that this policy with respect to exchanges for credit ensures that
unsuccessful titles will be replaced in a timely manner with titles that may
generate current sales. However, no assurances can be given that Global One will
not experience material returns in the future or that Global One will be able to
replace unsuccessful titles with successful ones, either of which could have a
material adverse effect on Global One's results of operations.
GENERAL INFORMATION REGARDING THE MEETING
This Proxy Statement/Prospectus is being furnished to the shareholders of
Kelly Russell in connection with the solicitation by the Board of Directors of
Kelly Russell of proxies to be voted at the Meeting to be held on , 1996.
All information in this Proxy Statement/Prospectus with respect to Kelly Russell
has been furnished by Kelly Russell and all information with respect to Global
One, the Company and the Global One Subsidiaries has been furnished by the
Company.
At the Meeting, Kelly Russell shareholders will be asked to consider and
vote upon the approval of the Merger Agreement, providing for the merger of
Kelly Russell with and into KRSI Acquisition, a wholly owned subsidiary of
Global One. KRSI Acquisition shall change its name to and conduct its business
under the name "Kelly Russell Studios, Inc." A copy of the Merger Agreement is
attached as Appendix A to this Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF KELLY RUSSELL HAS UNANIMOUSLY APPROVED THE KRSI
MERGER. The Board of Directors of Global One and KRSI Acquisition have each
approved the KRSI Merger and the issuance of shares of Global One Common Stock
in the KRSI Merger. See "The KRSI Merger -- Background of the KRSI Merger."
Applicable Minnesota law requires that Kelly Russell shareholders approve the
KRSI Merger.
Pursuant to the Merger Agreement, upon effectiveness of the KRSI Merger,
each two outstanding shares of Kelly Russell Common Stock will be converted into
the right to receive one share of Global One Common Stock. In lieu of issuing
fractional shares, Global One will issue one additional share of Global One
Common Stock to each holder who would be entitled to receive a fractional share.
See "The KRSI Merger -- General" and "The KRSI Merger -- Conversion of Kelly
Russell Common Stock in the KRSI Merger," and "-- Exchange of Certificates in
the KRSI Merger."
The close of business on , 1996 (the "Record Date") has been fixed as
the Record Date for determination of the holders of Kelly Russell Common Stock
who are entitled to notice of and to vote at the Meeting or at any adjournment
thereof. Kelly Russell has only one class of capital stock outstanding, Common
Stock, $.01 par value per share. As of the Record Date, there were 4,082,373
shares of Kelly Russell Common Stock outstanding held by approximately 127
holders of record. Based on information which Kelly Russell has obtained from
its transfer agent, there are approximately 630 shareholders of Kelly Russell
Common Stock whose stock is held either in nominee name and/or street name
brokerage accounts. The holders of record on the Record Date of shares of Kelly
Russell Common Stock are entitled to one vote per share at the Meeting. The
presence at the Meeting in person or by proxy of the holders of a majority of
the outstanding shares of Kelly Russell Common Stock entitled to vote shall
constitute a quorum for the transaction of business. The affirmative vote of the
holders of a majority of the outstanding shares of Kelly Russell Common Stock is
required for approval of the KRSI Merger. See "The KRSI Merger -- Vote
Required."
A proxy card is enclosed for use by Kelly Russell shareholders. Such
shareholders are solicited on behalf of the Board of Directors of Kelly Russell
to SIGN AND RETURN THE PROXY CARD IN THE
15
<PAGE>
ACCOMPANYING ENVELOPE. No postage is required if mailed within the United
States. QUESTIONS OR REQUESTS FOR ASSISTANCE IN COMPLETING AND SUBMITTING PROXY
CARDS MAY BE DIRECTED TO AT THE ADDRESS OR TELEPHONE NUMBER LISTED
ON THE COVER OF THIS PROXY STATEMENT/PROSPECTUS.
All properly executed proxies not revoked will be voted at the Meeting in
accordance with the instructions contained therein. Proxies containing no
instructions will be voted in favor of approval of the Merger Agreement. A
shareholder who has executed and returned a proxy may revoke it at any time
before it is voted, but only by executing and returning a proxy bearing a later
date or, by giving written notice of revocation to an officer of Kelly Russell.
Abstentions will be treated as shares present for purposes of determining a
quorum for the Meeting but will have the same effect as a vote against approval
of the Merger Agreement. If a broker or other record holder or nominee indicates
on a proxy that it does not have direction or authority as to certain shares to
vote on the Merger Agreement, those certain shares will not be considered as
present at the Meeting with respect to the vote on the Merger Agreement.
If any other matters are properly presented for consideration at the
Meeting, the persons named in the enclosed form of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment.
THE BOARD OF DIRECTORS OF KELLY RUSSELL STUDIOS RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT. See "The KRSI Merger
- -- Interest of Certain Persons in the KRSI Merger" for a discussion of conflicts
of interest that certain directors and members of management have in connection
with the KRSI Merger.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
In addition to the solicitation of proxies by use of mail, the directors,
officers or regular employees of Kelly Russell may, but without compensation
other than their regular compensation, solicit proxies personally or by
telephone or facsimile. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Each of Kelly Russell and the
Company shall pay the expenses and fees of their respective counsel, accountants
and financial advisors in connection with the preparation of this Registration
Statement and the Proxy Statement/Prospectus. Kelly Russell and the Company have
agreed to share equally all expenses relating to the printing and mailing of
this Proxy Statement/Prospectus and the filing of it with the Commission and the
costs and fees of the Exchange Agent.
The mailing of this Proxy Statement/Prospectus to shareholders of Kelly
Russell is expected to commence on or about , 1996.
THE KRSI MERGER
SET FORTH BELOW IS A BRIEF DESCRIPTION OF CERTAIN TERMS OF THE MERGER
AGREEMENT AND RELATED MATTERS. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS
ATTACHED HERETO AS APPENDIX A AND IS INCORPORATED BY REFERENCE HEREIN.
GENERAL
Kelly Russell, Global One, the Company, the OSP Shareholders, and the Global
One Subsidiaries have entered into the Merger Agreement, which provides, among
other things, that Kelly Russell will be merged with and into KRSI Acquisition.
At the Effective Time, KRSI Acquisition will change its name to and conduct its
business under the name "Kelly Russell Studios, Inc." Each two outstanding
shares of Kelly Russell Common Stock will be converted at the Effective Time (as
defined below) into the right to receive one share of Global One Common Stock.
See "The KRSI Merger -- Conversion of Kelly Russell Common Stock in the KRSI
Merger."
16
<PAGE>
EFFECTIVE TIME OF THE KRSI MERGER
As soon as practicable after the conditions to consummation of the KRSI
Merger described below have been satisfied or waived, and unless the Merger
Agreement has been terminated as provided below, a certificate of merger will be
filed with the Secretaries of State of the States of Delaware and Minnesota, at
which time the KRSI Merger will become effective (the "Effective Time"). It is
presently contemplated that the Effective Time will be as soon as practicable
after approval of the Merger Agreement at the Meeting.
BACKGROUND OF THE KRSI MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Kelly Russell and Global One. The
following is a brief discussion of the background of these negotiations, the
KRSI Merger and the Transactions.
During December 1994, after recording a charge to operations of $1,100,000
and using cash in operating activities in excess of $3,700,000 in 1994, Kelly
Russell's Board of Directors hired new management and completely revised Kelly
Russell's business plan and operations. See "Kelly Russell Studios, Inc.
Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Although Kelly Russell's operations improved in 1995, anticipated sales and
profitability failed to materialize. Kelly Russell's sales improved only
nominally while its losses were reduced from $5,216,000 in 1994 to $1,543,000 in
1995. In addition, Kelly Russell used in excess of $2,200,000 of cash in
operating activities in 1995.
In February 1996, Kelly Russell took steps to reduce operating costs through
the termination of several employees and limiting the number of sports images it
would market. In its Form 10-KSB for 1995, Kelly Russell reported that it had
explored various alternatives to generate acceptable revenue growth without
success, and that it would need to obtain additional debt or equity financing in
order to finance its operations through 1996.
In September 1995, George Vrabeck, President of Kelly Russell, contacted
Joseph Angard, President of the Company, to discuss whether the Company would be
interested in being acquired by Kelly Russell. Messrs. Vrabeck and Angard
discussed the entertainment and sports licensing industry, exchanged their views
on the future direction of entertainment and sports licensing, and then
discussed the possible advantages of combining the two businesses. They agreed
that it would be prudent for both companies to continue merger discussions.
In October 1995, Mr. Angard authorized Mr. Vrabeck to contact the Company's
financial advisor, Tamarix Capital Corporation ("Tamarix"). Mr. Vrabeck and a
representative of Tamarix had a preliminary discussion about the possible
combination of Kelly Russell and the Company. Following this discussion, Mr.
Vrabeck met with the Board of Directors of Kelly Russell on October 16, 1995 and
communicated to the Board of Directors his reasons for instituting the
discussions and the extent of the discussions with Mr. Angard and the Company's
financial advisor. The reasons presented by Mr. Vrabeck to the Board of
Directors as follows:
1. Kelly Russell could not compete in the entertainment market with the
Company because of the Company's licensing capabilities and contacts;
2. Kelly Russell's ability to expand sales at an acceptable level is
limited because it lacked sufficient distribution capabilities;
3. Kelly Russell's original art concept has a better look, but it is
expensive and not sufficiently better than photograph art to prevent
imitations;
4. Because of Kelly Russell's cost structure, it cannot assure
profitability in 1996 even with a significant increase in sales;
17
<PAGE>
5. Kelly Russell will require additional debt or equity funding, or
both, to continue operations, and such funding cannot be assured; and
6. The combination of the Company's marketing, sales and licensing
expertise with Kelly Russell's sports licenses should result in a strong
sales driven company.
The Board of Directors authorized Mr. Vrabeck to continue the discussions
and agreed to retain Equisource as Kelly Russell's investment banker to provide
the Board with a fairness opinion that a merger with The Company would be fair,
from a financial point of view, to Kelly Russell shareholders.
In early November 1995, Mr. Vrabeck went to California to meet with Mr.
Angard and to tour the Company's facilities. After inspecting the Company's
California facility, Mr. Vrabeck and Mr. Angard discussed the product lines of
the Company and Kelly Russell. Mr. Vrabeck suggested to Mr. Angard that Kelly
Russell's sport licenses and original art capability together with the Company's
entertainment licenses and strong distribution network would result in a
combined company uniquely positioned for expansion. Mr. Angard and Mr. Vrabeck
agreed that it was in the interest of both companies to continue discussions
about a possible combination of the Company and Kelly Russell.
On November 28, 1995, the Kelly Russell Board of Directors had a meeting at
which Kelly Russell's management presented certain financial projections for
Kelly Russell. Projections for 1995 and 1996 showed significant losses and
negative cash flow. The Board expressed its disappointment with the projections
and began discussing alternatives for Kelly Russell to avoid or minimize the
impact of the projected losses, including the possible combination of Kelly
Russell and the Company. The Board of Directors agreed that Kelly Russell and
the Company had definite synergies and that Kelly Russell would have difficulty
competing with the Company in the entertainment arena. In November 1995,
representatives of Equisource, Kelly Russell and Kelly Russell's legal counsel
visited the Company's California facilities to commence Kelly Russell's due
diligence investigation of the Company.
On December 16, 1995, a representative of Equisource made a presentation to
the Kelly Russell Board of Directors regarding the Company's business and
indicated that the Company was interested in Kelly Russell's sports licenses and
original art, its access to Target stores and its management. Concurrently,
representatives of Equisource and Tamarix began to discuss the specific terms of
a combination of Kelly Russell and the Company. The Equisource representative
explained that the Company has sales of about $40,000,000, entrepreneurial
management, strong marketing and had achieved a strong position in the
entertainment licensing business. The Equisource representative also reviewed
with the Board of Directors the Company's projected results for 1996. If a
combination of the Company and Kelly Russell were to occur, the Company proposed
that approximately 57% of the combined company would be owned by the OSP
Shareholders, approximately 21% would be owned by Kelly Russell shareholders and
the remaining 22% of the shares would be sold to new investors. Equisource
advised the Kelly Russell Board of Directors that the Company was seeking a
binding letter of intent, but the Kelly Russell Board of Directors determined
that it was in the interest of both parties to proceed directly to a definitive
agreement.
In December 1995, representatives of Kelly Russell and Equisource met with
representatives of Tamarix to negotiate the terms of a combination of Kelly
Russell and the Company. On December 27, 1995, the Kelly Russell Board of
Directors held a meeting via telephone conference. The Board of Directors
reviewed a proposed term sheet for a combination of Kelly Russell and the
Company. Extensive discussions took place about proposed warrants, employment
agreements, timing, outside financing, the form of a definitive agreement and
other matters. Following the discussion, the Board of Directors authorized
Equisource to submit the term sheet and, if accepted, to proceed with
negotiation of a definitive agreement, subject to Board of Directors and
shareholder approval. In late December 1995, representatives of the Company and
Tamarix visited Kelly Russell's Minneapolis facilities to inspect the operation
and business of Kelly Russell and begin due diligence.
18
<PAGE>
Through January and early February 1996, Mr. Vrabeck made three trips to the
Company's offices in California to continue negotiations and to discuss how the
combined companies could cooperate prior to the merger and how they would
operate after the merger. In late February 1996, representatives of the Company,
Tamarix and the Company's legal counsel and accountants continued the Company's
due diligence investigation of Kelly Russell in Minneapolis.
On February 20, 1996, the Kelly Russell Board of Directors met. Also in
attendance at the meeting were representatives of Miller, Johnson & Kuehn,
Incorporated ("MJK"). Lower than projected sales from November through February
had resulted in a cash shortage for Kelly Russell. The MJK representatives
informed the Board of Directors that MJK would be reluctant to provide
additional funding to Kelly Russell. The directors expressed their strong
concerns about Kelly Russell's financial position and its ability to continue to
fund operations. The Board of Directors instructed Kelly Russell management to
immediately reduce costs and authorized management to use the Company to assist
with sales distribution. The Board of Directors reiterated its interest in
moving as quickly as possible to a Merger Agreement.
In March, 1996, the Equisource representative advised the Board of Directors
that the proposed combination of Kelly Russell and the Company was fair, from a
financial point of view, to the Kelly Russell shareholders. After further
negotiations with representatives of the Company, the parties signed the initial
merger agreement. On March 27, 1996, Kelly Russell issued a press release
announcing the execution of a merger agreement between Kelly Russell and the
Company. On May 28, 1996, the Merger Agreement was amended and restated to
reflect changes in the structure of the transaction pursuant to which the
parties agreed to merge OSP, BEx and Kelly Russell into the Global One
Subsidiaries.
On May 1, 1996, the Board of Directors of Kelly Russell reviewed the final
terms of the Merger Agreement with OSP, reviewed in detail the Equisource
fairness opinion documentation and ratified and confirmed the merger agreement
executed by Kelly Russell and OSP on March 27, 1996. On May 22, 1996, by written
action, the Kelly Russell Board of Directors reviewed and approved the Merger
Agreement.
KELLY RUSSELL REASONS FOR THE KRSI MERGER; RECOMMENDATION OF THE KELLY RUSSELL
BOARD OF DIRECTORS
The Kelly Russell Board of Directors believes that the KRSI Merger is in the
best interests of Kelly Russell shareholders and unanimously recommends to its
shareholders that they vote FOR approval of the Merger Agreement. See "The KRSI
Merger--Interest of Certain Persons in the KRSI Merger" for a discussion of
conflicts of interest that certain directors and members of management have in
connection with the KRSI Merger. In reaching these conclusions, the Kelly
Russell Board of Directors considered the continuing financial and operation
problems affecting Kelly Russell as well as the opportunities presented by the
proposed KRSI Merger. The Board of Directors recognized that Kelly Russell has
not been able to effectively compete in the entertainment market with the
Company because of the Company's licensing capabilities and contacts. Moreover,
the Board of Directors reasoned that Kelly Russell's lack of distribution
capabilities has hindered its ability to expand sales to an acceptable level.
Although Kelly Russell's original art concept results in an attractive product,
the Board of Directors concluded that the expense of such products and inability
to prevent imitations are disadvantages. The Board of Directors was also
concerned about Kelly Russell's ability to continue independent operations given
its financial condition. Even with a significant increase in sales, Kelly
Russell could not be assured of profitability in 1996 due to its cost structure.
Moreover Kelly Russell will require significant additional debt or equity
funding, or both, to continue its operations, and the Board of Directors had no
assurance that such funding would be available. In light of the foregoing
operational and financial difficulties, the Board of Directors concluded that
the proposed combination with the Company could provide an attractive
alternative for the Kelly Russell's shareholders. The Board of Directors
believes that the shareholders will benefit from the synergies that result from
the combination of the Company's marketing, sales and licensing expertise with
Kelly Russell's sports' licenses. These factors, together with the opinion of
Equisource stating that the KRSI Merger is fair,
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from a financial point of view, to the shareholders of Kelly Russell, are the
key reasons underlying the Board of Directors' decision to approve the
transaction and recommend that shareholders approve as well. See "The KRSI
Merger -- Kelly Russell's Financial Advisor" and "Market Price of and Dividends
on Global One Common Stock and Kelly Russell Common Stock."
THE COMPANY'S REASONS FOR THE KRSI MERGER
The Company's management believes that the Company is the largest domestic
publisher and distributor of licensed posters. In addition, the Company
develops, publishes and distributes an extensive product line of novelty and
gift items, including framed and unframed wall decor, buttons, key chains,
stickers, movie scripts, T-shirts and hats, all of which are licensed products.
Currently, the Company's only significant involvement in the sports-related
licensed products industry consists of distributing other licensee's posters.
The Company believes that expansion of this segment of the market into
publication and distribution of its own licensed products represents a
significant business opportunity and is a natural complement to the Company's
existing product lines.
The Company believes that the KRSI Merger presents the opportunity to
combine the complementary product lines of the existing businesses of the
Company and Kelly Russell. The KRSI Merger will enable Global One to increase
immediately the array of products available to customers and to enter the
sports-related licensed products business through acquisition of Kelly Russell's
existing licenses. Additionally, the Company believes that Global One will be
well-positioned to more effectively promote the sale of Kelly Russell's products
through the Company's current distribution channels, and that the combined
operations will result in greater diversification opportunities and enhanced
market penetration. The Company believes that the shareholders of the Company
and Kelly Russell will benefit from the synergies achieved as a result of using
the Company's existing distribution channels to market the sports and
entertainment products that Kelly Russell licenses. Kelly Russell's current
shareholder base will also enable Global One to achieve more immediate and
widespread dissemination of the Global One Common Stock as Global One positions
itself for future growth as a public company.
OPERATIONS AND MANAGEMENT AFTER THE TRANSACTIONS
Global One's business strategy is to generate revenue and earnings growth
through successful additional market penetration with existing products,
acquisitions and the introduction of new product lines which complement and
supplement existing product lines that can be sold through the Company's current
channels of distribution. See "Business of The Company -- Business Strategy."
Following the Transactions, Global One will conduct its business through its
wholly owned subsidiaries: OSP Publishing, Inc., Kelly Russell Studios, Inc.,
BEx Corp. and OSP Publishing, Inc.'s majority-owned subsidiary, Stanley
DeSantis, Inc. It is anticipated that additional subsidiaries may be added as a
result of future acquisitions of other companies and/or product lines that are
consistent with Global One's business and growth strategy. Global One may
conduct its various businesses either through operating subsidiaries of Global
One or through separate operating divisions of Global One or its subsidiaries.
The Merger Agreement provides that, immediately after the Effective Time,
the directors of Global One shall be Joseph C. Angard, Michael A. Malm, Mark S.
Hauser and Thomas R. King. The Merger Agreement further provides that,
immediately after the Effective Time, the officers of Global One shall be the
initial officers of Global One, plus George J. Vrabeck, who shall serve as
Executive Vice President. Joseph C. Angard will serve as Chairman of the Board,
Chief Executive Officer and President of Global One; Michael A. Malm will serve
as Chief Operating Officer of Global One and President of OSP; Stanley J.
DeSantis will serve as President of SDI; Christopher B. Lucas will serve as Vice
President-Finance and Chief Financial Officer of Global One; and Michael Berin
will serve as Vice President for Sales of OSP. Messrs. Angard, Malm, Vrabeck and
DeSantis will enter into employment agreements at or prior to the Effective Time
of the KRSI Merger on the terms described under "Management of Global One --
Employment Agreements."
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KELLY RUSSELL'S FINANCIAL ADVISORS
Kelly Russell has retained Equisource to provide an opinion to the Board of
Directors as to the fairness of the consideration to be received by the Kelly
Russell shareholders in connection with the KRSI Merger. Equisource is an
investment banking firm continually engaged in the valuation of businesses and
their securities in connection with mergers, acquisitions, sales of securities,
and valuation for estate, corporate and other purposes. Equisource was selected
by Kelly Russell on the basis of its familiarity with the industry in which
Kelly Russell and the Company operate.
As described above under "The KRSI Merger -- Background of the KRSI Merger,"
a representative of Equisource assisted Kelly Russell in negotiating the terms
of the KRSI Merger and in evaluating the Company as a merger candidate. In March
1996, Equisource preliminarily advised Kelly Russell's Board of Directors that,
subject to completion of its formal analysis supporting the merger terms,
Equisource believed that the consideration to be received in the KRSI Merger is
fair to the Kelly Russell shareholders from an financial point of view. In April
1996, Equisource delivered to the Board members a Confidential Memorandum
setting forth the methodology employed to support its opinion together with
information supporting the opinion. On May 28, 1996 Equisource delivered to the
Board of Directors Equisource's written opinion. A copy of the May 28, 1996
opinion is attached as Appendix B to this Proxy Statement/Prospectus.
No limitations were imposed on Equisource with respect to the scope of its
investigation. Equisource relied, without independent verification, upon the
accuracy, completeness and fairness of all the financial and other information
provided by Kelly Russell and the Company or otherwise made available to
Equisource for purposes of its opinion. Equisource did not make an independent
appraisal of the assets of Kelly Russell or the Company and does not express any
opinion regarding the liquidation value of Kelly Russell or the Company.
For purposes of its opinion, Equisource reviewed: (i) the initial merger
agreement and the Merger Agreement; (ii) historical financial statements of
Kelly Russell and the Company; (iii) certain financial and operating information
for the Company, including forecasts provided by the Company; (iv) certain
financial and operating information relating to Kelly Russell, including
forecasts internally provided by Kelly Russell's management; (v) public market
price information and trading volumes for the Kelly Russell Common Stock from
March 31, 1994 to April 3, 1996; (vi) the operating results, financial condition
and market performance of various companies with publicly traded stock which
Equisource deemed to be engaged in businesses similar to Kelly Russell and the
Company; and (vii) such other information, analyses, investigations and
financial, economic and market criteria as Equisource deemed relevant. With
respect to the financial forecasts for the Company and Kelly Russell provided by
the Company's and Kelly Russell's managements, upon their advice, Equisource
assumed for purposes of its opinion that such forecasts were reasonably prepared
reflecting the best available estimates and judgments of the Company's and Kelly
Russell's managements as to the future performance of the respective companies,
and that they form a reasonable basis upon which Equisource could form its
opinion. Neither the Company nor Kelly Russell publicly discloses internal
management forecasts of the type provided to Equisource in connection with
Equisource's review of the proposed transaction and such forecasts were not
prepared with a view toward public disclosure. In addition, such forecasts were
based upon numerous variables and assumptions that are inherently uncertain,
including, without limitation, factors related to general economic and
competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such forecasts. Equisource has assumed no liability for
such forecasts.
In conducting the review and in performing the analyses described below,
Equisource did not attribute any particular weight to any information or
analysis considered by it but rather made qualitative judgements as to the
significance and relevance of each factor and analysis. Accordingly, Equisource
believes that the information reviewed and the analysis conducted must be
considered as a
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whole and that considering any portion of such information or analysis without
considering all of such information and analysis could create a misleading or
incomplete view of the process underlying the opinion.
RELEVANCE OF KELLY RUSSELL MARKET PRICES. Equisource reviewed Kelly Russell
market prices in light of Kelly Russell's historical performance and discussions
with management regarding projected performance. Equisource concluded that the
quoted market price for Kelly Russell common stock substantially exceeded the
stand alone value of Kelly Russell and therefore did not provide a valid basis
for determining the fairness of the proposed transaction to Kelly Russell
shareholders.
CONCURRENT PRIVATE PLACEMENT. The Merger Agreement provides that the
obligations of Kelly Russell and the Company under the Merger Agreement are
subject to the condition, among others, that Global One shall have completed an
offering with gross proceeds of at least $6,000,000. Global One has received
subscriptions from a limited number of accredited investors to acquire
$6,756,351 (4,504,234 shares) of Global One Common Stock at a price of $1.50 per
share (the "Private Placement"). In the KRSI Merger, each Kelly Russell
Shareholder will receive one share of Global One Common Stock for every two
shares of Kelly Russell Common Stock. Using the price paid for each share of
Global One Common Stock subscribed for in the Private Placement, the Kelly
Russell Common Stock currently outstanding would have an assumed value of $0.75
per share.
VALUATION ANALYSIS. Equisource reviewed financial and stock market
information for certain publicly traded companies operating in industries
similar in certain respects to the business of Kelly Russell or the Company.
From this review, Equisource derived appropriate multiples for use in
capitalizing the earnings of the Company and the surviving company of the KRSI
Merger. Equisource used these multiples to develop a pro forma stand alone
valuation of the Company as a public company, valuation of the Company using its
forecasted information and a valuation of the surviving corporation using
forecasted earnings.
Based on its analysis, Equisource concluded that the consideration offered
to Kelly Russell shareholders in connection with the KRSI Merger is fair from a
financial point of view to the Kelly Russell shareholders. Equisource believes
its analysis supports this conclusion even at the lower valuations established
by its analysis due to the difficult financial position of Kelly Russell when
considered apart from the proposed transaction.
On October 16, 1995, Kelly Russell entered into Financial Advisory Agreement
with Equisource that required payment of a non-reimbursable retainer of $15,000
which was paid on execution of the agreement and also provided for payment of a
fee to Equisource contingent upon the closing of a transaction described
therein. Upon the Closing, Equisource may be paid a fee of up to $365,000. In
addition to the cash fee, Equisource may receive warrants for the purchase of up
to 318,000 shares of Global One Common Stock at an exercise price of $1.50 per
share.
Since Equisource may be entitled to a substantial fee contingent upon the
Closing of the KRSI Merger, Equisource's determination as to the fairness of the
KRSI Merger to the Kelly Russell shareholders may have been influenced by the
financial advantages to Equisource which may result from the Closing of the KRSI
Merger. A completely objective financial advisor may have made different
assumptions or conducted a different analysis than those made or conducted by
Equisource and may have reached different conclusions. Nevertheless, the Board
of Directors of Kelly Russell believes that shareholders may rely on the
Equisource fairness opinion because the Board believes that the analysis set
forth in such opinion is reasonable and persuasive.
VOTE REQUIRED TO APPROVE THE KRSI MERGER
Approval of the KRSI Merger requires the affirmative vote of the holders of
a majority of the outstanding shares of Kelly Russell Common Stock. Each holder
of Kelly Russell Common Stock outstanding as of the Record Date is entitled to
one vote for each share held. On the Record Date, there were 4,082,373 shares of
Kelly Russell Common Stock outstanding. Of such shares, 477,166
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shares (approximately 10.7% of the outstanding shares of Kelly Russell Common
Stock) are held by directors and executive officers of Kelly Russell, all of
whom have indicated they plan to vote in favor of approval of the Merger
Agreement.
CONVERSION OF KELLY RUSSELL COMMON STOCK IN THE KRSI MERGER
At the Effective Time, each two shares of Kelly Russell Common Stock issued
and outstanding immediately prior thereto, will be automatically converted into
the right to receive one share (the "Conversion Ratio") of Global One Common
Stock. The total number of Global One shares issuable to Kelly Russell
shareholders in the KRSI Merger will represent approximately 16% of the
approximately 12,993,509 shares of Global One Common Stock that will be
outstanding after consummation of the KRSI Merger, assuming no Kelly Russell
shareholders dissent from the KRSI Merger, no effect is given to options and
warrants to be outstanding after the KRSI Merger, and no outstanding options or
warrants to acquire shares of the Common Stock of the Company ("OSP Common
Stock") or Kelly Russell Common Stock are exercised or canceled prior to the
Effective Time.
TREATMENT OF KELLY RUSSELL OPTIONS AND WARRANTS
After the Effective Time, all of the options and warrants to purchase Kelly
Russell Common Stock will continue to have and be subject to the same terms and
conditions, except that (i) each such option and warrant will become fully
vested and be exercisable for that number of shares of Global One Common Stock
which equals the number of shares of Kelly Russell Common Stock covered by such
option and warrant immediately prior to the Effective Date divided by two (2)
and rounded up to the nearest whole number; and (ii) the exercise price per
share under each such option and warrant shall equal the exercise price before
the KRSI Merger multiplied by two (2) and rounded to the nearest cent.
OSP COMMON STOCK AND WARRANTS
The OSP Merger and the BEx Merger will be effected immediately prior to the
Effective Time of the KRSI Merger. Each share of OSP Common Stock issued and
outstanding at the effective time of the OSP Merger shall be converted into the
right to receive the number of shares of Global One Common Stock equal to the
Exchange Ratio. The Exchange Ratio shall mean the number determined by dividing
the sum of (a) fifty percent (50%) of the amount of fully diluted Kelly Russell
shares plus (b) the amount of Global One Common Stock issued in the Private
Placement not in excess of 4,000,000, by the sum of (y) the number of shares of
OSP Common Stock outstanding immediately prior to the Effective Time and (z) the
number of shares of OSP Common Stock that would be issued immediately prior to
the Effective Time if all the holders of outstanding warrants, options and any
other rights to acquire OSP Common Stock, and each share of BEx Common Stock
issued and outstanding at the effective time of the BEx Merger will be canceled
and cease to be outstanding. All of the outstanding warrants to purchase OSP
Common Stock outstanding at the effective time of the OSP Merger shall be
converted into the right to acquire shares of Global One Common Stock on the
same terms and conditions.
TREATMENT OF COMMON STOCK, OPTIONS AND WARRANTS OF GLOBAL ONE FOLLOWING THE KRSI
MERGER
Each share of Global One Common Stock issued and outstanding immediately
prior to the Effective Time of the KRSI Merger will remain outstanding. There
are no Global One options and warrants outstanding.
EXCHANGE OF CERTIFICATES IN THE KRSI MERGER
As soon as possible after the Effective Time, Norwest Bank National
Association (the "Exchange Agent") will mail a letter of transmittal to each
holder of record of Kelly Russell Common Stock which evidenced outstanding
shares of Kelly Russell immediately prior to the Effective Time. The letter of
transmittal will include instructions regarding the surrender of certificates
representing shares of Kelly Russell Common Stock in exchange for certificates
representing shares of Global One Common Stock. Upon surrender to the Exchange
Agent of one or more Kelly Russell Common Stock certificates
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from the record holder, the Exchange Agent shall deliver to such holder one or
more certificates representing the appropriate number of Global One shares of
Common Stock such holder has the right to receive pursuant to the KRSI Merger.
No Common Stock certificates representing fractional shares of Global One
Common Stock will be issued and no Global One dividend, stock split or interest
will relate to any fractional share. No fractional share interests will entitle
the owner thereof to vote or to any rights of a shareholder. In lieu of any such
fractional share, each holder who would be entitled to receive a fractional
share shall receive one additional share of Global One Common Stock. KELLY
RUSSELL SHAREHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR
EXCHANGE UNTIL SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED BY THEM.
After the Effective Time and until surrendered as provided above, Kelly Russell
Common Stock certificates will be deemed to represent only the right to receive
Global One Common Stock. The holder of certificates will not be entitled to
receive dividends or any other distributions from Global One until such
Certificates are so surrendered.
CONDUCT OF BUSINESS PENDING THE KRSI MERGER
Pursuant to the Merger Agreement, Kelly Russell, the Company, Global One and
the Global One Subsidiaries have agreed that, prior to the Effective Time, each
will carry on its respective businesses in the ordinary course consistent with
past practice, use its reasonable best efforts to preserve intact its present
business organization and relationships with third parties and keep available
the services of its present officers and employees.
In addition, Kelly Russell, the Company, Global One and the Global One
Subsidiaries have each agreed that, except as contemplated by the Merger
Agreement, prior to the Effective Time each will not, directly or indirectly, do
any of the following without the prior written consent of the other: (i) amend
its articles of incorporation, certificate of incorporation, bylaws or other
comparable charter or organizational documents; (ii) declare, set aside or pay
any dividends or make any distributions in respect of any of its capital stock;
except the Company may declare a distribution to the OSP Shareholders in the sum
of $1,750,000 and an additional amount anticipated to be between $500,000 and
$600,000 for the payment of the OSP Shareholders' tax liability for fiscal year
ended December 31, 1995 and for the period from January 1, 1996 through the
Effective Time of the KRSI Merger; (iii) acquire or agree to acquire (a) by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, any business or any corporation or other business organization or
division thereof, or (b) any assets that are material individually or in the
aggregate to each of them, other than in the ordinary course of business; (iv)
sell, lease, license, mortgage or otherwise encumber or subject to any lien or
dispose of any properties or assets; (v) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, issue or sell any
debt securities, guarantee any debt securities of another person, enter into a
"keep well" or other agreement to maintain any financial statement condition of
another person or make any other loans or capital contribution or investments in
any other person, other than to their respective businesses or employees in
accordance with past practice; (vi) make or agree to make any new capital
expenditure or expenditures which, individually, is in excess of $50,000 or, in
the aggregate, are in excess of $100,000; (vii) make any material tax election
or settle or compromise any material tax liability; (viii) pay, discharge,
settle or satisfy any claims, liabilities or obligations, other than in the
ordinary course of business consistent with past practice or agree to modify in
any material respect, any confidentiality, standstill or similar agreements to
which each is a party; (ix) except in the ordinary course of business, modify,
amend or terminate any material contracts or agreements to which each is a party
or waive, lease or assign any material rights or claims; (x) enter into any
contracts, agreements, arrangements or understandings relating to the
distribution, sale or marketing by third parties of any of its products or
products licensed by it, except in the ordinary course of business; (xi) except
as required to comply with applicable law, or as contemplated by the Merger
Agreement adopt, enter into, terminate or amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation or other plan, trust arrangement or fund for the benefit
or welfare of any director, officer or current or former employee, or increase
in any manner the compensation or benefits of, or pay any bonus to, any
director, officer or employee, except in the normal course of business, or pay
any benefit not provided under a
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employee benefit plan, or grant any awards under bonus, incentive, performance
or other compensation plan or arrangement or employee benefit plan (including
the grant of stock options) or take any action to fund or in any way secure the
payment of compensation or benefits under any employee plan, contract or
employee benefits plan; (xii) make any change in any method of accounting,
accounting practice or policy, other than required by generally accepted
accounting principles; or (xiii) authorize any of, or commit or agree to take
any of the foregoing actions.
CONDITIONS TO CONSUMMATION OF THE KRSI MERGER
The respective obligations of Kelly Russell, the Company, Global One, the
OSP Shareholders and the Global One Subsidiaries to consummate the KRSI Merger
are subject to satisfaction at or prior to the Effective Time of a number of
conditions, including, but not limited, to the following, any or all of which
may be waived by mutual agreement by both parties, in whole or in part, to the
extent permitted by applicable law: (i) the approval by the Kelly Russell
shareholders of the Merger Agreement; (ii) the closing by Global One of a
private placement of its Common Stock raising at least $6,000,000 in gross
proceeds; (iii) all authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by any
governmental entity shall have been filed, expired or been obtained; (iv) the
Registration Statement on Form S-4 pertaining to the KRSI Merger shall have been
declared effective by the Securities and Exchange Commission; (v) the
consummation of the KRSI Merger and any other transaction contemplated by the
KRSI Merger, shall not be prohibited by any injunction or order of a court and
there shall not have been any action taken that makes consummation of the KRSI
Merger illegal; (vi) no action shall have been taken, and no statute, rule,
regulation or order shall have been enacted, promulgated, or issued or deemed
applicable to any part of the KRSI Merger by any governmental entity which would
make the consummation of the KRSI Merger illegal or render Kelly Russell or
Global One unable to consummate the KRSI Merger; and (vii) OSP and BEx shall
have merged with and into OSP Acquisition and BEx Acquisition whereby OSP and
BEx shall be wholly owned subsidiaries of Global One.
The obligations of Kelly Russell to consummate the KRSI Merger are subject
to the satisfaction of a number of conditions, including but not limited to the
following, any or all of which may be waived by Kelly Russell in its sole
discretion: (i) each of the representations and warranties of Global One, the
Company, the OSP Shareholders and the Global One Subsidiaries contained in the
Merger Agreement shall be true and correct in all respects as of the date of the
Merger Agreement and as of the Effective Time, as though made on as of the
Effective Time; (ii) Global One, the Company and the Global One Subsidiaries
shall have performed or complied in all material respect with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
each of them on or prior to the Effective Time; (iii) Global One, the Company
and the Global One Subsidiaries shall have obtained or received consents,
approvals and authorizations from certain licensors and other third parties; and
(iv) Kelly Russell shall have received a fairness opinion from Equisource to the
effect that the KRSI Merger and other transactions contemplated in the Merger
Agreement are fair to the shareholders of Kelly Russell from a financial point
of view.
The obligations of the Company to consummate the KRSI Merger are subject to
the satisfaction of a number of conditions, including but not limited to the
following, any or all of which may be waived by the Company in its sole
discretion: (i) each of the representations and warranties of Kelly Russell
contained in the Merger Agreement shall be true and correct in all respects as
of the date of the Merger Agreement and as of the Effective Time, as though made
on as of the Effective Time; (ii) Kelly Russell shall have performed or complied
in all material respects with all agreements and covenants required by the
Merger Agreement to be performed or complied with by Kelly Russell on or prior
to the Effective Time; (iii) Kelly Russell shall have obtained or received
consents, approvals and authorizations from certain licensors and other third
parties; and (vi) the Company shall have received a letter from Kelly Russell's
independent auditors or legal counsel with respect to the number of shares of
Kelly Russell Common Stock authorized for issuance in the Kelly Russell's
minutes and the number of shares of Kelly Russell Common Stock subject to
options and warrants to purchase them.
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AMENDMENT, WAIVER AND TERMINATION OF THE MERGER AGREEMENT
Any of the terms and conditions of the Merger Agreement may be amended by
written agreement of the parties at any time before or after approval of the
Merger Agreement by Kelly Russell shareholders; provided, however, that no
amendment may be made to the Merger Agreement attached hereto as Appendix A,
that would reduce the amount or change the type of consideration received by the
shareholders of Kelly Russell or the Company upon consummation of the KRSI
Merger, without shareholders' approval.
At any time prior to the Effective Time, Kelly Russell, Global One, the
Company, the OSP Shareholders and the Global One Subsidiaries may: (i) extend
the time for the performance of any obligation or other act of any other party
hereto, (ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant to the Merger Agreement,
and (iii) waive compliance with any agreement or condition contained in the
Merger Agreement. Agreements to extensions or waivers must be in writing.
The Merger Agreement may be terminated at any time prior to the Effective
Time; either before or after approval of the Merger Agreement by Kelly Russell
shareholders: (a) by mutual written consent of Kelly Russell and the Company;
(b) by Kelly Russell or the Company, (i) if for any reason, the Effective Time
has not occurred by August 31, 1996, or (ii) if any law makes consummation of
the KRSI Merger illegal or prohibited, or (iii) if a court or government entity
issues an order, decree or ruling prohibiting the KRSI Merger and such order,
decree or ruling became final and unappealable; (c) by Global One, (i) if Kelly
Russell's Board of Directors withdraws, modifies or changes its recommendation
of the KRSI Merger, (ii) Kelly Russell receives an unsolicited competing
proposal or tender offer or exchange offer for 25% or more of Kelly Russell
outstanding shares and its Board of Directors, either fails to terminate
discussions with the proposal maker, accepts or takes no position with respect
to such proposal or offer, or (iii) any person or group acquires beneficial
ownership or the right to acquire beneficial ownership of 25% or more of the
then outstanding shares of Kelly Russell; (d) by Kelly Russell, if its Board of
Directors shall have recommended to its shareholders a competing proposal; (e)
by either Kelly Russell or the Company, if the Kelly Russell shareholders shall
have failed to approve the KRSI Merger and Merger Agreement; or (f) by the
Company or Kelly Russell upon a material breach of any representation, warranty,
covenant, or agreement on the part of the other set forth in the Merger
Agreement which has not been cured or is not curable by August 31, 1996.
Under certain circumstances, Kelly Russell may become obligated to pay
liquidated damages in the amount of $250,000 to the Company. Such circumstances
include: (i) the Effective Time has not occurred on or before August 31, 1996 as
a result of material breach of the Merger Agreement by Kelly Russell; or (ii)
the failure of Kelly Russell shareholders to approve the KRSI Merger. In the
event the Company receives such liquidated damages, the Company, the OSP
Shareholders, Global One and the Global One Subsidiaries may not pursue any
other remedies or law or equity against Kelly Russell. Kelly Russell has
delivered to the Escrow Agent $100,000 and is obligated to deliver the Escrow
Agent an additional $150,000, pursuant to an escrow agreement providing for the
delivery of such funds to the Company in the event the circumstances listed
above should occur. See "The KRSI Merger -- Limitations on Negotiations."
EXPENSES AND FEES
Fees and expenses and out-of-pocket expenses incurred by Kelly Russell, the
Company and Global One will be borne by the party that incurs such expenses.
Additionally, all costs and expenses related to printing, filing and mailing the
Proxy Statement/Prospectus and all SEC and other regulatory filing fees incurred
in connection with the Proxy Statement/Prospectus shall be borne equally by
Kelly Russell and the Company.
REPRESENTATION AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Company, Global One and the Global One Subsidiaries jointly
and severally represent and warrant as to (i) their corporate organization,
standing and power; (ii) their respective subsidiaries;
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(iii) their respective authority to execute and deliver the Merger Agreement and
its enforceability with respect to the Company, Global One and the Global One
Subsidiaries; (iv) the absence of the need of the Company, Global One and the
Global One Subsidiaries to obtain approval or consent by any governmental
entity; (v) the non-contravention of any articles or by-laws of the Company,
Global One and the Global One Subsidiaries, any law, judgment or decree, or a
breach or violation of any agreement, license or creation of any lien on any
assets of the Company, Global One and the Global One Subsidiaries as a result of
their execution of the Merger Agreement; (vi) its capitalization; (vii) the
accuracy of the Company's financial statements, and books and records; (viii)
the disclosure of material transactions among Global One, the Company and the
Global One Subsidiaries and their affiliates and subsidiaries; (ix) the conduct
of the Company's business in the ordinary course, and the absence of certain
changes since December 31, 1995; (x) pending or threatened litigation; (xi)
payment of taxes; (xii) ownership of particular assets; (xiii) the absence of
certain labor disputes; (xiv) existence of certain employee benefit plans and
compliance with applicable laws; (xv) the possession of all required licenses
and permits and compliance by the Company, Global One and the Global One
Subsidiaries with applicable laws; (xvi) existence and fees of brokers, finders
and investment bankers employed by the Company, Global One or the Global One
Subsidiaries; (xvii) the required vote of the OSP Shareholders necessary to
approve the KRSI Merger; (xviii) environmental matters; (xix) the existence and
enforceability of the Company's, Global One's and Global One's Subsidiaries and
their respective subsidiaries' intellectual property; (xx) the enforceability
and validity of material agreements and the absence of defaults under such
agreements; and (xxi) insurance. The OSP Shareholders jointly and severally make
representations and warranties to (i), (iii), (vi), (ix), (x), (xvii) and
(xviii) above.
The Merger Agreement includes representations and warranties by Kelly
Russell as to (i) its corporate organization, standing and power; (ii) its
authority to execute and deliver the Merger Agreement and its enforceability
with respect to Kelly Russell; (iii) the absence of the need of Kelly Russell to
obtain approval or consent by any governmental entity; (iv) the
non-contravention of any articles or by-laws of Kelly Russell any law, judgment
or decree, or a breach or violation of any agreement, license or creation of any
lien on any assets of Kelly Russell as a result of Kelly Russell's execution of
the Merger Agreement; (v) its capitalization; (vi) the accuracy of Kelly
Russell's financial statements, information contained in certain filings by
Kelly Russell with the SEC, and books and records; (vii) the disclosure of
material transactions among Kelly Russell and its affiliates; (viii) the conduct
of Kelly Russell's business in the ordinary course, and the absence of certain
changes since December 31, 1995; (ix) pending or threatened litigation; (x)
payment of taxes; (xi) ownership of particular assets; (xii) the absence of
certain labor disputes; (xiii) existence of certain employee benefit plans and
compliance with applicable laws; (xiv) the possession of all required licenses
and permits and compliance by Kelly Russell with applicable laws; (xv) existence
and fees of brokers, finder and investment bankers employed by Kelly Russell;
(xvi) the required vote of Kelly Russell shareholders necessary to approve the
KRSI Merger; (xvii) environmental matters; (xviii) the existence and
enforceability of Kelly Russell's intellectual property; (xix) the
enforceability and validity of material agreements and the absence of defaults
under such agreements; and (xx) insurance.
INTEREST OF CERTAIN PERSONS IN THE KRSI MERGER
EMPLOYMENT AGREEMENT WITH CERTAIN EXECUTIVE OFFICERS
Mr. Vrabeck will enter into an employment agreement with Global One which
provides for the commencement of an employment relationship with Global One
immediately after the Effective Time (the "Vrabeck Employment Agreement"). Under
the terms of the Vrabeck Employment Agreement, Mr. Vrabeck will provide
full-time services to Global One as Executive Vice President for a three (3)
year term beginning at the Effective Time. During the period of Mr. Vrabeck's
employment, Global One shall pay him an initial base salary of $200,000, plus a
bonus equal to $25,000 annually and additional bonus of up to $25,000 annually
if he attains certain performance targets established by the Global One Board.
In addition, Global One shall issue to Mr. Vrabeck, options to purchase 300,000
shares of Common stock of the Company at $1.50 per share. Mr. Vrabeck shall also
be entitled to an
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<PAGE>
automobile allowance, annual vacation, health and disability insurance provided
by Global One. If Mr. Vrabeck is terminated without cause during the term of his
employment, Mr. Vrabeck shall be provided a severance payment in the amount of
his base salary, plus his prorated guaranteed bonus amount, continuous health
insurance coverage during the remaining term of the Employment Agreement and
immediate vesting of all unvested stock options granted to him. Mr. Vrabeck will
retain his current options to purchase up to 200,000 shares of Kelly Russell
Common Stock which at the Effective Time shall be converted into options to
purchase 100,000 shares of Global One Common Stock. See "The KRSI Merger --
Treatment of Kelly Russell Options and Warrants."
Global One has also agreed to enter into employment agreements with Joseph
C. Angard, Michael A. Malm and Stanley DeSantis. See "Management of Global One
- -- Employment Agreements."
SERVICE AS A MEMBER OF GLOBAL ONE'S BOARD OF DIRECTORS
Thomas R. King has served as a director of Kelly Russell since March 1995
and Mr. King is a shareholder of Fredrikson & Byron, P.A., which has served as
legal counsel to Kelly Russell, including legal matters in connection with the
KRSI Merger. Immediately after the Effective Time, Mr. King will become a
director of Global One. As a director of Global One, Mr. King will be paid an
annual retainer of $5,000, plus $1,500 per board or committee meeting attended,
and annually will receive options to purchase 5,000 shares of Global One Common
Stock at an exercise price of $1.50 per share.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that prior to the Effective Time, Kelly
Russell shall obtain directors' and officers' insurance coverage to provide
coverage of the Company's and Global One's officers and directors with respect
to claims that may be asserted by Kelly Russell shareholders or creditors
arising in connection with the KRSI Merger.
Global One and its shareholders agree to keep in effect the provisions in
Global One's by-laws with respect to exculpation of director and officer
liability and indemnification to the fullest extent permitted under Delaware
law. Global One agrees to obtain directors' and officers' insurance that will
provide for a minimum of $5 million of coverage for any claim.
Also, at the Effective Time, Global One shall enter into indemnification
agreements with each person who is a director or officer of Kelly Russell and
the Company immediately prior to the Effective Time, for the purpose of
indemnifying such person to the fullest extent permitted by Delaware law.
AGREEMENTS WITH KELLY RUSSELL SHAREHOLDERS
Global One entered into a Placement Agent Agreement with MJK dated May 17,
1996. Pursuant to the Placement Agent Agreement, MJK served as an agent of
Global One in connection with the Private Placement, the successful completion
of which is a condition to consummation of the KRSI Merger. At the Closing,
assuming that all subscription proceeds are received by Global One, MJK will
receive commissions in the amount of $610,635 and Warrants to purchase 407,090
shares of Global One Common Stock at $1.50 per share, as well as reimbursement
of its legal expenses in an amount estimated to be not more than $10,000. D.B.
Johnson, a principal shareholder of Kelly Russell is an affiliate of MJK. See
"Business of Kelly Russell Studios, Inc. -- Certain Relationships and Related
Transactions" and "-- Principal Shareholders and Management of Kelly Russell."
LIMITATION ON NEGOTIATIONS
The Merger Agreement provides that Kelly Russell, the Company and Global One
shall not and their respective officers, directors, agent and affiliates shall
not directly or indirectly solicit, encourage or authorize any inquiry,
proposals, offer or possible offer from any person relating to any merger,
consolidation, or other combination, acquisition or purchase of all or a
substantial portion of the assets of, or any equity interest in, Kelly Russell,
the Company or Global One: however, Kelly Russell may under certain conditions,
including receipt of a written opinion of legal counsel to Kelly Russell stating
that the Kelly Russell Board of Directors has a fiduciary obligations to do so,
provide any
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<PAGE>
person with information, assistance or negotiate with such person a proposal,
offer or possible offer. In the event that the Board of Directors of Kelly
Russell withholds or modifies its recommendation to its shareholders, the KRSI
Merger is not consummated and Kelly Russell enters into an agreement to
consummate a competing transaction within one year after the Board's withdrawal
or modification, Kelly Russell shall pay the Company $500,000 in cash, including
the $250,000 held in escrow as liquidated damages. See "The KRSI Merger --
Amendment, Waiver, Termination of the Merger Agreement."
RESALE OF GLOBAL ONE COMMON STOCK
The Global One Common Stock issued pursuant to the KRSI Merger will be
freely transferable under the Securities Act, except for shares issued to any
Kelly Russell shareholder who may be deemed to be an affiliate (an "Affiliate")
of Kelly Russell and/or Global One for purposes of Rule 145 under the Securities
Act. Affiliates would include persons (including executive officers and
directors) who control, are controlled by, or are under common control with (i)
Global One or Kelly Russell at the time of the Meeting or (ii) Global One at or
after the Effective Time.
Rule 145 promulgated by the SEC under the Securities Act restricts the sale
of Global One Common Stock received in the KRSI Merger by Affiliates and certain
of their family members and related parties. Generally, during the two years
following the Effective Time, Affiliates of Kelly Russell, provided they are not
Affiliates of Global One, may publicly resell Global One Common Stock received
by them in the KRSI Merger, subject to certain limitations as to the amount of
Global One Common Stock sold by them in any three-month period and as to the
manner of sale. After the two-year period, such Affiliates of Kelly Russell who
are not Affiliates of Global One may resell their shares without such
restrictions so long as there is adequate current public information with
respect to Global One as required by Rule 144. Persons who become Affiliates of
Global One prior to, at or after the Effective Time may publicly resell the
Global One Common Stock received by them in the KRSI Merger subject to similar
limitations and subject to certain filing requirements specified in Rule 144.
The ability of Affiliates to resell shares of Global One Common Stock received
in the KRSI Merger under Rule 144 or 145 as summarized herein generally will be
subject to Global One having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates also would be
permitted to resell Global One Common Stock received in the KRSI Merger pursuant
to an effective registration statement under the Securities Act or another
available exemption from the Securities Act registration requirements.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF GLOBAL ONE
COMMON STOCK RECEIVED BY PERSONS WHO MAY BE DEEMED TO BE AFFILIATES OF GLOBAL
ONE OR KELLY RUSSELL.
ACCOUNTING TREATMENT OF THE KRSI MERGER
The KRSI Merger will be treated as a "purchase" for accounting and financial
reporting purposes. Global One will allocate the purchase price based on the
fair value of the assets acquired and the liabilities assumed. Goodwill arising
from the KRSI Merger is expected to be amortized over 10 years. The
Reorganization will be treated as a "pooling" for accounting and financial
reporting purchases.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE INVESTORS AND SHAREHOLDERS SHOULD CONSULT WITH AND RELY SOLELY
ON THEIR OWN INDEPENDENT TAX ADVISORS CONCERNING THE TAX ASPECTS OF THE KRSI
MERGER. THE FOLLOWING DISCUSSION DOES NOT CONSTITUTE TAX ADVICE TO ANY PERSON.
THE DISCUSSION IS GENERAL IN NATURE. IT DEALS ONLY WITH FEDERAL INCOME TAXES AND
DOES NOT DEAL WITH EVERY FEDERAL INCOME TAX ASPECT OF THE KRSI MERGER. IT DOES
NOT DISCUSS ANY STATE, LOCAL OR FOREIGN INCOME OR OTHER TAXES. TAXPAYERS IN
SPECIAL CATEGORIES MAY HAVE UNIQUE RULES APPLICABLE TO THEM THAT THIS DISCUSSION
DOES NOT ADDRESS.
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<PAGE>
Global One will not apply for a ruling from the IRS regarding the federal
income tax consequences of the KRSI Merger. In recent years the IRS has greatly
restricted the issuance of private rulings in the case of corporate formations
and reorganizations. Global One believes that, as a result of these
restrictions, it is unlikely that the IRS would issue a private ruling in this
case.
Holders of Kelly Russell Common Stock who receive Global One Common Stock in
exchange for their Kelly Russell Common Stock will not recognize gain or loss as
a result of receipt of Global One Common Stock, will tack their holding periods
for the Kelly Russell Common Stock in computing their holding periods for Global
One Common Stock, and will take a substituted basis for Global One Common Stock
computed by reference to the basis for their Kelly Russell Common Stock. No gain
or loss will be recognized at the corporate level as a result of the KRSI
Merger.
The view of the transactions outlined above is consistent with published and
private rulings of the IRS. Nevertheless, no absolute assurance can be given
that the IRS will be willing to view the transaction in this manner.
Kelly Russell also has a net operating loss carry forward for federal income
tax purposes. It may have built-in loss assets as well. However, it is
anticipated that the KRSI Merger will result in an "ownership change" for Kelly
Russell which will restrict the use of the net operating loss carry forward and
the built-in losses to offset income of members of the Global One group of
corporations after the Closing of the Transactions.
INDEMNIFICATION
Global One, the Company and the OSP Shareholders have agreed to indemnify
Kelly Russell against any damages, losses, costs and expenses incurred in
connection with any material breach by Global One, the Company, the Global One
Subsidiaries or the OSP Shareholders of any of their respective representations,
warranties or covenants in this Agreement. Kelly Russell may not assert claims
for indemnification unless and until the aggregate of such claims exceeds
$50,000, and any such claim must be asserted within one year from the Effective
Time of the KRSI Merger. Similarly, Kelly Russell has agreed to indemnify Global
One, the Company and the OSP Shareholders against all damages, losses, costs and
expenses incurred in connection with any material breach by Kelly Russell of any
of its representations, warranties and covenants in the Agreement. Global One,
the Company and OSP Shareholders may not assert any claims for indemnification
against Kelly Russell unless and until the aggregate of such claims exceeds
$50,000, and any such claim must be asserted within one year from the Effective
Time of the KRSI Merger.
REGULATORY APPROVALS
Kelly Russell and the Company are not aware of any governmental or
regulatory requirements relating to consummation of the KRSI Merger or the
proposals to be considered at the Kelly Russell meeting other than compliance
with applicable federal and state securities laws.
RIGHTS OF DISSENTING SHAREHOLDERS
The following discussion is not a complete statement of the law pertaining
to dissenters' rights under the Minnesota Business Combination Act ("MBCA") and
is qualified in its entirety by reference to the full text of Section 302A.471
and 302A.473 of the MBCA attached to this Proxy Statement as APPENDIX C. ANY
SHAREHOLDER WHO WISHES TO EXERCISE SUCH DISSENTERS' RIGHTS OR WHO WISHES TO
PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW THE FOLLOWING DISCUSSION AND
APPENDIX C CAREFULLY BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE
PROCEDURES SPECIFIED WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS UNDER THE
MBCA.
PROCEDURE TO PRESERVE DISSENTERS' RIGHTS
Under Minnesota law, any holder of Kelly Russell Common Stock who follows
the procedures set forth in Section 302A.473 of the MBCA will be entitled to
receive payment in cash of the "fair value" of such shareholder's shares.
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<PAGE>
Under Section 302A.473 of the MBCA, if a corporation calls a shareholder
meeting at which a plan of merger to which such corporation is a party is to be
voted upon, the notice of the meeting must inform each shareholder of the right
to dissent and must include a copy of sections 302A.471 and 302A.473 of the MBCA
and a brief description of the procedures to be followed under such sections.
This Proxy Statement/Prospectus constitutes such notice to the shareholders of
Kelly Russell and the applicable statutory provisions of the MBCA are attached
to this Proxy Statement/Prospectus as APPENDIX C.
The Merger Agreement must be approved by the holders of a majority of the
outstanding shares of Kelly Russell Common Stock. A shareholder who wishes to
exercise dissenters' rights must file with Kelly Russell before the vote on the
Merger Agreement a written notice of intent to demand the fair value of the
shares owned by such shareholder and must not vote his or her shares in favor of
the Merger Agreement.
The "fair value of the shares" means the value of the shares of Kelly
Russell immediately before the Effective Time of the KRSI Merger.
After the proposed KRSI Merger has been approved by the Kelly Russell Board
and the Kelly Russell shareholders, Kelly Russell must send a written notice to
all shareholders who have not voted their shares in favor of the Merger
Agreement and who have filed with Kelly Russell before the vote on the Merger
Agreement a written notice of intent to demand the fair value of the shares
owned by such shareholder. The notice from Kelly Russell must contain:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertified shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of sections 302A.471 and 302A.473 of the MBCA and a brief
description of the procedures to be followed under such sections.
In order to receive the fair market value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the KRSI Merger takes effect.
A shareholder may not assert dissenters' rights as to less than all of the
shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name and
address of each beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter will be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of such beneficial
owner, and will be treated as a dissenting shareholder under the terms of
sections 302A.471 and 302A.473 of the MBCA, if the beneficial owner submits
written consent of the shareholder holding such beneficial owner's shares to
Kelly Russell at the time of or before the assertion of the rights.
PROCEDURES FOLLOWING AN ASSERTION OF DISSENTERS' RIGHTS
After the KRSI Merger takes effect, or after Kelly Russell receives a valid
demand for payment, whichever is later, Kelly Russell must remit to each
dissenting shareholder who has not voted his or her shares in favor of the
proposed KRSI Merger and has filed with Kelly Russell before the vote on the
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proposed KRSI Merger a written notice of intent to demand the fair value of the
shares owned by such shareholder, the amount Kelly Russell estimates to be the
fair value of the shares, plus interest ("interest" commences five days after
the Effective Time of the KRSI Merger up to and including the date of payment,
calculated at a rate provided under Minnesota law for interest on verdicts and
judgments), accompanied by:
(1) Kelly Russell's balance sheet and statement of operations for a
fiscal year ending not more than 16 months before the Effective Time of the
KRSI Merger, together with the latest available interim financial
statements;
(2) An estimate by Kelly Russell of the fair value of the shares and a
brief description of the procedures to be followed in demanding supplemental
payment.
(3) A copy of sections 302A.471 and 302A.473 of the MBCA, and a brief
description of the procedures to be followed in demanding supplemental
payment.
Kelly Russell may withhold the above-described remittance from a person who
was not a shareholder on the date the Merger Agreement was first announced to
the public or who is dissenting on behalf of a person who was not a beneficial
owner on that date. If such dissenter has not voted his or her shares in favor
of the proposed KRSI Merger and has filed with Kelly Russell before the vote on
the proposed Merger Agreement a written notice of intent to demand the fair
value of the shares owned by such shareholder, Kelly Russell must forward to
such dissenter the materials described in the preceding paragraph, a statement
of reason for withholding the remittance, and an offer to pay to such dissenter
the amount listed in the materials if the dissenter agrees to accept that amount
in full satisfaction. Such dissenter may decline the offer and demand payment of
such dissenter's own estimate of the fair value of the shares, plus interest, by
written notice to Kelly Russell. Failure to do so entitles such dissenter only
to the amount offered. If such dissenter makes demand, the procedures, costs,
fees and expenses described below for petitioning the court shall apply.
If Kelly Russell fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertified shares,
it must return all deposited certificates and cancel all transfer restrictions.
However, Kelly Russell may require deposit or restrict transfer at a later time
and again give notice that contains:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of sections 302A.471 and 302A.473 of the MBCA and a brief
description of the procedures to be followed under such sections.
If a dissenter believes that the amount remitted by Kelly Russell is less
than the fair value of the shares plus interest, the dissenter may give written
notice to Kelly Russell of the dissenter's own estimate of the fair value of
shares, plus interest, within 30 days after Kelly Russell mails the remittance,
and demand payment of the difference (a "Demand"). Otherwise, a dissenter is
entitled only to the amount remitted by Kelly Russell.
If Kelly Russell receives a Demand, it must, within 60 days after receiving
the Demand, either pay to the dissenter the amount demanded, or an amount agreed
to by the dissenter after discussion with Kelly Russell, or file in court a
petition requesting that the court determine the fair value of the shares, plus
interest. The petition must be filed in Hennepin County, Minnesota. The petition
must name as parties all dissenters who made a Demand and who have not reached
agreement with Kelly
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Russell. The jurisdiction of the court is plenary and exclusive. The court may
appoint appraisers, with powers and authorities the court deems proper, to
receive evidence on and recommend the amount of the fair value of the shares.
The court must determine whether the shareholder or shareholders in question
have fully complied with the requirements of section 302A.473 of the MBCA, and
must determine the fair value of the shares, taking into account any and all
factors the court finds relevant, computed by any method or combination of
methods that the court, in its discretion, sees fit to use, whether or not used
by Kelly Russell or by a dissenter. The fair value of the shares as determined
by the court is binding on all shareholders, wherever located. A dissenter is
entitled to judgment for the amount by which the fair value of the shares as
determined by the court, plus interest, exceeds the amount, if any, remitted by
Kelly Russell, but shall not be liable to Kelly Russell for the amount, if any,
by which the amount, if any, remitted to the dissenter exceeds the fair value of
the shares as determined by the court, plus interest.
The court must determine the costs and expenses of any appraisers of a
proceeding under the preceding paragraph, including the reasonable expenses and
compensation of any appraisers appointed by the court, and must assess those
costs and expenses against Kelly Russell, except that the court may assess part
or all of those costs and expenses against a dissenter whose Demand is found to
be arbitrary, vexatious, or not in good faith.
If the court finds that Kelly Russell has failed to comply substantially
with section 302A.473 of the MBCA, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
The court may award, in its discretion, fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
MARKET PRICE OF AND DIVIDENDS ON OSP COMMON STOCK, GLOBAL
ONE COMMON STOCK AND KELLY RUSSELL COMMON STOCK
MARKET INFORMATION
OSP AND GLOBAL ONE
To date, there has been no trading in the OSP Common Stock or the Global One
Common Stock. Global One has filed an application to include the Global One
Common Stock on the Nasdaq SmallCap Market under the symbol "GOGO." However,
there can be no assurance that such application will be approved or that,
following this offering, an active trading market for the Global One Common
Stock will develop or be sustained. Miller, Johnson & Kuehn, Incorporated has
indicated its intention to make a market in the Global One Common Stock on the
Nasdaq Small Cap Market, effective upon approval of the Global One Common Stock
for quotation on the Nasdaq SmallCap Market. If and to the extent that MJK, or
another securities firm determines to make a market in the Global One Common
Stock, the market maker would be under no obligation to continue to make a
market and could discontinue such activity at any time.
KELLY RUSSELL
Since March 1994, the Kelly Russell Common Stock has been traded in the
over-the-counter market and quoted on the Nasdaq SmallCap Market under the
symbol "KRSI." Kelly Russell has received notice that its Common Stock will be
delisted from the Nasdaq SmallCap Market on June 10, 1996. Kelly Russell
anticipates that its Common Stock will be traded on the national
over-the-counter market thereafter until the Effective Time. Prior to March
1994, there was no public market for Kelly Russell Common Stock. The following
table sets forth the high and low bid prices of Kelly Russell
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<PAGE>
Common Stock for the periods indicated. The Nasdaq bid quotations represent
interdealer prices, without retail mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1996 HIGH LOW
- ---------------------------------------- -------- --------
<S> <C> <C>
First Quarter........................... $ 4 1/8 $ 2 7/8
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 HIGH LOW
- ---------------------------------------- -------- --------
<S> <C> <C>
First Quarter........................... $ 3 $ 2 1/4
Second Quarter.......................... 3 7/8 3
Third Quarter........................... 4 3 7/8
Fourth Quarter.......................... 4 3 7/8
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 HIGH LOW
- ---------------------------------------- -------- --------
<S> <C> <C>
First Quarter (3/24/94 - 3/31/94)....... $ 4 1/2 $ 3 3/4
Second Quarter.......................... 5 4 1/4
Third Quarter........................... 5 1/4 4
Fourth Quarter.......................... 4 7/8 2 1/4
</TABLE>
On May 22, 1996, the last sale price of Common Stock was $2.25 per share.
SHAREHOLDERS
GLOBAL ONE
As of the date hereof, there are 2 shareholders of the Global One Common
Stock and the OSP Common Stock.
KELLY RUSSELL
At the Record Date there were 4,082,373 shares of Kelly Russell Common Stock
outstanding held by approximately 127 record holders. Based on information which
Kelly Russell has obtained from its Transfer Agent, there are approximately 630
shareholders of Kelly Russell Common Stock, whose stock is held either in
nominee name and/or street name brokerage accounts.
DIVIDENDS
OSP AND GLOBAL ONE
Prior to the OSP Merger, the Company was taxed as an S corporation under the
Internal Revenue Code of 1986, as amended, and has declared and paid cash
dividends on the OSP Common Stock. See "S Corporation Distributions." Prior to
the closing the Company expects to declare a cash dividend on its Common Stock,
in the aggregate amount of $1,750,000, to the S corporation shareholders, Joseph
C. Angard and Michael A. Malm. Global One intends to pay this dividend promptly
following consummation of the KRSI Merger using some of the proceeds from the
Private Placement. In addition, if and to the extent that OSP's cash flow is
insufficient to make such payment, a portion of the proceeds of the Private
Placement will be used to pay an additional dividend of between $500,000 and
$600,000 to permit the OSP Shareholders' to pay their respective tax liabilities
incurred as a result of OSP's profits generated during 1995 and that portion of
1996 prior to the Closing. See "The KRSI Merger -- Conditions to Consummation of
the KRSI Merger."
Except for the dividends payable as described in the preceding paragraph,
for the foreseeable future, Global One does not intend to pay any cash
dividends. Global One presently expects to retain its earnings, if any, to
finance the development and expansion of its business. The payment by Global One
of cash dividends, if any, on the Global One Common Stock in the future is
subject to the discretion of the Board of Directors.
Global One's ability to pay dividends is subject to restrictions set forth
in the Delaware General Corporation Law. The Delaware Corporation Law provides
that a Delaware corporation may pay
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dividends either (i) out of the corporation's surplus (as defined in Delaware
law), or (ii) if there is no surplus, out of the corporation's net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal
year.
Pursuant to Section 2115 of the California General Corporation Law (the
"California GCL"), under certain circumstances, certain provisions of the
California GCL may be applied to foreign corporations qualified to do business
in California notwithstanding the law of the jurisdiction where the corporation
is incorporated. Such corporations are referred to herein as "QUASI-California"
corporations. Global One will be qualified to do business in the State of
California. Section 2115 is applicable to foreign corporations which have more
than half of their shareholders residing in California and more than half of
their business deriving from California. Global One's Management believes that
more than half Global One's shareholders reside outside California, and that
Global One would therefore not be deemed to be a QUASI-California corporation.
If Global One were determined to be a QUASI-California corporation, however, it
would have to comply with California law with respect to, among other things,
distributions to shareholders. Under the California GCL, a corporation is
prohibited from paying dividends unless (i) the retained earnings of the
corporation immediately prior to the distribution exceeds the amount of the
distribution; (ii) the assets of the corporation exceed 1 1/4 times its
liabilities; or (iii) the current assets of the corporation exceed its current
liabilities, but if the average pre-tax net earnings of the corporation before
interest expense for the two years preceding the distribution was less than the
average interest expense of the corporation for those years, the current assets
of the corporation must exceed 1 1/4 times its current liabilities.
KELLY RUSSELL
Kelly Russell has never paid or declared any cash dividends on the Kelly
Russell Common Stock and does not intend to pay dividends on the Kelly Russell
Common Stock prior to the Effective Time.
COMPARISON OF THE RIGHTS OF HOLDERS OF GLOBAL ONE
COMMON STOCK AND KELLY RUSSELL COMMON STOCK
Upon consummation of the KRSI Merger, holders of Kelly Russell Common Stock
will receive shares of Global One Common Stock. Set forth below is a summary of
(i) the material features of the Kelly Russell Common Stock and the Global One
Common Stock; and (ii) the material differences between the rights of the
holders of Kelly Russell Common Stock and the Global One Common Stock. These
summaries are qualified in their entirety by reference to the charter documents
and other instruments of Kelly Russell and Global One that create the rights of
the security holders.
GLOBAL ONE
Global One is authorized by its Certificate of Incorporation to issue
30,000,000 shares of Global One Common Stock and 20,000,000 shares of serial
preferred stock, $.01 par value. As of the date hereof, two shares of Global One
Common Stock were issued and outstanding and no shares of serial preferred stock
were issued or outstanding.
At the effective time of the OSP Merger, the outstanding shares of OSP
Common Stock held of record by the OSP Shareholders will be converted into
6,448,088 shares of Global One Common Stock, and the warrant to purchase shares
of OSP Common Stock currently outstanding will be converted into a warrant to
purchase 197,069 shares of Global One Common Stock for a price of $.01269 per
share.
Holders of Global One Common Stock will be entitled to one vote, in person
or by proxy, for each share of Global One Common Stock held of record in the
shareholder's name on the books of Global One as of the record date on any
matter submitted to the vote of the shareholders. Global One's Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Each share of Global One Common Stock has the same rights, privileges
and preferences as every other share and will share equally in the Global One's
net assets upon liquidation or dissolution. Global One
35
<PAGE>
Common Stock will have no preemptive, conversion or redemption rights or sinking
fund provisions and all of the issued and outstanding shares of Global One
Common Stock, when issued, will be fully paid and nonassessable.
Upon consummation of the KRSI Merger, Global One will assume Kelly Russell's
rights and obligations under the Kelly Russell Stock Option Plan and each of the
outstanding options previously granted under the Kelly Russell Stock Option
Plan. As a result of this assumption, the optionee shall have the right to
purchase one share of Global One Common Stock for each two shares of Kelly
Russell Common Stock the optionee was entitled to purchase prior to the KRSI
Merger. See "The KRSI Merger -- Treatment of Kelly Russell Options and
Warrants."
The Board of Directors of Global One, without shareholder approval, may
authorize one or more classes of serial preferred stock with preferences or
voting rights that may adversely affect the rights of holders of the Global One
Common Stock. Although it is not possible to state the actual effect any
issuance of serial preferred stock might have upon the rights of holders of
Global One Common Stock, the issuance of serial preferred stock might (i)
restrict dividends on Global One Common Stock if preferred stock dividends have
not been paid; (ii) dilute the voting power and equity interest of holders of
Global One Common Stock to the extent that any preferred stock series has voting
rights or is convertible into Global One Common Stock; or (iii) prevent current
holders of Global One Common Stock from participating in Global One's assets
upon liquidation until any liquidation preferences granted to the holders of the
serial preferred stock are satisfied. In addition, the issuance of serial
preferred stock may, under certain circumstances, have the effect of
discouraging an attempt to change control of Global One by, for example,
creating voting impediments to the approval of the mergers or other similar
transactions involving Global One. Global One's Board of Directors does not
presently intend to issue any serial preferred stock.
Shareholders are entitled to dividends when, as and if declared by Global
One's Board of Directors out of funds legally available therefor (and after
satisfaction of the prior rights of holders of outstanding preferred stock, if
any), subject to certain restrictions on payment of dividends imposed by the
Delaware General Corporation Law. See "Comparison of Rights of Holders of Global
One Common Stock and Kelly Russell Common Stock -- Dividends."
Following consummation of the KRSI Merger, the transfer agent and registrar
for the Global One Common Stock will be Norwest Bank Minnesota, N.A.
KELLY RUSSELL
Kelly Russell's authorized capital stock consists of 10,000,000 shares of
Common Stock, $.01 par value, of which 4,082,373 shares of Common Stock are
currently outstanding. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. Cumulative voting for directors is not
permitted. The holders of the Kelly Russell Common Stock are entitled to one
vote per share on all matters submitted to a vote of shareholders. All shares of
Kelly Russell Common Stock are entitled to share equally in dividends from
sources legally available therefor, when, as and if declared by the Board of
Directors and, upon liquidation or dissolution of Kelly Russell whether
voluntary or involuntary, to share equally in the assets of Kelly Russell
available for distribution to shareholders. Kelly Russell has never paid a cash
dividend on the Kelly Russell Common Stock and does not intend to pay dividends
in the foreseeable future. Kelly Russell's present intention is to retain all
future earnings for use in its business. All shares of Kelly Russell Common
Stock presently outstanding are fully paid and nonassessable. The Board of
Directors is authorized to issue additional shares of Kelly Russell Common
Stock, but not to exceed the amount authorized by the Articles of Incorporation,
and to issue options and warrants for the purchase of such shares, on such terms
and conditions and for such consideration as the Board may deem appropriate
without further shareholder action.
The transfer agent and register for the Kelly Russell Common Stock is
Norwest Bank Minnesota, N.A.
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<PAGE>
COMPARISON OF KELLY RUSSELL COMMON STOCK AND GLOBAL ONE COMMON STOCK
As a result of the KRSI Merger, holders of Kelly Russell Common Stock will
become holders of Global One Common Stock. Such persons will have different
rights as shareholders of Global One than they had as shareholders of Kelly
Russell. These differences are due to (i) differences in the respective charters
and by-laws of Kelly Russell and Global One and (ii) differences between the
corporate laws of Delaware, where Global One is incorporated and by whose laws
it is governed, and the corporate laws of Minnesota, where Kelly Russell is
incorporated and by whose laws it is governed.
The following is a summary of certain significant differences between the
charter documents of Kelly Russell and Global One and between the laws of
Minnesota and Delaware. This summary is not intended to be exhaustive, nor is it
a detailed description of such differences. It is qualified in its entirety by
the respective charter and bylaws of Global One and Kelly Russell and the
corporate laws of Delaware and Minnesota, to which holders of Kelly Russell
Common Stock are referred.
MEETINGS OF SHAREHOLDERS
Minnesota law provides that meetings of shareholders may be called by: (i)
the chief executive officer; (ii) the chief financial officer; (iii) two or more
directors; (iv) shareholders holding 10% or more of the voting power of all
shares entitled to vote (except that the voting power needed to demand a meeting
to directly or indirectly effect a business combination is 25%); or (v) any
other person authorized in the articles or by-laws. The Kelly Russell By-laws
provide that meetings of shareholders may be called only by the parties listed
in items (i) through (iv) above. Delaware law provides that meetings of
shareholders may be called only by the directors or by any other person as may
be authorized by the corporation's certificate of incorporation or by-laws. The
Global One certificate and By-laws provide that special meetings of shareholders
may be called only by a majority of Global One's Board of Directors, the
Chairman, Vice-Chairman or President. No other person shall be entitled to call
special meetings.
ACTION WITHOUT MEETINGS OF SHAREHOLDERS
Global One's Bylaws provide that any action that may be taken at an annual
or special meeting of the shareholders may be taken without a meeting by the
consent of shareholders holding at least the number of shares as would be
required to approve such action at an annual or special meeting, provided that
notice of such action is given to shareholders who have not voted upon the
matter. Global One's two largest shareholders, Joseph C. Angard and Michael A.
Malm, will beneficially own, in the aggregate, in excess of 50% of the Global
One Common Stock outstanding immediately after the Effective Time of the KRSI
Merger. In addition, the OSP Shareholders have agreed to enter into a Voting
Trust Agreement with respect to their shares of Global One Common Stock pursuant
to which Mr. Angard will have the power to direct the trustee as to the voting
of all such shares. Under Delaware law, except as otherwise provided in a
corporation's certificate of incorporation or bylaws, corporate action requiring
shareholder approval may be taken upon the vote of a majority of the shares
outstanding. Therefore, the OSP Shareholders will have the ability to approve
most corporate actions without the necessity of a shareholder meeting.
DIVIDENDS AND REPURCHASES OF STOCK
The Kelly Russell Board of Directors, under Minnesota law, may declare
dividends without shareholder approval so long as the corporation will be able
to pay its debts in the ordinary course of business after making the
distribution. Delaware law permits a corporation, in general, to declare and pay
dividends out of surplus or out of net profits for the current and/or preceding
fiscal year, and, in general, to redeem or repurchase shares of its stock if the
capital of the corporation is not impaired and such redemption or repurchase
will not impair the capital of the corporation. The directors of a Delaware
corporation may be jointly and severally liable to the corporation for a willful
or negligent violation of such provisions of Delaware law.
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INSPECTION RIGHTS
Under Minnesota law, a shareholder has an "absolute right," upon written
demand, to examine the following corporate documents: (i) the share register;
(ii) records of all proceedings of shareholders for the last three years; (iii)
records of all proceedings of the board for the last three years; (iv) the
corporation's articles and all amendments currently in effect; (v) the
corporation's bylaws and all amendments currently in effect; (vi) certain
financial statements and the financial statement for the most recent interim
period prepared in the course of the operation of the corporation for
distribution to the shareholders or to a governmental agency as a matter of
public record; (vii) reports made to shareholders generally within the last
three years; (viii) a statement of the names and usual business addresses of its
directors and principal officers; (ix) voting trust agreements; (x) shareholder
control agreements; and (xi) a copy of agreements, contracts, or other
arrangements or portions of them fixing the rights of a class or series of
securities issued by the company. Under Delaware law, shareholders, upon the
demonstration of a proper purpose, have the right to inspect a corporation's
stock ledger, shareholder list, and other books and records.
AMENDMENTS TO CHARTER
Minnesota law provides that the Kelly Russell Articles may be amended by the
holders of a majority of the voting power of the shares present at a meeting of
shareholders, unless a greater proportion is required by such Articles. The
Kelly Russell Articles do not require a greater proportion. Under Delaware law,
charter amendments require the approval of the directors and the vote of the
holders of a majority of the outstanding stock and a majority of each class of
stock outstanding and entitled to vote thereon as a class, unless the
certificate of incorporation requires a greater proportion. The Global One
Certificate provides that approval of the majority of the voting power present
at a meeting of shareholders is required to amend the Global One Certificate.
AMENDMENT OF BY-LAWS
Minnesota law provides that the Kelly Russell By-laws may be amended by the
holders of a majority of the voting power of the shares present at a meeting of
shareholders, unless a greater proportion is specified. The Kelly Russell
By-laws provide that such By-laws may be amended by the Kelly Russell Board,
subject to the power of Kelly Russell shareholders to change or repeal such
By-laws. The Kelly Russell By-laws provide that the Kelly Russell Board shall
not make or alter any By-Laws fixing a quorum for meetings of shareholders,
prescribing procedures for removing directors or filling vacancies on the Kelly
Russell Board, or fixing the number of directors or their classifications,
qualifications or terms of office. Under Delaware law, the power to adopt, amend
or repeal by-laws lies in shareholders entitled to vote; provided, however, that
any corporation may, in its certificate of incorporation, confer the power to
adopt, amend or repeal by-laws upon the directors. The Global One By-laws
provide that the Global One Board has the power to amend the Global One By-laws,
and that Global One shareholders may not amend the Global One By-laws except
upon the affirmative vote of a majority of the holders of record of shares of
voting stock entitled to be cast by the holders of all of the then outstanding
shares of voting stock.
PREEMPTIVE RIGHTS
The Kelly Russell Articles and the Global One Certificate deny preemptive
rights to shareholders of Kelly Russell and Global One, respectively.
DIRECTORS
Under Minnesota law and the governing documents of Kelly Russell, directors
hold office until the next annual meeting of shareholders of the election and
qualification of their successors.
The Global One By-laws provide that the Global One Board shall consist of
not less than one nor more than nine members and that such number shall be
determined initially by the Incorporator and thereafter by the Global One Board.
Global One's certificate provides that the directors shall be divided into three
classes, the members of each class to serve for a term of three years. One class
will serve until the First Annual Meeting of Shareholders (Class I); one class
will serve until the Second
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<PAGE>
Annual Meeting of Shareholders (Class II); and one class will serve until the
Third Annual Meeting of Shareholders (Class III), and in all cases, until their
respective successors are duly elected and qualified.
The Global One By-laws provide that any increase or decrease in the number
of directors, whether instituted by the directors or by the shareholders at an
annual meeting, be apportioned among the classes so as to maintain, as nearly as
possible, an equal number of directors in each class. A vacancy on the Global
One Board requires the majority vote of the remaining directors to fill such
vacancy.
The Global One Certificate and By-law provisions with respect to the Global
One Board were designed to ensure continuity of the Global One Board to promote
the long-term goals of and orderly changes in control of the Global One Board.
These provisions could, however, operate to discourage or prevent takeovers,
including mergers, tender offers or proxy contests, or changes in management of
Global One which are proposed to be effected without approval of the Global One
Board, whether or not such takeover or change in control are detrimental to
Global One or its shareholders. The Global One By-law provisions could delay
shareholders who are not in agreement with the policies of the Global One Board
from removing a majority of the Global One Board for two years, unless such
shareholders could show cause to justify such removal.
PERSONAL LIABILITY OF DIRECTORS
Article Eleventh of the Global One Certificate, in conjunction with Delaware
law, will limit or eliminate a director's personal liability to the corporation
or its shareholders for breach of fiduciary duty. Such provision will not,
however, limit or eliminate a director's monetary liability for: (i) a breach of
the director's duty of loyalty; (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware GCL, as the same exists or hereafter may be amended,
or; (iv) any transaction from which the director derived an improper personal
benefit. Minnesota law generally permits a Minnesota corporation's articles to
eliminate or limit a director's personal liability to the corporation or its
shareholders for monetary damages for breaches of a director's duty as a
director. However, the articles cannot deprive the corporation or its
shareholders of the right to enjoin transactions which violate a director's duty
of care. Moreover, the articles cannot limit liability for any breach of the
director's duty of loyalty, for transactions resulting in an improper personal
benefit to the director or for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law. In addition,
liability for illegal dividends, stock repurchases or other distributions to
shareholders or for violations of Minnesota's securities statutes cannot be
limited. The Kelly Russell By-laws provide that Kelly Russell shall indemnify
directors to the extent permitted under Minnesota law.
INDEMNIFICATION
Article 7 of the Kelly Russell By-laws provides for mandatory
indemnification of directors, officers, employees and agents of Kelly Russell to
the full extent permitted by Minnesota law. Minnesota law provides for mandatory
indemnification of a person acting in an official capacity on behalf of the
corporation (including a director, officer, employee or agent) if such person
acted in good faith, received no improper personal benefit, acted in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe his conduct was unlawful.
Delaware law permits, but does not require, a corporation to indemnify
officers, directors, employees or agents and expressly provides that the
indemnification provided for under Delaware law shall not be deemed exclusive of
any indemnification right under any By-law, vote of shareholders or
disinterested directors, or otherwise. Delaware law permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of Global
One, provided that each such person acted in good faith and in a manner that he
reasonably believed was in or not opposed to Global One's best interests and in
the case of a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. Delaware
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<PAGE>
law does not allow indemnification of directors in the case of an action by or
in the right of Global One (including shareholder derivative suits) unless the
directors successfully defend the action or indemnification is ordered by the
court.
Global One's By-laws provide for mandatory indemnification of each person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other entity to the full extent
permitted by the Delaware GCL. In addition, Global One intends to enter into
indemnification agreements with its officers and directors.
However, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Kelly Russell and Global One, Kelly Russell and Global One have been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable.
CONTROL SHARE ACQUISITIONS
Kelly Russell is subject to the Minnesota Control Share Acquisition
("MCSAA"). The MCSAA provides that any person (an "acquiring person") proposing
to make a "control share acquisition" must disclose certain information to the
target corporation and the target corporation's shareholders must thereafter
approve the control share acquisition or certain of the shares acquired in the
control share acquisition shall not have voting rights and shall be subject to
redemption by the target corporation for a specified period of time at the
market value of such shares. A "control share acquisition" is an acquisition of
shares of issuing public corporation which results in the acquiring person
having voting power that exceeds one of the following thresholds: (i) at least
20 percent but less than 33 1/3 percent; (ii) at least 33 1/3 percent but less
than or equal to 50 percent; and (iii) over 50 percent. The definition of a
"control shares acquisition" specifically excludes acquisition of shares from
the corporation issuing such shares, and acquisitions pursuant to plans of
merger or exchange which are approved by the shareholders of the corporation.
The MCSAA applies to a control share acquisition with respect to an issuing
public corporation unless otherwise expressly provided in the issuing public
corporation's articles of incorporation or in by-laws approved by the
shareholders. The Kelly Russell Articles do not provide that the MCSAA will not
apply to Kelly Russell. There are no provisions of Delaware law which are
analogous to the MCSAA.
BUSINESS COMBINATIONS
The MBCA provides that Kelly Russell may not engage in any "business
combination" with any "interested shareholder" or affiliate or associate of an
interested shareholder for a period of four years after the interested
shareholder's "share acquisition date" unless either the business combination or
the acquisition of shares by the interested shareholder on his share acquisition
date is approved by a disinterested committee of the Kelly Russell Board before
such interested shareholder's share acquisition date. The Delaware Business
Combination Act ("DBCA") restricts publicly-held corporations from engaging in
any "business combination" with any "interested shareholder" or affiliate or
associate of an "interested shareholder" for a period of three years, after the
date on which such person becomes an "interested shareholder" unless (i) prior
to such date the board of directors approved the "business combination" or
transaction making the shareholder "interested," or (ii) upon consummation of
such transaction the "interested shareholder" owned at least 85% of the
outstanding voting stock, or (iii) the "business combination" is approved by the
board and by the two-thirds vote of the shares (exclusive of the shares held by
the "interested shareholder") at a meeting.
For purposes of the MBCA, an "interested shareholder" is a 10% or more
beneficial owner of voting shares of such corporation, or a person who is an
associate and an affiliate of the corporation and who at any time within the
four year period preceding the date in question was a 10% or more beneficial
owner of voting shares of such corporation. An "interested shareholder" under
the DBCA is the beneficial owner of 15% or more of the outstanding voting stock
or was at any time within the preceding three years such a holder.
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The MBCA and DBCA apply to any business combination of a corporation with
any interested shareholder unless otherwise expressly provided in such
corporation's articles of incorporation or by-laws, or other restrictions on
applicability exist as set forth in the DBCA. Neither the Articles or
Certificate nor the By-laws of Kelly Russell or Global One provide that such
corporation will not be subject to the MBCA or the DBCA, respectively.
RIGHTS OF DISSENTING SHAREHOLDERS
Under Section 302A.473 of the MBCA, if a corporation calls a shareholder
meeting to approve a merger to which such corporation is a party, the sale of
substantially all of the assets of the corporation, or in certain other
circumstances, the notice of the meeting must inform each shareholder of the
right to dissent from such action and must include a copy of section 302A.471
and section 302A.473 of the MBCA and a brief description of the procedure to be
followed under such sections. A shareholder who wishes to exercise dissenters'
rights in such circumstances is entitled to demand the fair value of the shares
owned by such shareholder.
Under Delaware law, shareholders have the right, in some circumstances, to
dissent from mergers and consolidations by demanding payment in cash for their
shares equal to the fair value (excluding any appreciation or depreciation as a
consequence or in expectation of the transaction), as determined by agreement
with the corporations or by an independent appraiser appointed by a court in an
action timely brought by the dissenters. No appraisal rights exist, however, for
shares listed on a national securities exchange or held of record by more than
2,000 shareholders unless the certificate of incorporation provides otherwise or
the shareholders receive anything other than: (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or held of record by more than 2,000 shareholders; (iii) cash in lieu of
fractional shares of the corporation described in the foregoing clauses (i) and
(ii); or (iv) any combination of (i), (ii) or (iii).
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial information
gives effect to the Transactions as if it had occurred as of January 1, 1995 for
the unaudited pro forma condensed combined statement of operations and other
financial data and as of March 31, 1996 for purposes of the unaudited pro forma
condensed combined balance sheet data.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the actual financial position or results of operations of
Global One had the transactions and events assumed therein in fact occurred on
the dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The Unaudited Pro Forma Condensed
Combined Financial Statements are based on certain assumptions and adjustments
described in the notes to the Unaudited Pro Forma Condensed Combined Financial
Statements and should be read in conjunction therewith and with "The KRSI
Merger," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of The Company" and "Kelly Russell Studios, Inc.
Management's Discussion and Analysis of Results of Operations and Financial
Condition." and the Consolidated Financial Statements of The Company and Kelly
Russell and the related notes thereto included elsewhere in this Proxy
Statement/Prospectus.
Unaudited pro forma condensed combined financial information reflecting the
Transactions is provided below using the purchase method of accounting.
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GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Unaudited Pro Forma Condensed Combined Statements of
Operations set forth continuing operations of the Company for the three months
ended March 31, 1996, as if the Transactions had occurred as of January 1, 1995.
The Unaudited Pro Forma Condensed Combined Statements of Operations would not
necessarily reflect the results of operations that would have been attained if
the Transactions had been consummated at the beginning of the year presented.
The following Unaudited Pro Forma Condensed Combined Statements of Operations do
not reflect cost savings that may result from the Transactions.
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL KELLY PRO FORMA PRO FORMA
COMPANY RUSSELL ADJUSTMENTS COMBINED
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
NET SALES..................................................... $ 8,941 $ 779 $ $ 9,720
COST OF SALES................................................. 5,270 453 5,723
----------- ------------ --- -----------
GROSS PROFIT.................................................. 3,671 326 0 3,997
OPERATING EXPENSES:
Warehouse and selling....................................... 2,352 2,352
General and administrative.................................. 1,453 709 83(1) 2,245
----------- ------------ --- -----------
Total operating expenses.................................. 3,805 709 83 4,597
----------- ------------ --- -----------
OPERATING LOSS................................................ (134) (383) (83) (600)
INTEREST EXPENSE.............................................. 267 2 269
----------- ------------ --- -----------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST................ (401) (385) (83) (869)
INCOME TAX PROVISION.......................................... 67 67
----------- ------------ --- -----------
LOSS BEFORE MINORITY INTEREST................................. (468) (385) (83) (936)
MINORITY INTEREST............................................. 46 46
----------- ------------ --- -----------
NET LOSS...................................................... $ (514) $ (385) $ (83) $ (982)
----------- ------------ --- -----------
----------- ------------ --- -----------
</TABLE>
<TABLE>
<S> <C>
PRO FORMA NET LOSS DATA:
Loss before income taxes and minority interest................................. $ (869)
Pro forma benefit for income taxes............................................. (85)(3)
Minority interest.............................................................. 46
------------
Pro forma net loss............................................................. $ (830)
------------
------------
PRO FORMA NET LOSS PER SHARE:
Pro forma net loss............................................................. $ (0.06)
------------
------------
Pro forma weighted average shares outstanding.................................. 12,994(2)
------------
------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Unaudited Pro Forma Condensed Combined Statements of
Operations set forth continuing operations of the Company for the year ended
December 31, 1995, as if the Transactions had occurred as of January 1, 1995.
The Unaudited Pro Forma Condensed Combined Statements of Operations would not
necessarily reflect the results of operations that would have been attained if
the Transactions had been consummated at the beginning of the year presented.
The following Unaudited Pro Forma Condensed Combined Statements of Operations do
not reflect cost savings that may result from the Transactions.
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL KELLY PRO FORMA PRO FORMA
COMPANY RUSSELL ADJUSTMENTS COMBINED
--------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
NET SALES..................................................... $ 38,228 $ 2,814 $ $ 41,042
COST OF SALES................................................. 21,647 2,553 24,200
--------- ------------ ------ -----------
GROSS PROFIT.................................................. 16,581 261 0 16,842
OPERATING EXPENSES:
Warehouse and selling....................................... 10,201 10,201
General and administrative.................................. 4,971 2,134 294(1) 7,399
--------- ------------ ------ -----------
Total operating expenses.................................. 15,172 2,134 294 17,600
--------- ------------ ------ -----------
OPERATING INCOME (LOSS)....................................... 1,409 (1,873) (294) (758)
--------- ------------ ------ -----------
OTHER (INCOME) EXPENSE:
Other Income................................................ (40) (40)
Interest Expense............................................ 841 7 848
--------- ------------ ------ -----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM........................................... 568 (1,840) (294) (1,566)
INCOME TAX BENEFIT............................................ (77) (77)
--------- ------------ ------ -----------
INCOME (LOSS) BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEM......................................................... 645 (1,840) (294) (1,489)
MINORITY INTEREST............................................. 243 243
--------- ------------ ------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM....................... $ 402 $ (1,840) $ (294) $ (1,732)
--------- ------------ ------ -----------
--------- ------------ ------ -----------
</TABLE>
<TABLE>
<S> <C>
PRO FORMA NET LOSS DATA:
Loss before income taxes, minority interest and extraordinary item............. $ (1,566)
Pro forma provision for income taxes........................................... 114(3)
Minority interest.............................................................. 243
------------
Pro forma net loss before extraordinary item................................... $ (1,923)
------------
------------
PRO FORMA NET LOSS PER SHARE:
Pro forma net loss before extraordinary item................................... $ (0.15)
------------
------------
Pro forma weighted average shares outstanding.................................. 12,994(2)
------------
------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
43
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GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
UNAUDITED COMPARATIVE PER SHARE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary of comparative per share data sets forth certain
historical information for the Company and Kelly Russell, certain pro forma
information for Global One after giving effect to the KRSI Merger as a purchase
for accounting purposes, as if the KRSI Merger had been consummated at January
1, 1995 and equivalent pro forma information for Kelly Russell based on the pro
forma Global One information. No cash dividends were paid during the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
HISTORICAL:
OSP
Net income (loss) (3)...................... $ 0.06 $ (0.05)
Weighted average shares outstanding........ 8,037 8,037
Period-end book value (4).................. $ (0.16) $ (0.23)
Period-end shares outstanding.............. 6,448 6,448
Kelly Russell
Net loss before extraordinary item......... $ (0.52) $ (0.09)
Weighted average shares outstanding........ 3,541 4,082
Period-end book value (4).................. $ 0.25 $ 0.16
Period-end shares outstanding.............. 4,082 4,082
PRO FORMA COMBINED (5):
Global One
Net loss before extraordinary item......... $ (0.15) $ (0.06)
Weighted average shares outstanding........ 12,994 12,994
Period-end book value (4).................. $ 0.50 $ 0.46
Period-end shares outstanding.............. 12,994 12,994
Pro forma combined
Equivalent Kelly Russell share (6)
Net loss before extraordinary item....... $ (0.07) $ (0.03)
Period-end book value (4)................ $ 0.25 $ 0.23
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
44
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following Unaudited Pro Forma Condensed Combined Balance Sheet sets
forth historical balance sheet information for the Company and Kelly Russell at
March 31, 1996.
ASSETS
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------------------------------------
HISTORICAL
HISTORICAL KELLY PRO FORMA PRO FORMA
COMPANY RUSSELL ADJUSTMENTS COMBINED
--------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 378 $ 38 $ 2,631(7) $ 3,047
Accounts receivable -- trade, net of allowance for
doubtful accounts..................................... 5,958 514 6,472
Inventories............................................ 4,992 276 5,268
Prepaid royalty advances............................... 716 133 849
Prepaid expenses and other current assets.............. 366 158 524
Deferred income tax asset.............................. 38 795(8) 833
--------- ------------ ------- -----------
Total current assets............................... 12,448 1,119 3,426 16,993
PROPERTY AND EQUIPMENT, Net.............................. 1,184 278 1,462
GOODWILL, Net............................................ 141 3,323(9) 3,464
DEPOSITS................................................. 160 160
--------- ------------ ------- -----------
TOTAL.................................................... $ 13,933 $ 1,397 $ 6,749 $ 22,079
--------- ------------ ------- -----------
--------- ------------ ------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 4,253 $ 541 $ 4,794
Accrued expenses....................................... 1,211 168 1,379
Royalties payable...................................... 2,059 49 2,108
Due to customers....................................... 205 205
Income taxes payable................................... 300 300
Current maturities of:
Capitalized lease obligations........................ 85 85
Subordinated long-term debt.......................... 1,050 (375)(7) 675
--------- ------------ ------- -----------
Total current liabilities.......................... 9,163 758 (375) 9,546
--------- ------------ ------- -----------
REVOLVING LINE OF CREDIT................................. 4,022 4,022
CAPITALIZED LEASE OBLIGATIONS............................ 129 129
SUBORDINATED LONG-TERM DEBT.............................. 1,857 1,857
MINORITY INTEREST........................................ 615 615
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock........................................... 1,263 41 24(10)(7) 1,328
Additional paid-in capital............................. 112 8,133 520(11)(7) 8,765
Accumulated deficit.................................... (3,228) (7,535) 6,580(8) (4,183)
--------- ------------ ------- -----------
Total shareholders' equity (deficiency)............ (1,853) 639 7,124 5,910
--------- ------------ ------- -----------
TOTAL.................................................... $ 13,933 $ 1,397 $ 6,749 $ 22,079
--------- ------------ ------- -----------
--------- ------------ ------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
45
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) Represents the amortization of the excess of purchase price over net assets
acquired assuming a ten year life.
(2) Assumes for all periods presented the issuance of 2,041,187 shares of Global
One Common Stock to effect the KRSI Merger, as well as 4,504,234 shares
deemed to be sold in the Private Placement.
(3) Assumes pro forma treatment of income taxes for OSP being treated as a C
Corporation. See Note 10 to OSP's audited consolidated financial statements.
(4) Based on the actual or pro forma number of shares outstanding at the end of
the respective period.
(5) Assumes a Conversion Ratio of 0.5 shares of Global One Common Stock for each
share of Kelly Russell Common Stock as well as application of the net
proceeds from completion of the Transactions.
(6) Represents the pro forma equivalent of one share of Kelly Russell Common
Stock calculated by multiplying pro forma Global One data by the assumed
Conversion Ratio of 0.5 shares of Global One Common Stock for each share of
Kelly Russell Common Stock.
(7) The proceeds from the Private Placement will be used as follows:
<TABLE>
<S> <C>
Proceeds from issuance of common stock............................. $ 6,756
Less Transaction costs............................................. 2,000
---------
4,756
Payment of S Corporation distribution.............................. 1,750
Repayment of subordinated debt..................................... 375
---------
Cash for working capital........................................... $ 2,631
---------
---------
</TABLE>
(8) Reflects the following:
<TABLE>
<S> <C>
Declaration of a dividend payable to the OSP Shareholders.......... $ (1,750)
Recognition of OSP deferred income tax assets from change to C
Corporation....................................................... 795
Elimination of Kelly Russell accumulated deficit................... 7,535
---------
$ 6,580
---------
---------
</TABLE>
(9) The acquisition of Kelly Russell will be accounted for as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
total purchase cost will be allocated to Kelly Russell's assets and
liabilities based on their relative fair values as of the Effective Time of
the KRSI Merger, based on valuations and other studies that are not yet
complete. Accordingly, the excess of the purchase cost over the historical
book value of the net assets acquired has not yet been fully allocated to
the individual assets and liabilities acquired. Management believes there
will be no significant change in the allocation of the purchase price once
the final analysis is completed. Therefore, the excess purchase cost over
the net assets acquired has been allocated to goodwill.
<TABLE>
<S> <C>
Purchase cost of equity............................................ $ 3,062
Plus costs associated with the Merger.............................. 900
Less book value of net assets acquired at March 31, 1996........... 639
---------
Cost in excess of net assets acquired.............................. $ 3,323
---------
---------
</TABLE>
46
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(10) Reflects the following:
<TABLE>
<S> <C>
Common Stock issued to effect the KRSI Merger........................ $ 20
Common Stock issued in the Private Placement......................... 45
Elimination of Kelly Russell Common Stock............................ (41)
---
$ 24
---
---
</TABLE>
(11) Reflects the following:
<TABLE>
<S> <C>
Common Stock issued to effect the KRSI Merger...................... $ 3,042
Common Stock issued in the Private Placement....................... 6,711
Transaction costs associated with the KRSI Merger and the Private
Placement......................................................... (1,100)
Elimination of Kelly Russell additional paid-in capital............ (8,133)
---------
$ 520
---------
---------
</TABLE>
47
<PAGE>
S CORPORATION DISTRIBUTIONS
The Company has been taxed as an S Corporation under the Internal Revenue
Code of 1986, as amended, since 1989. As a result of the Company being an S
Corporation, the taxable income of the Company generally has been taxed, for
federal and state income purposes, directly to the OSP Shareholders rather than
to the Company. The State of California imposes a corporate level state tax on S
corporations at the reduced rate of 1.5%. The Company makes a distribution to
the OSP Shareholders to pay shareholder level taxes, and the amount estimated to
be distributed to pay such taxes for 1995 and 1996 (through the Effective Time
of the KRSI Merger) is $500,000 to $600,000. Such dividend is expected to be
paid following the Closing.
The Company has paid distributions in the past and a portion has been
reinvested through the purchase of additional shares of OSP Common Stock by the
OSP Shareholders. The Company has declared a final distribution to the OSP
Shareholders in the amount of $1,750,000 which is to be paid from the proceeds
of the Private Placement following the Closing. This distribution is expected to
be in excess of the undistributed cumulative income that has been taxed or will
be taxable to the shareholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, and of Global One, pro forma to give effect to the consummation of the
KRSI Merger and pro forma as adjusted to give pro forma effect to the
consummation of the Transactions (in thousands).
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
PRO FORMA AS
ACTUAL ADJUSTED
--------- -------------
<S> <C> <C>
Subordinated debt...................................................................... $ 1,050 $ 675(1)
Capitalized leases..................................................................... 85 85
--------- -------------
Total short-term obligations......................................................... 1,135 760(1)
--------- -------------
Subordinated debt...................................................................... 1,857 1,857
Revolving line of credit............................................................... 4,022 4,022
Capitalized leases..................................................................... 129 129
--------- -------------
Total long-term obligations.......................................................... 6,008 6,008
--------- -------------
Shareholders' equity:
Common stock......................................................................... 1,263 1,328(2)
Additional paid-in capital........................................................... 112 8,765(3)
Accumulated deficit.................................................................. (3,228) (4,183)(4)
--------- -------------
Total shareholders' (deficiency) equity............................................ (1,853) 5,910
--------- -------------
Total capitalization............................................................... $ 5,290 $ 12,678
--------- -------------
--------- -------------
</TABLE>
- ------------------------
(1) Represents repayment of $375 of subordinated debt from the proceeds of the
Private Placement.
(2) Reflects the following:
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
OSP Common Stock -- par value.................................................... $ 1,263
Common Stock issued to effect the KRSI Merger.................................... 20
Common Stock issued to effect the Private Placement.............................. 45
-----------
$ 1,328
-----------
-----------
</TABLE>
48
<PAGE>
(3) Reflects the following:
<TABLE>
<S> <C>
OSP additional paid-in capital................................... $ 112
Common Stock issued to effect the KRSI Merger.................... 3,042
Common Stock issued to effect the Private Placement.............. 6,711
Less transaction costs associated with the Private Placement..... (1,100)
-----------
$ 8,765
-----------
-----------
</TABLE>
(4) Reflects the following:
<TABLE>
<S> <C>
The Company accumulated deficit.................................. $ (3,228)
Declaration of a dividend payable to the OSP Shareholders........ (1,750)
Recognition of Company deferred income tax assets from change to
C corporation................................................... 795
-----------
$ (4,183)
-----------
-----------
</TABLE>
49
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OSP PUBLISHING, INC. AND SUBSIDIARIES
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the related
notes and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company" included elsewhere herein. The selected
consolidated balance sheet data presented below for the years ended December 31,
1994 and 1995 and of the consolidated statement of operations data presented
below for the years ended December 31, 1993, 1994 and 1995 are derived from the
consolidated financial statements of the Company included elsewhere herein,
which financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants. The selected consolidated balance
sheet data presented below as of December 31, 1993, are derived from financial
statements of the Company not included herein which have been audited by
Deloitte & Touche LLP, independent certified public accountants. The selected
consolidated balance sheet data presented below as of December 31, 1991 and 1992
and consolidated statement of operation data presented below for the years ended
December 31, 1991 and 1992 are derived from financial statements of the Company
audited by the other auditors not included herein. The selected consolidated
balance sheet data as of March 31, 1996 and the consolidated statement of
operations data for the three months ended March 31, 1995 and 1996 have been
derived from the Company's unaudited consolidated financial statements.
Operating results for the three months ended March 31, 1996 may not be
indicative of the results that may be expected for the year ending December 31,
1996 or any future period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Sales.................................. $16,173 $17,126 $38,108 $42,168 $38,228 $7,421 $8,941
Cost of sales.............................. 9,304 9,297 22,335 25,140 21,647 4,092 5,270
------- ------- ------- ------- ------- ------ ------
Gross profit............................... 6,869 7,829 15,773 17,028 16,581 3,329 3,671
Operating expenses......................... 5,770 7,143 13,797 16,636 15,172 3,503 3,805
------- ------- ------- ------- ------- ------ ------
Income (loss) from operations.............. 1,099 686 1,976 392 1,409 (174) (134)
Interest expense........................... 562 429 605 685 841 173 267
------- ------- ------- ------- ------- ------ ------
Income (loss) from continuing operations... $ 537 $ 257 $ 1,371 $ (293) $ 568 $ (347) $ (401)
------- ------- ------- ------- ------- ------ ------
------- ------- ------- ------- ------- ------ ------
PRO FORMA INCOME FROM CONTINUING OPERATIONS
DATA (1, 2):
Income (loss) before income taxes, minority
interest and discontinued operations, as
reported.................................. $ 537 $ 257 $ 1,371 $ (293) $ 568 $ (347) $ (401)
Pro forma provision (benefit) for income
taxes (2)................................. 255 266 344 (43) 114 (70) (85)
------- ------- ------- ------- ------- ------ ------
Pro forma net income (2)................... $ 282 $ (9) $ 1,027 $ (250) $ 454 $ (277) $ (316)
------- ------- ------- ------- ------- ------ ------
------- ------- ------- ------- ------- ------ ------
PER SHARE DATA:
Pro forma (loss) income from continuing
operations per share...................... $ 0.06 $(0.03) $(0.04)
------- ------ ------
------- ------ ------
Weighted average shares outstanding (3).... 8,037 8,036 8,037
------- ------ ------
------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------ MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------ ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA (1):
Working capital
(deficiency)............... $ 2,141 $1,587 $ 2,337 $ (197) $ 3,312 $ 3,285
Total assets................ 6,439 6,427 13,464 13,841 11,698 13,933
Total debt, including
current portion............ 5,219 2,896 5,129 6,724 5,989 7,143
Shareholders' equity
(deficiency)............... $(1,075) $ 266 $ 637 $(1,408) $(1,299) $(1,853)
</TABLE>
- ------------------------------
(1) In December 1994, the Company determined to discontinue its Top Banana
division. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of The Company -- Discontinued Operations" and
Note 12 of Notes to Consolidated Financial Statements.
(2) The Company has been taxed as an S Corporation for federal and state income
tax purposes since 1989. Pro forma income taxes, pro forma loss from
continuing operations, and pro forma loss from continuing operations per
share reflect the pro forma effect of income taxes as if the Company had
been taxed as a C Corporation for all periods presented. Upon consummation
of the Transactions, Global One will be subject to federal and state income
taxes. See "S Corporation Distributions."
(3) Assumes as outstanding, during each of the periods indicated, 1,393,550
shares of the shares being offered by Global One in the Private Placement,
which represent the approximate number of shares deemed to be sold by Global
One to fund the $1,750,000 S Corporation distribution described in "S
Corporation Distributions." See "S Corporation Distributions" and Note 13 of
Notes to Consolidated Financial Statements.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY
GENERAL
The following discussion is intended to provide information to facilitate
the understanding and assessment of significant changes and trends related to
the financial condition of the Company and the results of its operations. This
discussion and analysis should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto included elsewhere
herein.
The business of the Company is conducted through OSP, SDI and BEx, each of
which conducts a distinct business. OSP develops and markets posters
incorporating primarily licensed images and characters from motion pictures,
television, animation, music, sports and popular culture. Non-licensed posters
published by OSP included generic posters, WalletCards, BookBites-TM-, movie
scripts and framed and unframed wall decor of models, cars, airplanes and
popular phrases. SDI develops and markets licensed and non-licensed T-shirts,
sweatshirts, hats, boxer shorts and mugs. BEx develops and markets licensed and
non-licensed buttons, key rings and stickers. See "Business of The Company."
The Company derives a significant portion of its revenues from properties
which have demonstrated continuing market appeal year after year, such as
Disney's and Warner Bros.' standard characters, including MICKEY MOUSE and BUGS
BUNNY, television programs, Playboy's PLAYMATE OF THE YEAR and classic icons,
such as Marilyn Monroe and the Doors ("Standard Properties"). During the last
three years, OSP has experienced increased sales of products attributable to its
Standard Properties due to the wider distribution of display racks to retailers.
Approximately 3,500 new display racks were put in service in 1994 and 3,000 new
display racks were put in service in 1995. Additional revenues are derived each
year from other promotional products associated with hit films and television
shows which generally have a much shorter product life ("Promotional
Properties"). The Company attempts to identify and acquire licenses for
Promotional Properties to capitalize on popular culture trends. However, whether
or not a Promotional Property achieves significant sales depends on a number of
factors that are out of the control of the Company, including marketing efforts
by licensors and the appeal of such Promotional Properties to the target market.
Management believes that to date, Promotional Properties have accounted for a
larger percentage of SDI's and BEx's revenues than Standard Properties.
Accordingly, variations in the Company's revenues from year to year are largely
attributable to the success achieved by Promotional Properties in any given
year. The Company's business strategy includes increasing its core business on
Standard Properties as a percentage of net sales by increasing the number of
display racks supplied to mass retailers, increasing the number of Standard
Properties and expanding its international business. Management anticipates
continuing fluctuations from year to year to the extent the Company's
Promotional Products achieve success in any given year. See "Business of The
Company -- Business Strategy." No assurances can be given that the Company will
be successful in these efforts.
51
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth the net sales, total cost of sales and gross
profit of OSP, SDI, BEx and the Company, for the three months ended March 31,
1995 and 1996 and for the years ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
1995 1996
------------------------- -------------------------
AMOUNT % OF SALES AMOUNT % OF SALES
----------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net Sales
OSP....................................................... $ 5.2 100.0% $ 4.6 100.0%
SDI....................................................... 1.5 100.0 4.1 100.0
BEx....................................................... 0.7 100.0 0.2 100.0
--- ---
Company................................................... $ 7.4 100.0 $ 8.9 100.0
--- ---
--- ---
Cost of Goods Sold
OSP....................................................... $ 2.1 40.4 $ 1.8 39.1
SDI....................................................... 0.8 53.3 2.4 58.5
BEx....................................................... 0.3 42.9 0.1 50.0
--- ---
Company................................................... $ 3.2 43.2 $ 4.3 48.3
--- ---
--- ---
License and royalty expense
OSP....................................................... 0.7 13.5 0.6 13.0
SDI....................................................... 0.2 13.3 0.3 7.3
BEx....................................................... 0.0 0.0 0.0 0.0
--- ---
Company................................................... $ 0.9 12.2 $ 0.9 10.1
--- ---
--- ---
Total Cost Of Sales
OSP....................................................... $ 2.8 53.8 $ 2.4 52.2
SDI....................................................... 1.0 66.7 2.7 65.9
BEx....................................................... 0.3 42.9 0.1 50.0
--- ---
Company................................................... $ 4.1 55.4 $ 5.2 58.4
--- ---
--- ---
Gross Profit
OSP....................................................... $ 2.4 46.2 $ 2.2 47.8
SDI....................................................... 0.5 33.3 1.4 34.1
BEx....................................................... 0.4 57.1 0.1 50.0
--- ---
Company................................................... $ 3.3 44.6 $ 3.7 41.6
--- ---
--- ---
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1993 1994 1995
------------------------- ------------------------- -------------------------
AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES
----------- ------------ ----------- ------------ ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales
OSP........................................... $ 19.5 100.0% $ 23.6 100.0% $ 25.2 100.0%
SDI........................................... 15.5 100.0 11.1 100.0 10.1 100.0
BEx........................................... 3.1 100.0 7.5 100.0 2.9 100.0
----- ----- -----
Company....................................... $ 38.1 100.0 $ 42.2 100.0 $ 38.2 100.0
----- ----- -----
----- ----- -----
Cost of Goods Sold
OSP........................................... $ 7.7 39.5 $ 9.7 41.1 $ 9.8 38.9
SDI........................................... 8.6 55.5 6.8 61.3 5.9 58.4
BEx........................................... 1.1 35.5 2.9 38.7 1.3 44.8
----- ----- -----
Company....................................... $ 17.4 45.7 $ 19.4 46.0 $ 17.0 44.5
----- ----- -----
----- ----- -----
License and Royalty Expense
OSP........................................... $ 3.0 15.4 $ 3.7 15.7 $ 3.5 13.9
SDI........................................... 1.5 9.7 1.2 10.8 0.9 8.9
BEx........................................... 0.4 12.9 0.9 12.0 0.3 10.3
----- ----- -----
Company....................................... $ 4.9 12.9 $ 5.8 13.7 $ 4.7 12.3
----- ----- -----
----- ----- -----
Total Cost of Sales
OSP........................................... $ 10.7 54.9 $ 13.4 56.8 $ 13.3 52.8
SDI........................................... 10.1 65.2 8.0 72.1 6.8 67.3
BEx........................................... 1.5 48.4 3.8 50.7 1.6 55.2
----- ----- -----
Company....................................... $ 22.3 58.5 $ 25.2 59.7 $ 21.7 56.8
----- ----- -----
----- ----- -----
Gross Profit
OSP........................................... $ 8.8 45.1 $ 10.2 43.2 $ 11.9 47.2
SDI........................................... 5.4 34.8 3.1 27.9 3.3 32.7
BEx........................................... 1.6 51.6 3.7 49.3 1.3 44.8
----- ----- -----
Company....................................... $ 15.8 41.4 $ 17.0 40.3 $ 16.5 43.2
----- ----- -----
----- ----- -----
</TABLE>
53
<PAGE>
The following tables sets forth the percentage of net sales of certain
income and expense items for the three months ended March 31, 1995 and 1996 and
for the years ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES
THREE MONTHS ENDED PERIOD TO PERIOD
MARCH 31, PERCENTAGE CHANGE
------------------------ -----------------
1995 1996 1995 VS. 1996
----------- ----------- -----------------
<S> <C> <C> <C>
Net sales............................................................... 100.0% 100.0% 20.3%
Cost of goods sold...................................................... 43.2 48.3 34.4
License and royalty expense............................................. 12.2 10.1 --
Gross profit............................................................ 44.6 41.6 12.1
Warehouse and selling expenses.......................................... 30.2 26.3 4.9
General and administrative.............................................. 17.0 16.3 15.2
Operating income........................................................ (2.3) (1.5) 23.3
Interest expense........................................................ 2.3 3.0 54.9
Minority interest in (income) loss of subsidiaries...................... 0.5 (0.5) (221.7)
Net income.............................................................. (2.4) (5.8) (190.4)
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NET SALES PERIOD TO PERIOD
YEAR ENDED PERCENTAGE CHANGE
DECEMBER 31, ------------------------
------------------------------------- 1993 VS. 1994 VS.
1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 10.8% (9.5)%
Cost of goods sold...................................... 45.7 46.0 44.5 11.5 (12.4)
License and royalty expense............................. 12.9 13.7 12.3 18.4 (19.0)
Gross profit............................................ 41.4 40.3 43.2 7.6 (2.9)
Warehouse and selling expenses.......................... 23.2 25.7 26.7 22.4 (5.8)
General and administrative expenses..................... 13.0 13.8 13.0 17.4 (14.5)
Operating income........................................ 5.2 0.8 3.5 (80.2) 259.5
Interest expense........................................ 1.6 1.6 2.2 13.3 22.7
Minority interest in (income) loss of subsidiaries...... (1.0) 0.4 (0.6) 139.2 (264.2)
Income before discontinued operations................... 1.5 (0.6) 1.1 (146.2) 255.5
Discontinued operations................................. 0.3 (1.8) -- (689.2) --
Net income.............................................. 2.1 (2.4) 1.1 (226.8) 139.1
</TABLE>
DISCONTINUED OPERATIONS
In 1991, the Company started the Top Banana division which primarily
developed and marketed licensed children's electronic banks and clocks, which
were manufactured exclusively in the Far East. In December 1994, the Company
decided to wind down the division due to large losses attributable primarily to
the financing of Top Banana's working capital needs through letters of credit,
excessive time to source products from the Far East and a distribution system
that was distinct from its distribution system for posters, T-shirts and
buttons. This process was substantially completed in 1995.
The loss from discontinued operations was $770,000 on sales of $3.5 million
in 1994 compared to income of $131,000 on sales of $2.6 million in 1993. Of the
loss from discontinued operations recognized during 1994, $424,000 was due to an
operating loss and $346,000 was due to the estimated loss on disposal of the
operation. No additional loss from discontinued operations was recognized in
1995 as the reserve for loss on disposal established in 1994 was sufficient.
These operations have been accounted for as a discontinued operation for all
periods presented.
54
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
The Company's net sales increased $1.5 million, or 20.5%, during the first
quarter of 1996 compared to the first quarter of 1995. This increase resulted
primarily from a $2.6 million increase in sales by SDI that more than offset a
$600,000 decrease in sales by OSP and a $500,000 decrease in sales by BEx. The
173.3% increase in SDI's sales is principally due to the popularity of the
Anheuser-Busch licenses ("I LOVE YOU, MAN" and FROGS). The 11.5% decrease in OSP
sales is related to the significant sales generated in the first quarter of 1995
by LEGENDS OF THE FALL-Brad Pitt and LION KING. BEx's sales decreased 71.4%
compared to the first quarter of 1995 primarily to due to the reorganization of
the Company's management, redirection of the marketing and sales effort, and
relocation of the Company's operations.
Cost of goods sold increased $1.1 million, or 34.4%, in the first quarter of
1996 to $4.3 million compared with $3.2 million in the first quarter of 1995. As
a percentage of net sales, cost of goods increased to 48.3% in the first quarter
of 1996 from 43.2% in the first quarter of 1995. The Company's cost of goods
increased primarily because SDI, which typically has the highest cost of goods
sold, comprised 46.1% of the Company's total sales in the first quarter of 1996
compared to 20.3% in the first quarter of 1995.
OSP's cost of goods sold decreased $300,000, or 14.3%, to $1.8 million in
the first quarter of 1996 from $2.1 million in the first quarter of 1995
primarily due to slightly lower printing and paper costs.
SDI's cost of goods sold increased by $1.6 million, or 200.0%, to $2.4
million in the first quarter of 1996 from $800,000 in the first quarter of 1995.
SDI's cost of goods sold as a percentage of sales in the first quarter of 1996
was 58.5% compared to 53.3% in the first quarter of 1995. SDI's net sales
increased significantly, thereby contributing to the large increase in the
overall cost of goods sold. The increase in the cost of goods sold as a
percentage is primarily due to the increase in sales of products to mass
retailers, which are typically sold at a lower price compared to specialty and
gift retailers.
BEx's cost of goods sold decreased by $200,000, or 66.7%, to $100,000 in the
first quarter of 1996 compared to $300,000 in the first quarter of 1995. BEx's
cost of goods sold as a percentage of sales increased to 50.0% in the first
quarter of 1996 from 42.9% in the first quarter of 1995 due primarily to
decreased efficiency as a result of the relocation of the Company's operations
and reorganization of management.
License and royalty expense, as a percentage of sales decreased to 10.1% in
the first quarter of 1996 from 12.2% in the first quarter of 1995 due to the
increase in sales of products under lower royalty rate licenses as a percentage
of total sales of licensed products. OSP's royalty rate decreased to 13.0% in
the first quarter of 1996 from 13.5% in the first quarter of 1995 due primarily
from an $850,000 decrease in sales for Disney licenses which have higher royalty
rates. SDI's royalty rate decreased to 7.3% in the first quarter of 1996 from
13.3% in the first quarter 1995 primarily due to the addition of a license which
has a lower royalty rate than most of SDI's film and television licenses. This
license generated $2.1 million in sales, or 51.2%, of SDI's total sales in the
first quarter of 1996.
Warehouse and selling expenses increased $110,000, or 4.9%, to $2.4 million
in the first quarter of 1996 from $2.3 million in the first quarter of 1995.
Factors contributing to this increase included an increase of $234,000 in
commissions and an increase of $59,000 in freight by SDI due to the 173.3%
increase in sales. These increases were offset by BEx's overall decrease of
$173,000 in warehouse and selling expenses. This decrease is related to BEx
moving its warehouse operation into OSP's facility. Warehouse and selling
expenses as a percentage of sales decreased to 26.3% in the first quarter of
1996 from 30.2% in the first quarter of 1995.
General and administrative expenses increased by $191,000, or 15.2%, to $1.5
million in the first quarter of 1996 from $1.3 million in the first quarter of
1995, due primarily to an increase of $68,000 in legal, accounting and other
professional fees and a bonus to the President of SDI of $149,000. Additionally,
reductions in general and administrative expense were due to the BEx relocation
which accounted for a $31,000 decrease in costs.
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<PAGE>
Operating loss decreased $40,000, or 23.3%, in the first of quarter 1996 to
$134,000 compared to $174,000 in the first of quarter 1995. As a percentage of
sales, operating loss decreased to 1.5% in the first quarter of 1996 compared
with 2.3% of sales in the first quarter of 1995. The decrease in operating loss
was attributable to the lower operating expenses as a percentage of sales
discussed above.
Interest expense increased $95,000, or 54.9%, to $268,000 in the first of
quarter 1996 from $173,000 in the first quarter of 1995. The increase in
interest expense was due primarily to an increase in the contractual interest
rate charged on the outstanding borrowings by OSP and BEx prior to the
refinancing of the credit line in February 1996. Additionally, SDI's interest
expense increased due to additional factoring of accounts receivable resulting
from the increase in first quarter sales.
The Company's income tax provision in the first quarter of 1996 was $67,000,
compared with an income tax benefit of $133,000 recorded in the first quarter of
1995, an increase of $200,000. The tax provision in 1996 was attributable to
increased net income at SDI and no recognition of a tax benefit for BEx's
operating losses which had been recorded in 1995 due to available tax
carrybacks.
The Company's net loss increased $337,000, or 190.4%, to $514,000 in the
first quarter of 1996 compared with a loss of $177,000 in the first quarter of
1995. As a percentage of sales, the net loss was 5.8% in the first quarter of
1996 compared to 2.4% in the first quarter 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
The Company's net sales decreased $3.9 million, or 9.3%, during 1995
compared with 1994. This decrease resulted primarily from a $4.6 million
decrease in sales by BEx and a $956,000 decrease in sales by SDI which more than
offset a $1.6 million increase in sales by OSP. The 61.1% decrease in the BEx
sales was principally due to BEx not having a uniquely popular licensed property
to generate sales during 1995, as contrasted to sales of products based on THE
LION KING and MIGHTY MORPHIN POWER RANGERS licenses in 1994. OSP's sales
increased 6.8% in 1995 from 1994 primarily due to new products and more
retailers selling its products. In 1995, SDI's sales decreased 9.0% because SDI
did not have a licensed property that generated broad appeal to customers who
purchase from mass retailers.
Cost of goods sold decreased $2.4 million, or 12.4%, to $17.0 million in
1995 compared to $19.4 million in 1994, due primarily to the decrease in cost of
goods as a percentage of sales of OSP and SDI, which more than offset the
increase in the cost of goods as a percentage of sales of BEx. As a percentage
of net sales, cost of goods sold dropped from 46.0% in 1994 to 44.5% in 1995.
The Company's cost of goods as a percentage of sales improved since OSP, which
has the lowest cost of goods as a percentage of sales, comprised 66.0% of the
Company's total net sales in 1995, compared with 55.9% in 1994.
Although OSP's cost of goods sold increased by $160,000, or 1.7%, to $9.8
million in 1995 from $9.7 million in 1994, OSP's cost of goods as a percentage
of sales decreased from 41.1% in 1994 to 38.9% in 1995, primarily because OSP
sold more products and was able to charge more for its products by selling them
directly to retailers rather than through distributors. In 1995, the amount of
sales to retailers was 70.9% of total OSP sales, compared to 68.0% of total OSP
sales in 1994.
SDI's cost of goods decreased by $944,000, or 13.8%, to $5.9 million in 1995
from $6.8 million in 1994. SDI's cost of goods as a percentage of sales in 1995
was 58.4% compared to 61.3% in 1994. Although SDI's net sales decreased, thereby
contributing to a decrease in the overall cost of goods sold, the decrease in
the cost of goods as a percentage of sales was largely attributable to SDI's
ability to sell more of its products to specialty and gift retailers at a higher
price than it would typically obtain from sales to mass retailers. During 1995,
SDI sold approximately 70% of its products to specialty and gift retailers in
1995, compared to approximately 60% in 1994.
BEx's cost of goods decreased by $1.6 million, or 55.2%, to $1.3 million in
1995 from $2.9 million in 1994. However, BEx's cost of goods as a percentage of
sales in 1995 was 44.8% compared to 38.7% in
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<PAGE>
1994. The increase in the cost of goods as a percentage of sales was due to
continued selling of BEx's products at low prices as part of a concerted effort
to reduce excess inventory levels, and since a significant amount of BEx's sales
were at a lower price to OSP, for inclusion of BEx's products in OSP's
integrated product displays, rather than directly to retailers.
License and royalty expense decreased $1.1 million or 19.8% to $4.7 million
in 1995 from $5.8 million in 1994. As a percentage of sales, royalties were
12.3% in 1995, compared with 13.7% in 1994. This was due to the increase in
sales of products under lower royalty rate licenses as a percentage of total
sales of licensed products. The most significant royalty reduction occurred in
OSP, despite an increase in sales of $1.6 million. OSP's royalties decreased by
approximately $200,000 in 1995 compared with 1994. As a percentage of sales,
OSP's royalty rate decreased to 13.9% in 1995 from 15.7% in 1994, primarily due
to a reduction in sales of products created under higher royalty rate licenses
such as Disney and Nike. As a percentage of sales, these two licensors
represented 26.6% of OSP sales in 1995, compared with 44.3% of OSP sales in
1994. Sales under Disney licenses decreased in 1995 because the popularity of
the POCAHONTAS licensed merchandise in 1995 was not as great as the popularity
of THE LION KING licensed merchandise in 1994. The Company did not renew the
license to sell Nike products. In addition, OSP increased distribution of
competitors's products, for which it does not pay royalties.
Warehouse and selling expenses decreased $623,000, or 5.8%, to $10.2 million
in 1995 from $10.8 million in 1994. Factors contributing to this reduction
included a decrease of $458,000 in commissions and a decrease of $160,000 in
freight expenses. Because these expenses are generally directly related to sales
volume, warehouse and selling expenses remained relatively constant as a
percentage of sales, at 26.7% in 1995, compared with 25.7% in 1994. During 1995,
the Company consolidated its warehouse operations in its Bell, California
facilities, and it is anticipated that this consolidation will have the effect
of decreasing warehouse and selling expenses as a percentage of sales in the
future.
General and administrative expenses decreased by $842,000, or 14.5%, to $5.0
million in 1995 compared with $5.8 million in 1994, due primarily to a decrease
of $494,000 in salaries and related employee expenses, a decrease of $203,000 in
legal, accounting and other professional fees and a decrease of $263,000 in the
bad debt provision, which decreases were offset by a $134,000 increase in other
outside services. The decrease reflects certain one time expenses incurred
during 1994, including bonuses paid to the Presidents of SDI and BEx, and
additional legal expenses relating to an abandoned attempt to acquire a poster
distributor. As a percentage of sales, general and administrative expenses
decreased slightly, from 13.8% of sales in 1994 to 13.0% of sales in 1995.
Operating income increased by $1.0 million, or 259.5%, in 1995 to $1.4
million in 1995 compared with $392,000 in 1994, despite the 9.3% decrease in
sales. The increase in operating income was attributable to the lower operating
expenses discussed above. As a percentage of sales, operating income increased
to 3.7%, compared with 0.9% of sales in 1994.
Interest expense increased $156,000, or 22.8%, to $841,000 in 1995 from
$685,000 in 1994. The increase in interest expense was due primarily to an
increase in the contractual interest rate charged on the borrowings by OSP and
BEx due to their violation of certain covenants under their loan agreement.
Additionally, total outstanding borrowings were higher in 1995, including
subordinated debt issued in the fourth quarter. As a percentage of sales,
interest expense was 2.2% of sales in 1995, compared with 1.6% of sales in 1994.
The credit line was refinanced in February 1996. See "-- Liquidity and Capital
Resources."
OSP has a 79% interest in BEx and a 51% interest in SDI. Accordingly, the
minority shareholders' interest in income of the subsidiaries has the effect of
reducing the Company's net income when a subsidiary is profitable. When a
subsidiary is unprofitable, a portion of the loss may be allocated to the
minority interest, if the minority shareholder's basis in his stock has not
already been reduced to zero. In 1995, BEx had a loss of $329,000 and SDI had
net income of $556,000. After allocating a portion of
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<PAGE>
these amounts to the minority interest, the minority interest in income of
subsidiaries on a consolidated basis was $243,000 in 1995, which had the effect
of reducing the Company's consolidated net income by the same amount. Global One
will acquire 100% of the shares of BEx in connection with the Reorganization.
OSP has been taxed as an S Corporation for federal and state income tax
purposes since 1989. Pro forma income taxes, pro forma loss from continuing
operations, and pro forma loss from continuing operations per share reflect the
pro forma effect of income taxes as if OSP had been taxes as a C Corporation for
all periods presented. Upon consummation of the Transactions, Global One will be
subject to federal and state income taxes. See "S Corporation Distributions."
Net income increased to $403,000 in 1995 compared with a net loss of $1.0
million in 1994. This increase was the result of decreased cost of goods,
royalties and operating expenses discussed above and the absorption in 1994 of
the discontinued operations. As a percentage of sales, net income was 1.1% of
sales in 1995, compared with a loss of 2.4% of sales in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
The Company's net sales increased $4.1 million, or 10.7%, during 1994
compared with 1993. This increase resulted primarily from a $4.4 million
increase in sales by BEx and a $4.1 million increase in sales by OSP which more
than offset a $4.4 million decrease in sales by SDI. The increase in OSP's and
BEx's sales was principally due to the sale of merchandise based on THE LION
KING and MIGHTY MORPHIN POWER RANGERS licenses and the continued expansion into
the mass retailers and other retail chains in 1994. The decrease in sales at SDI
in 1994 was due to the reduction in the popularity of the BEAVIS & BUTT-HEAD
license.
Cost of goods sold increased $2.0 million or 11.0% to $19.4 million in 1994
from $17.4 million in 1993, due primarily to the increase in net sales. As a
percentage of sales, the Company's cost of goods however, remained relatively
constant at 46.0% in 1994, compared with 45.7% in 1993.
OSP's cost of goods sold increased by $2.0 million, or 25.5%, to $9.7
million in 1994 from $7.7 million in 1993. As a percentage of sales, OSP's cost
of goods increased from 39.5% in 1993 to 41.1% in 1994, primarily because of
increased material costs, product mix and the distribution of other publisher's
products. To a lesser extent, OSP sold a slightly larger percentage of OSP's
products to mass retailers at a lower price.
SDI's cost of goods decreased by $1.8 million, or 20.9%, to $6.8 million in
1994 from $8.6 million in 1993. However, as a percentage of sales, SDI's cost of
goods in 1994 was 61.3% compared to 55.5% in 1993 primarily because of higher
material costs and the sale of a lower percentage of SDI's products to specialty
and gift retailers at a higher price. During 1994, SDI sold approximately 60% of
its products to specialty and gift retailers, compared to approximately 80% in
1993.
BEx's cost of goods increased by $1.8 million, or 156.9%, to $2.9 million in
1994 from $1.1 million in 1993. As a percentage of sales, BEx's cost of goods
increased to 38.7% in 1994 from 35.5% in 1993. The increase in the cost of goods
as a percentage of sales was due to the use of outside manufacturers to produce
BEx's products, compared to 1993 when a larger percentage of BEx's products were
manufactured in-house.
License and royalty expense increased $880,000, or 18.0%, to $5.8 million in
1994 from $4.9 million in 1993. As a percentage of sales, the average royalty
rate increased from 12.9% in 1993 to 13.7% in 1994. In 1994, OSP's and BEx's
royalties increased approximately $670,000 and $480,000, respectively, while
SDI's royalties decreased $270,000. The reason for the increased royalty rates
was the increased sale of higher royalty rate products. Sales under Disney
licenses increased in 1994 because the popularity of THE LION KING licensed
merchandise was greater than the popularity of the ALADDIN licensed merchandise
in 1993.
Warehouse and selling expenses increased by $2.0 million, or 22.4%, to $10.8
million in 1994 from $8.8 million in 1993. This was due primarily to increases
of approximately $500,000 in warehouse
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<PAGE>
salaries, $300,000 in repairs and maintenance, $661,000 in sales salaries and
$284,000 in freight-out expense. The predominant reason for the increase as a
percentage of sales was the addition of a Vice President of Sales and other
management and support staff. As a percentage of sales, warehouse and selling
expenses were 25.7% of sales in 1994, compared with 23.2% of sales in 1993.
General and administrative expenses increased $860,000 or 17.4% to $5.8
million in 1994 from $5.0 million in 1993. As a percentage of sales, general and
administrative expenses were 13.8% of sales in 1994 compared with 13.0% of sales
in 1993. The increase in general and administrative expenses reflects certain
expenses incurred during 1994, including bonuses paid to the Presidents of SDI
and BEx of $510,000, an increase of $330,000 in the bad debt provision.
Additionally, a bonus of $833,000 was paid to the President of SDI in 1993. This
amount, however, was largely offset by an overall increase in salaries of
$898,000 in 1994.
Operating income decreased $1.6 million or 80.2% to $392,000 in 1994 from
$2.0 million in 1993. As a percentage of sales, operating income decreased to
0.9% of sales in 1994, compared with 5.2% in 1993. The decrease was attributable
to the higher operating expenses discussed above, despite the 10.7% sales
increase.
Interest expense increased $80,000 or 13.2% to $685,000 in 1994 from
$605,000 in 1993. As a percentage of sales, interest expense remained relatively
constant at 1.6% of sales in both 1994 and 1993. Although interest expense
remained relatively constant overall, OSP's interest expense increased by
$152,000 in 1994 due to continued reliance on its line of credit to finance its
growth, while SDI's and BEx's interest expense decreased by $56,000 and $16,000,
respectively.
In 1994, BEx had a net income of $57,000 and SDI had a loss of $327,000.
After allocating a portion of these amounts to the minority interest, the
minority interest in loss of subsidiaries on a consolidated basis was $148,000,
which had the effect of increasing the Company's consolidated net income by the
same amount.
The Company incurred a loss of $1.0 million or 2.4% of sales in 1994 from
income of $813,000 or 2.1% of sales in 1993. This decrease was the result of the
higher royalty rates and increased operating expenses discussed above and the
loss due to discontinued operations. See "-- Discontinued Operations."
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, working capital was approximately $3.3 million. Net cash
used in operating activities during the three months ended March 31, 1996 was
approximately $800,000 due primarily to a loss of $514,000 in the first quarter
of 1996, an increase of $665,000 in accounts receivable, an increase of $921,000
in inventory and offset by an increase in accounts payable of $1.2 million. Net
cash provided by financing activities during the three months ended was
approximately $1.1 million due primarily to increased borrowings of $1.2 million
under its credit facilities.
In February 1996, OSP and BEx arranged a line of credit, with a three-year
term, in the amount of $7.5 million at an interest rate of 1.75% above the
reference rate which was collateralized by substantially all of OSP's and BEx's
assets. See Note 6 of Notes to Consolidated Financial Statements. At April 30,
1996, OSP and BEx had $3.0 million outstanding and $60,000 available under the
credit line. OSP and BEx are currently in compliance with the terms of the
credit agreement. At April 30, 1996, SDI's borrowing availability under its
factoring agreement was $1.1 million.
At December 31, 1995, working capital was approximately $3.3 million
compared to a deficit of $197,000 at December 31, 1994. This increase was
primarily the result of improved operations and the refinancing of $2.8 million
of short-term borrowings into long-term financing and the private placement of
$750,000 in subordinated debt. See Note 6 of Notes to Consolidated Financial
Statements of OSP.
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<PAGE>
During 1995, net cash provided by operating activities was approximately
$1.5 million primarily due to net income and minority interest in income of
subsidiaries of $403,000 and $243,000, respectively, $430,000 in depreciation
and amortization, $1.1 million decrease in accounts receivable and $885,000
decrease in inventory. These items more than offset the decrease in accounts
payable, accrued expenses and royalties payable of $799,000, $384,000 and
$837,000, respectively.
Net cash used in investing activities was approximately $609,000 during 1995
as a result of capital expenditures for tenant improvements, furniture and
display racks, and equipment at the Company's headquarters. See "Business of
Global One -- Properties." During 1995, net cash used in financing activities
was approximately $1.1 million primarily as a result of payments on revolving
line of credit and dividends paid of $1.4 million and $793,000, respectively,
which more than offset the borrowing on long-term subordinated debt of $750,000
and issuance of $500,000 of common stock resulting from the reinvestment of a
portion of dividends paid to shareholders.
The Company's working capital requirements generally peak in the second
quarter of each year as its production increases in order to coincide with the
release of summer movies. Typically, the Company's sales during the first
quarter are generally lower than at other times during the year, and the Company
experiences a loss during the first quarter. See " -- Seasonality." During this
period, the Company's primary sources of liquidity have been its line of credit
and extended credit terms allowed by its vendors. See Note 6 of Notes to
Consolidated Financial Statements of OSP.
Due to the failure of the Company's Top Banana division to achieve projected
sales in the fourth quarter of 1994, the Company did not experience an
anticipated increase in accounts receivable to support advances under its credit
agreement in order to finance its 1995 first quarter operations. See " --
Discontinued Operations." In addition, at December 31, 1994, the Company was in
violation of all of its bank covenants under its loan agreement. The lender
declared the Company in technical default in June 1995, although the Company did
not have a payment default under the loan agreement.
As a result of the violations, the lender reduced the advance rate and
increased the interest rate charged on borrowings. The lender agreed to forbear
from proceeding against the collateral and approved monthly amendments to the
original credit agreement. Since the Company did not have adequate cash
reserves, it was delinquent on royalty payments and was unable to pay its
obligations on a current basis. The Company was able to continue its operations
at that time due largely to the willingness of its vendors to extend trade
credit and its licensors not to terminate licenses for the Company's failure to
make royalty payments. The loan matured as of August 1995, and was renewed on a
monthly basis which resulted in increases in the interest rate charged and
reductions in the advance rate permitted. During 1995, the largest amount
outstanding under the loan agreement was $5.9 million. The interest rate
increased from 1.75% over prime to 8.25% over prime during 1995.
Due to the strength of the summer film releases in 1995, in particular the
POCAHONTAS and BATMAN licenses, the Company returned to profitability within
several months. Due to improved cash flow, the Company began to repay its
obligations on a current basis.
However, due to the leveraged nature of the Company's capital structure and
the reduction in advance rates by the Company's lender, the Company continued to
operate under a restricted cash flow. Therefore, in November 1995, the Company
negotiated an infusion of $750,000 of subordinated debt from one of its vendors
for its working capital needs. See Note 7 of Notes to Consolidated Financial
Statements of OSP. During the fourth quarter, the Company began negotiations
with several lenders to obtain a new credit facility in order to replace the
month to month extensions provided by the Company's then current loan agreement.
In addition, the Company retained a financial advisor to seek additional sources
of equity capital.
SDI sells substantially all of its accounts receivable to a factor under a
continuing contract, cancelable upon written notice given 60 days prior to
expiration. In most cases, the factor approves the credit, and the account is
sold without recourse. In cases in which the factor does not approve the credit,
SDI bears the risk. At December 31, 1995, the receivables that were at the risk
of SDI were
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approximately $251,000. At December 31, 1995, amounts due from the factor
included in accounts receivable-trade were $822,000. The factor, to the extent
of any financing provided, holds a security interest in all accounts receivable
and property of SDI.
As a result of the Private Placement, Global One will net approximately $2.6
million after paying the accrued $1.75 million dividend to the OSP Shareholders,
$375,000 of subordinated debt and $2.0 million for costs related to the Private
Placement and the KRSI Merger. In addition, if and to the extent that OSP's cash
flow is insufficient to make such payment, a portion of the proceeds of the
Private Placement will be used to pay an additional dividend of between $500,000
and $600,000 to permit the OSP shareholders to pay their respective tax
liabilities incurred as a result of OSP's profits generated during 1995 and that
portion of 1996 prior to Closing. The Company believes that the new credit
facility, together with the anticipated net proceeds of the Private Placement,
will be sufficient to fund its working capital requirements for the remainder of
1996. Additional financing will be required to provide for any business or
product line acquisitions and significant expansion of Global One's
international business. In addition, Global One's business plan anticipates that
Global One will seek to increase its distribution of products directly to mass
retailers. See "Business of the Company -- Business Strategy." The extent to
which Global One is successful in achieving its business plan will depend on the
availability of capital for the purchase of additional display racks to place in
retail establishments. There can be no assurance that such additional financing
will be available.
EFFECTS OF INFLATION
Global One's management believes that inflation will not have a significant
effect on the Global One's operations.
SEASONALITY
The Company has historically had higher net sales as a percentage of annual
sales in the second quarter. In 1995, the Company recorded 32.9% of its sales in
the second quarter. Management believes that the Company's seasonal sales are
primarily due to the seasonal release of major films which correspond to sales
of promotional products related to such films. Although films that are
anticipated to be major hits are often released in the summer, film distribution
companies frequently release major films in the autumn or during the holidays.
Such fluctuations in sales typically result in corresponding fluctuations in the
Company's profitability which is anticipated to continue in the foreseeable
future. See "Risk Factors -- Seasonality and Fluctuations in Operating Results."
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<PAGE>
The following table sets forth the quarterly results of operation of the
Company for the two years ended December 31, 1994 and 1995, and for the three
months ended March 31, 1996.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
1994 1994 1994 1994 1994
----------- --------- ------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
QUARTERLY FINANCIAL INFORMATION:
Net sales...................................... $ 7,100 $ 13,741 $ 12,165 $ 9,162 $ 42,168
Gross profit................................... 2,813 5,500 5,070 3,645 17,028
Operating expenses............................. 3,220 4,880 4,464 4,072 16,636
Income (loss) from operations.................. (407) 620 606 (427) 392
Interest expense............................... 129 160 198 198 685
Income (loss) before income taxes.............. (536) 460 408 (625) (293)
Pro forma provision (benefit) for income
taxes......................................... (79) 68 60 (92) (43)
----------- --------- ------------- ------------- ---------
Pro forma income (loss) from continuing
operations.................................... $ (457) $ 392 $ 348 $ (533) $ (250)
----------- --------- ------------- ------------- ---------
----------- --------- ------------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------- QUARTER
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL ENDED MARCH
1995 1995 1995 1995 1995 31, 1996
----------- --------- ------------- ------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 7,422 $ 12,566 $ 9,242 $ 8,998 $ 38,228 $ 8,941
Gross profit......................... 3,329 5,566 3,807 3,879 16,581 3,671
Operating expenses................... 3,503 4,333 3,682 3,654 15,172 3,805
Income (loss) from operations........ (174) 1,233 125 225 1,409 (134)
Interest expense..................... 173 209 220 239 841 267
Income (loss) before income taxes.... (347) 1,024 (95) (14) 568 (401)
Pro forma provision (benefit) for
income taxes........................ (70) 206 (19) (3) 114 (85)
----------- --------- ------------- ------------- --------- -----------
Pro forma income (loss) from
continuing operations............... $ (277) $ 818 $ (76) $ (11) $ 454 $ (316)
----------- --------- ------------- ------------- --------- -----------
----------- --------- ------------- ------------- --------- -----------
</TABLE>
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BUSINESS OF GLOBAL ONE
Global One was incorporated in the state of Delaware on April 23, 1996 to
serve as a holding company for the Company and its subsidiaries, and to acquire
Kelly Russell through KRSI Acquisition. Global One organized three subsidiary
corporations under the laws of the state of Delaware: OSP Acquisition, BEx
Acquisition, and KRSI Acquisition. Immediately prior to the KRSI Merger, OSP
will be merged into OSP Acquisition and BEx will be merged with and into BEx
Acquisition. At the Effective Time of the KRSI Merger, Kelly Russell will be
merged with and into KRSI Acquisition, with KRSI Acquisition. The subsidiaries
of Global One following the Closing will be "OSP Publishing, Inc.," "Kelly
Russell Studios, Inc.," and "BEx Corp.," respectively. SDI will continue to be a
subsidiary of OSP following the Transactions.
To date, Global One has not conducted any business except in connection with
the Transactions.
BUSINESS OF THE COMPANY
GENERAL
The Company was incorporated in the State of California in 1989. The Company
has elected S corporation status and, consequently, the Company's earnings have
been taxed at the shareholder level. As a result of the Transactions, Global One
will no longer qualify as an S corporation.
The Company designs and produces licensed trend merchandise which it markets
for sale in gift and stationary stores, video stores, music stores, toy stores,
bookstores and mass retailers. The Company products consist of posters,
T-shirts, framed and unframed wall decor, buttons, key chains, stickers and
collectible movie scripts. Substantially all of the Company's net sales during
1995 were attributable to products incorporating some licensed material. These
products incorporate primarily licensed images and characters from motion
pictures, television, comic books, music, sports and popular culture. Management
believes that the Company is the leading domestic publisher and distributor of
licensed posters, and a leading distributor of licensed T-shirts, buttons, key
chains, stickers and collectible movie scripts.
The Company 's licenses encompass over 200 properties, including: (i)
Disney's THE HUNCHBACK OF NOTRE DAME, POCAHONTAS and THE LION KING animated
movies, MICKEY UNLIMITED characters and HOME IMPROVEMENT television program,
(ii) Warner Bros.'s LOONEY TUNES characters and BAYWATCH television program;
(iii) other television programs, including FRIENDS, MELROSE PLACE, SEINFELD, and
BEAVIS & BUTT-HEAD, (iv) other motion pictures, including FLIPPER, INDEPENDENCE
DAY, PULP FICTION and BABE, and (v) various musicians and personalities,
including Madonna, Boyz II Men, The Doors, Marilyn Monroe and Whitney Houston.
See "-- Operations and Licensing."
The Company's business is conducted through OSP, and OSP's subsidiaries, SDI
and BEx. OSP publishes licensed and non-licensed posters, and also manufactures
Book Bites-TM-, Wallet Cards, movie scripts and other trend gift items. See "--
OSP." SDI designs and markets a line of T-shirts, sweatshirts, hats and other
apparel to department and specialty stores and other retail outlets, including
mass merchants, based on both licensed and non-licensed designs. See "-- SDI."
BEx designs and markets licensed and non-licensed buttons, stickers, key rings
and magnets. See "BEx."
The Company's products incorporate designs created by its staff of artists
and approved by the licensor. See "-- Design and Development." All of the
Company's products are produced according to its specifications by unaffiliated
manufacturers located in the greater Los Angeles area. See
"-- Manufacturing."
The Company's products are sold primarily through in-house sales
representatives and multi-line independent sales representatives and secondarily
through distributors to a diversified group of over 45,000 retail outlets,
primarily in the mass merchandise, gift, music, bookstore, toy, grocery, framing
and video markets. The Company's customers include K-Mart, Wal-Mart, Musicland,
Walden Books, Blockbuster Entertainment, Toys R' Us and J.C. Penney. K-Mart and
Musicland each accounted for
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10% of the Company's net sales during 1995. International sales, which are
conducted primarily through a network of distributors, comprised 5% of total
sales during 1995. See "-- Sales and Marketing."
BUSINESS STRATEGY
Global One's business strategy is to generate revenue and earnings growth
through further penetration of domestic and international markets for sale of
the Company's existing products, and the introduction of new product lines that
complement and supplement existing product lines which can be sold through the
same channels of distribution.
To accomplish its strategic objectives, Global One may seek to: (i) acquire
producers of other lines of trend merchandise; (ii) increase sales to mass
retailers; (iii) further expand into international markets; (iv) develop and
introduce new and ancillary product categories utilizing existing licenses; (v)
continue to acquire licenses from licensors with whom the Company currently has
relationships and from new licensors; (vi) enter into partnerships with
retailers to develop new products; (vii) develop relationships with "anchor"
retailers who will commit to purchase items in new product categories and (viii)
develop and expand sales of products through "tie in" or "premium" sales. Global
One may engage in future strategic acquisitions if and when such opportunities
arise. It has no present understandings or agreements concerning any acquisition
or merger, however, and is not presently negotiating with respect to any such
matter, other than the proposed KRSI Merger.
Management believes that the KRSI Merger will provide additional licensed
products, particularly sports-related merchandise, for sale in markets presently
served by the Company and will enable Global One to pursue new market
opportunities. It is anticipated that, following the KRSI Merger, Kelly
Russell's products will continue to be sold by Kelly Russell's existing sales
organization and will also be promoted through Global One's sales force.
OVERVIEW OF THE LICENSED MERCHANDISE INDUSTRY
Royalties on sales of licensed merchandise provide an important source of
supplemental revenue for licensors, primarily in the entertainment and sports
industries. According to THE LICENSING LETTER, sales of licensed merchandise in
the U.S. and Canada in 1994 were approximately $102.2 billion. The Company
operates in the trend, novelty or gift segment of the licensed merchandise
industry which management believes accounted for approximately $27.0 billion in
sales in the U.S. and Canada in 1994. Management believes that the growth in
sales of licensed merchandise during the past five years is principally the
result of the rapid growth and globalization of the U.S. motion picture,
television, music and sports industries, during this period. Management believes
that a continuation of these trends and the continued domination of worldwide
markets by the U.S. film and entertainment industries will provide significant
opportunities for future expansion of international sales of licensed
merchandise.
Management believes that trend, novelty and gift items, such as the products
marketed by the Company, have a high turnover rate and provide retailers with
higher returns per square foot than most other retail merchandise. The low cost
of production of the Company's products permit retailers to sell such products
at lower price points that appeal to a wide range of consumers. Disposable wall
products incorporating standard characters, such as MICKEY MOUSE and BUGS BUNNY,
classic icons, such as Marilyn Monroe and James Dean, contemporary and classic
musicians, such as Alanis Morrissette and The Doors, or hit films and television
productions, such as THE LION KING and FRIENDS, are an inexpensive way for
consumers, particularly children, teens and young adults, to express themselves
and identify with their favorite aspects of popular culture. Retailers that sell
the Company's merchandise frequently utilize integrated product displays to
generate a higher volume of "impulse sales" of licensed promotional products.
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COMPETITION
Management believes that OSP is the currently the leading domestic publisher
of licensed posters. OSP's primary competitors in the poster publishing business
are Day Dream Publishing, Inc., Western Graphics, Inc., Portal Publications Co.
and Funky Enterprises. The Company and its four major competitors collectively
account for an estimated 80% share of the market for licensed posters.
The Company competes for licenses with other producers of licensed
merchandise on the basis of its multiple product categories, such as posters,
T-shirts, framed and unframed wall decor, buttons, stickers, key chains and
collectible movie scripts. Management believes the use of multiple product
categories, which often can be sold through the same retail facility, is
attractive to licensors because it provides a more efficient distribution and
more royalties based upon a popular licensed property. In addition, the Company
offers a large and diversified distribution network. The variety of products
offered by the Company, the quality and experience of its art department and its
strong relationships with key licensors and major studios have enabled the
Company to acquire a portfolio of approximately 200 major licenses.
The Company competes for retail floor space on the basis of its portfolio of
licenses, which allow it to offer the greatest selection of titles: The Company
has approximately 1,100 shelf keeping units ("SKUs") while its competitors are
believed to offer only 200-400 SKUs. The Company has in place 18,000 poster
racks of varying sizes at its customers, and the Company's sales staff provides
ordering and stocking services. In addition, the Company's multiple product
lines enable it to provide retailers with integrated product displays
incorporating each subsidiaries' products, thus offering retailers a more
effective way to capitalize on a popular trend.
PRODUCTS AND OPERATING SUBSIDIARIES
The Company publishes and distributes licensed posters, T-shirts, framed and
unframed wall decor, buttons, key chains, stickers and collectible movie scripts
through OSP, SDI and BEx. Substantially all of the Company's net sales during
1995 were attributed to products incorporating some licensed material. The
following table sets forth the Company's net sales by subsidiary:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------------------------------------------- ------------------------
1993 1994 1995 1995
------------------------ ------------------------ ------------------------ ------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OSP................. $ 19.5 51.2% $ 23.6 55.9% $ 25.2 66.0% $ 5.2 70.3%
SDI................. 15.5 40.7 11.1 26.3 10.1 26.4 1.5 20.3
BEx................. 3.1 8.1 7.5 17.8 2.9 7.6 0.7 9.4
----- ----- ----- ----- ----- ----- --- -----
Company............. $ 38.1 100.0% $ 42.2 100.0% $ 38.2 100.0% $ 7.4 100.0%
----- ----- ----- ----- ----- ----- --- -----
----- ----- ----- ----- ----- ----- --- -----
<CAPTION>
1996
------------------------
AMOUNT %
----------- -----------
<S> <C> <C>
OSP................. $ 4.6 51.7%
SDI................. 4.1 46.1
BEx................. 0.2 2.2
--- -----
Company............. $ 8.9 100.0%
--- -----
--- -----
</TABLE>
OSP
OSP develops and markets posters incorporating primarily licensed images and
characters from motion pictures, television, animation, music, and popular
culture. OSP's product lines are designed principally around four main
categories of consumers: pre-teens, teens, college students and adults.
Non-licensed posters published by OSP include generic posters of models, cars,
airplanes and popular phrases. OSP's typical poster consists of a color image
printed on 23"x 35", 80 lb. paper.
OSP also develops and markets products utilizing licensed and non-licensed
material, including Wallet Cards, Book Bites-TM-, movie scripts and other trend
gift items to independent retailers. Wallet Cards are informative cards shaped
like credit cards and Book Bites-TM- are die-cut bookmarks bearing images of
OSP's licensed characters.
In order to expand OSP's products aimed at adults, OSP developed AVALON
EDITIONS-TM- in March 1995 and CLASSIC COMMEMORATIVES-TM- in August 1995. AVALON
EDITIONS-TM- and CLASSIC COMMEMORATIVES-TM- are contemporary framed and unframed
wall decor lithographed on premium grade, museum weight paper. AVALON
EDITIONS-TM- feature reproductions of favorite fine art pieces, generic themes
and humorous renditions of fine art. CLASSIC COMMEMORATIVES-TM- are newly
created proprietary
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art featuring standard licensed characters, such as MICKEY MOUSE. OSP's main
poster and trend product lines generally retail for between $5.00 and $10.00
each, while movie scripts, AVALON EDITIONS-TM- and CLASSIC COMMEMORATIVES-TM-
generally retail for approximately $20.00 each.
OSP's five largest licensors based on 1995 net sales were Disney (26% of net
sales), Warner Bros./ LCA (19%), Sony (9%), Winterland Productions (6%), and No
Fear (4%). OSP's leading products during the past 12 months have included
posters and other items based on characters and images from THE LION KING,
POCAHONTAS, LOONEY TUNES, Marvel Comics and D.C. Comics, various musical acts,
including Madonna and the Doors, and the No Fear brand. During 1996, OSP intends
to introduce new posters based on THE HUNCHBACK OF NOTRE DAME, SPACE JAM,
FLIPPER, BANANAS IN PAJAMAS, Alanis Morrissette and INDEPENDENCE DAY.
SDI
SDI designs and markets licensed and non-licensed T-shirts, sweatshirts,
mugs, hats and boxer shorts in the $20.00 and under retail price range for sale
primarily in department stores, such as J.C. Penney, gift shops and music
stores, such as Musicland, apparel stores, such as Miller's Outpost and
Spencers, and mass retailers such as Wal-Mart and K-Mart. Such products
generally retail at the $15.00 price level.
SDI's five largest licensors based on 1995 net sales were Anheuser-Busch
(24.4%), Fox Television (17.4%), Disney (11.7%), Viacom (11.7%) and MTV Networks
(7.0%). SDI's leading products during the past 12 months have included T-shirts
and other items based on characters and images from Anheuser-Busch's Budweiser
beer commercials ("I LOVE YOU, MAN" and BULLFROGS), Disney's HOME IMPROVEMENT,
BEAVIS & BUTT-HEAD and FRIENDS. During 1996, SDI intends to introduce new
products based on INDEPENDENCE DAY and X-FILES, among others.
BEX
BEx designs and markets licensed and non-licensed buttons, key rings and
stickers for sale as novelty and impulse purchase items in a wide range of
retail stores, including gift-oriented card shops, mass merchandisers, music and
video stores and convenience stores. Non-licensed products include buttons and
key rings bearing phrases or slogans, seasonal buttons and tourist/souvenir
buttons targeted at specific regions. Retail prices for BEx's products range
from $1.29 to $3.99. Sales of buttons accounted for 45% of BEx's net sales in
1995 and key rings accounted for 33% of BEx's net sales. Other products produced
by BEx include licensed and non-licensed stickers and magnets.
BEx's four largest licensors based on 1995 net sales were Disney (26% of net
sales), Warner Bros./ LCA (25%), Jim Benton (13%) and Viacom (7%). BEx's leading
products during the past 12 months have included items based on characters and
images from POCAHONTAS, BAYWATCH and FRIENDS. During 1996, BEx intends to
introduce new products based on THE HUNCHBACK OF NOTRE DAME, BANANAS IN PAJAMAS
and LOONEY TUNES standard characters.
LICENSING
The Company's licenses permit the Company to produce and market products
based on characters and images which already possess their own popular identity
through media exposure such as television, films, cartoons, comic books and
music. Most licenses permit the Company to develop multiple products through its
various operating subsidiaries. In addition to licenses for sales in the
domestic market, the Company is increasingly pursuing international licenses for
sales in Canada, Europe, and the Pacific Rim. International rights exist in
approximately 10% of all licenses.
Licensed products include Promotional Properties, Standard Properties and
seasonal properties. Promotional Properties include products containing scenes
or images connected with a current film, television program of popular
performer, such as THE HUNCHBACK OF NOTRE DAME, HOME IMPROVEMENT and Madonna.
Standard Properties include products based on standard characters, including
Mickey Mouse and LOONEY TUNES characters such as Bugs Bunny, Taz, Foghorn
Leghorn and Marvin the Martian. Seasonal properties include products consisting
of characters or images with a holiday or seasonal theme. Standard Properties
typically generate relatively consistent sales over time while
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Promotional Properties typically involve higher initial sales but shorter
product life-spans. Licensed promotional products are those that accompany a
major promotional campaign, typically timed to coincide with the theatrical or
video release of a large-budget film. Generally, three to six such promotional
campaigns occur during a fiscal year, and the shelf life of licensed promotional
products is typically 60-120 days. Seasonal products provide additional sales
during holiday periods. Sales of Promotional Properties also tend to be
seasonal, due to the seasonality of major theatrical releases of films. Film
studios typically release the majority of major films during the months of May
through September, which has historically resulted in higher sales volumes by
the Company during this period. The second and third quarters of 1995 and 1994
accounted for 57.0% and 61.4% respectively, of total annual sales.
The successful marketing of Promotional Properties generally requires the
Company to anticipate and evaluate the popularity of licensed properties, most
of which are media related, and to capitalize on the success of such properties
in a timely manner. A determination to acquire a license must frequently be made
before the commercial introduction of the property in which a licensed character
appears. The licensing staff must evaluate many criteria, including the actors,
script, actual footage, demographics and the licensor's marketing budget to
determine whether to acquire a new license. As Promotional Properties are
typically marketed successfully only for a limited period of time, the success
of the Company's marketing program is dependent upon its ability to continually
acquire new, popular promotional licenses. As the industry leader, potential
licensors typically contact the Company directly to negotiate a new license, in
most cases 6-18 months before release of a film or other project. In cases where
the Company does not own a license for a hit property, the Company may seek to
distribute such products for its competitors.
Royalties to the Company's licensors typically range from 10% to 25% of net
sales, with an average consolidated royalty rate of 12.3% in 1995, 13.7% in 1994
and 12.9% in 1993. Royalty rates during 1995 for sales by OSP, SDI and BEx
averaged 13.9%, 8.9% and 10.3% of net sales, respectively. Royalty rates tend to
be lower to the extent sales are made directly to retailers rather than to
distributors. See "-- Sales and Marketing." License arrangements generally
require the payment of non-refundable advances and guaranteed minimum royalties.
As a result of increased competition for licenses, Global One may, in the
future, be required to pay licensors higher royalties and higher minimum
guaranteed payments in order to obtain attractive properties for marketing
through its existing and new product lines.
It is customary in the licensing industry to provide for the verification of
royalty payments to licensors through audits of sales records on demand. As a
result of such audits, royalty obligations may be subject to adjustment. As a
result of 1994 audits, the Company and the licensors discovered that over a
period of several years, certain royalties had been miscalculated. In addition,
management believes that a significant amount of adverse audit findings in the
past were attributable to errors in data entry with respect to applicable
royalty rates, depending on the territory into which sales were made and the
nature of customers as distributors or retailers. Adjustments due to adverse
audit findings applicable to 1994 and 1993 were $143,000 and $148,000,
respectively. These amounts are reflected in the Company's Consolidated
Financial Statements. The Company's management information system has been
revised to require the advance identification of customers, territories and
royalty rates to avoid data entry errors in the future. However, no assurances
can be given that adverse audit findings will not be found in the future, or
that material adjustments will not be required, either of which could have a
material adverse effect on Global One's results of operations.
Typically, the Company's licenses are for a period of two years. Major
licensors in the entertainment and media industries generally do not grant
exclusive licenses, and most of the Company's major licenses are non-exclusive.
Management believes that major licensors generally do not grant competitive
licenses within a territory largely due to the limited life-span of promotional
properties, the transaction costs associated with granting duplicate licenses
and the fact that distribution by a single
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company builds better demand for the product. However, no assurances can be
given that such licensors will not grant competing licenses in the future.
Management believes that the Company maintains excellent relationships and an
excellent reputation with its licensors.
The Company's portfolio of over 200 major licenses includes the following
properties:
DISNEY ENTERPRISES INC.
- - The Hunchback of Notre Dame
- - Mickey Unlimited
- - Pocahontas
- - The Lion King
- - Disney Babies
- - 101 Dalmatians
WARNER BROS./LCA
- - Looney Tunes
- - Space Jam
- - Films & Television
ANIMATION
- - Marvel Comics
- - D.C. Comics
- - Superman
- - The Adventures of Batman & Robin
- - Betty Boop
- - Aeon Flux
- - Peanuts
TELEVISION
- - The X-Files
- - Bananas in Pajamas
- - Baywatch
- - Star Trek: Original Series
- - Beavis & Butt-head
- - Melrose Place
- - Friends
- - Lois & Clark: The New Adventures
BRANDS
- - No Fear
- - Budweiser
- - Hawaiian Tropic
- - Caesars' Palace
- - Maui & Sons
FILMS
- - Flipper
- - Barb Wire
- - Pulp Fiction
- - Batman Forever
- - Legends of the Fall
- - Babe
- - Desperado
- - Ace Ventura II
- - Independence Day
- - Casper
- - Star Trek Generations
- - Goldeneye
- - Forrest Gump
- - The Wizard of Oz
- - Mission Impossible
- - Gone With The Wind
WINTERLAND PRODUCTIONS
- - Alanis Morrisette
- - The Doors
- - Boyz II Men
- - Madonna
- - Jerry Garcia
- - Led Zeppelin
- - Weezer
- - Freddie Mercury
- - Marilyn Manson
- - Michael Bolton
- - Hole
- - Reba McEntyre
- - Beastie Boys
- - Whitney Houston
- - Jimi Hendrix
- - The Who's Tommy
- - Ice T
- - Bruce Lee
PERSONALITIES
- - Babe Ruth
- - Martin Luther King
- - James Dean
- - The Doors
- - Marilyn Monroe
- - Pamela Anderson
- - Lou Gehrig
- - Claudia Schiffer
- - Bob Marley
- - Jenny MacCarthy
- - Selena
- - Elvis
- - Bruce Lee
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DESIGN AND DEVELOPMENT
The imagery for the Company's products is custom designed from concept to
final art by the Company's staff of 12 in-house artists and freelance artists
utilizing computerized design techniques. The art department also designs
integrated retail displays utilizing the licensed properties. The Company's art
department is equipped with state-of-the art production facilities, providing
the Company total quality control over the entire production process, including
the actual layout and design of products.
Artwork for licensed products is typically subject to approval by the
licensor. Licensors also typically retain the right to approve any packaging,
promotional material or advertising used in connection with a particular
license. Such approval is in the licensors' sole discretion and may be time-
consuming. In many cases, the Company's artists utilize style guides furnished
by the licensor. Where style guides are not available, the art department staff
reads scripts or reviews film clips to gain insight into the personality of a
character. Artists create concept sketches that are presented to the licensor
for discussion and direction before final art work is prepared. Management
believes that the art department's experience in working with the Company's
licensors enables department staff to prepare illustrations, sketches and
drawings that are more likely to be acceptable to the licensor, and that this
experience provides the Company with an advantage over other producers of
licensed products because the Company is typically able to produce a final
product that satisfies the approval criteria of the Company's licensors in a
more timely fashion than other producers.
MANUFACTURING
The Company manufactures substantially all of its products through
unaffiliated manufacturers located in the greater Los Angeles area. Decisions
relating to the choice of manufacturer are based on price, quality of
merchandise, reliability and the ability to meet timing requirements for
delivery. OSP is a party to a contract with a poster printer which obligates OSP
to utilize the printer for at least $3.8 million in printing work at market
rates through June 30, 1997, which amount is expected to constitute
approximately 60% of total outside printing costs during the term of such
contract. OSP's management believes that numerous other manufacturers are
available to produce its products should its existing manufacturers be unable to
do so, and that Global One would be able to obtain high quality merchandise at
competitive prices without significant delays. However, the inability of Global
One to meet its delivery requirements could result in the termination of some of
its licenses and no assurances can be given that this will not occur. Finished
products are returned to the Company's Bell, California warehouse, where
products are packaged for final distribution. Posters are distributed either in
rolled form, shrink-wrapped on poster board to retailers or shipped flat on
pallets to distributors. The minimum poster purchase for manufacturing is
typically, 4,000 units, and average poster manufacturing orders during 1995 were
8,000 units.
The principal raw materials used in the production and sale of the Company's
products are paper products, finished T-shirts and plastics. Raw materials are
generally purchased by the manufacturers who deliver completed products to the
Company. Paper products and plastics are typically produced in the United
States, while finished T-shirts are produced both domestically and in East Asia.
In certain circumstances, the Company purchases paper and shrink wrap directly
for the packaging of its finished products. The Company believes that an
adequate supply of raw materials used in the manufacture and finishing of its
products are readily available from existing and alternative sources at
reasonable prices.
SALES AND MARKETING
The Company distributes its products directly to retailers primarily through
approximately 80 - 100 commissioned in-house and multi-line, independent sales
representatives, and through 10 distributors, in the United States. A network of
over 100 distributors are used to sell products to Canada, Europe, Japan, Hong
Kong, Australia, New Zealand, Mexico and South America. Approximately 75% of net
sales are directly to retailers, including corporate buyers for national chains
and individual stores, and 25% of net sales are to distributors. OSP's sales
force reports to three regional managers,
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who are under the direction of OSP's Vice President of Sales. SDI and BEx each
have independent sales representatives who sell their products. In addition,
OSP's sales representatives sell SDI and BEx merchandise.
The Company distributes to over 45,000 retail accounts worldwide. The
Company's management believes that no single retailer or group of retailers
accounts for a significant portion of the market for licensed posters, T-shirts
and buttons. The Company's distribution channels include general retail stores,
gift and print shops, video and record stores, toy stores, comic book and
baseball card stores, mass retailers, department stores, supermarkets, framing
shops, drug stores, mail-order and home shopping company and school book clubs.
International sales, comprised 5% of total sales during 1995.
The Company distributes its products to the following chain stores, among
others:
<TABLE>
<CAPTION>
MASS MARKET MUSIC/VIDEO GIFT/TOY/BOOK
<S> <C> <C>
K-Mart Musicland Toys R' Us
Meijer Transworld Kay Bee Toys
Target Wherehouse Claire's Boutiques
Wal-Mart Tower Records Waldenbooks
Fred Meyer Blockbuster Spencers
Shopco Hollywood Video Coach House Gifts
<CAPTION>
CRAFT
DRUG/SUPERMARKET DEPARTMENT STORE/HOME SHOPPING STORES/CATALOGS
<S> <C> <C>
Osco's Macy's Michael's
Payless J.C. Penney Aaron Brothers
Albertson's QVC Standard Brands
Smiths Home Shopping Network Fingerhut
Randalls Hammacher & Schlemmer Deck the Walls
</TABLE>
The Company has placed over 18,000 proprietary poster display racks of
various sizes in retail establishments. The Company's sales force typically
visits retailers every one to six weeks to ensure that display racks are
adequately stocked with the Company's products, and to offer promotional
materials and integrated product displays for upcoming releases. The Company
participates in the electronic data interchange ("EDI") program maintained by
many of its largest customers, including Toys R' Us, Wal-Mart, K-Mart, Target
and J.C. Penney. The EDI program allows the Company to monitor store inventory
and schedule production to meet anticipated reorders, which are generally
fulfilled within 3 days. Additionally, the Company has expanded its in-store
service capabilities by offering a custom retail management system, which tracks
both promotional program and individual product sales, enabling the Company and
the retailer to more accurately evaluate sales per square foot and annual sales.
This enables the Company to maximize the productivity of each individual retail
location.
The Company also sells its products through mail-order catalogs and
promotional and merchandising tie-ins with fast-food chains and other
organizations. The Company has established a special premium and promotion
department to focus on such sales. Premium sales typically involve nonretail
sales of properties to promotional partners of a licensor, including companies
such as Food Maker (Jack-in-the-Box) and Pillsbury, often in conjunction with a
rebate or other special pricing. Premium sales constituted approximately 5% of
OSP's net sales during 1995. The Company's management believes that the premium
department will account for a larger percentage of sales during 1996. However,
no assurances can be given that premium sales will constitute a significant
percentage of Global One's net sales in the future.
The Company has also secured the rights from Sprint to distribute telephone
cards with licensed graphics as a new premium product. In addition, Global One
is considering establishing a website on the Internet with full color images of
Global One's products as an additional catalog-type distribution channel for its
products.
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RETURNS POLICY
The Company accepts product exchanges for credit from its retail accounts on
all posters, buttons and key chains for which there is a paid invoice.
Management believes that the Company's policy of exchanges for credit ensures
that unsuccessful titles will be replaced with titles that may generate sales.
During 1995, the average returns rate was 12%. The Company generally obtains a
credit on royalties and commissions paid on product exchanges. Exchanges are not
accepted from distributors, framers, international or premium sales. In general,
T-shirts are not returnable, except where the merchandise is flawed.
BACKLOG
Due to the promotional nature of the Company's licensed products, the
limited selling period for promotional materials and the Company's ability to
quickly fill orders, the Company's customers order backlog has not been
material.
GOVERNMENT REGULATION; TARIFFS AND DUTIES
In the United States, the Company is subject to the provisions of, among
other laws, the Federal Consumer Product Safety Act and the Federal Hazardous
Substances Act (the "Acts"). The Acts empower the Consumer Product Safety
Commission (the "Consumer Commission") to protect the public against
unreasonable risks of injury associated with consumer products, including toys
and other articles. Some of the Company's products may be deemed to be toys. The
Consumer Commission has the authority to exclude from the market articles which
are found to be hazardous and can require a manufacturer to repair or repurchase
such articles under certain circumstances. Any such determination by the
Consumer Commission is subject to court review. Violations of the Acts may also
result in civil and criminal penalties. Similar laws exist in some states and
cities in the United States and in many jurisdictions throughout the world. In
addition, the Company maintains product liability insurance in the amount of
$2,000,000.
EMPLOYEES
As of December 31, 1995, the Company had 142 full time employees, including
30 employees at BEx and 38 employees at SDI. During periods of high production
volume (May through September), the Company typically hires up to 100 additional
temporary employees to assist in production. The Company's employees are not
covered by any collective bargaining agreements. The Company believes its
relationship with its employees is satisfactory.
PROPERTIES
The Company is headquartered in a 105,000 square foot leased facility
located at 5548 Lindbergh Lane, Bell, California 90201. The majority of the
Company's operations, such as corporate offices, in-house sales staff, art
department, accounting and warehouse operations, including all of OSP's
operations and BEx's administrative and warehousing functions, are based at such
location. BEx also leases approximately 3,000 square feet of offices at 200
Diversion, Rochester, Michigan 48307. SDI conducts all of its operations out of
approximately 20,000 square feet of leased office space at 10615 Vanowen St.,
Burbank, CA 91505.
LEGAL PROCEEDINGS
The Company is from time to time a party to routine litigation incidental to
its business. Based upon the advice of its counsel, management does not believe
that the outcome of any litigation, individually or in the aggregate, will have
a material adverse effect on Global One's results of operations or financial
condition.
TRADEMARKS
The Company utilizes several trademarks and logos in connection with the
marketing and sale of its products. The Company believes that the strength of
the Company's trademarks and logos are of considerable value to its business and
intends to continue to protect them. At May 1, 1996, the
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Company had one United States registered trademark and applications pending for
an additional three trademarks. To management's knowledge, none of these
trademarks is the subject of a legal proceeding.
MANAGEMENT OF GLOBAL ONE
DIRECTORS AND EXECUTIVE OFFICERS
Global One's By-laws provide for from one to nine directors, with the exact
number to be determined, from time to time, by resolution of the Board of
Directors. Currently, there are two directors of Global One, Joseph C. Angard
and Michael A. Malm. Upon consummation of the Transactions, the Merger Agreement
requires the Board to increase the size of the Board to four and to appoint Mark
S. Hauser and Thomas R. King to fill the vacancies created. Global One's
Certificate of Incorporation states that the Board of Directors shall be divided
into three classes of directors, with the directors in each class elected for
three-year staggered terms except for the initial directors. The terms of the
Board will expire at the annual meetings of shareholders in 1997, 1998 and 1999.
Officers will serve at the pleasure of the Board of Directors, subject to
restrictions set forth in employment agreements to be entered into. See "--
Employment Agreements." Set forth below is certain information with respect to
the two persons who are currently directors of Global One, and the two other
persons who will be directors and executive officers of Global One following the
Transactions.
JOSEPH C. ANGARD, 55, is a Class III Director, Chairman, Chief Executive
Officer and President of Global One. Mr. Angard is also Chairman and Chief
Executive Officer of OSP. Mr. Angard joined OSP, formerly One Stop Posters, in
1983 as an independent consultant to acquire licenses and advise on product
development. In 1989, Mr. Angard led the senior management buyout of OSP. Prior
to joining One Stop Posters, Mr. Angard served as director of licensing for
Entertainment Merchandise Marketing Corp., a tour merchandising company. His
experience also includes over eight years with national talent agencies,
including William Morris and International Creative Management. Mr. Angard
received a B.A. degree in English and History from Syracuse University.
MARK S. HAUSER, 38, will be a Class II Director of Global One. Mr. Hauser is
a founder and Managing Director of Tamarix Capital Corporation, an international
investment and merchant banking firm. Previously, Mr. Hauser was a Managing
Director at Hauser, Richard & Company and Ocean Capital Corporation, both
private international investment banking firms. Prior to joining Ocean Capital
Corporation in 1986, Mr. Hauser was a corporate finance and banking attorney at
the New York office of Rogers & Wells. Before joining Rogers & Wells, Mr. Hauser
worked as a corporate and tax solicitor for Simons & Baffsky in Sydney and for
Simmons & Simmons in London. Mr. Hauser is Vice Chairman of Holmes Protection
Group, a security alarm systems company; a Director of ICC Technologies, a high
technology air conditioner manufacturer; a Director of EA Industries, Inc., an
electronic contract manufacturing company; and a Director of Direct Language
Communications, Inc., a multilingual communications services company. Mr. Hauser
is a member of the New York Bar and is admitted to practice law as a solicitor
to the Supreme Court of New South Wales in Australia. He has economics and law
degrees from Sydney University and a Master of Law degree from the London School
of Economics and Political Science.
THOMAS R. KING, 55, has served as a director of Kelly Russell since March
1995 and upon consummation of the Transactions will serve as a Class II Director
of Global One. Mr. King is a shareholder of Fredrikson & Byron, P.A., which has
served as general counsel to Kelly Russell including legal matters in connection
with the Transactions. Mr. King has been engaged in the private practice of law
since 1965. Mr. King serves as a director of Sunrise Resources, Inc. and
DataKey, Inc.
MICHAEL MALM, 33, is a Class III Director and Chief Operating Officer of
Global One and President of OSP. Mr. Malm joined One Stop Posters in 1984 as
Director of Sales and was promoted to Vice President of Sales and Marketing in
1987. Under his management, the Company established a
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national sales network which contributed to the growth of the Company's retail
account base. Prior to 1984, Mr. Malm founded and owned Golden Era Posters, a
college poster distribution company. Mr. Malm studied economics at the
University of Southern California.
STANLEY DESANTIS, 42, is the President of Stanley DeSantis, Inc. Mr.
DeSantis is an accomplished actor and designer. Mr. DeSantis has been designing
successful apparel for over twenty years. His design credits include: the
costume graphics for the Los Angeles Olympics ceremonies, the 1984 Presidential
Inauguration, and the 100th anniversary of Coca-Cola. Mr. DeSantis founded
Stanley DeSantis, Inc. in 1972. Mr. DeSantis graduated with a B.A. in Performing
Arts from New York University.
GEORGE J. VRABECK, 34, will serve as Executive Vice President of Global One
after the Closing. Mr. Vrabeck has served as Kelly Russell's President and as a
director since November 1994 and as its Chief Executive Officer since February
1996. Mr. Vrabeck also served as its Chief Financial Officer from March 1995 to
February 1996, as Chief Executive Officer from November 1994 to October 1995 and
as Chief Operating Officer from October 1994 to November 1994 and from October
1995 to February 1996. Mr. Vrabeck served as President of Minneapolis Coffee
Corporation, a group of specialty coffee retail stores, from January 1991 to
July 1994. He was an associate with Morgan Stanley & Co. Inc., an international
investment banking firm, from June 1989 to January 1991, and he was a Senior
Staff Member, of Ernst & Young from June 1983 to July 1987. Mr. Vrabeck is a CPA
and received his M.B.A. from the University of Michigan, J.D. from the
University of Minnesota Law School and B.S. in accounting from Long Island
University.
CHRISTOPHER B. LUCAS, 43, will be Vice President of Finance and Chief
Financial Officer of Global One. Mr. Lucas joined OSP in 1993 as Vice President,
Finance and Chief Financial Officer of OSP. Immediately prior to joining OSP, he
worked as a consultant providing financial and operational assistance to
emerging growth businesses. From 1990 to 1992, Mr. Lucas worked for Exel
Financial, as Vice President, providing expansion and acquisition capital to
growth companies. From 1986 to 1990 he served as Vice President of Finance and
Administration at Peripheral Systems, Inc., a hardware/ software integrator. Mr.
Lucas earned his M.B.A. at the University of Southern California and B.S. in
Mechanical Engineering from the University of California, Los Angeles.
MIKE BERIN, 44, is currently and will continue to be Vice President of Sales
of OSP. Mr. Berin joined OSP in 1993. Mr. Berin is responsible for overseeing
all sales operations. From 1985 to 1993, Mr. Berin was a Partner at M&A
Marketing, a distributor of posters, video, and other licensed products to
supermarkets, drug stores, and mass retailers. Prior to 1985, Mr. Berin worked
for his family's wholesale clothing business as well as for Adderton Food
Brokerage. Mr. Berin graduated with a B.A. in Business Administration from
Miami-Dade College.
COMPENSATION OF BOARD OF DIRECTORS
It is Global One's intention to pay fees to its non-officer directors for
serving on the Board of Directors and for their attendance at Board and
committee meetings. Global One will pay each non-officer director a retainer of
$5,000 per annum, plus $1,500 per board or committee meeting attended. Global
One will not pay directors who are also executive officers for attending Board
or committee meetings.
In addition, non-officer directors will receive annual grants of 5,000 stock
options under the Stock Option Plan. Non-officer directors will also be
reimbursed for expenses incurred on behalf of Global One.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued by OSP for the fiscal year ended December 31, 1995,
to or on behalf of the five executive officers of OSP whose compensation in 1995
exceeded $100,000. George J. Vrabeck, President and Chief Executive Officer of
Kelly Russell will, upon consummation of the Closing, serve as Global One's
Executive Vice President. See "Management of Global One -- Directors and
Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- -------------------------------------------- --------- ----------- --------- --------------
<S> <C> <C> <C> <C>
Joseph C. Angard -- Chairman and Chief 1995 $ 250,000 $ 24,787 $ 1,588(1)
Executive Officer
Michael A. Malm -- President 1995 250,000 -- 3,254(1)
Michael Berin -- Vice President/Sales 1995 150,000 -- 5,400(2)
Christopher B. Lucas -- Vice President -- 1995 125,000 -- 2,938(1)
Finance, Chief Financial Officer
Stanley DeSantis -- President, Stanley 1995 250,000 73,000 3,918(1)
DeSantis, Inc.
</TABLE>
- ------------------------
(1) Represents the value of a company leased automobile.
(2) Represents a $3,000 auto allowance and a $2,400 home office allowance.
EMPLOYMENT AGREEMENTS
Effective upon the Closing, Global One has entered into a three-year
employment agreement with Joseph C. Angard as Chairman, Chief Executive Officer
and President, pursuant to which Mr. Angard will receive a base salary of
$275,000 per year plus the ability to earn a bonus of up to $137,500 per year
based upon performance criteria established by the Board of Directors at the
beginning of each year. In addition, Global One will grant to Mr. Angard options
to purchase up to 300,000 shares of Global One Common Stock at $1.50 per share,
vesting in the amount of 100,000 options per year at the end of each of the
first three years during the term of the agreement and exercisable for five
years from the time of vesting.
Effective upon the Closing, Global One has entered into a three-year
employment agreement with Michael A. Malm as Chief Operating Officer of Global
One and President of OSP, pursuant to which Mr. Malm will receive a base salary
of $275,000 per year plus the ability to earn a bonus of up to $82,500 per year
based upon performance criteria established by the Board of Directors at the
beginning of each year. In addition, Global One will grant to Mr. Malm options
to purchase up to 300,000 shares of Global One Common Stock at $1.50 per share,
vesting in the amount of 100,000 options per year at the end of each of the
first three years during the term of the agreement and exercisable for five
years from the time of vesting.
The Company anticipates entering into an agreement (the "DeSantis
Agreement") with Stanley DeSantis, President of SDI, pursuant to which Mr.
DeSantis will be employed by SDI and receive a base salary of $250,000 per year
plus the ability to earn a bonus based upon the achievement of specified net
sales by SDI. In addition, it is anticipated that the DeSantis Agreement will
provide that Mr. DeSantis will have the option, subject to terms and conditions,
to repurchase the Company's 51% interest in SDI over a defined period of time at
a price to be determined based on the previous four years of operating income at
SDI. It is anticipated that a similar repurchase option will be provided to the
Company. In addition, the DeSantis Agreement provides that the Company will
grant to Mr. DeSantis options to purchase OSP Common Stock vesting in full when
Mr. DeSantis' repurchase rights expire or have been waived. Such option will
terminate should Mr. DeSantis exercise his
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repurchase option. In addition, it is anticipated that the DeSantis Agreement
will provide that Mr. DeSantis will receive a 2% royalty for any original
artwork created by Mr. DeSantis used by OSP, its successors, assignees or
affiliates.
Effective upon the Closing, Global One has entered into a three-year
employment agreement with George J. Vrabeck as Executive Vice President,
pursuant to which Mr. Vrabeck will receive a base salary of $200,000 per year
plus a guaranteed bonus of $25,000 payable 90 days after the end of the fiscal
year, plus the ability to earn an additional bonus of up to $25,000 per year
based upon performance criteria established by the Board of Directors at the
beginning of each year. In addition, Global One will grant to Mr. Vrabeck
options to purchase up to 300,000 shares of Global One Common Stock at $1.50 per
share, with 100,000 options vesting per year at the end of each of the first
three years during the term of the agreement and exercisable for five years from
the time of vesting.
Effective upon the Closing, Global One will grant to Mr. Lucas options to
purchase up to 250,000 shares of Global One Common Stock at $1.50 per share,
with 100,000 options vesting immediately and 150,000 vesting in the amount of
50,000 options per year on each of the first three anniversaries of the date of
the grant and exercisable for five years from the time of vesting.
Effective upon the Closing, Global One will grant to Mr. Berin options to
purchase up to 125,000 shares of Global One Common Stock at $1.50 per share,
with 50,000 options vesting immediately and 75,000 vesting in the amount of
25,000 per year on each of the first three anniversaries of the date of the
grant and exercisable for five years from the time of vesting.
In addition to the benefits described above for Messrs. Angard, Malm,
DeSantis, Vrabeck, Lucas and Berin, each of the agreements referenced above will
provide for certain benefits to the employees, including an automobile
allowance, reimbursement of business expenses, vacation time, life insurance
premium payments and disability benefits.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pyramid Licensing is a corporation of which Global One's Chairman and Chief
Executive Officer is a shareholder which represents licensors of properties,
some of whom may in the future license such properties to Global One. The
Company has agreed to guarantee Pyramid's performance under a lease agreement
and to pay some of its expenses. The annual amount of the lease is $46,000, and
the Company has paid $16,000 in expenses, mainly salaries, on behalf of Pyramid
Licensing.
In addition, it is anticipated that the DeSantis Agreement will provide that
SDI will grant Pyramid Licensing a right of first refusal to represent SDI with
regard to any original artwork and to pay Pyramid Licensing a commission of 30%
plus reimbursement of expenses for domestic use and a commission equal to 10%
plus any foreign agent's commission for international use.
Global One's Chairman and Chief Executive Officer has a 26% interest in
Press One, a printing company, the majority of which is owned by the former
owner of the Company. The Company purchased approximately $997,000, $1,355,000
and $917,000 of printing services from Press One in 1995, 1994 and 1993,
respectively. As of December 31, 1995 and 1994, The Company owed approximately
$278,000 and $423,000, respectively to Press One.
OSP has entered into an agreement (the "Tamarix Agreement") with Tamarix
Capital Corporation ("Tamarix"), a company of which Mark S. Hauser, a nominee
for director of Global One, is a principal. Under the Tamarix Agreement, Tamarix
assisted OSP with, among other things, the Private Placement and will receive a
fee equal to 5% of the gross proceeds raised in the Private Placement plus
warrants to purchase Global One Common Stock at an exercise price of $1.50 per
share in an amount equal to 5% of the shares owned by the OSP Shareholders
immediately after the Closing.
OSP has entered into agreements (the "Advisory Agreements") with Tamarix and
Mr. Hauser (the "Advisors") commencing at the Effective Time and continuing for
periods of 12 months and 36 months, respectively, unless sooner terminated,
pursuant to which the Advisors will continue to provide general financial
advisory services to OSP and Global One. Under the Advisory Agreements, Global
One will (a) pay Mr. Hauser $7,500 per month, (b) grant Mr. Hauser a warrant to
purchase 52,500 shares of Global One Common Stock at an exercise price of $1.50,
per share, and (c) pay certain success fees, if any, to Tamarix, including (i) a
cash fee equal to 2% of the amount of funds raised or committed or obligations
assumed through a financing plus warrants equal to 2% of such amount at the same
price per share and (ii) a cash fee equal to 1% of the consideration paid in an
acquisition.
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KELLY RUSSELL STUDIOS, INC.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Kelly Russell financial statements and the related notes and with "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere herein. The selected balance sheet data presented below as of
December 31, 1994 and 1995 and the selected statement of operations data
presented below for the years ended December 31, 1993, 1994 and 1995 are derived
from the financial statements of Kelly Russell included elsewhere herein, which
financial statements have been audited by McGladrey & Pullen, LLP, independent
auditors. The selected balance sheet data presented below as of December 31,
1992 and 1993 and the selected statement of operations data presented below for
the year ended December 31, 1992 are derived from financial statements of Kelly
Russell not included herein, which have been audited by McGladrey & Pullen, LLP,
independent auditors. The selected balance sheet data as of March 31, 1996 and
the statement of operations data for the three months ended March 31, 1995 and
1996 have been derived from Kelly Russell's unaudited financial statements.
Operating results for the three months ended March 31, 1996 may not be
indicative of the results of Kelly Russell that may be expected for the year
ending December 31, 1996 or any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- --------------------
1992 (1) 1993 1994 1995 1995 1996
----------- ---------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 187,766 $2,242,685 $ 2,767,196 $ 2,813,999 $ 512,863 $ 778,614
Cost of sales............................. 117,479 1,231,651 4,217,646 2,553,181 277,404 452,738
----------- ---------- ----------- ----------- --------- ---------
Gross profit (loss)....................... 70,287 1,011,034 (1,450,450) 260,818 235,459 325,876
Operating expenses........................ 221,998 1,196,125 3,734,527 2,133,939 451,950 708,401
----------- ---------- ----------- ----------- --------- ---------
Operating loss............................ (151,711) (185,091) (5,184,977) (1,873,121) (216,491) (382,525)
Other income.............................. -- -- 119,395 40,079 -- --
Interest expense.......................... (1,690) (53,151) (150,448) (7,218) -- (2,024)
----------- ---------- ----------- ----------- --------- ---------
Loss before income taxes and extraordinary
item..................................... (153,401) (238,242) (5,216,030) (1,840,260) (216,491) (384,549)
Extraordinary item........................ -- -- -- 296,994 246,697 --
----------- ---------- ----------- ----------- --------- ---------
Net income (loss)......................... $(153,401) $ (238,242) $(5,216,030) $(1,543,266) $ 30,206 $(384,549)
----------- ---------- ----------- ----------- --------- ---------
----------- ---------- ----------- ----------- --------- ---------
NET LOSS PER COMMON SHARE:
Loss before extraordinary item............ $ (0.04) $ (0.07) $ (1.79) $ (0.52) $ (0.07) $ (0.09)
Extraordinary item........................ -- -- -- 0.08 0.08 --
----------- ---------- ----------- ----------- --------- ---------
Net income (loss) per common share........ $ (0.04) $ (0.07) $ (1.79) $ (0.44) $ 0.01 $ (0.09)
----------- ---------- ----------- ----------- --------- ---------
----------- ---------- ----------- ----------- --------- ---------
Weighted average number of common and
common equivalent shares outstanding..... 2,054,600 2,054,600 2,900,383 3,540,965 3,286,765 4,082,373
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995
--------- ---------- ----------- ----------- AT MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................................... $ 364,809 $1,545,998 $ 1,831,596 $ 1,542,351 $1,119,005
Total assets....................................... 368,911 1,904,096 2,049,312 1,857,285 1,397,329
Current liabilities................................ 431,123 2,192,550 1,703,493 833,840 758,433
Total liabilities.................................. 431,123 2,192,550 1,703,493 833,840 758,433
Accumulated deficit................................ (153,401) (391,643) (5,607,673) (7,150,939) (7,535,488)
Shareholder's equity (deficit)..................... (62,212) (288,454) 345,819 1,023,445 638,896
</TABLE>
- ------------------------------
(1) Kelly Russell was formed in 1992.
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KELLY RUSSELL STUDIOS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATION AND FINANCIAL CONDITION
GENERAL
In 1995, Kelly Russell expanded its product lines outside the sports art
collectibles in an effort to increase revenues to a level where profitability
could be achieved. The most significant new product items include popular print
images in the entertainment industry, including movie, music and television.
Additionally, Kelly Russell introduced a small group of wild life images. Kelly
Russell also focused its sales and marketing efforts on establishing long-term
customer relationships with national and regional retailers. Kelly Russell was
successful in establishing initial or improved customer relationships with
certain retail chains. However, to date those retail chains have not carried
Kelly Russell's products in all of their stores and there is no assurance that
they will continue to carry Kelly Russell's products or expand distribution to
additional stores.
Although these new strategies resulted in improved operations in 1995,
anticipated sales levels and profitability failed to materialize. Management
believes this failure to increase sales levels was primarily because only the
images of the top few athletes of any given sport resulted in significant sales.
Kelly Russell still lacks a firmly established distribution system and retail
sales were flat in the fourth quarter of 1995. Accordingly, during the fourth
quarter of 1995 Kelly Russell recorded a charge to operations of approximately
$640,000 relating to increased allowances for inventory obsolescence and sales
returns.
In the first quarter of 1996, Kelly Russell's Board of Directors further
revised its business plan and operations to reduce operating costs. In 1996,
Kelly Russell plans to produce and distribute a more limited number of images,
primarily just the top few athletes of any given sport. The product line in 1996
will include approximately 100 different images, down from the 300 images
offered during 1995. Additionally, in 1996 Kelly Russell will continue to
increase channels of distribution with existing and new national and regional
retail customers. Kelly Russell also changed contractors for its assembly
warehousing and shipping function in January 1996. Management believes that
alternate contractors are available in the event Kelly Russell is unable to
obtain services from their current contractor.
In connection with this restructuring, Kelly Russell recorded a charge to
1995 operations of approximately $186,000 for the write-down of inventories,
pre-paid licensing rights and original art work, all relating to print images
which will not be aggressively sold during 1996. Kelly Russell also reduced the
number of employees and accepted the resignation of its former Chief Executive
Officer in February 1996. Management believes its new business strategy will
reduce losses and improve cash flow during 1996.
Kelly Russell has explored various alternatives to generate acceptable
revenue growth as a stand-alone company without success. Management of Kelly
Russell believes that combining Kelly Russell's sport licenses and original art
capability with OSP's strong distribution network will provide OSP with another
large market and potential for further expansion. Management of Kelly Russell
believes that the KRSI Merger will therefore give Kelly Russell's shareholders a
significant stake in a company with exciting growth prospects.
However, if the KRSI Merger is not approved by Kelly Russell's shareholders
or not completed for any other reason, management believes it will be necessary
for Kelly Russell to obtain significant debt or equity financing to finance
operations through 1996. If management is unsuccessful in its financing efforts,
Kelly Russell may not be able to continue as a going concern and would be forced
to sell off significant assets, file for protection under federal bankruptcy
laws or liquidate the business.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Sales for the three months ended March 31, 1996 were $778,614, compared to
$512,863 for the three months ended March 31, 1995, representing an increase of
52%. Management attributes the increase in sales primarily to orders obtained
from national mass merchant accounts.
Cost of goods sold totaled $338,503 for the three months ended March 31,
1996, representing 43% of net sales, compared to $220,884, or 43%, of net sales
for the three months ended March 31, 1995. Kelly Russell's management currently
anticipates that cost of goods sold will be in the range of 43% to 47% of net
sales in 1996, based on currently estimated levels of payments for original
artwork and photographic resources.
License and royalty expenses paid to third parties totaled $114,235, or 15%,
of net sales for the three months ended March 31, 1996, compared to $56,520 or
11% of net sales for the three months ended March 31, 1995. License and royalty
expenses for the three months ended March 31, 1995 were reduced due to credits
received as a result of items returned to Kelly Russell that were recorded as
sold in 1994. Management currently anticipates that license and royalty expenses
will be approximately 15% to 18% of net sales in the future.
Operating expenses increased to $708,401 for the three months ended March
31, 1996, from $451,950 for three months ended March 31, 1995, representing an
increase of $256,451, or 57%. This increase is primarily due to (i) an $118,025
increase in advertising, promotions and services to increase saleability of
Kelly Russell's products, (ii) a $55,283 increase in wages and payroll taxes,
(iii) a $24,935 increase in commissions paid to outside sales representatives as
a result of the increase in sales, (iv) an $11,728 increase in depreciation
relating to purchase of displays in 1995, and (v) a $43,643 increase in
accounting and legal expenses relating to the pending OSP transaction which
expenses are expected to increase during Kelly Russell's second quarter.
Kelly Russell has incurred $2,024 of interest expense in the first quarter
of 1996 which relates to finance charges paid to vendors who have extended
payments terms to Kelly Russell. Kelly Russell did not utilize any
interest-bearing debt in the first quarter of 1995.
Kelly Russell incurred a loss of $384,549 for the three months ended March
31, 1996 despite the increase in sales and reduction in cost of goods sold as a
percentage of net sales. While Kelly Russell's sales are anticipated to increase
in 1996 compared to 1995, Kelly Russell does not expect that sales will be
sufficient for Kelly Russell to be profitable in the next three quarters of 1996
or for the year.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net sales for 1995 increased by 1.7% percent to $2,813,999 compared to
$2,767,196 in 1994. During 1995, Kelly Russell discontinued its previous
practice of selling to various grocery and newsstand customers and was
successful in opening distribution channels into large national and regional
retail chains. The top two customers in 1995 accounted for approximately 20% of
net sales, whereas the top two in 1994 accounted for 7% of net sales. Kelly
Russell was also successful in acquiring several entertainment related licenses
and began implementing its movie, music and television product line. Net sales
in 1995 was comprised primarily of sales of Kelly Russell's framed and unframed
products, with approximately 93% bearing sports related images and the remaining
having entertainment related themes. Net sales in 1994 was also comprised
primarily of framed and unframed art, all of which bore sports images. Sales of
discontinued product line items, such as software and ceramic mugs, comprised
approximately 3% of 1994 net sales.
Net sales for 1995 fell below management's expectations. Contributing
factors to the disappointing sales level in 1995 included the fact that only the
images of the top few athletes of any given sport resulted in any significant
sales. This experience has led management to further reduce the number of print
images they will offer in the future. Also adversely affecting 1995 sales was
the lack of a firmly established distribution system and overall soft retail
sales.
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Previously, Kelly Russell granted certain of their customers the right to
return all unsold products. This practice was eliminated in early 1995. However,
Kelly Russell has accepted returns of product in circumstances where management
has a particular advantage in doing so. Kelly Russell's net sales include a
provision for future sales returns totaling approximately $110,000 at December
31, 1995 compared to $384,000 at December 31, 1994.
Cost of goods sold totaled $1,961,648 in 1995, representing 69.7% of net
sales for the year, compared to $3,456,857, or 124.9%, of net sales in 1994. The
$1,495,209, or 43.3%, decrease in cost of goods sold for 1995 is primarily
attributable to the 1994 year-end charges to inventory in connection with the
reorganization of Kelly Russell's business plan. Also, during 1995, Kelly
Russell completely outsourced its assembly and warehousing activities which
reduced the costs of manufacturing Kelly Russell's products. In January 1996,
Kelly Russell changed contractors for these services. Management believes that
alternative contractors are available in the event Kelly Russell is unable to
obtain services from their current contractor.
After experiencing lower than expected sales levels in the fourth quarter of
1995, Kelly Russell recorded a charge to operations of approximately $640,000,
of which $408,000 related to write-offs and allowances for inventory which
proved unsalable at any significant levels. In addition, after further revising
its business plan to produce and distribute a more limited number of images,
Kelly Russell recorded a charge to operations of approximately $186,000, of
which approximately $80,000 related to an additional allowance for inventory
related to print images which will not be aggressively sold during 1996.
License and royalty expenses paid to third parties, including payments to
artists for artwork not owned by Kelly Russell, totaled $591,533, or 21%, of net
sales in 1995 compared to $760,784 or 27.5% of net sales in 1994. License and
royalty expenses include amounts paid for guaranteed minimum license fees and
write-down charges of approximately $174,000 and $52,000 in 1995 and 1994,
respectively, to reduce several licenses to net realizable value.
Operating expenses decreased to $2,133,939 in 1995 from $3,734,527 in 1994,
representing a decrease of $1,600,588, or 42.9%. This decrease is primarily due
to a concerted effort to reduce operating costs including reductions as follows:
(i) cutting advertising expenditures by $567,000; (ii) decreasing trade show
expenses by $461,000; (iii) reducing shipping and mailing by $295,000; and (iv)
curtailing travel and entertainment expenditures by $155,000. During 1995, Kelly
Russell charged operations for $100,000 relating to accrued litigation costs
representing management's estimate of the cost of settling certain outstanding
claims against Kelly Russell.
Interest expense totaled $7,218 in 1995, compared to $150,448 in 1994. This
decrease is primarily attributable to Kelly Russell recording $120,000 of
noncash financing expense in January 1994 in connection with the issuance of
warrants to the participating promissory noteholders for the purchase of 60,000
shares of Common Stock at $1 per share. Additionally, the decrease in interest
expense is attributable to Kelly Russell's higher financing needs during the
first quarter of 1994 to fund the growth in sales, pending the receipt of the
funds from the initial public offering.
In 1995, Kelly Russell recorded extraordinary income of $296,994 reflecting
reductions in trade payables received in negotiating the settlement of past due
balances owed to certain vendors at December 31, 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net sales for 1994 increased by 23.4% percent to $2,767,196 compared to
$2,242,685 in 1993. The primary reasons for the sales growth include (i)
increased spending for advertising, (ii) increased participation in trade shows
and special events to promote Kelly Russell's products, (iii) the addition of
new customers, (iv) the continued expansion of the Legends and Superstars line
from baseball to other sports, and (v) the introduction of new products,
including ceramic coffee mugs and computer screen savers. However, net sales for
1994 fell significantly short of management expectations. Management believed
Kelly Russell's strategies to distribute product at the retail level through
magazine distributors and grocery stores and the use of guaranteed sales
practices for these customers was
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unsuccessful. Kelly Russell's net sales reflect a reduction for sales returns
totaling approximately $901,000 in 1994 compared to approximately $15,000 in
1993. Additionally, management believed the labor disputes in Major League
Baseball and the National Hockey League had a significant adverse effect on
Kelly Russell's sales performance in 1994.
Cost of goods sold totaled $3,456,857 in 1994, representing 124.9% of net
sales for the year, compared to $860,863 or 38.4% of net sales in 1993. The
$2,595,994, or 301.6%, increase in cost of goods sold for 1994 was primarily
attributable to year-end charges totaling $1,370,000, principally for inventory
shrinkage, valuation adjustments and obsolescence, and charges totaling
$1,088,876 in connection with the reorganization of Kelly Russell's business
plan. The obsolescence charges related primarily to raw materials purchased in
anticipation of significantly higher sales levels than achieved during the year
and to raw materials purchased in anticipation of new products that were not
developed. The reorganization charges principally included (i) the write-off of
prints, finished products and photographic resources that were not utilized in
Kelly Russell's product line in 1995, (ii) the write-off of capitalized software
development costs and finished goods inventories for Kelly Russell's computer
screen saver and ceramic coffee mug products, (iii) the write-off of the cost of
certain original artwork as a result of Kelly Russell's decision to close its
art gallery and retail store operations, and (iv) the write-off of certain costs
associated with Kelly Russell's assembly operations which were closed in January
1995. Additionally, the increase in cost of goods sold was attributable to Kelly
Russell recording sales returns allowances as a reduction of sales without an
offsetting reduction of cost of goods sold. To a lesser extent, cost of goods
sold increased because of higher production costs attributable to the larger
assembly operation opened in early 1994 and because of the higher sales volume
for the year.
License and royalty expenses paid to third parties, including payments to
artists for artwork not owned by Kelly Russell, totaled $760,789 or 27.5% of net
sales in 1994 compared to $370,788 or 16.5% of net sales in 1993. License and
royalty expenses for 1994 included amounts paid for minimum license fees and for
reorganization charges totaling $52,249 relating to the elimination of certain
products from Kelly Russell's 1995 product line.
Operating expenses increased to $3,734,527 in 1994 from $1,196,125 in 1993,
representing an increase of $2,538,402 or 212%. This increase was primarily due
to the utilization of the net proceeds from the successful initial public
offering in March 1994 to increase the national market awareness of its product
line and to increase the customer base. Marketing expenses, primarily
representing advertising, trade shows and travel and entertainment expenses,
increased to $1,519,659 in 1994 compared to $418,163 in 1993. To a lesser
extent, the 1994 increase in operating expenses was attributable to the addition
of office and production personnel, increased product development costs,
software consulting fees and professional fees relating to operating as a public
company and the year-end reorganization charges.
Interest expense totaled $150,448 in 1994 compared to $53,151 in 1993. This
increase was primarily attributable to Kelly Russell recording $120,000 of
noncash financing expense in January 1994 in connection with the issuance of
warrants to the participating promissory noteholders for the purchase of 60,000
shares of Common Stock at $1 per share. Additionally, the increase in interest
expense is attributable to Kelly Russell's higher financing needs during the
first quarter of 1994 to fund the growth in sales, pending the receipt of the
funds from the initial public offering.
Other income totaled $119,395 in 1994, representing a gain of $85,978 on the
cancellation of the Common Stock of two former officer/shareholders and interest
earned totaling $33,417 on the unutilized proceeds from the public offering.
SEASONALITY
Kelly Russell generated approximately $1,095,000 (38.9%) and $986,000
(35.6%) of its net sales in the fourth quarter of 1995 and 1994, respectively.
Management believes Kelly Russell will continue to experience a significant
percentage of future sales in the fourth quarter holiday buying season for the
foreseeable future.
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LIQUIDITY AND CAPITAL RESOURCES
In February 1996, Kelly Russell restructured its business in an effort to
improve income and cash flows from operations. Kelly Russell is also pursuing
plans to combine its operations with the Company and its subsidiaries in 1996 by
merging with a wholly-owned subsidiary of Global One. However, if the KRSI
Merger is not consummated, management believes it will be necessary for Kelly
Russell to obtain debt or equity financing to finance operations through 1996.
If management is unsuccessful in its financing efforts, Kelly Russell may not be
able to continue as a going concern and would be forced to sell off significant
assets, file for protection under federal bankruptcy laws or liquidate the
business.
In anticipation of future costs the Company may incur as a result of
consummating the transaction contemplated by the Merger Agreement and working
capital needs, the Company entered into a Combined Account Factoring and
Security Agreement on April 8, 1996 (the "Factoring Agreement") with Principal
Resources, LLC, an affiliate of one of the Company's principal shareholders.
Pursuant to this Factoring Agreement, the Company agreed to assign its accounts
receivable for cash. As of May 20, 1996, the Company has assigned $191,000 worth
of accounts receivable for approximately $130,000 and may assign an additional
$470,000 worth of accounts receivable for $330,000. The Company believes that
the Factoring Agreement is on terms no less favorable than could have been
obtained from unaffiliated third parties.
Even if Kelly Russell obtains sufficient financing, its success will
nevertheless be dependent upon the effectiveness of the recent restructuring in
increasing sales and managing costs. The restructuring changes in management,
production, product distribution and operations undertaken in the recent
restructuring have not been in effect sufficiently long to demonstrate their
efficacy in correcting Kelly Russell's financial condition. Kelly Russell can,
therefore, provide no assurance that its new business plan will be effective in
significantly improving Kelly Russell's financial results in 1996 or thereafter.
Kelly Russell had cash of $37,962 and working capital of $360,572 at March
31, 1996, as compared to cash of $257,618 and working capital of $708,511 at
December 31, 1995. Cash flow used in operating activities totaled $119,656 for
the three months ended March 31, 1996, primarily due to the operating loss as
offset partially by the normal first quarter reduction in trade receivables as
customers made payments on their fourth quarter holiday shipments and a
reduction in the amount of inventory purchases. Kelly Russell's first quarter
sales are typically substantially less than its fourth quarter sales.
At December 31, 1995, Kelly Russell had net working capital of approximately
$708,000 compared to $128,000 at December 31, 1994. The principal reason for the
increase in net working capital was the successful completion of private
placements of its Common Stock in 1995 which netted proceeds of $2,217,361.
These proceeds were primarily utilized to finance the net loss from operations
of $1,873,121 and to reduce trade payables. Kelly Russell currently has no bank
debt but has recently entered into arrangements to obtain financing through
factoring of receivables.
SOURCES OF FUNDS
Kelly Russell's primary source of funds in 1995 and 1994 was through the
sale of Common Stock in an initial public offering in March 1994, a private
placement of Common Stock in December 1994 through March 1995, and through the
exercise of warrants during May to September 1995. Prior to 1994, the principal
source of funds was through bank debt and the issuance of promissory notes.
Since inception in 1992, Kelly Russell has relied on the following sources of
funds to finance its operations and growth:
PARTICIPATING PROMISSORY NOTES. Kelly Russell issued $300,000 of
participating promissory notes during the period from October 1992 through
March 1993. The debt proceeds were utilized by Kelly Russell to fund
operations and to obtain the bank financing. These notes were unsecured,
paid interest at 7 percent and were subordinated to all bank debt of Kelly
Russell. The purchasers of the participating promissory notes received
300,000 warrants to purchase Common
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Stock of Kelly Russell at the price of $1 per share. In January 1994, the
purchasers received an additional 60,000 warrants to purchase Common Stock
at $1 per share in return for the waiver of certain rights upon Kelly
Russell's issuance of the convertible debentures and subsequent repayment of
the participating promissory notes, as discussed below.
BANK AGREEMENTS. Kelly Russell had working capital financing from a
bank in the form of a $1,000,000 revolving line of credit agreement until
March 31, 1994 when amounts under the line of credit were paid in full. The
line of credit was subsequently terminated. Advances under this agreement
were limited based on eligible receivables and committed purchase orders,
were due upon demand, bore interest at 2 percent over the prime rate and
were secured by substantially all of Kelly Russell's assets and the personal
guarantees of certain officers/shareholders.
CONVERTIBLE DEBENTURES. In January 1994, Kelly Russell issued $900,000
of 7% convertible debentures. The proceeds were utilized to repay certain
indebtedness, including $300,000 of participating promissory notes, and to
fund operations. The debentures were unsecured, were subordinated to all
bank debt and were due in February 1995. The debentures were converted to
399,986 shares of Common Stock upon the successful completion of the initial
public offering in March 1994.
INITIAL PUBLIC OFFERING. In March 1994, Kelly Russell received net
proceeds of $4,380,108 upon the issuance of 1,477,750 shares of Common Stock
at $3.50 per share. Additionally, Kelly Russell received an additional
$300,000 upon the exercise of warrants for the issuance of 300,000 shares of
common stock. Kelly Russell utilized $1,050,000 of the net proceeds to
immediately repay the outstanding bank debt. The remainder of the net
proceeds were utilized during the period from April 1994 to mid-November
1994 to fund Kelly Russell's business plan and operations. By mid-November
1994, Kelly Russell was in need of additional financing.
PRIVATE OFFERING. In December 1994, Kelly Russell commenced a private
offering of Units, each Unit consisting of one share of Common Stock and a
warrant to purchase one share of Common Stock, at a price of $1 per Unit, to
fund its current cash shortfall and future operations. In December 1994,
Kelly Russell issued 285,000 Units and received net proceeds of $229,055.
From January 1, 1995 through March 27, 1995, Kelly Russell issued an
additional 641,000 Units for net proceeds of $569,450. From May 1995 through
September 1995, Kelly Russell received additional net proceeds of $1,647,911
from the corresponding exercise of warrants for the purchase of 926,000
shares of Common Stock.
USES OF FUNDS
Kelly Russell's primary use of funds has been to finance operations,
principally for sales and marketing activities, for working capital requirements
resulting from continued net losses and from the growth in net sales, for the
purchase of inventories and for the purchase of original artwork, photographic
resources and equipment. Net cash used in operating activities was $2,206,265 in
1995 and $3,701,426 in 1994, reflecting Kelly Russell's net losses of $1,543,266
in 1995 and $5,216,030 in 1994.
Currently, Kelly Russell's standard credit terms to its customers are net 30
days, except Kelly Russell granted product return rights to certain customers
during 1994 and the latter part of 1993. Although Kelly Russell has discontinued
this practice, Kelly Russell has accepted returns of product in circumstances
where management has found a particular advantage in doing so. Kelly Russell has
recorded an allowance for sales returns of $110,000 at December 31, 1995.
Management believes its allowances for sales returns to be adequate at December
31, 1995.
Kelly Russell's original artwork is created by independent artists under
contract to Kelly Russell. The original artwork is utilized for the printed
lithographs in Kelly Russell's product line. Kelly Russell's purchase of
original artwork totaled approximately $264,000 in 1995 and approximately
$329,000 in 1994. Management expects original artwork purchases will total
approximately $150,000 in 1996. In January 1995, Kelly Russell closed its
original sports art gallery and retail store. Beginning
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in December 1994, Kelly Russell began including the cost of original artwork in
the cost of its print inventories. Kelly Russell's year-end restructuring charge
in 1995 includes the write-off of original artwork costs totaling approximately
$65,000.
Purchases of photographic resources totaled approximately $156,000 in 1995
and approximately $70,000 in 1994. Kelly Russell anticipates that purchases of
photographic resources will be approximately $150,000 in 1996.
Kelly Russell purchased equipment totaling approximately $222,000 in 1995
and $290,000 in 1994. The 1995 purchases principally relate to the purchase of
various display racks and office equipment. In January 1995, Kelly Russell began
outsourcing its assembly, shipping and warehousing operations to a third party,
to which Kelly Russell paid approximately $253,000 in 1995. Additionally, Kelly
Russell executed a new lease agreement for its executive offices during 1995 and
relocated to 2905 Northwest Boulevard, Suite 220, Plymouth, Minnesota, where
Kelly Russell leases approximately 6,200 square feet of office space.
BUSINESS OF KELLY RUSSELL STUDIOS, INC.
Kelly Russell was incorporated under Minnesota law on July 31, 1992, to
acquire the business of a partnership which had been engaged in the creation,
assembly, marketing and distribution of products bearing realistic sports images
since January 1992. After completing the acquisition on November 12, 1992, Kelly
Russell increased net sales from approximately $188,000 for the fiscal year
ended December 31, 1992, to approximately $2,243,000 for the fiscal year ended
December 31, 1993. In March 1994, Kelly Russell completed its initial public
offering of 1,477,750 shares of Common Stock and the related issuance of 699,986
shares of Common Stock on the conversion of certain debt for total net proceeds
of $5,580,108.
During 1994, Kelly Russell expended significant resources to expand its
product offerings, increase its market presence and number of customers and
develop its assembly operations. The product line was expanded in 1994 to
include software and ceramic coffee mugs. However, of more significance, was
Kelly Russell's increase in the number of print images in its product lines.
Kelly Russell's strategy was unsuccessful as the planned growth in sales volume
and profitability failed to materialize. Accordingly, Kelly Russell recorded a
charge to 1994 fourth quarter operations of approximately $1,370,000 relating to
increased allowances for inventory obsolescence, bad debts and sales returns.
In November and December 1994, Kelly Russell's Board of Directors hired new
management and revised Kelly Russell's business plan and operations to focus
solely on the creation, marketing and sales of limited editions of sports art
collectibles through mass merchants, distributors and specialty retail stores.
Beginning in January 1995, Kelly Russell (i) closed its original sports art
gallery and retail store, (ii) discontinued sales of its software product and
ceramic coffee mug lines developed and introduced in 1994, (iii) substantially
reduced the number of print images in its product lines, (iv) began outsourcing
its assembly, shipping and warehousing activities, (v) eliminated certain major
channels of distribution previously utilized by Kelly Russell, (vi) eliminated
most of its employee sales force and increased the utilization of outside sales
representatives, and (vii) eliminated its practice of offering guaranteed return
privileges to certain customers. In December 1994, Kelly Russell also recorded a
charge to operations of approximately $1.1 million in connection with this
reorganization of the business. See "Kelly Russell Studios, Inc. Management's
Discussion and Analysis of Results of Operations and Financial Condition."
In 1995, Kelly Russell expanded its product lines outside the sports art
collectibles in an effort to increase revenues to a level where profitability
could be achieved. The most significant new product items include popular print
images in the entertainment industry, including movie, music and television.
Additionally, Kelly Russell introduced a small group of wild life images. In
1995, Kelly Russell also focused its sales and marketing efforts on establishing
long-term customer relationships with
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national and regional retailers. Kelly Russell was successful in establishing
initial or improved customer relationships with certain retail chains. However,
to date those retail chains have not carried Kelly Russell's products in all of
their stores and there is no assurance that they will continue to carry Kelly
Russell's products or expand distribution to additional stores.
Although these new strategies resulted in improved operations in 1995,
anticipated sales levels and profitability failed to materialize. Kelly Russell
management believes this failure to increase sales levels was primarily because
only the images of the top few athletes of any given sport resulted in
significant sales, Kelly Russell still lacks a firmly established distribution
system and retail sales were flat in the fourth quarter of 1995. During the
fourth quarter of 1995, Kelly Russell recorded a charge to operations of
approximately $640,000 relating to increased allowances for inventory
obsolescence and, to a lesser extent, sales returns.
In February 1996, the Board of Directors further revised its business plan
and operations to reduce operating costs. In 1996, Kelly Russell plans to
produce and distribute a more limited number of images, primarily just the top
few athletes of any given sport. The product line in 1996 will include
approximately 100 different images, down from the 300 images offered during
1995. Additionally, in 1996 Kelly Russell will continue to increase channels of
distribution with existing and new national and regional retail customers.
In connection with this restructuring, Kelly Russell recorded a charge to
1995 operations of approximately $186,000 for the write-down of inventories,
pre-paid licensing rights and original artwork, all relating to print images
which will not be aggressively sold during 1996. Kelly Russell also reduced the
number of employees and accepted the resignation of its former Chief Executive
Officer. Kelly Russell management believes its new business strategy will result
in improved results of operations and cash flow during 1996. Nevertheless, Kelly
Russell anticipates that it will incur significant losses and that it will need
significant debt or equity financing by year end if the Transactions are not
closed.
PRODUCTS
Kelly Russell creates, markets and distributes sports and
entertainment-related art for the collectible market. Kelly Russell's primary
strategy is to use its collection of original art to create innovative,
affordable products with an artistic look, quality and presentation that
differentiates them from other entertainment products, such as posters and
trading cards. Kelly Russell focuses on products with a wide range of appeal
that can be quickly created, produced and sold through mass merchants,
distributors and specialty retail stores. Almost all of Kelly Russell's products
are produced and sold under non-exclusive licenses from major national sports
franchises and their related players' associations. In 1995, Kelly Russell
introduced and expanded its licensing agreements for the movie, music and
television product line.
LEGENDS AND SUPERSTARS-TM-. The Legends and Superstars product is a wall
hanging that measures approximately 11" x 14" and consists of a framed mat with
three openings. The largest opening displays a lithographic print of Kelly
Russell's original art. The two smaller openings contain a photographic picture
and biographical information or a brief description of the pictured item or
personality. Each piece is individually numbered.
The framed Legends and Superstars product was designed for memorabilia
consumers who prefer higher priced, higher quality products than trading cards
and posters. However, at a suggested retail price of $19.99 to $24.99, it is
priced below many other memorabilia items.
In response to the anticipated demand for a lower priced version of its
Legends and Superstars product, Kelly Russell introduced an unframed, "autograph
ready" version of that product line in the summer of 1993. The unframed product
is substantially the same as the framed product, except that it is shrink
wrapped rather than framed. The plastic shrink wrap makes it easier for
purchasers to remove the product from the packaging and have it autographed or
personalized. If desired, the product can then be framed at the owner's expense.
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The autograph ready Legends and Superstars products sell for a suggested
retail price of $9.99 to $12.99. At that price Kelly Russell believes that this
product is more likely to be purchased in multiple quantities than the framed
product which is believed to be a more traditional gift item.
During 1996, Kelly Russell will offer approximately 100 different images in
both the framed and autograph-ready Legends and Superstars product lines, down
from 300 images offered during 1995. The number of images offered is
periodically adjusted due to seasonality and customer demand. The sales in 1995
were comprised primarily of sales of these products.
LIMITED EDITION LITHOGRAPHS. Kelly Russell historically made full size
lithographic prints from certain pieces of its original art collection. Those
prints were made on high quality stock and were sold in limited editions. Kelly
Russell currently is not emphasizing this aspect of its business.
ORIGINAL ART. Kelly Russell presently owns a collection of over 300
original works of art produced by independent artists. See "-- Product Supply
and Production." At December 31, 1995, Kelly Russell has expensed the cost of
its original artwork except for the cost attributable to lithographic prints in
raw material and finished goods inventories. Most of the pieces are realistic
depictions of famous athletes. Kelly Russell management believes that this
artistic dimension is a key factor that distinguishes Kelly Russell's products
from other entertainment related products.
Although Kelly Russell has made limited efforts to market original paintings
from its existing collection, sales of these paintings have been negligible and
are not expected to add materially to Kelly Russell's revenues in the future.
Kelly Russell will continue to commission and purchase additional pieces of
art for the development of additional products. The emphasis of those purchases
is to update the collection to include recently popular sports personalities or
events. Kelly Russell is required, by the terms of certain of its licenses, to
produce products that contain a minimum number of different athletes during the
terms of the licenses. Kelly Russell is also required to obtain the approval of
the licensors of new images before they are marketed. See "-- License Agreements
and Trademarks."
NEW PRODUCT DEVELOPMENT. Kelly Russell intends to focus its new product
development on expanding and updating the images in its existing product lines.
Kelly Russell believes that its ability to quickly introduce images of recently
popular subject matter, such as the star athletes in the World Series or the
Super Bowl, is important to maintaining the commercial viability of these lines.
When necessary, Kelly Russell has been able to create, obtain approval from
licensors, produce and ship products with new images within six weeks of
identifying the new subject matter. The more typical time frame is approximately
two months from conception to delivery. If new licenses are necessary, Kelly
Russell's ability to introduce new product may be slowed significantly.
Obtaining a new license may require from two months to a year. See "-- License
Agreements and Trademarks."
During 1995, Kelly Russell acquired several entertainment related licenses
and began implementing its movie, music and television product line. Kelly
Russell believes that the addition of these products will expand its current
customer base. Kelly Russell also tested product lines which included various
wildlife images as well as sports team images. In February 1996, Kelly Russell
concluded that the limited appeal and, in the case of wildlife images, different
marketing challenges presented by these products resulted in the failure of both
of these product lines. Therefore, Kelly Russell has selected a limited number
of these images to continue selling and has discontinued production of all
remaining team image and wildlife images.
The expansion of Kelly Russell's product lines may require additional
license rights from persons controlling the subject images. There can be no
assurance that Kelly Russell will be able to create any new products that can be
successfully marketed and sold or, even if such products are created, that Kelly
Russell will be able to timely obtain the necessary licenses relating to these
products on terms favorable to Kelly Russell, if at all. See "-- Licensing
Agreements and Trademarks."
MARKETING AND DISTRIBUTION
Kelly Russell markets its products through independent sales
representatives, two in-house sales employees, and, as of February 1996, Kelly
Russell hired a national sales organization to manage Kelly
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Russell's sales functions. Kelly Russell markets to national and regional
retailers (including mass merchant retailers, department stores, specialty
retailers, discount retailers, and toy stores), distributors of sports
memorabilia and a cable television programming network. Kelly Russell also
promotes its products through various advertising programs which may include
retailers. Kelly Russell's representatives also attend trade shows related to
Kelly Russell's business. Kelly Russell also advertised its products through
sports magazines and other print advertising and anticipates continuing this
practice on a limited basis during 1996.
In 1995, Kelly Russell's framed products were sold to a number of major
retail chains, such as J.C. Penney, although not every store in these chains
carried Kelly Russell's products. During 1995, Kelly Russell concentrated its
efforts on opening distribution channels into retail chains and establishing
initial sales programs with these chains. To date, these chains have not carried
Kelly Russell's products in all of their stores and there can be no assurance
that they will continue sales in those stores currently offering Kelly Russell's
products or that they will expand their distribution of Kelly Russell's products
to other stores. Kelly Russell's strategy in 1996 is to increase its current
channels of distribution to include both new retail chains and additional stores
of mass merchant retailers with whom Kelly Russell has existing relationships.
In 1995, net sales to Musicland represented 12.4% of Kelly Russell's net
sales, whereas in 1994, net sales to J.C. Penney represented 16.5%. No other
customers represented more than 10% of Kelly Russell's net sales in 1995 or
1994. Kelly Russell expects that it will have an even greater concentration of
sales to significant customers in 1996, the loss of any of which could have a
material adverse effect on Kelly Russell.
Commissions paid to Kelly Russell's independent sales representatives
generally range from 5% to 10% of net sales. Kelly Russell's in-house sales
employees are paid a base salary only.
During 1994 and preceding years, Kelly Russell attempted to distribute its
products through channels, such as grocery and drug stores, which required the
right to return all unsold product to Kelly Russell, freight prepaid, for full
credit against the purchase price of such returns. Kelly Russell recorded an
allowance of $384,000 at December 31, 1994 for these potential returns. Kelly
Russell no longer grants its customers the automatic right to return unsold
product, but Kelly Russell has accepted returns of product in certain
circumstances. Accordingly, Kelly Russell has recorded an allowance for sales
returns totaling $110,000 at December 31, 1995, which management believes is
adequate to fairly reflect the financial impact of any potential returns.
LICENSE AGREEMENTS AND TRADEMARKS
Kelly Russell's ability to produce and distribute products depicting any
image owned or controlled by a third party (including all images subject to
copyright, trademark or other protection) is primarily dependent upon Kelly
Russell's ability to obtain rights under license agreements with such third
parties. More particularly, the production or distribution of products depicting
the image of any personality or any team, league, or organization logo or
trademark requires a license from the person, team, league, entertainment
company or organization whose image, logo or trademark is being used. For
example, to commercialize the image of a professional baseball player in his
uniform, Kelly Russell is required to obtain two licenses, one from Major League
Baseball Players Association ("MLBPA") and another from Major League Baseball
Properties ("MLBP").
Kelly Russell presently has non-exclusive license agreements with MLBP,
MLBPA, Major League Baseball Properties Canada Inc., National Football League
Properties, Inc., National Football League Players, Inc., National Hockey League
Enterprises, Inc., National Hockey League Enterprises Canada Inc., National
Hockey League Players' Association, the National Basketball Association, several
drivers and their sponsors, several individual athletes, the estates of several
deceased athletes, and several entertainment companies or related organizations.
Kelly Russell's business is largely dependent upon its ability to continue to
obtain and maintain these existing licenses and to obtain additional licenses
necessary for the expansion of its activities. Even if new licenses can be
obtained to expand Kelly Russell's activities, the process of obtaining these
licenses may greatly delay Kelly Russell's ability to introduce new products.
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Kelly Russell's agreement with the various players, players' associations or
entertainment companies may enable Kelly Russell to use an individual's name,
picture, facsimile signature, biographical description or entertainment related
title or logo. Pursuant to the terms of these licenses, Kelly Russell is
permitted to produce and sell, in the United States, the original art,
lithographs, framed and unframed Legends and Superstars products and original
art posters. A very limited number of the agreements allow Kelly Russell to sell
the subject products outside the United States. All of these licenses are
non-exclusive and, accordingly, the various licensors are free to grant similar
licenses to other licensees. Each agreement provides for the payment of a
royalty based on a percentage of net sales of licensed products, the majority of
which are subject to a minimum guaranteed royalty. Some of these agreements also
require advance royalty payments. The amount of royalties paid by Kelly Russell
for products sold generally ranges from 9% to 23% of net sales. For the fiscal
years ended December 31, 1994 and 1995, Kelly Russell incurred licensing fees
aggregating approximately $761,000 and $592,000, respectively, for the right to
produce and market products requiring licenses.
The terms of these licenses extend for one to three year periods.
Substantially all of the licenses from the estates of deceased athletes expired
on December 31, 1995 and were renewed in 1996. These agreements are generally
renewable for one year periods, unless notice is given by either party to the
agreements not to renew. The majority of the licenses from the various leagues,
players associations and entertainment companies expire between 1996 and 1998.
Some of the licenses contain renewal provisions which provide for additional one
year extensions as long as Kelly Russell has fulfilled its obligations under the
agreements, upon notice or upon written agreement between the parties. As Kelly
Russell believes that it has fulfilled its obligations under these license
agreements and considers its relationships with the various players'
associations and leagues to be good, Kelly Russell expects these agreements to
be renewed as scheduled. Kelly Russell also believes that it has obtained and is
currently in material compliance with all licenses necessary to produce and
market its existing products and intends to seek additional licenses, as and
when necessary, to permit Kelly Russell to distribute future products. Although
there can be no assurance that, in the future, new licenses will be granted to
Kelly Russell for future products, Kelly Russell has, in the past, been able to
obtain new licenses on terms acceptable to it. The inability of Kelly Russell to
renew existing licenses and/or acquire additional licenses would have a material
adverse effect on Kelly Russell's ability to continue its business operations.
Kelly Russell has registered the trademarks "Kelly Russell Studios,"
"Legends and Superstars" and its "KR" stylized logo with the United States
Patent and Trademark Office. Kelly Russell has also applied to register the
trademark "KRSI" with the United States Patent and Trademark Office.
PRODUCT SUPPLY AND PRODUCTION
Substantially all of Kelly Russell's collection of original art is created
by independent artists. Kelly Russell believes that the quality of its original
art collection is essential to its business and it strives to associate with the
best artists available on a commercially reasonable basis. Typically, Kelly
Russell identifies the subject matter and, from time to time, provides the
artist with reference materials or other information from which the art is
created. If the art is acceptable to Kelly Russell, Kelly Russell may or may not
purchase the art, but will seek an agreement with the artist on terms which
generally provide Kelly Russell with the right to reproduce the original art for
the production of Kelly Russell's products. The terms of the agreements vary
from artist to artist. Kelly Russell made payments to artists aggregating
approximately $372,000 and $264,000 in 1994 and 1995, respectively.
The photographs used in Kelly Russell's Legends and Superstars product lines
and as the basis for original artwork are usually obtained from independent
photographers, photo studios or directly from the major sports franchises. Kelly
Russell purchases the right to use those photographs and, in 1994 and 1995,
respectively, made payments aggregating approximately $70,000 and $156,000 for
photographs and other related costs. The foregoing increase is due to production
of original artwork which uses multiple photographs.
Kelly Russell's staff designs Kelly Russell's products and collects the
statistics and writes the descriptions that are included in the Legends and
Superstars products. The printed lithographs,
87
<PAGE>
picture frames, matting, glass and other production materials are provided to
Kelly Russell by independent contractors and are available from multiple
sources. During 1994 and preceding years, Kelly Russell's employees assembled
its products. In 1995, Kelly Russell utilized an independent contractor to
assemble, warehouse and ship its products. Kelly Russell purchased services of
approximately $253,000 from this contractor during 1995. In January 1996, Kelly
Russell changed contractors for these services. Kelly Russell management
believes that alternative contractors are available in the event Kelly Russell
is unable to obtain services from its current contractor.
COMPETITION
With respect to Kelly Russell's Legends and Superstars products, Kelly
Russell believes that it competes on two different levels. The framed product
competes with other entertainment collectibles and memorabilia, in addition to
lower cost artwork and lithographs in general. The autograph ready product sells
at a lower price point and competes with sports trading cards and less expensive
sports collectibles and memorabilia. Kelly Russell's autograph-ready Legends and
Superstars product is priced higher than most sports trading cards.
Kelly Russell believes that it must compete on the basis of providing high
quality, innovative products that can be profitably sold at affordable prices.
Customer service is also believed to be an important competitive factor in the
sale of product through mass merchandising. Many of Kelly Russell's competitors,
at all levels, are believed to have substantially greater financial and other
resources than Kelly Russell. Direct competitors with similar product lines
include OSP Publishing, Inc. and Dream Team Collectibles, Inc. In the area of
sports trading cards, those competitors include Topps, Inc.; The Upper Deck
Company; Fleer Corp.; and The Scoreboard, Inc. The licenses pursuant to which
Kelly Russell produces its products are non-exclusive and do not assure Kelly
Russell of any competitive advantage.
EMPLOYEES
As of March 22, 1996, Kelly Russell employed 14 full-time persons. No
employees of Kelly Russell are subject to collective bargaining agreements, and
Kelly Russell considers its relations with its employees to be satisfactory.
ENVIRONMENT
Kelly Russell believes that it is in material compliance with existing
federal, state and local regulations relating to the protection of the
environment. Such environmental regulations have not had a material impact on
Kelly Russell's capital expenditures, earnings or competitive position.
SEASONALITY
In the years ended on December 31, 1994 and 1995, Kelly Russell experienced
seasonal fluctuations because a large percentage, 35.6% and 38.9% in 1994 and
1995, respectively, of its net sales were generated in the fourth quarter of the
year during the holiday buying season. Kelly Russell is attempting to reduce the
seasonality of its business with products which management believes will also
sell well during the first three quarters of the fiscal year. Kelly Russell
expects however, that at least some seasonal aspects of its business will
continue in the foreseeable future.
DESCRIPTION OF PROPERTY
Kelly Russell executed a new lease agreement for its executive offices
during 1995 and relocated to 2905 Northwest Boulevard, Suite 220, Plymouth,
Minnesota, where Kelly Russell leases approximately 6,200 square feet of office
space. That lease extends through May 31, 2001 and provides for monthly rent of
approximately $7,000, including certain operating costs. Because Kelly Russell
engages an outside contractor to produce and warehouse its products, Kelly
Russell currently does not require any production or warehouse space.
LEGAL PROCEEDINGS
Kelly Russell is not currently a party to nor is any of its property subject
to any material legal proceedings.
88
<PAGE>
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OF KELLY RUSSELL
The following table provides information as of March 28, 1996 concerning the
beneficial ownership of Kelly Russell Common Stock by (i) persons known by Kelly
Russell to own more than 5% of Kelly Russell Common Stock, (ii) each director of
Kelly Russell, (iii) the named executive officers in the Summary Compensation
Table, and (iv) all directors and executive officers as a group. Except as
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all shares of Kelly Russell Common Stock owned
by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME (AND ADDRESS OF 5% BENEFICIALLY PERCENT
OWNER) OR IDENTITY OF GROUP OWNED (1) OF CLASS (1)
- --------------------------------------------------------- -------------------- -------------
<S> <C> <C>
George J. Vrabeck........................................ 100,000(2) 2.4%
Timothy G. Rath.......................................... 310,000(3) 7.2
John J. Egart............................................ 22,666(4) *
James C. Hawley.......................................... 13,500(4) *
Thomas R. King........................................... 6,000(4) *
Aaron Boxer TTEE......................................... 407,000 10.0
Aaron Boxer Rev. Trust
5500 Wayzata Blvd., #800
Minneapolis, MN 55416
D. B. Johnson............................................ 314,356(5) 7.5
5500 Wayzata Blvd., #800
Minneapolis, MN 55416
All Executive Officers and Directors as a Group (6
Individuals)............................................ 477,166(6) 10.7
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Under the rules of the SEC, shares not actually outstanding are deemed to be
beneficially owned by an individual if such individual has the right to
acquire the shares within 60 days. Pursuant to such SEC Rules, shares deemed
beneficially owned by virtue of an individual's right to acquire them are
also treated as outstanding when calculating the percent of the class owned
by such individual and when determining the percent owned by any group in
which the individual is included.
(2) Includes 100,000 shares which may be purchased by Mr. Vrabeck upon exercise
of a currently exercisable option.
(3) Includes 250,000 shares which may be purchased by Mr. Rath upon exercise of
a currently exercisable option.
(4) Includes 6,000 shares which may be purchased upon exercise of a currently
exercisable option.
(5) Includes 60,000 shares held by family members and 83,356 shares that may be
purchased by Mr. Johnson upon exercise of currently exercisable warrants.
(6) Includes 378,000 shares which may be purchased upon exercise of currently
exercisable options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 24, 1994, Kelly Russell entered into an Underwriting Agreement
with Miller, Johnson & Kuehn, Incorporated ("MJK"), of which D. B. Johnson, a
principal shareholder of Kelly Russell, is an affiliate. Pursuant to the
Underwriting Agreement, MJK served as the underwriter of Kelly Russell in
connection with the public offering and sale of 1,477,750 shares of Kelly
Russell Common Stock, which sale was completed on March 31, 1994. MJK received
discounts and commissions in the amount of $517,213 and five-year warrants to
purchase 45,389 shares of Kelly Russell
89
<PAGE>
Common Stock at $4.20 per share, as well as a nonaccountable expense allowance
in the amount of $51,721. The warrants to purchase 45,389 shares of Kelly
Russell Common Stock were subsequently transferred to MJK's affiliates,
including Mr. Johnson, who received a warrant to purchase 14,468 shares of Kelly
Russell Common Stock.
On December 29, 1994, Kelly Russell entered into an Agency Agreement with
MJK. Pursuant to the Agency Agreement, MJK served as the exclusive agent of
Kelly Russell in connection with the sale of 926,000 units, each unit consisting
of one share of Common Stock and a warrant to purchase one share of Common
Stock, which sale was completed on March 31, 1995. MJK received commissions in
the amount of $92,600 and five-year warrants to purchase 92,600 shares of Kelly
Russell Common Stock at $2.00 per share, as well as reimbursement of its legal
expenses in the amount of $25,000. The warrants to purchase 92,600 shares of
Kelly Russell Common Stock were subsequently transferred to MJK's affiliates,
including Mr. Johnson, who received a warrant to purchase 34,725 shares of Kelly
Russell Common Stock.
In May 1995, Kelly Russell entered into an agreement with MJK, whereby MJK
served as the exclusive agent of Kelly Russell in connection with the exercise
of warrants issued as part of the units in the private placement described
above. Between the period of May 31, 1995 and September 1, 1995, warrants to
purchase 926,000 shares of Kelly Russell Common Stock were exercised at $2.00
per share. MJK received commissions in the amount of $185,200 and five-year
warrants to purchase an aggregate of 92,600 shares of Kelly Russell Common Stock
at $2.00 per share, of which warrants to purchase 72,100 shares of Kelly Russell
Common Stock were subsequently transferred to MJK's affiliates, including Mr.
Johnson, who received a warrant to purchase 34,725 shares of Kelly Russell
Common Stock.
LEGAL MATTERS
The legality of the shares of Global One Common Stock to be issued to the
Kelly Russell shareholders pursuant to the Transaction will be passed upon for
Global One by Manatt, Phelps & Phillips, LLP, Los Angeles California. The Merger
Agreement provides that as a condition to the KRSI Merger, Global One shall have
received a letter from Kelly Russell's independent auditors or legal counsel
indicating (i) the number of shares of Kelly Russell Common Stock that have been
authorized for issuance by the Board of Directors or Kelly Russell as set forth
in the minutes in the Kelly Russell minute book and (ii) the number of shares of
Kelly Russell Common Stock subject to warrants and options to purchase them that
have been authorized by the Board of Directors.
Certain legal matters for Kelly Russell in connection with the KRSI Merger
will be passed upon by Fredrikson & Byron, P.A., Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of OSP Publishing, Inc. as of December
31, 1995 and for each of the three-years in the period ended December 31, 1995
included elsewhere in this Proxy Statement/Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, and are
included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Kelly Russell as of December 31, 1995 and for
the three-year period ended December 31, 1995, included herein have been audited
by McGladrey & Pullen, LLP, independent auditors, as stated in their report, and
are included herein in reliance upon the report of such firm given upon their
authority as experts in auditing and accounting.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OSP PUBLISHING, INC.
Independent Auditors' Report.............................................. F-2
Financial Statements
Consolidated Balance Sheets as of March 31, 1996 (unaudited), December
31, 1995 and 1994...................................................... F-3
Consolidated Statements of Operations for the Three Months Ended March
31, 1996 and 1995 (unaudited) and for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-5
Consolidated Statements of Shareholders' Equity for the Three Months
Ended March 31, 1996 (unaudited) and for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-7
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1996 and 1995 (unaudited) and for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-8
Notes to Consolidated Financial Statements.............................. F-10
</TABLE>
All schedules are omitted because the required information
is not applicable or is included in the Financial
Statements of OSP Publishing, Inc.
and the related notes.
<TABLE>
<S> <C>
KELLY RUSSELL STUDIOS, INC.
Report of Independent Auditors............................................ F-20
Audited Financial Statements
Balance Sheets as of December 31, 1994 and 1995......................... F-21
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995................................................................... F-22
Statements of Shareholders' Equity for the Years Ended December 31,
1993, 1994 and 1995.................................................... F-23
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995................................................................... F-24
Notes to Financial Statements........................................... F-25
Unaudited Financial Statements
Balance Sheet as of March 31, 1996...................................... F-34
Statements of Operations for the Three Months Ended March 31, 1995, and
1996................................................................... F-35
Statement of Cash Flows for the Three Months Ended March 31, 1995 and
1995................................................................... F-36
Notes to Financial Statements........................................... F-37
</TABLE>
Financial Statements of Global One are not presented herein
because Global One has no assets and liabilities
and has not conducted any business other
than of an organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
OSP Publishing, Inc.:
We have audited the accompanying consolidated balance sheets of OSP
Publishing, Inc. and subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
(deficiency) equity, and cash flows for each of the three years in the period
ended December 31, 1995. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of OSP Publishing, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective January 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
Long Beach, California
April 5, 1996 (May 24, 1996 as to Note 14)
F-2
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS (NOTES 7 AND 8)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
MARCH 31, 1996 -------------- --------------
--------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1)............................. $ 377,778 $ 74,828 $ 288,404
Accounts receivable -- trade, net of allowance for doubtful
accounts and returns of $1,374,361 at March 31, 1996,
$1,644,697 in 1995 and $962,666 in 1994 (Notes 1 and 3)....... 5,958,176 5,248,459 5,309,304
Inventories (Notes 1 and 4).................................... 4,991,559 4,066,012 3,903,027
Prepaid royalty advances (Note 1).............................. 715,948 555,236 794,049
Prepaid expenses and other current assets...................... 366,533 152,147 278,421
Deferred income tax asset (Notes 1 and 11)..................... 38,191 38,191 216,907
Net assets of discontinued operations (Note 13)................ 1,834,084
-------------- -------------- --------------
Total current assets....................................... 12,448,185 10,134,873 12,624,196
PROPERTY AND EQUIPMENT, Net (Notes 1, 5 and 9)................... 1,184,094 1,185,799 847,502
GOODWILL, Net of accumulated amortization of $50,752, $43,390 and
$6,240 at March 31, 1996, December 31, 1995 and 1994,
respectively (Note 1)........................................... 141,131 148,493 185,643
DEPOSITS......................................................... 159,657 229,311 183,189
-------------- -------------- --------------
TOTAL............................................................ $ 13,933,067 $ 11,698,476 $ 13,840,530
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
(CONTINUED)
F-3
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
MARCH 31, 1996 -------------- --------------
--------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................................... $ 4,253,333 $ 3,002,207 $ 3,425,893
Accrued expenses............................................... 1,210,570 1,026,089 1,372,508
Royalties payable (Note 1)..................................... 2,059,097 1,918,129 2,755,400
Due to customers (Note 1)...................................... 204,880 251,903 192,062
Income taxes payable (Note 1).................................. 300,520 240,380 453,025
Revolving line of credit (Note 7).............................. 4,249,069
Current maturities of:
Capitalized lease obligations (Note 9)....................... 84,787 85,003 73,349
Subordinated long-term debt (Note 8)......................... 1,050,000 300,000 300,000
-------------- -------------- --------------
Total current liabilities.................................. 9,163,187 6,823,711 12,821,306
-------------- -------------- --------------
REVOLVING LINE OF CREDIT (Note 7)................................ 4,021,526 2,816,595 --
CAPITALIZED LEASE OBLIGATIONS,
Less current maturities (Note 9)................................ 129,634 149,302 197,784
SUBORDINATED LONG-TERM DEBT,
Less current maturities (Note 8)................................ 1,856,904 2,638,364 1,903,708
MINORITY INTEREST (Note 1)....................................... 614,679 569,277 326,222
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' DEFICIENCY (Note 1):
Common stock, no par value; authorized, 30,000,000 shares;
issued and outstanding, 1,636, 1,636 and 1,454 shares at March
31, 1996 and in 1995 and 1994, respectively................... 1,262,500 1,262,500 762,500
Additional paid-in capital..................................... 112,500 112,500 112,500
Accumulated deficit............................................ (3,227,863) (2,673,773) (2,283,490)
-------------- -------------- --------------
Total stockholders' deficiency............................. (1,852,863) (1,298,773) (1,408,490)
-------------- -------------- --------------
TOTAL............................................................ $ 13,933,067 $ 11,698,476 $ 13,840,530
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
(CONCLUDED)
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- -------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES (Note 1)............................... $ 8,940,658 $ 7,421,551 $ 38,227,958 $ 42,168,322 $ 38,107,907
------------ ------------ ------------- ------------- -------------
COST OF SALES:
Cost of goods sold............................. 4,347,317 3,180,377 17,016,038 19,368,726 17,444,199
License and royalty expense.................... 922,206 911,891 4,630,843 5,771,188 4,890,729
------------ ------------ ------------- ------------- -------------
Total cost of sales.......................... 5,269,523 4,092,268 21,646,881 25,139,914 22,334,928
------------ ------------ ------------- ------------- -------------
GROSS PROFIT..................................... 3,671,135 3,329,283 16,581,077 17,028,408 15,772,979
------------ ------------ ------------- ------------- -------------
OPERATING EXPENSES (Note 1):
Warehouse and Selling.......................... 2,351,868 2,241,773 10,200,344 10,823,310 8,844,038
General and administrative..................... 1,452,981 1,261,816 4,971,249 5,812,983 4,953,002
------------ ------------ ------------- ------------- -------------
Total operating expenses..................... 3,804,849 3,503,589 15,171,593 16,636,293 13,797,000
------------ ------------ ------------- ------------- -------------
OPERATING INCOME (LOSS).......................... (133,714) (174,306) 1,409,484 392,115 1,975,939
INTEREST EXPENSE (Notes 7, 8 and 9).............. 267,659 172,871 841,173 685,294 604,584
------------ ------------ ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST, DISCONTINUED OPERATIONS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE........ (401,373) (347,177) 568,311 (293,179) 1,371,355
INCOME TAX (BENEFIT) PROVISION (Notes 1 and
11)............................................. 67,323 (132,820) (77,336) 115,617 429,109
------------ ------------ ------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST,
DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE.................. (468,696) (214,357) 645,647 (408,796) 942,246
MINORITY INTEREST IN (INCOME) LOSS OF
SUBSIDIARIES.................................... (45,420) 37,308 (243,055) 148,048 (378,041)
------------ ------------ ------------- ------------- -------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE....................................... (514,116) (177,049) 402,592 (260,748) 564,205
DISCONTINUED OPERATIONS (Note 13):
Income (loss) from operations of discontinued
operation, less applicable income tax
(benefit) expense of ($6,454) and $4,896 for
the years ended December 31, 1994 and 1993,
respectively.................................. (423,814) 130,650
Loss on disposal of discontinued operation,
less applicable income tax benefit of
$5,268........................................ (345,951)
------------ ------------ ------------- ------------- -------------
Total discontinued operations................ (769,765) 130,650
------------ ------------ ------------- ------------- -------------
</TABLE>
(CONTINUED)
F-5
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- -------------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE................................ $ (514,116) $ (177,049) $ 402,592 $ (1,030,513) $ 694,855
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(Note 1)............................................ 118,084
------------ ------------ ------------- ------------- -------------
NET INCOME (LOSS).................................... $ (514,116) $ (177,049) $ 402,592 $ (1,030,513) $ 812,939
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
PRO FORMA NET INCOME (LOSS) DATA (Note 11):
Income (loss) before income taxes, as reported..... $ (401,373) $ (347,177) $ 568,311 $ (293,179) $ 1,371,355
Pro forma (benefit) provision for income taxes..... (85,114) (70,421) 113,836 (43,273) 344,325
Minority interest in (income) loss of
subsidiaries...................................... (45,420) 37,308 (243,055) 148,048 (378,041)
Discontinued operations, as reported............... (758,043) 135,546
Pro forma tax effect of discontinued operations.... (295,627) 54,218
------------ ------------ ------------- ------------- -------------
Pro forma net income (loss)...................... $ (361,679) $ (239,448) $ 211,420 $ (564,274) $ 730,317
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
PRO FORMA INCOME (LOSS) PER SHARE (Note 14):
Income (loss) from continuing operations........... $ (0.04) $ (0.03) $ 0.06
Minority interest in (income) loss of
subsidiaries...................................... (0.01) (0.03)
------------ ------------ -------------
Pro forma net income (loss)...................... $ (0.05) $ (0.03) $ 0.03
------------ ------------ -------------
------------ ------------ -------------
Weighted average shares outstanding................ 8,036,602 8,036,207 8,036,602
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
(CONCLUDED)
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
RETAINED NOTE
COMMON STOCK ADDITIONAL EARNINGS RECEIVABLE
--------------------- PAID-IN (ACCUMULATED --
SHARES AMOUNT CAPITAL DEFICIT) STOCKHOLDER TOTAL
--------- ---------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993................ 1,250 $ 62,500 $ 112,500 $ 170,622 $ (125,000) $ 220,622
Issuance of common stock................ 204 700,000 700,000
Dividends............................... (1,096,464) (1,096,464)
Net Income.............................. 812,939 812,939
--------- ---------- ----------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1993.............. 1,454 762,500 112,500 (112,903) (125,000) 637,097
Issuance of common stock................
Dividends............................... (1,140,074) (1,140,074)
Repayment of note receivable (Note 6)... 125,000 125,000
Net loss................................ (1,030,513) (1,030,513)
--------- ---------- ----------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1994.............. 1,454 762,500 112,500 (2,283,490) (1,408,490)
Issuance of common stock................ 182 500,000 500,000
Dividends (unaudited)................... (792,875) (792,875)
Net Income.............................. 402,592 402,592
--------- ---------- ----------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1995.............. 1,636 1,262,500 112,500 (2,673,773) (1,298,773)
Dividends (unaudited)................... (39,974) (39,974)
Net loss (unaudited).................... (514,116) (514,116)
--------- ---------- ----------- ------------ ------------ -----------
BALANCE, MARCH 31, 1996................. 1,636 $1,262,500 $ 112,500 $(3,227,863) $(1,852,863)
--------- ---------- ----------- ------------ ------------ -----------
--------- ---------- ----------- ------------ ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------------ ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ (514,116) $ (177,049) $ 402,592 $ (1,030,513) $ 812,939
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 89,393 104,261 429,665 400,775 318,356
Loss (gain) on sale of property and
equipment.................................... 1,894 298 (596)
Minority interest in (income) loss of
subsidiaries................................. 45,402 (37,308) 243,055 (148,048) 378,041
Deferred income taxes......................... 178,716 (81,970) (16,853)
Loss on disposal of discontinued operations... 345,951
Cumulative effect of accounting change........ (118,084)
Changes in operating assets and liabilities:
Accounts receivable -- trade.................. (665,578) 885,424 1,127,398 179,180 (3,401,383)
Inventories................................... (920,516) 664,058 885,297 (492,874) (2,825,677)
Prepaid royalty advances...................... (160,712) (131,473) 238,813 (416,345) (43,758)
Prepaid expenses and other current assets..... (214,386) (354,274) 131,704 (122,047) 18,921
Due from affiliates........................... 326,907 29,992
Accounts payable.............................. 1,236,382 148,948 (798,639) 1,106,388 1,087,186
Accrued expenses.............................. 147,904 (54,112) (383,989) (276,834) 1,085,165
Royalties payable............................. 140,968 (538,260) (837,271) 395,602 1,448,304
Due to customers.............................. (47,023) 6,201 59,841 (29,953) (174,668)
Income taxes payable.......................... 60,140 (132,820) (212,645) (154,909) 563,220
------------ ----------- ------------ ------------ ------------
Net cash (used in) provided by operating
activities................................. (802,142) 383,596 1,466,431 1,308 (838,895)
------------ ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (78,175) (49,350) (621,901) (370,551) (295,941)
Proceeds from sale of property and equipment.... 20,973 2,283 1,525
Goodwill........................................ 6,434 (141,883)
Deposits........................................ 69,654 43,429 (8,054) (81,343) (56,757)
------------ ----------- ------------ ------------ ------------
Net cash used in investing activities....... (8,521) (5,921) (608,982) (443,177) (493,056)
------------ ----------- ------------ ------------ ------------
</TABLE>
(CONTINUED)
F-8
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------------ ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......... $ (19,884) $ (19,527) $ (80,332) $ (119,336) $ (86,311)
Borrowings from revolving line of credit....... 1,204,931 4,332,454 4,315,866
Payments on revolving line of credit........... (400,000) (1,432,474) (2,516,596) (2,152,655)
Borrowings on subordinated long-term debt...... 750,000
Payments on subordinated long-term debt........ (31,460) (3,138) (15,344) (223,983) (353,544)
Dividends paid................................. (39,974) (91,957) (792,875) (1,140,074) (1,096,464)
Issuance of common stock....................... 500,000 700,000
Repayment of note receivable from
stockholder................................... 125,000
Minority interest in subsidiary................ 96,230
------------ ----------- ------------ ------------ ------------
Net cash provided by (used in) financing
activities................................ 1,113,613 (514,622) (1,071,025) 457,465 1,423,122
------------ ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 302,950 (136,947) (213,576) 15,596 91,171
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 74,828 288,404 288,404 272,808 181,637
------------ ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 377,778 $ 151,457 $ 74,828 $ 288,404 $ 272,808
------------ ----------- ------------ ------------ ------------
------------ ----------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest..................................... $ 158,955 $ 210,897 $ 752,172 $ 646,227 $ 349,852
Income taxes................................. $ 7,000 $ (43,407) $ 67,500 $ 39,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS --
Capital lease obligations of $43,504 and $117,400 were incurred when the Company
entered into agreements for the purchase of new equipment in 1995 and 1994,
respectively.
(CONCLUDED)
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- OSP Publishing, Inc. ("OSP") and subsidiaries (the
"Company") design and produce licensed trend merchandise which they market for
sale in gift and stationary stores, video stores, music stores, toy stores, book
stores and mass retailers. The Company's products consist of posters, T-shirts,
framed wall decor, buttons, key chains, stickers, and collectible movie scripts.
These products incorporate primarily licensed images and characters from motion
pictures, television, comic books, music, sports and popular culture.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of OSP, its division, Top Banana (which was discontinued in 1994 --
see Note 13), its 79%-owned subsidiary, Button Exchange, Ltd., and its 51%-owned
subsidiary, Stanley DeSantis, Inc., which was acquired during 1993. All material
intercompany transactions have been eliminated in consolidation. A minority
interest is held by one officer of each subsidiary (see Note 12).
INTERIM PERIOD PRESENTATION -- The unaudited consolidated financial
statements as of and for the three months ended March 31, 1996 and 1995 have
been prepared on the same basis as the audited financial statements included
herein. In the opinion of management, such unaudited financial statements
include all adjustments (consisting of only normal recurring accruals) necessary
for a fair presentation. The results of operations for the three months ended
March 31, 1996 are not necessarily indicative of results that may be expected
for the year ending December 31, 1996 or in any future period.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company's financial instruments
consist primarily of accounts receivable and payable, and debt instruments. The
carrying values of all financial instruments, other than debt instruments, are
representative of their fair values due to their short maturities. The carrying
values of the Company's bank debt instruments are considered to approximate
their fair values because the interest rates of these instruments are based on
variable reference rates. Management believes that the fair value of
subordinated debt would not differ significantly from the carrying amount at
March 31, 1996 and at December 31, 1995 and 1994.
CASH AND CASH EQUIVALENTS -- The Company considers all investment
instruments purchased with a maturity of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK -- Financial instruments that subject the
Company to credit risk consist primarily of accounts receivable. Concentration
of credit risk with respect to accounts receivable is generally diversified due
to the large number of entities composing the Company's customer base and their
geographic dispersion. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for potential credit losses.
SIGNIFICANT LICENSORS AND CUSTOMERS -- OSP's largest licensor, Disney
Enterprises, Inc., represented approximately 22%, 31% and 22% of net sales of
products in 1995, 1994 and 1993, respectively, and represented less than 10% and
approximately 23% of net sales for the three months ended March 31, 1996 and
1995, respectively. Another licensor represented approximately 23% of net sales
for the three months ended March 31, 1996. Sales to two customers each accounted
for approximately
F-10
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
10% of net sales during 1995, sales to two customers accounted for approximately
15% and 11% of net sales for the three months ended March 31, 1996, and sales to
one customer accounted for approximately 11% of net sales for the three months
ended March 31, 1995.
INVENTORIES -- Inventories, consisting primarily of posters, buttons,
T-shirts and trend gift items, are valued at the lower of cost or market, with
cost determined on the first-in, first-out method.
ROYALTIES -- The Company has entered into license agreements with various
companies requiring payment of royalties. At the inception of the license term,
minimum royalty payments are accounted for as prepaid royalties. These prepaid
royalties are charged to operations based on the related product sales or
license term.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is provided for by the straight-line method over the estimated
useful lives of the related assets, which range from two to ten years. Leasehold
improvements are amortized on a straight-line basis over the term of the lease
or estimated useful life, whichever is shorter.
GOODWILL -- Goodwill from the acquiring of the Companies two subsidiaries
represents the excess cost over the fair value of net assets acquired and is
being amortized over useful lives ranging from five to ten years using the
straight-line method. The Company periodically reviews the value of its goodwill
to determine if an impairment has occurred. The Company bases its determination
on the performance, on an undiscounted basis, of the underlying businesses.
Based on its review, the Company does not believe that an impairment of its
goodwill has occurred.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The adoption of this statement in the three months
ended March 31, 1996 did not have an effect on the Company's consolidated
financial statements.
NET SALES -- Revenue is recognized when goods are originally shipped. The
Company allows customers to return purchased goods only in exchange for other
goods. Customer credits for goods returned but not yet exchanged for other goods
are included in the accompanying balance sheet as "Due to customers." The
Company provides for estimated returns when the products are shipped to its
customers.
INCOME TAXES -- OSP has elected to be treated as an S corporation for
federal and California state income tax purposes. Pursuant to these elections,
the income of OSP is included in the income tax returns of its stockholders.
Consequently, no provision for federal income taxes is recorded in the
accompanying financial statements for OSP However, under California state law,
an income tax equal to 1.5% of income before tax is imposed upon an S
corporation and is provided for in the accompanying financial statements.
The Company's subsidiaries, Stanley DeSantis, Inc. and Button Exchange,
Ltd., are C corporations, under which provisions for federal and state income
taxes are recorded.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future. Such deferred income tax asset and liability computations are based on
enacted tax laws and rates applicable to periods in which
F-11
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the differences are expected to affect taxable income. A valuation allowance is
established, when necessary, to reduce deferred income tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred income tax
assets and liabilities.
The cumulative effect as of January 1, 1993 as a result of adopting SFAS No.
109 was $118,084 and is included in net income for the year ended December 31,
1993.
RECLASSIFICATIONS -- Certain reclassifications have been made to 1994 and
1993 amounts to conform to the 1995 presentation.
2. ACQUISITION AGREEMENT AND FORMATION OF HOLDING COMPANY
On March 27, 1996 the Company entered into an agreement to acquire Kelly
Russell Studios, Inc. ("Kelly Russell"), a publicly-traded entity. The Company's
stockholders have formed Global One Distribution and Merchandising Inc. ("Global
One") to serve as a holding company for OSP and its subsidiaries and to acquire
Kelly Russell. Each two outstanding shares of Kelly Russell common stock will be
exchanged for one share of Global One stock. Global One also plans to complete a
private placement of common stock for approximately $6.7 million and to register
the Global One common stock issued in exchange for the Kelly Russell common
stock with the Securities and Exchange Commission.
3. ACCOUNTS RECEIVABLE
The Company's subsidiary, Stanley DeSantis, Inc., sells substantially all of
its accounts receivable to a factor under a continuing contract, cancelable upon
written notice. In most cases, the factor approves the credit and the account is
sold without recourse. In cases in which the factor does not approve the credit,
Stanley DeSantis, Inc. bears the risk. At March 31, 1996, December 31, 1995 and
1994, the receivables that were at the Company's risk were approximately
$207,000, $251,000 and $117,000, respectively. At March 31, 1996, December 31,
1995 and 1994, amounts due from factor included in accounts receivable -- trade
were $2,095,463, $821,730 and $363,316, respectively. The factor, to the extent
of any financing provided, holds a security interest in all accounts receivable
and property of Stanley DeSantis, Inc.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
MARCH 31, ------------- -------------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Products in process.............................. $ 1,267,376 $ 659,657 $ 1,113,291
Finished products................................ 3,569,824 3,159,953 2,714,313
Packaging materials.............................. 154,359 246,402 75,423
------------- ------------- -------------
$ 4,991,559 $ 4,066,012 $ 3,903,027
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-12
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
MARCH 31, ------------- -------------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................... $ 656,938 $ 600,138 $ 498,782
Machinery and equipment.......................... 495,887 495,887 449,721
Furniture and fixtures........................... 377,034 359,808 345,936
Leasehold improvements........................... 468,597 462,597 55,609
Vehicles......................................... 81,165 81,165 88,665
------------- ------------- -------------
2,079,621 1,999,595 1,438,713
Less accumulated depreciation and amortization... 895,527 813,796 591,211
------------- ------------- -------------
Property and equipment, net...................... $ 1,184,094 $ 1,185,799 $ 847,502
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Included in the above is equipment under capitalized leases in the amounts
of approximately $384,731, $422,263 and $379,000 with accumulated depreciation
of approximately $170,409, $186,245 and $102,000 at March 31, 1996, December 31,
1995 and 1994, respectively.
6. NOTE RECEIVABLE -- STOCKHOLDER
In 1992, the Company sold 1,002,444 shares of common stock to an officer of
the Company in exchange for a $125,000 note receivable, which bore interest at
the rate of 6.62% per annum, payable in annual principal installments of $31,250
commencing January 3, 1994 through 1997. On January 1, 1994, this note was
repaid with proceeds received from a dividend declared by the Company.
7. REVOLVING LINE OF CREDIT
In February 1996, the Company refinanced its outstanding line of credit with
a bank with another financial institution. The refinanced line of credit expires
in February 1999 and provides for maximum borrowings of $7,500,000, subject to a
borrowing base of approximately 75% of eligible accounts receivable and 45% of
eligible finished goods inventory, as defined. The outstanding balance under the
refinanced line of credit bears interest at a bank's prime rate (8.5% at
December 31, 1995) plus 1.75% and is payable monthly. The agreement also
provides for $200,000 for standby letters of credit which may be drawn upon and
reduce the available borrowings under the line of credit. The borrowings under
the refinanced line of credit are collateralized by substantially all of the
assets of the Company and a certificate of deposit held by a third party, in an
amount of at least $500,000, to be held at a bank designated by the financial
institution. The refinanced line of credit line is personally guaranteed by the
principal stockholders and contains various restrictive covenants including a
current ratio requirement, minimum level of tangible net worth, and limits the
incurrence of additional indebtedness, capital expenditures and payments of
distributions.
8. SUBORDINATED LONG-TERM DEBT
Subordinated long-term debt is payable to the former owner of the Company
and is collateralized by all of the Company's assets. Interest is calculated at
prime plus 2% per annum, unless prime plus 2% shall equal or exceed 10% per
annum, in which case interest shall accrue at the higher of (1) the prime
interest rate, or (2) 10% per annum. The Company is required to pay monthly
principal payments of $25,000 plus accrued interest until July 15, 1997, at
which time the remaining principal
F-13
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
8. SUBORDINATED LONG-TERM DEBT (CONTINUED)
balance is due. The note is due on demand if there is a sale of more than 50% of
the Company's outstanding stock. The note is subordinated to all business debt
now or hereinafter incurred by the Company.
In addition, the Company obtained in October and November 1995 subordinated
debt financing from a vendor totaling $750,000, which bears interest at 10% per
annum. Interest is payable monthly, and the principal is due January 1997. The
borrowings are collateralized by a security interest in all of the assets of the
Company.
The Company also entered into a minimum purchase agreement with the vendor,
whereby it agreed to purchase or procure a minimum of 75% of its total printing
from the vendor, and the minimum amount payable to the vendor for printing shall
not be less than $2,500,000 per year.
Future minimum payments of subordinated long-term debt are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1996......................................................................... $ 1,050,000
1997......................................................................... 1,856,904
-------------
Total...................................................................... $ 2,906,904
-------------
-------------
</TABLE>
9. CAPITALIZED LEASE OBLIGATIONS
The Company has various capitalized lease obligations payable in monthly
installments of $9,438, including interest at rates ranging from 7.5% to 17.3%
per annum. The capitalized lease obligations are due at various dates through
September 1999 and are collateralized by property and equipment. Future minimum
lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ---------------------------------------------------------------------------------
<S> <C>
1996........................................................................... $ 110,884
1997........................................................................... 109,410
1998........................................................................... 57,200
1999........................................................................... 3,939
-----------
281,433
Less amount representing interest................................................ 47,128
-----------
Net minimum lease payments....................................................... 234,305
Less amount due in one year...................................................... 85,003
-----------
Long-term obligations under capital leases....................................... $ 149,302
-----------
-----------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASES -- The Company leases facilities and equipment from nonaffiliated and
affiliated parties under noncancelable operating leases expiring through June
2005. Amounts paid to affiliated parties during 1995, 1994 and 1993 were
approximately $66,000, $194,000 and $153,000, respectively. For the three months
ended March 31, 1995 the amount paid was $38,000.
F-14
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental commitments (excluding taxes, insurance and other
occupancy expenses) under noncancelable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1996......................................................................... $ 559,720
1997......................................................................... 499,049
1998......................................................................... 465,198
1999......................................................................... 445,620
2000......................................................................... 465,855
Thereafter................................................................... 2,261,721
-------------
Total...................................................................... $ 4,697,163
-------------
-------------
</TABLE>
Rent expense was approximately $525,000, $367,000 and $392,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, and $131,000 and $100,000
for the three months ended March 31, 1996 and 1995, respectively.
STOCK PURCHASE WARRANTS -- The Company issued stock warrants on August 28,
1989 to a nonaffiliated party to purchase 50 shares of stock for $50 per share.
The warrants may be exercised at any time and expire August 27, 1996. No
warrants have been exercised through March 31, 1996.
OTHER -- The Company is involved in litigation arising in the normal course
of business. It is the opinion of management that the disposition of such
actions will not materially affect the financial position or results of
operations of the Company.
11. INCOME TAXES AND PRO FORMA INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------
1996 1995 1995 1994 1993
--------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal....................................... $ 46,657 $ (92,049) $ (250,359) $ 125,174 $ 542,483
State......................................... 20,666 (40,771) (5,693) 72,413 164,081
--------- ------------ ------------ ----------- -----------
67,323 (132,820) (256,052) 197,587 706,564
--------- ------------ ------------ ----------- -----------
Deferred:
Federal....................................... 151,314 (69,904) (11,072)
State......................................... 27,402 (12,066) (5,781)
--------- ------------ ------------ ----------- -----------
178,716 (81,970) (16,853)
Less income taxes netted against capital
contributions to the Company's subsidiaries.... 260,602
--------- ------------ ------------ ----------- -----------
Total....................................... $ 67,323 $ (132,820) $ (77,336) $ 115,617 $ 429,109
--------- ------------ ------------ ----------- -----------
--------- ------------ ------------ ----------- -----------
</TABLE>
Deferred income tax assets of approximately $187,000 consist primarily of
state net operating loss carryforwards and allowances for doubtful accounts,
sales returns and inventory. Such amount is included in the accompanying balance
sheet net of approximately $49,000 of deferred income tax
F-15
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
11. INCOME TAXES AND PRO FORMA INCOME TAXES (CONTINUED)
liabilities resulting primarily from state income taxes and income tax
deductions for prepaid assets that have not been expensed for book purposes.
Additionally, a valuation allowance for deferred tax assets of approximately
$100,000 has been recorded for the Button Exchange subsidiary as a result of its
continuing operating losses.
The Company's effective income tax rate differs from the federal statutory
income tax rate due primarily to OSP's being taxed as an S corporation as
discussed in Note 1 and the valuation allowance on certain deferred tax assets.
In 1993, the Company and a minority stockholder of the Company's subsidiary,
Button Exchange, Ltd., contributed capital to that subsidiary through the
forgiveness of certain indebtedness in a taxable transaction.
The following information reflects the pro forma effect on income taxes as
if OSP's earnings from continuing operations had been subject to federal and
state income taxes as a C Corporation for all periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ --------------------------------------
1996 1995 1995 1994 1993
---------- ------------ ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal...................................... $ 6,366 $ (83,412) $ 264,417 $ 13,511 $ 579,328
State........................................ 2,820 (36,946) 117,117 32,705 147,539
---------- ------------ ------------ ---------- ------------
9,186 (120,358) 381,534 46,216 726,867
Deferred:
Federal...................................... (74,046) 40,202 (196,484) (69,263) (93,074)
State........................................ (20,254) 9,735 (71,214) (20,226) (28,866)
---------- ------------ ------------ ---------- ------------
(94,300) 49,937 (267,698) (89,489) (121,940)
Less income taxes netted against capital
contributions to the Company's subsidiaries... 260,602
---------- ------------ ------------ ---------- ------------
Total...................................... $ (85,114) $ (70,421) $ 113,836 $ (43,273) $ 344,325
---------- ------------ ------------ ---------- ------------
---------- ------------ ------------ ---------- ------------
</TABLE>
F-16
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
11. INCOME TAXES AND PRO FORMA INCOME TAXES (CONTINUED)
The pro forma income tax provision on earnings from continuing operations
subject to income taxes differs from the statutory federal income tax rate due
to the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income taxes at the statutory rate... $ (136,467) $ (118,040) $ 193,226 $ (99,681) $ 466,261
State income taxes, net of federal benefit... (12,691) 8,422 25,265 11,119 50,163
Permanent differences........................ 7,603 17,264 36,254 45,289 (172,099)
Losses for which no benefit was recognized... 56,441
Prior year overaccrual (underaccrual)........ 21,934 (140,909)
------------ ------------ ------------ ---------- ------------
$ (85,114) $ (70,421) $ 113,836 $ (43,273) $ 344,325
------------ ------------ ------------ ---------- ------------
------------ ------------ ------------ ---------- ------------
</TABLE>
Pro forma income taxes related to discontinued operations differs from the
statutory rate primarily due to the state income taxes, net of federal benefit.
The Company will terminate the S Corporation election at the closing of the
acquisition of Kelly Russell and the private placement offering, and will
recognize a deferred tax asset representing the cumulative temporary differences
as of the termination date. Had the termination of the S Corporation election
occurred on March 31, 1996, December 31, 1995 and 1994, the Company would have
recorded a net deferred tax asset as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
MARCH 31, ----------- -----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for sales returns.............................................. $ 338,639 $ 464,328 $ 129,931
Allowance for doubtful accounts.......................................... 197,477 170,797 101,166
Inventory reserve........................................................ 228,215 228,215 154,390
Inventory capitalization................................................. 116,910 112,201 104,834
Other.................................................................... 10,796 10,796 14,725
----------- ----------- -----------
892,037 986,337 505,046
----------- ----------- -----------
Deferred tax liabilities -- State deferrals................................ 59,271 59,271 29,005
----------- ----------- -----------
Net deferred tax asset..................................................... $ 832,766 $ 927,066 $ 476,041
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
12. RELATED PARTY TRANSACTIONS
During January 1994, in exchange for the release from certain guarantees,
the Company received 2,900 additional shares of Button Exchange, Ltd. common
stock from a minority stockholder, increasing its ownership to 79%.
The Company's principal stockholder has a 26% equity interest in Press One,
a printing company majority owned by the former owner of the Company. The
Company purchased approximately $997,000, $1,355,000 and $917,000 of printing
services from Press One in 1995, 1994 and 1993,
F-17
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
respectively. For the three months ended March 31, 1996 and 1995, the amounts
paid were $131,000 and $280,000, respectively. As of March 31, 1996, December
31, 1995 and 1994, the Company owed approximately $152,000, $278,000 and
$423,000, respectively, to Press One.
The Company's principal stockholder is also a shareholder in Pyramid
Licensing which represents licensors of properties, some of whom may license
such properties to OSP. OSP has guaranteed Pyramid Licensing's performance under
a lease agreement for which the annual commitment is $46,000. For the three
months ended March 31, 1996, OSP has also paid certain expenses, mainly
salaries, totaling approximately $16,000.
The former owner of the Company owns the main facilities from which the
Company conducts its operations. These facilities are under operating leases
that expired December 31, 1994.
The Company pays commissions to an outside agency of sales representatives.
A portion of these commissions is paid to the principal stockholders as a
consulting fee. The Company paid $639,384, $751,315 and $491,585 of commissions
to the outside agency in 1995, 1994 and 1993, respectively. For the three months
ended March 31, 1996 and 1995, the amounts paid were $45,523 and $75,828,
respectively.
In addition, the Company has advanced funds to its majority stockholders,
who in turn advanced the funds to certain affiliated companies. During 1994, the
balance of these advances, $324,998, was repaid with proceeds received in the
form of a dividend from the Company.
13. DISCONTINUED OPERATIONS
During fiscal 1994, the Company committed to a formal plan to phase out and
dispose of its division, Top Banana, a distributor of licensed battery operated
electronic products. The phase-out and ultimate sale of the remaining assets
have been substantially completed as of February 1996.
The loss on disposition of the division has been accounted for as
discontinued operations. Revenues of the division for 1995, 1994 and 1993 were
$1,174,000, $3,532,000 and $2,586,000, respectively, and $521,000 for the three
months ended March 31, 1995.
14. PRO FORMA NET INCOME PER SHARE
In connection with the organization of Global One as the parent company of
OSP, the shareholders of OSP are expected to receive 6,448,088 shares of common
stock of Global One in exchange for the common stock outstanding at March 31,
1996. The pro forma weighted average shares outstanding assumes that this
exchange had occurred throughout the periods presented, includes the dilutive
common equivalent shares from stock warrants (using the treasury stock method)
and also gives effect to 1,393,550 shares deemed to be outstanding. These shares
represent the approximate number of shares deemed to be sold by the Company (at
the net offering proceeds of $1.26 per share) to fund the S corporation
distribution of $1,750,000 that is expected to be declared prior to the closing
of the Kelly Russell acquisition and private placement offering and will be paid
from the proceeds of the offering. Common and common equivalent shares issued
during the 12-month period prior to the proposed offering have been included in
the calculation using the treasury stock method as if they were outstanding for
all periods presented.
15. SUBSEQUENT EVENTS
The Company anticipates that it will enter into an arrangement with the
minority shareholder and President of its 51% owned subsidiary, Stanley
DeSantis, Inc. The arrangement will provide that
F-18
<PAGE>
OSP PUBLISHING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 IS UNAUDITED)
15. SUBSEQUENT EVENTS (CONTINUED)
the President has an option, subject to terms and conditions, to purchase the
51% of the Common Stock owned by the Company over a defined period of time at a
price, determined based on the previous four years of operating income of
Stanley DeSantis, Inc. The arrangement will also contain bonus provisions for
the President.
On May 23, 1996, the Company entered into an agreement with the former owner
of the Company and holder of the subordinated long-term debt to allow the
Company to prepay by August 31, 1996 the outstanding balance of the subordinated
debt at a discount of 30%. The agreement also allows for prepayments subsequent
to August 31, 1996 with the discount rate declining by 1% per month until the
payment is received.
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Kelly Russell Studios, Inc.
Plymouth, Minnesota
We have audited the accompanying balance sheets of Kelly Russell Studios,
Inc. (Kelly Russell) as of December 31, 1994 and 1995, and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of Kelly Russell's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kelly Russell as of December
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Kelly
Russell will continue as a going concern. As discussed in Note 10, Kelly Russell
has suffered significant losses to date and has an accumulated deficit of
$7,150,939, which raises substantial doubt about Kelly Russell's ability to
continue as a going concern. Management's plans in regard to these matters,
including the restructuring of Kelly Russell, are described in Notes 9 and 10.
The financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of this
uncertainty.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 11, 1996
F-20
<PAGE>
KELLY RUSSELL STUDIOS, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
ASSETS (NOTE 9)
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Current Assets
Cash and cash equivalents....................................................... $ 403,840 $ 257,618
Trade receivables, less allowances 1994 $560,000; 1995 $161,000 (Note 7)........ 704,723 709,988
Inventories (Note 2)............................................................ 666,321 372,370
Prepaid expenses:
Licensing rights.............................................................. 37,826 175,945
Other......................................................................... 18,886 26,430
-------------- --------------
Total current assets...................................................... 1,831,596 1,542,351
Equipment, net of accumulated depreciation 1994 $44,583; 1995 $114,060............ 217,716 314,934
-------------- --------------
$ 2,049,312 $ 1,857,285
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable (Note 11)...................................................... $ 1,415,605 $ 597,649
Accrued expenses:
Accrued litigation costs (Notes 8 and 12)..................................... -- 100,000
Other......................................................................... 82,632 79,130
License fees payable............................................................ 205,256 57,061
-------------- --------------
Total current liabilities................................................. 1,703,493 833,840
-------------- --------------
Commitments and Contingencies (Notes 8 and 12)
Shareholders' Equity (Notes 3, 5, 6, and 9)
Common stock, $0.01 par value; 10,000,000 shares authorized; issued and
outstanding 2,514,736 shares in 1994 and 4,082,373 shares in 1995.............. 25,147 40,824
Additional paid-in capital...................................................... 5,933,227 8,133,560
Deferred compensation expense................................................... (4,882) --
Accumulated deficit............................................................. (5,607,673) (7,150,939)
-------------- --------------
345,819 1,023,445
-------------- --------------
$ 2,049,312 $ 1,857,285
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
KELLY RUSSELL STUDIOS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------- -------------- --------------
<S> <C> <C> <C>
Net sales (Note 7)................................................. $ 2,242,685 $ 2,767,196 $ 2,813,999
------------- -------------- --------------
Cost of sales (Note 9):
Cost of goods sold............................................... 860,863 3,456,857 1,961,648
License and royalty expenses..................................... 370,788 760,789 591,533
------------- -------------- --------------
Total cost of sales............................................ 1,231,651 4,217,646 2,553,181
------------- -------------- --------------
Gross profit (loss)............................................ 1,011,034 (1,450,450) 260,818
Operating expenses (Note 9)........................................ 1,196,125 3,734,527 2,133,939
------------- -------------- --------------
Operating loss................................................. (185,091) (5,184,977) (1,873,121)
Other income....................................................... -- 119,395 40,079
Interest expense................................................... (53,151) (150,448) (7,218)
------------- -------------- --------------
Loss before income taxes and extraordinary item................ (238,242) (5,216,030) (1,840,260)
Federal and state income taxes (Note 4) -- -- --
------------- -------------- --------------
Loss before extraordinary item................................. (238,242) (5,216,030) (1,840,260)
Extraordinary item (Note 11)....................................... -- -- 296,994
------------- -------------- --------------
Net loss....................................................... $ (238,242) $ (5,216,030) $ (1,543,266)
------------- -------------- --------------
------------- -------------- --------------
Net loss per common share:
Loss before extraordinary item................................... $ (0.07) $ (1.79) $ (0.52)
Extraordinary item............................................... -- -- 0.08
------------- -------------- --------------
Net loss per common share...................................... $ (0.07) $ (1.79) $ (0.44)
------------- -------------- --------------
------------- -------------- --------------
Weighted average number of common and common equivalent shares
outstanding....................................................... 2,054,600 2,900,383 3,540,965
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE>
KELLY RUSSELL STUDIOS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
-------------------- PAID-IN COMPENSATION ACCUMULATED
SHARES AMOUNT CAPITAL EXPENSE DEFICIT
--------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992................................... 700,000 $ 7,000 $ 84,189 $ -- $ (153,401)
Issuance of common stock at $1.00 per share on April 1,
1993, in exchange for services............................ 12,000 120 11,880 -- --
Net loss................................................... -- -- -- -- (238,242)
--------- --------- ---------- ------------- ------------
Balance, December 31, 1993................................... 712,000 7,120 96,069 -- (391,643)
Issuance of 25,000 employee options to purchase common
stock at $2.25 per share on January 20, 1994 (Note 5)..... -- -- 18,750 (18,750) --
Issuance of 400,000 incentive options to purchase common
stock at $2.48 per share on January 20, 1994 (Note 5)..... -- -- 207,950 (207,950) --
Issuance of warrants for the purchase of 60,000 shares of
common stock for $1.00 per share in January 1994 (Note
3)........................................................ -- -- 120,000 -- --
Issuance of 240,000 shares of restricted common stock on
February 25, 1994 (Note 5)................................ 240,000 2,400 717,600 (720,000) --
Issuance of common stock for $1.00 per share upon exercise
of warrants on March 31, 1994 (Note 3).................... 300,000 3,000 297,000 -- --
Issuance of common stock at $3.50 per share on March
31,1994, net of offering expenses of $792,017............. 1,477,750 14,777 4,365,331 -- --
Conversion of $900,000 of convertible debentures into
common stock on March 31, 1994 (Note 3)................... 399,986 4,000 896,000 -- --
Issuance of common stock at $1.00 per share on December 30,
1994, net of offering expenses of $55,945 (Note 9)........ 285,000 2,850 226,205 -- --
Forfeiture of 9,000 employee options (Note 5).............. -- -- (6,750) 6,750 --
Forfeiture of 400,000 options to purchase common stock
(Notes 5 and 9)........................................... -- -- (207,950) 207,950 --
Forfeiture of 240,000 shares of restricted common stock
(Note 9).................................................. (240,000) (2,400) (717,600) 720,000 --
Forfeiture of 660,000 shares of common stock (Note 9)...... (660,000) (6,600) (79,378) -- --
Noncash compensation expense............................... -- -- -- 7,118 --
Net loss................................................... -- -- -- -- (5,216,030)
--------- --------- ---------- ------------- ------------
Balance, December 31, 1994................................... 2,514,736 25,147 5,933,227 (4,882) (5,607,673)
Issuance of common stock at $1.00 per share in February and
March 1995, net of offering expenses of $71,550........... 641,000 6,410 563,040 -- --
Issuance of common stock upon exercise of warrants, at
$2.00 per share in May to September 1995, net of offering
expenses of $204,089...................................... 926,000 9,260 1,638,651 -- --
Issuance of common stock upon exercise of stock options.... 637 7 443 -- --
Forfeiture of employee options and noncash compensation
expense................................................... -- -- (1,801) 4,882 --
Net loss................................................... -- -- -- -- (1,543,266)
--------- --------- ---------- ------------- ------------
Balance, December 31, 1995................................... 4,082,373 $ 40,824 $8,133,560 $ -- $(7,150,939)
--------- --------- ---------- ------------- ------------
--------- --------- ---------- ------------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance, December 31, 1992................................... $ (62,212)
Issuance of common stock at $1.00 per share on April 1,
1993, in exchange for services............................ 12,000
Net loss................................................... (238,242)
-----------
Balance, December 31, 1993................................... (288,454)
Issuance of 25,000 employee options to purchase common
stock at $2.25 per share on January 20, 1994 (Note 5)..... --
Issuance of 400,000 incentive options to purchase common
stock at $2.48 per share on January 20, 1994 (Note 5)..... --
Issuance of warrants for the purchase of 60,000 shares of
common stock for $1.00 per share in January 1994 (Note
3)........................................................ 120,000
Issuance of 240,000 shares of restricted common stock on
February 25, 1994 (Note 5)................................ --
Issuance of common stock for $1.00 per share upon exercise
of warrants on March 31, 1994 (Note 3).................... 300,000
Issuance of common stock at $3.50 per share on March
31,1994, net of offering expenses of $792,017............. 4,380,108
Conversion of $900,000 of convertible debentures into
common stock on March 31, 1994 (Note 3)................... 900,000
Issuance of common stock at $1.00 per share on December 30,
1994, net of offering expenses of $55,945 (Note 9)........ 229,055
Forfeiture of 9,000 employee options (Note 5).............. --
Forfeiture of 400,000 options to purchase common stock
(Notes 5 and 9)........................................... --
Forfeiture of 240,000 shares of restricted common stock
(Note 9).................................................. --
Forfeiture of 660,000 shares of common stock (Note 9)...... (85,978)
Noncash compensation expense............................... 7,118
Net loss................................................... (5,216,030)
-----------
Balance, December 31, 1994................................... 345,819
Issuance of common stock at $1.00 per share in February and
March 1995, net of offering expenses of $71,550........... 569,450
Issuance of common stock upon exercise of warrants, at
$2.00 per share in May to September 1995, net of offering
expenses of $204,089...................................... 1,647,911
Issuance of common stock upon exercise of stock options.... 450
Forfeiture of employee options and noncash compensation
expense................................................... 3,081
Net loss................................................... (1,543,266)
-----------
Balance, December 31, 1995................................... $ 1,023,445
-----------
-----------
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE>
KELLY RUSSELL STUDIOS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss........................................................................... $ (238,242) $ (5,216,030)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation..................................................................... 6,106 58,006
Amortization..................................................................... 9,372 44,956
Loss on sale of equipment........................................................ -- --
Provision for trade receivable allowances........................................ 15,000 540,000
Provision for obsolete inventories............................................... -- 670,000
Restructuring charges (Note 9)................................................... -- 1,088,876
Gain on cancellation of common stock (Note 9).................................... -- (85,978)
Noncash expense.................................................................. -- 127,118
Gain on settlement of accounts payable........................................... -- --
Changes in assets and liabilities:
Trade receivables.............................................................. (556,683) (645,977)
Inventories.................................................................... (974,459) (1,065,173)
Prepaid expenses............................................................... (45,047) (29,550)
Accounts payable and accrued expenses.......................................... 497,181 825,112
License fees payable........................................................... 182,863 (12,786)
-------------- --------------
Net cash used in operating activities........................................ (1,103,909) (3,701,426)
-------------- --------------
Cash Flows From Investing Activities
Purchase of equipment.............................................................. (43,187) (290,229)
Proceeds from sale of equipment.................................................... -- --
Software development costs......................................................... -- (81,832)
-------------- --------------
Net cash used in investing activities........................................ (43,187) (372,061)
-------------- --------------
Cash Flows From Financing Activities
Proceeds on sale of common stock and warrants...................................... -- 4,909,163
Excess of outstanding checks over bank balance..................................... 36,383 (36,383)
Net borrowings (repayments) on bank financing agreements........................... 957,000 (957,000)
Borrowings (repayment) of participating promissory notes........................... 100,000 (300,000)
Proceeds from subordinated debentures.............................................. -- 900,000
Repayment of officer/shareholder advances.......................................... -- (48,000)
-------------- --------------
Net cash provided by financing activities.................................... 1,093,383 4,467,780
-------------- --------------
Net increase (decrease) in cash and cash equivalents......................... (53,713) 394,293
Cash and Cash Equivalents
Beginning.......................................................................... 63,260 9,547
-------------- --------------
Ending............................................................................. $ 9,547 $ 403,840
-------------- --------------
-------------- --------------
Supplemental Disclosures of Cash Flow Information
Cash payments for interest......................................................... $ 30,802 $ 47,493
Supplemental Schedule of Noncash Investing and Financing Activities
Conversion of subordinated debentures to 399,986 shares of common stock............ $ -- $ 900,000
Issuance of 12,000 shares of common stock in settlement of accounts payable........ 12,000 --
Accounts payable incurred for purchase of equipment................................ -- --
<CAPTION>
1995
--------------
<S> <C>
Cash Flows From Operating Activities
Net loss........................................................................... $ (1,543,266)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation..................................................................... 90,427
Amortization..................................................................... 164
Loss on sale of equipment........................................................ 17,867
Provision for trade receivable allowances........................................ 152,276
Provision for obsolete inventories............................................... 853,153
Restructuring charges (Note 9)................................................... 186,543
Gain on cancellation of common stock (Note 9).................................... --
Noncash expense.................................................................. 4,882
Gain on settlement of accounts payable........................................... (296,994)
Changes in assets and liabilities:
Trade receivables.............................................................. (157,541)
Inventories.................................................................... (638,224)
Prepaid expenses............................................................... (253,348)
Accounts payable and accrued expenses.......................................... (474,009)
License fees payable........................................................... (148,195)
--------------
Net cash used in operating activities........................................ (2,206,265)
--------------
Cash Flows From Investing Activities
Purchase of equipment.............................................................. (172,367)
Proceeds from sale of equipment.................................................... 16,400
Software development costs......................................................... --
--------------
Net cash used in investing activities........................................ (155,967)
--------------
Cash Flows From Financing Activities
Proceeds on sale of common stock and warrants...................................... 2,216,010
Excess of outstanding checks over bank balance..................................... --
Net borrowings (repayments) on bank financing agreements........................... --
Borrowings (repayment) of participating promissory notes........................... --
Proceeds from subordinated debentures.............................................. --
Repayment of officer/shareholder advances.......................................... --
--------------
Net cash provided by financing activities.................................... 2,216,010
--------------
Net increase (decrease) in cash and cash equivalents......................... (146,222)
Cash and Cash Equivalents
Beginning.......................................................................... 403,840
--------------
Ending............................................................................. $ 257,618
--------------
--------------
Supplemental Disclosures of Cash Flow Information
Cash payments for interest......................................................... $ 7,218
Supplemental Schedule of Noncash Investing and Financing Activities
Conversion of subordinated debentures to 399,986 shares of common stock............ $ --
Issuance of 12,000 shares of common stock in settlement of accounts payable........ --
Accounts payable incurred for purchase of equipment................................ 49,545
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -- Kelly Russell Studios, Inc. (Kelly Russell) creates,
assembles, markets, and distributes products bearing realistic sports,
entertainment, and wildlife images. Kelly Russell has a collection of original
art and uses those proprietary images to create innovative and affordable
products. Substantially all of Kelly Russell's products are produced and sold
under nonexclusive licenses from the players' associations that represent
professional athletes and from the organizations that represent the respective
leagues and their member teams, entertainment companies, and others. Sales are
made to customers, primarily retailers and specialty stores, located throughout
the United States. Kelly Russell grants credit to its customers on terms
established on an individual basis. Kelly Russell's sales have been seasonal in
nature as approximately 40, 36, and 39 percent of net sales have occurred in the
fourth quarter of 1993, 1994, and 1995, respectively.
A summary of the Kelly Russell's significant accounting policies follows:
BASIS OF FINANCIAL STATEMENT PRESENTATION AND ACCOUNTING ESTIMATES -- The
financial statements have been prepared in conformity with generally accepted
accounting principles. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates. See the accounting policies for
revenue recognition, inventory, and licensing and royalty expenses for the
estimation process relating to sales returns and allowances, inventory
obsolescence, and prepaid licenses.
REVENUE RECOGNITION -- Kelly Russell recognizes sales at the time products
are shipped to customers. Kelly Russell records an allowance for returns at the
shipment date and makes further revisions in such allowances, if necessary,
based on subsequent facts. During 1993 and 1994, Kelly Russell granted certain
customers the right to return unsold products. This policy was eliminated in
1995. Also, trade receivables include an allowance for doubtful accounts which
management has estimated based on an evaluation of the uncollectibility of
existing trade receivables and prior collection experience. At December 31, 1994
and 1995, Kelly Russell has recorded an allowance for returns of $384,000 and
$110,000, respectively, and an allowance for doubtful accounts of $176,000 and
$51,000, respectively.
CASH AND CASH EQUIVALENTS -- Cash in excess of daily requirements is
invested in money market funds with maturities of less than three months. Such
investments are deemed to be cash equivalents for purposes of the statements of
cash flows.
Kelly Russell maintains cash in bank deposit accounts which, at times, may
exceed federally insured limits. Kelly Russell has not experienced any losses in
such accounts.
INVENTORIES -- Inventories are stated at the lower of standard cost (which
approximates average cost) or market. Inventories consist of finished goods and
component parts manufactured by third parties, including prints, mats, glass,
and frames. Kelly Russell has recorded a reserve for potential obsolete
inventory based primarily on management's estimate of future sales levels of
products in inventory.
LICENSING AND ROYALTY EXPENSES -- Prepaid licensing rights represent the
prepayment of license and royalty fees to third parties, including various
players' associations that represent professional athletes, organizations that
represent the respective leagues and their member teams, entertainment
companies, and the estates of other athletes. Licensing agreements provide Kelly
Russell the ability to produce and distribute products depicting specified
images owned or approved by these third parties. These agreements generally are
for periods of one to three years and contain minimum license provisions. The
prepaid licensing rights are generally amortized based on the per unit license
or
F-25
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
royalty cost provided in the individual contract. Additionally, Kelly Russell
increases the amortization of prepaid licenses for those agreements where the
estimated future unit sales is expected to be less than minimum levels required
under the related licenses. License fees payable represents amounts payable
under these agreements.
DEPRECIATION -- Equipment is stated at cost and is depreciated using the
straight-line method over estimated useful lives of three to five years.
INCOME TAXES -- Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
NET LOSS PER COMMON SHARE -- Net loss per common share is computed based
upon the weighted average number of common shares and dilutive common equivalent
shares outstanding. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, common stock issued and to be issued for
consideration below the initial public offering price during the 12-month period
preceding the date of the initial filing of the registration statement has been
included in the calculation of common equivalent shares, as if it was
outstanding for all periods presented up through March 31, 1994, the date of the
initial public offering.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- At December 31, 1995, Kelly Russell
adopted Financial Accounting Standards Board (FASB) Statement No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, which requires disclosure
of fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. The aggregate fair values of the
financial instruments would not represent the underlying value of Kelly Russell.
The financial statements include the following financial instruments: cash,
trade accounts receivable, accounts payable, and license fees payable. At
December 31, 1995, no separate comparison of fair values versus carrying values
is presented for the aforementioned financial instruments since their fair
values are not significantly different than their balance sheet carrying
amounts.
RECENTLY ISSUED ACCOUNTING STANDARDS -- The FASB has issued Statement No.
121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. This statement is effective for Kelly
Russell's year ending December 31, 1996. SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
The FASB has issued Statement No. 123 (SFAS 123), ACCOUNTING FOR STOCK-BASED
COMPENSATION. This statement is effective for Kelly Russell's year ending
December 31, 1996. SFAS 123 establishes a fair value-based method of accounting
for stock-based compensation plans and encourages, but does not require,
entities to adopt that method in place of APB Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, which uses an intrinsic value-based accounting
method. Kelly Russell does not intend to adopt SFAS 123 in measuring expenses.
However, Kelly Russell must present pro forma net income (loss) and related per
share amounts as if SFAS 123 had been adopted, and such pro forma amounts are
expected to reflect higher amounts of expenses than amounts reported in the
financial statements.
F-26
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS -- Certain of the 1993 and 1994 amounts have been
reclassified to conform with the 1995 presentation. These reclassifications had
no effect on net loss or shareholders' equity.
2. INVENTORIES
The components of inventories at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -----------
<S> <C> <C>
Raw materials............................................................... $ 1,206,555 $ 565,716
Finished goods.............................................................. 449,766 146,825
------------- -----------
1,656,321 712,541
Less inventory allowance.................................................... 990,000 340,171
------------- -----------
$ 666,321 $ 372,370
------------- -----------
------------- -----------
</TABLE>
3. FINANCING AGREEMENTS
PARTICIPATING PROMISSORY NOTES -- In January 1994, Kelly Russell repaid 7
percent participating promissory notes totaling $300,000 in connection with the
issuance of the convertible debentures described below. In connection with this
transaction, the holders of the participating promissory notes were granted
60,000 warrants to purchase common stock of Kelly Russell at $1.00 per share. In
1994, Kelly Russell recorded financing expense of $120,000 relating to the
issuance of these warrants. The warrants are subject to antidilution provisions
and expire February 1998.
CONVERTIBLE DEBENTURES -- In January and February 1994, Kelly Russell issued
$900,000 of convertible debentures. These debentures bore interest at 7 percent,
were subordinated to the bank debt, and were due in January 1995. These
debentures were converted into 399,986 shares of Kelly Russell common stock upon
the successful completion of the initial public offering in March 1994.
4. INCOME TAXES
Income tax expense (benefit) differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1993 1994 1995
---------- -------------- ------------
<S> <C> <C> <C>
Tax provision at statutory rate.............................. $ (81,000) $ (1,773,000) $ (525,000)
State income taxes, net of federal tax effect................ (15,000) (105,000) (92,000)
Nondeductible expenses....................................... 14,000 6,000 7,000
Change in valuation allowance for deferred tax assets........ 82,000 1,872,000 856,000
Effect of change of tax rates on deferred taxes.............. -- -- (246,000)
---------- -------------- ------------
$ -- $ -- $ --
---------- -------------- ------------
---------- -------------- ------------
</TABLE>
F-27
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
Net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................................ $ 1,387,000 $ 2,570,000
Inventory allowances.................................................... 356,000 140,000
Trade receivable allowances............................................. 201,000 65,000
Other................................................................... 15,000 40,000
------------- -------------
1,959,000 2,815,000
Less valuation allowance.................................................. 1,959,000 2,815,000
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
At December 31, 1994 and 1995, Kelly Russell recorded a valuation allowance
on the deferred tax assets to reduce the total to an amount that management
believes will ultimately be realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
At December 31, 1995, Kelly Russell had net operating loss (NOL)
carryforwards available to reduce future taxable income expiring as follows:
<TABLE>
<CAPTION>
YEAR EXPIRING
- -------------------------------------------------------------------------------
<S> <C>
2008......................................................................... $ 225,000
2009......................................................................... 3,697,000
2010......................................................................... 2,504,000
-------------
$ 6,426,000
-------------
-------------
</TABLE>
As a result of the changes in stock ownership during 1994 and 1995, the
amount of net operating loss carryforward that may be utilized annually is
limited. In addition, the planned merger (see Note 12) may further limit the
annual availability of the NOL carryforwards.
5. STOCK OPTIONS
Kelly Russell has a stock plan pursuant to which restricted stock and
options for up to 750,000 shares of common stock have been reserved for issuance
under the plan and may be granted to employees and directors. These options may
be either incentive stock options or nonstatutory stock options. All incentive
options must be granted at no less than 100 percent of the fair market value of
the stock on the date of the grant, or 110 percent for employees owning more
than 10 percent of Kelly Russell Common stock. All nonstatutory options must be
granted at no less than 85 percent of fair market value on the date of grant.
The options expire at varying dates not to exceed ten years from the grant date
and are not transferable.
In November 1995, Kelly Russell established the 1995 Consultant Stock Option
Plan pursuant to which stock and options for up to 150,000 shares of common
stock have been reserved for issuance under the Plan and may be granted to
outside consultants.
F-28
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTIONS (CONTINUED)
A summary of outstanding stock options under both plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF
PRICE RANGE SHARES
-------------- -----------
<S> <C> <C>
Outstanding at December 31, 1993.......................................... $ -- --
Granted................................................................. 2.25 - 2.48 425,000
Canceled................................................................ 2.25 - 2.48 (409,000)
-------------- -----------
Outstanding at December 31, 1994.......................................... 2.25 - 2.48 16,000
Granted................................................................. 1.50 - 2.50 1,489,000
Canceled................................................................ 2.25 (416,363)
Exercised............................................................... 2.25 (637)
-------------- -----------
Outstanding at December 31, 1995.......................................... $ 1.50 - 2.50 1,088,000
-------------- -----------
-------------- -----------
</TABLE>
As of December 31, 1995, 135,800 options were exercisable.
6. STOCK WARRANTS
In February and March 1995, Kelly Russell granted warrants to purchase
641,000 shares of common stock at $2.00 per share in connection with a private
placement of common stock. In addition, Kelly Russell granted warrants to the
selling agent of this private placement for the purchase of a total of 185,200
shares of common stock at $2.00 per share.
A summary of the outstanding stock warrants follows, for which shares of
Kelly Russell's common stock have been reserved for issuance (see also Notes 3
and 9):
<TABLE>
<CAPTION>
NUMBER OF
PRICE RANGE SHARES
-------------- ----------
<S> <C> <C>
Outstanding at December 31, 1992........................................... $1.00 250,000
Granted.................................................................. 1.00 110,000
-------------- ----------
Outstanding at December 31, 1993........................................... 1.00 360,000
Granted.................................................................. 1.00 - 4.20 418,889
Canceled................................................................. 1.00 (300,000)
-------------- ----------
Outstanding at December 31, 1994........................................... 1.00 - 4.20 478,889
Granted.................................................................. 2.00 797,700
Exercised................................................................ 2.00 (926,000)
-------------- ----------
Outstanding at December 31, 1995........................................... $1.00 - 4.20 350,589
-------------- ----------
-------------- ----------
</TABLE>
As of December 31, 1995, 165,839 warrants were exercisable.
F-29
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MAJOR CUSTOMERS AND SUPPLIER
MAJOR CUSTOMERS -- Net sales for 1993, 1994 and 1995 include sales to the
following major customers, together with the receivables due from those
customers:
<TABLE>
<CAPTION>
NET SALES
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Customer
A.................................................... $ * $ 456,078 $ 226,377
B.................................................... * * 348,246
C.................................................... 410,411 * *
D.................................................... 275,850 * *
----------- ----------- -----------
$ 686,261 $ 456,078 $ 574,623
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------------
*Net sales were not significant for period presented.
<TABLE>
<CAPTION>
TRADE RECEIVABLE
BALANCE
AS OF DECEMBER 31
----------------------
1994 1995
--------- -----------
<S> <C> <C>
Customer
A............................................................... $ 49,917 $ 37,229
B............................................................... -- 154,144
--------- -----------
$ 49,917 $ 191,373
--------- -----------
--------- -----------
</TABLE>
MAJOR SUPPLIER -- In 1995, Kelly Russell utilized an independent contractor
to assemble, warehouse, and ship its products. Kelly Russell purchased
approximately $253,000 from this contractor during 1995. In January 1996, Kelly
Russell changed contractors for those services. Management believes that
alternative contractors are available in the event Kelly Russell is unable to
obtain services from their current contractor.
8. COMMITMENTS AND CONTINGENCIES
LEASES -- Kelly Russell leases its office facility under a noncancelable
agreement which expires May 2001. The lease requires additional payments for a
proportionate share of real estate taxes and operating expenses. In addition,
Kelly Russell leases certain equipment under noncancelable operating leases with
varying monthly payments to July 1997. Approximate future minimum payments,
exclusive of other costs, required under these operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31
- ---------------------------------------------------------------------------------
<S> <C>
1996........................................................................... $ 87,300
1997........................................................................... 80,000
1998........................................................................... 63,200
1999........................................................................... 63,200
2000........................................................................... 63,200
Thereafter..................................................................... 26,300
-----------
$ 383,200
-----------
-----------
</TABLE>
Total rent expense was approximately $78,000, $177,000, and $95,000 for
1993, 1994 and 1995, respectively.
F-30
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LICENSE AGREEMENTS -- Kelly Russell has entered into license agreements with
various organizations that represent the major sports leagues and their member
teams, players' associations, entertainment companies, and others which provide
Kelly Russell the ability to produce and distribute products with images owned
or approved by these third parties. These agreements generally are for periods
of one to three years and contain minimum license provisions. Approximate future
minimum payments required under these agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31
- ---------------------------------------------------------------------------------
<S> <C>
1996........................................................................... $ 355,000
1997........................................................................... 270,000
1998........................................................................... 62,000
-----------
$ 687,000
-----------
-----------
</TABLE>
LITIGATION -- Kelly Russell is subject to legal proceedings and claims which
arise in the ordinary course of its business. Kelly Russell has accrued
approximately $100,000 as of December 31, 1995, which represents management's
estimate of the cost of settling certain of those claims.
9. RESTRUCTURING, REORGANIZATION OF THE COMPANY, AND FOURTH QUARTER ADJUSTMENTS
1995 restructuring and fourth quarter adjustments -- In December 1995, Kelly
Russell recorded charges to operations of approximately $926,000 relating to the
write-down of certain assets in the fourth quarter and a restructuring of Kelly
Russell.
1995 FOURTH QUARTER ADJUSTMENTS -- After experiencing lower than expected
sales levels in the fourth quarter, Kelly Russell recorded a charge to
operations of approximately $640,000 relating to increased allowances for
inventory obsolescence and sales returns. In addition, Kelly Russell recorded a
liability of $100,000 for estimated costs associated with various litigation
matters (see Note 8).
1995 BUSINESS RESTRUCTURING -- On February 20, 1996, Kelly Russell revised
its business plan and operations to produce and distribute a more limited number
of print images. Accordingly, Kelly Russell recorded a restructuring charge of
approximately $186,000 relating to the write-down of inventories, prepaid
licensing rights, and original artwork. Additionally, Kelly Russell accepted the
resignation of the Chief Executive Officer and terminated several employees.
Kelly Russell has not recorded any employee termination benefits or other exit
costs as a part of the restructuring charge, since management believes such
costs will be immaterial.
1994 reorganization and fourth quarter adjustments -- In December 1994,
Kelly Russell recorded charges to operations of approximately $2,460,000
relating to the write-down of certain assets in the fourth quarter and a
reorganization of Kelly Russell.
1994 FOURTH QUARTER ADJUSTMENTS -- In November 1994, the Board of Directors
terminated the employment agreements with its two principal officers and
founding shareholders. The terminated officers/shareholders agreed to, among
other things, return to Kelly Russell 900,000 shares of Kelly Russell's common
stock held by them, including 240,000 shares of restricted common stock.
Additionally, the termination required the forfeiture and cancellation of
400,000 stock options outstanding to the officers/shareholders. Compensation
expense related to the restricted common stock and stock options of $246,317 was
recorded during the first three quarters of 1994. The compensation expense was
reversed in the fourth quarter of 1994 as a result of the return and
cancellation of these securities. Additionally, Kelly Russell recorded a gain of
$85,978 to other income upon cancellation of these shares.
F-31
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RESTRUCTURING, REORGANIZATION OF THE COMPANY, AND FOURTH QUARTER
ADJUSTMENTS (CONTINUED)
During the fourth quarter of 1994, Kelly Russell recorded charges to
operations totaling $1,370,000 relating to increased allowances for returns on
guaranteed sales, bad debts, inventory obsolescence, and inventory valuation
adjustments. This fourth quarter adjustment should have been partially recorded
in the earlier quarters of 1994.
1994 BUSINESS REORGANIZATION -- During the quarter ended December 31, 1994,
Kelly Russell hired two new officers and revised its business plan and
operations to focus solely on the creation, marketing, and sales of limited
edition art collectibles through mass merchants, distributors, and specialty
retail stores. Kelly Russell discontinued the sales of its software and ceramic
mug lines and decreased the number of print images in its product line. Sales
from the discontinued product lines were approximately $116,000 in 1994. Kelly
Russell also began outsourcing its assembly and warehousing activities and
eliminated most of its employee sales force. In addition, Kelly Russell
eliminated its practice of offering guaranteed return privileges to certain
customers. As a result of the reorganization, management recorded a charge of
$1,088,876 to operations, of which $997,288 was included in cost of sales to
write off assets and other costs no longer usable or realizable.
10. GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
Kelly Russell as a going concern. Kelly Russell has suffered losses since
inception totaling $7,150,939. In addition, Kelly Russell consumed $2,206,265 of
cash in operating activities during 1995. In order for Kelly Russell to realize
its investments in its assets and meet its obligations when due, it must attain
a level of operations which will provide sustained positive cash flow. As
discussed in Notes 9 and 12, Kelly Russell has restructured its business in an
effort to improve income and cash flow from operations and has plans to merge
with another company during 1996. However, there is no assurance Kelly Russell's
financial performance will improve, or that the planned merger will be
consummated. Therefore, there is substantial doubt about Kelly Russell's ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result from
the outcome of these uncertainties.
11. EXTRAORDINARY ITEM
During 1995, Kelly Russell settled and paid the past due accounts payable
balances with certain vendors for less than amounts owed, resulting in
extraordinary income of $296,994. There is no income tax effect on the
extraordinary income because of Kelly Russell's net operating loss.
12. SUBSEQUENT EVENTS (UNAUDITED)
MERGER -- On May 28, 1996, Kelly Russell entered into a Final Amended and
Restated Agreement and Plan of Reorganization ("Merger Agreement") with OSP
Publishing, Inc. ("OSP"), its subsidiary, The Button Exchange, Ltd. ("BEx"),
OSP's shareholders, Global One Distribution & Merchandising Inc. ("Global One")
and its subsidiaries. Pursuant to the Merger Agreement, Kelly Russell will
combine its operations with OSP, its subsidiary Stanley DeSantis, Inc. ("SDI")
and BEx. OSP is a publisher of licensed posters, SDI develops and markets
licensed and nonlicensed T-shirts, sweatshirts, boxer shorts and mugs, and BEx
develops and markets licensed and nonlicensed buttons, key rings and stickers.
To effectuate this reorganization, a new corporation, Global One, a Delaware
corporation has been formed, and Global One has formed three wholly-owned
Delaware subsidiaries, KRSI Acquisition Corp. ("KRSI Acquisition"), OSP
Acquisition Corp. ("OSP Acquisition"), and BEx Acquisition Corp. ("BEx
Acquisition"). As part of the reorganization, Kelly Russell will be merged with
and into KRSI Acquisition, KRSI Acquisition being the surviving company, and OSP
and BEx will be merged with and into OSP Acquisition and BEx Acquisition,
respectively. As a result, Global
F-32
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
One will be the holding company for the operations formerly conducted by Kelly
Russell, OSP, SDI and BEx. Following consummation of the merger, KRSI
Acquisition will change its name and conduct its business under the name "Kelly
Russell Studios, Inc."
Kelly Russell's shareholders will receive one share of Global One Common
Stock for every two shares of Kelly Russell's Common Stock outstanding at
closing. The closing of the Merger Agreement will be subject to various
conditions, including approval of the merger by Kelly Russell's shareholders at
a special meeting and the successful placement of at least 4,000,000 shares of
Global One Common Stock at $1.50 per share. Kelly Russell currently anticipates
that the special meeting of shareholders will be held sometime in August 1996.
In connection with the merger, Kelly Russell has delivered $100,000 to an escrow
account and is obligated to deposit an additional $150,000 in the escrow
account. In the event the Merger Agreement is terminated by Kelly Russell, the
escrow agent may be obligated to deliver the escrowed funds to OSP as liquidated
damages for such termination.
STOCK OPTIONS -- A summary of outstanding stock options as of May 15, 1996
follows:
<TABLE>
<CAPTION>
PRICE RANGE NUMBER OF SHARES
-------------- -----------------
<S> <C> <C>
Outstanding at December 31,
1995.......................... $ 1.50 - 2.50 1,088,000
Granted...................... 0.75 125,000
Cancelled.................... 1.50 - 2.50 (355,650)
-------------- -----------------
Outstanding at May 15, 1996.... $ 0.75 - 2.50 857,350
-------------- -----------------
-------------- -----------------
</TABLE>
LITIGATION -- In May 1996, Kelly Russell settled certain outstanding
litigation for $133,000. (See Note 8).
F-33
<PAGE>
KELLY RUSSELL STUDIOS, INC.
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C>
Current assets
Cash............................................................................................ $ 37,962
Trade receivables, less allowances of $71,000................................................... 514,163
Inventories..................................................................................... 276,597
Prepaid and other expenses...................................................................... 57,656
Prepaid licensing rights........................................................................ 132,627
Escrow deposit.................................................................................. 100,000
--------------
Total current assets.......................................................................... 1,119,005
--------------
Property & equipment
Property and equipment, net of accumulated depreciation of $143,240............................. 278,324
--------------
Total assets.................................................................................. $ 1,397,329
--------------
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................................ $ 541,425
Accrued expenses................................................................................ 167,927
License fees payable............................................................................ 49,081
--------------
Total current liabilities..................................................................... 758,433
--------------
Shareholders' equity
Common stock, par value $.01; authorized 10,000,000 shares; 4,082,373 shares issued and
outstanding.................................................................................... 40,824
Additional paid in capital...................................................................... 8,133,560
Deferred compensation expense................................................................... --
Accumulated deficit............................................................................. (7,535,488)
--------------
Total shareholders' equity.................................................................... 638,896
--------------
Total liabilities and shareholders' equity.................................................... $ 1,397,329
--------------
--------------
</TABLE>
See notes to condensed financial statements (unaudited).
F-34
<PAGE>
KELLY RUSSELL STUDIOS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales.............................................................................. $ 512,863 $ 778,614
Cost of sales:
Cost of goods sold................................................................... 220,884 338,503
License and royalty expenses......................................................... 56,520 114,235
----------- -----------
Total cost of sales................................................................ 277,404 452,738
----------- -----------
Gross profit......................................................................... 235,459 325,876
Operating expenses..................................................................... 451,950 708,401
----------- -----------
Operating loss..................................................................... (216,491) (382,525)
Net interest income (expense).......................................................... -- (2,024)
----------- -----------
Net loss before income taxes and extraordinary item................................ (216,491) (384,549)
Federal and state income taxes......................................................... -- --
----------- -----------
Net loss before extraordinary item................................................. (216,491) (384,549)
Extraordinary item..................................................................... 246,697 --
----------- -----------
Net income (loss).................................................................. $ 30,206 $ (384,549)
----------- -----------
----------- -----------
Net income (loss) per common and common equivalent shares:
Net loss before extraordinary item................................................... $ (0.07) $ (0.09)
Extraordinary item................................................................... 0.08 --
----------- -----------
Net income (loss).................................................................. $ 0.01 $ (0.09)
----------- -----------
----------- -----------
Weighted average number of common and common equivalent shares outstanding............. 3,286,765 4,082,373
----------- -----------
----------- -----------
</TABLE>
See notes to condensed financial statements (unaudited).
F-35
<PAGE>
KELLY RUSSELL STUDIOS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $ 30,206 $ (384,549)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:........................................................................
Depreciation...................................................................... 22,281 34,009
Provision for trade receivable allowances......................................... (230,000) (89,667)
Provision for obsolete inventories................................................ (706,000) (633)
Gain (loss) on disposal of assets................................................. -- 2,601
Noncash compensation expense, net................................................. (392) --
Changes in assets and liabilities:
Trade receivables............................................................... 407,191 285,492
Inventories..................................................................... 702,340 96,406
Prepaid and other expenses...................................................... (2,276) (31,226)
Prepaid licensing rights........................................................ 19,334 43,318
Accounts payable and accrued expenses........................................... (543,879) (67,427)
License fee payable............................................................. (205,256) (7,980)
------------ ------------
Net cash used in operating activities......................................... (506,451) (119,656)
------------ ------------
Cash flows from investing activities:
Purchase of equipment............................................................... (5,958) --
Escrow deposit...................................................................... -- (100,000)
------------ ------------
Net amount used in investing activities....................................... (5,958) (100,000)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock, net of expenses................................. 569,450 --
------------ ------------
Net cash provided by financing activities..................................... 569,450 --
------------ ------------
Net increase (decrease) in cash............................................... 57,041 (219,656)
Cash:
Beginning........................................................................... 403,840 257,618
------------ ------------
Ending.............................................................................. $ 460,881 $ 37,962
------------ ------------
------------ ------------
</TABLE>
See notes to condensed financial statements (unaudited)
F-36
<PAGE>
KELLY RUSSELL STUDIOS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. UNAUDITED INTERIM RESULTS
The accompanying condensed balance sheet as of March 31, 1996, and the
condensed statements of operations and cash flows for the three month periods
ended March 31, 1995 and 1996, respectively, are unaudited and reflect all
adjustments, consisting of only normal recurring adjustments which, in the
opinion of management, are necessary for a fair statement of financial position,
results of operations and cash flows for the periods presented. These financial
statements are condensed and do not include all information required by
generally accepted accounting principles. These condensed financial statements
should be read in conjunction with Kelly Russell's year ended December 31, 1995
audited financial statements and notes thereto. The operating results for the
interim periods are not necessarily indicative of the operating results to be
expected for a full fiscal year.
2. INVENTORIES
The components of inventory as of March 31, 1996 are as follows:
<TABLE>
<S> <C>
Raw materials................................................... $ 485,208
Finished goods.................................................. 130,926
Less inventory allowance........................................ (339,537)
---------
$ 276,597
---------
---------
</TABLE>
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based upon the weighted average
number of common shares and dilutive common equivalent shares outstanding.
4. BUSINESS TRANSACTIONS
On March 28, 1996, Kelly Russell entered into a Final Amended and Restated
Agreement and Plan of Reorganization ("Merger Agreement") with OSP Publishing,
Inc. ("OSP"), its subsidiary, The Button Exchange, Ltd. ("BEx"), OSP's
shareholders, Global One Distribution & Merchandising Inc. ("Global One") and
its subsidiaries. Pursuant to the Merger Agreement, Kelly Russell will combine
its operations with OSP, its subsidiary Stanley DeSantis, Inc. ("SDI") and The
Button Exchange ("BEx"). OSP is a publisher of licensed posters, SDI develops
and markets licensed and nonlicensed T-shirts, sweatshirts, boxer shorts and
mugs, and BEx develops and markets licensed and nonlicensed buttons, key rings
and stickers. To effectuate this reorganization, a new corporation, Global One
Distribution & Merchandising, Inc. ("Global One"), a Delaware corporation has
been formed, and Global One has formed three wholly-owned Delaware subsidiaries,
KRSI Acquisition Corp. ("KRSI Acquisition"), OSP Acquisition Corp. ("OSP
Acquisition"), and BEx Acquisition Corp. ("BEx Acquisition"). As part of the
reorganization, Kelly Russell will be merged with and into KRSI Acquisition,
KRSI Acquisition being the surviving company, and OSP and BEx will be merged
with and into OSP Acquisition and BEx Acquisition, respectively. As a result,
Global One will be the holding company for the operations formerly conducted by
Kelly Russell, OSP, SDI and BEx. Following consummation of the merger, KRSI
Acquisition will change its name and conduct its business under the name "Kelly
Russell Studios, Inc."
Kelly Russell's shareholders will receive one share of Global One Common
Stock for every two shares of Kelly Russell's Common Stock outstanding at
closing. The closing of the Merger Agreement will be subject to various
conditions, including approval of the merger by Kelly Russell's shareholders at
a special meeting and the successful placement of at least 4,000,000 shares of
Global One Common Stock at $1.50 per share. Kelly Russell currently anticipates
that the special meeting of shareholders will be held sometime in August 1996.
In connection with the merger, Kelly Russell has delivered $100,000 to an escrow
account and is obligated to deposit an additional $150,000 in the escrow
account. In the event the Merger Agreement is terminated by Kelly Russell, the
escrow agent may be obligated to deliver the escrowed funds to OSP as liquidated
damages for such termination.
F-37
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
FINAL AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
KELLY RUSSELL STUDIOS, INC.,
KRSI ACQUISITION CORP.,
OSP PUBLISHING, INC.,
O.S.P. ACQUISITION CORP.,
THE BUTTON EXCHANGE, LTD.,
BEX ACQUISITION CORP.,
JOSEPH C. ANGARD
AND
MICHAEL A. MALM
DATED MAY 28, 1996,
EFFECTIVE AS OF MARCH 27, 1996
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TABLE OF CONTENTS
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ARTICLE I -- DEFINITIONS..................................................................................... 2
ARTICLE II -- THE MERGERS................................................................................. 7
2.1 The Mergers....................................................................................... 7
2.2 Certificates of Merger; Effective Time............................................................ 7
2.3 Effect of the Mergers............................................................................. 7
2.4 Closing........................................................................................... 7
2.5 Certificates of Incorporation; By-laws............................................................ 8
2.6 Directors and Officers............................................................................ 8
ARTICLE III -- CONVERSION OR CANCELLATION OF SECURITIES; EXCHANGE OF CERTIFICATES............................
8
3.1 Conversion or Cancellation of Securities.......................................................... 8
3.2 Rights of Holders of OSP and KRSI Common Stock.................................................... 8
3.3 Exchange of Certificates.......................................................................... 9
ARTICLE IV -- THE OFFERING................................................................................... 9
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF GLOBAL ONE, OSP AND THE OSP SHAREHOLDERS......................
10
5.1 Corporate Existence and Power..................................................................... 10
5.2 OSP and Global One Subsidiaries................................................................... 10
5.3 Corporate Authorizations.......................................................................... 10
5.4 Governmental Authorization........................................................................ 11
5.5 Non-Contravention................................................................................. 11
5.6 Capitalization.................................................................................... 12
5.7 Financial Statements.............................................................................. 13
5.8 Books and Records................................................................................. 13
5.9 Contracts with Related Parties.................................................................... 13
5.10 Absence of Certain Changes or Events.............................................................. 13
5.11 Litigation........................................................................................ 14
5.12 Taxes............................................................................................. 14
5.13 Title to Assets................................................................................... 15
5.14 Labor Matters..................................................................................... 15
5.15 Employee Benefit Plans............................................................................ 15
5.16 Compliance with Laws.............................................................................. 16
5.17 Brokers........................................................................................... 16
5.18 Vote Required..................................................................................... 16
5.19 Environmental Matters............................................................................. 17
5.20 Trademarks, Patents and Copyrights................................................................ 17
5.21 Contracts and Other Agreements.................................................................... 17
5.22 Insurance......................................................................................... 18
5.23 Disclosure........................................................................................ 19
ARTICLE VI -- REPRESENTATIONS AND WARRANTIES OF KRSI......................................................... 19
6.1 Corporate Existence and Power..................................................................... 19
6.2 KRSI Subsidiaries................................................................................. 19
6.3 Corporate Authorization........................................................................... 19
6.4 Governmental Authorization........................................................................ 19
6.5 Non-Contravention................................................................................. 20
6.6 Capitalization.................................................................................... 20
6.7 SEC Documents..................................................................................... 21
6.8 KRSI's Books and Records.......................................................................... 21
6.9 KRSI Contracts with Related Parties............................................................... 21
6.10 Absence of Certain Changes or Events.............................................................. 21
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6.11 Litigation........................................................................................ 22
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6.12 Taxes............................................................................................. 23
6.13 Title to Assets................................................................................... 23
6.14 Labor Matters..................................................................................... 23
6.15 Employee Benefit Plans............................................................................ 23
6.16 Compliance with Laws.............................................................................. 24
6.17 Brokers........................................................................................... 24
6.18 Vote Required..................................................................................... 24
6.19 Environmental Matters............................................................................. 25
6.20 Trademarks, Patents and Copyrights................................................................ 25
6.21 Contracts and Other Agreements.................................................................... 25
6.22 Insurance......................................................................................... 26
6.23 Disclosure........................................................................................ 27
ARTICLE VII -- COVENANTS RELATING TO CONDUCT OF BUSINESS..................................................... 27
7.1 Conduct of Business by Global One and OSP......................................................... 27
7.2 Conduct of Business by KRSI....................................................................... 29
7.3 Other Action...................................................................................... 31
7.4 No Solicitation of Transactions................................................................... 31
ARTICLE VIII -- ADDITIONAL AGREEMENTS..................................................................... 32
8.1 Preparation of Registration Statement and the Proxy Statement; Shareholders' Meeting.............. 32
8.2 Information Supplied by Global One and OSP........................................................ 33
8.3 Information Supplied by KRSI...................................................................... 33
8.4 Access to Information............................................................................. 33
8.5 Confidentiality................................................................................... 33
8.6 Public Announcements.............................................................................. 34
8.7 Appropriate Action; Consents; Filings............................................................. 34
8.8 State Statutes.................................................................................... 35
8.9 Directors' and Officers' Indemnification and Insurance............................................ 36
8.10 Escrow Payments................................................................................... 36
8.11 Employment Contracts.............................................................................. 37
8.12 Indemnification................................................................................... 37
ARTICLE IX -- CONDITIONS TO THE MERGERS...................................................................... 38
9.1 Conditions of the Parties' Obligations to Effect the KRSI Merger.................................. 38
9.2 Conditions of Obligation of KRSI.................................................................. 39
9.3 Conditions of Obligation of OSP................................................................... 40
ARTICLE X -- TERMINATION, AMENDMENT AND WAIVER............................................................... 41
10.1 Termination....................................................................................... 41
10.2 Consequences of Termination....................................................................... 42
10.3 Amendment......................................................................................... 43
10.4 Waiver............................................................................................ 43
ARTICLE XI -- GENERAL PROVISIONS............................................................................. 43
11.1 Survival of Representations and Warranties........................................................ 43
11.2 Notices........................................................................................... 43
11.3 Entire Agreement.................................................................................. 43
11.4 Severability...................................................................................... 43
11.5 Successors and Assigns............................................................................ 44
11.6 Parties in Interest............................................................................... 44
11.7 Enforcement....................................................................................... 44
11.8 Governing Law..................................................................................... 44
11.9 Counterparts; Effectiveness....................................................................... 44
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FINAL AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
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DATE: May 28, 1996, Effective as of March 27, 1996
PARTIES: Global One Distribution & Merchandising Inc. ("Global One")
O.S.P. Acquisition Corp. ("OSP Acquisition")
KRSI Acquisition Corp. ("KRSI Acquisition")
BEx Acquisition Corp. ("BEx Acquisition")
5548 Lindbergh Lane
Bell, CA 90201-6410
Facsimile Number: (213) 263-9419
Kelly Russell Studios, Inc. ("KRSI")
2905 Northwest Boulevard, Suite 220
Plymouth, MN 55441
Facsimile Number: (612) 553-9960
OSP Publishing, Inc. ("OSP")
5548 Lindbergh Lane
Bell, CA 90201-6410
Facsimile Number: (213) 263-9419
The Button Exchange, Ltd. ("BEx")
200 Diversion Street, #G11
Rochester, MI 48307
Facsimile Number: (313) 650-7809
Joseph C. Angard ("Angard")
OSP Publishing, Inc.
5548 Lindbergh Lane
Bell, CA 90201-6410
Facsimile Number: (213) 263-9258
Michael A. Malm ("Malm")
OSP Publishing, Inc.
5548 Lindbergh Lane
Bell, CA 90201-6410
Facsimile Number: (213) 263-9419
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RECITALS:
A. KRSI creates, markets and distributes products bearing realistic sports
images.
B. OSP and its subsidiaries manufacture, publish and distribute licensed
posters, buttons, T-shirts and other apparel and gift items.
C. Angard and Malm are the sole shareholders of both OSP and Global One,
and OSP owns 79% of the outstanding shares of BEx.
D. The Boards of Directors of Global One, KRSI, KRSI Acquisition, OSP, OSP
Acquisition, BEx and BEx Acquisition have determined that it is in the best
interests of their respective companies and their shareholders to combine their
respective businesses under common management and to raise additional equity
capital through Global One.
E. On March 27, 1996, OSP, KRSI, Angard and Malm entered into an Agreement
and Plan of Reorganization (the "Original Agreement") to effect a proposed
merger of KRSI with and into OSP. Subsequent thereto, the parties have
determined that it is in their respective best interests to amend and restate
such agreement pursuant to Section 10.3 thereof to provide that: (i) OSP will be
merged
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with and into OSP Acquisition with OSP Acquisition being the surviving entity;
(ii) KRSI will be merged with and into KRSI Acquisition with KRSI Acquisition
being the surviving entity; (iii) BEx will be merged with and into BEx
Acquisition with BEx Acquisition being the surviving entity; (iv) Global One,
OSP Acquisition, KRSI Acquisition, BEx and BEx Acquisition will be parties to
the amended and restated agreement; and (iv) Global One will issue a minimum of
4,000,000 additional shares of Global One Common Stock, all upon the terms and
subject to the conditions of this Final Amended and Restated Agreement and Plan
of Reorganization.
AGREEMENT:
The parties hereto, each intending to be legally bound, agree that the
Original Agreement is hereby amended in its entirety and restated as follows:
ARTICLE I -- DEFINITIONS
As used herein, the following words and terms shall have the meanings set
forth below:
1.1 The "Acquisition Companies" shall mean KRSI Acquisition, OSP
Acquisition and BEx Acquisition.
1.2 "Angard" shall mean Joseph C. Angard.
1.3 "BEx" shall mean The Button Exchange, Ltd., a Michigan corporation.
1.4 "BEx Acquisition" shall mean BEx Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Global One.
1.5 "BEx Merger" shall mean the merger of BEx with and into BEx
Acquisition, as further described in Section 2.1(i)(B) hereto.
1.6 "BEx Certificates of Merger" shall mean the documents attached hereto
as Exhibit 1.6.
1.7 "BEx Shares" shall mean the issued and outstanding shares of common
stock, $1.00 par value, of BEx.
1.8 "CGCL" shall mean the California General Corporation Law, as amended.
1.9 "Closing" shall mean the closing of the Mergers as discussed in Section
2.4 below.
1.10 "Closing Date" shall mean the date on which the Closing occurs.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.12 "Competing Transaction" shall mean any of the following (other than
the transactions contemplated hereby): (i) any merger, consolidation, share
exchange, business combination, or other similar transaction involving Global
One, OSP, KRSI or BEx, (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 50% or more of the assets of Global One, OSP,
any of their respective subsidiaries or KRSI, taken as a whole, in a single
transaction or series of transactions, other than in the ordinary course of
business, (iii) any tender offer or exchange offer for 50% or more of the Global
One Shares, the OSP Shares or the KRSI Shares or the filing of a registration
statement under the Securities Act in connection therewith, (iv) any person
having acquired beneficial ownership or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) having been
formed which beneficially owns or has the right to acquire beneficial ownership
of, 50% or more of the Global One Shares, the OSP Shares or the KRSI Shares or
(v) any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing other than any
transaction contemplated herein.
1.13 "DGCL" shall mean the Delaware General Corporation Law, as amended.
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1.14 "Effective Time" shall mean the time that the KRSI Merger becomes
effective pursuant to Section 2.2 below.
1.15 "Environment Laws" shall mean all federal, state and local laws,
rules, regulations, ordinances and orders that purport to regulate the release
of hazardous substances or other materials into the environment, or impose
requirements relating to environmental protection.
1.16 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.17 "Escrow Agent" shall mean Manatt, Phelps & Phillips, LLP.
1.18 "Escrow Agreement" shall mean that certain Escrow Agreement dated
March 27, 1996 by and among KRSI, OSP and the Escrow Agent, to hold the escrow
payments made by KRSI referred to in Section 8.10 below.
1.19 "Evaluation Materials" shall mean any business and/or technical
information of the Other Party or any of its subsidiaries designated orally or
in writing as "Confidential" or "Proprietary" (or in like words) or of a type
typically regarded as confidential or proprietary, whether or not so designated,
including, but not limited to, systems, processes, formulae, data, functional
specifications, computer programs, blueprints, know-how, improvements,
discoveries, developments, designs, inventions, techniques, new products,
marketing and advertising methods, supplier agreements, customer lists, pricing
policies, financial information, projections, forecasts, strategies, budgets or
other information related to its business or its customers.
1.20 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.21 "Exchange Agent" shall mean Norwest Bank National Association.
1.22 "Exchange Ratio" shall mean the number determined by dividing the sum
of (a) fifty percent (50%) of the amount of Fully Diluted KRSI Shares plus (b)
the amount of New Global One Shares not in excess of 4,000,000, by the sum of
(y) the number of OSP Shares immediately prior to the Effective Time and (z) the
number of shares of OSP Common Stock that would be issued immediately prior to
the Effective Time if all the holders of outstanding warrants, options and any
other rights to acquire OSP Common Stock were exercised immediately prior to the
Effective Time.
1.23 "Fully Diluted KRSI Shares" shall mean the number of shares determined
by adding (a) all KRSI Shares immediately prior to the Effective Time and (b)
all of the shares of KRSI Common Stock that would be issued immediately prior to
the Effective Time if all of the outstanding warrants, options and any other
rights to acquire KRSI Common Stock were exercised immediately prior to the
Effective Time (excluding any warrants being issued to the OSP Financial Advisor
and the KRSI Financial Advisor and any other warrants being issued in connection
with the transactions contemplated herein).
1.24 "Global One" shall mean Global One Distribution & Merchandising Inc.,
a Delaware corporation.
1.25 "Global One Common Stock" shall mean the common stock, $.01 value, of
Global One.
1.26 "Global One Plans" shall mean all employee benefit plans (as defined
in Section 3(3) of ERISA), if any, which Global One or any of its subsidiaries
maintains or to which Global One or any of its subsidiaries contributes.
1.27 "Global One Shares" shall mean all issued and outstanding shares of
Global One Common Stock.
1.28 "Governmental Entity" shall mean any federal, state, local or foreign
governmental body, agency, official or authority (including courts,
administrative agencies, commissions, self-regulatory agencies or authorities or
other governmental authority or instrumentality).
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1.29 "Hazardous Materials" means any "hazardous waste" as defined in either
the United States Resource Conservation and Recovery Act or regulations adopted
pursuant to said act, any "hazardous substances" or "hazardous materials" as
defined in the United States Comprehensive Environmental Response, Compensation
and Liability Act and, to the extent not included in the foregoing, any medical
waste.
1.30 "Knowledge" shall mean actual knowledge of a fact or constructive
knowledge if a reasonably prudent person in a like position would have known or
should have known, the fact. In the case of a corporate party hereto knowledge
shall be limited to the aggregate knowledge of all of the officers of such
corporation.
1.31 "KRSI" shall mean Kelly Russell Studios, Inc., a Minnesota
corporation.
1.32 "KRSI Acquisition" shall mean KRSI Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Global One.
1.33 "KRSI Certificates of Merger" shall mean the documents attached hereto
as Exhibit 1.33.
1.34 "KRSI Common Stock" shall mean the common stock of KRSI with a par
value of $.01 per share.
1.35 "KRSI Financial Advisor" shall mean The Equisource Group.
1.36 "KRSI Merger" shall mean the merger of KRSI with and into KRSI
Acquisition, as further described in Section 2.1(ii) hereto.
1.37 "KRSI Plans" shall mean all employee benefit plans (as defined in
Section 3(3) of ERISA) which KRSI or any of its subsidiaries maintains or to
which KRSI or any of its subsidiaries contributes.
1.38 "KRSI SEC Documents" shall mean all required reports, schedules,
forms, statements and other documents filed or required to be filed by KRSI with
the SEC since December 31, 1992.
1.39 "KRSI Shares" shall mean all issued and outstanding shares of KRSI
Common Stock.
1.40 "Lien" shall mean any pledge, claim, lien, charge, encumbrance or
security interest of any nature whatsoever.
1.41 "Malm" shall mean Michael A. Malm.
1.42 "Material Adverse Effect" when used with respect to any entity means
(a) a material adverse effect on the business, assets (including intangible
assets), liabilities, financial condition, results of operations or prospects of
such entity and its subsidiaries, if any, taken as a whole, or on the ability of
such entity or any of its subsidiaries following the consummation of the
Reorganization to continue the business of such entity and its subsidiaries, if
any, taken as a whole, substantially as currently conducted (without the loss of
any material rights), or (b) a material impairment in the ability of such entity
or any of its subsidiaries to perform any of their respective obligations under
this Agreement or to consummate any portion of the Reorganization.
1.43 "MIBCA" shall mean the Michigan Business Corporation Act, as amended.
1.44 "MNBCA" shall mean the Minnesota Business Corporation Act, as amended.
1.45 "Mergers" shall mean the KRSI Merger, the OSP Merger and the BEx
Merger.
1.46 "New Global One Shares" shall mean the shares of Global One Common
Stock issued in the Offering.
1.47 "Offering" shall mean the offering of up to 4,666,667 Shares of Global
One Common Stock at $1.50 per share as more fully described herein.
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1.48 "OSP" shall mean OSP Publishing, Inc., a California corporation, and
unless the context otherwise requires, its successor, OSP Acquisition.
1.49 "OSP Acquisition" shall mean O.S.P. Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Global One.
1.50 "OSP Affiliated Group" shall mean OSP, each of the entities listed on
Schedule 5.2 hereto, any other subsidiaries and each member of any affiliated,
consolidated, combined or unitary group of which OSP or any of its subsidiaries
is a member.
1.51 "OSP Certificates of Merger" shall mean the documents attached hereto
as Exhibit 1.51.
1.52 "OSP Common Stock" shall mean the common stock of OSP with no par
value.
1.53 "OSP Financial Advisor" shall mean Tamarix Capital Corporation.
1.54 "OSP Financial Statements" shall mean the balance sheets, statements
of operations, statements of changes in shareholders' equity, statements of cash
flows, reports thereon by OSP's independent auditors, if any, and any notes
thereto, which are referred to in Section 5.7 below.
1.55 "OSP Merger" shall mean the merger of OSP with and into OSP
Acquisition, as further described in Section 2.1(i)(A) hereto.
1.56 "OSP Plans" shall mean all employee benefit plans (as defined in
Section 3(3) of ERISA) which OSP or any of its subsidiaries maintains or to
which OSP or any of its subsidiaries contributes.
1.57 "OSP Shareholders" shall mean collectively Angard and Malm.
1.58 "OSP Shares" shall mean all issued and outstanding shares of OSP
Common Stock, and "OSP Share" shall mean one outstanding share of OSP Common
Stock.
1.59 "Other Party" or "Other Parties," when used with reference to KRSI
shall mean Global One, OSP and their respective subsidiaries, when used with
respect to OSP or Global One, shall mean KRSI, unless the context otherwise
requires.
1.60 "Proxy Statement" shall mean the proxy statement to be filed by KRSI
pursuant to the provisions of Section 8.1 below.
1.61 "Registration Statement" shall mean the registration statement to be
filed by Global One on Form S-4 pursuant to the provisions of Section 8.1 below.
1.62 "Reorganization" shall mean the combination of the Mergers and the
Offering.
1.63 "SEC" shall mean the Securities and Exchange Commission.
1.64 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.65 "Shareholders' Meeting" shall mean the meeting of the shareholders of
KRSI to be called to approve the KRSI Merger and this Agreement.
1.66 "State Takeover Laws" shall mean any state "control share
acquisition," "anti-takeover" or other similar statutes and regulations.
1.67 "Taxes" shall mean all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs or governmental charges of any
nature whatsoever, including any interest, penalties or additions with respect
thereto.
ARTICLE II -- THE MERGERS
2.1 THE MERGERS. Upon the terms and subject to the conditions set forth in
this Agreement, (i) immediately prior to the Effective Time (A) OSP shall be
merged with and into OSP Acquisition in accordance with the CGCL and the DGCL,
whereupon the separate existence of OSP shall cease and OSP Acquisition shall
continue as the surviving corporation, and (B) BEx shall be merged with and
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into BEx Acquisition in accordance with the MIBCA and the DGCL, whereupon the
separate existence of BEx shall cease and BEx Acquisition shall continue as the
surviving corporation; and (ii) at the Effective Time KRSI shall be merged with
and into KRSI Acquisition in accordance with the MNBCA and the DGCL, whereupon
the separate existence of KRSI shall cease and KRSI Acquisition shall continue
as the surviving corporation.
2.2 CERTIFICATES OF MERGER; EFFECTIVE TIME. As soon as practicable after
satisfaction or, to the extent permitted hereunder, waiver of all conditions to
the Mergers set forth in Article IX below, the parties hereto shall cause (i)
the KRSI Merger to be consummated by filing the KRSI Certificates of Merger with
the Secretary of State of the State of Minnesota and the Secretary of State of
the State of Delaware, and make all other filings or recordings required by the
MNBCA and the DGCL in connection with the KRSI Merger and the transactions
contemplated by this Agreement; (ii) the OSP Merger to be consummated by filing
the OSP Certificates of Merger with the Secretary of State of the State of
California and the Secretary of State of the State of Delaware, and make all
other filings or recordings required by the CGCL and the DGCL in connection with
the OSP Merger and the transactions contemplated by this Agreement; and (iii)
the BEx Merger to be consummated by filing the BEx Certificates of Merger with
the Secretary of State of the State of Michigan and the Secretary of State of
the State of Delaware, and make all other filings or recordings required by the
MIBCA and the DGCL in connection with the BEx Merger and the transactions
contemplated by this Agreement. Each of the KRSI Merger, the OSP Merger and the
BEx Merger shall become effective (a) at the later of such time as the
applicable Certificates of Merger are duly filed with the Secretaries of State
of the applicable states, or (b) at such later time as may be agreed by the
parties in writing and specified in the applicable Certificates of Merger.
2.3 EFFECT OF THE MERGERS. From and after the Effective Time, KRSI
Acquisition shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, disabilities and duties of KRSI and KRSI
Acquisition, as provided under the MNBCA and DGCL, OSP Acquisition shall possess
all the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of OSP and OSP Acquisition, as provided
under the CGCL and DGCL, and BEx Acquisition shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of BEx and BEx Acquisition, as provided under the MIBCA
and DGCL.
2.4 CLOSING. The Closing will take place at 10:00 a.m. on a date to be
specified by the parties, which shall be no later than the third business day
after satisfaction or waiver of all of the conditions set forth in Article IX,
at the offices of Manatt, Phelps & Phillips, LLP, in Los Angeles, California,
unless another date, time or place is agreed to in writing by all of the parties
hereto.
2.5 CERTIFICATES OF INCORPORATION; BY-LAWS.
(a) Immediately after the Effective Time, the certificates of
incorporation of Global One, KRSI Acquisition, OSP Acquisition and BEx
Acquisition shall be in substantially the forms attached hereto as Exhibits
2.5(a)-1, 2.5(a)-2, 2.5(a)-3 and 2.5(a)-4, respectively, until thereafter
amended as provided by law and such certificates of incorporation.
(b) Immediately after the Effective Time, the by-laws of Global One,
KRSI Acquisition, OSP Acquisition and BEx Acquisition shall be in
substantially the forms attached hereto as Exhibits 2.5(b)-1, 2.5(b)-2,
2.5(b)-3 and 2.5(b)-4, respectively, until thereafter amended as provided by
law, the applicable certificate of incorporation of the relevant corporation
and such by-laws.
2.6 DIRECTORS AND OFFICERS. The persons specified in Exhibit 2.6-1
attached hereto shall be the directors of Global One immediately after the
Effective Time, each to hold office in accordance with the certificate of
incorporation of Global One as of the Effective Time and for the terms set forth
in the by-laws of Global One as of the Effective Time and specified in Exhibit
2.6 hereto, and the officers of Global One immediately after the Effective Time
shall be the persons specified in Exhibit 2.6-2, in each case until their
respective successors are duly elected or appointed and qualified.
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ARTICLE III -- CONVERSION OR CANCELLATION
OF SECURITIES; EXCHANGE OF CERTIFICATES
3.1 CONVERSION OR CANCELLATION OF SECURITIES. By virtue of the Mergers and
without any action on the part of the holders of any of the OSP Shares, the KRSI
Shares or the BEx Shares, and subject to Section 3.3(b) below:
(a) immediately prior to the Effective Time, (i) each OSP Share as of
such time shall be converted into the right to receive the number of shares
of Global One Common Stock equal to the Exchange Ratio, and (ii) each BEx
Share as of such time shall be canceled and the holders thereof shall be
entitled to no consideration except as set forth in this Agreement; and
(b) as of the Effective Time, each KRSI Share immediately prior to the
Effective Time shall be converted into one-half share of Global One Common
Stock.
3.2 RIGHTS OF HOLDERS OF OSP AND KRSI COMMON STOCK. On and after the
Effective Time and until surrendered for exchange, each outstanding stock
certificate which immediately prior to the Mergers represented shares of OSP
Common Stock and KRSI Common Stock shall be deemed for all purposes, except as
provided in Section 3.3(b) below, to evidence ownership of and to represent the
number of whole shares of Global One Common Stock into which such shares of OSP
Common Stock or KRSI Common Stock shall have been converted, and the record
holder of such outstanding certificate shall, after the Effective Time, be
entitled to vote the shares of Global One Common Stock into which such shares of
OSP Common Stock or KRSI Common Stock shall have been converted on any matters
on which the holders of record of Global One Common Stock, as of any date
subsequent to the Effective Time, shall be entitled to vote. In any matters
relating to such certificates, Global One may rely conclusively upon the records
of shareholders maintained by OSP and KRSI containing the names and addresses of
the holders of record of OSP Common Stock or KRSI Common Stock, as appropriate,
at the Effective Time.
3.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE OF SHARES. At the Closing, Global One shall deliver to the
Exchange Agent the number of shares of Global One Common Stock to which the
holders of the OSP Shares and KRSI Shares are entitled pursuant to Section
3.1 above, to be held and distributed by the Exchange Agent in accordance
with the terms of an agreement by and between Global One and the Exchange
Agent and the terms of this Agreement. As soon as possible after the
Closing, the Exchange Agent shall deliver to all the shareholders of record
of OSP and KRSI as of the Effective Time a transmittal letter in form and
substance satisfactory to Global One and the Exchange Agent. Upon receipt
from the holders of the OSP Shares and KRSI Shares of the letter of
transmittal duly executed by such holder, the certificates representing the
OSP Shares and KRSI Shares for cancellation and such other documents as may
reasonably be required by the Exchange Agent, the Exchange Agent shall
deliver to such holder one or more certificates representing the appropriate
number of shares of Global One Common Stock. The shares of Global One Common
Stock issued upon the surrender for exchange of the OSP Shares and KRSI
Shares in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to the OSP Shares and
KRSI Shares exchanged therefor.
(b) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of Global One Common Stock shall be issued upon the
surrender for exchange of the certificates representing the OSP Shares and
KRSI Shares, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of OSP or KRSI.
Notwithstanding any other provision of this Agreement, each holder of OSP
Shares or KRSI Shares who would otherwise have been entitled to receive a
fraction of a share of Global One Common Stock (after taking into account
all certificates representing OSP Shares or KRSI Shares delivered by such
holder) shall receive, in lieu thereof, one additional share of Global One
Common Stock.
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ARTICLE IV -- THE OFFERING
Subsequent to March 27, 1996, the date as of which the Original Agreement
was executed, Global One, with the assistance of OSP and KRSI, commenced the
Offering. Global One retained the services of Miller, Johnson & Kuehn,
Incorporated ("MJK") and Cruttenden Roth Incorporated ("CR") as placement agents
and entered into agreements with such firms with respect to the Offering. A copy
of the agreement entered into with MJK (the "MJK Agreement") is attached hereto
as Exhibit 4.1. The agreement with CR has not been reduced to writing but is
anticipated to be substantially similar to the MJK Agreement except with respect
to the referral fees. The parties hereto each consent to Global One entering
into such agreements and the payment of all fees, expenses and commissions set
forth therein. In the Offering, subscriptions for 4,504,234 Global One Shares or
$6,756,351 have been received and accepted by Global One. The Offering is
expected to close simultaneously with the Closing.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF GLOBAL ONE,
OSP AND THE OSP SHAREHOLDERS
Except as set forth in and qualified by the schedules attached hereto,
Global One and OSP, jointly and severally, hereby make the following
representations and warranties to KRSI, and except as set forth in and qualified
by the schedules attached hereto, the OSP Shareholders, jointly and severally,
hereby make the representations and warranties set forth in Sections 5.1, 5.3,
5.6, 5.9, 5.10, 5.17 and 5.18 below to KRSI.
5.1 CORPORATE EXISTENCE AND POWER. As of the date hereof, OSP is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California, Global One is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware,
and BEx is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Michigan. OSP, Global One and BEx each
have all corporate powers required to carry on their respective businesses as
now conducted. OSP, Global One and BEx are each duly qualified to do business as
foreign corporations and are in good standing in each jurisdiction where the
character of their respective properties owned or leased by them or the nature
of their respective activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not have a
Material Adverse Effect on OSP or Global One. The copies of the articles of
incorporation and by-laws of OSP which have been delivered to KRSI by OSP are as
of the date hereof true and complete copies of the articles of incorporation and
by-laws of OSP. The certificate of incorporation attached hereto as Exhibit
2.5(a)-1 is as of the date hereof, and will be as of the Effective Time, the
certificate of incorporation of Global One, and the by-laws attached hereto as
Exhibit 2.5(b)-1, is as of the date hereof, and will be as of the Effective
Time, the by-laws of Global One.
5.2 OSP AND GLOBAL ONE SUBSIDIARIES. Schedule 5.2 hereto lists each
subsidiary of OSP and Global One, together with its jurisdiction of
incorporation or organization. All the outstanding shares of capital stock of
each such subsidiary have been validly issued and are fully paid and
nonassessable and, except as set forth on Schedule 5.2 hereto, owned by OSP or
Global One, as appropriate, free and clear of any Liens. Except for the capital
stock of their subsidiaries, neither OSP nor Global One owns, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity. Immediately prior to the BEx Merger,
OSP will own all of the oustanding shares of capital stock of BEx.
5.3 CORPORATE AUTHORIZATIONS.
(a) The execution, delivery and performance by OSP and BEx of this
Agreement and the consummation by OSP and BEx of the transactions
contemplated hereby are within their respective corporate powers and have
been duly authorized by all necessary corporate action on the part of OSP
and BEx, including without limitation approval of the OSP Shareholders. This
Agreement
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has been duly and validly executed and delivered by OSP, BEx and the OSP
Shareholders and constitutes a valid and binding agreement of OSP, BEx and
the OSP Shareholders enforceable in accordance with its terms.
(b) The execution, delivery and performance by Global One and the
Acquisition Companies of this Agreement and the consummation by Global One
and the Acquisition Companies of the transactions contemplated hereby are
within their corporate powers and have been duly authorized by all necessary
corporate action on the part of Global One and the Acquisition Companies.
This Agreement has been duly and validly executed and delivered by Global
One and the Acquisition Companies and constitutes a valid and binding
agreement of Global One and the Acquisition Companies enforceable in
accordance with its terms.
5.4 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
Global One, OSP, BEx, the Acquisition Companies and the OSP Shareholders of this
Agreement and the consummation of the OSP Merger and the BEx Merger require no
action by or in respect of, or filing with, any Governmental Entity other than
(a) the filing of the OSP Certificates of Merger in accordance with the CGCL and
DGCL, (b) the filing of the BEx Certificates of Merger in accordance with the
MIBCA and DGCL, (c) compliance with any applicable requirements of the
Securities Act, (d) compliance with any applicable requirements of the Exchange
Act, (e) compliance with the rules or regulations of NASDAQ, (f) compliance with
the securities laws of various states and (g) any action or filing which the
failure to obtain or make would not, individually or in the aggregate, have a
Material Adverse Effect on any party hereto.
5.5 NON-CONTRAVENTION. The execution, delivery and performance by Global
One, OSP, BEx, the Acquisition Companies and the OSP Shareholders of this
Agreement does not, and the consummation by Global One, OSP, BEx, the
Acquisition Companies and the OSP Shareholders of the transactions contemplated
hereby will not, (a) contravene or conflict with the articles of incorporation
or by-laws of OSP or BEx or the certificates of incorporation or by-laws of
Global One or any of the Acquisition Companies, (b) assuming compliance with the
matters referred to in Section 5.4 above, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Global One, OSP, any
of their respective subsidiaries or the OSP Shareholders, other than such
contravention, conflicts or violations which would not, individually or in the
aggregate, have a Material Adverse Effect on any party hereto, (c) assuming that
the consents listed on Schedule 5.5 hereto are obtained prior to the Effective
Time, constitute a breach or violation of, or a default under or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
Global One, OSP or any of their respective subsidiaries or to a loss of any
benefit to which Global One, OSP or any of their respective subsidiaries is
entitled under any provision of, any agreement, contract or other instrument
binding upon Global One, OSP or any of their respective subsidiaries or any
license, franchise, permit or other similar authorization held by Global One,
OSP or any of their respective subsidiaries, other than such breaches,
violations, defaults, rights or losses which would not, individually or in the
aggregate, have a Material Adverse Effect on Global One or OSP, or (d) result in
the creation or imposition of any Lien on any asset of Global One, OSP or any of
their respective subsidiaries, other than any such creation or imposition which
would not, individually or in the aggregate, have a Material Adverse Effect on
Global One or OSP. Schedule 5.5 hereto sets forth a true, complete and correct
list of all consents, approvals and authorizations required to be obtained by
Global One, OSP and their respective subsidiaries from any third party (other
than as otherwise expressly contemplated by Section 5.4 of this Agreement) in
connection with this Agreement, the OSP Merger, the BEx Merger and the
transactions contemplated hereby where the failure of Global One or OSP or any
of their respective subsidiaries to obtain such consent, approval or
authorization, individually or in the aggregate, would have a Material Adverse
Effect on any party hereto.
5.6 CAPITALIZATION.
(a) As of the date hereof, (i) the authorized capital stock of OSP
consists of 30,000,000 shares of Common Stock, and (ii) there are
outstanding 1,636 shares of OSP Common Stock and a
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warrant to purchase up to 50 shares of OSP Common Stock. All outstanding
shares of OSP Common Stock are duly authorized, validly issued, fully paid
and nonassessable, and issued in compliance with all applicable federal and
state securities laws. Except as set forth in this Section 5.6(a), there are
outstanding (a) no shares of OSP Common Stock or other voting securities of
OSP, (b) no securities of OSP convertible into or exchangeable for shares of
OSP Common Stock or voting securities of OSP and (c) no options, warrants or
other rights to acquire from OSP, and no obligation of OSP to issue, any
capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of OSP. There are no
outstanding obligations of OSP to repurchase, redeem or otherwise acquire
any OSP Common Stock. As of the date hereof, all of the shares of OSP Common
Stock are owned by the OSP Shareholders free and clear from all Liens.
Immediately prior to the Effective Time, all of the shares of OSP Common
Stock will be owned by the OSP Shareholders free and clear of all Liens,
except to the extent that the warrant to purchase up to 50 shares of OSP
Common Stock referred to in this Section 5.6(a) has been exercised between
the date hereof and the Effective Time.
(b) As of the date hereof, (i) the authorized capital stock of Global
One consists of 30,000,000 shares of Common Stock and 20,000,000 shares of
Preferred Stock, (ii) there are outstanding two (2) shares of Global One
Common Stock. All outstanding shares of Global One are, and all shares of
Global One Common Stock which may be issued pursuant to the Reorganization
will be, when issued in accordance with the terms hereof, duly authorized,
validly issued, fully paid and nonassessable, and issued in compliance with
all applicable federal and state securities laws. Except as set forth in
this Section 5.6(b), there are outstanding (a) no shares of Global One
Common Stock or other voting securities of Global One, (b) no securities of
Global One convertible into or exchangeable for shares of Global One Common
Stock or voting securities of Global One and (c) no options, warrants or
other rights to acquire from Global One, and no obligation of Global One to
issue, any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of Global One. There
are no outstanding obligations of Global One to repurchase, redeem or
otherwise acquire any Global One Common Stock.
5.7 FINANCIAL STATEMENTS.
(a) OSP has furnished KRSI true and complete copies of its consolidated
balance sheets, statements of operations, statements of changes in
shareholders' equity and statements of cash flows together with the report
thereon by Deloitte & Touche LLP, OSP's independent auditors, for its fiscal
years ended December 31, 1993, December 31, 1994 and December 31, 1995. The
OSP Financial Statements have been, and any OSP Financial Statements
delivered to KRSI for subsequent periods will be, prepared in conformance
with generally accepted accounting principles applied on a basis consistent
with prior periods, and fairly present and will fairly present in all
material respects the financial condition of OSP and its subsidiaries as of
the represented dates thereof and the results of OSP's and its subsidiaries'
operations for the periods covered thereby.
(b) Global One, OSP Acquisition, KRSI Acquisition and BEx Acquisition
(i) have been organized solely for the purposes of effecting the
Reorganization and the transactions contemplated by this Agreement, (ii)
have not conducted any business and will not, prior to the Effective Time,
conduct any business other than incident to their formation, the execution
and delivery of this Agreement and the Original Agreement, the Offering and
the other transactions contemplated by this Agreement, and (iii) have no,
and prior to the Closing will have no, assets, liabilities or obligations of
any nature other than those incident to their formation and pursuant to this
Agreement, the Original Agreement, the Offering and the other transactions
contemplated by this Agreement.
5.8 BOOKS AND RECORDS. The books of account and records (including
customer order files, employment records, licensing records, employment records
and production and manufacturing records) of Global One, OSP and their
respective subsidiaries are complete, true and correct in all material respects.
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5.9 CONTRACTS WITH RELATED PARTIES. Except as disclosed on Schedule 5.9
hereto, there are no material agreements or contracts by, between or among
Global One, OSP or any of their respective subsidiaries, on the one hand, and
any officers, directors or shareholders of Global One, OSP or any of their
respective subsidiaries, on the other hand.
5.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as expressly
contemplated by this Agreement, since December 31, 1995, OSP and each of its
subsidiaries has conducted its business only in the ordinary course, and there
has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had a Material Adverse Effect on OSP or any of its
subsidiaries;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of OSP Common Stock, or any
repurchase, redemption or other acquisition by OSP of any outstanding shares
of OSP Common Stock or other securities of, or other ownership interests in,
OSP, except as described in Schedule 5.10(b) hereto;
(c) any split, combination or reclassification of any OSP Common Stock
or any issuance or the authorization of any issuance of any other securities
in respect of, in lieu of, or in substitution for shares of OSP Common
Stock;
(d) any incurrence, assumption or guarantee by OSP or any of its
subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices (including any such borrowings under its existing bank credit
facility) except as described in Schedule 5.10(d) hereto;
(e) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business assets of OSP or any of its
subsidiaries which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect on OSP or any such
subsidiary;
(f) any change in any method of accounting or accounting practice by OSP
or any of its subsidiaries, except for any such change required by reason of
a concurrent change in generally accepted accounting principles; or
(g) (i) any grant, except pursuant to agreements in effect on the date
of this Agreement and disclosed in Schedule 5.10(g) hereto, of any material
severance or termination pay to any director, officer or employee of OSP or
any of its subsidiaries, (ii) the entering into of any material employment,
deferred compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of OSP or
any of its subsidiaries, except as contemplated in Section 8.11 hereto,
(iii) any material increase in benefits payable under any existing severance
or termination pay policies or employment agreements or (iv) other than in
the ordinary course of business consistent with past practices, any material
increase in compensation, bonus or other benefits payable to directors,
officers or employees of OSP or any of its subsidiaries.
5.11 LITIGATION. Except as disclosed in Schedule 5.11 hereto, there is no
action, suit, investigation or proceeding pending against or, to the knowledge
of Global One, OSP, BEx and the OSP Shareholders, threatened against or
affecting, Global One, OSP or any of their respective subsidiaries or properties
(other than any such suit, action or proceeding challenging the transactions
contemplated by this Agreement or any provision of this Agreement or seeking to
restrain or prohibit the consummation of the Mergers) that, if determined or
resolved adversely to Global One, OSP or any such subsidiary (in accordance with
the plaintiff's demands, if applicable), individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Global One, OSP or
any such subsidiary.
5.12 TAXES. Except as set forth in Schedule 5.12, each of the OSP
Affiliated Group has filed all material tax returns and reports required to be
filed by it and has paid (or OSP has paid on its behalf)
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all of the Taxes required to be paid by it (other than Taxes, the failure to pay
which would not, individually or in the aggregate, have a Material Adverse
Effect on OSP), and the most recent financial statements contained in the OSP
Financial Statements reflect an adequate reserve for all material Taxes payable
by OSP and its subsidiaries for all taxable periods and portions thereof through
the date of such financial statements. No deficiencies for any Taxes have been
proposed, asserted or assessed against Global One, OSP, any of their respective
subsidiaries or any member of the OSP Affiliated Group (other than deficiencies,
the liability for which would not, individually or in the aggregate, have a
Material Adverse Effect on Global One, OSP or any such subsidiary), and no
requests for waivers of the time to assess any Taxes are pending. None of the
assets or properties of Global One, OSP or any of their respective subsidiaries
is subject to any tax lien (other than liens for Taxes that are not yet due or
that are being contested in good faith by appropriate proceedings) except for
liens which would not, individually or in the aggregate, have a Material Adverse
Effect on Global One, OSP or any such subsidiary.
5.13 TITLE TO ASSETS. As of the dates of the respective balance sheets
that are part of the OSP Financial Statements, OSP and its subsidiaries owned
and will own the assets reflected therein as of such dates. As of the date
hereof and immediately prior to the time of the KRSI Merger, Global One and its
subsidiaries shall hold title to their respective assets free and clear of all
Liens, except as disclosed in Schedule 5.13 hereto.
5.14 LABOR MATTERS. Neither Global One, OSP nor any of their respective
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Global One, OSP or any of their
respective subsidiaries.
5.15 EMPLOYEE BENEFIT PLANS.
(a) There are no Global One Plans. Schedule 5.15 hereto sets forth a
list of all OSP Plans. Except for the OSP Plans, with respect to all
employees and former employees of OSP or any of its subsidiaries and all
dependents and beneficiaries of such employees and former employees, (i)
neither OSP nor any of its subsidiaries maintains or contributes to any
nonqualified deferred compensation or retirement plans, contracts or
arrangements, (ii) neither OSP nor any of its subsidiaries maintains or
contributes to any qualified defined contribution plans (as defined in
Section 3(34) of ERISA, or Section 414(i) of the Code), (iii) neither OSP
nor any of its subsidiaries maintains or contributes to any qualified
defined benefit plans (as defined in Section 3(35) of ERISA or Section
414(j) of the Code) and (iv) neither OSP nor any of its subsidiaries
maintains or contributes to any employee welfare benefit plans (as defined
in Section 3(1) of ERISA).
(b) The OSP Plans comply in all material respects with the requirements
of ERISA and the Code, except for such failures to comply which individually
or in the aggregate could not reasonably be expected to have a Material
Adverse Effect on OSP.
(c) OSP has delivered to KRSI true and complete copies of (i) all OSP
Plans, (ii) the most recent determination letter, if any, received by OSP or
any of its subsidiaries from the Internal Revenue Service regarding the OSP
Plans (iii) the most recent financial statements and annual report or return
for the OSP Plans and (iv) the most recently prepared actuarial valuation
reports for the OSP Plans, if any.
d) Neither OSP nor any of its subsidiaries contributes (and has not
ever contributed) to any multi-employer plan, as defined in Section 3(37) of
ERISA. Neither OSP nor any of its subsidiaries has any actual or potential
liabilities under Section 4201 of ERISA for any complete or partial
withdrawal from a multi-employer plan. Neither OSP nor any of its
subsidiaries has any actual or potential liability for death or medical
benefits after separation from employment, other than (i) death benefits
under the OSP Plans (whether or not subject to ERISA) and (ii) health care
continuation benefits described in Section 4980B of the Code.
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(e) Neither OSP nor any of its subsidiaries nor any of their respective
directors, officers, employees or other "fiduciaries," as such term is
defined in Section 3(21) of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with respect to
the OSP Plans which would subject OSP or any of its subsidiaries, or any of
their respective directors, officers or employees, to any liability under
ERISA or any applicable law, which liability would have a Material Adverse
Effect on OSP.
(f) Neither OSP nor any of its subsidiaries has incurred any liability
for any tax or civil penalty or any disqualification of any employee benefit
plan (as defined in Section 3(3) of ERISA) imposed by Sections 4980B and
4975 of the Code and Part 6 of Title I and Section 502(i) of ERISA, which
liability would have a Material Adverse Effect on OSP.
5.16 COMPLIANCE WITH LAWS. Except as disclosed on Schedule 5.16 hereto,
neither Global One, OSP nor any of their respective subsidiaries (a) is in
violation of, nor has it violated, any applicable provisions of any laws,
statutes, ordinances or regulations or (b) has received any notice from any
Governmental Entity or any other person that Global One, OSP or any of their
respective subsidiaries is in violation of, or has violated, any applicable
provisions of any laws, statutes, ordinances or regulations, except in the case
of clauses (a) and (b), for violations, individually or in the aggregate, which
have not had and could not reasonably be expected to have a Material Adverse
Effect on Global One, OSP or any such subsidiary. Each of Global One, OSP and
their respective subsidiaries has all permits, licenses and franchises from
Governmental Entities required to conduct its business as now being conducted,
except for such permits, licenses and franchises the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect on Global One,
OSP or such subsidiaries.
5.17 BROKERS. Except as set forth in Schedules 4.1 and 5.17 hereto, no
broker, investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Global One, OSP, their respective
subsidiaries or the OSP Shareholders and not entered into pursuant to the
provisions of this Agreement. The fees and expenses of the OSP Financial Advisor
will be paid by Global One. OSP has provided KRSI with a true and correct copy
of the fee agreement among OSP, the OSP Shareholders and the OSP Financial
Advisor.
5.18 VOTES REQUIRED. The affirmative votes of a majority of the votes that
holders of the outstanding Global One Shares, OSP Shares and BEx Shares, and
holders of the outstanding shares of common stock of each of the Acquisition
Companies, are entitled to cast at meetings called for the purpose of approving
the Mergers and this Agreement are the only votes of holders of capital stock of
Global One, OSP and their respective subsidiaries that are required to approve
the Mergers, this Agreement and the transactions contemplated hereby.
5.19 ENVIRONMENTAL MATTERS. Global One, OSP and their respective
subsidiaries are in compliance with all Environmental Laws, except for any
noncompliance that, either singly or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect on Global One, OSP or their respective
subsidiaries. Global One and OSP have previously furnished to KRSI a true and
correct list of all Hazardous Materials, if any, generated, used, handled or
stored by Global One, OSP or any of their respective subsidiaries, the proper
disposal of which would require a material expenditure by Global One, OSP or any
of their respective subsidiaries. Global One and OSP have previously made
available to KRSI copies of all documents, if any, concerning any environmental
or health and safety matter adversely affecting Global One, OSP or any of their
respective subsidiaries and copies of any environmental audits or risk
assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans and material correspondence with any
Governmental Entity regarding the foregoing.
5.20 TRADEMARKS, PATENTS AND COPYRIGHTS. Global One, OSP and their
respective subsidiaries own, or possess adequate licenses or other valid rights
to use, all patents, patent rights, trademarks,
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trademark rights, trade names, trade name rights, copyrights, service marks,
service mark rights, trade secrets, applications to register and registrations
for, the foregoing patents, trademarks, service marks, know-how and other
proprietary rights and information used in connection with the business of
Global One, OSP and their respective subsidiaries as currently conducted, and no
assertion or claim has been made in writing challenging the validity of any of
such rights. The conduct of the business of Global One, OSP and their respective
subsidiaries as currently conducted does not conflict in any way with any
patent, patent rights, license, trademark, trademark right, trade name, trade
name right, service mark, copyright or other proprietary right of any other
person, neither Global One, OSP nor any of their respective subsidiaries has
received a claim or threat that any such conflict exists, and no litigation,
claim, suit, action, proceeding, or complaint concerning the foregoing has been
filed or is ongoing. Except as set forth in Schedule 5.20 hereto, Global One,
OSP and their respective subsidiaries have the unencumbered right to sell their
products and services (whether now offered for sale or under development) free
from any royalty or other obligations to any third parties.
5.21 CONTRACTS AND OTHER AGREEMENTS. All contracts and agreements listed
on Schedule 5.21 hereto are valid, existing, in full force and effect, and
binding upon Global One, OSP or their respective subsidiaries, as the case may
be, and to the best knowledge of Global One, OSP and BEx, binding upon the other
parties thereto in accordance with their terms, and Global One, OSP and their
respective subsidiaries have paid in full or accrued all amounts now due from
them thereunder and have satisfied in full or provided for all of their
liabilities and obligations thereunder which are presently required to be
satisfied or provided for, and are not in default under any of them, nor, to the
best knowledge of Global One, OSP, BEx and the OSP Shareholders, is any other
party to any such contract or other agreement in default thereunder, nor does
any condition exist that with notice or lapse of time or both would constitute a
default thereunder. Schedule 5.21 hereto sets forth a list of the following
contracts and other agreements to which Global One, OSP or any of their
respective subsidiaries is a party or by or to which they or their assets or
properties are bound or subject:
(a) any agreement that individually requires aggregate expenditures by
Global One, OSP or any of their respective subsidiaries in any one year of
more than $50,000;
(b) any indenture, trust agreement, loan agreement or note that involves
or evidences outstanding indebtedness, obligations or liabilities for
borrowed money in excess of $50,000;
(c) any lease, sublease, installment purchase or similar arrangement for
the purchase, use or occupancy of real or personal property (i) that
individually requires aggregate expenditures by Global One, OSP or any of
their respective subsidiaries in any one year of more than $50,000, or (ii)
pursuant to which Global One, OSP or any of their respective subsidiaries is
the lessor of any real property which has rentals over $50,000 per year,
together with the date of termination of such leases, the name of the other
party and the annual rental payments required to be made under such leases;
(d) any agreement of surety, guarantee or indemnification, other than
(i) an agreement in the ordinary course of business with respect to
obligations in an amount not in excess of $50,000, or (ii) indemnification
provisions contained in leases not otherwise required to be disclosed;
(e) any agreement, including without limitation employment agreements
and bonus plans, relating to the compensation of, or obligating Global One,
OSP or any of their respective subsidiaries to make payments (whether such
payments are fixed in amount or contingent) to, (i) officers, (ii)
employees, (iii) former employees, (iv) consultants, (v) advisors or (vi)
any person who was promised such payments;
(f) any agreement containing covenants of Global One, OSP or any of
their respective subsidiaries not to compete in any line of business, in any
geographic area or with any person or covenants of any other person not to
compete with Global One, OSP or any of their respective subsidiaries in any
line of business of Global One, OSP or any of their respective subsidiaries.
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(g) any agreement granting or restricting the right of Global One, OSP
or any of their respective subsidiaries to use a trade name, trade mark or
logo;
(h) any agreement with any customer or supplier that cannot be
terminated without penalty in excess of $10,000 by Global One, OSP or any of
their respective subsidiaries within 90 days; and
(i) any franchise, licensing or development agreement.
True and complete copies of all of the contracts and other agreements set
forth in Schedule 5.21 hereto (or required to be set forth therein) have been
previously provided to KRSI.
5.22 INSURANCE. Schedule 5.22 attached hereto contains a complete listing
of all policies of insurance maintained by Global One, OSP and their respective
subsidiaries as of the date hereof and at all times during the 24-month period
ending on the date hereof. All such policies of insurance are in full force and
effect, and true and correct copies of all such policies of insurance have been
previously provided to KRSI.
5.23 DISCLOSURE. To the best knowledge of Global One, OSP, BEx and the OSP
Shareholders, all material facts relating to the business, operations,
properties, assets, liabilities (contingent or otherwise), and financial
condition of Global One, OSP and their respective subsidiaries have been
disclosed to KRSI in or in connection with this Agreement. The representations,
warranties and statements made by Global One, OSP, BEx and the OSP Shareholders
in this Agreement and in the certificates delivered pursuant hereto do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state any material fact necessary to make such representations,
warranties and statements, in light of the circumstances under which they are
made, not misleading.
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF KRSI
KRSI represents and warrants to Global One, OSP, BEx and the OSP
Shareholders that, except as set forth in and qualified by the schedules
attached hereto:
6.1 CORPORATE EXISTENCE AND POWER. KRSI is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota, and has all corporate powers required to carry on its business as
now conducted. KRSI is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not have a Material Adverse Effect on KRSI. The copies of the articles of
incorporation and by-laws of KRSI which have been delivered to OSP by KRSI are
true and complete copies of the articles of incorporation and by-laws of KRSI.
6.2 KRSI SUBSIDIARIES. KRSI has no subsidiaries. KRSI does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity.
6.3 CORPORATE AUTHORIZATION. Subject to obtaining the approval of the
shareholders of KRSI at the Shareholders' Meeting, the execution, delivery and
performance by KRSI of this Agreement and the consummation by KRSI of the
transactions contemplated hereby to be consummated by it are within its
corporate powers and have been duly authorized by all necessary corporate action
on the part of KRSI. This Agreement has been duly and validly executed and
delivered by KRSI and constitutes a valid and binding agreement of KRSI
enforceable in accordance with its terms.
6.4 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
KRSI of this Agreement and the consummation by KRSI of the transactions
contemplated hereby to be consummated by them require no action by or in respect
of, or filing with, any Governmental Entity other than (a) the filing of the
KRSI Certificates of Merger in accordance with the MNBCA and DGCL, (b)
compliance with any applicable requirements of the Securities Act, (c)
compliance with any applicable requirements of the Exchange Act, (d) compliance
with the rules or regulations of
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NASDAQ, (e) compliance with the securities laws of various states and (f) any
action or filing which the failure to obtain or make would not, individually or
in the aggregate, have a Material Adverse Effect on any party hereto.
6.5 NON-CONTRAVENTION. The execution, delivery and performance by KRSI of
this Agreement does not, and the consummation by KRSI of the transactions
contemplated hereby will not, (a) contravene or conflict with the articles of
incorporation or by-laws of KRSI, (b) assuming compliance with the matters
referred to in Section 6.4 above, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to KRSI other than such contraventions,
conflicts or violations which would not, individually or in the aggregate, have
a Material Adverse Effect on any party hereto, (c) assuming that the consents
listed on Schedule 6.5 hereto are obtained prior to the Effective Time,
constitute a breach or violation of, or a default under or give rise to a right
of termination, cancellation or acceleration of any right or obligation of KRSI
or to a loss of any benefit to which KRSI is entitled under any provision of,
any agreement, contract or other instrument binding upon KRSI or any license,
franchise, permit or other similar authorization held by KRSI, other than such
breaches, violations, defaults, rights or losses which would not, individually
or in the aggregate, have a Material Adverse Effect on KRSI, or (d) result in
the creation or imposition of any Lien on any asset of KRSI, other than any such
creation or imposition which would not, individually or in the aggregate, have a
Material Adverse Effect on KRSI. Schedule 6.5 sets forth a true, complete and
correct list of all consents, approvals and authorizations required to be
obtained by KRSI from any third party (other than as otherwise expressly
contemplated by Section 6.4 of this Agreement) in connection with this
Agreement, the Reorganization and the transactions contemplated hereby where the
failure of KRSI to obtain such consent, approval or authorization, individually
or in the aggregate, would have a Material Adverse Effect on KRSI.
6.6 CAPITALIZATION. The authorized capital stock of KRSI consists of
10,000,000 shares of KRSI Common Stock. As of the date of this Agreement, there
are outstanding 4,082,373 shares of KRSI Common Stock. As of the date of this
Agreement, KRSI has reserved 1,207,939 shares of KRSI Common Stock for issuance
to upon exercise of outstanding employee and director stock options and
outstanding warrants to purchase shares of KRSI Common Stock. All outstanding
shares of KRSI Common Stock are duly authorized, validly issued, fully paid and
nonassessable and issued in compliance with all applicable federal and state
securities laws. The KRSI Common Stock is registered pursuant to Section 12(g)
of the Exchange Act. Except as set forth in this Section or on Schedule 6.6
attached hereto and except for changes since the date hereof resulting from the
exercise, cancellation or exchange of currently outstanding options and warrants
listed on Schedule 6.6 hereto, there are outstanding (a) no shares of KRSI
Common Stock or other voting securities of KRSI, (b) no securities of KRSI
convertible into or exchangeable for shares of capital stock or voting
securities of KRSI and (c) no options or other rights to acquire from KRSI, and
no obligation of KRSI to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of KRSI. There are no outstanding obligations of KRSI to repurchase,
redeem or otherwise acquire any KRSI Common Stock.
6.7 SEC DOCUMENTS. KRSI has filed all KRSI SEC Documents and has
previously provided to OSP copies of all SEC comment letters received in
connection therewith. As of their respective dates, the KRSI SEC Documents
complied as to form in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such KRSI SEC
Documents, and none of the KRSI SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any KRSI SEC Document has been revised or
superseded by a later-filed KRSI SEC Document, filed and publicly available
prior to the date of this Agreement, as of the date of this Agreement, none of
the KRSI SEC Documents contains any untrue statement of a material fact or
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omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of KRSI included in the
KRSI SEC Documents complied as of their respective dates of filing with the SEC
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the financial position of KRSI as of the dates
thereof and the results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as to the extent that information contained in any KRSI SEC
Document has been revised or superseded by a later-filed KRSI SEC Document,
filed and publicly available prior to the date of this Agreement, and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice, KRSI has no liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be set forth on a balance sheet of
KRSI or in the notes thereto which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on KRSI.
6.8 KRSI'S BOOKS AND RECORDS. The books of account and records (including
customer order files, employment records, licensing records, employment records
and production and manufacturing records) of KRSI are complete, true and correct
in all material respects.
6.9 KRSI CONTRACTS WITH RELATED PARTIES. Except as disclosed on Schedule
6.9 hereto or in the KRSI SEC Documents, there are no material agreements or
contracts by, between or among KRSI and any of KRSI's officers, directors or
shareholders.
6.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the KRSI
SEC Documents, and except as expressly contemplated by this Agreement, since the
date of the most recent audited financial statements included in the KRSI SEC
Documents, KRSI has conducted its business only in the ordinary course, and
there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had a Material Adverse Effect on KRSI;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of KRSI Common Stock, or any
repurchase, redemption or other acquisition by KRSI of any outstanding
shares of KRSI Common Stock or other securities of, or other ownership
interests in, KRSI;
(c) any split, combination or reclassification of any of KRSI Common
Stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of KRSI
Common Stock;
(d) any incurrence, assumption or guarantee by KRSI of any indebtedness
for borrowed money other than in the ordinary course of business and in
amounts and on terms consistent with past practices (including any such
borrowings under its existing bank credit facility) except as described in
Schedule 6.10(d) hereto;
(e) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business assets of KRSI which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on KRSI;
(f) any change in any method of accounting or accounting practice by
KRSI, except for any such change required by reason of a concurrent change
in generally accepted accounting principles; or
(g) (i) any grant, except pursuant to agreements in effect on the date
of this Agreement and disclosed in a Schedule hereto, of any material
severance or termination pay to any director,
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officer or employee of KRSI, (ii) the entering into of any material
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of KRSI, (iii) any material increase in benefits payable under any
existing severance or termination pay policies or employment agreements or
(iv) other than in the ordinary course of business consistent with past
practices, any material increase in compensation, bonus or other benefits
payable to directors, officers or employees of KRSI.
6.11 LITIGATION. Except as disclosed in the KRSI SEC Documents or Schedule
6.11 attached hereto, there is no action, suit, investigation or proceeding
pending against or, to the knowledge of KRSI, threatened against or affecting,
KRSI or any of its properties (other than any such suit, action or proceeding
challenging the transactions contemplated by this Agreement or seeking to
restrain or prohibit the consummation of any part of the Reorganization) that,
if determined or resolved adversely to KRSI (in accordance with the plaintiff's
demands, if applicable), individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on KRSI.
6.12 TAXES. KRSI has filed all material tax returns and reports required
to be filed by it and has paid all of the Taxes required to be paid by it (other
than Taxes, the failure to pay which would not, individually or in the
aggregate, have a Material Adverse Effect on KRSI), and the most recent
financial statements contained in the KRSI SEC Documents reflect an adequate
reserve for all material Taxes payable by KRSI for all taxable periods and
portions thereof through the date of such financial statements. No deficiencies
for any Taxes have been proposed, asserted or assessed against KRSI (other than
deficiencies, the liability for which would not, individually or in the
aggregate, have a Material Adverse Effect on KRSI), and no requests for waivers
of the time to assess any Taxes are pending. None of the assets or properties of
KRSI is subject to any tax lien (other than liens for Taxes that are not yet due
or that are being contested in good faith by appropriate proceedings) except for
liens which would not, individually or in the aggregate, have a Material Adverse
Effect on KRSI.
6.13 TITLE TO ASSETS. As of the dates of the respective balance sheets
that are part of the KRSI SEC Documents, KRSI owned and will own the assets
reflected thereon as of such dates. As of the date hereof and as of the
Effective Time, KRSI shall hold title to its assets free and clear of all Liens,
except as described in Schedule 6.13 hereto.
6.14 LABOR MATTERS. KRSI is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by KRSI.
6.15 EMPLOYEE BENEFIT PLANS.
(a) Schedule 6.15 hereto sets forth a list of all KRSI Plans. Except for
the KRSI Plans, with respect to all employees and former employees of KRSI
and all dependents and beneficiaries of such employees and former employees,
(i) KRSI does not maintain or contribute to any nonqualified deferred
compensation or retirement plans, contracts or arrangements, (ii) KRSI does
not maintain or contribute to any qualified defined contribution plans (as
defined in Section 3(34) of ERISA, or Section 414(i) of the Code), (iii)
KRSI does not maintain or contribute to any qualified defined benefit plans
(as defined in Section 3(35) of ERISA or Section 414(j) of the Code) and
(iv) KRSI does not maintain or contribute to any employee welfare benefit
plans (as defined in Section 3(1) of ERISA).
(b) The KRSI Plans comply in all material respects with the requirements
of ERISA and the Code, except for such failures to comply which individually
or in the aggregate could not reasonably be expected to have a Material
Adverse Effect on KRSI.
(c) KRSI has delivered to OSP true and complete copies of (i) all KRSI
Plans, (ii) the most recent determination letter, if any, received by KRSI
or any of its subsidiaries from the Internal Revenue Service regarding the
KRSI Plans, (iii) the most recent financial statements and annual report or
return for the KRSI Plans and (iii) the most recently prepared actuarial
valuation reports for the KRSI Plans, if any.
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(d) KRSI does not contribute (and has not ever contributed) to any
multi-employer plan, as defined in Section 3(37) of ERISA. KRSI does not
have any actual or potential liabilities under Section 4201 of ERISA for any
complete or partial withdrawal from a multi-employer plan. KRSI does not
have any actual or potential liability for death or medical benefits after
separation from employment, other than (i) death benefits under the KRSI
Plans (whether or not subject to ERISA) and (ii) health care continuation
benefits described in Section 4980B of the Code.
(e) Neither KRSI nor any of its directors, officers, employees or other
"fiduciaries", as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any
other applicable law with respect to the KRSI Plans which would subject KRSI
or KRSI Acquisition, or any of their respective directors, officers or
employees to any liability under ERISA or any applicable law, which
liability would have a Material Adverse Effect on KRSI or KRSI Acquisition.
(f) KRSI has not incurred any liability for any tax or civil penalty or
any disqualification of any employee benefit plan (as defined in Section
3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6 of
Title I and Section 502(i) of ERISA, which liability would have a Material
Adverse Effect on KRSI.
6.16 COMPLIANCE WITH LAWS. Except as disclosed in the KRSI SEC Documents
or on Schedule 6.16 hereto, KRSI (a) is not in violation of, nor has it
violated, any applicable provisions of any laws, statutes, ordinances or
regulations and (b) has not received any notice from any Governmental Entity or
any other person that KRSI is in violation of, or has violated, any applicable
provisions of any laws, statutes, ordinances or regulations, except in the case
of clauses (a) and (b), for violations, individually or in the aggregate, which
have not had and could not reasonably be expected to have a Material Adverse
Effect. KRSI has all permits, licenses and franchises from Governmental Entities
required to conduct its business as now being conducted, except for such
permits, licenses and franchises the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect on KRSI.
6.17 BROKERS. Except for discounts, commissions and expenses in connection
with the Offering, no broker, investment banker, financial advisor or other
person, other than the KRSI Financial Advisor is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of KRSI. The fees and expenses of the KRSI Financial
Advisor will be paid by Global One. KRSI has provided OSP with a true and
correct copy of the fee agreement between KRSI and the KRSI Financial Advisor.
6.18 VOTE REQUIRED. The affirmative votes of the holders of the
outstanding KRSI Shares and outstanding shares of common stock of KRSI
Acquisition to be described in the Proxy Statement are the only votes of holders
of capital stock of KRSI and KRSI Acquisition required to approve the KRSI
Merger, this Agreement and the transactions contemplated hereby.
6.19 ENVIRONMENTAL MATTERS. KRSI is in compliance with all Environmental
Laws, except for any noncompliance that, either singly or in the aggregate,
would not be reasonably likely to have a Material Adverse Effect on KRSI. KRSI
has previously furnished to OSP a true and correct list of all Hazardous
Materials generated, used, handled or stored by KRSI, the proper disposal of
which will require any material expenditure by KRSI. KRSI has previously made
available to OSP copies of all documents concerning any environmental or health
and safety matter adversely affecting KRSI and copies of any environmental
audits or risk assessments, site assessments, documentation regarding off-site
disposal of Hazardous Materials, spill control plans and material correspondence
with any Governmental Entity regarding the foregoing.
6.20 TRADEMARKS, PATENTS AND COPYRIGHTS. KRSI owns, or possesses adequate
licenses or other valid rights to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
service mark rights, trade secrets, applications to register and
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registrations for, the foregoing patents, trademarks, service marks, know-how
and other proprietary rights and information used in connection with the
business of KRSI as currently conducted, and no assertion or claim has been made
in writing challenging the validity of any of such rights. The conduct of the
business of KRSI as currently conducted does not conflict in any way with any
patent, patent rights, license, trademark, trademark right, trade name, trade
name right, service mark, copyright or other proprietary right of any other
person, KRSI has received no claim or threat that any such conflict exists, and
no litigation, claim, suit, action, proceeding, or complaint concerning the
foregoing has been filed or is ongoing. Except as set forth in Schedule 6.20
hereto, KRSI has the unencumbered right to sell its products and services
(whether now offered for sale or under development) free from any royalty or
other obligations to any third parties.
6.21 CONTRACTS AND OTHER AGREEMENTS. All contracts and agreements listed
on Schedule 6.21 hereto are valid, existing, in full force and effect, binding
upon KRSI and to the best knowledge of KRSI, binding upon the other parties
thereto in accordance with their terms, and KRSI has paid in full or accrued all
amounts now due from them thereunder and have satisfied in full or provided for
all of its liabilities and obligations thereunder which are presently required
to be satisfied or provided for, and is not in default under any of them, nor,
to the best knowledge of KRSI, is any other party to any such contract or other
agreement in default thereunder, nor does any condition exist that with notice
or lapse of time or both would constitute a default thereunder. Schedule 6.21
hereto sets forth a list of the following contracts and other agreements to
which KRSI is a party or by or to which it or its assets or properties are bound
or subject:
(a) any agreement that individually requires aggregate expenditures by
KRSI in any one year of more than $50,000;
(b) any indenture, trust agreement, loan agreement or note that involves
or evidences outstanding indebtedness, obligations or liabilities for
borrowed money in excess of $50,000;
(c) any lease, sublease, installment purchase or similar arrangement for
the purchase, use or occupancy of real or personal property (i) that
individually requires aggregate expenditures by KRSI in any one year of more
than $50,000, or (ii) pursuant to which KRSI is the lessor of any real
property which has rentals over $50,000 per year, together with the date of
termination of such leases, the name of the other party and the annual
rental payments required to be made under such leases;
(d) any agreement of surety, guarantee or indemnification, other than
(i) an agreement in the ordinary course of business with respect to
obligations in an amount not in excess of $50,000, or (ii) indemnification
provisions contained in leases not otherwise required to be disclosed;
(e) any agreement, including without limitation employment agreements
and bonus plans, relating to the compensation of, or obligating KRSI to make
payments (whether such payments are fixed in amount or contingent) to, (i)
officers, (ii) employees, (iii) former employees, (iv) consultants, (v)
advisors or (vi) any person who was promised such payments;
(f) any agreement containing covenants of KRSI not to compete in any
line of business, in any geographic area or with any person or covenants of
any other person not to compete with KRSI in any line of business of KRSI.
(g) any agreement granting or restricting the right of KRSI to use a
trade name, trade mark or logo;
(h) any agreement with any customer or supplier that cannot be
terminated without penalty in excess of $10,000 by KRSI within ninety days;
and
(i) any franchise, licensing or development agreement.
True and complete copies of all of the contracts and other agreements set forth
in Schedule 6.21 hereto (or required to be set forth therein) have been
previously provided to OSP.
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6.22 INSURANCE. Schedule 6.22 attached hereto contains a complete listing
of all policies of insurance maintained by KRSI as of the date hereof and at all
times during the twenty-four month period ending on the date hereof. All such
policies of insurance are in full force and effect, and true and correct copies
of all such policies of insurance have been previously provided to OSP.
6.23 DISCLOSURE. To the best knowledge of KRSI, all material facts
relating to the business, operations, properties, assets, liabilities
(contingent or otherwise), and financial condition of KRSI and its subsidiaries
have been disclosed to OSP in or in connection with this Agreement. The
representations, warranties and statements made by KRSI in this Agreement and in
the certificates delivered pursuant hereto do not contain any untrue statement
of a material fact, and, when taken together, do not omit to state any material
fact necessary to make such representations, warranties and statements, in light
of the circumstances under which they are made, not misleading.
ARTICLE VII --COVENANTS RELATING TO CONDUCT OF BUSINESS
7.1 CONDUCT OF BUSINESS BY GLOBAL ONE AND OSP. Except as contemplated by
this Agreement and except for an agreement dated May 10, 1996 entered into
between OSP and Tamarix Capital Corporation and an agreement dated May 10, 1996
entered into between OSP and Mark D. Hauser, or as described in Schedule 7.1
attached hereto, from the date hereof until the Effective Time, Global One, OSP
and their respective subsidiaries shall conduct their respective businesses in
the ordinary course consistent with past practice and shall use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, except as provided
in this Agreement or Schedule 7.1, from the date hereof until the Effective
Time, neither Global One, OSP nor any of their respective subsidiaries will, and
the OSP Shareholders will not permit Global One, OSP or their respective
subsidiaries to, without the prior written approval of KRSI:
(a) amend the certificates of incorporation or by-laws of Global One or
the Acquisition Companies, or the articles of incorporation or by-laws of
OSP or BEx;
(b) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any
capital stock of Global One, OSP or any of their subsidiaries, except for
distributions required for the payment of Angard's and Malm's respective tax
liabilities for the year ended December 31, 1995 and for the period from
January 1, 1996 through the Closing computed in a manner consistent with
past practices;
(c) acquire or agree to acquire (i) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof except in the ordinary course of
business consistent with past practice or (ii) any assets that are material,
individually or in the aggregate, to Global One, OSP or BEx, except
purchases of inventory in the ordinary course of business consistent with
past practice;
(d) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, except in
the ordinary course of business consistent with past practice. As has been
previously disclosed to KRSI, discussions are ongoing with Stanley DeSantis
regarding the ownership of Stanley DeSantis Inc. Common Stock. If and to the
extent that OSP proposes to enter into an agreement that would result in any
change in the ownership of Stanley DeSantis Inc. Common Stock prior to the
Effective Time, OSP will so advise KRSI. Any such agreement will not be
entered into without KRSI's prior written consent, which shall not be
unreasonably withheld;
(e) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Global One, OSP
or any of their respective subsidiaries, or any of their respective
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securities, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect
of any of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice, or (ii) make any
loans, advances or capital contributions to, or investments in, any other
person, other than (A) Global One, OSP or BEx, or (B) advances to employees
in accordance with past practice;
(f) make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $50,000 or, in the aggregate, are in
excess of $100,000;
(g) make any material tax election or settle or compromise any material
tax liability;
(h) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent OSP Financial Statements or incurred
in the ordinary course of business consistent with past practice, or waive
any material benefits of, or agree to modify in any material respect, any
confidentiality, standstill or similar agreements to which Global One, OSP
or any of their respective subsidiaries is a party;
(i) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which Global One, OSP or any
of their respective subsidiaries is a party or waive, release or assign any
material rights or claims;
(j) enter into any contracts, agreements, arrangements or
understandings relating to the distribution, sale or marketing by third
parties of any products of, or products licensed by, Global One, OSP or any
of their respective subsidiaries, except in the ordinary course of business
consistent with past practice;
(k) except as required to comply with applicable law, (i) adopt, enter
into, terminate or amend any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation
or other plan, trust arrangement or fund for the benefit or welfare of any
director, officer or current or former employee, (ii) increase in any manner
the compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee (except for normal increases or bonuses in the ordinary
course of business consistent with past practice), (iii) pay any benefit not
provided for under an OSP Plan, (iv) except as permitted in clause (ii),
grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or OSP Plan (including the grant of stock
options, stock appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing
restrictions in any OSP Plans or agreement or awards made thereunder) or (v)
take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or OSP Plan;
(l) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting
principles; or
(m) authorize any of, or commit or agree to take any of, the foregoing
actions.
7.2 CONDUCT OF BUSINESS BY KRSI. Except as contemplated by this Agreement
or as described in Schedule 7.2 attached hereto, from the date hereof until the
Effective Time, KRSI shall conduct its business in the ordinary course
consistent with past practice and shall use its best efforts to preserve intact
its business organizations and relationships with third parties and to keep
available the services of its present officers and employees. Without limiting
the generality of the foregoing, except as provided in this Agreement or in
Schedule 7.2, from the date hereof until the Effective Time, KRSI will not,
without the prior written approval of Global One:
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(a) amend its articles of incorporation, by-laws or other comparable
charter or organizational documents;
(b) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any KRSI
Common Stock;
(c) acquire or agree to acquire (i) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof except in the ordinary course of
business consistent with past practice or (ii) any assets that are material,
individually or in the aggregate, to KRSI, except purchases of inventory in
the ordinary course of business consistent with past practice;
(d) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, except in
the ordinary course of business consistent with past practice;
(e) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of KRSI or any of
its securities, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice,
or (ii) make any loans, advances or capital contributions to, or investments
in, any other person, other than (A) to KRSI or (B) advances to employees in
accordance with past practice;
(f) make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $50,000 or, in the aggregate, are in
excess of $100,000;
(g) make any material tax election or settle or compromise any material
tax liability;
(h) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent balance sheet contained in the KRSI
SEC Documents or incurred in the ordinary course of business consistent with
past practice, or waive any material benefits of, or agree to modify in any
material respect, any confidentiality, standstill or similar agreements to
which KRSI is a party;
(i) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which KRSI or any of its
subsidiaries is a party or waive, release or assign any material rights or
claims;
(j) enter into any contracts, agreements, arrangements or
understandings relating to the distribution, sale or marketing by third
parties of KRSI's or any of its subsidiaries' products or products licensed
by KRSI except in the ordinary course of business consistent with past
practice;
(k) except as required to comply with applicable law, (i) adopt, enter
into, terminate or amend any bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred compensation
or other plan, trust arrangement or fund for the benefit or welfare of any
director, officer or current or former employee, (ii) increase in any manner
the compensation or fringe benefits of, or pay any bonus to, any director,
officer or employee (except for normal increases or bonuses in the ordinary
course of business consistent with past practice), (iii) pay any benefit not
provided for under a KRSI Plan, (iv) except as permitted in clause (ii),
grant any awards under any bonus, incentive, performance or other
compensation plan or arrangement or KRSI Plan (including the grant of stock
options, stock appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing
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restrictions in any KRSI Plans or agreement or awards made thereunder) or
(v) take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or KRSI Plan;
(l) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting
principles; or
(m) authorize any of, or commit or agree to take any of, the foregoing
actions.
7.3 OTHER ACTION. Global One, OSP, BEx and KRSI shall not, and Global One
and OSP shall not permit any of their respective subsidiaries to, take any
action that would, or that could reasonably be expected to, result in (i) any of
the representations and warranties of such party set forth in this Agreement
that are qualified as to materiality becoming untrue, (ii) any of the
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the Mergers and consummation
of the transactions contemplated by this Agreement set forth in Article IX below
not being satisfied (subject to KRSI's right to take action specifically
permitted by Section 7.4 below).
7.4 NO SOLICITATION OF TRANSACTIONS. Global One, OSP, BEx and KRSI shall,
and shall each direct and use their respective commercially reasonable efforts
to cause their respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) not to initiate, solicit or knowingly encourage,
directly or indirectly (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction, or enter into or continue discussions or
negotiations with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize any of their respective officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by them to take any such action, and Global One,
OSP, BEx and KRSI shall notify each other of all inquiries or proposals which
such party may receive relating to any of such matters and if such inquiry or
proposal is in writing, shall deliver to the other party a copy of such inquiry
or proposal; provided, however, that nothing contained in this Section 7.4 shall
prohibit the Board of Directors of KRSI from (i) furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited, bona fide proposal to acquire KRSI pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange offer or
other similar transaction or to acquire a substantial portion of the assets of
KRSI if, and only to the extent that, (A) the Board of Directors of KRSI
determines, which determination is supported by a written legal opinion from
counsel for KRSI reasonably acceptable to OSP, in good faith that such action is
necessary for the Board of Directors of KRSI to comply with its fiduciary duties
to the shareholders of KRSI under applicable law and (B) prior to furnishing
such information to, or entering into discussions or negotiations with, such
person or entity, KRSI (1) provides written notice to OSP to the effect that it
is furnishing information to, or entering into discussions or negotiations with,
such person or entity, (2) receives from such person or entity an executed
agreement to the effect that such person or entity will not disclose any
confidential information of KRSI and (3) subject to the terms of any
confidentiality agreement to which KRSI is a party on the date hereof, keeps OSP
informed of the status (but not the terms) of any such discussions or
negotiations, (ii) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer or (iii) failing to make or
withdrawing or modifying its recommendation referred to in Section 8.1(b) below
following the making of a proposal that constitutes, or may reasonably be
expected to lead to, a Competing Transaction if the Board of Directors of KRSI
determines, which determination is supported by a written legal opinion from
counsel for KRSI reasonably acceptable to OSP, in good faith that such action is
necessary for the Board of Directors of KRSI to comply with its fiduciary duties
to the shareholders of KRSI under applicable law. In the event that the Board of
Directors of KRSI fails to make or withdraws its recommendation referred to in
Section 8.1(b) below and KRSI enters into an agreement to consummate a Competing
Transaction within one year after such failure
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or withdrawal, KRSI shall upon the earlier of the consummation of such Competing
Transaction or the termination of such binding agreement pay to OSP $500,000 in
cash. Any amounts paid to OSP by the Escrow Agent pursuant to the Escrow
Agreement shall reduce the amount of the payment to be made by KRSI to OSP under
the preceding sentence.
ARTICLE VIII -- ADDITIONAL AGREEMENTS
8.1 PREPARATION OF REGISTRATION STATEMENT AND THE PROXY STATEMENT;
SHAREHOLDERS' MEETING.
(a) As soon as practicable following the date of this Agreement, (i)
KRSI shall prepare and file with the SEC the Proxy Statement relating to the
approval by the holders of KRSI Common Stock of the KRSI Merger and this
Agreement and (ii) Global One shall prepare and file with the SEC the
Registration Statement for the purpose of registering the shares of Global
One Common Stock to be issued in the KRSI Merger, in which the Proxy
Statement will be included as a prospectus. The parties hereto shall provide
to each other all information reasonably requested by the Other Parties in
order to permit the Other Parties to comply with the provisions of this
Section 8.1. Each of Global One and KRSI shall use all commercially
reasonable efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing. KRSI
will use its commercially reasonable efforts to cause the Proxy Statement to
be mailed to the shareholders of KRSI as promptly as practicable after the
Registration Statement is declared effective under the Securities Act.
(b) KRSI will, as soon as practicable following the date of this
Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of,
convene and hold the Shareholders' Meeting; provided, however, that KRSI may
postpone or adjourn the Shareholders' Meeting to a date no later than August
31, 1996, in order to facilitate the satisfaction of the condition set forth
in Section 9.1(a) below. KRSI will, through its Board of Directors,
recommend to its shareholders approval of the KRSI Merger and this
Agreement, except to the extent that the Board of Directors of KRSI shall
have withdrawn or modified its approval or recommendation of the KRSI Merger
and this Agreement as permitted by Section 7.4 above.
8.2 INFORMATION SUPPLIED BY GLOBAL ONE AND OSP. Global One, OSP and BEx,
jointly and severally, warrant and represent that none of the information
supplied or to be supplied by Global One, OSP or any of their respective
subsidiaries specifically for inclusion or incorporation by reference in the
Registration Statement or Proxy Statement will, at the time the Registration
Statement or Proxy Statement is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading.
8.3 INFORMATION SUPPLIED BY KRSI. KRSI warrants and represents that none
of the information supplied or to be supplied by KRSI specifically for inclusion
or incorporation by reference in the Registration Statement or Proxy Statement
will, at the time the Registration Statement or Proxy Statement is filed with
the SEC, at any time it is amended or supplemented and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
8.4 ACCESS TO INFORMATION. Subject to Section 8.5 below, from the date
hereof to the Effective Time, KRSI, Global One, OSP and their respective
subsidiaries shall each provide to the others access to all information and
documents which the other may reasonably request regarding the business, assets,
liabilities, employees and other aspects of the other party and their respective
subsidiaries, other than the information and documents that in the opinion of
such other party's legal counsel may not be disclosed under applicable law.
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8.5 CONFIDENTIALITY. None of the parties hereto shall release, publish,
reveal or disclose, directly or indirectly, any Evaluation Material of any of
the Other Parties, except (a) to such of its directors, officers, employees,
financial advisors, legal counsel, accountants or other agents, advisors or
representatives as shall require access thereto on a need-to-know basis for the
purpose of the transactions contemplated by this Agreement, including, without
limitation, for purposes of providing information to prospective investors in
the Offering, so long as such persons are informed by the revealing party of the
confidential nature of such information and are directed by it to treat such
information confidentially, (b) to such third parties as are reasonably
necessary to obtain the consents and approvals from such parties to the
transactions contemplated by this Agreement so long as such third parties are
informed by the revealing party of the confidential nature of such information
and are directed by it to treat such information confidentially, and (c) with
the prior written consent of the Other Party, and then only to the extent
specified in such consent. The parties agree to take all reasonable precautions
to safeguard the confidentiality of the Evaluation Material. None of the parties
hereto shall make, or permit to be made, except in furtherance of the
transactions contemplated by this Agreement, any copies, abstracts or summaries
of the Evaluation Material of any of the Other Parties and their subsidiaries.
In addition, all such Evaluation Material shall be used solely for the purposes
of the investigations contemplated by Section 8.4 above, and shall not be
otherwise used to the detriment of any Other Party or its subsidiaries or in
competition with any Other Party or its subsidiaries. The restrictions on
disclosure of information contained in this Section 8.5 do not extend to any
item of information that (i) is publicly known at the time of its disclosure,
(ii) is lawfully received from a third party not bound in a confidential
relationship to any Other Party or its subsidiaries, (iii) is published or
otherwise made known to the public by any Other Party or its subsidiaries, (iv)
was generated independently before its receipt from any Other Party or its
subsidiaries or (v) is required to be disclosed pursuant to a governmental order
or decree or other legal requirement to produce or disclose such item of
information, provided that upon receiving notice that any such order or decree
is being sought or that any such legal requirement is applicable, such
corporation shall promptly give the Other Parties notice thereof and such
corporation shall cooperate with the Other Parties' efforts, if any, to contest
the issuance of such order or decree or the application of such legal
requirement. Upon written request, the parties shall return all writings,
documents and materials containing Evaluation Material. Each of Global One, OSP
and KRSI understand that the Other Parties will not have an adequate remedy at
law for a breach or threatened breach by the revealing party or any of its
subsidiaries of the terms of this Section 8.5, and each corporation therefore
agrees that if there is any such breach or threatened breach, any Other Party
may, in addition to any other legal or equitable remedies available to it,
obtain an injunction or restraining order to enjoin the Other Parties or any of
their subsidiaries from the breach or threatened breach of this Section 8.5.
8.6 PUBLIC ANNOUNCEMENTS. OSP and KRSI will consult with the Other Parties
before issuing any press release or making any public statement with respect to
this Agreement and the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any national securities
exchange, will not issue any such press release or make any such public
statement prior to such consultation.
8.7 APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Global One, OSP, BEx, the OSP Shareholders and KRSI shall use their
respective best efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or
advisable under applicable law or required to be taken by any Governmental
Entity or otherwise to consummate the Reorganization and the transactions
contemplated by this Agreement as promptly as practicable, (ii) obtain from
any Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by
Global One, OSP, any of their respective subsidiaries or KRSI in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and (iii) as promptly
as practicable, make all necessary filings,
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and thereafter make any other required submissions, with respect to this
Agreement and the Reorganization required under (A) the Securities Act, the
Exchange Act and any other applicable federal or state securities laws and
(B) any other applicable law; provided that Global One, OSP, BEx and KRSI
shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the Other
Parties and their advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection
therewith. Global One, OSP, BEx and KRSI shall use their reasonable best
efforts to furnish to the Other Parties all information required for any
application or other filing to be made pursuant to the rules and regulations
of any applicable law (including all information required to be included in
the Registration Statement and the Proxy Statement) in connection with the
transactions contemplated by the Reorganization and this Agreement.
(b) (i) Global One, OSP, their respective subsidiaries and KRSI shall
give any notices to third parties, and use their reasonable best efforts to
obtain any third party consents, (A) necessary to consummate the
Reorganization and the transactions contemplated by this Agreement, (B)
disclosed or required to be disclosed in the schedules to this Agreement or
(C) required to prevent a Material Adverse Effect on Global One, OSP or
KRSI.
(ii) In the event that Global One, OSP, their respective subsidiaries or
KRSI shall fail to obtain any third party consent described in subsection
(b)(i) above, Global One, OSP or KRSI, as appropriate, shall use their
reasonable best efforts, and shall take any such actions reasonably
requested by the Other Parties, to minimize any adverse effect on Global
One, OSP, their respective subsidiaries and KRSI, and their respective
businesses, resulting, or which could reasonably be expected to result after
the Effective Time, from the failure to obtain any such consent.
(c) From the date of this Agreement until the Effective Time, Global
One, OSP and KRSI shall each promptly notify the Other Parties of any
pending or, to the knowledge of such party, threatened action, proceeding or
investigation by any Governmental Entity or any other person (i) challenging
or seeking material damages in connection with the Reorganization or the
transactions contemplated by this Agreement or (ii) seeking to restrain or
prohibit the consummation of the Reorganization or otherwise limit the right
of KRSI or, to the knowledge of such first party, any subsidiary of KRSI to
own or operate all or any portion of the businesses or assets of OSP, which
in either case is reasonably likely to have a Material Adverse Effect on
KRSI.
(d) Each party shall execute and deliver on and after the execution of
this Agreement such further documents and instruments and take such other
actions as the Other Parties may reasonably request to implement and
effectuate the purposes of and transactions contemplated by this Agreement.
8.8 STATE STATUTES. If any State Takeover Laws shall become applicable to
the transactions contemplated by this Agreement, each of Global One, OSP and
KRSI, as the case may be, and their respective Boards of Directors shall use
their reasonable best efforts to grant such approvals and take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such State Takeover Law on
the transactions contemplated by this Agreement. Nothing herein shall limit or
affect KRSI in taking actions specifically permitted by Section 7.4 above.
8.9 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Prior to the Effective Time, KRSI shall use its commercially
reasonable efforts to obtain directors' and officers' insurance coverage in
form and substance reasonably acceptable to OSP, the OSP Shareholders and
Global One to provide for coverage of the directors and officers of OSP and
Global One with respect to claims that may be asserted by KRSI's
shareholders or creditors arising in connection with the transactions
contemplated by this Agreement.
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(b) The parties hereto shall use their respective best efforts to cause
Global One to keep in effect provisions in its by-laws with respect to
exculpation of director and officer liability and indemnification to the
fullest extent permitted under the DGCL, which provisions shall not be
amended, repealed or otherwise modified except as required by applicable law
or except to make changes permitted by law that would enlarge the
exculpation or rights of indemnification thereunder. In addition, the
parties hereby acknowledge and agree that Global One will obtain directors'
and officers' insurance for the directors and officers of Global One that
will provide for a minimum of $5 million of coverage for any individual
claim.
(c) At the Effective Time, Global One shall enter into indemnification
agreements in form and substance reasonably satisfactory to KRSI, OSP and
their respective officers and directors with each person who is a director
and officer of KRSI or OSP immediately prior to the Effective Time for the
purpose of indemnifying such persons to the fullest extent permitted under
the DGCL.
(d) Global One shall reimburse all expenses, including reasonable
attorneys' fees, incurred by any person required to enforce the indemnity
and other obligations of Global One under this Section 8.9 if such person is
entitled to reimbursements under the by-laws, the DGCL or any
indemnification agreement.
(e) The directors and officers referred to in Section 8.9(c) above shall
be third party beneficiaries of this Section 8.9, and the rights under this
Section 8.9 shall be in addition to any other rights under Minnesota law,
Delaware law or otherwise. In addition, the directors and officers of KRSI
referred to in Section 8.9(c) above shall be third party beneficiaries of
the representations, warranties and covenants of Global One, OSP and the OSP
Shareholders made in this Agreement, and the directors and officers of
Global One and OSP referred to in Section 8.9(c) above shall be third party
beneficiaries of the representations, warranties and covenants of KRSI made
in this Agreement. This Section 8.9 shall survive the consummation of the
Mergers and the Reorganization.
8.10 ESCROW PAYMENTS.
(a) KRSI has delivered to the Escrow Agent the sum of one hundred
thousand dollars ($100,000) to be held pursuant to the Escrow Agreement.
(b) Promptly after the date of execution of this Agreement, but in any
event prior to the Shareholders' Meeting, KRSI shall deliver to the Escrow
Agent an additional sum of one hundred fifty thousand dollars ($150,000).
8.11 EMPLOYMENT CONTRACTS. The parties shall use their respective
reasonable best efforts to cause Global One to enter into employment contracts
to be effective as of the Effective Time with George J. Vrabeck, Angard and Malm
in substantially the form attached hereto as Exhibits 8.11-1, 8.11-2 and 8.11-3,
respectively.
8.12 INDEMNIFICATION.
(a) INDEMNIFICATION BY GLOBAL ONE AND OSP. Subject to the limitations
set forth in Section 8.12(b) below, Global One and OSP, jointly and
severally, shall indemnify and hold KRSI harmless at all times from and
after the date of this Agreement against and in respect of all damages,
losses, costs and expenses (including reasonable attorney fees) which KRSI
may suffer or incur in connection with any material breach by Global One or
OSP of any of their respective representations, warranties or covenants in
this Agreement.
(b) LIMITATION OF LIABILITY OF GLOBAL ONE AND OSP. KRSI shall not
assert any claim under Section 8.12(a) above unless and until such claims
exceed an aggregate of $50,000 and any claim under Section 8.12(a) above
must be asserted within one year from the Effective Time or be
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forever barred. The rights of KRSI with respect to any claims arising under
Section 8.12(a) above shall be limited to recovery of actual losses, costs
and expenses (including reasonable attorney fees).
(c) INDEMNIFICATION BY THE OSP SHAREHOLDERS. Subject to the
limitations set forth in Section 8.12(d) below, the OSP Shareholders,
jointly and severally, shall indemnify and hold KRSI harmless at all times
from and after the date of this Agreement against and in respect of all
damages, losses, costs and expenses (including reasonable attorney fees)
which KRSI may suffer or incur in connection with any material breach by the
OSP Shareholders of any of their respective representations, warranties or
covenants in this Agreement.
(d) LIMITATION OF LIABILITY OF THE OSP SHAREHOLDERS. KRSI shall not
assert any claim under Section 8.12(c) above unless and until such claims
exceed an aggregate of $50,000 and any claim under Section 8.12(c) above
must be asserted within one year from the Effective Time or be forever
barred. The rights of KRSI with respect to any claims arising under Section
8.12(c) above shall be limited to recovery of actual losses, costs and
expenses (including reasonable attorney fees).
(e) INDEMNIFICATION BY KRSI. Subject to the limitations set forth in
Section 8.12(f) below, KRSI shall indemnify and hold Global One, OSP and the
OSP Shareholders harmless at all times from and after the date of this
Agreement, against and in respect of all losses, damages, costs and expenses
(including reasonable attorney fees) which Global One, OSP or the OSP
Shareholders may suffer or incur in connection with any material breach by
KRSI of any of its representations, warranties or covenants in this
Agreement.
(f) LIMITATION OF LIABILITY OF KRSI. Global One, OSP and the OSP
Shareholders shall not assert any claim under Section 8.12(e) above unless
and until such claims exceed an aggregate of $50,000 and any claim under
Section 8.12(e) above must be asserted within one year from the Effective
Time or be forever barred. The rights of Global One, OSP and the OSP
Shareholders with respect to any claims arising under Section 8.12(e) above
shall be limited to recovery of actual losses, costs and expenses (including
reasonable attorney fees).
(g) THIRD PARTY CLAIMS. If a claim by a third party is made against
any of the indemnified parties, and if any of the indemnified parties
intends to seek indemnity with respect to such claim under this Section
8.12, such indemnified party shall promptly notify the indemnifying party of
such claim. The indemnifying party shall have thirty (30) days after receipt
of the above-mentioned notice to undertake, conduct and control, through
counsel of such party's own choosing (subject to the consent of the
indemnified party, such consent not to be unreasonably withheld) and at such
party's expense, the settlement or defense of it, and the indemnified party
shall cooperate with the indemnifying party in connection with such efforts;
provided that: (i) the indemnifying party shall not by this Agreement permit
to exist any lien, encumbrance or other adverse charge upon any asset of any
indemnified party, (ii) the indemnifying party shall permit the indemnified
party to participate in such settlement or defense through counsel chosen by
the indemnified party, provided that the fees and expenses of such counsel
shall be borne by the indemnified party, and (iii) the indemnifying party
shall agree promptly to reimburse the indemnified party for the full amount
of any loss resulting from such claim and all related expense incurred by
the indemnified party pursuant to this Section. So long as the indemnifying
party is reasonably contesting any such claim in good faith, the indemnified
party shall not pay or settle any such claim. If the indemnifying party does
not notify the indemnified party within thirty (30) days after receipt of
the indemnified party's notice of a claim of indemnity under this Section
that such party elects to undertake the defense of such claim, the
indemnified party shall have the right to contest, settle or compromise the
claim in the exercise of the indemnified party's exclusive discretion at the
expense of the indemnifying party.
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ARTICLE IX -- CONDITIONS TO THE MERGERS
9.1 CONDITIONS OF THE PARTIES' OBLIGATIONS TO EFFECT THE KRSI MERGER. The
respective obligations of KRSI Acquisition and KRSI to consummate the KRSI
Merger are subject to the satisfaction, on or prior to the Closing, of the
following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the KRSI Merger shall
have been approved by the affirmative vote of the holders of a majority of
shares of outstanding KRSI Common Stock in accordance with the MNBCA and the
articles of incorporation and by-laws of KRSI.
(b) THE OFFERING. The Offering shall have been completed in such a
manner that Global One shall have received, or shall receive simultaneous
with the Closing, gross proceeds from the Offering of at least $6,000,000.
(c) GOVERNMENTAL ENTITY APPROVALS. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expiration of
waiting periods imposed by, any Governmental Entity necessary for the
consummation of the transactions contemplated by this Agreement shall have
been filed, expired or been obtained.
(d) REGISTRATION STATEMENT; PROXY STATEMENT. The Registration
Statement shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceedings seeking a stop order and the
Proxy Statement shall not at the Effective Time be subject to any
proceedings commenced or threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the Mergers, the Offering, the
Reorganization or any other transaction contemplated by this Agreement shall
be in effect.
(f) STATUTES. No action shall have been taken, and no statute, rule,
regulation or order shall have been enacted, promulgated or issued or deemed
applicable to any part of the Reorganization by any Governmental Entity
which would (i) make the consummation of any part of the Reorganization
illegal or (ii) render OSP, BEx or KRSI unable to consummate any portion of
the Reorganization, except for any waiting period provisions.
(g) The BEx Merger and the OSP Merger shall have been completed.
9.2 CONDITIONS OF OBLIGATION OF KRSI. The obligation of KRSI to consummate
the KRSI Merger is subject to the satisfaction, upon or prior to the Closing, of
the following conditions, unless waived by KRSI.
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Global One, BEx, OSP and the OSP Shareholders set forth in this
Agreement, without regard to any qualification or reference to immateriality
or "Material Adverse Effect," shall be true and correct in all respects as
of the Closing Date, as though made on and as of such date (provided that
those representations or warranties made as of a particular date need only
be true and correct as of such date), except for any inaccuracies which,
individually or in the aggregate, have not had, and would not have, a
Material Adverse Effect on Global One, OSP or any of their subsidiaries;
provided, however, that there shall be deemed not to be such a Material
Adverse Effect to the extent that such effect is the result of conditions or
factors affecting the economy generally or the industry in which Global One
or OSP operates or the result of the announcement of the Reorganization or
actions taken in contemplation thereof. KRSI shall have received a
certificate signed on behalf of Global One by the chief executive officer
and chief financial officer of Global One to such effect with regard to
Global One, and a certificate signed on behalf of OSP by the chief executive
officer and chief financial officer of OSP to such effect with regard to
OSP.
(b) PERFORMANCE OF OBLIGATIONS OF GLOBAL ONE AND OSP. Global One, OSP
and BEx shall have performed in all material respects all obligations and
covenants required to be performed by
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them under this Agreement prior to or as of the Closing Date, unless waived
in writing by KRSI, and KRSI shall have received a certificate signed on
behalf of Global One by the chief executive officer and the chief financial
officer of Global One to such effect with regard to Global One, and a
certificate signed on behalf of OSP by the chief executive officer and the
chief financial officer of OSP to such effect with regard to OSP.
(c) CONSENTS. The consents, approvals and authorizations described (or
required to be described) on Schedule 5.5 hereto shall have been obtained in
form and in substance reasonably satisfactory to KRSI, except for such
consents, approvals and authorizations with respect to which the failure to
obtain would not have a Material Adverse Effect on Global One, OSP, their
respective subsidiaries or the Acquisition Companies.
(d) FAIRNESS OPINION. KRSI shall have received from the KRSI Financial
Advisor an opinion in form and substance reasonably satisfactory to KRSI
that the merger of KRSI and KRSI Acquisition and the other transactions
contemplated by the Reorganization and this Agreement are fair to the
shareholders of KRSI from a financial point of view; provided, however, that
the condition set forth in this Section 9.2(d) shall be deemed satisfied if
KRSI fails to use all commercially reasonable efforts to obtain such
fairness opinion.
9.3 CONDITIONS OF OBLIGATION OF KRSI ACQUISITION. The obligation of KRSI
Acquisition to effect the KRSI Merger is subject to the satisfaction, upon or
prior to the Closing, of the following conditions, unless waived by KRSI
Acquisition:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of KRSI set forth in this Agreement, without regard to any qualification or
reference to immateriality or "Material Adverse Effect," shall be true and
correct in all respects as of the Closing Date, as though made on and as of
such date (provided that those representations or warranties made as of a
particular date need only be true and correct as of such date), except for
any inaccuracies which, individually or in the aggregate, have not had, and
would not have, a Material Adverse Effect on KRSI; provided, however, that
there shall be deemed not to be such a Material Adverse Effect to the extent
that such effect is the result of conditions or factors affecting the
economy generally or the industry in which KRSI operates or the result of
the announcement of the Mergers or actions taken in contemplation thereof.
OSP shall have received a certificate signed on behalf of KRSI by the chief
executive officer and the chief financial officer of KRSI to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF KRSI. KRSI shall have performed in
all material respects all obligations and covenants required to be performed
by them under this Agreement prior to or as of the Closing Date, unless
waived in writing by OSP and/or the OSP Shareholders, and OSP shall have
received a certificate signed on behalf of KRSI by the chief executive
officer and the chief financial officer of KRSI to such effect.
(c) CONSENTS. The consents, approvals and authorizations described (or
required to be described on Schedules 5.5 and 6.5 hereto) on Schedules 5.5
and 6.5 hereto shall have been obtained in form and substance reasonably
satisfactory to OSP, except for such consents, approvals and authorizations
with respect to which the failure to obtain would not have a Material
Adverse Effect on KRSI or KRSI Acquisition.
(d) REVIEW OF KRSI SECURITIES. OSP shall have received a letter from
KRSI's independent auditors or legal counsel indicating (i) the number of
shares of KRSI Common Stock that have been authorized for issuance by the
board of directors of KRSI as set forth in the minutes in the KRSI minute
book and (ii) the number of shares of KRSI Common Stock subject to warrants
and options to purchase them that have been authorized by the board of
directors of KRSI as set forth in the minutes in the KRSI minute book.
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ARTICLE X -- TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. This Agreement may be terminated and the Reorganization
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval of this Agreement and the Reorganization by the shareholders
of KRSI:
(a) by mutual written consent of KRSI and OSP; or
(b) by either KRSI or OSP if either (i) the Effective Time shall not
have occurred on or before August 31, 1996; provided, however, that the
right to terminate this Agreement under this Section 10.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date, or (ii) there shall be any
law that makes consummation of any part of the Reorganization illegal or
otherwise prohibited or if any court of competent jurisdiction or
Governmental Entity shall have issued an order, decree, ruling or taken any
other action restraining, enjoining or otherwise prohibiting any part of the
Reorganization and such order, decree, ruling or other action shall have
become final and unappealable; provided that the party seeking to terminate
this Agreement pursuant to this subsection (b)(ii) shall have complied with
its obligations under Section 8.7 above; or
(c) by OSP, if (i) the Board of Directors of KRSI withdraws, modifies or
changes its recommendation of this Agreement or any part of the
Reorganization in a manner adverse to OSP or shall have resolved to do any
of the foregoing or the Board of Directors of KRSI shall have recommended to
the shareholders of KRSI any Competing Transaction or resolved to do so,
(ii) KRSI receives an unsolicited proposal that constitutes a Competing
Transaction and the Board of Directors of KRSI, within 30 calendar days
after such proposal is received by KRSI, either fails to terminate
discussions with the maker of such proposal and its agents, or determines to
accept, or takes no position with respect to, such proposal, (iii) a tender
offer or exchange offer for 25% or more of the outstanding shares of KRSI
Common Stock is commenced, and the Board of Directors of KRSI, within 10
business days after such tender offer or exchange offer is so commenced,
either fails to recommend against acceptance of such tender offer or
exchange offer by its shareholders or takes no position with respect to the
acceptance of such tender offer or exchange offer by its shareholders or
(iv) any person shall have acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) shall have been formed which beneficially owns, or
has the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of KRSI Common Stock (excluding for this purpose holdings
of shares by persons or groups as currently reflected in filings with the
SEC under Section 13(d)); or
(d) by KRSI, if the Board of Directors of KRSI shall have recommended or
resolved to recommend to the shareholders of KRSI a proposal for a Competing
Transaction under circumstances where a majority of such Directors
reasonably determines in good faith, that failure to accept such proposal
would be a breach of the fiduciary duty of such Directors; or
(e) by either KRSI or OSP, if the Shareholders' Meeting shall have been
held and the shareholders of KRSI shall have failed to approve the KRSI
Merger or this Agreement at such meeting (including any adjournment or
postponement thereof); or
(f) by OSP, in the event of a material breach by KRSI of any
representation, warranty, covenant or agreement contained herein which has
not been cured or is not curable on or before August 31, 1996; or
(g) by KRSI, in the event of a material breach by Global One, OSP or the
OSP Shareholders of any representation, warranty, covenant or agreement
contained herein which has not been cured or is not curable on or before
August 31, 1996.
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10.2 CONSEQUENCES OF TERMINATION.
(a) In the event KRSI terminates this Agreement other than in compliance
with Section 10.1 above, or in the event OSP terminates this Agreement in
compliance with the provisions of Section 10.1(b)(i) above because the
Effective Time has not occurred on or before August 31, 1996 as a result of
a material breach of this Agreement by KRSI or in compliance with the
provisions of Section 10.1(e) or (f) above, OSP shall be entitled to all of
the funds held by the Escrow Agent pursuant to the Escrow Agreement as
liquidated damages, and in such event, Global One, OSP and the OSP
Shareholders may not pursue any other remedies at law or equity.
(b) KRSI may pursue any remedies available at law or equity in the event
Global One or OSP terminates this Agreement other than in compliance with
Section 10.1 above, or in the event KRSI terminates this Agreement in
compliance with the provisions of Section 10.1(b)(i) above because the
Effective Time has not occurred on or before August 31, 1996 as a result of
a material breach of this Agreement by Global One, OSP or the OSP
Shareholders or in compliance with the provisions of Section 10.1(g) above.
10.3 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after the approval of the
KRSI Merger and this Agreement by the shareholders of KRSI, no amendment may be
made which would reduce the amount or change the type of consideration to be
received by the shareholders of KRSI or OSP upon consummation of the Mergers.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
10.4 WAIVER. At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any obligation or other act of any
other party hereto, (b) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any agreement or condition contained herein. Any such
extension or waiver shall be valid if set forth in any instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE XI -- GENERAL PROVISIONS
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties in this Agreement and in any instrument delivered pursuant to this
Agreement shall survive for one year following the Effective Time.
11.2 NOTICES. All notices, requests, claims, demands and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be deemed given if delivered personally, by
facsimile, by certified mail (postage prepaid, return receipt requested) or sent
by overnight courier (in each case, providing proof of delivery) to the parties
at the following addresses and/or facsimile numbers set forth at the beginning
of this Agreement (or such other address or facsimile number for a party as
shall be specified in like notice).
11.3 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules hereto) and the other documents referenced herein contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior arrangements and understandings, both written and oral, with
respect thereto.
11.4 SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not
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to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to
such jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
11.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of the other parties hereto.
11.6 PARTIES IN INTEREST. This Agreement shall be binding upon and insure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 8.9 above (which is intended to be for the benefit
of the persons covered by the indemnification provisions contained therein and
may be enforced by such persons).
11.7 ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California or in a California state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of California or
any California state court in the event any dispute arises out of this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or the
transactions contemplated by this Agreement in any court other than a federal
court sitting in the State of California or a California state court.
11.8 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the law of the State of California, without giving effect to the
principles of conflict of laws thereof.
11.9 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
GLOBAL ONE DISTRIBUTION &
MERCHANDISING INC.
By ___________________________________
Name:
Title:
OSP PUBLISHING, INC.
By ___________________________________
Name:
Title:
(signatures continued on next page)
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<PAGE>
O.S.P. ACQUISITION CORP.
By ___________________________________
Name:
Title:
KELLY RUSSELL STUDIOS, INC.
By ___________________________________
Name:
Title:
KRSI ACQUISITION CORP.
By ___________________________________
Name:
Title:
THE BUTTON EXCHANGE, LTD.
By ___________________________________
Name:
Title:
BEx ACQUISITION CORP.
By ___________________________________
Name:
Title:
______________________________________
Joseph C. Angard
______________________________________
Michael A. Malm
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<PAGE>
APPENDIX B
OPINION OF EQUISOURCE
May 23, 1996
Board of Directors
Kelly Russell Studios, Inc.
2905 Northwest Blvd.
Suite 220
Plymouth, Minnesota
Gentlemen:
You have requested The Equisource Group ("Equisource") to render an opinion
as to the fairness, from a financial point of view, to Kelly Russell Studios,
Inc. ("KRSI") and its shareholders of the proposed merger to be effected under
the terms of the Final Amended and Restated Agreement and Plan of Reorganization
between KRSI, Global One Distribution & Merchandising Inc. ("Global One"), KRSI
Acquisition Corp. ("KRSI Acquisition"), O.S.P. Publishing, Inc. ("OSP"), O.S.P.
Acquisition Corp. ("OSP Acquisition"), The Button Exchange, LTD ("BEx"), BEx
Acquisition Corp. ("BEx Acquisition"). Joseph C. Angard and Michael A. Malm,
(the "Agreement").
We understand that under the terms of the Agreement, Global One will
exchange 2,041,187 shares of Global One common stock, representing approximately
15.47% of Global One immediately after completion of the transaction, for all of
the issued and outstanding shares of KRSI's common stock. The Global One shares
issued to the KRSI shareholders will be registered pursuant to a registration
statement filed with the Securities and Exchange Commission under the provisions
of The Securities Act of 1933. After the merger, the existing OSP shareholders
will hold 6,448,088 shares, representing approximately 49.6% of the surviving
company 4,504,234 shares of Global One common stock, representing approximately
34.7% of Global One, will be issued at $1.50 per share to provide financing for
the transaction. Warrants and options for the purchase of 3,187,257 shares of
Global One common stock will be outstanding immediately after closing, 197,069
of which will be exercisable at a nominal price, with the balance to be
exercisable at prices ranging from $1.50 to $8.40 per share.
In arriving at our opinion, we have reviewed, among other information (i)
the Agreement; (ii) audited financial statements for O.S.P. Publishing, Inc. and
Subsidiaries for the years ended December 31, 1994 and 1993, and preliminary
audited consolidated balance sheets as of December 31, 1995 and 1994, and the
related consolidated statements of operations for the three years ended December
31, 1995, prepared by Deloitte & Touche LLP; (iii) audited financial statements
prepared for Kelly Russell Studios, Inc. by McGladrey & Pullen for the three
years ended December 31, 1994, with preliminary audited statements for the year
ended December 31, 1995; (iv) certain financial and operating information
relating to OSP, including forecasts provided by OSP's management and OSP's
financial advisor; (v) certain financial and operating information relating to
KRSI, including forecasts internally provided by KRSI management; (vi) public
market price information and trading volumes for KRSI's common stock from March
31, 1994 to April 3, 1996; (vii) the operating results, financial condition and
market performance of various companies with publicly traded stock and which we
deem to be engaged in businesses similar to those of KRSI and OSP; (viii) such
other information, analyses, investigations and financial, economic and market
criteria we considered relevant.
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In addition to the above described information, we have discussed with the
board of directors and management of KRSI the overall business operations and
future prospects of KRSI in the event the merger is not consummated, and have
held similar discussions with OSP management. With respect to the financial
forecasts, we have assumed that they have been reasonably prepared on the basis
of the best estimates and judgments of KRSI's and OSP's managements as to the
future performance of the respective companies. We have not been provided, nor
have we considered, pro forma combined financial statements based on forecasts.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information, including
financial forecasts provided by the Company and OSP, and have relied on such
information provided by KRSI and OSP being complete and accurate in all material
respects. We have not made an independent evaluation or appraisal of the assets
or liabilities, contingent or otherwise, of KRSI, OSP or OSP's subsidiaries, nor
have we been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon financial, economic, market and other conditions as they
exist and can be evaluated on the date hereof.
We have acted as financial advisor to KRSI in connection with the merger and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the merger.
Our opinion is directed to the Board of Directors of KRSI and does not
constitute a recommendation as to how KRSI's shareholders should vote at the
shareholders' meeting to consider and vote on the proposed merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the proposed merger is fair, from a financial point of view, to
KRSI and its shareholders.
Very truly yours,
The Equisource Group
By: /s/ Robert H. Thurmond III
Robert H. Thurmond III
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APPENDIX C
MINNESOTA BUSINESS CORPORATION ACT
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in
that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund
for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting rights;
except that an amendment to the articles of an issuing public corporation
that provides that section 302A.671 does not apply to a control share
acquisition does not give rise to the right to obtain payment under this
section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in
section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year
after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
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(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3. RIGHTS NOT TO APPLY. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subd. 4. OTHER RIGHTS. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1. DEFINITIONS. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertified shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
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(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. PAYMENT; RETURN OF SHARES. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivision 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
Subd. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or
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shareholders in question have fully complied with the requirements of this
section, and shall determine the fair value of the share, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of the
shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which the
fair value of shares as determined by the court, plus interest, exceeds the
amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to the
dissenter under subdivision 5 exceeds the fair value of the shares as determined
by the court, plus interest.
Subd. 8. COSTS, FEES; EXPENSES. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
Laws 1981, c. 270, Section 81, eff. July 1, 1981. Amended by laws 1987, c. 104,
SectionSection 30 to 33; Laws 1993, c. 17, SectionSection 41, 42.
534337
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eleventh of the Registrant's Certificate of Incorporation provides
that directors of the corporation shall not be personally liable to the
Registrant 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 of the Registrant 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 (the
"Delaware GCL"), as the same exists or may be amended in the future, or (iv) for
any transaction from which the director derived an improper personal benefit. If
the Delaware GCL is amended to authorize the further elimination or limitation
of the liability provided in Article Eleventh, shall be limited to the fullest
extent permitted by the amended Delaware GCL. No amendment to or repeal of
Article Eleventh shall apply to or have an effect on the liability or alleged
liability of any director of the Registrant for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
Article VIII of the Registrant's Bylaws provides, in pertinent part, that
each person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, shall be indemnified
by the Registrant to the full extent permitted by the Delaware GCL or any other
applicable laws. Article VIII also provides that, upon receipt of an undertaking
by an indemnitee to repay such amounts should it ultimately be determined that
the indemnitee is not entitled to be indemnified, the Registrant shall advance
expenses incurred in defending or investigating a threatened or pending action,
suit or proceeding. Article VIII also authorizes the Registrant to enter into
one or more agreements with any person which provides for indemnification
greater or different than that provided for in Article VIII. Article VIII also
authorizes the Registrant to purchase and maintain insurance on behalf of any
person against such liability, whether or not the Registrant would have the
power or the obligation to indemnify such person.
The Registrant intends to enter into indemnification agreements with its
officers and directors in the form incorporated by reference as Exhibit 10.1 to
this Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted pursuant to the foregoing provisions to directors,
officers or persons controlling the Registrant, the Registrant has been informed
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is
therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- --------- ----------------------------------------------------------------------
<C> <S>
2.1 Final Amended and Restated Agreement and Plan of Merger
3(i).1 Certificate of Incorporation of the Registrant
3(ii).1 Bylaws of the Registrant
4.1 Specimen Certificate evidencing shares of Registrant's Common Stock*
5.1 Opinion of Manatt, Phelps & Phillips, LLP*
8.1 Opinion of Manatt, Phelps & Phillips, LLP*
9.1 Voting Trust Agreement between Joseph C. Angard and Michael A. Malm*
10.1 Form of Indemnification Agreement*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- --------- ----------------------------------------------------------------------
<C> <S>
10.2 Global One Distribution & Merchandising Inc. 1996 Stock Option Plan
and form of Stock Option Agreement*
10.3 Form of Employment Agreement for Joseph C. Angard
10.4 Form of Employment Agreement for Michael A. Malm
10.5 Form of Employment Agreement for Stanley DeSantis*
10.6 Form of Employment Agreement for George J. Vrabeck
10.7 Loan and Security Agreement between Foothill Capital Corporation and
OSP Publishing, Inc. and The Button Exchange, Ltd.
10.8 Amended and Restated Promissory Note
10.9 Amended and Restated Stock Pledge and Escrow Agreement
10.10 Secured Promissory Note
10.11 Restated Secured Promissory Note and Security Agreement
10.12 Warrants to Purchase Common Stock of OSP Publishing, Inc.
10.13 Lease Agreement
10.14 Form of Stock Purchase and Registration Rights Agreement
10.15 Placement Agent Agreement between Registrant and Miller, Johnson &
Kuehn, Incorporated
10.16 Form of Warrants to Purchase Common Stock of Global One Distribution &
Merchandising Inc.
10.17 Financial Advisory Agreement between Registrant and Mark S. Hauser
dated May 10, 1996
10.18 Financial Advisory Agreement between Registrant and Tamarix Capital
Corporation dated July 25, 1995
10.19 Financial Advisory Agreement between Registrant and Tamarix Capital
Corporation dated May 10, 1996
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of McGladrey & Pullen, LLP
23.3 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1)*
23.4 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 8.1)*
23.5 Consent of The Equisource Group
27 Financial Data Schedule
99.1 Form of Proxy
99.2 Consent of Mark S. Hauser
99.3 Consent of Thomas R. King
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
All OSP schedules are omitted because the required information is not
applicable or is included in the Financial Statements of OSP and the related
notes.
Schedule II to the financial statements of Kelly Russell and the independent
auditors thereon appears at II-4 of the Registration statement.
(c) The opinion of The Equisource Group is attached as Appendix C to the
Prospectus.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(ii) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, Global One has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Item 4 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.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON THE SUPPLEMENTARY INFORMATION
To the Board of Directors
Kelly Russell Studios, Inc.
Plymouth, Minnesota
Our audit of the financial statements of Kelly Russell Studios, Inc.
included schedule II contained herein for the years ended December 31, 1993,
1994 and 1995. In our opinion, such schedule presents fairly the information
required to be set forth therein, in conformity with generally accepted
accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
March 11, 1996
II-4
<PAGE>
SCHEDULE II
KELLY RUSSELL STUDIOS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Deducted in the balance sheets from the assets to which
it applies:
Allowance for doubtful accounts:
Year ended December 31, 1993....................... $ 5,000 $ 15,000 $ -- $ 20,000
Year ended December 31, 1994....................... 20,000 156,000 -- 176,000
Year ended December 31, 1995....................... 176,000 52,000 177,000 51,000
Allowance for sales returns:
Year ended December 31, 1994....................... -- 384,000 -- 384,000
Year ended December 31, 1995....................... 384,000 100,000 374,000 110,000
Deferred tax asset valuation allowance:
Year ended December 31, 1993....................... -- 82,000 -- 82,000
Year ended December 31, 1994....................... 82,000 1,872,000 -- 1,954,000
Year ended December 31, 1995....................... 1,959,000 856,000 -- 2,815,000
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bell, State of
California, on May 23, 1996.
Global One Distribution & Merchandising Inc.
a Delaware corporation
By JOSEPH C. ANGARD
------------------------------------------
Joseph C. Angard,
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
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.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
Chairman of the Board and
JOSEPH C. ANGARD Chief Executive Officer
- ----------------------------------- (Principal Executive May 23, 1996
Joseph C. Angard Officer), Director
Vice President
Christopher B. Lucas and
CHRISTOPHER B. LUCAS Chief Financial Officer
- ----------------------------------- (Principal Financial May 23, 1996
Christopher B. Lucas Officer and Accounting
Officer)
MICHAEL A. MALM
- ----------------------------------- Director May 23, 1996
Michael A. Malm
S-1
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
FINAL AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
KELLY RUSSELL STUDIOS, INC.,
KRSI ACQUISITION CORP.,
OSP PUBLISHING, INC.,
O.S.P. ACQUISITION CORP.,
THE BUTTON EXCHANGE, LTD.,
BEx ACQUISITION CORP.,
JOSEPH C. ANGARD
AND
MICHAEL A. MALM
DATED MAY 24, 1996,
EFFECTIVE AS OF MARCH 27, 1996
- --------------------------------------------------------------------------------
(DOCUMENT INCLUDED IN PROXY STATEMENT/PROSPECTUS AS APPENDIX A)
<PAGE>
EXHIBITS
1.6 BEx Certificates of Merger
1.33 KRSI Certificates of Merger
1.51 OSP Certificates of Merger
2.5(a)-1 Global One Certificate of Incorporation - Included as Exhibit 3(i).1
to Form S-4
2.5(b)-1 Global One By-laws - Included as Exhibit 3(ii).1 to Form S-4
2.5(a)-2 OSP Acquisition Corp. Certificate of Incorporation
2.5(b)-2 OSP Acquisition Corp. By-laws
2.5(a)-3 KRSI Acquisition Corp. Certificate of Incorporation
2.5(b)-3 KRSI Acquisition Corp. By-laws
2.5(a)-4 BEx Acquisition Corp. Certificate of Incorporation
2.5(b)-4 BEx Acquisition Corp. By-laws
2.6-1 Directors of Global One
2.6-2 Officers of Global One
4.1 Placement Agent Agreement between Global One and Miller,
Johnson & Kuehn
8.11-1 Vrabeck Employment Contract - Included as Exhibit 10.3 to Form S-4
8.11-2 Angard Employment Contract - Included as Exhibit 10.4 to Form S-4
8.11-3 Malm Employment Contract - Included as Exhibit 10.6 to Form S-4
SCHEDULES
5.2 OSP Subsidiaries
5.5 OSP Consents
5.9 OSP Related Party Transactions
5.10(b) OSP Common Stock Distributions
5.10(d) OSP Borrowings
5.10(g) OSP Severance Agreements
5.11 OSP Litigation
5.12 OSP Taxes
5.13 OSP Liens
5.15 OSP Plans
5.16 OSP Violations
5.20 OSP Royalties
5.21 OSP Contracts
5.22 OSP Insurance
6.5 KRSI Consents
6.6 KRSI Options and Warrants
6.9 KRSI Related Party Transactions
6.10(d) KRSI Borrowings
6.11 KRSI Litigation
6.13 KRSI Liens
6.15 KRSI Plans
6.16 KRSI Violations
<PAGE>
6.20 KRSI Royalties
6.21 KRSI Contracts
6.22 KRSI Insurance
7.1 Global One and OSP Permitted Actions
7.2 KRSI Permitted Actions
<PAGE>
EXHIBIT 1.6
BEx CERTIFICATES OF MERGER
CERTIFICATE OF MERGER
BEx ACQUISITION CORP., a Delaware corporation, does hereby certify as
follows:
FIRST: The names and states of incorporation of the constituent
corporations are as follows: BEx ACQUISITION CORP., a Delaware corporation
("BEx Acquisition" or the "Surviving Corporation") and THE BUTTON EXCHANGE,
LTD., a Michigan corporation ("BEx" or the "Merging Corporation").
SECOND: A Final Agreement and Plan of Reorganization, dated as of May __,
1996, by and among Global One Distribution & Merchandising Inc., Kelly Russell
Studios, Inc., KRSI Acquisition Corp., O.S.P. Publishing, Inc., O.S.P.
Acquisition Corp., The Button Exchange, Ltd., BEx Acquisition Corp., Joseph C.
Angard and Michael A. Malm (the "Reorganization Agreement") has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with Section 252(c) of the Delaware General
Corporation Law.
THIRD: The name of the Surviving Corporation is "BEx ACQUISITION CORP."
FOURTH: At the Effective Time (as defined in the Reorganization
Agreement), the Certificate of Incorporation of BEx Acquisition will continue to
be the Certificate of Incorporation of the Surviving Corporation, and such
Certificate of Incorporation may thereafter be amended as provided therein and
by the Delaware General Corporation Law.
FIFTH: The executed Reorganization Agreement is on file at the principal
place of business of the Surviving Corporation, 5548 Lindbergh Lane, Bell,
California 90201. A copy of the Reorganization Agreement will be furnished by
the Surviving Corporation on request without cost to any stockholder of any
constituent corporation to the Reorganization Agreement.
SIXTH: The authorized capital stock of each constituent corporation
which is not a Delaware corporation is:
BEx ____________ shares of common stock
IN WITNESS WHEREOF, BEx ACQUISITION CORP., pursuant to the approval
and authority duly given by resolution of its Board of Directors, has caused
this Certificate of Merger to be signed in its corporate name on the
___ day of ______, 1996.
BEx ACQUISITION CORP.
<PAGE>
By:
--------------------------------
Name:
Title:
ATTEST:
By:
--------------------------------
Name:
Secretary
<PAGE>
EXHIBIT 1.33
KRSI CERTIFICATES OF MERGER
CERTIFICATE OF MERGER
KRSI ACQUISITION CORP., a Delaware corporation, does hereby certify as
follows:
FIRST: The names and states of incorporation of the constituent
corporations are as follows: KRSI ACQUISITION CORP., a Delaware corporation
("KRSI Acquisition" or the "Surviving Corporation") and KELLY RUSSELL STUDIOS,
INC., a Minnesota corporation ("KRSI" or the "Merging Corporation").
SECOND: A Final Agreement and Plan of Reorganization, dated as of May __,
1996, by and among Global One Distribution & Merchandising Inc., Kelly Russell
Studios, Inc., KRSI Acquisition Corp., O.S.P. Publishing, Inc., O.S.P.
Acquisition Corp., The Button Exchange, Ltd., BEx Acquisition Corp., Joseph C.
Angard and Michael A. Malm (the "Reorganization Agreement") has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with Section 252(c) of the Delaware General
Corporation Law.
THIRD: The name of the Surviving Corporation is "KRSI ACQUISITION CORP."
FOURTH: At the Effective Time (as defined in the Reorganization
Agreement), the Certificate of Incorporation of KRSI Acquisition will continue
to be the Certificate of Incorporation of the Surviving Corporation, and such
Certificate of Incorporation may thereafter be amended as provided therein and
by the Delaware General Corporation Law.
FIFTH: The executed Reorganization Agreement is on file at the principal
place of business of the Surviving Corporation, 5548 Lindbergh Lane, Bell,
California 90201. A copy of the Reorganization Agreement will be furnished by
the Surviving Corporation on request without cost to any stockholder of any
constituent corporation to the Reorganization Agreement.
SIXTH: The authorized capital stock of each constituent corporation
which is not a Delaware corporation is:
KRSI 10,000,000 shares of common stock
IN WITNESS WHEREOF, KRSI ACQUISITION CORP., pursuant to the approval
and authority duly given by resolution of its Board of Directors, has caused
this Certificate of Merger to be signed in its corporate name on the
___ day of ______, 1996.
KRSI ACQUISITION CORP.
<PAGE>
By:
--------------------------------
Name:
Title:
ATTEST:
By:
--------------------------------
Name:
Secretary
<PAGE>
EXHIBIT 1.51
OSP CERTIFICATES OF MERGER
CERTIFICATE OF MERGER
O.S.P. ACQUISITION CORP., a Delaware corporation, does hereby certify
as follows:
FIRST: The names and states of incorporation of the constituent
corporations are as follows: O.S.P. ACQUISITION CORP., a Delaware corporation
("OSP Acquisition" or the "Surviving Corporation") and O.S.P. PUBLISHING, INC.,
a California corporation ("OSP" or the "Merging Corporation").
SECOND: A Final Agreement and Plan of Reorganization, dated as of May __,
1996, by and among Global One Distribution & Merchandising Inc., Kelly Russell
Studios, Inc., KRSI Acquisition Corp., O.S.P. Publishing, Inc., O.S.P.
Acquisition Corp., The Button Exchange, Ltd., BEx Acquisition Corp., Joseph C.
Angard and Michael A. Malm (the "Reorganization Agreement") has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with Section 252(c) of the Delaware General
Corporation Law.
THIRD: The name of the Surviving Corporation is "O.S.P. ACQUISITION
CORP."
FOURTH: At the Effective Time (as defined in the Reorganization
Agreement), the Certificate of Incorporation of OSP Acquisition will continue to
be the Certificate of Incorporation of the Surviving Corporation, and such
Certificate of Incorporation may thereafter be amended as provided therein and
by the Delaware General Corporation Law.
FIFTH: The executed Reorganization Agreement is on file at the principal
place of business of the Surviving Corporation, 5548 Lindbergh Lane, Bell,
California 90201. A copy of the Reorganization Agreement will be furnished by
the Surviving Corporation on request without cost to any stockholder of any
constituent corporation to the Reorganization Agreement.
SIXTH: The authorized capital stock of each constituent corporation
which is not a Delaware corporation is:
OSP ____________ shares of common stock
IN WITNESS WHEREOF, O.S.P. ACQUISITION CORP., pursuant to the approval
and authority duly given by resolution of its Board of Directors, has caused
this Certificate of Merger to be signed in its corporate name on the
___ day of ______, 1996.
O.S.P. ACQUISITION CORP.
<PAGE>
By:
--------------------------------
Name:
Title:
ATTEST:
By:
--------------------------------
Name:
Secretary
<PAGE>
EXHIBIT 2.5(a)-1
GLOBAL ONE CERTIFICATE OF INCORPORATION
Included as Exhibit 3(i).1 to Form S-4.
<PAGE>
EXHIBIT 2.5(b)-1
GLOBAL ONE BY-LAWS
Included as Exhibit 3(ii).1 to Form S-4.
<PAGE>
EXHIBIT 2.5(a)-2
O.S.P. ACQUISITION CORP. CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION OF
O.S.P. ACQUISITION CORP.
A Delaware Corporation
FIRST: The name of the corporation is O.S.P. Acquisition Corp. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, in the City of Dover, County of
Kent, 19901. The name and address of the Corporation's registered agent in the
State of Delaware is National Registered Agents, Inc., 9 East Loockerman Street,
Dover, Delaware 19901.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 2,500 shares of Common Stock, $.01
par value ("Common Stock").
FIFTH: The name and mailing address of the incorporator are as follows:
Kevin F. Donnelly
11355 West Olympic Blvd.
Los Angeles, CA 90064
SIXTH: The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. The exact number of directors of
the Corporation shall be fixed by or in the manner provided in the bylaws of the
Corporation (the "Bylaws").
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly, conferred
upon them by statute;
(b) from time to time to set apart out of any funds or assets of
the Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board of Directors so to do;
<PAGE>
(c) subject to the laws of the State of Delaware, from time to
time to sell, lease or otherwise dispose of any part or parts of the properties
of the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and
by the laws of the State of Delaware conferred upon the Board of Directors, to
execute all such powers and to do all acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the express provisions of
said laws of the Certificate of Incorporation of the Corporation and its Bylaws.
EIGHTH: Each director shall serve until his successor is elected and
qualified or until his death, resignation or removal, and no decrease in the
authorized number of directors shall shorten the term of any incumbent director.
NINTH: Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of the Board of
Directors or by the Chairman of the Board or President or by any person so
authorized by any of the foregoing. Special meetings may not be called by any
other person or persons. Each special meeting shall be held at such date and
time as is requested by the person or persons calling the meeting, within the
limits fixed by law.
TENTH: Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.
ELEVENTH: 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, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Delaware General Corporation Law. No amendment to or repeal of this Article
Eleventh shall apply to or have an effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
TWELFTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, for purposes of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this 15th day of May, A.D. 1996.
-----------------------------------
Kevin F. Donnelly, Incorporator
<PAGE>
EXHIBIT 2.5(b)-2
O.S.P. ACQUISITION CORP. BY-LAWS
BYLAWS
OF
O.S.P. ACQUISITION CORP.
(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.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President, (iii) any Vice President, if there be one, (iv) the
Secretary or (v) any Assistant Secretary, if there be one, and shall be called
by any such officer at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the
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purpose or purposes for which the meeting is called shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, 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.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place
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of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than two nor more than five members, the exact number
of which shall initially be fixed by the Incorporator and thereafter from time
to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by 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 successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
SECTION 2. 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, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
SECTION 3. 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 statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
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. 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, if there be one, the President, or any one director. 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 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.
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 entire Board of Directors 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,
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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. 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 the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 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 entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any 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 he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the 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. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. 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. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their
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relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these Bylaws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. 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 President or any Vice President 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.
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SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Bylaws, the Board of Directors or the President. In
the absence or disability of the Chairman of the Board of Directors, or if there
be none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there be
no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) 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. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the Board
of Directors shall designate the officer of the Corporation who, in the absence
of the President or in the event of the inability or refusal of the President to
act, 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.
SECTION 7. 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 President, under whose supervision he shall be. 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
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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 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 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. if required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. 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, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. 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, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 11. 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.
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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 of Directors, 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 him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 3. LOST CERTIFICATES. The 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 his 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 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 his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
SECTION 5. RECORD 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 express consent to corporate action
in writing without a meeting, 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 days nor less than ten days
before the date of such meeting, nor more than sixty 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
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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.
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 his address
as it appears on the records of the 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 or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
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, and may be paid in cash, in property, or in shares of the capital
stock. 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 checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the word
"Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
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SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
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indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term if another enterprise" as used in this Section 4 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VIII. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or
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advancement of expenses may be entitled under any By-Law, agreement, contract,
vote of stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in Sections 1 and 2 of this Article VIII shall be made
to the fullest extent permitted by law. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Sections 1 or 2 of this Article VIII but whom the Corporation has
the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise.
SECTION 8. INSURANCE. 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 or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan 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 or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer of the Corporation serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article VIII, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
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ARTICLE IX
AMENDMENTS
SECTION 1. These Bylaws may be altered, amended or repealed, in whole
or in part, or new Bylaws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and
in these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of O.S.P.
ACQUISITION CORP., a Delaware corporation; and
2. That the foregoing bylaws, comprising 13 pages, constitute the
bylaws of said corporation as duly adopted by action of the Incorporator taken
on __________ __, 1996 and ratified by the Board of Directors of the Corporation
on ___________ __, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this ___ day of _________, 1996.
---------------------------------------------
Michael A. Malm
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EXHIBIT 2.5(a)-3
KRSI ACQUISITION CORP. CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION OF
KRSI ACQUISITION CORP.
A Delaware Corporation
FIRST: The name of the corporation is KRSI Acquisition Corp. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, in the City of Dover, County of
Kent, 19901. The name and address of the Corporation's registered agent in the
State of Delaware is National Registered Agents, Inc., 9 East Loockerman Street,
Dover, Delaware 19901.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 2,500 shares of Common Stock, $.01
par value ("Common Stock").
FIFTH: The name and mailing address of the incorporator are as follows:
Kevin F. Donnelly
11355 West Olympic Blvd.
Los Angeles, CA 90064
SIXTH: The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. The exact number of directors of
the Corporation shall be fixed by or in the manner provided in the bylaws of the
Corporation (the "Bylaws").
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly, conferred
upon them by statute;
(b) from time to time to set apart out of any funds or assets of
the Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board of Directors so to do;
(c) subject to the laws of the State of Delaware, from time to
time to sell, lease or otherwise dispose of any part or parts of the properties
of the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
<PAGE>
(d) in addition to the powers and authorities hereinbefore and
by the laws of the State of Delaware conferred upon the Board of Directors, to
execute all such powers and to do all acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the express provisions of
said laws of the Certificate of Incorporation of the Corporation and its Bylaws.
EIGHTH: Each director shall serve until his successor is elected and
qualified or until his death, resignation or removal, and no decrease in the
authorized number of directors shall shorten the term of any incumbent director.
NINTH: Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of the Board of
Directors or by the Chairman of the Board or President or by any person so
authorized by any of the foregoing. Special meetings may not be called by any
other person or persons. Each special meeting shall be held at such date and
time as is requested by the person or persons calling the meeting, within the
limits fixed by law.
TENTH: Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.
ELEVENTH: 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, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Delaware General Corporation Law. No amendment to or repeal of this Article
Eleventh shall apply to or have an effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
TWELFTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, for purposes of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this 15th day of May, A.D. 1996.
-----------------------------------
Kevin F. Donnelly, Incorporator
<PAGE>
EXHIBIT 2.5(b)-3
KRSI ACQUISITION CORP. BY-LAWS
<PAGE>
EXHIBIT 2.5(b)-3
KRSI ACQUISITION CORP. BY-LAWS
BYLAWS
OF
KRSI ACQUISITION CORP.
(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.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President, (iii) any Vice President, if there be one, (iv) the
Secretary or (v) any Assistant Secretary, if there be one, and shall be called
by any such officer at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than
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sixty days before the date of the meeting to each stockholder entitled to vote
at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, 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.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place
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of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than two nor more than five members, the exact number
of which shall initially be fixed by the Incorporator and thereafter from time
to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by 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 successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
SECTION 2. 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, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
SECTION 3. 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 statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
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. 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, if there be one, the President, or any one director. 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 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.
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 entire Board of Directors shall constitute
a quorum for the transaction of business and the act
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<PAGE>
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. 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 the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 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 entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any 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 he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the 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. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. 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. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or
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<PAGE>
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these Bylaws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. 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 President or any Vice President 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
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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.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Bylaws, the Board of Directors or the President. In
the absence or disability of the Chairman of the Board of Directors, or if there
be none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there be
no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) 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. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the Board
of Directors shall designate the officer of the Corporation who, in the absence
of the President or in the event of the inability or refusal of the President to
act, 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.
SECTION 7. 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
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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 President,
under whose supervision he shall be. 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 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 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. if required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. 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, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the
Secretary.
SECTION 10. ASSISTANT TREASURERS. 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, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers,
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vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 11. 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 of Directors, 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 him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 3. LOST CERTIFICATES. The 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 his 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 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 his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
SECTION 5. RECORD 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
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thereof, or entitled to express consent to corporate action in writing without a
meeting, 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 days nor less than ten days before the date of such
meeting, nor more than sixty 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.
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 his address
as it appears on the records of the 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 or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
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, and may be paid in cash, in property, or in shares of the capital
stock. 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 checks or demands for money and notes
of the
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Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the word
"Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that,
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despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term if another enterprise" as used in this Section 4 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VIII. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder
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shall be a defense to such application or create a presumption that the
director, officer, employee or agent seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the Corporation promptly upon the
filing of such application. If successful, in whole or in part, the director,
officer, employee or agent seeking indemnification shall also be entitled to be
paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
SECTION 8. INSURANCE. 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 or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan 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 or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer of the Corporation serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or
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surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Article VIII, references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE IX
AMENDMENTS
SECTION 1. These Bylaws may be altered, amended or repealed, in whole
or in part, or new Bylaws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and
in these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of KRSI
ACQUISITION CORP., a Delaware corporation; and
2. That the foregoing bylaws, comprising 13 pages, constitute the
bylaws of said corporation as duly adopted by action of the Incorporator taken
on __________ __, 1996 and ratified
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by the Board of Directors of the Corporation on ___________ __, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this ___ day of _________, 1996.
---------------------------------------------
Michael A. Malm
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EXHIBIT 2.5(a)-4
BEx ACQUISITION CORP. CERTIFICATE OF INCORPORATION
CERTIFICATE OF INCORPORATION OF
BEx ACQUISITION CORP.
A Delaware Corporation
FIRST: The name of the corporation is BEx Acquisition Corp. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, in the City of Dover, County of
Kent, 19901. The name and address of the Corporation's registered agent in the
State of Delaware is National Registered Agents, Inc., 9 East Loockerman Street,
Dover, Delaware 19901.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 2,500 shares of Common Stock, $.01
par value ("Common Stock").
FIFTH: The name and mailing address of the incorporator are as follows:
Kevin F. Donnelly
11355 West Olympic Blvd.
Los Angeles, CA 90064
SIXTH: The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. The exact number of directors of
the Corporation shall be fixed by or in the manner provided in the bylaws of the
Corporation (the "Bylaws").
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(e) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly, conferred
upon them by statute;
(f) from time to time to set apart out of any funds or assets of
the Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve so
created and to determine whether any, and, if any, what part, of the surplus of
the Corporation or its net profits applicable to dividends shall be declared in
dividends and paid to its stockholders, and all rights of the holders of stock
of the Corporation in respect of dividends shall be subject to the power of the
Board of Directors so to do;
(g) subject to the laws of the State of Delaware, from time to
time to sell, lease or otherwise dispose of any part or parts of the properties
of the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
<PAGE>
(h) in addition to the powers and authorities hereinbefore and
by the laws of the State of Delaware conferred upon the Board of Directors, to
execute all such powers and to do all acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the express provisions of
said laws of the Certificate of Incorporation of the Corporation and its Bylaws.
EIGHTH: Each director shall serve until his successor is elected and
qualified or until his death, resignation or removal, and no decrease in the
authorized number of directors shall shorten the term of any incumbent director.
NINTH: Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of the Board of
Directors or by the Chairman of the Board or President or by any person so
authorized by any of the foregoing. Special meetings may not be called by any
other person or persons. Each special meeting shall be held at such date and
time as is requested by the person or persons calling the meeting, within the
limits fixed by law.
TENTH: Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.
ELEVENTH: 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, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Delaware General Corporation Law. No amendment to or repeal of this Article
Eleventh shall apply to or have an effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
TWELFTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, for purposes of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this 15th day of May, A.D. 1996.
-----------------------------------
Kevin F. Donnelly, Incorporator
<PAGE>
EXHIBIT 2.5(b)-4
BEx ACQUISITION CORP. BY-LAWS
BYLAWS
OF
BEx ACQUISITION CORP.
(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.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President, (iii) any Vice President, if there be one, (iv) the
Secretary or (v) any Assistant Secretary, if there be one, and shall be called
by any such officer at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the
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purpose or purposes for which the meeting is called shall be given not less than
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, 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.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten 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
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place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than two nor more than five members, the exact number
of which shall initially be fixed by the Incorporator and thereafter from time
to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected by 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 successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
SECTION 2. 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, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
SECTION 3. 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 statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
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. 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, if there be one, the President, or any one director. 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 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.
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
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of the entire Board of Directors 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. 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 the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 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 entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any 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 he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the 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. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. 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. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other
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corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (i) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these Bylaws. The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
SECTION 3. 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 President or any Vice President 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
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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.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Bylaws, the Board of Directors or the President. In
the absence or disability of the Chairman of the Board of Directors, or if there
be none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there be
no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) 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. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If
there be no Chairman of the Board of Directors and no Vice President, the Board
of Directors shall designate the officer of the Corporation who, in the absence
of the President or in the event of the inability or refusal of the President to
act, 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.
SECTION 7. 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
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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 President, under whose supervision he shall be. 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 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 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. if required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. 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, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. 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, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the
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Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 11. 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 of Directors, 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 him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 3. LOST CERTIFICATES. The 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 his 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 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 his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may determine
the
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stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, 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 days nor less than ten days
before the date of such meeting, nor more than sixty 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.
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 his address
as it appears on the records of the 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 or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
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, and may be paid in cash, in property, or in shares of the capital
stock. 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.
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SECTION 2. DISBURSEMENTS. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the word
"Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of
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Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term if another enterprise" as used in this Section 4 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VIII. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
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specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
SECTION 8. INSURANCE. 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 or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan 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 or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer of the Corporation serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand
12
<PAGE>
in the same position under the provisions of this Article VIII with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes
of this Article VIII, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE IX
AMENDMENTS
SECTION 1. These Bylaws may be altered, amended or repealed, in whole
or in part, or new Bylaws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors then
in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and
in these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of BEx
ACQUISITION CORP., a Delaware corporation; and
2. That the foregoing bylaws, comprising 13 pages, constitute the
bylaws of said corporation as duly adopted by action of the Incorporator taken
on __________ __, 1996 and ratified
13
<PAGE>
by the Board of Directors of the Corporation on ___________ __, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation this ___ day of _________, 1996.
---------------------------------------------
Michael A. Malm
14
<PAGE>
EXHIBIT 2.6-1
GLOBAL ONE/KRSI/OSP
AGREEMENT AND PLAN OF REORGANIZATION
INITIAL DIRECTORS OF GLOBAL ONE
Joseph C. Angard (Term to expire in 1999)
Michael A. Malm (Term to expire in 1999)
Mark S. Hauser (Term to expire in 1998)
Thomas R. King (Term to expire in 1998)
<PAGE>
EXHIBIT 2.6-2
GLOBAL ONE/KRSI/OSP
AGREEMENT AND PLAN OF REORGANIZATION
INITIAL OFFICERS OF GLOBAL ONE
Joseph C. Angard (Chief Executive Officer and President)
Michael A. Malm (Chief Operating Officer)
Christopher B. Lucas (Vice President of Finance and Chief Financial
Officer)
George J. Vrabeck (Executive Vice President)
<PAGE>
EXHIBIT 8.11-1
VRABECK EMPLOYMENT CONTRACT
INCLUDED AS EXHIBIT 10.3 TO FORM S-4
<PAGE>
EXHIBIT 8.11-2
ANGARD EMPLOYMENT CONTRACT
INCLUDED AS EXHIBIT 10.4 TO FORM S-4
<PAGE>
EXHIBIT 8.11-3
MALM EMPLOYMENT CONTRACT
INCLUDED AS EXHIBIT 10.6 TO FORM S-4
<PAGE>
SCHEDULE 5.2
OSP SUBSIDIARIES
The Button Exchange, Ltd. -- Michigan
Stanley DeSantis, Inc. -- California
OSP owns Five Hundred Ten (510) shares of Stanley DeSantis, Inc. Five Hundred
(500) shares have been pledged to Senoral Corporation.
<PAGE>
SCHEDULE 5.5
OSP CONSENTS
LICENSORS
All licensors as listed in Schedule 5.20.
SENIOR LENDER
Foothill Capital Corporation
SUBORDINATED NOTE HOLDER
Robert Yamasaki
Senoral Corporation
<PAGE>
SCHEDULE 5.9
OSP RELATED PARTY TRANSACTIONS
OSP PUBLISHING, INC.
Press One Printing, Inc
Paradise Creations
Pyramid Licensing Group, Inc.
EMPLOYMENT AGREEMENTS
Mike Berin
Mark Roginson
STANLEY DESANTIS, INC.
RPI
EMPLOYMENT AGREEMENTS
Stanley DeSantis
<PAGE>
SCHEDULE 5.10(b)
OSP COMMON STOCK DISTRIBUTIONS
None
<PAGE>
SCHEDULE 5.10(d)
OSP BORROWINGS
Richman Bry, Jr. has pledged $500,000 to Foothill Capital Corporation so that
OSP may borrow against this collateral.
Senoral Corporation has loaned $750,000 to OSP in the form of subordinated debt.
OSP has guaranteed Pyramid Licensing's performance under a lease agreement for
which the annual commitment is $46,000.
<PAGE>
SCHEDULE 5.10(g)
OSP SEVERANCE AGREEMENTS
1. Severance Agreement dated April 1, 1996 between OSP and Wesley Knitter
providing for: a severance allowance equal to five months of gross wages in
the amount of $41,677 less applicable payroll taxes; medical, dental and
optical insurance through December 31, 1996; payment of $5,000 representing
compensation in full for all claims and bonuses; and executive outplacement
services for six months.
<PAGE>
SCHEDULE 5.11
OSP LITIGATION
O.S.P PUBLISHING, INC.
WINSTON WILLIAM FRANK VS. O.S.P. PUBLISHING, INC.
Mr. Frank alleges personal copyright infringement on model molds he designed
on company time from licensed, copywrited drawings supplied by his superior.
The complaint is under legal review. Our attorneys feel that the complaint is
without merit.
SPUMCO, INC. ET AL VS. MTV NETWORKS, INC. ET AL.
Spumco has filed a lawsuit against Nickelodeon naming O.S.P. Publishing, Inc.
as a defendant. Spumco contends that that they have an exclusive right to
exploit all merchandising rights with respect to "The Ren & Stimpy Show."
Nickelodeon contends that Spumco may do so only with respect to any product
category for which Nickelodeon had not previously exploited. Nickelodeon
feels that the suit is without merit, is vigorously defending their
relationship with O.S.P. Publishing, Inc., and will indemnify all obligations
under the present agreement. O.S.P. Publishing, Inc. has retained counsel.
THE BUTTON EXCHANGE, LTD.
I.D.D.S. WORLD COM., & CORP. VS. THE BUTTON EXCHANGE LTD.
The Button Exchange, LTD. considers this matter to have been settled with the
previous owners of I.D.D.S. World Com. (WinTel, Inc.) The lawsuit is for the
disputed accounts payable amount of $4398.49.
STANLEY DESANTIS, INC.
No litigation pending
<PAGE>
SCHEDULE 5.12
OSP TAXES
The Button Exchange, Ltd has not filed its federal or state income tax
returns for its tax year ended February 28, 1995. The taxes owing are
approximately $165,000 plus interest and penalties.
<PAGE>
SCHEDULE 5.13
OSP LIENS
OSP PUBLISHING, INC.
Foothill Capital Corporation
Robert Yamasaki
Senoral Corporation
THE BUTTON EXCHANGE, LTD.
Foothill Capital Corporation
STANLEY DESANTIS, INC.
Capital Factors, Inc.
Other than the above listed security interests, there are purchase money
liens against office equipment and machinery such as telephone systems,
computers, copiers, etc.
<PAGE>
SCHEDULE 5.15
OSP PLANS
O.S.P. PUBLISHING, INC.
There are no qualified defined benefit plans as defined under Section 3(35)
of ERISIA or Sections 414(j) of the Code.
THE BUTTON EXCHANGE, LTD.
There are no qualified defined benefit plans as defined under Section 3(35)
of ERISIA or Sections 414(j) of the Code.
STANLEY DESANTIS, INC.
There are no qualified defined benefit plans as defined under Section 3(35) of
ERISIA or Sections 414(j) of the Code.
<PAGE>
SCHEDULE 5.16
OSP VIOLATIONS
O.S.P. PUBLISHING, INC.
O.S.P. Publishing, Inc. is in material compliance with all laws, statutes,
ordinances, or regulations from government entities. No notice of violations
or noncompliance of any have been received and none are anticipated.
THE BUTTON EXCHANGE, LTD.
The Button Exchange, Ltd., is in material compliance with all laws, statutes,
ordinances, or regulations from government entities. No notice of violations
or noncompliance of any have been received and none are anticipated.
STANLEY DESANTIS, INC.
Stanley Desantis, Inc., is in material compliance with all laws, statutes,
ordinances, or regulations from government entities. No notice of violations
or noncompliance of any have been received and none are anticipated.
<PAGE>
SCHEDULE 5.20
OSP ROYALTIES
O.S.P. PUBLISHING, INC.
Ace Ventura II:When Nature Calls/
Camelot Licensing
Aeon Flux
Albert Einstein/Roger Richman Agency
Alchemy/M.R.A.
Avi Feldman
Babe/MCA Universal
Babe Ruth/Curtis Management
Bananas in Pajamas/Total Licensing
Barb Wire
Batman Forever/Warner Bros.
Batman Forever/Warner Bros.
Baywatch/Licensing Group Agency
Beauty & the Beast (stage)/Walt Disney
Beavis & Butt-Head/MTV Networks
Betty Boop/King Features
Black Panther/Chris Meiklejohn
Blown Away/MGM
Bob Marley/Winterland
Brady Bunch Movie/Viacom
Bruce Lee/MCA Universal
Bull Durham
Bump In The Night/DIC Entertainment
Busy World of Richard Scarry/Viacom
Caesars Palace/Caesars World
Capital Concepts
Casper/MCA Universal
Cesar Chavez
Charlie Chaplin/Bliss House
Claudia Schiffer
Clifford the Big Red Dog/Scholastic
Coca-Cola
Cystal Art
Dances with Wolves
Days of Our Lives/Sony Signatures
DC Comics
Desperado/Sony Signatures
Diego Espana/Viacom
Disney Babies/Walt Disney
Disney Standard Characters/Walt Disney
Doobie & Buzz/Mr. Doobie & Buzz
Dragonheart/MCA
Elvis Presley/Elvis Presley Enterprises
Empire Strikes Back, The/Lucas Film
Felix the Cat/Determined Productions
Firm, The/Viacom
Flipper/MCA
Forrest Gump/Viacom
Free Willy 2/Animated/Warner Bros.
Friends/Warner Bros.
<PAGE>
Gargoyles/Walt Disney
Girls of Hawaiian Tropic/Hawaiian
Tropics
Gone with the Wind/Keewon Hong
Gone With the Wind/Turner
Goosebumps/Scholastic
Great Treasure Hunt, The/Russo/David
Golman Agency
Happy Gilmore/MCA
Herd of Laughter/Wooket Graphics
Hidden Eagles
Hollywood Sign/Walk of Fame
Hunchback of Notre Dame/Walt Disney
I Am the American Flag
I Love Lucy/Promote You
Independence Day/20th Century Fox
Indiana Jones & the Last Crusade/Lucas
Film
Indiana Jones & the Temple of Doom/
Lucas Film
Indiana Jones:Raiders of the Lost Ark/
Lucas Film
Interview With a Vampire/Warner Bros.
It's a Wonderful Life/Hamilton Projects
James Bond 007/Leasure Concepts
James Bond:Goldeneye/Leisure Concepts
James Bond:Goldeneye/Leisure Concepts
James Dean/Curtis Management Group
Jerky Boys, The/Select Records
Joe's Apartment/Warner Bros.
John Abeyta/Saddles & Hay Man
Legend of Pinocchio/Leisure Concepts
Legends of the Fall/Sony Signatures
Lion King, The/Walt Disney
Lobo/Warner Bros.
Looney Tunes/Warner Bros.
Lou Gehrig/Curtis Management
Madeline/DIC Entertainment
Magic School Bus, The/Scholastic
Productions
Marilyn Monroe/De Dienes
Marilyn Monroe/Keewon Hong
Marilyn Monroe/Kurtis Management
Marilyn Monroe Postage Stamp/Kurtis
Management
Marvel Entertainment Group, Inc.
Mary Shelley's Frankenstein/Sony
Signatures
Melrose Place/Hamilton Projects
MIAD/Dennis Fugnetti
Mr. Potato Head/Hasbro, Inc.
Mustang Lightning/Zuckerman
Mystery Science Theater 3000/MCA
Nickelodeon 3-D
No Fear
Pamela Anderson:Edenquest
Peanuts/United Media Licensing
<PAGE>
Playboy
Pocahontas/Walt Disney
Raiders of the Lost Ark/Lucas Film
Reboot/Total Licensing
Red Dog Beer/Determined Prod.
Ren & Stimpy/MTV
Return of the Jedi/Lucas Film
Rocky/MGM
Rocky Horror Picture Show/20th Century
Rocky Horror Picture Show/20th Century
Fox
Rugrats/Nickelodeon
Russian Revolution/Vail Group
Sandman/Warner Bros.
Scott Garrison
Selena/Q Productions
Shar Pei/"Ruffles"/Applied Graphics
Showgirls/MGM
Simpsons, The/20th Century Fox
Sister Sister/Viacom
Some Like It Hot/MGM
Space Cowgirl/Julie Bell/Alask Momma
Space Jam/Warner Bros.
Space:Above and Beyond/20th Century
Fox
Star Trek II/Viacom
Star Trek III/Viacom
Star Trek IV/Viacom
Star Trek V/Viacom
Star Trek VI/Viacom
Star Trek:Generations/Viacom
Star Trek:Generations/Viacom
Star Trek:Generations/Viacom
Star Trek:Original Series/Viacom
Star Wars/Lucas Film
Strange Days/20 Century Fox
Superman/Warner Bros.
Swan Princess, The/Leisure Concepts
Tales From the Crypt/Nelvana Marketing
Terminator 2, The/Creative Licensing
Terminator, The/Creative Licensing
The Beginners Bible/Performance
Licensing
Thyme Lewis/Thrive, Inc.
Tombstone/Creative Licensing
Traci Lords/Divine Entertainment
True Lies/20th Century Fox
Turner Classics
Unicorn/Susan J. Dane
Victor Trusch
Walk In The Clouds, A/20th Century Fox
WildC.A.T.S./Nelvana Marketing
Willy Mays/Spindlevision
Winning Fitness
Winterland Productions
Wizard of Oz/Turner Home Entertainment
<PAGE>
Wolf Hunt/Steven Gardiner
World Cups/Women of the World
Wyatt Earp/Warner Bros.
X-Files/Fox
Xuxa/MTM Enterprises
Young and the Restless, The/Sony
THE BUTTON EXCHANGE, LTD.
Ace Ventura II:When Nature Calls/Camelot
Licensing
Alchemy/M.R.A.
Animaniacs/Warner Bros.
Bananas in Pajamas/Total Licensing
Batman Forever/Warner Bros.
Batman Forever/Warner Bros.
Baywatch/Licensing Group Agency
Beavis & Butt-Head/MTV Networks
Betty Boop/King Features
Bob Marley/Bob Marley Music
Bruce Lee/MCA Universal
Bull Durham/Creative Licensing
Bump In The Night/DIC Entertainment
Caesars Palace/Caesars World
Casper/MCA Universal
Charlie Chaplin/Bliss House
Clifford the Big Red Dog/Scholastic
Coca-Cola
Days of Our Lives/Sony Signatures
DC Comics
Disney Standard Characters/Walt Disney
Doobie & Buzz/Mr. Doobie & Buzz
Elvis Presley/Elvis Presley Enterprises
Felix the Cat/Determined Productions
Flipper/MCA
Forrest Gump/Viacom
Free Willy 2/Animated/Warner Bros.
Friends/Warner Bros.
Gargoyles/Walt Disney
Herd of Laughter/Wooket Graphics
Hunchback of Notre Dame/Walt Disney
Independence Day/20th Century Fox
Interview With a Vampire/Warner Bros.
James Dean/Curtis Management Group
Jerky Boys, The/Select Records
Joe's Apartment/Warner Bros.
Legend of Pinocchio/Leisure Concepts
Legends of the Fall/Sony Signatures
Lion King, The/Walt Disney
Looney Tunes/Warner Bros.
Lou Gehrig/Curtis Management
Madeline/DIC Entertainment
Magic School Bus, The/Scholastic
Productions
Marilyn Monroe/Curtis Management and
Hamilton Projects
<PAGE>
Marilyn Monroe Postage Stamp/Roger
Richman Agcy
Marvel Entertainment Group, Inc.
Melrose Place/Hamilton Projects
Pocahontas/Walt Disney
Reboot/Total Licensing
Red Dog Beer/Determined Prod.
Ren & Stimpy/MTV
Rocky Horror Picture Show/20th Century
Fox
Rugrats/Nickelodeon
Simpsons, The/20th Century Fox
Space Jam/Warner Bros.
Star Trek:Generations/Viacom
Star Trek:Generations/Viacom
Star Trek:Generations/Viacom
Star Trek:Original Series/Viacom
Superman/Warner Bros.
Swan Princess, The/Leisure Concepts
Terminator 2, The/Creative Licensing
The Beginners Bible/Performance Licensing
WildC.A.T.S./Nelvana Marketing
Winterland Productions
Young and the Restless, The/Sony
Signatures
STANLEY DESANTIS, INC.
Aeon Flux/MTV
Anheiser Busch
Archie/King Features
Barrel of Monkeys/Hasbro
Beach Collection, The
Betty Boop/King Features
Brad Pitt/Sony
Brady Bunch/Paramount
Burger King/Nancy Baily and Assoc.
Leaf Candies/Camelot Licensing
Candyland/Hasbro
Cracker Jack/Leasure Concepts
Disney Toy Story
Droopy and the Wolf/Turner
Ellen/Disney
ER/Warner Bros.
Forest Gump/Paramount
Simpsons/Fox
Frasier/Viacom
Friends/Warner Bros.
GI Joe/Hasbro
Gone With the Wind/Turner
Hanna Barbera/Turner
Hawaiian Punch/Nancy Baily and Assoc.
Herd of Laughter/Wooket Graphics
Home Improvement/Disney
I Love Lucy/Promote You
Jim Benton
<PAGE>
Life/Hasbro
Mad About You/Sony
Marilyn/Curtis Management
MGM Classics/Turner
Monopoly/Hasbro
Mousetrap/Hasbro
Mr. Peanut/Nabisco
Beavis and Butthead/MTV
Mystery Science 3000/MCA
Nancy Sinatra/Boots Ent.
NYPD Blue/Fox
Operations/Hasbro
Pez/Bradford/Licensing
Pink Panther/MGM
Playdoh/Hasbro
Popeye/King Features
Real World/MTV
Red Dog/Hamilton Projects
Ricki Lake/Sony
Seinfeld/Castle Rock
Spam/Licensing Resource
Speed Racer/Speed Racer Enterprises
Star Trek/Viacom
The Nanny/Sony
Twister/Hasbro
Uncle Milton Entertainment
Warner Bros. Song
X-Files/Fox
MCA Classic TV/MCA
<PAGE>
SCHEDULE 5.21
OSP CONTRACTS
A)
O.S.P. PUBLISHING, INC.
Actional, Ltd.
Musicland Group, Inc.
Senoral Corporation
Tamarix Capital Corporation Agreement dated May 10, 1996
Mark D. Hauser Agreement dated May 10, 1996
THE BUTTON EXCHANGE, LTD.
None
B)
O.S.P. PUBLISHING, INC.
Foothill Capital Corporation
Senoral Corporation
Robert Yamasaki
Richman Bry, Jr.
THE BUTTON EXCHANGE, LTD.
Foothill Capital Corporation
STANLEY DESANTIS, INC.
Capital Factors, Inc.
<PAGE>
C)
O.S.P. PUBLISHING, INC.
Building Lease 5548 Lindbergh Lane, Bell, CA
Lessor Newcrow III
Termination Date: 7/05
Annual Payment: $383,092.20*
Building Sublease 5568 Lindbergh Lane, Bell, CA
Lessee: Pacific Communications Concepts, Inc.
Termination Date: 4/97
Annual Payment: ($115,590.84)
THE BUTTON EXCHANGE, LTD.
Building Lease: 200 Diversion Street, Rochester, MI
Lessor: Rochester Commons
Termination Date: 3/98
Annual Payment: $89,592
STANLEY DESANTIS, INC.
Building Lease: 10615 Van Owen Street, Burbank, CA
Lessor: Ralph Slotnik
Termination Date: 9/96
Annual Payment: $60,636.72*
* plus taxes, insurance, operating expenses
D)
O.S.P. PUBLISHING, INC.
Richman Bry, Jr.
The Walt Disney Company Standby Letter of Credit
(guaranteed by O.S.P. Publishing, Inc.)
Building Lease: Rooms 1334, 1336-40 Lincoln Building
60 East 42nd Street, New York, NY
Lessee: Pyramid Licensing Group
Lessor: Lincoln Building Associates
Termination Date: 4/99
Annual Payment: $38,214.00
<PAGE>
THE BUTTON EXCHANGE, LTD.
None
STANLEY DESANTIS, INC.
None
E)
O.S.P. PUBLISHING, INC.
Mike Berin
Wes Knitter
Mark Roginson
Tamarix Capital Corporation
THE BUTTON EXCHANGE, LTD.
None
STANLEY DESANTIS, INC.
Stanley DeSantis
F)
O.S.P PUBLISHING, INC.
Product License Agreements are specific to product line and geographic location
of sale.
THE BUTTON EXCHANGE, LTD.
Product License Agreements are specific to product line and geographic location
of sale.
The Button Exchange, Ltd. has a five year noncompete agreement with Ken Czar
Marketing not to compete with "Dog Tag" novelty items from August 1, 1995 to
August 1, 2000.
STANLEY DESANTIS, INC.
Product License Agreements are specific to product line and geographic location
of sale.
<PAGE>
G)
O.S.P. PUBLISHING, INC.
None
THE BUTTON EXCHANGE, LTD.
None
STANLEY DESANTIS, INC.
None
H)
O.S.P. PUBLISHING, INC.
Senoral Corporation
Musicland Group, Inc.
THE BUTTON EXCHANGE, LTD.
None
STANLEY DESANTIS, INC.
RPI
I)
O.S.P. PUBLISHING, INC.
See Schedule 5.20
These licenses expire and/or renewed periodically throughout the year. There
can be no assurance that any of these licenses will be renewed by the licensors.
The inability of the company to renew licenses with its major licensors could
have a significant adverse effect on the sales and profitability of O.S.P.
Publishing, Inc. and it's subsidiaries.
<PAGE>
THE BUTTON EXCHANGE, LTD.
See O.S.P. Publishing, Inc.
STANLEY DESANTIS, INC.
See O.S.P. Publishing, Inc.
<PAGE>
SCHEDULE 5.22
OSP INSURANCE
O.S.P. PUBLISHING, INC.
O.S.P. Publishing, Inc. maintains property and casualty, general liability,
and workers compensation insurance with American States Insurance and ITT
Hartford Insurance. All policies are in full force.
Health insurance for the management group is through Blue Cross of California.
Health insurance for all other employees is with CIGNA Healthcare of
California. Dental and vision insurance for all employees is with Golden West
Health Insurance. All policies are in full force.
THE BUTTON EXCHANGE, LTD.
O.S.P. Publishing, Inc.'s property and workers compensation insurance policies
are inclusive of The Button Exchange, Ltd.
Health insurance for all employees is through Omnicare Plus. All policies are
in full force.
STANLEY DESANTIS, INC.
O.S.P. Publishing, Inc.'s property and workers compensation insurance policies
are inclusive of Stanley Desantis, Inc.
Health insurance for the management group is through John Alden. Health
insurance for all other employees is with Care America. Dental insurance for
all employees is with Blue Cross. All policies are in full force.
<PAGE>
SCHEDULE 6.5
KRSI CONSENTS
1. LICENSE AGREEMENTS
1. National Football League Players Association
2. Major League Baseball Players Association
3. Major League Baseball Properties, Inc.
4. Major League Baseball Properties Canada, Inc.
5. Viacom
6. Mrs. Roger E. Maris
7. National Football League Properties, Inc. "Quarterback Club"
8. National Football League Properties, Inc. "General Retail Licensing
Agreement"
9. National Football League Properties, Inc. "NFL Collectibles Licensing
Agreement"
10. NHL Enterprises, Inc.
11. NHL Enterprises Canada, Inc.
12. National Hockey League Players Association
13. NBA Properties, Inc.
14. NBA Properties, Inc.
15. USA Basketball
16. 7 & 7, Inc.
17. Glen Wood Company, Corporation
18. Sony Signatures Inc. "Legends of the Fall"
19. MCA/Universal Merchandising, Inc.
20. James Dean Foundation
21. Bogart, Inc.
22. Sony Signatures Inc. "Desperado"
23. EON Productions Limited and MAC B, Inc.
24. Twentieth Century Fox Licensing and Merchandising
25. Estate of Marilyn Monroe
26. Oneida Indian Nation dated 5/3/95
27. Oneida Indian Nation dated 8/7/95
28. Grandstand Communications Company
29. Cinevisions
30. G.E.B. Incorporated
31. Stan the Man, Inc.
32. Roush Corporation
33. CMG Worldwide
a. Family of Babe Ruth and the Babe Ruth baseball league
b. American Heart Association of South Carolina
c. Honus Wagner
d. Estate of Eleanor Gehrig.
e. Paige Equities
34. Dale Earnhardt, Inc.
35. Turner Home Entertainment, Inc.
2. CONSENT OF MIKE RUSSELL AND ROBERT KELLY TO USE "KELLY RUSSELL STUDIOS"
NAME
<PAGE>
SCHEDULE 6.6
KRSI OPTIONS AND WARRANTS
KELLY RUSSELL STUDIOS, INC.
SCHEDULE OF
STOCK OPTIONS, RESTRICTED STOCK GRANTS AND WARRANTS
AS OF MAY 15, 1996
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPTIONS/RESTRICTED STOCK GRANTED UNDER 1993 PLAN (750,000 SHARES RESERVED)
REGISTERED AS 33-86178 ON FORM S-8 EFFECTIVE NOVEMBER 4, 1994
Paul Anderson 01/20/94 ISO 3,000 $2.25 600 on 01/20/99 1/31/95-
01/20/95; 750 2,400
on 01/20/96 & Cancelled
01/20/97; 900 4/30/95-600
on 01/20/98 Cancelled
Brett Bandow 01/20/94 ISO 1,000 $2.25 200 on 01/20/99
01/20/95; 250
on 1/20/96 &
1/20/97; 300
on 01/20/98
Brett Bandow 05/01/95 ISO 8,000 $2.50 2,000 on 05/01/05
01/01/96;
3,000 on
01/01/97 &
01/01/98
Bruce Boettcher 01/20/94 ISO 3,000 $2.25 600 on 01/20/99 3/31/96-
01/20/95; 750 1,650
on 01/20/96 & Cancelled
01/20/97; 900 (resigned on
on 01/20/98 3/31/96)
Bruce Boettcher 03/22/95 ISO 30,000 $1.50 10,000 on 03/22/05
01/01/96,
01/01/97 &
01/01/98
(accelerated
on 3/31/96)
John J. Egart 03/22/95 NONQ 15,000 $1.50 20% 03/22/05
immediately
and on each
anniversary
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cynthia Evans 01/20/94 ISO 3,000 $2.25 600 on 01/20/99 11/13/95 -
01/20/95; 750 Cancelled
on 01/20/96 & (resigned
01/20/97; 900 8/13/95)
on 01/20/98
Grant Harrell 03/22/95 ISO 15,000 $1.50 5,000 on 03/22/05
01/01/96,
01/01/97 &
01/01/98
Philip Harrell 03/22/95 ISO 15,000 $1.50 5,000 on 03/22/05
01/01/96,
01/01/97 &
01/01/98
James C. Hawley 03/22/95 NONQ 15,000 $1.50 20% 03/22/05
immediately
and on each
anniversary
Paul W. Hodnefield 03/22/95 ISO 20,000 $1.50 10,000 on 03/22/05
01/01/96 &
01/01/97
Paul W. Hodnefield 03/22/95 ISO 10,000 $1.50 01/01/98 03/22/05
Tatiana Katara 01/20/94 ISO 1,000 $2.25 200 on 01/20/99 8/02/95-200
1/20/95; 250 11/13/95-800
on 1/20/96 & Cancelled
1/20/97; 300 (resigned
on 01/20/98 8/13/95)
Robert L. Kelly 01/20/94 ISO 200,000 $2.48 44,444 on 01/20/99 11/23/94
1/20/94, Cancelled
1/20/95,
1/20/96 &
1/20/97 and
22,224 on
1/20/98
Robert L. Kelly 02/25/94 GRANT 120,000 N/A 02/25/97 N/A 2/3/95
Cancelled
Corey Kiefer 01/20/94 ISO 3,000 $2.25 600 on 01/20/99 12/31/94
01/20/95; 750 Cancelled
on 01/20/96 &
01/20/97; 900
on 01/20/98
Thomas R. King 03/22/95 NONQ 15,000 $1.50 20% 03/22/05
immediately
and on each
anniversary
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tim Korkowski 01/20/94 ISO 5,000 $2.25 1,000 on 01/20/99 8/10/95 -
01/20/95; 1,000
1,250 on (437 issued,
1/20/96 & 563
01/20/97; forfeited
1,500 on as
01/20/98 consideration)
8/95 -
4,000
Cancelled
Tom Lahl 01/20/94 ISO 3,000 $2.25 600 on 01/20/99 11/23/94
01/20/95; 750 Cancelled
on 01/20/96 &
01/20/97; 900
on 01/20/98
Glen McCarty 05/01/95 ISO 6,000 $2.50 1,000 on 05/01/05
01/01/96;
2,000 on
01/01/97;
3,000 on
01/01/98
Jodi McKee 08/01/95 ISO 6,000 $2.50 1,000 on 08/01/05
01/01/96;
2,000 on
01/01/97;
3,000 on
01/01/98
(accelerated
on 3/15/96)
Timothy G. Rath 01/01/95 NONQ 250,000 $1.50 50,000 01/01/00
immediately;
100,000 on
each
anniversary
(accelerated
on 3/15/96)
Timothy G. Rath 03/22/95 NONQ 50,000 $1.50 100% on 03/22/00 03/15/96
01/01/97 Cancelled
Travis Rath 03/22/95 ISO 25,000 $1.50 5,000 on 03/22/00
01/01/96,
10,000 on
01/01/97 &
01/01/98
(accelerated
on 3/15/96)
Melanie Ratti 05/01/95 ISO 8,000 $2.50 2,000 on 05/01/05
01/01/96;
3,000 on
01/01/97 &
01/01/98
William J. Righeimer III 03/22/95 ISO 30,000 $1.50 10,000 on 03/22/05
01/01/96,
01/01/97 &
01/01/98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Righeimer III 05/01/96 ISO 66,450 $0.75 30,400 on 05/01/06
01/01/97 &
01/01/98
Michael E. Russell 01/20/94 ISO 200,000 $2.48 44,444 on 01/20/99 11/23/94
1/20/94, Cancelled
1/20/95,
1/20/96 &
1/20/97 and
22,224 on
1/20/98
Michael E. Russell 02/25/94 GRANT 120,000 N/A 02/25/97 N/A 2/3/95
Cancelled
Todd Russell 01/20/94 ISO 3,000 $2.25 600 on 01/20/99 12/31/94
01/20/95; 750 Cancelled
on 01/20/96 &
01/20/97; 900
on 01/20/98
Doug Small 05/01/95 ISO 6,000 $2.50 1,000 on 05/01/05
01/01/95;
2,000 on
01/01/97;
3,000 on
01/01/98
(accelerated
on 3/31/96)
George J. Vrabeck 01/01/95 ISO 150,000 $1.50 50,000 01/01/05
immediately &
on each
anniversary
George J. Vrabeck 03/22/95 ISO 50,000 $1.50 100% 01/01/98 03/22/05
Pat Wirz 05/01/95 ISO 6,000 $2.50 1,000 on 05/01/95
------ 01/01/96;
2,000 on
01/01/97;
3,000 on
01/01/98
OPTIONS GRANTED UNDER 1993 PLAN: 1,221,450
OPTIONS CANCELLED: -471,450
OPTIONS EXERCISED/SHARES ISSUED: -637
OPTIONS EXERCISED/SHARES FORFEITED: -563
---------
OUTSTANDING OPTIONS UNDER 1993 PLAN: 748,800
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESTRICTED STOCK GRANTED UNDER 1993 240,000
PLAN:
CANCELLED RESTRICTED STOCK -240,000
--------
OUTSTANDING RESTRICTED STOCK UNDER 1993 -0-
PLAN:
AVAILABLE FOR ISSUANCE UNDER 1993 PLAN: -0-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPTIONS GRANTED UNDER 1995 CONSULTANT PLAN (150,000 SHARES RESERVED)
REGISTERED AS 33-99584 ON FORM S-8 EFFECTIVE NOVEMBER 20, 1995
Gargano-Appelbaum 09/15/95 NONQ 25,000 $2.25 12/31/97* 09/14/98
Associates, Inc.
Kirshner Global, Inc. 11/01/95 NONQ 50,000 $2.50 25,000 on 10/31/05 05/09/96
11/1/95; 25,000
15,000 on Cancelled
11/1/96 &
10,000 on
11/1/97
Kirschner Global, Inc. 11/01/95 NONQ 250,000 $2.50 06/30/05* 10/31/05 05/09/96
Cancelled
William J. Righeimer 05/01/96 NONQ 25,000 $0.75 Immediate 05/01/01
R. W. Weber Sales 09/15/95 NONQ 25,000 $2.25 12/31/97 09/14/98 05/15/96
------- (1) Cancelled
OPTIONS GRANTED UNDER 1995 PLAN: 375,000
OPTIONS CANCELLED: 300,000
OPTIONS EXERCISED: -0-
-------
OUTSTANDING OPTIONS UNDER 1995 PLAN: 75,000
AVAILABLE FOR ISSUANCE UNDER 1995 PLAN: 75,000
*Vesting accelerated if certain sales targets met.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME GRANT TYPE AMOUNT PRICE VESTS EXPIRES EXERCISED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPTIONS GRANTED OUTSIDE ANY PLAN (NOT REGISTERED)
William J. Righeimer III05/01/96 NONQ 33,550 $0.75 19,600 on 05/01/06
------- 01/01/97 &
01/01/98
OPTIONS GRANTED OUTSIDE PLAN: 33,550
OPTIONS CANCELLED: -0-
OPTIONS EXERCISED: -0-
-------
OUTSTANDING OPTIONS OUTSIDE PLAN: 33,550
ALL OUTSTANDING OPTIONS: 857,350
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME ISSUE AMOUNT PRICE EXERCISABLE EXPIRES EXERCISED
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WARRANTS GRANTED (not registered)
D. H. Ankeny, Jr. 02/04/94 12,000 $1.00 02/04/94 02/04/98
Donovan A. Erickson 02/04/94 8,000 $1.00 02/04/94 02/04/98
Brian A. Erickson 02/04/94 2,000 $1.00 02/04/94 02/04/98
Bradley K. Erickson 02/04/94 2,000 $1.00 02/04/94 02/04/98
John Flood 03/31/94(1) 6,808 $4.20 03/31/95 03/31/99
Marcelo A. Gumucio 02/04/94 12,000 $1.00 02/04/94 02/04/98
David B. Johnson 03/31/94(1) 14,468 $4.20 03/31/95 03/31/99
David B. Johnson 03/31/95(2) 34,725 $2.00 03/31/96 03/31/00
David B. Johnson 05/31/95(3) 22,425 $2.00 05/31/96 05/31/00
David B. Johnson 03/25/96(4) 10,425 $2.00 07/19/96 07/19/00
David B. Johnson 03/25/96(5) 1,313 $2.00 08/18/96 08/18/00
David B. Johnson 03/25/96(6) 562 $2.00 09/01/96 09/01/00
Paul R. Kuehn 03/31/94(1) 14,469 $4.20 03/31/95 03/31/99
Paul R. Kuehn 03/31/95(2) 34,725 $2.00 03/31/96 03/31/00
Paul R. Kuehn 05/31/95(3) 22,425 $2.00 05/31/96 05/31/00
Paul R. Kuehn 03/25/96(4) 10,425 $2.00 07/19/96 07/19/00
Paul R. Kuehn 03/25/96(5) 1,312 $2.00 08/18/96 08/18/00
Paul R. Kuehn 03/25/96(6) 563 $2.00 09/01/96 09/01/00
Joann W. 02/04/94 12,000 $1.00 02/04/94 02/04/98
Leavenworth
Trust of 1991
Eldon C. Miller 03/31/94(1) 4,822 $4.20 03/31/95 03/31/99
Eldon C. Miller 03/31/95(2) 11,575 $2.00 03/31/96 03/31/00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME ISSUE AMOUNT PRICE EXERCISABLE EXPIRES EXERCISED
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eldon C. Miller 05/31/95(3) 7,475 $2.00 05/31/96 05/31/00
Eldon C. Miller 03/25/96(4) 3,475 $2.00 07/19/96 07/19/00
Eldon C. Miller 03/25/96(5) 438 $2.00 08/18/96 08/18/00
Eldon C. Miller 03/25/96(6) 187 $2.00 09/01/96 09/01/00
Stanley D. Rahm 03/31/94(1) 4,822 $4.20 03/31/95 03/31/99
Stanley D. Rahm 03/31/95(2) 11,575 $2.00 03/31/96 03/31/00
Stanley D. Rahm 05/31/95(3) 7,475 $2.00 05/31/96 05/31/00
Stanley D. Rahm 03/25/96(4) 3,475 $2.00 07/19/96 07/19/00
Stanley D. Rahm 03/25/96(5) 437 $2.00 08/18/96 08/18/00
Stanley D. Rahm 03/25/96(6) 188 $2.00 09/01/96 09/01/00
H. R. Swanson 03/17/93 60,000 $1.00 03/17/93 03/17/97
TTEE U/A
2/11/94
H. R. Swanson 02/04/94 12,000 $1.00 02/04/94 02/04/98
TTEE U/A
2/11/94
Unit Warrants 12/30/94 285,000 $2.00 12/30/94 05/31/95 5/31/95 - 285,000
Unit Warrants 02/17/95 576,000 $2.00 02/17/95 07/18/95 05/31/95 - 313,000
07/18/95 - 263,000
Unit Warrants 03/17/95 50,000 $2.00 03/17/95 08/18/95 07/18/95 - 15,000
08/18/95 - 35,000
Unit Warrants 03/31/95 15,000 $2.00 03/31/95 09/01/95 09/01/95 - 15,000
---------
TOTAL WARRANTS ISSUED: 1,276,589
LESS WARRANTS EXERCISED: -926,000
LESS WARRANTS CANCELLED: -0-
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF DATE & AMOUNT
NAME ISSUE AMOUNT PRICE EXERCISABLE EXPIRES EXERCISED
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING WARRANTS: 350,589
</TABLE>
(1) Transferred from warrant to purchase 45,389 shares originally issued to
Miller, Johnson & Kuehn, Inc. as underwriter on 3/31/94.
(2) Transferred from warrants to purchase an aggregate of 92,600 shares
originally issued to Miller, Johnson & Kuehn, Inc. as agent between
12/30/94 and 3/31/95.
(3) Transferred from warrants to purchase an aggregate of 59,800 shares
originally issued to Miller, Johnson & Kuehn, Inc. as agent on 5/31/95.
(4) Transferred from warrants to purchase an aggregate of 27,800 shares
originally issued to Miller, Johnson & Kuehn, Inc. as agent on 7/19/95.
(5) Transferred from warrants to purchase an aggregate of 3,500 shares
originally issued to Miller, Johnson & Kuehn, Inc. as agent on 8/18/95.
(6) Transferred from warrants to purchase an aggregate of 1,500 shares
originally issued to Miller, Johnson & Kuehn, Inc. as agent on 9/01/95.
<PAGE>
SCHEDULE 6.9
KRSI RELATED PARTY TRANSACTIONS
1. KRSI EMPLOYMENT CONTRACTS
a. Tim Rath
b. George Vrabek
c. William Righeimer
d. Paul Hodnefield
2. KRSI STOCK OPTION PLANS
a. 1993 Stock Option Plan
b. 1995 Consultant Stock Option Plan
3. WARRANTS TO PURCHASE KRSI STOCK
See Schedule 6.6
4. TOM KING, A DIRECTOR OF KRSI, IS A SHAREHOLDER OF FREDRIKSON & BYRON, P.A.,
WHICH PROVIDES LEGAL SERVICES TO KRSI.
<PAGE>
SCHEDULE 6.10(d)
KRSI BORROWINGS
Olympic Graphics lien covering all assets to secure debt of $100,000.
<PAGE>
SCHEDULE 6.11
KRSI LITIGATION
1. SEXUAL HARASSMENT CLAIMS
a. Robert Evidon
b. Tatiana Katara
c. Cynthia Evans
d. Amy Pfeffer
2. TODD RUSSELL EXPENSES
<PAGE>
SCHEDULE 6.13
KRSI LIENS
None.
<PAGE>
SCHEDULE 6.15
KRSI PLANS
1. 408(k)
2. Health
3. Vacation
4. Sick Days
5. Holiday
<PAGE>
SCHEDULE 6.16
KRSI VIOLATIONS
Sexual Harassment Claims-See Schedule 6.11
<PAGE>
SCHEDULE 6.20
KRSI ROYALTIES
LICENSE AGREEMENTS
1. National Football League Players Association
2. Major League Baseball Players Association
3. Major League Baseball Properties, Inc.
4. Major League Baseball Properties Canada, Inc.
5. Viacom
6. Mrs. Roger E. Maris
7. National Football League Properties, Inc. "Quarterback Club"
8. National Football League Properties, Inc. "General Retail Licensing
Agreement"
9. National Football League Properties, Inc. "NFL Collectibles Licensing
Agreement"
10. NHL Enterprises, Inc.
11. NHL Enterprises Canada, Inc.
12. National Hockey League Players Association
13. NBA Properties, Inc.
14. NBA Properties, Inc.
15. USA Basketball
16. 7 & 7, Inc.
17. Glen Wood Company, Corporation
18. Sony Signatures Inc. "Legends of the Fall"
19. MCA/Universal Merchandising, Inc.
20. James Dean Foundation
21. Bogart, Inc.
22. Sony Signatures Inc. "Desperado"
23. EON Productions Limited and MAC B, Inc.
24. Twentieth Century Fox Licensing and Merchandising
25. Estate of Marilyn Monroe
26. Oneida Indian Nation dated 5/3/95
27. Oneida Indian Nation dated 8/7/95
28. Grandstand Communications Company
29. Cinevisions
30. G.E.B. Incorporated
31. Stan the Man, Inc.
32. Roush Corporation
33. CMG Worldwide
a. Family of Babe Ruth and the Babe Ruth baseball league
b. American Heart Association of South Carolina
c. Honus Wagner
d. Estate of Eleanor Gehrig.
e. Paige Equities
34. Dale Earnhardt, Inc.
35. Turner Home Entertainment, Inc.
<PAGE>
SCHEDULE 6.21
KRSI CONTRACTS
1. LICENSE AGREEMENTS
1. National Football League Players Association
2. Major League Baseball Players Association
3. Major League Baseball Properties, Inc.
4. Major League Baseball Properties Canada, Inc.
5. Viacom
6. Mrs. Roger E. Maris
7. National Football League Properties, Inc. "Quarterback Club"
8. National Football League Properties, Inc. "General Retail Licensing
Agreement"
9. National Football League Properties, Inc. "NFL Collectibles Licensing
Agreement"
10. NHL Enterprises, Inc.
11. NHL Enterprises Canada, Inc.
12. National Hockey League Players Association
13. NBA Properties, Inc.
14. NBA Properties, Inc.
15. USA Basketball
16. 7 & 7, Inc.
17. Glen Wood Company, Corporation
18. Sony Signatures Inc. "Legends of the Fall"
19. MCA/Universal Merchandising, Inc.
20. James Dean Foundation
21. Bogart, Inc.
22. Sony Signatures Inc. "Desperado"
23. EON Productions Limited and MAC B, Inc.
24. Twentieth Century Fox Licensing and Merchandising
25. Estate of Marilyn Monroe
26. Oneida Indian Nation dated 5/3/95
27. Oneida Indian Nation dated 8/7/95
28. Grandstand Communications Company
29. Cinevisions
30. G.E.B. Incorporated
31. Stan the Man, Inc.
32. Roush Corporation
33. CMG Worldwide
a. Family of Babe Ruth and the Babe Ruth baseball league
b. American Heart Association of South Carolina
c. Honus Wagner
d. Estate of Eleanor Gehrig.
e. Paige Equities
34. Dale Earnhardt, Inc.
35. Turner Home Entertainment, Inc.
2. EMPLOYMENT CONTRACTS
a. Tim Rath
b. George Vrabek
c. William Righeimer
d. Paul Hodnefield
3. CONSENT OF MIKE RUSSELL AND ROBERT KELLY TO USE "KELLY RUSSELL STUDIOS" NAME
4. LEASE BETWEEN KRSI AND NWBC ASSOCIATES L.P.
<PAGE>
5. THE EQUISOURCE GROUP
6. OLYMPIC GRAPHICS
<PAGE>
SCHEDULE 6.22
KRSI INSURANCE
1. Health
2. Director and Officer
3. General Comprehensive Liability
<PAGE>
SCHEDULE 7.1
GLOBAL ONE AND OSP PERMITTED ACTIONS
1. OSP may distribute to its existing shareholders (Angard and Malm) the
aggregate sum of $1,750,000 on or before the Effective Time.
2. Global One may adopt stock option plans providing for the grant after the
Effective Time of incentive stock options and non-qualified stock options
to directors and officers and the transfer of existing stock options from
KRSI to Global One.
3. If not previously cancelled, OSP or BEx Acquisition will acquire for no
value the shares of BEx that are not owned by OSP as of the date of this
Agreement.
<PAGE>
SCHEDULE 7.2
KRSI PERMITTED ACTIONS
None.
<PAGE>
CERTIFICATE OF INCORPORATION OF
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
A Delaware Corporation
FIRST: The name of the corporation is Global One Distribution &
Merchandising Inc. (the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, in the City of Dover, County of
Kent, 19901. The name and address of the Corporation's registered agent in the
State of Delaware is National Registered Agents, Inc., 9 East Loockerman Street,
Dover, Delaware 19901.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
General Corporation Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifty million (50,000,000) shares.
One of the classes shall be common stock, $.01 par value per share ("Common
Stock") and the total number of shares of Common Stock which the Corporation is
authorized to issue is thirty million (30,000,000). The other class shall be
preferred stock, $.01 par value per share ("Preferred Stock") and the total
number of shares of Preferred Stock which the Corporation is authorized to issue
is twenty million (20,000,000).
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Article Fourth (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, the holders
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Corporation. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor, which funds
shall include, without limitation, the Corporation's capital surplus. Upon any
liquidation, dissolution or winding up of the affairs of the Corporation,
1
<PAGE>
whether voluntary or involuntary, holders of Common Stock shall be entitled to
receive pro rata the remaining assets of the Corporation after the holders of
any class of stock having preference over the Common Stock have been paid in
full any sums to which they may be entitled. Holders of Common Stock shall not
be entitled to preemptive rights with respect to any shares of Common Stock,
Preferred Stock or any other securities, debt or otherwise, issued by the
Corporation.
B. PREFERRED STOCK. The Board of Directors is hereby expressly
authorized, by resolution or resolutions to provide, out of the unissued shares
of Preferred Stock, for series of Preferred Stock. Before any shares of any
such series are issued, the Board of Directors shall fix, and hereby is
expressly empowered to fix, by resolution or resolutions, the following
provisions of the shares thereof:
(a) the designations of such series, the number of shares to
constitute such series and the stated value thereof if different from the
par value thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be general or limited;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall bear to the dividends payable on
any shares of stock of any other class or any other series of this class;
(d) whether the shares of such series shall be subject to redemption
by the Corporation, and, if so, the times, prices and other conditions of
such redemption;
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
this class or any other securities, and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
2
<PAGE>
(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of this class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this
class or of any other class; and
(j) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
FIFTH: The name and mailing address of the incorporator are as follows:
Kevin F. Donnelly
11355 West Olympic Boulevard
Los Angeles, CA 90064
SIXTH: The business and affairs of the Corporation shall be managed by and
under the direction of the Board of Directors. Except as otherwise fixed
pursuant to the provisions of Article Fourth hereof relating to the rights of
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors, the
number of directors shall be determined as stated in the Corporation's Bylaws,
as may be amended from time to time.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the
Bylaws, and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly, conferred
upon them by statute;
(b) from time to time to set apart out of any funds or assets of
the Corporation available for dividends an amount or amounts to be reserved as
working capital or for
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any other lawful purpose and to abolish any reserve so created and to determine
whether any, and, if any, what part, of the surplus of the Corporation or its
net profits applicable to dividends shall be declared in dividends and paid to
its stockholders, and all rights of the holders of stock of the Corporation in
respect of dividends shall be subject to the power of the Board of Directors so
to do;
(c) subject to the laws of the State of Delaware, from time to
time to sell, lease or otherwise dispose of any part or parts of the properties
of the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and
by the laws of the State of Delaware conferred upon the Board of Directors, to
execute all such powers and to do all acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the express provisions of
said laws of the Certificate of Incorporation of the Corporation and its Bylaws.
EIGHTH: Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation having a preference
over the Common Stock, each director shall serve until his successor is elected
and qualified or until his death, resignation or removal, and no decrease in the
authorized number of directors shall shorten the term of any incumbent director.
The Board of Directors, other than those who may be elected by the holders of
any class or series of stock having preference over the Common Stock as to
dividends or upon liquidation, shall be divided into three classes as nearly
equal in number as possible, with one class to be elected annually. The term of
office of the initial directors shall be as follows: the term of directors of
the first class shall expire at the first annual meeting of shareholders after
the effective date of this Certificate of Incorporation; the term of office of
the directors of the second class shall expire at the second annual meeting of
shareholders after the effective date of this Certificate of Incorporation; and
the term of office of the third class shall expire at the third annual meeting
of shareholders after the effective date of this Certificate of Incorporation;
and, as to directors of each class, when their respective successors are elected
and qualified. At each annual meeting of shareholders, directors elected to
succeed those whose terms are expiring shall be elected for a term of office to
expire at the third succeeding annual meeting of shareholders and when their
respective successors are elected and qualified. Shareholders of the
Corporation shall not be permitted to cumulate their votes for the election of
directors.
NINTH: Subject to the terms of any series of Preferred Stock or any other
securities of the Corporation having a preference over the Common Stock, special
meetings of the shareholders of the Corporation for any purpose or purposes may
be called at any time by a majority of the Board of Directors or by the Chairman
of the Board, the Vice Chairman of the Board or the President. Special meetings
may not be called by any other person or persons. Each special meeting shall be
held at such date and time as is requested by the person or persons calling the
meeting, within the limits fixed by law.
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TENTH: Meetings of shareholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision of applicable law) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws.
ELEVENTH: 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 GCL, as the same exists or
hereafter may be amended, or (iv) for any transaction from which the director
derived an improper personal benefit. If the GCL hereafter is amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended GCL. No amendment to or repeal of this
Article Eleventh shall apply to or have an effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
TWELFTH: The Corporation reserves the right to adopt, repeal, rescind,
alter or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, for purposes of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this 22nd day of April, A.D. 1996.
-------------------------------
Kevin F. Donnelly, Incorporator
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BYLAWS
OF
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
(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.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the Certificate of Incorporation and subject to the rights of the holders of
any class or series of stock
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having a preference over the Corporation's Common Stock, Special Meetings of
Stockholders, for any purpose or purposes, may be called by a majority of the
Board of Directors or by the Chairman of the Board, the Vice Chairman of the
Board or the President. Special meetings may not be called by any other person
or persons. Each special meeting shall be held at such date and time as is
requested by the person or persons calling the meeting, within the limits fixed
by law. Written notice of a Special Meeting stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
SECTION 5. VOTING. Unless otherwise required by law, the Certificate
of Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
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SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, 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.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
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ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Except as may be
otherwise provided by the terms of any class or series of stock having a
preference over the Corporation's Common Stock, the Board of Directors shall
consist of not less than one nor more than nine members, the exact number of
which shall initially be fixed by the Incorporator and thereafter from time to
time by the Board of Directors. The Board of Directors shall be classified into
three classes, as nearly equal in numbers as the then total number of directors
constituting the entire Board of Directors permits, the members of each class to
serve for a term of three years. The election of directors by the shareholders
shall not be by cumulative voting. The classes shall be initially comprised of
directors appointed by the Incorporator. The term of office of the initial
directors shall be as follows: the term of directors of the first class shall
expire at the first annual meeting of shareholders after the effective date of
the Corporation's Certificate of Incorporation; the term of office of the
directors of the second class shall expire at the second annual meeting of
shareholders after the effective date of the Corporation's Certificate of
Incorporation; and the term of office of the third class shall expire at the
third annual meeting of shareholders after the effective date of the
Corporation's Certificate of Incorporation; and, as to directors of each class,
when their respective successors are elected and qualified. At each subsequent
annual meeting of shareholders, the successors to the class of directors whose
term shall then expire shall be elected to hold office for a term expiring at
the third succeeding annual meeting of shareholders. Any director may resign at
any time upon notice to the Corporation. Directors need not be stockholders.
SECTION 2. VACANCIES. Except as may be otherwise provided by the
terms of any class or series of stock having a preference over the Corporation's
Common Stock, 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, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election of their class and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
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SECTION 3. 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 statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
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. 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, if there be one, the President, or any one director. 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, telegram or facsimile transmission 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.
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 entire Board of Directors 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. 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 the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 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
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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 entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any 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 he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the 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. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. 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. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely
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because his or their votes are counted for such purpose if (i) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than
a quorum; or (ii) the material facts as to his or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a Chief Executive Officer, a President, a
Secretary and a Chief Financial Officer. The Board of Directors, in its
discretion, may also choose a Chairman of the Board of Directors (who must be a
director) and one or more Vice Presidents, Assistant Secretaries, Assistant
Chief Financial Officers and other officers. Any number of offices may be held
by the same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these Bylaws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority
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of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of Directors.
SECTION 3. 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 President or any Vice President 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.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. If there is a
Chairman of the Board, he shall, if present, preside at all meetings of the
Board of Directors and at all meetings of the shareholders, exercise and perform
such other powers and duties as may be from time to time assigned to him by
resolution of the Board or prescribed by these Bylaws.
SECTION 5. CHIEF EXECUTIVE OFFICER. Subject to such supervisory
powers, if any, as may be given by these Bylaws or the Board of Directors to the
Chairman of the Board, the Chief Executive Officer, if there be such an officer,
shall be the Chief Executive Officer and general manager of the Corporation and
shall, subject to the control of the Board, have general supervision, direction
and control of the business and affairs of the Corporation. In the absence of
the Chairman of the Board, or if there be none, the Chief Executive Officer,
failing designation of an alternate individual by the Board, shall preside at
all meetings of the Board and shall preside at all meetings of the shareholders.
He shall have the general powers and duties of management usually vested in the
office of chief executive officer of a corporation, and shall have such other
powers and duties as may be prescribed from time to time by resolution of the
Board.
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SECTION 6. PRESIDENT. The President shall have the general powers
and duties of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by law, resolution of the Board or these Bylaws.
SECTION 7. VICE PRESIDENTS. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there be
no Chairman of the Board of Directors or Chief Executive Officer), the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) 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. Each Vice President shall perform such other
duties and have such other powers as the Board of Directors from time to time
may prescribe. If there be no Chairman of the Board of Directors, no Chief
Executive Officer and no Vice President, the Board of Directors shall designate
the officer of the Corporation who, in the absence of the President or in the
event of the inability or refusal of the President to act, 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.
SECTION 8. 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 President, under whose supervision he shall be. 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, if any, 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 signature.
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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 9. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Chief Financial Officer shall disburse the funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the Board
of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Chief Financial Officer and of
the financial condition of the Corporation. If required by the Board of
Directors, the Chief Financial Officer shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 10. 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 Chairman of the Board of Directors, the Chief
Executive Officer, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
SECTION 11. ASSISTANT CHIEF FINANCIAL OFFICERS. Assistant Chief
Financial Officers, 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, any Vice President, if there be one, or the Chief Financial
Officer, and in the absence of the Chief Financial Officer or in the event of
his disability or refusal to act, shall perform the duties of the Chief
Financial Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Financial
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Officer. If required by the Board of Directors, an Assistant Chief Financial
Officer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 12. 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 of Directors, the President or a
Vice President and (ii) by the Chief Financial Officer or an Assistant Chief
Financial Officer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
SECTION 3. LOST CERTIFICATES. The 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
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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 his 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 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 his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
SECTION 5. RECORD 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 express consent to corporate action
in writing without a meeting, 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 days nor less than ten days
before the date of such meeting, nor more than sixty 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.
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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 his address
as it appears on the records of the 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 or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
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, and may be paid in cash, in property, or in shares of the capital
stock. 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 checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
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ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR
IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no
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indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used
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in this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the requestof the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 1 or
2 of this Article VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2 of this Article VIII. The basis of such indemnification
by a court shall be a determination by such court that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary determination in the
specific case under Section 3 of this Article VIII nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director, officer, employee or agent seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director, officer, employee or agent seeking
indemnification shall also be entitled to be paid the expense of prosecuting
such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article
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VIII shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any By-Law,
agreement, contract, vote of stockholders or disinterested directors or pursuant
to the direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
other-wise.
SECTION 8. INSURANCE. 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 or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan 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 or the obligation to indemnify him against such liability under the
provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer of the Corporation serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article VIII, references to "fines" shall
include any
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excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this section shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
ARTICLE IX
AMENDMENTS
SECTION 1. Except as may be otherwise provided by the terms of any
class or series of stock having a preference over the Corporation's Common Stock
and subject to the Certificate of Incorporation, these Bylaws may be altered,
amended or repealed, in whole or in part, or new Bylaws may be adopted by the
stockholders or by the Board of Directors, provided, however, that notice of
such alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such meeting of stockholders or Board of Directors as the case may be.
All such amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX and
in these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of GLOBAL ONE
DISTRIBUTION & MERCHANDISING INC., a Delaware corporation; and
2. That the foregoing bylaws, comprising 18 pages, constitute the
bylaws of said corporation as duly adopted by action of the Board of Directors
of the Corporation duly taken on _______ __, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day
of _________, 1996.
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, Secretary
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made between Global One
Distribution & Merchandising Inc., a California corporation (the "Company"),
having its principal office located at 5548 Lindbergh Lane, Bell, California
90201, and Joseph C. Angard (the "Executive"), effective as of the ___th day of
_________, 1996 (the "Effective Date"), as follows:
1. TERMS OF EMPLOYMENT
1.1 EMPLOYMENT
The Company hereby employs the Executive for and during the period set
forth in Section 1.3 herein (the "Employment Period") to render services upon
the terms and conditions set forth herein, and the Executive hereby accepts such
employment and shall keep and perform all of the duties, services, obligations
and covenants herein set forth.
1.2 POSITIONS AND DUTIES OF EXECUTIVE
(a) During the Employment Period, the Executive will serve as
Chairman of the Board of Directors, Chief Executive Officer and President of the
Company, and his duties shall include generally, but without limitation, overall
authority and responsibility for the management of the affairs and business of
the Company and its subsidiaries. The Executive shall be available to travel as
the needs of the Company and his position may reasonably require, but the
Executive's principal place of business shall be in the Los Angeles Metropolitan
Area.
(b) The Executive agrees to devote his full productive time,
energies, and abilities to the proper and efficient performance of the duties,
responsibilities and authorities described above. However, the expenditure of
reasonable amounts of time by the Executive for educational, charitable and
professional activities that do not otherwise conflict with the terms of this
Agreement or the duties and responsibilities of the Executive shall not be
deemed a breach of this Agreement, provided that such activities do not
materially interfere with the services required of the Executive under this
Agreement, and shall not require the prior consent of the Company.
(c) During the Employment Period, the Executive shall not, without
the prior express authorization of the Board, directly or indirectly engage in
any activity competitive with the Company's businesses or those of any of its
subsidiaries, whether acting alone or as an officer, director, owner or
Executive of any other corporation or business, whether professional or
otherwise. Nothing contained in this Section 1.2(c), however, shall prevent the
Executive from purchasing and/or holding five percent (5.0%) or less of the
issued and outstanding capital stock or other equity of any other corporation or
a partnership that has a class of security registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is
subject to the requirements of Section 15(d) of the Exchange Act.
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(d) The Executive shall, at all times during the Employment Period,
be furnished with such office, stenographic, secretarial and other assistance,
facilities, amenities and services as are suitable to the Executive's position
as an executive officer and sufficient for the performance of the Executive's
duties under this Agreement, but in no event at a level less adequate or
comfortable than that which was provided to the Executive generally during 1995.
Unless otherwise agreed to by the Executive, the Executive's offices shall be
maintained at the premises of the principal place of business of the Company in
Bell, California; provided, however, that in connection with the performance of
his duties and responsibilities, the Executive acknowledges that he may be
required to undertake significant travel as the needs of his position may
reasonably require. Business travel arrangements (including class of air
travel) and accommodations will be provided for the Executive at a level no less
adequate or comfortable than that which was provided to the Executive generally
during 1995.
1.3 EMPLOYMENT PERIOD
The term of the Employment Period shall be a three (3) year period
commencing as of the Effective Date, or such shorter period in the event of a
termination of the obligations of either party under this Agreement pursuant to
Section 3 herein. Nothing in this Agreement shall prohibit the parties from
extending, by mutual agreement, the Employment Period beyond the term
contemplated in this paragraph.
2. COMPENSATION AND EMPLOYEE BENEFITS
2.1 COMPENSATION
As compensation for services to be rendered by the Executive hereunder
and for all rights herein granted and/or agreed to be granted by the Executive
to the Company, the Company shall pay to the Executive or provide for, subject
to all applicable laws and requirements respecting withholding of federal, state
and/or local taxes or their equivalent, the following:
(a) A base salary of $275,000 per year during the Employment Period,
to be paid to the Executive in accordance with the Company's normal payroll
periods. In addition, the Executive shall be eligible to receive a bonus of up
to 50% of his base salary annually based upon performance criteria established
by the Board of Directors at the beginning of each fiscal year (performance
criteria for 1996 will be established within thirty (30) days after the
Effective Date).
(b) Options to purchase 300,000 shares of Common Stock of the Company
at $1.50 per share, vesting at the end of each of the first three 12-month
periods beginning on the Effective Date (subject to accelerated vesting as
provided in Section 3.1(a)(iii)) at the rate of 100,000 shares per 12-month
period, pursuant to a Stock Option Agreement under a qualified Stock Option Plan
to be entered into with the Company containing such other terms and conditions
as are typically granted to other employees of the Company receiving stock
options. Each such option shall be exercisable at any time within a period of
five (5) years from the date of vesting;
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provided, however, that if the Executive is terminated for Cause (as described
below), such period for exercise shall be 90 days after such termination, after
which all vested options shall expire. The provision for, or grant of, options
as set forth in this paragraph shall not diminish or otherwise affect in any
manner any other option or warrant to purchase the Company's Common Stock held
or acquired by the Executive on the date hereof.
(c) The Company will provide the Executive with an automobile
allowance of $1,200 per month or the use of an automobile of equivalent value
purchased or leased by the Company and provided to the Employee for his
exclusive use, plus reimbursement of expenses for insurance, fuel and
maintenance.
2.2 EMPLOYMENT BENEFITS
In addition to the compensation provided for herein, during the
Employment Period the Executive shall be entitled to the following benefits,
subject to the following limitations:
(a) The Executive shall be eligible to participate in a 401(k)
savings plan, pension plan and other employee benefit plans to the extent such
plans are established by the Company for its full-time employees. During the
Employment Period, the Company shall provide for and maintain the Executive's
participation in a health insurance plan to the extent such benefit is regularly
furnished to other full-time employees of the Company.
(b) Vacation with pay, at the rate of five (5) weeks during each
calendar year (or such lesser amount during partial years as determined on a pro
rata basis), during the Employment Period. The date or dates of vacation
absences shall be determined by the Executive and the Board. To the extent the
Executive does not use the full amount of such vacation as provided above, the
unused balance, up to a maximum of one (1) week, shall accrue and be carried
over into the following year, if any, during which the Executive is employed by
the Company. The Executive shall not be entitled to any compensation for unused
vacation time at the termination of the Employment Period.
(c) During absences due to illness or other incapacity, the Executive
shall be paid sick leave benefits at his then prevailing base salary rate for a
maximum of fifteen (15) working days per calendar year (or such lesser amount
during partial years as determined on a pro rata basis), or such longer period
as the Board may determine on a case-by-case basis. The unused balance of such
sick leave will not accrue or be carried over into subsequent periods.
(d) Disability benefits which provide for payment of 80% of pre-
disability salary and 100% of pre-disability benefits, except that if the
Executive is terminated pursuant to Section 3.1 while the Executive is fully and
completely disabled, then at the termination of such disability benefits, the
Executive shall be entitled to the severance benefits of a termination other
than for "Cause" as provided in this Agreement. The Company may elect to
purchase insurance providing for disability benefits to the Executive in
satisfaction of this section, provided, however,
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that in the event that a waiting period to receive benefits is imposed under
such insurance, the Company shall provide disability benefits during such
waiting period.
(e) Reimbursement of up to $1,500 per month toward a life insurance
policy for the Executive's beneficiaries.
2.3 EXPENSES
During the Employment Period, the Executive shall be entitled to
reimbursement from the Company for any reasonable travel and other out-of-pocket
business expenses necessarily incurred in the performance of his duties
hereunder (other than ordinary commuting expenses), including but not limited to
for such travel described in Section 1.2(d) above, upon submission and approval
of written statements and bills in accordance with the regular procedures of the
Company. In addition, the Company will reimburse the Executive for his expenses
incurred in the purchase, maintenance and operation of one cellular telephone
for use in the performance of his duties for the Company.
3. TERMINATION
3.1 TERMINATION BY THE COMPANY; CHANGE OF CONTROL
(a) Notwithstanding anything to the contrary contained herein, the
Company shall have the right to terminate its obligations under this Agreement
at any time for any reason, solely in its discretion. Upon such a termination
by the Company, whether or not for Cause, the Executive shall be entitled to
receive (i) his base salary, to be paid in such increments and on such dates as
if the Executive was not terminated for the remaining term of the Employment
Period applicable immediately prior to such termination, (ii) continuous health
insurance coverage during the longer of the remaining term of the Employment
Period applicable immediately prior to such termination or 18 months, and (iii)
immediate vesting of all unvested stock options granted to the Executive
pursuant to Section 2.1(b) above and the applicable Stock Option Agreement,
subject to possible accelerated termination of such options as described in
Section 2.1(b) above.
(b) "Cause" shall be deemed to exist if the Executive (i) knowingly
commits an act or acts of dishonesty which results in substantial personal
enrichment of the Executive at the expense of the Company; (ii) knowingly causes
an unauthorized disclosure of information or material which is both confidential
and material to the Company and which results in irreparable harm to the
Company; or (iii) repeatedly fails to perform satisfactorily, properly and
promptly his duties under this Agreement after notice to the Executive and a
reasonable opportunity to cure. Notwithstanding the foregoing, however, Cause
shall not exist solely due to the financial performance or results of operation
of the Company.
(c) If, following a "Change of Control" of the Company, the
Executive's position is eliminated or his duties are materially changed, the
Executive shall be entitled to receive the
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compensation specified in Section 3.1(a) above as if a termination has occurred,
unless Cause exists. "Change of Control" shall mean (i) a merger or
consolidation where the Company is not the surviving entity (other than a
reorganization not involving a change in ownership); (ii) a transfer to another
entity of all or substantially all of the assets of the Company (other than a
reorganization not involving a change in ownership); (iii) an acquisition by a
person (which term includes an entity or an individual) or persons acting as a
group of more than fifty percent (50%) of the then outstanding shares of the
Company that are held by a person or group of persons (whether or not acting in
concert) not the holder of more than fifty percent (50%) of the shares of the
Company on the Effective Date; or (iv) during any period of twenty-four (24)
consecutive months, individuals who at the beginning of such period were members
of the Board (the "Incumbent Board") shall cease to constitute a majority of the
Board or the board of directors of any successor to the Company, provided that
any individual becoming a director subsequent to the beginning of such period
whose election or nomination for election was approved by a vote of least
seventy-five percent (75%) of the directors compromising the Incumbent Board
shall, for purposes hereof, be considered as though such individual were a
member of the Incumbent Board.
3.2 TERMINATION BY EXECUTIVE
Notwithstanding anything to the contrary contained herein, the
Executive shall have the right to terminate his obligations under this Agreement
upon the occurrence of any of the following events:
(a) A material breach by the Company of its obligations under this
Agreement or, unless consented to by the Executive, a material change in his
duties from those specified herein.
(b) A proceeding is commenced by or against Company under any
bankruptcy, insolvency, reorganization, receivership, liquidation, compromise,
arrangement, or moratorium statutes, whether now or hereafter in effect, and
remains undismissed for a period of fifteen (15) days.
(c) The Company makes an assignment for the benefit of its creditors,
or files a petition in bankruptcy, or is adjudicated insolvent or bankrupt, or
petitions or applies to any tribunal for any receiver, liquidator, or trustee of
the Company for all or a substantial part of its assets, or a receiver,
liquidator, or trustee is appointed for Company for all or a substantial part of
its assets, and is not discharged within fifteen (15) days from the date of
appointment thereof.
4. COVENANTS AND WARRANTIES
4.1 CONFIDENTIALITY
The Executive recognizes that his position with the Company is one of
the highest trust and confidence by reason of Executive's access to and contact
with trade secrets and confidential and proprietary information of the Company.
The Executive agrees to use his best
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efforts and exercise utmost diligence to protect and safeguard the trade secrets
and confidential and proprietary information of the Company, including, but not
limited to, any information concerning the Company's business, finances,
investments, performances, productions, works in progress or professional
relationships. The Executive further agrees that he will not, during the
Employment Period or for a period of five (5) years thereafter, knowingly
disclose, disseminate or distribute to any other person or entity, nor induce
any other person to disclose, disseminate or distribute, any such trade secrets
or confidential and proprietary information of the Company, directly or
indirectly, either for Executive's own benefit or the benefit of another, except
as is required in the course of his employment with the Company. The foregoing
sentence shall not apply, however, to confidential and proprietary information
which (a) is already in the public domain; (b) comes into the public domain
through no fault or prohibited act of the Executive; or (c) is required to be
disclosed under applicable law (including the federal securities laws) or
pursuant to a final, non-appealable order of a court of competent jursidiction.
All confidential information relating to the business of the Company, whether
prepared by the Executive or otherwise coming into his possession, shall remain
the exclusive property of the Company and shall not, except in the furtherance
of the business of the Company, be removed from the premises of the Company
under any circumstances without the prior written consent of the Company. The
obligations of the Executive pursuant to this subsection 4.1 shall survive a
termination of the Employment Period and this Agreement.
4.2 INSURANCE
The parties agree that the Company may, but shall not be required, to
secure in its own name or otherwise, and at its own expense, life, health,
accident, disability income, or other insurance covering the Executive and the
Executive shall have no right, title or interest in or to any such insurance,
except as may be otherwise expressly agreed upon by the Company and provided
under the terms of such policy coverage. If the Company elects to obtain any
such insurance, the Executive shall cooperate in obtaining such insurance by,
among other things, submitting to customary medical examinations and signing
such documents as may be reasonably required by any insurance company to which
application for such insurance shall be made.
4.3 OWNERSHIP AND AUTHORIZATION OF WORK
The Executive acknowledges and agrees that the Company is and shall be
the owner and author throughout the universe of all right, title, and interest
in and to any and all creative work or materials upon which the Executive
performs services hereunder (a "Work"), as the author of a work made for hire
and otherwise as the context hereof demands. All elements of each work prepared
by the Executive will at all times belong solely and exclusively to the Company
for use in any manner or media now known or hereafter devised, throughout the
universe in perpetuity. Each Work shall include, but may not be limited to, any
and all materials, ideas, or other artistic, creative and literary property
created or developed by the Executive pursuant to his services (whether alone or
in conjunction with any other person), or which the Executive may disclose to
the Company during the term hereof. The Company shall have the exclusive right
to copyright same in the name of the Company as an author of a work made for
hire and to exercise throughout the universe all
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rights of the copyright proprietor thereunder. To the extent that any Work is
deemed not a work made for hire, the Executive hereby assigns to the Company all
rights in such Work, including but not limited to all copyrights therein and
thereto and all renewals and extensions throughout this universe and you grant
to the Company a power of attorney, irrevocable and coupled with an interest to
apply for and obtain in your name all such copyrights, renewals and extensions
thereof. Subject to your reasonable approval, the Company may use and authorize
others to use your name, likeness, and biographical materials on a nonexclusive
basis for program publicity, institutional promotional purposes and any other
exploitation of a Work through any media now known or hereafter devised. For
purposes of this Agreement, each Work shall be deemed to be a work for hire
pursuant to 17 U.S.C. Section 101(2), and all authorship and ownership rights of
each Work shall belong to the Company pursuant to 17 U.S.C. Section 201(b).
4.4 FREEDOM TO EXECUTE AGREEMENT
The Company and Executive each represents and warrants to the other
that such party has the right, power, and ability to enter into this Agreement
and is not subject to any obligations or restrictions which would prevent such
party from, or interfere in any way with, keeping and performing all of the
agreements, covenants, and conditions required to be kept and performed
respectively by such party hereunder.
5. GENERAL PROVISIONS
5.1 APPLICABLE LAW
This Agreement shall be governed by and construed under the laws of
the State of California.
5.2 PRIOR AGREEMENTS; MODIFICATION
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and cancels all prior
or contemporaneous oral or written agreements and understandings with respect to
the subject matter hereof, between the parties or between the Executive and any
predecessor entity to the Company or entity with which the Company has engaged
in a business combination. This Agreement may not be changed or modified except
by a written instrument signed by the Executive and an authorized officer or
director of the Company. No modification or termination of this Agreement shall
affect or impair any rights or obligations which have theretofore matured
hereunder.
5.3 ASSIGNMENT
The Company may assign this Agreement to one or more affiliates or the
parent of the Company or to any entity with or into which the Company may merge
or consolidate or which
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succeeds to all or a substantial portion of the Company's assets, provided that
(i) such assignee is engaged in businesses similar to those being carried on
from time to time by the Company, (ii) the assignee agrees to be bound by all of
the material terms of this Agreement; (iii) the assignee's financial condition,
taken as a whole, is at least as sound as the Company's financial condition
immediately prior to such assignment, and (iv) the Executive continues to serve
in an executive or managerial capacity similar to that being performed for the
Company.
5.4 NOTICES
All notices, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
person, by messenger, overnight courier or United States mail, certified or
registered, with return receipt requested, or otherwise actually delivered, as
follows:
(a) If to the Company:
Global One Distribution & Merchandising Inc.
5548 Lindbergh Lane
Bell, California 90201-6410
ATTENTION: Corporate Secretary
With a copy to:
Samaha, Grogin and Stulberg, LLP
35 North Lake Avenue, Suite 810
Pasadena, California 91101-1856
ATTENTION: Jeffrey Grogin, Esq.
(b) If to the Executive:
Joseph C. Angard
122 Westwind Mall
Marina Del Rey, California 90290
5.5 SURVIVAL
All covenants, representations, warranties, agreements and
undertakings contained in or made pursuant to this Agreement shall survive the
termination of the Employment Period.
5.6 NON-WAIVER
Any forbearance, delay, or failure by either party in exercising any
right, option,
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power or remedy hereunder shall not be deemed to be a waiver of such right,
option, power or remedy; nor shall any single or partial exercise of any right,
option, power, or remedy hereunder preclude further exercise thereof.
5.7 SEVERABILITY
If any provision of this Agreement is for any reason determined to be
void, illegal or unenforceable, in whole or in part, the validity and binding
effect of all of the remaining portions shall not be affected, and the remaining
portions of this Agreement shall remain in full force and effect as if the
provision which was determined to be void, illegal or unenforceable had not been
contained herein.
5.8 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one instrument.
5.9 SECTION HEADINGS
The headings of the articles and sections hereof are inserted only for
the purpose of convenient reference. Such headings shall not be deemed to
govern, limit, modify, or in any other manner affect the scope, meaning, or
intent of the provisions of this Agreement, or any part or portion thereof; nor
shall there otherwise be given any legal effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ___ day of ________, 1996.
THE "COMPANY"
GLOBAL ONE DISTRIBUTION
& MERCHANDISING INC.
By:
-------------------------------
Title:
THE "EXECUTIVE"
-----------------------------------
Name: Joseph C. Angard
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made between Global One
Distribution & Merchandising Inc., a California corporation (the "Company"),
having its principal office located at 5548 Lindbergh Lane, Bell, California
90201, and Michael A. Malm (the "Executive"), effective as of the ___th day of
_________, 1996 (the "Effective Date"), as follows:
1. TERMS OF EMPLOYMENT
1.1 EMPLOYMENT
The Company hereby employs the Executive for and during the period set
forth in Section 1.3 herein (the "Employment Period") to render services upon
the terms and conditions set forth herein, and the Executive hereby accepts such
employment and shall keep and perform all of the duties, services, obligations
and covenants herein set forth.
1.2 POSITIONS AND DUTIES OF EXECUTIVE
(a) During the Employment Period, the Executive will serve as Chief
Operating Officer of the Company and President of O.S.P. Publishing, Inc., a
wholly-owned subsidiary of the Company (or such successor company) ("OSP"), and
his duties shall include generally, but without limitation, authority and
responsibility for the operations and management of the Company, including OSP
and its other subsidiaries, and such other duties as may be reasonably assigned
to him by the Board of Directors. The Executive shall be available to travel as
the needs of the Company and his position may reasonably require, but the
Executive's principal place of business shall be in the Los Angeles Metropolitan
Area.
(b) The Executive agrees to devote his full productive time,
energies, and abilities to the proper and efficient performance of the duties,
responsibilities and authorities described above. However, the expenditure of
reasonable amounts of time by the Executive for educational, charitable and
professional activities that do not otherwise conflict with the terms of this
Agreement or the duties and responsibilities of the Executive shall not be
deemed a breach of this Agreement, provided that such activities do not
materially interfere with the services required of the Executive under this
Agreement, and shall not require the prior consent of the Company.
(c) During the Employment Period, the Executive shall not, without
the prior express authorization of the Board, directly or indirectly engage in
any activity competitive with the Company's businesses or those of any of its
subsidiaries, whether acting alone or as an officer, director, owner or
Executive of any other corporation or business, whether professional or
otherwise. Nothing contained in this Section 1.2(c), however, shall prevent the
Executive from purchasing and/or holding five percent (5.0%) or less of the
issued and outstanding capital stock or other equity of any other corporation or
a partnership that has a class of security registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is
subject to the
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requirements of Section 15(d) of the Exchange Act.
(d) The Executive shall, at all times during the Employment Period,
be furnished with such office, stenographic, secretarial and other assistance,
facilities, amenities and services as are suitable to the Executive's position
as an executive officer and sufficient for the performance of the Executive's
duties under this Agreement, but in no event at a level less adequate or
comfortable than that which was provided to the Executive generally during 1995.
Unless otherwise agreed to by the Executive, the Executive's offices shall be
maintained at the premises of the principal place of business of the Company in
Bell, California; provided, however, that in connection with the performance of
his duties and responsibilities, the Executive acknowledges that he may be
required to undertake significant travel as the needs of his position may
reasonably require. Business travel arrangements (including class of air
travel) and accommodations will be provided for the Executive at a level no less
adequate or comfortable than that which was provided to the Executive generally
during 1995.
1.3 EMPLOYMENT PERIOD
The term of the Employment Period shall be a three (3) year period
commencing as of the Effective Date, or such shorter period in the event of a
termination of the obligations of either party under this Agreement pursuant to
Section 3 herein. Nothing in this Agreement shall prohibit the parties from
extending, by mutual agreement, the Employment Period beyond the term
contemplated in this paragraph.
2. COMPENSATION AND EMPLOYEE BENEFITS
2.1 COMPENSATION
As compensation for services to be rendered by the Executive hereunder
and for all rights herein granted and/or agreed to be granted by the Executive
to the Company, the Company shall pay to the Executive or provide for, subject
to all applicable laws and requirements respecting withholding of federal, state
and/or local taxes or their equivalent, the following:
(a) A base salary of $275,000 per year during the Employment Period,
to be paid to the Executive in accordance with the Company's normal payroll
periods. In addition, the Executive shall be eligible to receive a bonus of up
to 30% of his base salary annually based upon performance criteria established
by the Board of Directors at the beginning of each fiscal year (performance
criteria for 1996 will be established within thirty (30) days after the
Effective Date).
(b) Options to purchase 300,000 shares of Common Stock of the Company
at $1.50 per share, vesting at the end of each of the first three 12-month
periods beginning on the Effective Date (subject to accelerated vesting as
provided in Section 3.1(a)(iii)) at the rate of 100,000 shares per 12-month
period, pursuant to a Stock Option Agreement under a qualified Stock Option Plan
to be entered into with the Company containing such other terms and conditions
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as are typically granted to other employees of the Company receiving stock
options. Each such option shall be exercisable at any time within a period of
five (5) years from the date of vesting; provided, however, that if the
Executive is terminated for Cause (as described below), such period for exercise
shall be 90 days after such termination, after which all vested options shall
expire. The provision for, or grant of, options as set forth in this paragraph
shall not diminish or otherwise affect in any manner any other option or warrant
to purchase the Company's Common Stock held or acquired by the Executive on the
date hererof.
(c) The Company will provide the Executive with an automobile
allowance of $1,000 per month or the use of an automobile of equivalent value
purchased or leased by the Company and provided to the Employee for his
exclusive use, plus reimbursement of expenses for insurance, fuel and
maintenance.
2.2 EMPLOYMENT BENEFITS
In addition to the compensation provided for herein, during the
Employment Period the Executive shall be entitled to the following benefits,
subject to the following limitations:
(a) The Executive shall be eligible to participate in a 401(k)
savings plan, pension plan and other employee benefit plans to the extent such
plans are established by the Company for its full-time employees. During the
Employment Period, the Company shall provide for and maintain the Executive's
participation in a health insurance plan to the extent such benefit is regularly
furnished to other full-time employees of the Company.
(b) Vacation with pay, at the rate of five (5) weeks during each
calendar year (or such lesser amount during partial years as determined on a pro
rata basis), during the Employment Period. The date or dates of vacation
absences shall be determined by the Executive and the Board. To the extent the
Executive does not use the full amount of such vacation as provided above, the
unused balance, up to a maximum of one (1) week, shall accrue and be carried
over into the following year, if any, during which the Executive is employed by
the Company. The Executive shall not be entitled to any compensation for unused
vacation time at the termination of the Employment Period.
(c) During absences due to illness or other incapacity, the Executive
shall be paid sick leave benefits at his then prevailing base salary rate for a
maximum of fifteen (15) working days per calendar year (or such lesser amount
during partial years as determined on a pro rata basis), or such longer period
as the Board may determine on a case-by-case basis. The unused balance of such
sick leave will not accrue or be carried over into subsequent periods.
(d) Disability benefits which provide for payment of 80% of pre-
disability salary and 100% of pre-disability benefits, except that if the
Executive is terminated pursuant to Section 3.1 while the Executive is fully and
completely disabled, then at the termination of such disability benefits, the
Executive shall be entitled to the severance benefits of a termination other
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than for "Cause" as provided in this Agreement. The Company may elect to
purchase insurance providing for disability benefits to the Executive in
satisfaction of this section, provided, however, that in the event that a
waiting period to receive benefits is imposed under such insurance, the Company
shall provide disability benefits during such waiting period.
(e) Reimbursement of up to $1,000 per month toward a life insurance
policy for the Executive's beneficiaries.
2.3 EXPENSES
During the Employment Period, the Executive shall be entitled to
reimbursement from the Company for any reasonable travel and other out-of-pocket
business expenses necessarily incurred in the performance of his duties
hereunder (other than ordinary commuting expenses), including but not limited to
for such travel described in Section 1.2(d) above, upon submission and approval
of written statements and bills in accordance with the regular procedures of the
Company. In addition, the Company will reimburse the Executive for his expenses
incurred in the purchase, maintenance and operation of one cellular telephone
for use in the performance of his duties for the Company.
3. TERMINATION
3.1 TERMINATION BY THE COMPANY; CHANGE OF CONTROL
(a) Notwithstanding anything to the contrary contained herein, the
Company shall have the right to terminate its obligations under this Agreement
at any time for any reason, solely in its discretion. Upon such a termination
by the Company, whether or not for Cause, the Executive shall be entitled to
receive (i) his base salary, to be paid in such increments and on such dates as
if the Executive was not terminated for the remaining term of the Employment
Period applicable immediately prior to such termination, (ii) continuous health
insurance coverage during the longer of the remaining term of the Employment
Period applicable immediately prior to such termination or 18 months, and (iii)
immediate vesting of all unvested stock options granted to the Executive
pursuant to Section 2.1(b) above and the applicable Stock Option Agreement,
subject to possible accelerated termination of such options as described in
Section 2.1(b) above.
(b) "Cause" shall be deemed to exist if the Executive (i) knowingly
commits an act or acts of dishonesty which results in substantial personal
enrichment of the Executive at the expense of the Company; (ii) knowingly causes
an unauthorized disclosure of information or material which is both confidential
and material to the Company and which results in irreparable harm to the
Company; or (iii) repeatedly fails to perform satisfactorily, properly and
promptly his duties under this Agreement after notice to the Executive and a
reasonable opportunity to cure. Notwithstanding the foregoing, however, Cause
shall not exist solely due to the financial performance or results of operation
of the Company.
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<PAGE>
(c) If, following a "Change of Control" of the Company, the
Executive's position is eliminated or his duties are materially changed, the
Executive shall be entitled to receive the compensation specified in Section
3.1(a) above as if a termination has occurred, unless Cause exists. "Change of
Control" shall mean (i) a merger or consolidation where the Company is not the
surviving entity (other than a reorganization not involving a change in
ownership); (ii) a transfer to another entity of all or substantially all of the
assets of the Company (other than a reorganization not involving a change in
ownership); (iii) an acquisition by a person (which term includes an entity or
an individual) or persons acting as a group of more than fifty percent (50%) of
the then outstanding shares of the Company that are held by a person or group of
persons (whether or not acting in concert) not the holder of more than fifty
percent (50%) of the shares of the Company on the Effective Date; or (iv) during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period were members of the Board (the "Incumbent Board") shall
cease to constitute a majority of the Board or the board of directors of any
successor to the Company, provided that any individual becoming a director
subsequent to the beginning of such period whose election or nomination for
election was approved by a vote of least seventy-five percent (75%) of the
directors compromising the Incumbent Board shall, for purposes hereof, be
considered as though such individual were a member of the Incumbent Board.
3.2 TERMINATION BY EXECUTIVE
Notwithstanding anything to the contrary contained herein, the
Executive shall have the right to terminate his obligations under this Agreement
upon the occurrence of any of the following events:
(a) A material breach by the Company of its obligations under this
Agreement or, unless consented to by the Executive, a material change in his
duties from those specified herein.
(b) A proceeding is commenced by or against Company under any
bankruptcy, insolvency, reorganization, receivership, liquidation, compromise,
arrangement, or moratorium statutes, whether now or hereafter in effect, and
remains undismissed for a period of fifteen (15) days.
(c) The Company makes an assignment for the benefit of its creditors,
or files a petition in bankruptcy, or is adjudicated insolvent or bankrupt, or
petitions or applies to any tribunal for any receiver, liquidator, or trustee of
the Company for all or a substantial part of its assets, or a receiver,
liquidator, or trustee is appointed for Company for all or a substantial part of
its assets, and is not discharged within fifteen (15) days from the date of
appointment thereof.
4. COVENANTS AND WARRANTIES
4.1 CONFIDENTIALITY
The Executive recognizes that his position with the Company is one of
the highest
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trust and confidence by reason of Executive's access to and contact with trade
secrets and confidential and proprietary information of the Company. The
Executive agrees to use his best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company, including, but not limited to, any information
concerning the Company's business, finances, investments, performances,
productions, works in progress or professional relationships. The Executive
further agrees that he will not, during the Employment Period or for a period of
five (5) years thereafter, knowingly disclose, disseminate or distribute to any
other person or entity, nor induce any other person to disclose, disseminate or
distribute, any such trade secrets or confidential and proprietary information
of the Company, directly or indirectly, either for Executive's own benefit or
the benefit of another, except as is required in the course of his employment
with the Company. The foregoing sentence shall not apply, however, to
confidential and proprietary information which (a) is already in the public
domain; (b) comes into the public domain through no fault or prohibited act of
the Executive; or (c) is required to be disclosed under applicable law
(including the federal securities laws) or pursuant to a final, non-appealable
order of a court of competent jursidiction. All confidential information
relating to the business of the Company, whether prepared by the Executive or
otherwise coming into his possession, shall remain the exclusive property of the
Company and shall not, except in the furtherance of the business of the Company,
be removed from the premises of the Company under any circumstances without the
prior written consent of the Company. The obligations of the Executive pursuant
to this subsection 4.1 shall survive a termination of the Employment Period and
this Agreement.
4.2 INSURANCE
The parties agree that the Company may, but shall not be required, to
secure in its own name or otherwise, and at its own expense, life, health,
accident, disability income, or other insurance covering the Executive and the
Executive shall have no right, title or interest in or to any such insurance,
except as may be otherwise expressly agreed upon by the Company and provided
under the terms of such policy coverage. If the Company elects to obtain any
such insurance, the Executive shall cooperate in obtaining such insurance by,
among other things, submitting to customary medical examinations and signing
such documents as may be reasonably required by any insurance company to which
application for such insurance shall be made.
4.3 OWNERSHIP AND AUTHORIZATION OF WORK
The Executive acknowledges and agrees that the Company is and shall be
the owner and author throughout the universe of all right, title, and interest
in and to any and all creative work or materials upon which the Executive
performs services hereunder (a "Work"), as the author of a work made for hire
and otherwise as the context hereof demands. All elements of each work prepared
by the Executive will at all times belong solely and exclusively to the Company
for use in any manner or media now known or hereafter devised, throughout the
universe in perpetuity. Each Work shall include, but may not be limited to, any
and all materials, ideas, or other artistic, creative and literary property
created or developed by the Executive pursuant to his services (whether alone or
in conjunction with any other person), or which the Executive may disclose to
the Company
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during the term hereof. The Company shall have the exclusive right to copyright
same in the name of the Company as an author of a work made for hire and to
exercise throughout the universe all rights of the copyright proprietor
thereunder. To the extent that any Work is deemed not a work made for hire, the
Executive hereby assigns to the Company all rights in such Work, including but
not limited to all copyrights therein and thereto and all renewals and
extensions throughout this universe and you grant to the Company a power of
attorney, irrevocable and coupled with an interest to apply for and obtain in
your name all such copyrights, renewals and extensions thereof. Subject to your
reasonable approval, the Company may use and authorize others to use your name,
likeness, and biographical materials on a nonexclusive basis for program
publicity, institutional promotional purposes and any other exploitation of a
Work through any media now known or hereafter devised. For purposes of this
Agreement, each Work shall be deemed to be a work for hire pursuant to 17 U.S.C.
Section 101(2), and all authorship and ownership rights of each Work shall
belong to the Company pursuant to 17 U.S.C. Section 201(b).
4.4 FREEDOM TO EXECUTE AGREEMENT
The Company and Executive each represents and warrants to the other
that such party has the right, power, and ability to enter into this Agreement
and is not subject to any obligations or restrictions which would prevent such
party from, or interfere in any way with, keeping and performing all of the
agreements, covenants, and conditions required to be kept and performed
respectively by such party hereunder.
5. GENERAL PROVISIONS
5.1 APPLICABLE LAW
This Agreement shall be governed by and construed under the laws of
the State of California.
5.2 PRIOR AGREEMENTS; MODIFICATION
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and cancels all prior
or contemporaneous oral or written agreements and understandings with respect to
the subject matter hereof, between the parties or between the Executive and any
predecessor entity to the Company or entity with which the Company has engaged
in a business combination. This Agreement may not be changed or modified except
by a written instrument signed by the Executive and an authorized officer or
director of the Company. No modification or termination of this Agreement shall
affect or impair any rights or obligations which have theretofore matured
hereunder.
5.3 ASSIGNMENT
The Company may assign this Agreement to one or more affiliates or the
parent of
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the Company or to any entity with or into which the Company may merge or
consolidate or which succeeds to all or a substantial portion of the Company's
assets, provided that (i) such assignee is engaged in businesses similar to
those being carried on from time to time by the Company, (ii) the assignee
agrees to be bound by all of the material terms of this Agreement; (iii) the
assignee's financial condition, taken as a whole, is at least as sound as the
Company's financial condition immediately prior to such assignment, and (iv) the
Executive continues to serve in an executive or managerial capacity similar to
that being performed for the Company.
5.4 NOTICES
All notices, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
person, by messenger, overnight courier or United States mail, certified or
registered, with return receipt requested, or otherwise actually delivered, as
follows:
(a) If to the Company:
Global One Distribution & Merchandising Inc.
5548 Lindbergh Lane
Bell, California 90201-6410
ATTENTION: Corporate Secretary
With a copy to:
Samaha, Grogin and Stulberg, LLP
35 North Lake Avenue, Suite 810
Pasadena, California 91101-1856
ATTENTION: Jeffrey Grogin, Esq.
(b) If to the Executive:
Michael A. Malm
3730 Multiview Drive
Hollywood, California 90068
5.5 SURVIVAL
All covenants, representations, warranties, agreements and
undertakings contained in or made pursuant to this Agreement shall survive the
termination of the Employment Period.
5.6 NON-WAIVER
Any forbearance, delay, or failure by either party in exercising any
right, option,
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power or remedy hereunder shall not be deemed to be a waiver of such right,
option, power or remedy; nor shall any single or partial exercise of any right,
option, power, or remedy hereunder preclude further exercise thereof.
5.7 SEVERABILITY
If any provision of this Agreement is for any reason determined to be
void, illegal or unenforceable, in whole or in part, the validity and binding
effect of all of the remaining portions shall not be affected, and the remaining
portions of this Agreement shall remain in full force and effect as if the
provision which was determined to be void, illegal or unenforceable had not been
contained herein.
5.8 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one instrument.
5.9 SECTION HEADINGS
The headings of the articles and sections hereof are inserted only for
the purpose of convenient reference. Such headings shall not be deemed to
govern, limit, modify, or in any other manner affect the scope, meaning, or
intent of the provisions of this Agreement, or any part or portion thereof; nor
shall there otherwise be given any legal effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ___ day of ________, 1996.
THE "COMPANY"
GLOBAL ONE DISTRIBUTION
& MERCHANDISING INC.
By:
-------------------------------
Title:
THE "EXECUTIVE"
-----------------------------------
Name: Michael A. Malm
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made between Global One
Distribution & Merchandising Inc., a California corporation (the "Company"),
having its principal office located at 5548 Lindbergh Lane, Bell, California
90201, and George J. Vrabeck (the "Executive"), effective as of the ___th day of
_________, 1996 (the "Effective Date"), as follows:
1. TERMS OF EMPLOYMENT
1.1 EMPLOYMENT
The Company hereby employs the Executive for and during the period set
forth in Section 1.3 herein (the "Employment Period") to render services upon
the terms and conditions set forth herein, and the Executive hereby accepts such
employment and shall keep and perform all of the duties, services, obligations
and covenants herein set forth.
1.2 POSITIONS AND DUTIES OF EXECUTIVE
(a) During the Employment Period, the Executive will serve as
Executive Vice President of the Company, reporting to the President of the
Company or such other executive officer as the Board of Directors shall specify,
and his duties shall include generally, but without limitation, authority and
responsibility for managing financial matters, operations, strategic planning
and acquisitions of the Company and its subsidiaries, and such additional duties
as may be reasonably assigned to him by the Company. The Executive shall be
available to travel as the needs of the Company and his position may reasonably
require, but the Executive's principal place of business shall be in the Los
Angeles Metropolitan Area.
(b) The Executive agrees to devote his full productive time,
energies, and abilities to the proper and efficient performance of the duties,
responsibilities and authorities described above. However, the expenditure of
reasonable amounts of time by the Executive for educational, charitable and
professional activities that do not otherwise conflict with the terms of this
Agreement or the duties and responsibilities of the Executive shall not be
deemed a breach of this Agreement, provided that such activities do not
materially interfere with the services required of the Executive under this
Agreement, and shall not require the prior consent of the Company.
(c) During the Employment Period, the Executive shall not, without
the prior express authorization of the Board, directly or indirectly engage in
any activity competitive with the Company's businesses or those of any of its
subsidiaries, whether acting alone or as an officer, director, owner or
Executive of any other corporation or business, whether professional or
otherwise. Nothing contained in this Section 1.2(c), however, shall prevent the
Executive from purchasing and/or holding five percent (5.0%) or less of the
issued and outstanding capital stock or other equity of any other corporation or
a partnership that has a class of security registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is
subject to the
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requirements of Section 15(d) of the Exchange Act.
(d) The Executive shall, at all times during the Employment Period,
be furnished with such office, stenographic, secretarial and other necessary
assistance, and such facilities, amenities and services as are suitable to the
Executive's position as an executive officer and adequate for the performance of
the Executive's duties under this Agreement. Unless otherwise agreed to by the
Executive, the Executive's offices shall be maintained at the premises of the
principal place of business of the Company in Bell, California; provided,
however, that in connection with the performance of his duties and
responsibilities, the Executive acknowledges that he may be required to
undertake significant travel as the needs of his position may reasonably
require.
1.3 EMPLOYMENT PERIOD
The term of the Employment Period shall be a three (3) year period
commencing as of the Effective Date, or such shorter period in the event of a
termination of the obligations of either party under this Agreement pursuant to
Section 3 herein. Nothing in this Agreement shall prohibit the parties from
extending, by mutual agreement, the Employment Period beyond the term
contemplated in this paragraph.
2. COMPENSATION AND EMPLOYEE BENEFITS
2.1 COMPENSATION
As compensation for services to be rendered by the Executive hereunder
and for all rights herein granted and/or agreed to be granted by the Executive
to the Company, the Company shall pay to the Executive or provide for, subject
to all applicable laws and requirements respecting withholding of federal, state
and/or local taxes or their equivalent, the following:
(a) A base salary of $200,000 per year during the Employment Period,
to be paid to the Executive in accordance with the Company's normal payroll
periods. In addition, the Executive will receive, within ninety (90) days after
the end of each fiscal year, a bonus equal to $25,000 annually and shall be
eligible to receive an additional bonus of up to $25,000 annually based upon
performance criteria established by the Board of Directors at the beginning of
each fiscal year (performance criteria for 1996 will be established within
thirty (30) days after the Effective Date).
(b) Options to purchase 300,000 shares of Common Stock of the Company
at $1.50 per share, vesting at the end of each of the first three 12-month
periods beginning on the Effective Date (subject to accelerated vesting as
provided in Section 3.1(a)(iii)) at the rate of 100,000 shares per 12-month
period, pursuant to a Stock Option Agreement under a qualified Stock Option Plan
to be entered into with the Company containing such other terms and conditions
as are typically granted to other employees of the Company receiving stock
options. Each such option shall be exercisable at any time within a period of
five (5) years from the date of vesting; provided, however, that if the
Executive is terminated, such period for exercise shall be 90 days
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after such termination, after which all vested options shall expire. The
provision for, or grant of, options as set forth in this paragraph shall not
diminish or otherwise affect in any manner any other option or warrant to
purchase the Company's Common Stock held or acquired by the Executive on the
date hererof.
(c) The Company will provide the Executive with an automobile
allowance of $800 per month or the use of an automobile of equivalent value
purchased or leased by the Company and provided to the Employee for his
exclusive use, plus reimbursement of expenses for insurance, fuel and
maintenance.
2.2 EMPLOYMENT BENEFITS
In addition to the compensation provided for herein, during the
Employment Period the Executive shall be entitled to the following benefits,
subject to the following limitations:
(a) The Executive shall be eligible to participate in a 401(k)
savings plan, pension plan and other employee benefit plans to the extent such
plans are established by the Company for its full-time employees. During the
Employment Period, the Company shall provide for and maintain the Executive's
participation in a health insurance plan to the extent such benefit is regularly
furnished to other full-time employees of the Company.
(b) Vacation with pay, in such amount and on such terms as is
typically provided to other senior executive officers of the Company.
(c) Sick leave benefits, in such amount and on such terms as is
typically provided to other senior executive officers of the Company.
(d) Disability benefits, in such amount and on such terms as is
typically provided to other senior executive officers of the Company, except
that if the Executive is terminated pursuant to Section 3.1 while the Executive
is fully and completely disabled, then at the termination of such disability
benefits, the Executive shall be entitled to the severance benefits of a
termination other than for "Cause" as provided in Section 3.1.
2.3 EXPENSES
During the Employment Period, the Executive shall be entitled to
reimbursement from the Company for any reasonable travel and other out-of-pocket
business expenses necessarily incurred in the performance of his duties
hereunder (other than ordinary commuting expenses), upon submission and approval
of written statements and bills in accordance with the regular procedures of the
Company. In addition, the Company will reimburse the Executive for his expenses
incurred in the purchase, maintenance and operation of one cellular telephone
for use in the performance of his duties for the Company.
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3. TERMINATION
3.1 TERMINATION BY THE COMPANY; CHANGE OF CONTROL
(a) Notwithstanding anything to the contrary contained herein, the
Company shall have the right to terminate its obligations under this Agreement
at any time for any reason, solely in its discretion. However, unless the
Executive is terminated for "Cause" (as defined below), in the event of a
termination by the Company, the Executive shall be entitled to receive (i)
severance in the amount of his base salary plus his prorated guaranteed bonus
amount (at the rate of $25,000 per year) to be paid in such increments and on
such dates as if the Executive was not terminated, for a period of the lesser of
eighteen (18) months or the remaining term of the Employment Period applicable
immediately prior to such termination, (ii) continuous health insurance coverage
during the remaining term of the Employment Period applicable immediately prior
to such termination, and (iii) immediate vesting of all unvested stock options
granted to the Executive pursuant to Section 2.1(b) and applicable Stock Option
Agreement, except that in such event, all stock options held by the Executive
shall expire 90 days after termination of the Executive. If the Executive is
terminated for Cause, he shall be entitled to receive no severance compensation
or other benefits after the date of such termination.
(b) "Cause" shall be deemed to exist if the Executive (i) knowingly
commits an act or acts of dishonesty which results in substantial personal
enrichment of the Executive at the expense of the Company; (ii) knowingly causes
an unauthorized disclosure of information or material which is both confidential
and material to the Company and which results in irreparable harm to the
Company; or (iii) repeatedly fails to perform satisfactorily, properly and
promptly his duties under this Agreement after notice to the Executive and a
reasonable opportunity to cure. Notwithstanding the foregoing, however, Cause
shall not exist solely due to the financial performance or results of operation
of the Company.
(c) If, following a "Change of Control" of the Company, the
Executive's position is eliminated or his duties are materially changed, the
Executive shall be entitled to receive the compensation specified in Section
3.1(a) above as if a termination has occurred, unless Cause exists. "Change of
Control" shall mean (i) a merger or consolidation where the Company is not the
surviving entity (other than a reorganization not involving a change in
ownership); (ii) a transfer to another entity of all or substantially all of the
assets of the Company (other than a reorganization not involving a change in
ownership); (iii) an acquisition by a person (which term includes an entity or
an individual) or persons acting as a group of more than fifty percent (50%) of
the then outstanding shares of the Company that are held by a person or group of
persons (whether or not acting in concert) not the holder of more than fifty
percent (50%) of the shares of the Company on the Effective Date; or (iv) during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period were members of the Board (the "Incumbent Board") shall
cease to constitute a majority of the Board or the board of directors of any
successor to the Company, provided that any individual becoming a director
subsequent to the beginning of such period whose election or nomination for
election was approved by a vote of least seventy-five percent (75%) of
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the directors compromising the Incumbent Board shall, for purposes hereof, be
considered as though such individual were a member of the Incumbent Board.
3.2 TERMINATION BY EXECUTIVE
Notwithstanding anything to the contrary contained herein, the
Executive shall have the right to terminate his obligations under this Agreement
upon the occurrence of any of the following events:
(a) A material breach by the Company of its obligations under this
Agreement or, unless consented to by the Executive, a material change in his
duties from those specified herein.
(b) A proceeding is commenced by or against Company under any
bankruptcy, insolvency, reorganization, receivership, liquidation, compromise,
arrangement, or moratorium statutes, whether now or hereafter in effect, and
remains undismissed for a period of fifteen (15) days.
(c) The Company makes an assignment for the benefit of its creditors,
or files a petition in bankruptcy, or is adjudicated insolvent or bankrupt, or
petitions or applies to any tribunal for any receiver, liquidator, or trustee of
the Company for all or a substantial part of its assets, or a receiver,
liquidator, or trustee is appointed for Company for all or a substantial part of
its assets, and is not discharged within fifteen (15) days from the date of
appointment thereof.
4. COVENANTS AND WARRANTIES
4.1 CONFIDENTIALITY
The Executive recognizes that his position with the Company is one of
the highest trust and confidence by reason of Executive's access to and contact
with trade secrets and confidential and proprietary information of the Company.
The Executive agrees to use his best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company, including, but not limited to, any information
concerning the Company's business, finances, investments, performances,
productions, works in progress or professional relationships. The Executive
further agrees that he will not, during the Employment Period or for a period of
five (5) years thereafter, knowingly disclose, disseminate or distribute to any
other person or entity, nor induce any other person to disclose, disseminate or
distribute, any such trade secrets or confidential and proprietary information
of the Company, directly or indirectly, either for Executive's own benefit or
the benefit of another, except as is required in the course of his employment
with the Company. The foregoing sentence shall not apply, however, to
confidential and proprietary information which (a) is already in the public
domain; (b) comes into the public domain through no fault or prohibited act of
the Executive; or (c) is required to be disclosed under applicable law
(including the federal securities laws) or pursuant to a final, non-appealable
order of a court of competent jursidiction. All confidential information
relating to the business of the
-5-
<PAGE>
Company, whether prepared by the Executive or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall not,
except in the furtherance of the business of the Company, be removed from the
premises of the Company under any circumstances without the prior written
consent of the Company. The obligations of the Executive pursuant to this
subsection 4.1 shall survive a termination of the Employment Period and this
Agreement.
4.2 INSURANCE
The parties agree that the Company may, but shall not be required, to
secure in its own name or otherwise, and at its own expense, life, health,
accident, disability income, or other insurance covering the Executive and the
Executive shall have no right, title or interest in or to any such insurance,
except as may be otherwise expressly agreed upon by the Company and provided
under the terms of such policy coverage. If the Company elects to obtain any
such insurance, the Executive shall cooperate in obtaining such insurance by,
among other things, submitting to customary medical examinations and signing
such documents as may be reasonably required by any insurance company to which
application for such insurance shall be made.
4.3 OWNERSHIP AND AUTHORIZATION OF WORK
The Executive acknowledges and agrees that the Company is and shall be
the owner and author throughout the universe of all right, title, and interest
in and to any and all creative work or materials upon which the Executive
performs services hereunder (a "Work"), as the author of a work made for hire
and otherwise as the context hereof demands. All elements of each work prepared
by the Executive will at all times belong solely and exclusively to the Company
for use in any manner or media now known or hereafter devised, throughout the
universe in perpetuity. Each Work shall include, but may not be limited to, any
and all materials, ideas, or other artistic, creative and literary property
created or developed by the Executive pursuant to his services (whether alone or
in conjunction with any other person), or which the Executive may disclose to
the Company during the term hereof. The Company shall have the exclusive right
to copyright same in the name of the Company as an author of a work made for
hire and to exercise throughout the universe all rights of the copyright
proprietor thereunder. To the extent that any Work is deemed not a work made
for hire, the Executive hereby assigns to the Company all rights in such Work,
including but not limited to all copyrights therein and thereto and all renewals
and extensions throughout this universe and you grant to the Company a power of
attorney, irrevocable and coupled with an interest to apply for and obtain in
your name all such copyrights, renewals and extensions thereof. Subject to your
reasonable approval, the Company may use and authorize others to use your name,
likeness, and biographical materials on a nonexclusive basis for program
publicity, institutional promotional purposes and any other exploitation of a
Work through any media now known or hereafter devised. For purposes of this
Agreement, each Work shall be deemed to be a work for hire pursuant to 17 U.S.C.
Section 101(2), and all authorship and ownership rights of each Work shall
belong to the Company pursuant to 17 U.S.C. Section 201(b).
-6-
<PAGE>
4.4 FREEDOM TO EXECUTE AGREEMENT
The Company and Executive each represents and warrants to the other
that such party has the right, power, and ability to enter into this Agreement
and is not subject to any obligations or restrictions which would prevent such
party from, or interfere in any way with, keeping and performing all of the
agreements, covenants, and conditions required to be kept and performed
respectively by such party hereunder.
5. GENERAL PROVISIONS
5.1 APPLICABLE LAW
This Agreement shall be governed by and construed under the laws of
the State of California.
5.2 PRIOR AGREEMENTS; MODIFICATION
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes and cancels all prior
or contemporaneous oral or written agreements and understandings with respect to
the subject matter hereof, between the parties or between the Executive and any
predecessor entity to the Company or entity with which the Company has engaged
in a business combination. This Agreement may not be changed or modified except
by a written instrument signed by the Executive and an authorized officer or
director of the Company. No modification or termination of this Agreement shall
affect or impair any rights or obligations which have theretofore matured
hereunder.
5.3 ASSIGNMENT
The Company may assign this Agreement to one or more affiliates or the
parent of the Company or to any entity with or into which the Company may merge
or consolidate or which succeeds to all or a substantial portion of the
Company's assets, provided that (i) such assignee is engaged in businesses
similar to those being carried on from time to time by the Company; (ii) the
assignee agrees to be bound by all of the material terms of this Agreement;
(iii) the assignee's financial condition, taken as a whole, is at least as sound
as the Company's financial condition immediately prior to such assignment; and
(iv) the Executive continues to serve in an executive or managerial capacity
similar to that being performed for the Company.
5.4 NOTICES
All notices, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
person, by messenger, overnight courier or United States mail, certified or
registered, with return receipt requested, or otherwise actually delivered, as
follows:
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<PAGE>
(a) If to the Company:
Global One Distribution & Merchandising Inc.
5548 Lindbergh Lane
Bell, California 90201-6410
ATTENTION: Corporate Secretary
With a copy to:
Samaha, Grogin and Stulberg, LLP
35 North Lake Avenue, Suite 810
Pasadena, California 91101-1856
ATTENTION: Jeffrey Grogin, Esq.
(b) If to the Executive:
George J. Vrabeck
--------------------
--------------------
5.5 SURVIVAL
All covenants, representations, warranties, agreements and
undertakings contained in or made pursuant to this Agreement shall survive the
termination of the Employment Period.
5.6 NON-WAIVER
Any forbearance, delay, or failure by either party in exercising any
right, option, power or remedy hereunder shall not be deemed to be a waiver of
such right, option, power or remedy; nor shall any single or partial exercise of
any right, option, power, or remedy hereunder preclude further exercise thereof.
5.7 SEVERABILITY
If any provision of this Agreement is for any reason determined to be
void, illegal or unenforceable, in whole or in part, the validity and binding
effect of all of the remaining portions shall not be affected, and the remaining
portions of this Agreement shall remain in full force and effect as if the
provision which was determined to be void, illegal or unenforceable had not been
contained herein.
5.8 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall
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<PAGE>
be deemed an original and all of which taken together shall constitute one
instrument.
5.9 SECTION HEADINGS
The headings of the articles and sections hereof are inserted only for
the purpose of convenient reference. Such headings shall not be deemed to
govern, limit, modify, or in any other manner affect the scope, meaning, or
intent of the provisions of this Agreement, or any part or portion thereof; nor
shall there otherwise be given any legal effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ___ day of ________, 1996.
THE "COMPANY"
GLOBAL ONE DISTRIBUTION
& MERCHANDISING INC.
By:
-------------------------------
Title:
THE "EXECUTIVE"
-----------------------------------
Name: George J. Vrabeck
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<PAGE>
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BETWEEN
FOOTHILL CAPITAL CORPORATION
AND
OSP PUBLISHING, INC.
AND
THE BUTTON EXCHANGE, LTD.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
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1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . 12
1.3 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.4 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . 12
2 LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Revolving Advances. . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Letters of Credit and Letter of Credit Guaranties . . . . . . . 13
2.3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 Overadvances. . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.5 Interest: Rates, Payments, and Calculations . . . . . . . . . . 15
(a) Interest Rate . . . . . . . . . . . . . . . . . . . . . . 15
(b) Default Rate. . . . . . . . . . . . . . . . . . . . . . . 16
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Payments. . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Computation . . . . . . . . . . . . . . . . . . . . . . . 16
2.6 Crediting Payments. . . . . . . . . . . . . . . . . . . . . . . 16
2.7 Statements of Obligations . . . . . . . . . . . . . . . . . . . 17
2.8 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Closing Fee . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Annual Facility Fee . . . . . . . . . . . . . . . . . . . 17
(c) Financial Examination, Documentation and Appraisal Fees . 17
(d) Servicing Fee . . . . . . . . . . . . . . . . . . . . . . 17
3 CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT. . . . . . . . . . . . . 17
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty . 17
3.2 Term; Automatic Renewal . . . . . . . . . . . . . . . . . . . . 19
3.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . 19
3.4 Early Termination by Borrower . . . . . . . . . . . . . . . . . 20
3.5 Termination Upon Event of Default . . . . . . . . . . . . . . . 20
4 CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 20
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . 20
4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . . . . . 20
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral . . . . . . . . . . . . . . . . . . . . . 21
4.4 Delivery of Additional Documentation Required . . . . . . . . . 21
4.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . 21
4.6 Right to Inspect. . . . . . . . . . . . . . . . . . . . . . . . 22
5 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . 22
i
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TABLE OF CONTENTS
(Continued)
PAGE
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5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . . . 22
5.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Eligible Inventory. . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Location of Inventory and Equipment . . . . . . . . . . . . . . 22
5.5 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . 22
5.6 Location of Chief Executive Office. . . . . . . . . . . . . . . 22
5.7 Due Organization and Qualification. . . . . . . . . . . . . . . 23
5.8 Due Authorization; No Conflict. . . . . . . . . . . . . . . . . 23
5.9 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 No Material Adverse Change in Financial Condition . . . . . . . 23
5.11 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.13 Environmental Condition . . . . . . . . . . . . . . . . . . . . 24
5.14 Patents, Copyrights and Trademarks. . . . . . . . . . . . . . . 24
5.15 Material Agreement. . . . . . . . . . . . . . . . . . . . . . . 24
5.16 Reliance by Foothill, Certificates. . . . . . . . . . . . . . . 24
5.17 Subchapter S Election . . . . . . . . . . . . . . . . . . . . . 24
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 25
6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Collateral Reports. . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Schedules of Accounts . . . . . . . . . . . . . . . . . . . . . 25
6.4 Financial Statements, Reports, Certificates . . . . . . . . . . 25
6.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.6 Guarantor Reports . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Designation of Inventor . . . . . . . . . . . . . . . . . . . . 26
6.8 Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Title to Equipment. . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Maintenance of Equipment. . . . . . . . . . . . . . . . . . . . 27
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.13 Foothill Expenses . . . . . . . . . . . . . . . . . . . . . . . 28
6.14 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . 28
(a) Current Ratio . . . . . . . . . . . . . . . . . . . . . . 28
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Tangible Net Worth. . . . . . . . . . . . . . . . . . . . 28
6.15 No Setoffs or Counterclaims . . . . . . . . . . . . . . . . . . 28
6.16 Royalty Reporting . . . . . . . . . . . . . . . . . . . . . . . 28
6.17 Location of Inventory and Equipment . . . . . . . . . . . . . . 29
6.18 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 29
6.19 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . 29
ii
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TABLE OF CONTENTS
(Continued)
PAGE
----
6.20 Leases and Rent Reports . . . . . . . . . . . . . . . . . . . . 30
6.21 Material Agreements . . . . . . . . . . . . . . . . . . . . . . 30
6.22 Refinancing of Stanley DeSantis, Inc. . . . . . . . . . . . . . 30
6.23 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . . . 31
7.4 Extraordinary Transactions and Disposal of Assets . . . . . . . 32
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . . . 32
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.8 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . . . 32
7.10 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . 32
7.11 Consignments. . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.12 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.13 Accounting Methods. . . . . . . . . . . . . . . . . . . . . . . 33
7.14 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.15 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 33
7.16 Suspension. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.17 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.18 Subchapter S Distributions. . . . . . . . . . . . . . . . . . . 33
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9. FOOTHILL'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . 36
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . 36
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . 38
10. TAXES AND EXPENSES REGARDING THE COLLATERAL. . . . . . . . . . . . . . 38
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . . . 38
11.2 Foothill's Liability for Inventory or Equipment . . . . . . . . 38
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 39
11.4 Suretyship Waivers and Consents . . . . . . . . . . . . . . . . 39
12. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
iii
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TABLE OF CONTENTS
(Continued)
PAGE
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13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . . . 43
14. DESTRUCTION OF BORROWER'S DOCUMENTS. . . . . . . . . . . . . . . . . . 44
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . 44
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 44
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . 44
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 44
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . 44
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . 45
15.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 45
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . 45
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . 45
EXHIBITS AND SCHEDULES
Schedule P-1 Permitted Liens
Exhibit 2.3 Form of Term Loan Note
Schedule 5.9 Litigation
Schedule 5.14 Patents, Copyrights and Trademarks
Schedule 6.17 Permitted Inventory and Equipment Locations
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of February 6,
1996 among FOOTHILL CAPITAL CORPORATION, a California Corporation ("FOOTHILL"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, and OSP PUBLISHING, INC., a California
corporation ("OSP") and THE BUTTON EXCHANGE, LTD., a Michigan corporation
("BEX", and together with OSP, jointly and severally, collectively "BORROWER"),
with their chief executive office located at 5548 Lindbergh Lane, Bell,
California 90201.
WITNESSETH:
WHEREAS, OSP and BEX, as, respectively, parent and majority owned
subsidiary, are interrelated entities which, collectively, constitute an
integrated publisher of licensed retail products and manufacturer of color
buttons, bookmarks, wallet cards and other gift items, with OSP providing all
administrative services for BEX; and
WHEREAS, the shareholders and directors of OSP and BE view the two
entities as sufficiently dependent upon each other and so interrelated, that any
advances made by Foothill hereunder to either of the constituent entities would
benefit both of the constituent entities as a result of their consolidated
operations and identity of interests, and
WHEREAS, OSP and BEX have each requested that Foothill treat them as
co-borrowers hereunder, as a single, consolidated business enterprise, jointly
and severally responsible for the Obligations hereunder, so as to permit
advances to be allocated among the constituent entities as may be, from time to
time, in the best interest of the combined group; and
WHEREAS, Foothill is willing to proceed on the basis of treating all
of the borrowing entities as a single, consolidated business enterprise, and
view their operations on a consolidated basis as requested by OSP and BEX; and
WHEREAS, Foothill is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
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1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any person who is or who may become obligated
under, with respect to, or on account of an Account.
"ACCOUNT" or "ACCOUNTS" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods or the rendition of services
by Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor.
"AFFILIATE" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract, or otherwise.
"AGREEMENT" means this Loan and Security Agreement and any extensions,
riders, supplements, notes, amendments, or modifications to or in connection
with this Loan and Security Agreement.
"AUTHORIZED OFFICER" means any officer of Borrower.
"BEX" has the meaning set forth in the preamble to this Agreement.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
assets or liabilities, or the Collateral; all information relating to Borrower's
business operations or financial condition; and all computer programs, disc or
tape files, printouts, runs, or other computer prepared information, and the
equipment containing such information.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWING BASE" has the meaning set forth in SECTION 2.1.
"BUSINESS DAY" means any day which is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"CALIFORNIA TAXABLE INCOME" means the taxable income of Borrower for
any taxable year computed pursuant to Section 23802 or any successor provision
of the California Revenue and Taxation Code but calculated as if the taxable
year of Borrower ended on the date with respect to which such taxable income
calculation is made.
"CHANGE OF CONTROL" shall be deemed to have occurred at such times as:
(a) Mr. Joseph C. Angard shall fail to own, directly or indirectly, twenty
percent (20%) or
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more of the issued and outstanding common stock of OSP; or (b) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Act of 1934), other than Mr. Joseph C. Angard, becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than twenty percent (20%) of the total voting power of
all classes of stock then outstanding of Borrower normally entitled to vote in
the election of directors; or (c) OSP shall fail to own directly seventy percent
(70%) or more of the issued and outstanding common stock of BEX or shall lose
voting control of BEX's issued and outstanding common stock.
"CLOSING DATE" means the date of the initial advance made by Foothill
pursuant to SECTION 2.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following: the Accounts; Borrower's
Books; the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money, or other assets of Borrower which hereafter come into the
possession, custody, or control of Foothill; and the proceeds and products,
whether tangible or intangible, of any of the foregoing including proceeds of
insurance covering any or all of the Collateral, and any and all Accounts,
Equipment, General Intangibles, Inventory, Negotiable Collateral, money, Deposit
Accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of the Collateral, or any portion
thereof or interest therein, and the proceeds thereof.
"DAILY BALANCE" means the amount of an Obligation owed at the end of a
given day.
"DILUTION" means, as of the date of determination, the total of all
chargebacks, returns, advertising claims, discounts, contra accounts, write-
offs in favor of or held by Account Debtors and any other item that could reduce
or otherwise impair the full and timely collection of Accounts, expressed as a
percentage of cash collections PLUS dilutive items, determined on a six (6)
month rolling basis.
"DIVIDEND LIMITATION" means the sum of: (a) the product of the Maximum
Effective California Rate and Borrower's California Taxable Income except that
the product in this subsection (a) shall be zero in the event Borrower does not
qualify (or subsequently elects not) to be treated as an S corporation for
California income tax purposes, plus (b) the product of the Maximum Federal
Rate and Borrower's Federal Taxable Income.
"EARLY TERMINATION PREMIUM" has the meaning set forth in Section 3.4.
"ELIGIBLE ACCOUNTS" means those Accounts created by Borrower in the
ordinary course of business that arise out of Borrower's sale of goods or
rendition of services, that strictly comply with all of Borrower's
representations and warranties to Foothill as set forth in the Loan Documents,
as to which Foothill has a first priority perfected security interest under
applicable law, and that are and at all times shall continue to be acceptable to
Foothill
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in all respects; provided, however, that standards of eligibility may be fixed
and revised from time to time by Foothill in Foothill's commercially reasonable
judgment. Eligible Accounts shall not include the following:
(a) Accounts which the Account Debtor has failed to pay within ninety
(90) days of invoice date or within sixty (60) days of due date provided that
such due date is no later than sixty (60) days of invoice date (with the
exception of Musicland Group, MTS, Linens & Things and Handlemen's, for which
the dating of Eligible Accounts shall be thirty (30) days of due date provided
that such due date is no later than ninety (90) days of invoice date);
(b) Accounts with respect to which the Account Debtor is an officer,
employee, Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States or Canada, and which are not either (i) covered by
credit insurance in form and amount, and by an insurer satisfactory to Foothill,
or (ii) supported by one or more letters of credit that are assignable and have
been delivered to Foothill in an amount and of a tenor, and issued by a
financial institution, acceptable to Foothill;
(e) Accounts with respect to which the Account Debtor is the United
States or any department, agency, or instrumentality of the United States, any
state of the United States, or any city, town, municipality, or division
thereof;
(f) Accounts with respect to which the Account Debtor is a subsidiary
of, related to, affiliated with or has common shareholders, officers or
directors with Borrower;
(g) Accounts with respect to which Borrower is or may become liable to
the Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower but only to the extent of Borrower's liability to such Account Debtor;
(h) Accounts with respect to an Account Debtor whose total
obligations to Borrower exceed ten percent (10%) of all Eligible Accounts (with
the exception of Musicland Group, for which the percentage shall be fifteen
percent (15%) provided that in no event shall amounts advanced against
Accounts with respect to which Musicland Group is the Account Debtor exceed Six
Hundred Thousand Dollars ($600,000) outstanding at any one time, and Foothill
agrees to consider increasing the concentration percentages for Account Debtors
up to a maximum of fifteen percent (15%) as requested by Borrower from time to
time subject to Foothill's reasonable review and approval of the credit quality
of the Account Debtor for which an increase in the concentration percentage is
requested; and with the further exception that the aggregate percentage
concentration of Borrower's four (4) largest Account Debtors, as the same shall
change from time to time, shall not exceed forty-five
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<PAGE>
percent (45%)), to the extent of the obligations of such Account Debtor in
excess of such percentage;
(i) Accounts with respect to which the Account Debtor disputes
liability or makes any claim with respect thereto, or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Foothill reasonably believes to
be doubtful by reason of the Account Debtor's financial condition; and
(k) Accounts owed by an Account Debtor that has failed to pay fifty
percent (50%) or more of its accounts then owed to Borrower within the
applicable time periods set forth in subparagraph (a) above.
"ELIGIBLE INVENTORY" means Inventory consisting of first quality
finished posters, bookmarks, buttons and stickers, key chains, and movie script
Inventory (and such additional finished goods that are added from time to time
to the list of items constituting Eligible Inventory by written letter agreement
between Foothill and Borrower), held for sale in the ordinary course of
Borrower's business, that are located at Borrower's premises, are acceptable to
Foothill in all reasonable respects, and strictly comply with all of Borrower's
representations and warranties to Foothill. Eligible Inventory shall not
include slow moving or obsolete items, raw materials, restrictive or custom
items, work in process, components which are not part of finished goods, spare
parts, displays, button covers, packaging and shipping materials, supplies used
or consumed in Borrower's business, Inventory at the premises of third parties
or subject to a security interest or lien in favor of any third party (other
than liens and security interests securing the Subordinated Debt), bill and hold
goods, Inventory that is not subject to Foothill's perfected security interest,
returned or defective goods, "seconds", and Inventory purchased on consignment.
Eligible Inventory shall be valued at the lower of Borrower's cost or market.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, dies, jigs,
goods (other than consumer goods, farm products, or Inventory), and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or superseding laws of
the United States of America, together with all regulations promulgated
thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which, within the meaning of Section 414 of the IRC, is: (i) under
common control with Borrower; (ii) treated, together with Borrower, as a single
employer; (iii) treated as a member of an Affiliated service group of which
Borrower is also treated as a member; or (iv) is otherwise aggregated with the
Borrower for purposes of the employee benefits requirements listed in IRC
Section 414(m)(4).
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"ERISA EVENT" means any one or more of the following: (i) a Reportable
Event with respect to a Qualified Plan or a Multiemployer Plan; (ii) a
Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (v) a failure
to make full payment when due of all amounts which, under the provisions of any
Plan or applicable law, Borrower or any ERISA Affiliate is required to make;
(vi) the filing of a notice of intent to terminate, or the treatment of a plan
amendment as a termination, under Sections 4041 or 4041A of ERISA; (vii) an
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Qualified Plan or Multiemployer Plan; (viii) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA
Affiliate; and (ix) a violation of the applicable requirements of Sections 404
or 405 of ERISA, or the exclusive benefit rule under Section 403(c) of ERISA,
by any fiduciary or disqualified person with respect to any Plan for which
Borrower or any ERISA Affiliate may be directly or indirectly liable.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCESS AVAILABILITY" means the amount, as of the date any
determination thereof is to be made, equal to:
(a) the lesser of (i) the amount of Revolving Advances available
to Borrower as of such time (based on the applicable advance rates set forth in
Sections 2.1(a) and (b) hereof), subject to the sublimits and availability
reserves from time to time established by Foothill hereunder and (ii) the
Maximum Amounts LESS the outstanding principal balance of the Term Loan Note
plus accrued but unpaid interest thereon; PLUS
(b) Unrestricted Cash of Borrower; MINUS
(c) the sum of: (i) the amount of all then outstanding and unpaid
Obligations LESS the outstanding principal balance of the Term Loan Note plus
accrued but unpaid interest thereon, (ii) the aggregate amount of all trade
payables of Borrower which are more than sixty (60) days past due as of such
time, and (iii) the aggregate amount of Borrower's book overdrafts.
"FEDERAL TAXABLE INCOME" means the taxable income of Borrower for any
taxable year computed pursuant to Section 1363(b) or any successor provision of
the IRC but calculated as if the taxable year of Borrower ended on the date with
respect to which such taxable income calculation is made.
"FOOTHILL EXPENSES" means all: costs or expenses (including taxes,
photocopying, notarization, telecommunication and insurance premiums) required
to be paid by Borrower under any of the Loan Documents that are paid or advanced
by Foothill; documentation, filing, recording, publication, appraisal (including
periodic Collateral appraisals), real estate survey, environmental audit, and
search fees assessed, paid, or incurred by Foothill in
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connection with Foothill's transactions with Borrower; costs and expenses
incurred by Foothill in the disbursement of funds to Borrower (by wire transfer
or otherwise); charges paid or incurred by Foothill resulting from the dishonor
of checks; costs and expenses paid or incurred by Foothill to correct any
default or enforce any provision of the Loan Documents, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof, whether or
not a sale is consummated; costs and expenses paid or incurred by Foothill in
examining Borrower's Books; costs and expenses of third party claims or any
other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents; and Foothill's reasonable attorneys' fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including reasonable attorneys' fees and expenses
incurred in connection with a 'workout", a "restructuring", or an Insolvency
Proceeding concerning Borrower or any guarantor of the Obligations), defending,
or concerning the Loan Documents, whether or not suit is brought.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and future
general intangibles and other personal property (including choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, monies due under any royalty or licensing
agreements, infringements, claims, computer programs, computer discs, computer
tapes, literature, reports, catalogs, deposit accounts, insurance premium rates,
tax refunds, and tax refund claims) other than goods and Accounts.
"INDEBTEDNESS" shall mean: (a) all obligations of Borrower for
borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts, or
other financial products; (c) all obligations under capitalized leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any asset owned by Borrower, irrespective of whether such obligation or
liability is assumed; and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with its creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"INVENTORY" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and
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packing and shipping materials, wherever located, and any documents of title
representing any of the above.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"JUDICIAL OFFICER OR ASSIGNEE" means any trustee, receiver,
controller, custodian, assignee for the benefit of creditors, or any other
person or entity having powers or duties like or similar to the powers and
duties of a trustee, receiver, controller, custodian, or assignee for the
benefit of creditors.
"L/Cs" has the meaning set forth in SECTION 2.2(a).
"L/C GUARANTIES" has the meaning set forth in SECTION 2.2(a).
"LOAN DOCUMENTS" means, collectively, this Agreement, the Term Loan
Note, the Subordination Agreements and any other agreement entered into in
connection with this Agreement, together with all alterations, amendments,
changes, extensions, modifications, refinancing, refundings, renewals,
replacements, restatements, or supplements, of or to any of the foregoing.
"MAXIMUM AMOUNT" has the meaning set forth in SECTION 2.1.
"MAXIMUM EFFECTIVE CALIFORNIA RATE" means the product of (a) the
maximum California personal income tax rate imposed on individuals pursuant to
Section 17041(a) and (c) or any successor provisions of the California Revenue
and Taxation Code times (b) the difference between one (1.0) and the Maximum
Federal Rate expressed as a decimal.
"MAXIMUM FEDERAL RATE" means the maximum Federal income tax rate
imposed on individuals pursuant to Sections 1(a)-(d) or any successor provisions
of the IRC, as adjusted pursuant to Section 15 or any successor provision of the
IRC, if applicable.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC in which employees of
Borrower or an ERISA Affiliate participate or to which Borrower or any ERISA
Affiliate contribute or are required to contribute.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, documents, personal property
leases (wherein Borrower is the lessor), chattel paper, and Borrower's Books
relating to any of the foregoing.
"OBLIGATIONS" means (jointly and severally as to OSP and BEX) all
loans, advances, debts, principal, interest (including any interest that, but
for the provisions of the United States Bankruptcy Code, would have accrued),
contingent reimbursement obligations owing to Foothill under any outstanding
L/Cs or L/C Guaranties, premiums, liabilities (including all amounts charged to
Borrower's loan account pursuant to any agreement authorizing Foothill to charge
Borrower's loan account), obligations, fees (including Early
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Termination Premiums), lease payments, guaranties, covenants, and duties owing
by Borrower to Foothill of any kind and description (whether pursuant to or
evidenced by the Loan Documents, by any note or other instrument, or by any
other agreement between Foothill and Borrower, and whether or not for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not paid
when due and all Foothill Expenses that Borrower is required to pay or reimburse
by the Loan Documents, by law, or otherwise.
"OSP" has the meaning set forth in the preamble to this Agreement.
"OVERADVANCE" has the meaning set forth in SECTION 2.4.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"PERMITTED DIVIDEND AMOUNT" means the amount by which the Dividend
Limitation for the taxable year exceeds the aggregate dividends paid by Borrower
for such year pursuant to SECTION 7.18, including dividends paid within one
hundred five (105) days after the end of the taxable year which are designated
by Borrower as attributable to such year; provided that:
(a) if, at the end of any taxable year of Borrower, the Dividend
Limitation for such year exceeds the aggregate dividends paid by Borrower for
such year pursuant to SECTION 7.18, then such excess shall be ignored for
purposes of computing the Permitted Dividend Amount for any subsequent period;
(b) if, at the end of any taxable year of Borrower, the aggregate
dividends paid by Borrower for such year pursuant to SECTION 7.18 exceed the
Dividend Limitation, the Permitted Dividend Amount shall be zero (0), and such
excess shall be included in the calculation of the aggregate dividends paid by
Borrower for the following taxable year(s); and
(c) if Borrower's S corporation election made pursuant to IRC
Section 1362 or any successor provision shall be determined to be invalid, or is
revoked or terminated, then the Permitted Dividend Amount shall be zero (0) from
and after the date of such invalidity, revocation, or termination.
"PERMITTED LIENS" means: (a) liens and security interests held by
Foothill; (b) liens for unpaid taxes that are not yet due and payable; (c) liens
and security interests set forth on SCHEDULE P-1 attached hereto; (d) purchase
money security interests and liens of lessors under capitalized leases to the
extent that the acquisition or lease of the underlying asset was permitted under
SECTION 7.10, and so long as the security interest or lien only secures the
purchase price of the asset; (e) easements, rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and other similar
encumbrances that do not
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materially interfere with the use or value of the property subject thereto; (f)
obligations and duties as lessee under any lease existing on the date of this
Agreement; (g) mechanics', materialmen's, warehousemen's, or similar liens that
arise by operation of law; (h) the security interests and liens granted by
Borrower to Senoral and Yamasaki to secure the Subordinated Debt subject to the
terms and conditions of the Subordination Agreements; and (i) pledges or
deposits made in the ordinary course of business to secure non-delinquent
obligations (not in excess of $5,000) existing under statutory requirements
consisting of worker's compensation, unemployment insurance, and similar
legislation.
"PERMITTED PROTEST" means the right of Borrower to protest any lien,
tax, rental payment, account payable, or other charge, other than any such lien
or charge that secures the Obligations, provided (i) a reserve with respect to
such obligation is established on the books of Borrower and, if required by
Foothill, against borrowing availability under SECTION 2.1 hereof, in an amount
that is reasonably satisfactory to Foothill, (ii) any such protest is instituted
and diligently prosecuted by Borrower in good faith, and (iii) Foothill is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the license or security
interests of Foothill in and to the property or assets of Borrower.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint ventures,
trusts, land trusts, business trusts, or other organizations, irrespective of
whether they are legal entities, and governments and agencies and political
subdivisions thereof.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to which
Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"PROHIBITED TRANSACTION" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Sections 4975(c) or (d) of the IRC which is not exempt
by reason of Section 4975(c)(2) of the IRC.
"QUALIFIED PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the IRC which
Borrower or any ERISA Affiliate sponsors, maintains, or to which any such person
makes, is making, or is obligated to make, contributions, or, in the case of a
multiple-employer plan (as described in Section 4064(a) of ERISA), has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"REFERENCE RATE" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "prime rate" or "reference rate," as the case may be,
whether or not such announced rate is the best rate available from such
financial institution.
"RENEWAL DATE" has the meaning set forth in SECTION 3.2.
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"REPORTABLE EVENT" means a reportable event described in Section 4043
(other than Subsections (b)(7) and (b)(9)) of ERISA or the regulations
thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a
cessation of operations described in Section 4068(f) of ERISA.
"REVOLVING ADVANCES" has the meaning set forth in SECTION 2.1.
"SDI" has the meaning set forth in SECTION 6.22.
"SENORAL" means Senoral, Inc., a California corporation.
"SENORAL SUBORDINATION AGREEMENT" means that Certain Intercreditor and
subordination Agreement, of even date herewith, between Senoral and Foothill,
and acknowledged by Borrower.
"SUBORDINATED DEBT" means the Indebtedness of the Borrower owed to
Yamasaki and Senoral subordinated to the Obligations hereunder in accordance
with the terms, respectively, of the Yamasaki Subordination Agreement and the
Senoral Subordination Agreement.
"SUBORDINATION AGREEMENTS" means the Yamasaki Subordination Agreement
and the Senoral Subordination Agreement.
"TANGIBLE NET WORTH" means, as of the date the determination thereof
is to be made, the difference of: (a) the sum of (i) Borrower's total
stockholder's equity (deficit); (ii) the Subordination Debt; and (iii) the
minority interest in any subsidiary of Borrower to the extent deducted from the
calculation of Borrower's total stockholder's equity; MINUS (b) the sum of (i)
all intangible assets of Borrower; (ii) all of Borrower's prepaid expenses (but
excluding prepaid royalty expenses); and (iii) all amounts due to Borrower from
Affiliates; in each case, calculated on a consolidated basis.
"TERM LOAN NOTE" has the meaning set forth in SECTION 2.3.
"TREASURY BILL" means those certain United States Treasury Bills,
respectively, in the denominations of $350,000 and $150,000, pledged by Richman
Bry, Jr. to Foothill as additional collateral security for the payment and
performance of the Obligations hereunder.
"UNFUNDED BENEFIT LIABILITY" means the excess of a Plan's benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the current value
of such Plan's assets, determined in accordance with the assumptions used by
the Plan's actuaries for funding the Plan pursuant to Section 412 of the IRC for
the applicable plan year.
"UNRESTRICTED CASH" means all of Borrower's cash on hand as of the
date of determination of Excess Availability, including all cash proceeds on
hand as of the date of determination of Excess Availability from the issuance of
Borrower of any capital stock or indebtedness not prohibited by this Agreement
and any other cash proceeds on hand as of the date of determination of Excess
Availability received by Borrower that are not in respect of
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the Collateral or of any proceeds thereof and are not pledged to secure any
obligations of Borrower to any other Person (until such secured obligations have
been fully satisfied and such cash has been released from such pledge).
"WORKING CAPITAL" means Borrower's consolidated current assets MINUS
consolidated current liabilities (each determined in accordance with GAAP as of
the last day of the period being measured).
"YAMASAKI" means Mr. Robert Yamasaki, a resident of the State of
California.
"YAMASAKI SUBORDINATION AGREEMENT" means that certain Subordination
Agreement, of even date herewith, between Yamasaki and Foothill, and
acknowledged by Borrower.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto.
1.3 CODE. Any terms used in this Agreement which are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, and to the
singular include the plural. The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, and exhibit references are to this Agreement unless
otherwise specified.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 REVOLVING ADVANCES. Subject to the terms and conditions of this
Agreement, and so long as no Event of Default has occurred and is continuing,
Foothill agrees to make revolving advances to Borrower in an amount not to
exceed the Borrowing Base LESS one hundred percent (100%) of the aggregate face
amount of all undrawn or unreimbursed L/Cs and L/C Guaranties ("REVOLVING
ADVANCES"). For purposes of this Agreement "BORROWING BASE" shall mean the sum
of:
(a) an amount equal to eighty percent (80%) of the amount of Eligible
Accounts; PROVIDED, HOWEVER, that the foregoing initial advance rate of eighty
percent (80 %) shall be subsequently reduced by one percentage point for each
percentage point of Dilution in excess of eight percent (8%); plus
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(b) an amount equal to the lesser of: (i) forty-five percent (45%)
of the amount of Eligible Inventory, (ii) the outstanding balance of advances
against Eligible Accounts, and (iii) One Million Five Hundred Thousand Dollars
($1,500,000).
(c) Notwithstanding anything to the contrary in subparagraphs (a) and
(b) above, Foothill may reduce its advance rates based upon Eligible Accounts
and Eligible Inventory or establish availability reserves without declaring an
Event of Default if it determines, in its reasonable discretion, that there is a
material impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of Foothill's
security interests in the Collateral. Foothill shall endeavor to provide
Borrower with prompt notice of any action taken pursuant to this subparagraph
(c), but Foothill shall not be liable to Borrower or any third party for
Foothill's failure to provide such notice.
(d) Foothill shall have no obligation to make Revolving Advances
hereunder to the extent such Revolving Advances would cause all outstanding
Obligations hereunder, including, without limitation, Borrower's Obligations
under SECTIONS 2.1, 2.2 and 2.3 hereof, to exceed Seven Million Five Hundred
Thousand ($7,500,000) ("MAXIMUM AMOUNT").
(e) Foothill is authorized to make Revolving Advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer of Borrower or, without instructions, if
in Foothill's reasonable discretion such advances are necessary to meet
Obligations. Requests for Revolving Advances received after 11:00 a.m. Pacific
Standard Time on any Business Day shall be deemed to have been made as of the
opening of business on the immediately following Business Day. Borrower agrees
to establish and maintain a single designated deposit account for the purpose of
receiving the proceeds of the Revolving Advances requested by Borrower and made
by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Revolving Advance requested by Borrower and made by Foothill hereunder shall be
made to such designated deposit account. The proceeds of the Revolving Advances
made under this SECTION 2.1 shall be used by Borrower, consistent with this
Agreement, for its general working capital purposes. Amounts borrowed pursuant
to this SECTION 2.1 may be repaid and reborrowed at any time during the term of
this Agreement so long as no Event of Default has occurred and is continuing.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTIES.
(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to issue commercial or standby letters of credit for the account of
Borrower (each, an "L/C") or to issue guarantees of payment with respect to L/Cs
(each, an "L/C GUARANTY") in an aggregate face amount not to exceed the lesser
of: (i) the Borrowing Base less the amount of outstanding revolving advances
pursuant to SECTION 2.1, and (ii) Five Hundred Thousand Dollars ($500,000).
Borrower expressly understands and agrees that Foothill shall have no obligation
to arrange for the issuance by other financial institutions of L/Cs that are to
be the subject of L/C Guaranties and that certain of such L/Cs may be
outstanding on the Closing Date. Each such L/C (including those that are the
subject of L/C Guaranties) shall have an
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expiry date no later than sixty (60) days prior to the date on which this
Agreement is scheduled to terminate under SECTION 3.2 hereof and all such L/Cs
and L/C Guaranties shall be, in form and substance, acceptable to Foothill in
its reasonable discretion. Foothill shall not have any obligation to issue L/Cs
or L/C Guaranties to the extent that the face amount of all outstanding L/C and
L/C Guaranties, plus the amount of revolving advances outstanding pursuant to
SECTION 2.1 and the then outstanding principal balance of the Term Loan Note
plus accrued but unpaid interest thereon, would exceed the Maximum Amount. The
L/Cs and the L/C Guaranties issued under this SECTION 2.2 shall be used by
Borrower, consistent with this Agreement, for its general working capital
purposes or to support its obligations with respect to workers' compensation
premiums or other similar obligations. If Foothill is obligated to advance
funds under an L/C or L/C Guaranty, the amount so advanced shall be deemed to be
an advance made by Foothill to Borrower pursuant to SECTION 2.1 and,
thereafter, shall bear interest on the terms and conditions provided in SECTION
2.5.
(b) Borrower hereby agrees to Indemnify, save, and hold Foothill
harmless from any loss, cost, expense, or liability, including payments made by
Foothill, expenses, and reasonable attorneys' fees incurred by Foothill arising
out of or in connection with any L/Cs or L/C Guaranties. Borrower agrees to be
bound by the issuing bank's regulations and interpretations of any L/Cs
guarantied by Foothill and opened to or for Borrower's account or by Foothill's
interpretations of any L/C issued by Foothill to or for Borrower's account, even
though this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Foothill shall not be liable for any error,
negligence, or mistakes, whether of omission or commission, in following
Borrower's instructions or those contained in the L/Cs or any modifications,
amendments, or supplements thereto. Borrower understands that the L/C
Guaranties may require Foothill to indemnify the issuing bank for certain costs
or liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify and hold Foothill harmless with respect to
any loss, cost, expense, or liability incurred by Foothill under any L/C
Guaranty as a result of Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that issues an
L/C guaranteed by Foothill to deliver to Foothill all instruments, documents,
and other writings and property received by the issuing bank pursuant to the
L/C, and to accept and rely upon Foothill's instructions and agreements with
respect to all matters arising in connection with the L/C and the related
application. Borrower may or may not be the "account party"' on such L/Cs.
(d) Any and all service charges, commissions, fees and costs incurred
by Foothill relating to the L/Cs guaranteed by Foothill shall be considered
Foothill Expenses for purposes of this Agreement and shall be immediately
reimbursable by Borrower to Foothill. On the first Business Day of each month,
Borrower will pay Foothill a fee equal to two percent (2%) per annum times the
average Daily Balance of the undrawn L/Cs and L/C Guaranties that were
outstanding during the immediately preceding calendar month. Service charges,
commissions, fees and costs may be charged to Borrower's loan account at the
time the service is rendered or the cost is incurred.
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(e) Immediately upon the termination of this Agreement, Borrower
agrees to either: (i) provide cash collateral to Foothill in an amount equal to
the maximum amount of Foothill's obligations under L/Cs plus the maximum amount
of Foothill's obligations to any issuing bank under outstanding L/C Guaranties,
or (ii) cause to be delivered to Foothill releases of all of Foothill's
obligations under its outstanding L/Cs and L/C Guaranties. At Foothill's
discretion, any proceeds of Collateral received by Foothill may be held as the
cash collateral required by this SECTION 2.2(e).
2.3 TERM LOAN. In addition to amounts advanced under Sections 2.1
and 2.2 above, Foothill has agreed to make a term loan to Borrower for general
working capital purposes in the original principal amount of Five Hundred
Thousand Dollars ($500,000) evidenced by and repayable in accordance with that
certain Secured Term Loan Promissory Note, of even date herewith, executed by
Borrower to the order of Foothill in the form of EXHIBIT 2.3 attached hereto and
incorporated herein by this reference (the "TERM LOAN NOTE"), which amount shall
be advanced on the Closing Date. Obligations owing under the Term Loan Note
shall constitute Obligations, and the Term Loan Note, together with each
amendment, extension, supplement, or replacement thereto, shall each be deemed a
Loan Document. The Borrower may prepay the principal balance of the Term Loan
Note, in whole or in part, at any time, and from time to time, without penalty.
In the event that Borrower fully repays the Term Loan Note and PROVIDED that (i)
no Event of Default shall have occurred and is continuing hereunder, and (ii)
after giving effect to the release of the Treasury Bill as additional collateral
security, Borrower shall have Two Hundred Thousand Dollars ($200,000) in Excess
Availability, Foothill shall release the Treasury Bill as additional collateral
security hereunder and shall return the Treasury Bill as directed by Borrower to
Foothill in writing.
2.4 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to SECTION 2.1 and 2.2 is
greater than either the dollar or percentage limitations set forth in SECTION
2.1 or 2.2 (an "OVERADVANCE") Borrower shall pay to Foothill, in cash, the
amount of such excess.
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. All Obligations, except for undrawn L/Cs and L/C
Guaranties shall bear interest, on the average Daily Balance, at a rate of one
and three-quarters (1.75) percentage points above the Reference Rate; PROVIDED,
HOWEVER, that in the event (i) Borrower has net profit for its fiscal year ended
December 31, 1996, as shown on Borrower's consolidated financial statements for
such period provided by Borrower to Foothill pursuant to SECTION 6.4 hereof, and
Borrower has provided Foothill Collateral and financial reporting satisfactory
to Foothill in its sole discretion, the interest rate shall be reduced from one
and three-quarters (1.75) percentage points above the Reference Rate to one and
one-half (1.50) percentage points above the Reference Rate commencing January 1,
1997, or (ii) Borrower obtains additional cash equity capital of no less than
Two Million Dollars ($2,000,000), the interest rate shall be reduced from one
and three-quarters (1.75) percentage points above the Reference Rate to one and
one-half (1.5) percentage points above the Reference Rate commencing with the
first day of the calendar month following the month during which Borrower
receives the capital contribution.
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(b) DEFAULT RATE. (i) All Obligations, except for undrawn L/Cs and
L/C Guaranties, shall bear interest, from and after the occurrence and during
the continuance of an Event of Default, at a rate equal to four and
three-quarters (4.75) percentage points above the Reference Rate (four and
one-half (4.5) percentage points above the Reference Rate if the interest rate
under SECTION 2.5(a) above is one and one-half (1.5) percentage points above
the Reference Rate). From and after the occurrence and during the
continuance of an Event of Default, the fee provided in SECTION 2.2(d) shall
be increased to a fee equal to five percent (5%) per annum times the
average Daily Balance of the undrawn L/Cs and L/C Guaranties that were
outstanding during the immediately preceding calendar month.
(c) PAYMENTS. Interest hereunder shall be due and payable in
arrears, on the first Business Day of each calendar month during the term
hereof. Borrower hereby authorizes Foothill, at its option, without prior
notice to Borrower, to charge such interest, all Foothill Expenses (as and when
incurred), and all installments due under any note or other Loan Document to
Borrower's loan account, which amounts shall thereafter accrue interest at the
rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. The Reference Rate as of this date is eight and
one-quarter percent (8.25%) per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount equal
to the Reference Rate change. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.6 CREDITING PAYMENTS. The receipt of any wire transfer of funds,
check, or other item of payment by Foothill shall be immediately applied to
conditionally reduce the Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of Foothill or unless and until such
check or other item of payment is honored when presented for payment. From and
after the Closing Date, Foothill shall be entitled to charge Borrower for three
(3) Business Days of 'clearance' at the rate set forth in Section 2.5(b)(i), as
applicable, on all collections, checks, wire transfers, or other items of
payment that are received by Foothill (regardless of whether forwarded to
Foothill by a depository at which a lockbox is established pursuant to SECTION
4.3 hereof, whether provisionally applied to reduce the Obligations, or
otherwise). This across-the-board three (3) Business Day clearance charge on
all receipts is acknowledged by the parties to constitute an integral aspect of
the pricing of Foothill's facility to Borrower, and shall apply irrespective of
the characterization of whether receipts are owned by Borrower or Foothill, and
irrespective of the level of Borrower's Obligations to Foothill. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have such payment, and interest shall be
recalculated accordingly. Should such check or item of payment not be honored
when presented for payment, then, Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any wire transfer, check, or other
item of payment received by
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Foothill after 11:00 a.m. Los Angeles time shall be deemed to have been received
by Foothill as of the opening of business on the immediately following Business
Day.
2.7 STATEMENTS OF OBLIGATIONS. Foothill shall render statements to
Borrower of the Obligations, including principal, interest, fees, and Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrower and Foothill
unless, within forty-five (45) days after receipt thereof by Borrower, Borrower
shall deliver to Foothill by registered or certified mail at its address
specified in SECTION 12, written objection thereto describing the error or
errors contained in any such statements.
2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) CLOSING FEE. A one time closing fee of Seventy-Five Thousand
Dollars ($75,000) which is earned, in full, on the Closing Date and is due and
payable by Borrower to Foothill in connection with this Agreement on the Closing
Date;
(b) ANNUAL FACILITY FEE. On each anniversary date of the Closing
Date, a fee in an amount equal to one quarter of one quarter of one percent
(0.25 %) of the Maximum Amount, such fee shall be fully earned on each such
anniversary date;
(c) FINANCIAL EXAMINATION, DOCUMENTATION AND APPRAISAL FEES.
Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of One Thousand Five Hundred Dollars ($1,500) per day
per appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
performed by Foothill or its agents; and
(d) SERVICING FEE. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to two thousand Dollars ($2,000) per month
payable in arrears.
3 CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C GUARANTY.
The obligation of Foothill to make the initial advance, provide an L/C, or
L/C Guaranty hereunder is subject to the fulfillment, to the satisfaction of
Foothill and its counsel, of each of the following conditions on or before
the Closing Date.
(a) the Closing Date shall occur on or before February 15, 1996;
(b) Borrower's existing lender shall have executed and delivered pay-
off letters, UCC termination statements and other documentation
evidencing the termination of its liens and security interests in
the
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assets of Borrower or subordination agreement in form and
substance satisfactory to Foothill in its sole discretion;
(c) Foothill shall have received copies of Borrower's By-laws and
Articles or Certificate of Incorporation, as amended, modified,
or supplemented to the Closing Date, certified by the Secretary
of Borrower;
(d) Foothill shall have received a certificate of corporate status
with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary of State of the state of
incorporation of Borrower, which certificate shall indicate that
Borrower is in good standing in such state;
(e) Foothill shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution and delivery of this
Agreement and the other Loan Documents to which Borrower is a
party and authorizing specific officers of Borrower to execute
same;
(f) Foothill shall have received certificates of corporate status
with respect to Borrower, each dated within ten (10) days of the
Closing Date, such certificates to be issued by the Secretary of
State of the states, if any, in which its failure to be duly
qualified or licensed would have a material adverse effect on the
financial condition or assets of Borrower, which certificates
shall indicate that Borrower is in good standing;
(g) Foothill shall have received the insurance certificates and
certified copies of policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.12 hereof, all
in form and substance satisfactory to Foothill and its counsel;
(h) Foothill shall have received each of the following documents,
duly executed, and each such document shall be in full force and
effect:
(i) this Agreement;
(ii) the Term Loan Note;
(iii) any lockbox agreements required by Foothill pursuant
to SECTION 4.3 hereof;
(iv) Limited Recourse Continuing Guaranties, in form and
substance satisfactory to Foothill in the sole
discretion, from Messrs. Joseph C. Angard and
Michael Malm, in favor of Foothill;
(v) the Subordination Agreements, in form and substance
satisfactory to Foothill;
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(vi) such documentation as Foothill shall require to
perfect its first priority security interest in the
Treasury Bill;
(i) Foothill shall have received searches reflecting the
filing of its financing statements regarding the Borrower;
(j) Foothill shall have received certificates of title with
respect to that portion of the Collateral, if any, that is
subject to certificates of title;
(k) Foothill shall have received landlord and mortgagee
waivers from the lessors and mortgagees of the locations
where the Inventory or Equipment is located;
(l) Foothill shall have received an Opinion of Borrower's
Counsel in form and substance satisfactory to Foothill
in its sole discretion;
(m) The Excess Availability as determined by Foothill as of
the date hereof shall not be less than Four Hundred
Thousand Dollars ($400,000) after giving effect to the
payment of all outstanding Indebtedness of the Borrower to
City National Bank, the providing of cash collateral to
secure the outstanding letter of credit issued by City
National Bank for the benefit of Disney Corporation, and
the payment of all fees and expenses payable upon the
consummation of the initial transactions contemplated by
this Agreement; and
(n) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have
been delivered or executed or recorded and shall be in
form and substance satisfactory to Foothill and its
counsel.
3.2 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"RENEWAL DATE") that is three (3) years from the Closing Date and shall be
automatically renewed for successive one (1) year periods thereafter, unless
sooner terminated pursuant to the terms hereof. Either party may terminate this
Agreement effective on the Renewal Date or on any one (1) year anniversary of
the Renewal Date by giving the other party at least sixty (60) days prior
written notice by registered or certified mail, return receipt requested. The
foregoing notwithstanding, Foothill shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence of an Event of Default.
3.3 EFFECT OF TERMINATION. On the date of Termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guaranties) shall become immediately due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge the Borrower of Borrower's duties, Obligations, or
covenants hereunder, and Foothill's continuing security interest in the
Collateral shall remain in effect until all Obligations have been fully
discharged and
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Foothi11's obligation to provide advances hereunder is terminated. If Borrower
has sent a notice of termination pursuant to the provisions of SECTION 3.2, but
fails to pay all Obligations as of the date set forth in said notice, then
Foothill may, but shall not be required to, renew this Agreement for an
additional term of two (2) years.
3.4 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.2
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, at any time subsequent to the
expiration of the initial year of this Agreement, Borrower has the option, upon
ninety (90) days prior written notice to Foothill, to terminate this Agreement
by paying to Foothill, in cash, the Obligations, (including any contingent
reimbursement obligations of Foothill under any L/Cs or L/C Guaranties),
together with a premium (the "EARLY TERMINATION PREMIUM") equal to: (a) three
percent (3%) of the Maximum Amount if termination occurs at any time during the
first year of the initial term of this Agreement; (b) two percent (2%) of the
Maximum Amount if termination occurs at any time during the second year of the
initial term of this Agreement; and (c) one percent (1%) of the Maximum Amount
if termination occurs at any time during the third year of the initial term of
this Agreement.
3.5 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this
Agreement upon the occurrence of an Event of Default, that intentionally is
caused by Borrower for the purpose, in Foothill's reasonable judgment, of
avoiding payment of the Early Termination Premium provided in SECTION 3.4 above,
in view of the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall pay to Foothill upon
the effective date of such termination, a premium in an amount equal to the
Early Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this SECTION
3.5 shall be deemed included in the Obligations.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Foothill's security interest in
the Collateral shall attach to all Collateral without further act on the part of
Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for the sale of Inventory or
the sale of obsolete Equipment to buyers in the ordinary course of business,
Borrower has no authority, express or implied, to dispose of any item or portion
of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately
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upon the request of Foothill, endorse and assign such Negotiable Collateral to
Foothill and deliver physical possession of such Negotiable Collateral to
Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. On or before the Closing Date, Foothill, Borrower, and a bank that
is acceptable to Foothill shall enter into a lockbox agreement, in form and
substance satisfactory to Foothill in its sole discretion pursuant to which all
of Borrower's cash receipts, checks, and other items of payment will be
forwarded to Foothill on a daily basis. At any time, Foothill or Foothill's
designee may: (a) notify customers or Account Debtors of Borrower that the
Accounts, General Intangibles, or Negotiable Collateral have been assigned to
Foothill or that Foothill has a security interest therein; (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to Borrower's loan account. Borrower agrees that
it will hold in trust for Foothill, as Foothill's trustee, any cash receipts,
checks, and other items of payment that it receives on account of the Accounts,
General Intangibles, or Negotiable Collateral and immediately will deliver said
cash receipts, checks, and other items of payment to Foothill in their original
form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
execute and deliver to Foothill, prior to or concurrently with Borrower's
execution and delivery of this Agreement and at any time thereafter at the
request of Foothhill, all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents that Foothill may reasonably request, in form satisfactory
to Foothill, to perfect and continue perfected Foothill's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) sign the name of Borrower on any of the documents described in
SECTION 4.4 or on any other similar documents to be executed, recorded, or filed
in order to perfect or continue perfected Foothill's security interest in the
Collateral; (b) sign Borrower's name on any invoice or bill of lading relating
to any Account, drafts against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to Account Debtors; (c) send
requests for verification of Accounts; (d) endorse Borrower's name on any
checks, notices, acceptances, money orders, drafts, or other item of payment or
security that may come into Foothill's possession; (e) at any time that an Event
of Default has occurred or Foothill reasonably deems itself insecure, notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower; (f) at any time that an Event of Default has occurred or
Foothill reasonably deems itself insecure, make, settle, and adjust all claims
under Borrower's policies of insurance and make all determinations and decisions
with respect to such policies of insurance; and (g) at any time that an Event of
Default has occurred or Foothill reasonably deems itself insecure, settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms which Foothill determines to be reasonable,
and Foothill may
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cause to be executed and delivered any documents and releases which Foothill
determines to be necessary. The appointment of Foothill as Borrower's attorney,
and each and every one of Foothhill's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Foothill's obligation to provide advances hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter during
Borrower's usual business hours, or during the usual business hours of any third
party having control over the records of Borrower to inspect Borrower's Books
and to check, test, and appraise the Collateral in order to verify Borrower's
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of liens, claims, security interests, or
encumbrances except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, and at all times,
hereafter shall be, bona fide existing obligations created by the sale and
delivery of Inventory or the rendition of services to Account Debtors in the
ordinary course of Borrower's business, unconditionally owed to Borrower without
defenses, disputes, offsets, counterclaims, or rights of return or cancellation.
The property giving rise to such Eligible Accounts has been delivered to the
Account Debtor, or to the Account Debtor's agent for immediate shipment to and
unconditional acceptance by the Account Debtor. Borrower has not, and at all
times hereafter, shall not have, received notice of actual or imminent
bankruptcy, insolvency, or financial embarrassment of any Account Debtor at the
time an Account due from such Account Debtor is created.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now and at all
times hereafter shall be of good and marketable quality, free from defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations set forth on
SCHEDULE 6.17 hereto.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at all
times shall keep, correct and accurate records on a perpetual basis itemizing
and describing the kind, type, quality, and quantity of the Inventory, and
Borrower's cost therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE. The chief executive office
of Borrower is located at the address indicated in the first paragraph of this
Agreement and
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Borrower covenants and agrees that it will not, without thirty (30) days prior
written notification to Foothill, relocate such chief executive office.
5.7 DUE ORGANIZATION AND QUALIFICATION. Borrower is and shall at all
times hereafter be duly organized and existing and in good standing under the
laws of the state of its incorporation and qualified and licensed to do business
in, and in good standing in, any state in which the conduct of its business or
its ownership of property requires that it be so qualified.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's Articles or Certificate of Incorporation,
or By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is a party.
5.9 LITIGATION. Except as set forth on SCHEDULE 5.9 hereto, there
are no actions or proceedings pending by or against Borrower before any court or
administrative agency and Borrower does not have knowledge or belief of any
pending, threatened, or imminent litigation, governmental investigations, or
claims, complaints, actions, or prosecutions involving Borrower or any guarantor
of the Obligations, except for ongoing collection matters in which the Borrower
is the plaintiff.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower or any guarantor of the Obligations
that have been or may hereafter be delivered by Borrower to Foothill have
been prepared in accordance with GAAP and fairly present Borrower's financial
condition as of the date thereof and Borrower's results of operations for the
period then ended. There has not been a material adverse change in the
financial condition of Borrower or any guarantor since the date of the latest
financial statements submitted to Foothill on or before the Closing Date.
5.11 SOLVENCY. Borrower's assets at a fair valuation exceed the
amount of all of its debts at a fair valuation and Borrower is able to pay
all of its debts (including trade debts and contingent liabilities) as they
become due.
5.12 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or
has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a) or any of the published
interpretations thereunder. No notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA, nor has any Plan been terminated under
Section 4041(e) of ERISA. The PBGC has not instituted proceedings to terminate,
or appoint a trustee to administer, a Plan and no event has occurred or
condition exists that might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Plan.
Neither Borrower nor any ERISA Affiliate would be liable for any amount pursuant
to Sections 4062, 4063, or 4064 of ERISA if all Plans terminated as of the most
recent valuation dates of such Plans. Neither Borrower nor any ERISA Affiliate
have: withdrawn from a "multiple employer Plan" during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; or failed
to make a payment to a Plan required under Section 302(f)(1) of ERISA such that
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security would have to be provided pursuant to Section 307 of ERISA. No lien
upon the assets of Borrower has arisen with respect to a Plan. No prohibited
transaction or Reportable Event has occurred with respect to a Plan. Neither
Borrower nor any ERISA Affiliate has incurred any withdrawal liability with
respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have made
all contributions required to be made by them to any Plan or Multiemployer Plan
when due. There is no accumulated funding deficiency in any Plan, whether or
not waived.
5.13 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance. None
of Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or otherwise disposing of hazardous waste or
hazardous substances into the environment.
5.14 PATENTS, COPYRIGHTS AND TRADEMARKS. Except as set forth on
SCHEDULE 5.14 hereto, Borrower has no registered trademarks or copyrights and
has not applied for or been issued any patents by any governmental authority or
instrumentality hereof.
5.15 MATERIAL AGREEMENT. Each agreement that is material to the
Borrower, taken as a whole, is in full force and effect and no default or event
that, with the giving of notice, or the passage of time, would constitute a
default, has occurred and is continuing under any such agreement.
5.16 RELIANCE BY FOOTHILL, CERTIFICATES. Each warranty and
representation contained in this Agreement shall be automatically deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any and
all other warranties and representations that Borrower shall now or hereinafter
give, or cause to be given, to Foothill.
5.17 SUBCHAPTER S ELECTION. Borrower has made an S corporation
election in accordance with IRC Section 1362 which is effective for its current
fiscal year. Borrower has not elected, pursuant to California Revenue and
Taxation Code Section 23801, not to be treated as an S corporation for
California income tax purposes. Borrower is under no obligation to Continue its
S corporation election in effect provided Borrower provides Foothill prior
written notice of its intent to revoke the election.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, and unless
Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP with
ledger and account cards or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as from time to time may
be requested by Foothill. Borrower shall also keep proper books of account
showing all sales, claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no later
than the fifteenth (15th) day of each month during the term of this Agreement, a
detailed aging, by total, of the Accounts, a reconciliation statement, and a
summary aging, by vendor, of all accounts payable and any book overdraft.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor with a copy to Foothill, and, at Foothill's direction, the
invoices shall indicate on their face that the Account has been assigned to
Foothill and that all payments are to be made directly to Foothill. Borrower
shall deliver to Foothill, as Foothill may from time to time require, collection
reports, sales journals, invoices, original delivery receipts, customer's
purchase orders, shipping instructions, bills of lading, and other documentation
respecting shipment arrangements. Absent such a request by Foothill, copies of
all such documentation shall be held by Borrower as custodian for Foothill.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall
reasonably require, Borrower shall provide Foothill with schedules describing
all Accounts. Foothill's failure to request such schedules or Borrower's
failure to execute and deliver such schedules shall not affect or limit
Foothill's security interest or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees to
deliver to Foothill: (a) as soon as available, but in any event within forty-
five (45) days after the end of each month during each of Borrower's fiscal
years, a company prepared balance sheet, income statement, and cash flow
statement covering Borrower's operations during such period; and (b) as soon as
available, but in any event within one hundred twenty (120) days after the end
of each of Borrower's fiscal years, financial statements of Borrower for each
such fiscal year, audited by independent certified public accountants acceptable
to Foothill and certified, without any qualifications, by such accountants to
have been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not have
knowledge of the existence of any event or condition constituting an Event of
Default, or that would, with the passage of time or the giving of notice,
constitute an Event of Default. Such audited financial statements shall include
a balance sheet, profit and loss statement, and cash flow statement, and such
accountants' letter to management. Borrower shall have issued written
instructions to its independent certified public accountants, authorizing them
to communicate with Foothill and
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to release to Foothill whatever financial information concerning Borrower that
Foothill may request. If Borrower is a parent company of one or more
subsidiaries, or Affiliates, or is a subsidiary or Affiliate of another company,
then, in addition to the financial statements referred to above, Borrower agrees
to deliver financial statements prepared on a consolidating basis so as to
present Borrower and each such related entity separately, and on a consolidated
basis.
Together with the above, Borrower shall also deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral and financial
condition of Borrower.
Each month, Borrower shall deliver to Foothill a certificate signed by
its chief financial officer to the effect that: (a) all reports, statements, or
computer prepared information of any kind or nature delivered or caused to be
delivered to Foothill hereunder have been prepared in accordance with GAAP and
fully and fairly present the financial condition of Borrower; (b) Borrower is in
timely compliance with all representations, warranties, and covenants hereunder;
and (c) on the date of delivery of such certificate to Foothill there does not
exist any condition or event which constitutes an Event of Default.
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Foothill, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding Borrower's business affairs and
financial conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
6.6 GUARANTOR REPORTS. Borrower agrees to cause any guarantor of any
of the Obligations to deliver its annual financial statements, if any are
regularly prepared, at the time when Borrower provides its audited financial
statements to Foothill and copies of all federal income tax returns as soon as
the same are available and in any event no later than thirty (30) days after the
same are required to be filed by law.
6.7 DESIGNATION OF INVENTORY. Borrower shall execute and deliver to
Foothill, but no less frequently than bi-weekly during the term of this
Agreement, a designation of Inventory specifying Borrower's cost and the
wholesale market value of Borrower's raw materials, work in process, and
finished goods, determined from a perpetually maintained finished goods
inventory system, and further specifying such other information as Foothill may
reasonably request.
6.8 RETURNS. Returns and allowances, if any, as between Borrower and
its Account Debtors shall be on the same basis and in accordance with the usual
customary
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practices of Borrower, as they exist at the time of the execution and delivery
of this Agreement. If at any time prior to the occurrence of an Event of
Default, any Account Debtor returns any Inventory to Borrower, Borrower shall
promptly determine the reason for such return and, if Borrower accepts such
return, issue a credit memorandum (with a copy to be sent to Foothill if so
requested by Foothill) in the appropriate amount to such Account Debtor.
Borrower shall promptly notify Foothill of all returns and recoveries and of all
disputes and claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower shall
immediately deliver to Foothill, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain the
Equipment in good operating condition and repair, and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and the Equipment is now and shall at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property have been paid, and shall hereafter be paid in full,
before delinquency or before the expiration of any extension period; PROVIDED,
HOWEVER, that Borrower shall not be required to pay or discharge such tax, levy,
assessment, governmental charge or claim which is the subject of a Permitted
Protest. Borrower shall make due and timely payment or deposit of all federal,
State, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., State
disability, and local, State, and federal income taxes, and will, upon request,
furnish Foothill with proof satisfactory to Foothill indicating that Borrower
has made such payments or deposits. Notwithstanding the foregoing, Borrower
shall not be in default hereunder with respect to approximately $136,000 in
delinquent taxes due and owing by BEX to the State of Michigan; PROVIDED,
HOWEVER, that Borrower discharges the delinquent taxes to the State of Michigan
through payment, offset or other action prior to May 15, 1996 ("MICHIGAN TAX
PAYMENT"); and PROVIDED FURTHER, that the Michigan Tax Payment shall have been
made prior to the State of Michigan or its taxing authority filing a lien or
taking any other action with respect to the exercise of collection remedies
against the Borrower or its assets (a "COLLECTION ACTION"), and any such
Collection Action taken prior to May 15, 1996 shall constitute an Event of
Default hereunder.
6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinary insured against by other
owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage
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insurance relating to Borrower's ownership and use of the Collateral, as well as
insurance against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be satisfactory to Foothill. All such
policies of insurance (except those of public liability and property damage)
shall contain a 438BFU lender's loss payable endorsement, or an equivalent
endorsement in a form satisfactory to Foothill, showing Foothill as sole loss
payee thereof, and shall contain a waiver of warranties, and shall specify that
the insurer must give at least ten (10) days prior written notice to Foothill
before canceling its policy for any reason. Borrower shall deliver to Foothill
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor. All proceeds payable under any such policy shall be
payable to Foothill to be applied on account of the Obligations.
6.13 FOOTHILL EXPENSES. Borrower shall immediately and without demand
reimburse Foothill for all sums expended by Foothill which constitute Foothill
Expenses and Borrower hereby authorizes and approves all advances and payments
by Foothill for items constituting Foothill Expenses.
6.14 FINANCIAL COVENANTS. Borrower shall maintain, on a consolidated
basis with SDI:
(a) CURRENT RATIO. A ratio of Borrower's current assets divided by
Borrower's current liabilities of at least eighty-five hundredths to one
(0.85:1.0), measured on a quarter basis.
(b) TANGIBLE NET WORTH. Tangible Net Worth at all times of at least
Five Hundred Thousand Dollars ($500,000).
6.15 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, State or local taxes.
6.16 ROYALTY REPORTING. Borrower shall now and from time to time
hereafter, but not less frequently than monthly for Borrower's royalty
obligations that are payable monthly or on a more frequent basis, but in all
events not less frequently than quarterly, execute and deliver to Foothill a
royalty compliance report listing at a minimum, each material license or
similar agreement to which Borrower is a party, the expiration date and
anticipated renewal period, if any, under such agreements, the royalty
obligations of Borrower under such agreements, whether any royalty obligations
under such agreements which are due and payable remain unpaid and are delinquent
as of the date of such report, and such other information as Foothill shall
request to be included in such report. In the event that Borrower shall be
delinquent in any of its royalty obligations to providers of intellectual
property used by Borrower in its business operations, Foothill may, in its sole
discretion, reserve such amount against borrowing availability under SECTION 2.1
above as it considers appropriate to cover such delinquent royalty payments and,
in the event of a default
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under any such license agreement, use such additional reserve against borrowing
availability under SECTION 2.1 above to fund anticipated royalty obligations as
is required to permit the orderly liquidation of any Inventory subject to such
license agreement.
6.17 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall keep the
Inventory and Equipment only at the locations identified in SECTION 6.17
attached hereto; PROVIDED, HOWEVER, that Borrower may amend the locations set
forth IN SECTION 6.17 so long as such amendment occurs by written notice to
Foothill not less than thirty (30) days prior to the date on which the Inventory
or Equipment is moved to such new location, so long as such new location is
within the State of California, and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests in
such assets and also provides to Foothill a landlord's waiver in form and
substance satisfactory to Foothill.
6.18 COMPLIANCE WITH LAWS. Borrower shall comply with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the Americans
With Disabilities Act, other than laws, rules, regulations, and orders the non-
compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or prospects
of Borrower, taken as a whole, or on the value of the Collateral to Foothill.
6.19 EMPLOYEE BENEFITS. (a) Borrower promptly shall deliver to
Foothill a written statement by the chief financial officer of Borrower
specifying the nature of any of the following events and the actions which
Borrower proposes to take with respect thereto, and in any event within ten (10)
days of becoming aware of any of them, and when known, any action taken or
threatened by the Internal Revenue Service, PBGC, Department of Labor, or other
party with respect to thereto: (i) an ERISA Event with respect to any Plan; (ii)
the incurrence of an obligation to pay additional premium to the PBGC under
Section 4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on
the assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies prepared
or received by Borrower or an ERISA Affiliate of: (i) at the request of
Foothill, each annual report (Internal Revenue Service Form 5500 series) and all
accompanying schedules, actuarial reports, financial information concerning the
financial status of each Plan and schedules showing the amounts contributed to
each Plan by or on behalf of Borrower or its ERISA Affiliates for the most
recent three (3) plan years; (ii) all notices of intent to terminate or to have
a trustee appointed to administer any Plan; (iii) all written demands by the
PBGC under Subtitle D of Title IV of ERISA; (iv) all notices required to be sent
to employees or to the PBGC under Section 302 of ERISA or Section 412 of the
IRC; (v) all written notices received with respect to a Multiemployer Plan
concerning (x) the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA, (y) a termination described in Section 4041A of ERISA, or
(z) a reorganization or insolvency described in Subtitle E of Title IV of ERISA;
(vi) the adoption of any new Plan that is subject to Title IV of ERISA or
Section 412 of the IRC by Borrower or any ERISA Affiliate; (vii) the adoption
of any amendment to any Plan that is subject to Title IV of ERISA or Section
412 of the
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IRC, if such amendment results in a material increase in benefits or Unfunded
Benefit Liability; or (viii) the commencement of contributions by Borrower or
any ERISA Affiliate to any Plan that is subject to Title IV of ERISA or Section
412 of the IRC.
6.20 LEASES AND RENT REPORTS. Borrower shall pay when due all rents
and other amounts payable under any leases to which Borrower is a party or by
which Borrower's properties and assets are bound, unless such payments are the
subject of a Permitted Protest. To the extent that Borrower fails timely to
make payment of such rents and other amounts payable when due under its leases,
Foothill shall be entitled, in its discretion, and without the necessity of
declaring an Event of Default, to reserve an amount equal to such unpaid amounts
from the borrowing availability created under SECTION 2.1 hereof.
6.21 MATERIAL AGREEMENTS. Borrower shall duly observe and perform all
material terms and conditions of each agreement to which it is party and that is
material to Borrower, taken as a whole. Borrower shall promptly notify Foothill
of all material notices or communications in respect of any such material
agreement and provide Foothill with copies of the same.
6.22 REFINANCING OF STANLEY DESANTIS, INC. In the event that Borrower
merges its majority owned subsidiary, Stanley Desantis, Inc. ("SDI") into
Borrower with Borrower as the surviving entity, subject to Foothill's prior
approval of such merger under SECTION 7.3 hereof, Borrower shall offer to
Foothill the first opportunity to refinance the then outstanding Indebtedness of
SDI through a revolving credit facility with borrowing availability based upon
SDI's accounts receivable and inventory, such refinancing to be on terms and
conditions acceptable to Foothill and consistent in all material respects with
the financial arrangements provided Borrower hereunder.
6.23 NOTICES.
(a) Borrower shall promptly notify Foothill of any communication,
written or oral, with the Internal Revenue Service or the California Franchise
Tax Board regarding the validity, revocation, and/or termination of its S
corporation election as well as the timing thereof;
(b) Borrower shall promptly provide Foothill with copies of its
federal income tax returns (Forms 1120-S), California income tax returns, and
summaries of all financial information used to calculate the dividends payable
hereunder;
(c) Borrower shall promptly notify Foothill of any communications,
written or oral, with the Internal Revenue Service or the California Franchise
Tax Board regarding proposed or agreed upon changes in Borrower's Federal
Taxable Income or California Taxable Income; and
(d) In any year in which Borrower's Federal Taxable Income is
negative, Borrower shall provide Foothill with copies of Borrower's
shareholders' individual federal
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and California income tax returns for the taxable year(s) of its shareholder(s)
ending on or after such year of Borrower.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, Borrower will
not do any of the following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness permitted by this Agreement;
(b) the Subordinated Indebtedness;
(c) Indebtedness set forth in the latest financial statements of
Borrower submitted to Foothill on or prior to the Closing Date;
(d) Indebtedness secured by Permitted Liens; and
(e) refinancing, renewals, or extensions of Indebtedness permitted
under CLAUSES (b) AND (c) of this SECTION 7.1 (and continuance
or renewal of any Permitted Liens associated therewith) so long
as: (i) the terms and conditions of such refinancing, renewals,
or extensions do not materially impair the prospects of repayment
of the Obligations by Borrower, (ii) the net cash proceeds of
such refinancing, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, and (iii) such refinancing,
renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Permitted Liens that are
continued or renewed as permitted under SECTION 7.1(d)).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all the assets, stock, or
other evidence of beneficial ownership of any person or entity.
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7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into
any transaction not in the ordinary and usual course of Borrower's business,
including, but not limited to, the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
assets (other than sales of Inventory in the ordinary and usual course of
Borrower's business as currently conducted), or the making of any advance or
loan except in the ordinary course of business as currently conducted.
7.5 CHANGE Name. Change Borrower's name, business structure, or
identity, or add any new fictitious name without providing Foothill with sixty
(60) days prior written notice of Borrower's intent to take any such action.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third party, except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill, and with the further exception that
Borrower may guaranty lease obligations for office space in New York City
provided that Borrower's potential guaranty liability under any such lease
guaranties shall not exceed an aggregate One Hundred Thirty-Five Thousand
Dollars ($135,000).
7.7 RESTRUCTURE. Make any change in Borrower's financial structure,
the principal nature of Borrower's business operations, or the date of its
fiscal year.
7.8 PREPAYMENTS. Prepay any Indebtedness owing to any third party.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any plant or fixed capital
expenditure, or any commitment therefor, or purchase or lease any real or
personal property or replacement Equipment subject to a purchase money security
interest, trust deed or lease, in excess of Seventy-Five Thousand Dollars
($75,000) for any individual transaction or where the aggregate amount of such
transactions, in any fiscal year, is in excess of Four Hundred Thousand Dollars
($400,000).
7.11 CONSIGNMENTS. Consign any Inventory, sell any Inventory on bill
and hold, sale or return, sale on approval, or other conditional terms of sale,
with the exception that Borrower may consign Inventory having an aggregate cost
value of no more than Four Hundred Thousand Dollars ($400,000), increasing to
Five Hundred Thousand Dollars ($500,000) during the months of November, December
and January, outstanding at any one time PROVIDED that (i) such consigned
Inventory has been deleted from Eligible Inventory and no outstanding Revolving
Advances have been made by Foothill under SECTION 2.1(b) above based upon
including such consigned Inventory as Eligible Inventory, and (ii) Borrower
shall have clearly designated such Inventory as consigned Inventory on
Borrower's biweekly designation of Inventory provided by Borrower to Foothill
under SECTION 6.7 hereof.
7.12 DISTRIBUTIONS. Except as provided in SECTION 7.18 hereof, make
any distribution or declare or pay any dividends (in cash or in stock) on, or
purchase, acquire,
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redeem, or retire any of Borrower's capital stock, of any class, whether now or
hereafter outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Foothill pursuant to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make or own any beneficial
interest in (including stock, partnership interest, or other securities of), or
make any loan, advance, or capital contribution to, any corporation,
association, person, or entity, with the exception that Borrower may make annual
investments of up to One Hundred Thousand Dollars ($100,000), but not in excess
of an aggregate of Two Hundred Fifty Thousand Dollars ($250, 000) during the
term of this Agreement; PROVIDED, HOWEVER, Borrower shall make no investments
hereunder if (i) an Event of Default shall have occurred and is continuing
hereunder or would occur as a result of the making of any such investment, or
(ii) after giving effect to any such investment, Borrower shall have Excess
Availability of no less than Two Hundred Thousand Dollars ($200,000); and
PROVIDED, FURTHER, Borrower shall immediately advise Foothill of the occurrence
of any such investment or the form of the investment and take such action as
Foothill shall request to perfect Foothill's first priority security interest in
any instruments, documents or other Collateral evidencing the investment.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, and that are fully disclosed to Foothill and no
less favorable to Borrower than would be obtained in arm's length transaction
with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of its
business.
7.17 COMPENSATION. Increase for the next succeeding fiscal year total
maximum compensation (excluding stock options) to officers, directors,
employees, and other relevant individuals by more than twenty-five percent (25%)
per annum in the aggregate over the compensation (excluding stock options) paid
to such officers, directors, employees, and other relevant individuals for the
preceding fiscal year.
7.18 SUBCHAPTER S DISTRIBUTIONS. Notwithstanding SECTION 7.12,
Borrower, at its option, may declare and pay cash dividends to its shareholders
not more frequently than quarterly with respect to each period for which an
installment of estimated tax would be required to be paid by its shareholders
for each taxable year for which Borrower has a valid S corporation election in
effect under IRC Section 1362 or any successor provision;
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PROVIDED, HOWEVER, that the amount of such dividends shall not exceed the
Permitted Dividend Amount. For purposes of computing the amount of aggregate
dividends paid by Borrower for any taxable year, amounts paid in such taxable
year by Borrower to the State of California on behalf of nonresident
shareholders as estimated taxes pursuant to California Revenue and Taxation Code
Sections 23810 and 18408.5 or any successor provisions shall be treated as
dividends paid by Borrower. However, if nonresident shareholders recontribute
to Borrower any such amounts paid on their behalf, then the amounts contributed
shall be subtracted from the amount of aggregate dividends paid by Borrower for
the taxable year in which contributions are made.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an event of
default (each, an "EVENT OF DEFAULT") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the United States
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Foothill, taxes, reimbursement of Foothill Expenses, or otherwise);
8.2 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, including, but not limited to, the Subordination
Agreements, or in any other present or future agreement between Borrower and
Foothill(other than those referred to in SECTIONS 6.2, 6.4, 6.5, 6.6, and 6.16);
or Borrower fails or neglects to perform, keep or observe any term, provision,
condition, covenant, or agreement contained in SECTIONS 6.2, 6.4, 6.5, 6.6 and
6.16 hereof and such failure or neglect shall continue for a period of five
(5) Business Days;
8.3 If there is material impairment of the prospect of repayment of
any portion of the Obligations owing to Foothill or a material impairment of the
value or priority of Foothill's security interests in the Collateral;
8.4 If any material portion of Borrower's assets is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into the
possession of any Judicial Officer or Assignee;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower, and is
not dismissed or withdrawn within sixty (60) days from the date of its
commencement; PROVIDED, HOWEVER, Foothill shall have no obligation to make
Revolving Advances pursuant to SECTION 2.1 hereof, or issue or cause to be
issued any L/Cs or L/C Guaranties under SECTION 2.2 hereof, during the pendency
of such proceedings;
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8.7 If Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct an or any material part of its business
affairs and such court order is not dismissed within five (5) Business Days from
the date it is entered by a court; PROVIDED, HOWEVER, Foothill shall have no
obligation to make Revolving Advances pursuant to SECTION 2.1 hereof, or issue
or cause to be issued any L/Cs or L/C Guaranties under SECTION 2.2 hereof, until
such court order is dismissed;
8.8 If a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or
otherwise, upon any of Borrower's assets and the same is not paid on the payment
date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance;
8.10 If there is a default in any material agreement to which Borrower
is a party with third parties resulting in a nght by such third parties, whether
or not exercised, to accelerate the maturity of Borrower's Indebtedness
thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that has
been subordinated to the Obligations except to the extent such payment is
allowed under any subordination agreement entered into with Foothill;
8.12 If any misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or report made to Foothill by
Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn by any officer or director;
8.13 If the obligation of any guarantor or other third party under any
Loan Document is limited or terminated by operation of law or by the guarantor
or other third party thereunder, or any guarantor or other third party becomes
the subject of an Insolvency Proceeding;
8.14 If a Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower; if any lien upon the assets of Borrower in connection
with any Plan shall arise; if Borrower or any ERISA Affiliate shall completely
or partially withdraw from a Multiemployer Plan or Multiple Employer Plan of
which Borrower or such ERISA Affiliate was a substantial employer, and such
withdrawal could, in the opinion of Foothill, have a material adverse effect on
the financial condition of Borrower; if Borrower or any of its ERISA Affiliates
shall fail to make full payment when due of all amounts which Borrower or any
of its ERISA Affiliates may be required to pay to any Plan or any Multiemployer
Plan as one or more contributions thereto; if Borrower or any of its ERISA
Affiliates creates or permits the creation of any accumulated funding
deficiency, whether or not waived; or upon the voluntary or involuntary
termination of any Plan which termination could, in the reasonable opinion of
Foothill, have a material adverse effect on the financial condition of Borrower;
or
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Borrower shall fail to notify Foothill promptly and in any event within ten (10)
days of the occurrence of any event that constitutes an Event of Default under
this clause or would constitute such an Event of Default upon the exercise of
Foothill's reasonable judgment; and
8.15 If any writing, document, aging,, certificate or other evidence
of the Accounts or Inventory shall be materially incomplete, incorrect, or
misleading at the time the same is furnished to Foothill.
9. FOOTHILL'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default
Foothill may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as
to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interest in the Collateral and without affecting
the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's loan account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Foothill considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien that in Foothill's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Foothill a license to enter into possession of such
premises and to occupy the same, without
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charge, for up to one hundred twenty (120) days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived)
set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Foothill, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Foothill;
(h) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Foothill is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Foothill's
benefit;
(i) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Foothill determines
is commercially reasonable. It is not necessary that the Collateral be present
at any such sale;
(j) Foothill shall give notice of the disposition of the Collateral
as follows:
(1) Foothill shall give Borrower and each holder of a security
interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Collateral,
then the time on or after which the private sale or other disposition
is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least five
(5) calendar days before the date fixed for the sale, or at least five
(5) calendar days before the date on or after which the private sale
or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to
persons other than Borrower claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time at
least five (5) calendar days before the date of the sale in a
newspaper of general circulation in the county in which the sale is to
be held;
(k) Foothill may credit bid and purchase at any public sale; and
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(1) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, by
Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Foothill determines that such failure by Borrower could have a material
adverse effect on Foothill's interests in the Collateral, in its discretion and
without prior notice to Borrower, Foothill may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves in
Borrower's loan account as Foothill deems necessary to protect Foothill from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type described in Section 6.12, and take any action with respect to such
policies as Foothill deems prudent. Any amounts paid or deposited by Foothill
shall constitute Foothill Expenses, shall be immediately charged to Borrower's
loan account and become additional Obligations, shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by Foothill shall not constitute an agreement by Foothill to
make similar payments in the future or a waiver by Foothill of any Event of
Default under this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance, or lien and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS, INDEMNIFICATION
11.1 DEMAND; PROTEST, ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may in any way be
liable.
1.2 FOOTHILL'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long as
Foothill complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman,
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bailee, forwarding agency, or other person whomsoever. All risk of loss,
damage, or destruction of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to indemnify Foothill and its
officers, employees, and agents ("INDEMNIFIED PARTIES") and hold Foothill.
harmless against: (a) all obligations, demands, claims, and liabilities claimed
or asserted by any other party, but excluding any and all obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
directly or indirectly arising out of, or directly or indirectly caused by, the
gross negligence or willful misconduct of any Indemnified Party, and (b) all
losses in any way suffered, Incurred, or paid by Foothill as a result of or in
any way arising out of, following, or consequential to transactions with
Borrower whether under this Agreement, or otherwise, but excluding any and all
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements directly or indirectly arising out of, or directly or
indirectly caused by, the gross negligence or willful misconduct of any
Indemnified Party. This provision shall survive the termination of this
Agreement.
11.4 SURETYSHIP WAIVERS AND CONSENTS. OSP and BEX (for the purposes
of this SECTION 11.4, each a "Debtor') each acknowledge that the obligations
of such Debtor undertaken herein might be construed to consist, at least in
part, of the guaranty of obligations of Persons other than such Debtor
(including the other Debtor party hereto) and, in full recognition of that fact,
each Debtor consents and agrees that lender may, at any time and from time to
time, without notice or demand, whether before or after any actual or purported
termination, repudiation or revocation of this Agreement by any one or more
Debtors, and without affecting the enforceability or continuing effectiveness
hereof as to each Debtor: (a) supplement, extend, renew, accelerate or otherwise
change the time for payment or the terms of the Obligations or any part thereof,
including any increase or decrease of the rate(s) of interest thereon; (b)
supplement, restate, modify, amend, increase, decrease or waiver, or enter into
or give any agreement, approval or consent with respect to, the Obligations or
any part thereof, or any of the Loan Documents or any additional security or
guaranties, or any condition, covenant, default, remedy, right, representation
or term thereof or thereunder; (c) accept new or additional instruments,
documents or agreements in exchange for or relative to any of the Loan Documents
or the Obligations or any part thereof; (d) accept partial payments on the
Obligations; (e) receive and hold additional security or guaranties for the
Obligations or any part thereof; (f) release, reconvey, terminate, waive,
abandon, fail to perfect, subordinate, exchange, substitute, transfer or enforce
any security or guaranties, and apply any security and direct the order or
manner of sale thereof as Lender in its sole and absolute discretion may
determine; (g) release any Person from any personal liability with respect to
the Obligations or any part thereof; (h) settle, release on terms satisfactory
to Lender or by operation of applicable laws or otherwise liquidate or enforce
any Obligations and any security therefor or guaranty thereof in any manner,
consent to the transfer of any security and bid and purchase at any sale; or (i)
consent to the merger, change or any other restructuring or termination of the
corporate, partnership or other form of existence of any Debtor or any other
Person, and correspondingly restructure the Obligations, and any such merger,
change, restructuring or termination shall not affect the liability of any
Debtor or the continuing effectiveness hereof, or the enforceability hereof with
respect to all or any part of the Obligations.
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Upon the Occurrence and during the continuance of any Event of
Default, Lender may enforce this Agreement independently as to each Debtor and
independently of any other remedy or security Lender at any time may have or
hold in connection with the Obligations, and it shall not be necessary for
Lender to marshal assets in favor of any Debtor or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce this Agreement. Each Debtor expressly waives any right to require
Lender to marshal assets in favor of any Debtor or any other Person or to
proceed against any other Debtor or any collateral provided by any Person, and
agrees that Lender may proceed against Debtors or any collateral in such order
as it shall determine in its sole and absolute discretion.
Lender may file a separate action or actions against any Debtor,
whether action is brought or prosecuted with respect to any security or against
any other Person, or whether any other Person is joined in any such action or
actions. Each Debtor agrees that Lender and any Debtor and any Affiliate of any
Debtor may deal with each other in connection with the Obligations or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the continuing efficacy of this Agreement.
Lender's rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Obligations which thereafter shall be requested
to be restored or returned by Lender, all as though such amount had not been
paid. The rights of Lender created or granted herein and the enforceability of
this Agreement at all times shall remain effective to cover the full amount of
all the Obligations even though the Obligations, including any part thereof or
any other security or guaranty therefor, may be or hereafter may become invalid
or otherwise unenforceable as against any Debtor and whether or not any other
Debtor shall have any personal liability with respect thereto.
To the maximum extent permitted by applicable law, each Debtor
expressly waives any and all defenses now or hereafter arising or asserted by
reason of (a) any disability or other defense of any other Debtor with respect
to the Obligations, (b) the unenforceability or invalidity of any security or
guaranty for the Obligations or the lack of perfection or continuing perfection
or failure of priority of any security for the Obligations, (c) the cessation
for any cause whatsoever of the liability of any other Debtor (other than by
reason of the full payment and performance of all Obligations), (d) any failure
of Lender to marshal assets in favor of any Debtor or any other Person, (e) any
failure of Lender to give notice of sale or other disposition of Collateral to
any Debtor or any other Person or any defect in any notice that may be given in
connection with any sale or disposition of Collateral, (f) any failure of Lender
to comply with applicable law in connection with the sale or other disposition
of any Collateral or other security for any Obligation, including any failure of
Lender to conduct a commercially reasonable sale or other disposition of any
Collateral or other security for any Obligation, (g) any act or omission of
Lender or others that directly or indirectly results in or aids the discharge or
release of any Debtor or the Obligations or any security or guaranty therefor by
operation of law or otherwise, (h) any law which provides that the obligation of
a surety or guarantor must neither be larger in amount nor in other respects
more burdensome than that of the principal or which reduces a
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surety's or guarantor's obligation in proportion to the principal obligation,
(i) any failure of Lender to file or enforce a claim in any bankruptcy or other
proceeding with respect to any Person, (j) the election by Lender of the
application or non-application of Section 1111(b)(2) of the United States
Bankruptcy Code, (k) any extension of credit or the grant of any lien under
Section 364 of the United States Bankruptcy Code, (l) any use of cash collateral
under Section 363 of the United States Bankruptcy Code, (m) any agreement or
stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any Person, (n) the avoidance of any lien in favor of
Lender for any reason, or (o) any action taken by Lender that is authorized by
this Section or any other provision of any Loan Document. Until such time as
all of the Obligations have been fully, finally, and indefeasibly paid in full
cash: (i) each Debtor hereby waives and postpones any right of subrogation it
has or may have as against any other Debtor with respect to the Obligations; and
(ii) in addition, each Debtor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
any other Debtor. Each Debtor expressly waives all setoffs and counterclaims
and all presentments, demands for payment or performance, notices of nonpayment
or nonperformance, protests, notices of protest, notices of dishonor and all
other notices or demands of any kind or nature whatsoever with respect to the
Obligations, and all notices of acceptance of this Agreement or of the
existence, creation or incurring of new additional Obligations.
In the event that all or any part of the Obligations at any time are
secured by any one or more deeds of trust or mortgages or other instruments
creating or granting liens on any interests in real property, each Debtor
authorizes Lender on Lender's behalf, upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting the obligations of any Debtor, the enforceability
of this Agreement, or the validity or enforceability of any liens of, or for the
benefit of, Lender on any Collateral, to foreclose any or all of such deeds of
trust or mortgages or other instruments by judicial or nonjudicial sale.
To the fullest extent permitted by applicable law, each Debtor
expressly waives any defenses to the enforcement of this Agreement or any rights
of Lender created or granted hereby or to the recovery by lender against any
Debtor or any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of Debtors and may preclude Debtors from obtaining
reimbursement or contribution from other Debtors. Each Debtor expressly waives
(i) any suretyship defenses or benefits that it otherwise might or would have
under applicable law, and (ii) the right, if any, to require Lender to disclose
to such Debtor any information it may now have or hereafter acquire concerning
the other Debtor's character, credit, Collateral, financial condition or other
matters. Each Debtor has established adequate means to obtain from the other
Debtor on a continuing basis financial and other information pertaining to such
Debtor's business and affairs, and assumes the responsibility for being and
keeping itself informed of the financial and other conditions of the other
Debtor and of all circumstances bearing upon the risk of nonpayment of the
Obligations which diligent inquiry would reveal. Each Debtor expressly waives
any right to receive notice of any judicial or nonjudicial foreclosure or sale
of any real property or interest therein of another Debtor that is subject to
any such deeds of trust or mortgages or other instruments and any Debtor's
failure to receive any such notice shall not impair or affect such Debtor's
obligations or the
41
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enforceability of this Agreement or any rights of Lender created or granted
hereby. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION
SET FORTH IN THIS SECTION, EACH DEBTOR WAIVES ALL RIGHTS AND DEFENSES ARISING
OUT OF AN ELECTION OF REMEDIES BY LENDER, EVEN THOUGH THAT ELECTION OF REMEDIES,
SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR THE OBLIGATIONS,
HAS DESTROYED SUCH DEBTOR'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE
PRINCIPAL DEBTOR BY THE OPERATION OF LAW OR OTHERWISE.
Lender need not inquire into the powers of any of the Debtors or the
authority of any of their respective officers, directors, partners or agents
acting or purporting to act in their behalf, and any obligations created in
reliance upon the purported exercise of such power or authority is hereby
guaranteed. All obligations of Debtors to Lender heretofore, now or hereafter
created shall be deemed to have been granted at Debtors' special insistence and
request and in consideration of and in reliance upon this Agreement.
Debtors and each of them warrant and agree that each of the waivers
and consents set forth herein are made after consultation with legal counsel and
with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtors otherwise
may have against other Debtors, Lender or others, or against Collateral. If any
of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective to
the maximum extent permitted by law.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection therewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegram (with messenger delivery specified) to Borrower or to
Foothill, as the case may be, at its addresses set forth below:
If to Borrower: OSP PUBLISHING, INC.
5548 Lindbergh Lane
Bell, California
Attention: Christopher B. Lucas,
Vice President - Finance
THE BUTTON EXCHANGE, LTD.
5548 Lindbergh Lane
Bell, California
Attention: Christopher B. Lucas,
42
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Secretary
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) calendar days after the deposit thereof in the mail. Borrower acknowledges
and agrees that notices sent by Foothill in connection with Sections 9504 or
9505 of the Code shall be deemed sent when deposited in the mail or transmitted
by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES AGREE
THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL
BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, IN THE EVENT BORROWER HAS MOVED A
MATERIAL PORTION OF ITS ASSETS OUT OF THE SOUTHERN CALIFORNIA AREA, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH
HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
43
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EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill four (4)
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective
when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection
therewith, Foothill may disclose all documents and information which Foothill
now or hereafter may have relating to Borrower or Borrower's business. To the
extent that Foothill assigns its rights and obligations hereunder to a third
party, Foothill shall thereafter be released from such assigned obligations to
Borrower and such assignment shall effect a novation between borrower and such
third party.
15.3 SECTION HEADINGS. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
44
<PAGE>
15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed or terminated
orally. All prior agreements, understandings, representations, warranties, and
negotiations, if any, are merged into this Agreement.
15.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original and all of which,
when taken together, shall constitute but one and the same Agreement. Delivery
of an executed counterpart of this Agreement by telefacsimile shall be equally
as effective as delivery of a manually executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver a manually executed counterpart of this Agreement but the
failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be improper under, any state or federal law relating to creditors' rights,
including, without limitation, provisions of the United States Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required to repay or restore, and as to all reasonable
costs, expenses and attorneys' fees of Foothill related thereto, the liability
of Borrower or such guarantor shall automatically be revived, reinstated and
restored and shall exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted, modified, or
qualified by any other agreement, oral or written, whether before or after the
date hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at Los Angeles, California.
OSP PUBLISHING, INC.,
a California corporation
("OSP")
By: /s/ __________________________
Its: V.P. Finance
--------------------------
THE BUTTON EXCHANGE, LTD.,
a Michigan corporation
("BEX")
By: /s/ __________________________
Its: Secretary
--------------------------
Accepted and effective this
6th day of February, 1996.
FOOTHILL CAPITAL CORPORATION
a California corporation
("FOOTHILL")
By: /s/ _________________________________
Its: Vice President
-------------------------------------
46
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
$750,000.00 Date: Effective November 1, 1995
FOR VALUE RECEIVED, OSP PUBLISHING, INC., a California corporation
("Maker") promises to pay to SENORAL, INC., a California corporation, or order
("Holder"), at 8474 Commerce Avenue, Suite B, San Diego, California 92121 (or
such other address designated by Holder from time to time), the principal sum
of Seven Hundred Fifty Thousand Dollars and no/100 ($750,000,00), plus interest
thereon, from the date hereof until all amounts due hereunder are paid in full,
at the rate of 10% per annum, payable as more fully set forth below:
1. PAYMENTS. Principal and interest under this Promissory Note ("Note")
shall be payable as follows:
1.1. On the first day of December, 1995, and on the first day of each
calendar month thereafter, Maker shall pay to Holder the sum of Six Thousand Two
Hundred Fifty Dollars and no/100 ($6,250.00).
1.2. On January 1, 1997 ("Maturity Date"), Maker shall pay to Holder
all remaining unpaid principal and all accrued and unpaid interest and other
charges under this Note.
2. MANNER OF PAYMENTS. All payments by Maker under this Note shall be
(a) made in lawful money of the United States of America without set-off,
deduction or counterclaim of any kind whatsoever, (b) credited first to amounts
for late charges, if any, second to amounts for Holder's costs of enforcing this
Note, if any, third to amounts, of interest due (including default interest)
hereunder, if any, and finally to the principal balance under this Note, and
(c) deemed paid by Maker upon their actual receipt by Holder.
3. LATE CHARGE. If any amount of interest and/or principal under this
Note is not received by Holder within seven (15) days after its due date
(including the payment due on the Maturity Date), then, without any requirement
for notice to Maker, Maker shall immediately pay to Holder an additional sum of
five percent (5%) of such overdue amount as a late charge. Such late charge is
fair and reasonable based upon the facts and circumstances existing as of the
date of this Note. Acceptance of such late charge by Holder shall not
constitute a waiver of Maker's default with respect to such overdue amount, nor
prevent Holder from exercising any of the other rights and remedies available
to Holder under this Note, the Agreement between Maker and Holder dated the same
date as this Note (the "Agreement), the Pledge, and/or the Security Agreement
(as both those terms are defined in the Agreement).
4. DEFAULT INTEREST. In the event Maker fails to pay any installment of
principal and/or interest (including the payment due upon the Maturity Date),
Within 30 days of the date such installment is due, then in addition to any
other amounts payable hereunder, including the late charge provided for under
Paragraph 4, above, the entire outstanding
<PAGE>
balance of principal under this Note shall thereafter bear interest, until such
overdue payment is paid in full, at the increased rate of five percent (5%) per
annum over and above the interest rate provided for in the introductory
paragraph of this Note.
5. DUE ON SALE, TRANSFER OR CAPITAL CONTRIBUTION.
5.1 Holder may, at its election, declare all of the sums payable
under this Note (including without limitation all principal and interest) to be
immediately due and payable upon (a) the sale or other transfer of all or
substantially all of the assets of Maker, or (b) the sale or transfer of a
controlling interest in Maker.
5.2. Holder may, at its election, declare all of the sums payable
under this Note (including without limitation all principal and interest) to be
immediately due and payable upon (a) sale or other transfer of all or
substantially all of the assets of Stanley DeSantis, Inc., a California
corporation, or (b) the sale or transfer of a controlling interest in Stanley
DeSantis, Inc.
5.3. In the event of a capital contribution, loan or similar
investment being made to Maker ("a Capital Transaction"), then Maker shall
immediately make the following principal payments to Holder: (a) if the amount
of the Capital Transaction is between $1,000,000 and $1,999,000 then Maker
shall pay Holder an amount equal to 25 % of the amount by which the Capital
Transaction exceeds $1,000,000, and (b) if the capital transaction is between
$2,000,000 and $3,000,000 then Maker shall pay Holder $250,000 plus an amount
equal to 50% of the amount by which the capital transaction exceeds $2,000,000.
6. ACCELERATION. ALL unpaid principal and accrued and unpaid interest
under this Note shall, at Holder's election, be immediately due and payable upon
the occurrence of any of the following events any of which shall constitute
a default hereunder (an "Event of Default"):
6.1. If any amount due under this Note is not received by Holder on or
before its due date and is not received within seven (7) days after notice to
Maker.
6.2. If a default occurs under the Security Agreement or the Pledge
entered into between Maker and Holder and evenly dated herewith.
6.3. The making by Maker of any general arrangement or assignment for
the benefit of creditors; Maker's becoming bankrupt, insolvent or a "debtor" as
defined in 11 U.S.C. Section 101, or any successor statute (unless, in the case
of a petition filed against Maker, such petition is dismissed within 60 days
after its original filing); the institution of proceedings under the bankruptcy
or similar laws in which Maker is the debtor or bankrupt; the appointing of a
trustee or receiver to take possession of substantially all of Maker's assets
(unless possession is restored to Maker within 30 days after such taking); the
attachment, execution or judicial seizure of substantially all of Maker's assets
(unless such attachment, execution or judicial seizure is discharged within 30
days after such attachment, execution or judicial seizure).
2
<PAGE>
6.4. Any default by Maker under an agreement or instrument entered
into with Foothill Capital Corporation.
7. COMMERCIAL PURPOSES. Maker acknowledges that the loan evidenced by
this Note is obtained for business or commercial purposes and that the proceeds
of such loan will not be used primarily for personal, family, household or
agricultural purposes.
8. SECURITY. This Note is secured by a Security Agreement and a Pledge
Agreement dated the same date as this Note from Maker to Holder.
9. INTEREST LIMITATION. It is not intended by any provision of this Note
to charge interest at a rate in excess of the maximum rate of interest permitted
to be charged to Maker under applicable law on a cumulative basis over the life
of the loan evidenced by this Note (the "Loan"). If by mistake or error,
interest in excess of such maximum rate shall be paid for any period during the
term of the Loan, the excess amount shall, if permitted by applicable law, be
retained by Holder as additional cash collateral for the Loan to be held without
interest or trust and commingled with other assets of Holder or, if not
permitted to be so held by Holder, shall be refunded to Maker. If for any
period during the term of the Loan, Holder is unable, because of a limitation on
the rate of interest permitted to be charged to Maker under applicable law, to
collect all of the interest and premium provided for in this Note, such interest
or premium ("interest shortage") shall, if permitted by applicable law, be added
to the interest earned or to be earned for prior or subsequent periods during
the term of the Loan so that, to the extent permitted by applicable law on a
cumulative basis over the life of the Loan, Holder may collect all of the
interest and premium provided for in this Note, the same to be accomplished in
the following manner, or otherwise as permitted by applicable law. (a) if Holder
were permitted by applicable law to charge interest to Maker in such prior
periods in excess of the amount of interest and premium actually charged during
such prior periods, then the interest due on the Loan for such prior periods
shall automatically be increased by the amount of such interest shortage, but
not in excess of the maximum interest permitted to be charged to Maker during
such prior periods, and such increased interest for such prior periods shall be
immediately due and payable upon demand; and (b) if Holder shall have collected
all interest permitted by applicable law to be charged to Maker in such prior
periods, and if Holder is thereafter permitted by applicable law to charge
interest to Maker in such subsequent periods in excess of the amount of interest
and premium actually charged during such subsequent periods, the interest due on
the Loan for such subsequent periods shall automatically be increased by the
amount of such interest shortage, but not in excess of the maximum interest
permitted to be charged to Maker during such subsequent period, and such
increased interest for such subsequent periods shall be due and payable at the
end of each such subsequent period upon demand.
10. NOTE WAIVERS. Maker waives presentment, notice, demand, protest,
notice of demand and dishonor.
11. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
3
<PAGE>
12. FURTHER ASSURANCES. Each party to this Note shall execute all
instruments and documents and take all actions as may be reasonably required to
effectuate this Note and the Pledge Agreement.
13. TIME OF ESSENCE. Time and strict and punctual performance are of the
essence with respect to each provision of this Note.
14. ATTORNEY'S FEES. In the event any litigation, arbitration,
mediation, or other proceeding ("Proceeding") is initiated by any party against
any other party to enforce, interpret, collect upon, foreclose, or otherwise
obtain judicial or quasi-judicial relief in connection with this Note, the
prevailing party in such Proceeding shall be entitled to recover from the
unsuccessful party all costs, expenses, and actual attorney's fees relating to
or arising out of (i) such Proceeding (whether or not such Proceeding proceeds
to judgment), and (ii) any post-judgment or post-award proceeding including
without limitation one to enforce any judgment or award resulting from any such
Proceeding. Any such judgment or award shall contain a specific provision for
the recovery of all such subsequently incurred costs, expenses, and actual
attorney's fees.
15. MODIFICATION. This Note may be modified only by a contract in writing
executed by the party to this Note against whom enforcement of such modification
is sought.
16. HEADINGS. The headings of the Paragraphs of this Note have been
included only for convenience, and shall not be deemed in any manner to modify
or limit any of the provisions of this Note, or be used in any manner in the
interpretation of this Note.
17. WAIVER. Any waiver of a default under this Note must be in writing
and shall not be a waiver of any other default concerning the same or any other
provision of this Note. No delay or omission in the exercise of any right or
remedy shall impair such right or remedy or be construed as a waiver. A consent
to or approval of any act shall not be deemed to waive or render unnecessary
consent to or approval of any other or subsequent act.
18. DRAFTING AMBIGUITIES. Maker and its legal counsel have reviewed and
had an opportunity to negotiate the terms Of this Note. The rule of
construction that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Note or of any
amendments or exhibits to this Note.
OSP PUBLISHING, INC., a California corporation
By: /s/ Joseph C. Angard
---------------------------------------
Joseph C. Angard, Chairman of the Board
and Officer of the Corporation
4
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AMENDED AND RESTATED STOCK PLEDGE AND ESCROW AGREEMENT
AGREEMENT, dated effective November 1, 1995 among OSP Publishing, Inc.,
with an address at 5548 Lindbergh Lane, Bell, California 90201 (the "Pledgor"),
Senoral, Inc., with an address at 8474 Commerce Avenue, Suite B, San Diego,
California 91212 (the "Pledgee"), and Solomon Ward Seidenwurm & Smith (the
"Escrow Agent"), as agent for the Pledgee.
RECITALS
A. Effective November 1, 1995, Pledgee loaned the Pledgor $750,000
pursuant to a note (as such note is amended and restated "Note") Pledgor has
pledged as collateral security for the Note Five Hundred (500) of its shares of
the common stock (the "Pledged Securities") of Stanley DeSantis, Inc. (the
"Company").
B. As a condition for the Pledgee making the loan pursuant to the Note,
the Pledgor has agreed to secure payment of the Note by a pledge of the Pledged
Securities pursuant to the terms of this Agreement. The Pledged Securities are
being delivered to the Escrow Agent, as agent for the Pledgee, who will hold the
Pledged Securities as security for the Pledgor's obligations hereunder.
C. All of the undertakings, covenants, obligations and liabilities of the
Pledgor under the Note, this Agreement, and the Security Agreement executed in
connection with the Notes are sometimes referred to herein as the
"Obligations."
NOW, THEREFORE, it is agreed as follows:
1. As collateral security for the Obligations of the Pledgor, the Pledgor
herewith deposits and pledges to the Escrow Agent, as agent for the Pledgee, in
a form transferable for delivery, and grants to the Escrow Agent for the account
of the Pledgee a security interest in, the Pledged Securities, which for
purposes of this Agreement shall be deemed to include the certificates
evidencing the same as more particularly described in Schedule A annexed hereto,
and such additional rights and property at any time and from time to time
distributed in respect of or in exchange for any or all such shares including,
without limitation, dividends and interest issued pursuant to any merger,
reorganization, or consolidation (herein collectively with the Pledged
Securities called the "Pledged Collateral").
2. (a) The Pledgor represents and warrants that the Pledged Securities
are, and will be on deposit hereunder, duly and validly pledged in accordance
with the law, and that the pledge of the Pledged Securities pursuant to this
Agreement creates a valid and perfected first priority security interest
therein, securing the obligations of the Pledgor under this Agreement. The
Pledgor agrees to defend the Pledgee's right, title, lien and security interest
in and to the Pledged Securities against all claims and demands of all persons
whomsoever. The Pledgor also represents and warrants to the Pledgee that the
Pledgee has, and will have on deposit
<PAGE>
hereunder, good title to all of the Pledged Securities, free and clear of all
claims, mortgages, pledges, liens, encumbrances and security interests of every
nature whatsoever (other than the lien created hereunder), and that no consent
or approval of any governmental or regulatory authority is necessary to the
validity of this pledge.
(b) The Pledgor shall not, without complying with the provisions of this
Paragraph, sell or transfer any other shares of capital stock of the Company,
now owned or hereafter acquired, including, without limitation, any rights to
receive common, preferred or convertible shares ("Other Shares"). If the
Pledgor elects to sell or transfer any of the Other Shares owned by the Pledgor,
or any interest in such Other Shares, then such sale or transfer of Other Shares
shall be conditioned upon the proposed purchaser's purchase of a proportionate
number of the Pledged Securities on the same terms and conditions, with the sale
proceeds being applied against the Obligations pursuant to Paragraph 8 below.
Such condition shall apply irrespective of whether a breach or default has
occurred or exists under the Obligations. Such condition is for the sole
benefit of Pledgee and may be waived in writing by Pledgee, in its sole and
absolute discretion.
3. (a) The Pledgee represents and warrants that (i) the authorized
capital stock of the Company is comprised solely of 1,000 shares of common
stock, One Thousand (1000) of which are issued and outstanding; (ii) The Pledgor
owns a total of 510 shares of stock in the Company (including the Pledged
Securities), (iii) there art no outstanding options, warrants, convertible
Instruments or other rights to acquire common stock or any other capital stock
of the Company ("Stock Rights"); (iv) there are no shares of the Company's stock
held in treasury, and (v) the issued and outstanding shares of the Company have
been validly and duly issued and are not subject to any preemptive rights,
voting trust agreements or other contracts, agreements or arrangements
restricting voting or dividend rights or transferability.
(b) The Pledgor shall not, without the prior written consent of Pledgee,
cause the Company to take, or vote in favor of, any action or enter into any
agreement to (i) issue, sell, or otherwise dispose of any shares of capital
stock in the Company; (ii) acquire any of the shares of capital stock in the
Company; or (iii) grant or accept any Stock Rights.
4. At any time and from time to time after a breach, default or event
(after giving effect to any applicable giving of notice or passage of time) of
or under any of the obligations, the Pledgee may, by notice to the Escrow Agent
and the Pledgor, which notice shall specify the amount outstanding and due under
the Obligations, cause all or any of the Pledged Collateral to be transferred to
or registered in its name or the name of its nominee or nominees. The Escrow
Agent shall have the authority to transfer the Pledged Collateral to Pledgee on
the Company's books and records and shall deliver the Pledged Collateral to the
Pledgee not earlier than 10 days after the Escrow Agent's receipt of such notice
from the Pledgee.
2
<PAGE>
5. So long as there shall exist no condition, event or act which, with
notice and lapse of time, would constitute a breach, default or an event of
default of or under any of the Obligations, the Pledgor shall be entitled:
(a) To exercise the voting power with respect to the Pledged
Securities, and for that purpose the Pledgee shall cause the Escrow Agent to
execute from time to time, at the expense of the Pledgor, such proxies or other
instruments in favor of the Pledgor or their nominees, in such form and for such
purposes as shall be reasonably required by the Pledgor to enable them to
exercise such voting power with respect to the Pledged Collateral, and
(b) To receive and retain for its own account any and all dividends
(other than stock or liquidating dividends) and interest at any time and from
time to time declared or paid upon any of the Pledged Collateral.
(c) Notwithstanding the foregoing, the Pledgor shall not, without the
prior written consent of Pledgee, vote in favor of or allow any of the following
actions of the Company or enter into any agreement to : (i) amend the Company's
Articles of Incorporation or bylaws; (ii) sell any capital asset, or group of
assets, of the Company with a value of more than $20,000.00, in a single
transaction or a series of transactions; (iii) undertake any Reorganization
or Short-Form Merger (as those terms are defined in California Corporations
Code Sections 181 and 187, respectively); or (iv) undertake any other corporate
action for which shareholder approval is required by the California General
Corporate Law, except for the election or removal of directors.
6. In case, upon the dissolution or liquidation (in whole or in part) of
the Company, any sum shall be paid as a liquidation dividend or otherwise upon
or with respect to any of the Pledged Collateral, and in case any sum shall be
paid on account of the principal of any of the Pledged Collateral which shall be
an obligation, such sum shall be paid over to the Escrow Agent, to be held by
the Escrow Agent as additional collateral hereunder. In case any stock dividend
shall be declared on any of the Pledged Collateral, or any shares of stock or
fractions thereof shall be issued pursuant to any stock split involving any of
the Pledged Collateral, or any distribution of capital shall be made on any of
the Pledged Collateral, or any shares, obligations or other property shall be
distributed upon or with respect to the Pledged Collateral pursuant to a
recapitalization or reclassification of the capital, or pursuant to the
dissolution, liquidation (in whole or in part), bankruptcy or reorganization, or
to the merger or consolidation with or into another corporation, of the Company,
the shares, obligations or other property so distributed shall be delivered to
the Escrow Agent, to be held by it as additional collateral hereunder, and all
of the same shall constitute Pledged Collateral for all purposes hereof.
7. So long as there shall exist a condition, event or act which, with
notice and lapse of time, would constitute a breach, default or an event of
default under any of the obligations, the Pledgee shall be entitled to exercise
all voting power with respect to the
3
<PAGE>
Pledged Collateral and to receive and retain, as additional collateral
hereunder, any and all dividends and interest at any time and from time to time
declared or paid upon any of the Pledged Collateral.
8. Any cash received and retained by the Escrow Agent as additional
collateral hereunder pursuant to the foregoing provisions may at any time and
from time to time be applied (in whole or in part) by the Pledgee, at its
option, to any payments due under the Obligations as follows:
FIRST, to the payment of late charges, if any, and interest accrued on the
Obligations;
SECOND, to the payment of all Obligations then due and payable other than
those specified in clause First above (the allocation of such payment to be made
by the Pledgee in its sole discretion); and
THIRD, to pay the remainder, if any, to the Pledgor or such other person
as Pledgee and/or Escrow Agent reasonably determine may be lawfully entitled to
receive the same or as a court of competent jurisdiction may direct.
9 . Notwithstanding any other provision of this Agreement, upon receipt by
the Escrow Agent of written instructions signed by or on behalf of the Pledgor
and the Pledgee, the Escrow Agent shall make any other payment or delivery of
the Pledged Collateral then held hereunder as may be specified in such
instructions.
10. In the event that the Pledgee shall receive any Pledged Collateral
pursuant to paragraph 4 hereof:
(a)(i) The Pledgee, without obligation to resort to other security,
shall have the right at any time and from time to time to sell, resell, assign
and deliver, upon such terms as the Pledgee may deem commercially reasonable,
all or any of the Pledged Collateral, in one or more parcels at the same or
different times, and all right, title and interest, claim and demand therein and
right of redemption thereof, on any securities exchange on which the Pledged
Collateral or any of them may be listed, or at public or private sale, for cash,
upon credit or for future delivery, and in connection therewith the Pledgee may
grant options, the Pledgor hereby waiving and releasing any and all equity or
right of redemption. If any of the Pledged Collateral is sold by the Pledgee
upon credit or for future delivery, the Pledgee shall not be liable for the
failure of the purchaser to purchase or pay for the same and, in the event of
any such failure, the Pledgee may resell such Pledged Collateral. In no event
shall the Pledgor be credited with any part of the proceeds of sale of any
Pledged Collateral until cash payment thereof has actually been received by the
Pledgee.
(ii) No demand, advertisement or notice (except as provided for
below), all of which are hereby expressly waived by the Pledgor shall be
required in connection with any
4
<PAGE>
sale or other disposition of any party of the Pledged Collateral which threatens
to decline speedily in value or which is of a type customarily sold on a
recognized market; provided, however, that the Pledgee shall give the Pledgor at
least ten (10) days' prior notice of the time and place of any public sale and
of the time after which any private sale or other disposition is to be made,
which notice the Pledgor agrees is reasonable, all other demands, advertisements
and notices hereby waived. Any such public sale shall be held at such time or
times within ordinary business hours as Pledgee shall fix in the notice of such
sale. The Pledgee shall not be obligated to make any sale of Pledged Collateral
if it shall determine not to do so, regardless of the fact that notice of sale
may have been given. The Pledgee may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. Upon each private sale of Pledged Collateral of a type customarily
sold in a recognized market and upon each public sale, the Pledgee may purchase
all or any of the Pledged Collateral being sold, free from any equity or right
of redemption, which is hereby waived and released, and may make payment
therefor (by endorsement without recourse) by promissory note in lieu of cash
for the amount then due thereon which the Pledgor hereby agrees to accept. In
the case of all sales of Pledged Collateral, public or private, the Pledgor
shall pay all costs and expenses of every kind for sale or delivery, including
brokers' and attorneys' fees, and after deducting such costs and expenses from
the proceeds of sale, the Pledgee shall apply any residue to any payments due
under the obligations. The balance, if any, remaining after payment in full of
all amounts due under the obligations, shall be paid to the Pledgor, subject to
any duty of the Pledgee, imposed by law to the holder of any subordinate
security interest in the Pledged Collateral known to the Pledgee.
(iii) The Pledgor recognizes that the Pledgee may be unable to effect
a public sale of all or a part of the Pledged Collateral by reason of certain
prohibitions contained in the United States Securities Act of 1933, as amended,
as now or hereafter in effect, or in applicable Blue Sky or other state
securities laws, as now or hereafter in effect, but may be compelled to resort
to one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Pledged Collateral for
their own account, for investment and not with a view to the distribution or
resale thereof. The Pledgor agrees that private sales so made may be at prices
and other terms less favorable to the seller than if such Pledged Collateral
were sold at public sales, and that the Pledgee has no obligation to delay sale
of any such Pledged Collateral for the period of time necessary to permit the
Pledgee, even if it would agree, to register such Pledged Collateral for public
sale under such applicable securities laws. The Pledgor agrees that private
sales made under the foregoing circumstances shall be deemed to have been made
in a commercially reasonable manner.
(b) The Pledgee shall be irrevocably appointed as the Pledgor's
attorney-in-fact and shall have the right, for and in the name, place and stead
of the Pledgor, to execute endorsements, assignments or other instruments of
conveyance or transfer with respect to all
5
<PAGE>
or any of the Pledged Collateral.
(c) The Pledgor releases the Pledgee from any claims, causes of
action and demands at any time arising out of or with respect to this Agreement,
the Pledged Collateral and/or any actions, taken or omitted to be taken by the
Pledgee with respect thereto, and the Pledgor hereby agrees to indemnify and
hold the Pledgee harmless from and with respect to any and all such claims,
causes of action and demands, provided, however, that such release or
indemnification shall not apply in the event of Pledgee's gross negligence or
willful misconduct.
(d) No failure on the part of Pledge to exercise and no delay in
exercising any of its options, powers or rights, or partial or single exercise
thereof, shall constitute a waiver thereof. The remedies provided herein in
favor of the Pledgee shall not be deemed exclusive, but shall be cumulative, and
shall be in addition to all other remedies in favor of the Pledgee existing at
law or in equity.
(e) Notwithstanding any other provision contained herein, in the
event the Pledgee seeks to sell or transfer the Pledged Collateral pursuant to
Section 10(a), or otherwise, the Pledgor shall have the absolute right to match
any bona fide offer received by the Pledgee, provided that such offer is for a
cash sale of the Pledged Collateral and provided that the Pledgor promptly and
timely tenders the cash required by such offer.
(f) Notwithstanding any other provision contained herein, the Pledgee
shall release the Pledged Collateral in proportion to the Obligations satisfied
at the Maturity Date by the Pledgor (as such terms are defined in the Note);
provided, however, that the foregoing proportionate release shall not apply to
any payment made after November 1, 1996.
(g) Pledgee shall be entitled to any other remedy available under
applicable law and all Pledgee's remedies under this Agreement shall be
cumulative.
11. The Pledgor hereby appoints the Pledgee as the Pledgor's attorney-in-
fact for the purpose of carrying out the provisions of this Agreement and taking
any action and executing any instrument which either the Pledgor or Pledgee may
deem necessary or advisable to accomplish the purposes hereof. Without limiting
the generality of the foregoing, the Pledgee shall have the right and power to
receive, endorse and collect all checks and other orders for the payment of
money made payable to the Pledgor representing any interest or dividend or other
distribution payable in respect of the Pledged Collateral or any part thereof
and to give full discharge for the same.
12. Upon payment in full of the Note and any other amounts due and payable
in connection with the Obligations, the Pledgor shall be entitled to the return
of the Pledged Collateral and other property and cash which have not been used
or applied toward the payment of such indebtedness. The assignment by the
Pledgee or the Escrow Agent to the
6
<PAGE>
Pledgor of such Pledged Collateral and other properly shall be without
representation or warranty of any nature whatsoever and wholly without recourse.
This Agreement shall terminate at the time when all of the Pledged Collateral
held hereunder have been delivered by the Escrow Agent as provided in this
Agreement.
13. The acceptance by the Escrow Agent of its duties under this Agreement
is subject to the following terms and conditions, which shall govern and control
with respect to its rights, duties, liabilities and immunities:
(a) The duties of the Escrow Agent are only such as are herein
specifically provided, being purely ministerial in nature and no additional
duties shall be inferred herefrom or implied hereby. The Escrow Agent shall
incur no liability whatsoever to the Pledgee, the Pledgor or otherwise, except
for its own willful misconduct or gross negligence.
(b) The Escrow Agent shall be under no responsibility in respect of any of
the items deposited with it other than to follow the provisions of this
Agreement. The Escrow Agent may consult with counsel and shall be fully
protected in any action taken or omitted in good faith, in accordance with
advice of such counsel.
(c) The Escrow Agent shall not be required to defend any legal proceedings
which may be instituted against it in respect of the subject matter of this
Agreement unless requested to do so by the Pledgee or the Pledgor and shall be
fully indemnified by the requesting party or parties to its satisfaction against
the cost and expense of such defense. The Escrow Agent shall not be required to
institute legal proceedings of any kind.
(d) The Escrow Agent shall have no responsibility for the genuineness,
validity or value of any certificate, document or other item deposited with or
delivered to it, and the Escrow Agent shall be fully protected in acting in
accordance therewith.
(e) In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder, or shall receive instructions from the Pledgee or the
Pledgor with respect to the Pledged Collateral that, in its opinion, are in
conflict with any of the provisions of this Agreement, the Escrow Agent shall be
entitled to refrain from taking any action until it shall be directed otherwise
in writing by both the Pledgee and the Pledgor or by a final order of a court of
competent jurisdiction.
(f) Notwithstanding any provision to the contrary contained in any other
agreement (excluding any amendment to this Agreement) between any of the parties
hereto, the Escrow Agent shall have no interest in the Pledged Collateral except
as provided in this Agreement.
(G) In the event that any of the terms and provisions (excluding any
amendment to this Agreement) between any of the parties hereto conflict or are
inconsistent
7
<PAGE>
with any of the terms and provisions of this Agreement, the terms and provisions
of this Agreement in respect of the rights and duties of the Escrow Agent shall
govern and control in all respects.
(h) Nothing in this Agreement shall be deemed to prohibit the Escrow Agent
from providing legal services or representation to one or all of the parties to
this Agreement in connection with any matter whatsoever.
(i) The Escrow Agent may at any time by written notice given to all
parties to this Agreement resign its position under this Agreement, whereupon
the other parties to this Agreement shall designate one or more persons to act
as a successor. If such parties shall fail to designate such a successor, such
parties agree to apply to the American Arbitration Association for the
designation of a successor.
(j) The Escrow Agent shall not receive any compensation for its services
hereunder, except that the Pledgor agrees to reimburse the Escrow Agent on
demand for all necessary and ordinary expenses (including reasonable attorneys'
fees, whether for its own services as counsel or for the services of other
counsel which shall apply solely in the event of a default) incurred by the
Escrow Agent in the performance of its duties hereunder.
14. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered by
hand, against acknowledgment of receipt, or by a recognized overnight courier
service:
PLEDGEE: Senoral, Inc.
8474 Commerce Avenue, Suite B
San Diego, California 91212
Attention: Alan Saloner
with a copy to: Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, California 92101
Attention: Norman L. Smith, Esq.
PLEDGOR: OSP Publishing, Inc.
5548 Lindbergh Lane
Bell, California 90201
Attn: President
with a copy to: Samaha, Grogin & Stulberg
35 North Lake Avenue, Suite 810
Pasadena, California 91101
Attention: Jeffrey P. Grogin, Esq.
8
<PAGE>
ESCROW AGENT: Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, California 92101
Attention: Norman L. Smith, Esq.
15. This Agreement shall create a continuing security interest in the
Pledged Collateral and shall remain in full force and effect until payment in
full of the Note and all other amounts due and payable in connection with the
Obligations.
16. This Agreement and the rights and obligations of the Pledgee and the
Pledgor hereunder shall be construed in accordance with and governed by the law
of the State of California applicable to agreements made and to be performed
wholly within California, cannot be changed orally and shall bind and inure to
the benefit of the Pledgor and the Pledgee and their respective successors and
assigns and all subsequent holders of the Note.
17. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute but one and the same instrument.
18. In the event any litigation, arbitration, mediation, or other
proceeding ("Proceeding") is initiated by any party against any other party to
enforce, interpret or otherwise obtain judicial or quasi-judicial relief in
connection with this Agreement, the prevailing party in such Proceeding shall be
entitled to recover from the unsuccessful party all costs, expenses, and
reasonable attorneys' and expert witness fees relating to or arising out of (a)
such Proceeding (whether or not such Proceeding proceeds to judgment), and (b)
any post-judgment or post-award proceeding including, without limitation, one to
enforcer any judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the recovery of all
such subsequently incurred costs, expenses, and reasonable attorneys' and expert
witness fees.
IN WITNESS WHEREOF, the Pledgor, the Pledgee, and the Escrow Agent have
caused this Pledge Agreement to be duly executed as of the day and year first
above written.
PLEDGOR:
OSP PUBLISHING, INC.
/s/ Joseph C. Angard
- -----------------------------------
Joseph C. Angard
Chairman of the Board
9
<PAGE>
PLEDGEE:
SENORAL, INC.
- -----------------------------------
Alan Saloner
President
ESCROW AGENT:
SOLOMON WARD SEIDENWURM & SMITH
- -----------------------------------
Norman L. Smith, Esq.
Partner
10
<PAGE>
SCHEDULE A
Shareholder Certificate Number Number of Shares
- ----------- ------------------ -----------------
OSP PUBLISHING, INC. 360
OSP PUBLISHING, INC. 140
11
<PAGE>
SECURED PROMISSORY NOTE
-----------------------
Los Angeles, California
$4,000,000.00 September 25, 1989
1. FOR VALUE RECEIVED, the undersigned, OSP Publishing, Inc., a
California corporation ("Borrower"), hereby promises to pay to Robert H.
Yamasaki, an individual residing in the County of Los Angeles, State of
California ("Yamasaki"), the sum of FOUR MILLION DOLLARS ($4,000,000.00) or such
other amount as may be determined pursuant to Paragraph 2 below, together with
interest on the unpaid principal balance hereof (both before and after the
"Maturity Date" as defined in Paragraph 7 hereof) at the rate provided below
from the date such principal is advanced until payment in full thereof.
2. This Note arises out of that certain Agreement for the Purchase and
Sale of Business Assets between Yamasaki as Seller and Borrower as Buyer dated
as of September 25, 1989 (the "Purchase Agreement") and represents a portion of
the Purchase Price payable by Borrower to Yamasaki under the Purchase Agreement.
Section 2.3 of the Purchase Agreement provides for an adjustment of the Purchase
Price and the amount and timing of payments hereunder under certain
circumstances, all as set forth more fully in Section 2.3 of the Purchase
Agreement.
3. Except as otherwise provided herein, interest shall accrue on the
principal amount hereof outstanding from time to time at the simple per annum
rate of the lesser of: (i) the prime interest rate being charged from time to
time by Bank of America NT&SA to corporate borrowers of the highest credit
standing for short-term, unsecured loans and referred to by Bank of America as
its Prime Rate (the "Prime Rate") ; and (ii) the maximum rate of interest
permitted by law. The rate so determined shall be the "Prevailing Rate". The
Prevailing Rate will be adjusted on the first day of each calendar quarter after
the date hereof. If interest is not paid when due, it shall thereafter bear like
interest as the principal, but the interest so compounded shall not exceed an
amount equal to simple interest on the unpaid principal balance at the maximum
rate permitted by law.
4. INTEREST ON THIS NOTE WILL BE COMPUTED ON A THREE HUNDRED SIXTY-FIVE
(365) DAY YEAR BASIS (OR, WITH RESPECT TO LEAP YEARS, ON A THREE HUNDRED SIXTY-
SIX (366) DAY YEAR BASIS) AND THE ACTUAL NUMBER OF DAYS ELAPSED.
5. Subject to the provisions of Paragraph 2, from November 1, 1989
through October 1, 1993, Borrower shall be required to pay on this Note only
monthly payments equal to the lesser of accrued but unpaid interest on this Note
and Twenty Thousand
1
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Eight Hundred Thirty Three Dollars and Thirty Three Cents ($20,833.33). It is
acknowledged that such payments may result in interest accruing in excess of
amounts payable. Notwithstanding the provisions of Paragraph 3 hereof, interest
which is not paid as a result of this provision shall be added to principal at
the end of each year hereof commencing October 1, 1990 and shall thereafter bear
like interest as principal.
6. Commencing on November 1, 1993 and continuing monthly thereafter
through September 1, 1998, Borrower shall make fifty nine equal monthly payments
of principal and interest. Such equal monthly installments shall be calculated
by amortizing the amount of principal and interest outstanding on October 1,
1993 over a period of ten (10) years.
7. All remaining outstanding principal and accrued but unpaid interest on
this Note shall be due and payable upon the earlier of (a) October 1, 1998 and
(b) the occurrence of a "Maturity Event", as defined in Paragraph 9 hereof. The
date that all remaining principal and interest becomes due and payable pursuant
to this Paragraph 7 shall be deemed the "Maturity Date".
8. The principal of this Note may be prepaid, in whole or in part, at any
time without premium or penalty.
9. For purposes hereof, the occurrence of either of the following shall,
at Yamasaki's option, be deemed a Maturity Event: (i) Borrower shall fail to
make any payment required pursuant to Paragraph 6 hereof or Borrower shall be
deemed in default under subparagraphs (ii) or (iii) of Paragraph 3 of the
"Security Agreement" as hereinafter defined and, in either of such cases, such
failure or default remains uncured for forty five (45) days after Borrower
receives written notice from Yamasaki of his intention to accelerate the
Maturity Date; or (ii) there shall be a sale of more than fifty percent (50%) of
Borrower's then outstanding stock in a single transaction or a series of related
transactions or a sale of substantially all of Borrower's assets or Borrower
shall complete and receive proceeds from a public offering of its stock for in
excess of Five Million Dollars ($5,000,000). For purposes hereof a sale of
substantially all of Borrower's assets shall be deemed to occur upon the sale
outside the ordinary course of business of assets equal in value to more than
fifty percent (50%) of the then current total value of all of Borrower's assets.
10. In the event Borrower defaults in the payment of any installment of
principal or interest when due and fails to cure such default within ten (10)
days after written notice of such default from Yamasaki that such default has
occurred, then the unpaid principal balance of this Note shall, from the
expiration of such ten (10) day period through the date such default is cured,
bear interest at the lesser of (i) two (2) percent (2%)
2
<PAGE>
above the Prime Rate (as adjusted hereunder) and (ii) the maximum interest rate
permitted by law (the "Default Rate"). Principal outstanding under this Note
shall also bear interest at the Default Rate from and after the Maturity Date.
11. Demand, presentment, protest and notice of non-payment and protest are
hereby waived by Borrower. No delay on the part of the holder of this Note in
exercising any right hereunder shall operate as a waiver of such right under
this Note. No single waiver shall constitute or be deemed to be a continuous
waiver of such or any other right under this Note.
12. All amounts payable under this Note are payable in lawful money of the
United States. Checks will constitute payment only when collected.
13. Upon payment in full of all principal and interest payable hereunder,
this Note shall be surrendered to the undersigned for cancellation.
14. Borrower agrees to pay all costs of collection when incurred,
including, but not limited to, reasonable attorneys' fees. If any suit or
action is commenced to enforce this Note, Borrower promises to pay, in addition
to the costs and disbursements otherwise allowed by law, such sum as the court
may adjudge reasonable attorneys' fees in such suit or action.
15. Borrower's obligations hereunder are secured by granting Yamasaki a
security interest in all of Borrower's assets whether now owned or hereafter
acquired (the "Collateral") pursuant to a Security and Pledge Agreement of even
date herewith (the "Security Agreement").
16. The obligations of Borrower under this Note (as well as the lien of
Yamasaki on the Collateral) are and shall at all times be subject and
subordinate in all respects to all business debt now or hereafter incurred by
Borrower in the ordinary course of its business and to the Purchase Financing as
defined in the Purchase Agreement ("Senior Debt"). Yamasaki agrees to execute
such further documents as may be required by any lender of Senior Debt to
evidence or further document the subordination expressed herein and in the
Security Agreement.
17. Borrower shall have the right, exercisable without prior notice to
Yamasaki at any time, to offset all or any part of the amounts due from Borrower
hereunder against any debt, obligations or liability of any nature of Borrower
to Yamasaki, whether or not said debt, obligation or liability is then due and
payable or to be performed and whether or not said debt, obligation or liability
is liquidated or unliquidated, contingent or fixed. Without limiting the
foregoing, such right of offset shall apply to any debt, obligation or liability
which may now or
3
<PAGE>
hereafter exist or arise out of or result from the Purchase Agreement.
18. This Note has been delivered and accepted in Los Angeles County, State
of California, and shall be interpreted and the rights and liabilities of the
parties hereto determined, in accordance with the laws of the State of
California.
19. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
20. Any notice or other communication (except payment) required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or upon deposit if deposited in the United
States mail for mailing by registered or certified mail with return receipt
requested, postage prepaid and addressed as follows:
If to Borrower: OSP Publishing
1001 Monterey Pass Road
Monterey Park, CA 91754
Attention: David M. Colburn
If to Yamasaki: 844 Longhill
Monterey Park, CA 91754
Each of the above addressees may change its address for purposes of this
paragraph by giving the other addressee notice in conformity with this paragraph
of such new address.
OSP Publishing, Inc.
a California corporation
By: /s/ David M. Colburn
------------------------------
Its: CEO
------------------------------
By: /s/ Joseph Angard
------------------------------
Its: President
------------------------------
The Note is accepted and agreed to
this 25th day of September, 1989
/s/ Robert H. Yamasaki
- -----------------------------------
Robert H. Yamasaki
4
<PAGE>
RESTATED SECURED PROMISSORY NOTE
Los Angeles, California
$3,400,000 As of September 25, 1989
RECITALS
WHEREAS, on September 25, 1989, OSP Publishing, Inc., a California
corporation ("Borrower"), purchased substantially all of the business assets of
OldCo and R&R, as such terms and such other capitalized, but undefined terms,
used herein, are defined in that certain Agreement for the Purchase and Sale of
Business Assets (the "Purchase Agreement") , dated as of September 25, 1989,
between Borrower and Robert H. Yamasaki, an individual ("Yamasaki"); and
WHEREAS, as a portion of the Purchase Price payable by Borrower to Yamasaki
was evidenced by a Secured Promissory Note, dated September 25, 1989, from
Borrower to Yamasaki in the amount of $4,000,000.00 (the "Old Note"); and
WHEREAS, the terms of the Old Note required adjustments to be made to the
principal amount and the rate of interest dependent upon various outside
factors; and
WHEREAS, subsequent to September 25, 1989 several disputes have arisen
regarding the current principal balance of the Old Note and the correct interest
rate for the Old Note because of discrepancies in the amount to be credited for
returned goods, the existence of previously unknown and known litigation,
uncertainty regarding the proper recording of certain assets in accordance with
generally accepted accounting principles, and the costs associated therewith,
the existence of known and unknown tax liabilities, and the costs associated
therewith, and a general disagreement as to where responsibility for the
foregoing costs should lie; and
WHEREAS, a genuine dispute has arisen regarding the foregoing matters such
that each party disputes that the actual liability owing under the Old Note;
and
WHEREAS, Borrower and Yamasaki have agreed to resolve their dispute by
compromising (i.e., Yamasaki reimbursing Borrower for disputed costs, etc.) such
that the principal amount owing under to Yamasaki is $3,400,000.00 as of
September 25, 1989 and the interest rate adjusts as stated herein, and the
principal amount is amortized as if this Restated Secured Promissory Note had
been executed and delivered on September 25, 1989;
NOW, THEREFORE, IN CONSIDERATION of the foregoing, the following, and other
good and valuable consideration, the sufficiency and the receipt of which is
hereby acknowledged, Borrower and Yamasaki agree as follows:
<PAGE>
1. Borrower hereby promises to pay Yamasaki the sum of THREE MILLION,
FOUR HUNDRED THOUSAND DOLLARS AND ZERO CENTS ($3,400,000.00), together with
interest on the unpaid principal balance hereof (both before and after the
"Maturity Date" as defined in Paragraph 6 hereof) at the rate provided below
from September 25, 1989 until payment in full thereof.
2. This Note arises from the Purchase Agreement and is intended to fully
satisfy Borrower's obligations to pay the Purchase Price, anything contained in
such agreement, including, but not limited to Section 2.3 thereof,
notwithstanding.
3. Interest shall accrue on the principal amount hereof outstanding from
time to time at the simple per annum rate of (x) the prime interest rate being
charged from time to time by Bank of America NT&SA to corporate borrowers of the
highest credit standing for short-term, unsecured loans and referred to by Bank
of America as its Prime Rate (the Prime Rate") plus (y) two percent (2%); unless
(x) plus (y) shall equal or exceed ten percent (10%), in which case, interest
shall accrue at a rate equal to the higher of the Prime Rate or ten percent
(10%); PROVIDED; HOWEVER; that in no event shall the interest rate exceed
sixteen percent (16%). The interest rate so determined shall be referred to as
the "Prevailing Rate." The Prevailing Rate shall be adjusted on the first day of
each calendar quarter after September 25, 1989. If interest is not paid when
due, it shall thereafter bear like interest as the principal, but the interest
so compounded shall not exceed an amount equal to simple interest on the unpaid
principal balance at the maximum rate permitted by law.
4. INTEREST ON THIS NOTE WILL BE COMPUTED ON A THREE HUNDRED SIXTY-FIVE
(365) DAY YEAR BASIS (OR, WITH RESPECT TO LEAP YEARS, ON A THREE HUNDRED SIXTY-
SIX (366) DAY YEAR BASIS) AND THE ACTUAL NUMBER OF DAYS ELAPSED.
5. Payments shall be made monthly on the 15th of each month, and shall
equal accrued interest plus $25,000.00, until July 15, 1997 when the remaining
principal balance shall be due and payable in the amount of $1,500,000.00.
6. All remaining outstanding principal and accrued but unpaid interest on
this Note shall be due and payable upon the earlier of (a) October 1, 1998 or
(b) the occurrence of a "Maturity Event," as defined in Paragraph 8 hereof. The
date on which all remaining principal and interest becomes due and payable
pursuant to this Paragraph 6 shall be deemed the "Maturity Date."
7. The principal of this Note may be prepaid, in whole or in part, at any
time without premium or penalty.
-2-
<PAGE>
8. For purposes hereof, the occurrence of either of the following shall,
at Yamasaki's option, be deemed a Maturity Event: (i) Borrower shall fail to
make any payment required pursuant to Paragraph 5 hereof or Borrower shall be
deemed in default under subparagraphs (ii) or (iii) of Paragraph 3 of the
"Security Agreement" as hereinafter defined and, in either of such cases, such
failure or default remains uncured for forty five (45) days after Borrower
receives written notice from Yamasaki of his intention to accelerate the
Maturity Date; or (ii) there shall be a sale of more than fifty percent (50%) of
Borrower's then outstanding stock in a single transaction or a series of related
transactions or a sale of substantially all of Borrower's assets or Borrower
shall complete and receive proceeds from a public offering of its stock for in
excess of Five Million Dollars ($5,000,000.00). For purposes hereof a sale of
substantially all of Borrower's assets shall be deemed to occur upon the sale
outside the ordinary course of business of assets equal in value to more than
fifty percent (50%) of the then current total value of all of Borrower's assets.
9. In the event Borrower defaults in the payment of any installment of
principal or interest when due and fails to cure such default within ten (10)
days after written notice of such default from Yamasaki that such default has
occurred, then the unpaid principal balance of this Note shall, from the
expiration of such ten (10) day period through the date such default is cured,
bear interest at the lesser of (i) two percent (2%) over the then Prevailing
Rate and (ii) the maximum interest rate permitted by law (the "Default Rate").
Principal outstanding under this Note shall also bear interest at the Default
Rate from and after the Maturity date.
10. Demand, Presentment, protest and notice of non-payment and protest are
hereby waived by Borrower. No delay on the part of the holder of this Note in
exercising any right hereunder shall operate as a waiver of such right under
this Note. No single waiver shall constitute or be deemed to be a continuous
waiver of such or any other right under this Note.
11. All amounts payable under this Note are payable in lawful money of the
United States. Checks will constitute payment only when collected.
12. Upon payment in full of all principal and interest payable hereunder,
this Note shall be surrendered to the undersigned for cancellation.
13. Borrower agrees to pay all costs of collection when incurred,
including, but not limited to, reasonable attorneys' fees. If any suit or
action is commenced to enforce this Note, Borrower promises to pay, in addition
to the costs and
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<PAGE>
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
14. Borrower's obligations hereunder are secured by granting Yamasaki a
security interest in all of Borrower's assets whether now owned or hereafter
acquired (the "Collateral") pursuant to a Security and Pledge Agreement, dated
September 25, 1989 (the "Security Agreement").
15. The obligations of Borrower under this Note (as well as the lien of
Yamasaki on the Collateral) are and shall at all times be subject and
subordinate in all respects to all business debt now or hereafter incurred by
Borrower in the ordinary course of its business and to the Purchase Financing
("Senior Debt"). Yamasaki agrees to execute such further documents as may be
required by any lender of Senior Debt to evidence or further document the
subordination expressed herein and in the Security Agreement.
16. Borrower shall have the right, exercisable without prior notice to
Yamasaki at any time, to offset all or any part of the amounts due from Borrower
hereunder against any debt, obligations or liability of any nature of Borrower
to Yamasaki, whether or not said debt, obligation or liability is then due and
payable or to be performed and whether or not said debt, obligation or liability
is liquidated or unliquidated, contingent or fixed. Without limiting the
foregoing, such right of offset shall apply to any debt, obligation or liability
which may now or hereafter exist or arise out of or result from the Purchase
Agreement.
17. This Note has been delivered and accepted in Los Angeles County, State
of California, and shall be interpreted and the rights and liabilities of the
parties hereto determined, in accordance with the laws of the State of
California.
18. Whenever possible each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
19. Any notice or other communication (except payment) required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or upon deposit if deposited in the United
States mail for
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<PAGE>
mailing by registered or certified mail with return receipt requested, postage
prepaid and addressed as follows:
If to Borrower: OSP Publishing, Inc.
1001 Monterey Pass Road
Monterey Park, CA 91754
Attention: Mr. Joseph C. Angard
With a copy to: Jeffrey P. Grogin, Esq.
Praske & Grogin
155 North Lake Avenue, Suite 1010
Pasadena, CA 91101
If to Yamasaki: Mr. Robert H. Yamasaki
844 Longhill
Monterey Park, CA 91754
Each of the above addresses may change its address for purposes of this
paragraph by giving the other addressee notice in conformity with this paragraph
of such new address.
20. Concurrent with the execution and deliver of this Note, Yamasaki
hereby surrenders the Old Note to Borrower for cancellation thereof.
21. Yamasaki acknowledges that all payments required to be made to and
including July 15, 1992 have been timely made, that as of July 15, 1992 there
exists no event of default or breach on the part of Borrower, and that as of
July 15, 1992 Borrower owes Yamasaki the principal amount of THREE MILLION
DOLLARS ($3,000,000.00) and there is no accrued but unpaid interest owing.
OSP PUBLISHING, INC.
By: /s/ Joseph Angard
-------------------------
Its: Chairman
-------------------------
Name: Joseph Angard
-------------------------
/s/ Robert H. Yamasaki
-------------------------
Robert H. Yamasaki
-5-
<PAGE>
SUBORDINATION: THIS DOCUMENT CONTAINS PROVISIONS WHICH
MAY RESULT IN CREDITOR'S SECURITY INTEREST BECOMING
SUBORDINATED, SUBJECT TO AND OF LOWER PRIORITY
THAN THE LIEN OF SOME OTHER OR LATER SECURITY INTEREST.
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT (this "Agreement"), dated as of the 25th
day of September, 1989, is entered into and delivered by and between: (i) OSP
Publishing, Inc., a California corporation with its principal place of business
in that State ("Borrower"); and (ii) Robert H. Yamasaki, an individual residing
in California ("Creditor"), with reference to the following:
RECITALS
The following provisions form the basis for and are hereby made a part of
this Agreement:
A. On September 25, 1989, Creditor and Borrower entered into an
Agreement For the Purchase and Sale of Business Assets (the "Purchase
Agreement") pursuant to which Borrower agreed to acquire and Creditor agreed to
sell certain businesses and assets.
B. Pursuant to the Purchase Agreement, Borrower agreed to pay a portion
of the "Basic Price" (as defined in the Purchase Agreement) to Seller pursuant
to a form of Secured Promissory Note in the face amount of $4,000,000 of even
date herewith (the "Note").
C. It is the intention of the parties that all obligations of Borrower
under the Note including, without limitation, any adjusted obligations pursuant
to Paragraph 2 of the Note, be secured by all of the assets of Borrower (as
hereinafter defined, the "Collateral").
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST. Borrower hereby grants to Creditor a
security interest in the property described in Paragraph 2 (the "Collateral") to
secure payment of the Note and any future debts or obligations to creditor
arising out of the Note (including interest accruing thereon) and the payment
and performance of Borrower's debts or obligations to Creditor arising out of
this Agreement, or any amendment hereto, in all instances including debts or
obligations whether now existing or
1
<PAGE>
hereafter arising, voluntary or involuntary, direct or indirect, absolute or
contingent and liquidated or unliquidated (collectively, the "Obligations").
2. COLLATERAL. The Collateral shall consist of (i) all of Borrower's
assets (whether now owned or hereafter acquired and whether now or hereafter
existing) of any nature whatsoever, tangible or intangible, real or personal
property, including without limitation, general intangibles, goodwill, accounts,
accounts receivable in whatever form, chattel paper, promissory notes and
accounts, drafts, acceptances, instruments, choses-in-action, know-how, trade
secrets, copyrights, trademarks, tradenames, equipment, furniture, fixtures,
farm products, (ii) all cash and non-cash proceeds of all property described in
item (i) and (iii) all of the products and increase of all of the foregoing
property and all additions and accessions thereto, and any property which
Borrower may receive on account of such property. In addition thereto, in the
event that David M. Colburn or Joseph Angard, officers and shareholders of
Borrower, receive distributions from Borrower in excess of reasonable
compensation, bonuses and dividends, such excess distributions and any proceeds
thereof shall continue to be considered Collateral hereunder. For purposes of
this Agreement, the term "proceeds" includes whatever is received when
Collateral is sold, collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without limitation, all
rights to payment, including return premiums, with respect to any insurance
relating thereto.
3. DEFAULT AND REMEDIES. Borrower shall be deemed in default under this
Agreement and an Event of Default shall be deemed to have occurred if (i)
Borrower shall fail to make any payment of interest pursuant to Paragraph 5 of
the Note and shall fail to cure such default within ten (10) days after written
notice from Creditor or (ii) the Maturity Date should occur and Borrower has not
paid the Note or (iii) Borrower should breach any other material obligation
under this Agreement. In the event Borrower is deemed in default hereunder,
Creditor shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code and all other rights provided herein. In addition to
the rights of Creditor under the Uniform Commercial Code, Creditor may after a
default, or at any time thereafter, at its election and subject to the express
provisions of this Agreement, sell in one or more sales, after notice as
provided by the Uniform Commercial Code, the whole or any part of the Collateral
in such order as Creditor may elect, and any such sale may be made either at
public or private sale at its place of business or elsewhere, either for cash or
upon credit or for future delivery, at such price as Creditor may deem fair, and
Creditor may be the purchaser of any or all of the Collateral sold at a public
sale and hold the same thereafter in its own right free from any claim of
Borrower and any right of
2
<PAGE>
redemption. Demands for presence of the Collateral at sale are hereby waived.
Should any of the Collateral be sold by Creditor upon credit or for future
delivery, Creditor will not be liable for the failure of the purchaser thereof
to purchase or pay for the same and, in the event of any such failure, Creditor
may resell any portion of the Collateral. In no event shall Borrower be
credited with any of the proceeds of sale of any of the Collateral until cash
payment therefor has been actually received by Creditor and applied to any
indebtedness incurred under the Obligations. Creditor shall be entitled to the
repayment of all attorney's fees incurred in connection with the enforcement of
its rights hereunder or with respect to the Obligations. If a sufficient sum is
not realized from the disposition of the Collateral to pay the Obligations then
outstanding, Borrower shall be liable for and agrees to pay any deficiency with
respect to the Obligations or resulting from any breach of this Agreement. It is
understood that if an Event of Default shall occur hereunder, but the Maturity
Date has not occurred, Creditor may only foreclose to the extent of obligations
then due and not paid under the Note; provided that nothing shall prevent
further foreclosures in the event of subsequent defaults under the Note or
hereunder.
4. SALE OF COLLATERAL. Except as otherwise provided herein, Borrower may
not sell, license, assign, pledge or otherwise transfer the Collateral or any
interest therein, voluntarily or involuntarily, any such transfer shall be void
ab initio until all of the Obligations are fully performed and discharged;
provided that notwithstanding the foregoing, Borrower may in the ordinary course
of business, sell, license, assign, pledge or transfer Collateral which is
normally so transferred in the ordinary course of its business, including
without limitation any sale of inventory or equipment to be replaced or which
becomes obsolete, and including sales of less than 25% in value of the then
total value of the Collateral.
5. SUBORDINATION. In consideration of the obligations of Borrower under
the Purchase Agreement and as a material consideration to Borrower thereunder,
Creditor agrees that all of the Obligations shall be, and the same are hereby,
postponed and subordinated to all business debts and liabilities of Borrower any
nature whatsoever, whether now existing or hereafter arising, which arise in
the ordinary course of business of Borrower, including without limitation the
"Purchase Financing" as defined in the Purchase Agreement and any substitutes or
replacements thereof, and including any normal lines of credit from a financial
lending institution and normal trade debt of Borrower (any and all such debts
and liabilities hereinafter referred to as "Superior Debt"). Without limiting
the foregoing, Creditor agrees that in the event of any default under any
Superior Debt, Creditor shall hold any payments hereunder made after such
default in trust for such holder of Superior Debt and that, in
3
<PAGE>
the event of any bankruptcy, insolvency or other proceeding with respect to
Borrower, any Superior Debt shall be paid in full before any Obligations are
paid. Creditor further agrees that the lien on the Collateral created by this
Security Agreement shall be junior, subject and subordinate in every manner to
any lien in favor of any holder of Superior Debt. Creditor agrees to execute
such other and further evidences of this subordination as may be required by any
holder of Superior Debt.
6. CUMULATIVE RIGHTS. The rights, powers and remedies of Creditor under
this Agreement shall be in addition to all rights, powers and remedies given to
Creditor by virtue of any statute or rule of law, all of which rights, powers
and remedies shall be cumulative and may be exercised successively or
concurrently without impairing Creditor's security interest in the Collateral.
7. BORROWER REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants as follows:
a. Except for the interest of Creditor with respect to the
Collateral and except for the lien of the Purchase Financing, (and in reliance
on Creditor's representations and warranties under the Purchase Agreement),
Borrower owns good and indefeasible title to the Collateral free and clear of
any other security interest, liens, adverse claims or options;
b. Borrower has full right, power and authority to pledge, convey,
assign, transfer and deliver the Collataral and to grant a security interest in
the Collateral to Creditor in the manner provided herein;
c. Borrower agrees for itself and its assigns to indemnify and hold
harmless Creditor and its successors and assigns from any and all losses,
claims, actions or proceedings of any kind which may arise from Borrower's
actions hereunder.
8. PAYMENT OF ALL CHARGES AGAINST THE COLLATERAL. Borrower agrees to pay
prior to delinquency all taxes, charges, liens and assessments against the
Collateral, and upon the failure of Borrower to do so Creditor at its option may
pay all such taxes, charges, liens and assessments, and shall be the sole judge
of the legality and validity thereof and the amount necessary to discharge the
same. Any such monies advanced by Creditor shall become a part of the
Obligations and shall be paid to Creditor by Borrower immediately upon demand.
9. BINDING UPON SUCCESSORS. All rights of Creditor under this Agreement
shall inure to the benefit of the heirs, executors, administrators, successors
and assigns of Creditor, and all obligations of Borrower shall bind its heirs,
executors, administrators, successor and assigns.
4
<PAGE>
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between Creditor and Borrower relating to the subject hereof.
11. NOTICE. Any notice or other communication (except payment) required
or permitted hereunder shall be in writing and shall be deemed to have been
given upon delivery if personally delivered or upon deposit if deposited in the
United States mail for mailing by registered or certified mail with return
receipt requested, postage prepaid and addressed as follows:
If to Borrower: 1001 Monterey Pass Road
Monterey Park, CA 91754
Attention: David M. Colburn
If to Creditor: 844 Longhill
Monterey Park, CA 91754
Each of the above addressees may change its address for purposes of this
paragraph by giving the other addressee notice in conformity with this paragraph
of such new address.
12. NO WAIVER. No delay on the part of Creditor in exercising any power
of sale, option or other right or remedy hereunder, and no notice or demand
which may be given to or made upon Borrower by Creditor, shall constitute a
waiver thereof, limit or impair Creditor's right to take any action or to
exercise any other power of sale, option or any other right or remedy hereunder
or prejudice Creditor's rights or remedies against Borrower in any respect.
13. INDEMNITY; ATTORNEYS' FEES. Borrower will indemnify Creditor and hold
Creditor harmless from any loss or liability incurred by Creditor, and pay all
costs and expenses, including reasonable attorney's fees incurred by Creditor as
the result of the enforcement of any of Creditor's rights or remedies under this
Agreement or of any of the duties of Borrower under this Agreement. Any amounts
payable pursuant to this Paragraph shall be deemed part of the Obligations.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California in all respects, including matters of construction, validity
and performance; none of its terms or provisions may be altered, modified,
limited or amended except by an agreement expressly referred hereto and to which
all parties hereto consent in writing.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute on and the same document.
5
<PAGE>
16. UNIQUE CHARACTER OF RIGHTS. It is agreed that the rights granted to
Creditor hereunder and the subordination agreements of Creditor to Borrower are
of a special and unique kind and character and that, if there is a breach by
either party of any material provision of this document, the other party would
not have any adequate remedy at law. It is expressly agreed, therefore, that
the rights of each party hereunder may be enforced by an action for specific
performance and such other equitable relief as is provided under the laws of the
State of California.
17. SEVERABILITY. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be effective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
18. ADDITIONAL ACTS. Each of the parties hereto shall execute and deliver
any and all additional papers, documents, and other assurances, and shall do any
and all acts and things reasonably necessary in connection with the performance
of their obligations hereunder and to carry out the intent of the parties
hereto. Borrower covenants and agrees that it shall take such acticns and shall
effectuate and evidence any transfer of the Collateral pursuant to the terms of
this Agreement from Borrower to the transferee following Borrower's default
hereunder, and hereby appoints Creditor as Borrower's attorney in fact to
execute any such required documents on its behalf.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first set forth above.
OSP Publishing, Inc.
a California corporation
By: /s/ David M. Colburn
------------------------------
Its: CEO
------------------------------
By: Joseph C. Angard
------------------------------
Its: President
/s/ Robert H. Yamasaki
- ------------------------------
Robert H. Yamasaki
6
<PAGE>
AMENDMENT TO COVENANT NOT TO COMPETE
THIS AMENDMENT TO COVENANT NOT TO COMPETE (this "Amendment") is made and
entered into as of the first day of October, 1990, by and between (i) OSP
Publishing, Inc., a California corporation with its principal place of business
in that state ("OSP") and (ii) Robert H. Yamasaki ("Seller"), an individual
residing in California with respect to the following:
RECITALS
The following pxovisions are made a part of and form the basis for this
Amendment:
A. Previously, OSP and Seller entered into a Covenant Not to Compete,
dated as of September 25, 1990 (the "Covenant"), setting forth certain
obligations respecting competition between OSP and Seller.
B. Both OSP and Seller desire to amend the Covenant as of the date hereof
as set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the covenants,
conditions, representations and agreements contained herein, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, OSP and Seller covenant and agree as follows:
1. The words and numbers "Twenty-five Dollars ($25.00)" in Clause (i) of
Paragraph 3 of the Covenant are hereby deleted as of the date hereof and
replaced with the following words and numbers:
"Twelve Dollars ($12.00)"
2. The words and numbers "one hundred (100) pound book grade paper" in
the second sentence of Paragraph 3 are hereby deleted as of the date hereof and
replaced with the following words and numbers:
"one hundred-twenty (100) pound cover grade paper"
3. The words and numbers "Six Dollars ($6.00)" in Clause (i) of Paragraph
4 of the Covenant are hereby deleted as of the date hereof and replaced with the
following words and numbers:
"Twelve Dollars ($12.00)"
<PAGE>
4. Except as expressly amended hereby, the Covenant shall remain in full
force and effect as written.
Executed as of the day and year first above written.
OSP Publishing, Inc.,
a California corporation
By: Joseph Angard
------------------------------
Its: Pres.
------------------------------
/s/ Robert H. Yamasaki
-----------------------------------
Robert H. Yamasaki, an individual
1
See attached. Addtional clause.
2
<PAGE>
5. The dimensions of the print will vary proportionately to the
retail price of the print.
retail
ie: 24" x 36" $12.00
18" x 24" $9.00
16" x 20" $6.00
<PAGE>
No. 1
---
VOID AFTER 5:00 P.M., Los Angeles Time, on August 27, 1996
CERTIFICATE EVIDENCING 50 WARRANTS
(One Warrant is required for the Purchase of one share
of Common Stock, subject to adjustment as provided below)
WARRANTS TO PURCHASE COMMON STOCK
OF
OSP PUBLISHING, INC.
This is to certify that, FOR VALUE RECEIVED, Sutro & Co. Incorporated
(the "Warrantholder"), is entitled to purchase, subject to the provisions herein
set forth, at any time during the period from August 28, 1989 (the "Commencement
Date") to 5:00 P.M., Los Angeles Time, on AUGUST 27, 1996, at THE PRICE OF $50
PER SHARE, as adjusted from time to time pursuant to the provisions set forth in
this Certificate (the "Purchase Price"), such number of shares of fully paid and
non-assessable Common Stock, without par value ("Common Stock"), of OSP
Publishing, Inc., a California corporation (the "Company"), as shall equal the
number of warrants evidenced by this Certificate (the "Warrants"). Shares of
Common Stock purchasable upon exercise of the Warrants are herein called the
"Warrant Stock." This Certificate is also subject to the following terms and
conditions:
1. EXERCISE OF WARRANTS
Subject to the terms and conditions of this Certificate, the Warrants
are exercisable in whole or in part at any time and from time to time on or
after the Commencement Date and before 5:00 P.M., Los Angeles Time, on
August 27, 1996, or if either such day is a day on which Federal or state
chartered banking institutions located in the Sate of California are authorized
by law to close, then on the next succeeding day which shall not be such a day,
by presentation and surrender of this Certificate to the Company at its
principal office, or such other office or agency as the Company may from time to
time designate in writing to the Warrantholder, with the form of Election to
Purchase (the "Election to Purchase") annexed to this Certificate duly completed
and executed and accompanied by payment, in cash or certified or official bank
check payable to the order of the Company, for the Purchase Price for the number
of shares of Common Stock to be purchased on such exercise. If less than all
the Warrants are exercised, the Company shall, upon presentation of this
Certificate, execute and deliver to the registered owner hereof a new
Certificate, dated the date hereof, evidencing the Warrants not so exercised.
Except as provided in the immediately next succeeding paragraph,
neither the Warrantholder nor its transferees shall exercise any of the Warrants
represented hereby during the first 48 months following the Commencement Date.
Notwithstanding any other provision hereof, the WARRANTS SHALL BECOME
IMMEDIATELY EXERCISABLE IN THE EVENT THE COMPANY ENTERS INTO ANY AGREEMENT TO
(a) consolidate or MERGE, with or into another corporation which would result in
the Company not being the surviving entity, (b) sell all or substantially all of
the assets of the Company, or (c) complete a QUALIFIED REGISTRATION (as defined
herein). The Company shall
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<PAGE>
notify THE WARRANTHOLDER PROMPTLY UPON ENTERING INTO ANY SUCH AGREEMENT.
Upon receipt by the Company at its office of the Election to Purchase
in proper form accompanied by payment as herein provided, the Warrantholder
shall be deemed to be the holder of record of the shares of Warrant Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Warrant Stock shall not then be actually delivered to the Warrantholder.
Each certificate for Warrant Stock issued hereunder shall bear a
legend reading substantially as follows (unless the Company receives an opinion
of counsel satisfactory to it that such a legend is not required in order to
assure compliance with the Securities Act of 1933, as amended (the "Act")):
The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"). Any transfer of such
securities will be invalid unless a Registration Statement under the
Act is in effect as to such transfer or, in an opinion of counsel
satisfactory to the Company, such registration is unnecessary in order
for such transfer to comply with the Act.
In addition each certificate for Warrant Stock issued hereunder shall
bear any legend required by applicable state securities laws or as required
based on advice of the Company's counsel.
2. RESERVATION OF SHARES
The Company agrees that shares of Common Stock sufficient to provide
for the exercise of all outstanding Warrants, as the same may be adjusted as
herein provided, shall at all times be authorized and reserved for issuance upon
exercise.
3. REGISTRATION RIGHTS
3.1 PIGGYBACK REGISTRATIONS. If at any time the Company
proposes to register or qualify its securities (a "Qualified Registration")
under the Act (other than a registration relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or a Securities and Exchange Commission ("SEC") Rule
145 transaction) it shall, at least 30 days prior to such filing, give written
notice of such proposed filing to the Warrantholder(s) and to each owner of
Warrant Stock, at its or their address appearing on the records of the Company,
and shall offer to include in such filing any proposed disposition of Warrant
Stock, upon receipt by the Company, not less than ten days prior to the proposed
filing date, of a request with respect to such proposed disposition. Promptly
after the registration statement becomes effective, the Company at its expense
will supply the owners of the Warrant Stock who are participating in such
offering with copies of the prospectus contained in the registration statement
in such quantities as may be reasonably necessary for the purpose of the
proposed disposition.
3.2 BLUE SKY. In connection with any registration requested by
the Warrantholder(s) and/or any owner of Warrant Stock under Section 3.1 above,
the Company agrees to register, qualify or take whatever other steps are
necessary to comply with applicable securities and Blue Sky laws of a reasonable
number of jurisdictions.
3.3 EXPENSES. The Company shall bear all costs and expenses
incident to any such registration, except that the
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Warrantholder shall pay any and all brokerage fees incident to the sale of the
common stock sold by such Warrantholder, and shall pay fees and expenses of any
attorneys retained by the Warrantholder.
3.4 UNDERWRITING AGREEMENT. In the event any Qualified
Registration referred to in Section 3.1 above is underwritten, then the
Warrantholder and/or each Warrant Stock owner shall join in the underwriting
agreement (including any requirement to pay underwriter's discount points) as a
condition to registration of any such Warrant Stock. Additionally, in any
underwritten Qualified Registration, if the managing underwriter thereto
determines and advises the Company in writing that the inclusion of all or a
portion of the Warrant Stock originally included in a request for registration
would interfere with the successful marketing of previously authorized but
unissued securities, then the Warrant Stock shall be excluded from the offering
or the number of shares of the Warrant Stock otherwise to be included in the
underwritten public offering shall be reduced pro rata among the holders of the
Warrant Stock and the other holders of the Company's Common Stock having
registration rights and requesting registration at such time.
3.5 FORM S-3 REGISTRATION RIGHTS. If at any time that the
Company is permitted to use a Form S-3 registration statement in connection with
any secondary offering, the Company receives written notice from the
Warrantholder(s) or any owners of the Warrant Stock requesting that the Company
file an S-3 registration statement under the Act, respecting a public offering
by such Warrantholder(s) and/or owners of the Warrant Stock, the Company, to the
extent it is permitted to use a Form S-3 registration statement, shall use its
best efforts to register said Warrantholder(s) common stock. All fees,
disbursements and out-of-pocket expenses incurred in connection with any filing
under this section, including but not limited to the fees and disbursements of
counsel for the Warrantholder(s) and/or owners of warrant stock, shall be borne
by the Warrantholders.
4. INDEMNIFICATION.
4.1 INDEMNIFICATION BY COMPANY. In the event of any
registration statement with respect to any Warrant Stock, the Company will
indemnify and hold harmless any Warrantholder and/or owner whose Warrant Stock
is being so registered, and each person, if any, who controls such Warrantholder
and/or owner within the meaning of the Act (in any case, the "indemnified
party"), against any losses, claims, damages or liabilities, joint or several,
to which the indemnified party may be subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement, preliminary prospectus or final prospectus, offering
circular, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse each indemnified party for any legal or other expenses
reasonably incurred by it in connection with investigating or defending any such
loss, claim, damage, liability, action or proceeding; PROVIDED, HOWEVER, that
the Company will not be liable in any such case to any indemnified party to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or omission or alleged omission made in such
registration statement, preliminary prospectus or prospectus, or in any offering
circular, or any amendment or supplement, in reliance upon and in conformity
with written information furnished by such indemnified party for use in the
preparation thereof; and, PROVIDED, FURTHER, that the indemnity agreement
contained in this Section 4.1 shall not apply to amounts paid in settlement of
any such loss, claim,
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damage, expense, liability or action if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld.
The Company further agrees that if the foregoing provision is held
to be unenforceable, any indemnified party may recover contribution from the
Company in an amount which when added to such contribution as the indemnified
party has theretofore received or concurrently receives from officers and
directors of the Company or controlling persons of the Company, will
reimburse the indemnified party for all of such losses, claims, damages or
liabilities and such legal or other expenses, and provided further that if
the full amount of the contribution specified in this Section 4.1 is not
permitted by law, then the indemnified party shall be entitled to
contribution from the Company and its officers, directors and controlling
persons to the full extent permitted by law.
4.2 INDEMNIFICATION BY WARRANTHOLDER. The Warrantholder, any
transferee of the Warrantholder and each owner of Warrant Stock who is
participating in a registration of the Warrant Stock will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed any such registration statement, and each person, if any, who controls
the Company within the meaning of the Act (in any case, the "indemnified
party"), against any losses, claims, damages or liabilities to which the
indemnified party may become subject under the Act, or otherwise insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement,
preliminary prospectus or prospectus offering circular, or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary prospectus or prospectus, offering circular, or amendment
or supplement, in reliance upon and in conformity with written information
furnished by the Warrantholder and/or each owner of Warrant Stock, as the case
may be, for use in the preparation thereof; and will reimburse any legal or
other expenses reasonably incurred by the indemnified party in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding, PROVIDED, that the indemnity agreement contained in this Section 4.2
shall not apply to amounts paid in settlement of any such loss, claim, damage,
expense, liability or action if such settlement is effected without the consent
of the holder, which consent shall not be unreasonably withheld.
If the foregoing provision is held to be unenforceable, any
indemnified party may recover contribution from each such Warrantholder and
owner of Warrant Stock in an amount which when added to such contribution as the
indemnified party had theretofore received or concurrently receives from other
holders of Warrant Stock will reimburse the indemnified party for all of such
losses, claims, damages or liabilities and such legal or other expenses, and
provided further that if the full amount of the contribution specified in this
Section 4.2 is not permitted by law, then the indemnified party shall be
entitled to contribution from such Warrantholder and owner of Warrant Stock to
the full extent permitted by law.
By exercise of the rights represented by this Certificate, the
Warrantholder consents to and agrees to be bound by the provisions of this
Section 4.2.
4.3 NOTICE OF INDEMNIFICATION. Promptly after
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receipt by an indemnified party under this Section 4 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 4, notify
the indemnifying party of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 4.
4.4 ASSUMPTION OF THE DEFENSE. In case any such action is
brought against any indemnified party and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it desires to do so, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 4 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
5. ADJUSTMENTS: PURCHASE PRICE.
The number of shares of Common Stock for which the Warrants are
exercisable shall be subject to adjustments as follows:
(a) If the Company shall be recapitalized through the SUBDIVISION OF
ITS OUTSTANDING SHARES OF COMMON STOCK, into a greater number of
shares thereof, or if a dividend in Common Stock shall be paid in
respect of its Common Stock, THE PURCHASE PRICE IN EFFECT IMMEDIATELY
PRIOR TO SUCH SUBDIVISION, or at the record date for determining the
holders entitled to receive such dividend shall simultaneously with
the effectiveness of such subdivision or immediately after the record
date of such dividend BE PROPORTIONATELY REDUCED. If the Company
shall be recapitalized through the combination of its outstanding
share of Common Stock into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination be
proportionately increased. WHEN ANY ADJUSTMENT IS REQUIRED TO BE MADE
IN THE PURCHASE PRICE, THE NUMBER OF SHARES OF COMMON STOCK
PURCHASABLE UPON THE EXERCISE OF EACH WARRANT SHALL BE CHANGED TO THE
NUMBER DETERMINED BY DIVIDING (i) AN AMOUNT EQUAL TO THE NUMBER OF
SHARES ISSUABLE PURSUANT TO THE EXERCISE OF EACH WARRANT IMMEDIATELY
PRIOR TO SUCH ADJUSTMENT MULTIPLIED BY THE PURCHASE PRICE IN EFFECT
IMMEDIATELY PRIOR TO SUCH ADJUSTMENT, BY (ii) THE PURCHASE PRICE IN
EFFECT IMMEDIATELY AFTER SUCH ADJUSTMENT.
(b) In the event of any distribution (other than a cash dividend
or a dividend payable in Common Stock) paid by the Company in respect
or its Common Stock, or any capital reorganization or reclassification
of the Company's Common Stock (other than a change in par value, or
from no par value to par value, or from par value to no par value,
or a subdivision or combination as described in paragraph (a) above),
or in the event of any consolidation or merger of the Company with or
into another corporation, or any sale of all or substantially all of
the assets of the Company then, as part of any such distribution,
reorganization, reclassification, or sale of assets as the case
may be, provision shall be made so that the owner of the Warrants
shall have the right thereafter to receive
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upon the exercise of the Warrants the kind and amount of shares of
stock or other securities or property which the Warrantholder would
have been entitled to receive if, immediately prior to any such
distribution, reorganization, or sale of assets, as the case may be,
the Warrantholder had held the number of shares of Common Stock which
were then purchasable upon the exercise of the Warrants. In any such
case, appropriate adjustment shall be made in the application of the
provisions set forth herein with respect to the rights and interests
of the owner of the Warrants such that the provisions set forth herein
(including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably
practicable, to any shares of stock or other securities or property
thereafter deliverable upon the exercise of any Warrant.
(c) If the Company shall, at any time prior to the expiration of
the Warrants and prior to the exercise thereof (and regardless of
whether such event shall occur prior to the Commencement Date)
dissolve, liquidate or wind up its affairs, the Warrantholder shall
have the right, but not the obligation, to exercise the Warrants
represented hereby, and upon such exercise to receive, in lieu of the
shares of Common Stock which the Warrantholder would have been
entitled to receive, the same kind and amount of assets as would have
been issued, distributed or paid to the Warrantholder upon any such
dissolution, liquidation or winding up with respect to such shares of
Common Stock, had shares of Common Stock receivable upon the exercise
of the Warrants represented hereby on the record date for the
determination of those entitled to receive any such liquidating
distribution. After any such dissolution, liquidation or winding up
which shall result in any cash distribution in excess of the Purchase
Price provided for by this Certificate, the Warrantholder may at the
Warrantholder's option exercise the same without making payment of the
Purchase Price, and in such case the Company shall, upon distribution
to the Warrantholder, consider that the Purchase Price has been paid
in full to it and in making settlement to the Warrantholder shall
deduct from the amount payable to the Warrantholder an amount equal to
the Purchase Price.
(d) When any adjustment is required to be made in the Purchase
Price, the Company shall forthwith determine the new Purchase Price
and (i) prepare and retain on file a statement describing in
reasonable detail the method used in determining the new Purchase
Price; and (ii) cause a copy of such statement to be mailed to the
Warrantholder(s) and owners of the Warrant Stock within ten days after
the date upon which the circumstance giving rise to the adjustment
shall have occurred. Irrespective of any adjustment in the Purchase
Price or the number or kind of shares purchasable upon the exercise of
the Warrants, this Certificate and any other Certificate hereafter
issued may continue to express the Purchase Price and the number and
kind of shares purchasable upon the exercise of each Warrant in the
same terms as they were expressed in the initially issued
Certificates.
(e) The Company shall not be required upon the exercise of any
of the Warrants to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the mean between the low
bid and high asked prices on the over-the-counter market as reported
by the National Association of Securities Dealers
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Automated Quotations System or the closing market price on a national
securities exchange of Common Stock on the trading day immediately
prior to exercise, whichever is applicable, or if neither is
applicable, then on the basis of the market value of any such
fractional interest as shall be reasonably determined by the Company.
6. TRANSFER, EXCHANGE OR LOSS OF WARRANT.
6.1 TRANSFERABILITY.
(a) This Certificate and the Warrants represented hereby shall
only be transferable in accordance with this Section 6.
(b) Any attempted transfer of this Certificate is void unless,
such proposed transferee of the Warrantholder or of a transferee of
the Warrantholder agrees in writing to be bound by the transfer
restrictions and indemnification provisions contained in this
Certificate.
(c) In addition to any other restrictions on transfer of this
Certificate and for so long as the Company is an S Corporation, the
Warrantholder or any transferee of the Warrantholder may only transfer
this Certificate (i) in compliance with federal law, state law and the
rules promulgated by the Internal Revenue Service ("IRS") so as to
preserve the Company's eligibility as an S Corporation thereunder, and
(ii) in accordance with the procedures set forth in clause (d) of this
Section 6.
(d) Except as otherwise provided in this Section 6, the
Warrantholder will not sell, or transfer, or agree to sell or transfer
title or rights to this Certificate or any portion of this Certificate
unless: (i) the Company has been provided 45 days prior written
notice specifying the name of the proposed acquiror of Warrants, the
number of Warrants proposed to be sold or transferred and the terms
and conditions of such sale or transfer; and (ii) the Company shall
have been granted the right exercisable within such 45 day period, to
buy or otherwise acquire on the terms and conditions set forth in such
notice the Warrants proposed to be sold or transferred by the
Warrantholder or any transferee of the Warrantholder. The foregoing
provisions of this clause (d) shall not apply to any sale or transfer
to an individual who is a current or former employee of the
Warrantholder, provided that subsequent sales or transfers, or
agreements to sell or transfer by such a transferee will be subject to
satisfaction of this clause (d).
6.2 COMBINATION OR DIVISION. This Warrant may be divided or
combined, upon request to the Company by a Warrantholder, into a certificate or
certificates evidencing the right to purchase the same aggregate number of
shares of Warrant stock issuable hereunder.
6.3 TRANSFERS. Any transfer permitted hereunder shall be made
by surrender of this Certificate to the Company at its principal office duly
endorsed or accompanied by an executed warrant power. In such event, the
Company shall execute and deliver a new Certificate in the name of the
transferee named in such instrument of assignment, the transferee shall agree in
writing to be bound by the terms of such new Certificate and this Certificate
shall promptly be canceled. The expenses, if any, of such transfers shall be
borne by the Warrantholder.
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6.4 LOSS OF CERTIFICATE. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Certificate, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification and upon surrender and cancellation of this
Certificate, if mutilated, the Company will execute and deliver a new
Certificate of like tenor and date and any such lost, stolen or destroyed
Certificate shall thereupon become void.
7. RIGHTS OF WARRANTHOLDER.
The Warrantholder shall not, by virtue of ownership of warrants, be
entitled to the rights of a shareholder of the Company, but the Company agrees
to provide the Warrantholder with the Company's unaudited six months fiscal
profit and loss and balance sheet results and the Company's twelve month and/or
year ending fiscal results including a balance sheet and profit and loss
statement. The Warrantholder is entitled to communicate with the President of
the Company regarding any reasonable questions that pertain to either said six
month or twelve month fiscal results.
8. VALID ISSUANCE OF COMMON STOCK.
All shares of Common Stock delivered upon the exercise of the Warrants
shall be validly issued, fully paid and non-assessable. The Warrantholder will
pay all taxes, if any, in respect of the issuance thereof upon exercise of the
Warrants.
9. REVIEW OF FINANCIAL INFORMATION. The Warrantholder hereby
represents and warrants to the Company that it has inspected and reviewed the
financial statements and related documents attached hereto as Exhibit A.
10. GOVERNING LAW.
This Certificate is being delivered in the State of California. It
shall be construed in accordance with the laws of that state applicable to
contracts executed and to be performed wholly within that state.
11. NOTICE.
Notices and other communications to be given to the Warrantholder
shall be deemed to have been sufficiently given if delivered by hand or four
days after mailing by registered or
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certified mail, postage prepaid, addressed to Sutro & Co. Incorporated, 555
South Flower Street, Suite 3400, Los Angeles, California 90017-2096, Attention:
Roger P. Kuppinger, Executive Vice President, or to such other address or
addresses as the Warrantholder may from time to time provide in writing to the
Company. Notices or other communications to the Company shall be deemed to have
been sufficiently given if delivered by hand or four days after mailing by
registered or certified mail, postage prepaid, to the Company at 1001 Monterey
Pass Road, Monterey Park, California 91754, Attention: Joseph Angard,
President, or at such other address as the Company shall have designated by
written notice to the Warrantholder as herein provided.
IN WITNESS WHEREOF, the Company has executed this Certificate as of
September 25, 1991.
OSP PUBLISHING, INC.
By: /s/ Joseph Angard
----------------------------------
Its: C.E.O.
---------------------------------
THE WARRANTHOLDER ACKNOWLEDGES
ITS AGREEMENT TO BE BOUND UNDER
SECTIONS 4.2, 6 AND 9 HEREOF.
EXECUTED ON SEPTEMBER , 1991
SUTRO & CO. INCORPORATED
By:
---------------------------------
Its:
--------------------------------
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The undersigned hereby irrevocably elects to exercise ___ Warrants
represented by the within certificate, and to purchase the shares of Common
Stock issuable upon the exercise of such Warrants, and requests that
certificates for such shares shall be issued in the name of:
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(Name)
- --------------------------------------------------------------------------------
(Address)
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(Employer or other identification number)
and, if different from above, be delivered to:
- --------------------------------------------------------------------------------
(Name)
- --------------------------------------------------------------------------------
(Address)
and, if the number of Warrants so exercised are not all Warrants evidenced by
this certificate, that a new certificate for the balance of such Warrants be
registered in the name of _________________________________, and delivered to,
the undersigned at the address stated below.
Dated: , 19
------------------- ---
Name of Registered Owner:
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Address:
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Signature:
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STANDARD INDUSTRIAL LEASE AGREEMENT
between
NEWCROW III, a California joint venture
as Landlord
and
OSP PUBLISHING, INC., a California corporation
as Tenant
Premises Location: 5548 Lindbergh Lane
Bell, California
<PAGE>
STANDARD INDUSTRIAL LEASE AGREEMENT
THIS STANDARD INDUSTRIAL LEASE AGREEMENT (this "Lease"), dated this
31st day of October, 1994, is made and entered into by and between NEWCROW III,
a California joint venture, hereinafter referred to as "Landlord", and OSP
PUBLISHING, INC., a California corporation, hereinafter referred to as "Tenant".
BASIC LEASE PROVISIONS
1. Area of Premises: Approximately 104,670 rentable square feet. (Paragraph
1.1)
2. Building Address: 5548 Lindbergh Lane
Bell, California
(Paragraph 1.1)
3. Commencement Date: Upon the Substantial Completion of the Tenant
Improvements, which is estimated to be January 15,
1995. (Paragraph 1.3)
4. Term: 124 months. (Paragraph 1.2)
5. The amount of the First Month's Rent is as follows: (Paragraph 2.1)
(a) Base Rent (See Paragraph 2.2 for adjustments thereto) $31,924.35
(b) Taxes $ 3,161.03
(c) Insurance $502.42
(d) Operating Expenses $ 2,407.41
FIRST MONTH'S RENT TOTAL $37,995.21
6. Security Deposit: $37,995.21. (Paragraph 2.3)
7. Tenant's Proportionate Share: The Premises comprise thirty-seven and
80/100ths percent (37.8%) of the Building (such percentage shall be
Tenant's Proportionate Share). (Paragraph 2.4)
8. Use of Premises: Storage and distribution (including wrapping and
packaging) of posters, novelties and related items and
general office purposes. (Paragraph 3.1)
9. Parking: 85 automobiles and 8 trucks. (Paragraph 3.3)
10. Liability insurance amount: $3,000,000.00. (Paragraph 12.3.1)
11. Tenant's Address
For Notices Until
Commencement Date: 1001 Monterey Pass Road
Monterey Park, California 91754
Attn: Chris Lucas
(Paragraph 22.21)
12. Landlord's Address For
Payments and Notices: 5801 South Eastern Avenue
Suite 100
Los Angeles, California 90040
(Paragraph 22.21)
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<PAGE>
13. Tenant's broker: Corporate Planners & Coordinators, Inc.
(Nicholas Costa) (Paragraph 22.24)
14. Exhibits:
"A" Site Plan of Project
"B" Work Letter and Construction Agreement
"C" [Intentionally Omitted]
"D" Signage Program
"E" Additional Provisions
"F" Parking
The paragraphs of the Lease identified above in parentheses are those
provisions where references to particular items from the Basic Lease Provisions
appear, and such items are incorporated into the Lease as part thereof. In the
event of any conflict between any Basic Lease Provision and the Lease, the
former shall control.
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<PAGE>
1. PREMISES AND TERM.
1.1 LEASE OF PREMISES. Landlord leases to Tenant, and Tenant hires from
Landlord, certain premises (the "PREMISES") consisting of the rentable area
shown in Item 1 of the Basic Lease Provisions within a building (the "BUILDING")
described in Item 2 of the Basic Lease Provisions. The location of the Building
and Premises are shown on the site plan attached hereto as "EXHIBIT A" and
incorporated herein. The "PROJECT" shall refer to the land shown on the site
plan (the "LAND") together with such additions and deletions to the Land as
Landlord may from time to time designate, plus all buildings and improvements
located thereon.
1.2 TERM. The term of this Lease shall commence on the "COMMENCEMENT
DATE" specified in or established pursuant to Item 3 of the Basic Lease
Provisions, and except as otherwise provided herein, shall continue in full
force and effect through the number of months provided in Item 4 of the Basic
Lease Provisions (the "TERM"), provided, however, that if the Commencement Date
is a date other than the first day of a calendar month, the Term shall consist
of the remainder of the calendar month including and following the Commencement
Date, plus said number of full calendar months.
1.3 CONDITION OF PREMISES. The Commencement Date of this Lease shall
be the earlier of (i) the date on which Landlord tenders possession of the
Premises, either physically or by written notice, following the Substantial
Completion (as hereafter defined) of the Tenant Improvements, as such
construction obligation may be increased or changed as provided in any Work
Letter and Construction Agreement attached hereto as EXHIBIT "B" and
incorporated herein (the "TENANT IMPROVEMENTS"), or (ii) the date on which
Tenant first takes possession of the Premises and commences business operations.
Landlord shall cause the Tenant Improvements to be constructed in a good and
workmanlike manner, and shall endeavor to accomplish the Substantial Completion
of the Tenant Improvements on or before the date provided in Item 3 of the Basic
Lease Provisions. If Landlord is unable to deliver possession of the Premises
to Tenant on or before such date for any reason (including, without limitation,
Landlord's inability to obtain a surrender of the Premises by the existing
Tenant, Deardon, Inc.), this Lease shall not be void or voidable and Landlord
shall not be subject to any liability to Tenant for any loss or damage directly
or indirectly arising out of or resulting from such delay. As used in this
Lease, the term "SUBSTANTIAL COMPLETION" shall mean the completion of the Tenant
Improvements, subject only to punch list items identified by Tenant in a written
notice to Landlord delivered within fifteen (15) days after Landlord tenders
possession of the Premises, such that none of the Tenant Improvements remaining
incomplete or needing adjustment shall materially impair, or prevent the
obtaining of permits for, Tenant's use, occupancy and enjoyment of the Premises
for Tenant's intended purpose. In the event of any dispute as to whether
Substantial Completion has occurred, the sign-off by the municipal building
inspector shall be conclusive, except that any delay in receipt thereof or in
Substantial Completion caused by Tenant or Tenant's Parties (as defined in
Paragraph 1.4) including without limitation Tenant Delay, or caused by Tenant's
uncompleted work being contained within the scope of the same building permit as
the Tenant Improvements, shall be charged to Tenant in the amount of the daily
Rent multiplied by the number of days of such delays. Landlord shall promptly
complete or repair any punch list items identified by Tenant, and may inspect
the Premises to verify the need for completion or repair of the items on
Tenant's list. Failure of Tenant to deliver a punch list within three (3) days
after Landlord tenders possession of the Premises shall constitute Tenant's
approval of the Premises as tendered by Landlord. Tenant acknowledges that no
representations as to the repair or condition of the Premises have been made by
Landlord except as may be expressly set forth
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<PAGE>
in this Lease. After the Commencement Date, Tenant shall, upon demand, execute
and deliver to Landlord a letter of acceptance of the Premises specifying the
Commencement Date.
1.4 EARLY ENTRY INTO PREMISES. Tenant may enter into the Premises upon
receipt of Landlord's consent (which consent shall not be unreasonably withheld
or delayed), solely for the purpose of storing inventory, installing furniture,
special flooring or carpeting, trade fixtures, telephones, computers, photocopy
equipment, and other business equipment. Such early entry will not advance the
Commencement Date so long as Tenant does not commence business operations from
any part of the Premises. All of the provisions of this Lease shall apply to
Tenant during any early entry, including the indemnity in Paragraph 12.1, but
excluding the obligation to pay Rent unless and until Tenant has commenced
business operations in the Premises, whereupon Rent shall commence. Landlord
may revoke its permission for Tenant's early entry if Tenant's activities or
workers interfere with the completion of the Tenant Improvements. If Tenant is
granted early entry, Landlord shall not be responsible for any loss, including
theft, damage or destruction to any work or material installed or stored by
Tenant at the Premises or for any injury to Tenant or its agents, employees,
contractors, subcontractors, subtenants, assigns or invitees (collectively,
"TENANT'S PARTIES") unless caused by Landlord's negligence or willful
misconduct. Landlord shall have the right to post appropriate notices of non-
responsibility and to require Tenant to provide Landlord with evidence that
Tenant has fulfilled its obligation to provide insurance pursuant to paragraphs
7(d) and 12.3 of this Lease. Landlord shall notify Tenant twenty-one (21) days
in advance of the date that Landlord anticipates the Substantial Completion of
the Tenant Improvements, at which time Tenant shall have the right to such early
entry of the Premises without the requirement of obtaining Landlord's prior
written consent.
2. RENT AND SECURITY DEPOSIT.
2.1 RENT. Rent (as defined below) shall accrue hereunder from the
Commencement Date. The amounts per month provided in Item 5(a) of the Basic
Lease Provisions, as adjusted pursuant to Paragraph 2.2 ("BASE RENT"), plus the
"ADDITIONAL RENT" (as defined in Paragraph 2.5 below) shall collectively
constitute the "RENT". The first full calendar month's Rent shall be due and
payable upon execution of this Lease in the total amount shown in Item 5 of the
Basic Lease Provisions. A like monthly installment, subject to the adjustments
described herein, shall be due and payable without demand on or before the first
day of each calendar month succeeding the Commencement Date during the Term,
except that Rent for any fractional calendar month at the commencement or end of
the Term shall be prorated on a daily basis.
2.2 ADJUSTMENT OF BASE RENT. Base Rent shall be increased as follows:
(a) from the first day of the thirty-first (31st) month of the Term through the
last day of the sixtieth (60th) month of the Term, Base Rent shall be increased
to Thirty-five Thousand One Hundred Sixty-Nine and 12/100 Dollars ($35,169.12)
per month; (b) from the first day of the sixty-first (61st) month of the Term
through the last day of the ninetieth (90th) month of the Term, Base Rent shall
be increased to Thirty-Eight Thousand Seven Hundred Twenty-Seven and 90/100
Dollars ($38,727.90) per month; and (c) from the first day of the ninety-first
(91st) month of the Term through the last day of the one hundred twenty-fourth
(124th) month of the Term, Base Rent shall be increased to Forty-Two Thousand
Six Hundred and 69/100 Dollars ($42,600.69) per month.
2.3 SECURITY DEPOSIT. Tenant shall deposit with Landlord upon
execution of this Lease the sum provided in Item 6 of the Basic Lease Provisions
("SECURITY DEPOSIT"), which sum shall he held by Landlord in its general fund,
without obligation for interest, as security for the performance of Tenant's
covenants
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and obligations under this Lease, it being expressly understood and agreed that
the Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon the occurrence of any event of
default by Tenant, Landlord may, without prejudice to any other remedy provided
herein or provided by law, use the Security Deposit to the extent necessary to
make good any arrears of Rent or other payments due Landlord hereunder, all of
which shall be deemed to be Rent, and any other damage, injury, expense or
liability caused by such event of default; and Tenant shall pay to Landlord on
demand the amount so applied in order to restore the Security Deposit to its
original amount. Any remaining balance of the Security Deposit shall be
returned by Landlord to Tenant within fourteen (14) days after termination of
this Lease, provided all of Tenant's obligations under this Lease have been
fulfilled. Notwithstanding the foregoing, provided Tenant is not then in
default under the terms of this Lease, Landlord shall, on behalf of Tenant,
apply one-half (1/2) of the Security Deposit against Tenant's Rent obligation
due and payable in the sixty-second (62nd) month of the Term, thereby resulting
in the remaining Security Deposit being equal to Eighteen Thousand Nine Hundred
Ninety-Seven Thousand and 60/100 Dollars ($18,997.60) (less any amounts
previously applied by Landlord in accordance with the terms of this Lease).
2.4 TENANT'S PROPORTIONATE SHARE. "TENANT'S PROPORTIONATE SHARE", as
used in this Lease, shall mean (a) with respect to the cost of an item
attributable to the Building, that portion of the cost of the applicable item
that is obtained by multiplying such cost of the applicable item by a fraction,
the numerator of which is the rentable square footage of the Premises and the
denominator of which is the rentable square footage of the Building, which
fraction is set forth as a percentage figure in Item 7 of the Basic Lease
Provisions, and (b) with respect to the cost of an item attributable to the
common areas or Land in the Project (but not any buildings in the Project), that
portion of such cost of the applicable item that is obtained by multiplying the
fraction described in clause (a) above by the portion of the cost of the
applicable item that is allocated to the Building by Landlord in a reasonably
consistent manner which reflects the size of the Building and other buildings,
the types of uses to which the Building and other buildings are primarily suited
and the relative demands and burdens that such uses place on the Project.
2.5 ADDITIONAL RENT.
2.5.1 DEFINITION. In addition to the Base Rent set forth in
Paragraph 2.1, Tenant agrees to pay Tenant's Proportionate Share of (a) "TAXES"
as defined in and payable by Landlord pursuant to Paragraph 4.1 below, (b)
Landlord's costs of providing insurance on the Project pursuant to Paragraph
12.2 below, and (c) "OPERATING EXPENSES" as defined in and incurred pursuant to
Paragraph 5.1 below (collectively, "ADDITIONAL RENT").
2.5.2 MONTHLY PAYMENTS AND ANNUAL RECONCILIATION. On the first
day of each month of the Term, Tenant shall pay Landlord a sum equal to 1/12 of
the estimated amount of Additional Rent for that particular year based on
Landlord's reasonable estimate thereof, to be delivered to Tenant on or about
April of each year during the Term. The monthly payments are subject to
increase or decrease as reasonably determined by Landlord to reflect revised
estimates of such costs. Tenant shall pay within thirty (30) days following
demand therefor by Landlord any increases in estimated Additional Rent upon
receipt of any initial or revised estimate retroactive to January of that
calendar year. The payments made by Tenant shall be reconciled annually. If
Tenant's total payments of Additional Rent are less than the actual Additional
Rent due under Paragraph 2.5.1, Tenant shall pay the difference within thirty
(30) days following demand therefor by Landlord; if the total payments of
Additional Rent
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made by Tenant are more than the actual Additional Rent due under Paragraph
2.5.1, Landlord shall retain such excess and credit it to Tenant's next accruing
Additional Rent payments, except at the end of the Term, when any excess will be
refunded within thirty (30) days. Any failure or delay by Landlord in
delivering any estimate, demand or reconciliation shall not affect the rights
and obligations of the parties hereunder.
2.6 PAYMENT. Tenant shall pay Landlord all amounts due from Tenant to
Landlord hereunder, whether for Rent or otherwise, in lawful money of the United
States, at the place designated for the delivery of notices to Landlord pursuant
to Paragraph 22.21, without any deduction or offset whatsoever.
2.7 LATE CHARGES. Tenant acknowledges that late payment by Tenant of
any sum owed to Landlord under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amounts of which are extremely difficult
and impracticable to fix. Such costs include, without limitation, processing
and accounting charges, time spent addressing the issue with Tenant, and late
charges that may be imposed on Landlord by the terms of any obligation or note
secured by any encumbrance covering the Premises. Therefore, if any installment
of rent or other payment due from Tenant is not received by Landlord within ten
(10) days following Landlord's delivery of notice of Tenant's failure to pay
when due, Tenant shall pay to Landlord an additional sum equal to the lesser of
(i) two hundred basis points plus the "prime rate" as most recently published in
the Wall Street Journal, or (ii) ten percent (10%) of the overdue rent or other
payment as a late charge. Late charges shall be deemed Additional Rent. The
parties agree that this late charge represents a fair and reasonable estimate of
the administrative and other costs that Landlord will incur by reason of a late
payment by Tenant. Acceptance of any late payment charge shall not constitute a
waiver of Tenant's default with respect to the overdue payment, nor prevent
Landlord from exercising any of the other rights and remedies available to
Landlord under this Lease, at law or in equity, including, but not limited to,
the interest charge imposed pursuant to Paragraph 22.2.
2.8 BASE RENT CREDIT. Provided that Tenant is not in default under any
of the terms, covenants or conditions of this Lease, Tenant shall be credited
with the payment of Base Rent due and payable under this Lease for the second
(2nd), fourth (4th), thirteenth (13th) and sixty-first (61st) months of the
Term, as and when the same becomes due. No such Base Rent credit shall reduce
or limit any Additional Rent or other sum due and payable by Tenant under this
Lease. Tenant understands and agrees that the foregoing Base Rent credit is
conditioned upon Tenant's not having wrongfully terminated this Lease or
Landlord not having terminated this Lease by reason of Tenant's default
hereunder.
3. USE.
3.1 USE OF PREMISES. Subject to any additional uses or limitations on
use contained in Item 8 of the Basic Lease Provisions, the Premises shall be
used only for the purpose of receiving, storing, wrapping, packaging shipping
and selling (other than retail) products, materials and merchandise made and/or
distributed by Tenant and for such other lawful purposes as may be directly
incidental thereto, and for no other use or purpose. Tenant acknowledges that
Landlord has not made any representations or warranties with respect to the
suitability of the Premises for Tenant's uses. Tenant and Tenant's Parties
shall at all times comply with all reasonable rules and regulations regarding
the Premises, the Building and/or the Project as Landlord may establish from
time to time. Landlord shall not be responsible for nor liable to Tenant for
any violation and/or enforcement of such rules and regulations by any other
tenant of the Project, but Landlord shall enforce such rules in a non-
discriminatory manner.
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Tenant shall be responsible for and shall at its own cost and
expense obtain any and all licenses and permits necessary for any such use.
Tenant shall comply with all governmental laws, ordinances and regulations
applicable to the use of the Premises, including, without limitation, the
Americans with Disabilities Act of 1990 triggered subsequent to the
Commencement Date as a result of Tenant's alterations or use of the Premises.
Without limiting the generality of the foregoing, and subject to Paragraph 7
below, Tenant shall at its own cost and expense install and construct all
physical improvements to or needed to serve the Premises (i) required by any
federal, state or local building code or other law or regulation enacted or
becoming effective after the Commencement Date, including, but not limited
to, special plumbing, railings, ramps and other improvements for use by the
handicapped, or (ii) made necessary by the nature of Tenant's use of the
Premises; provided, however, that Landlord shall have the option to install
and construct such improvements, in which case the cost thereof shall be
equitably allocated by Landlord in its reasonable discretion among the
benefitted premises, and Tenant, upon demand, shall pay to Landlord, as
Additional Rent, such portion of the cost thereof as may be allocated
equitably, in Landlord's reasonable discretion, to the Premises. Tenant
shall not place a load upon the floor of the Premises which exceeds the load
per square foot which such floor was designed to carry and which is allowed
by law. Tenant shall promptly comply with all governmental orders and
directives for the correction, prevention and abatement of nuisances in or
upon, or connected with, the Premises, all at Tenant's sole expense. Tenant
shall not permit any objectionable or unpleasant odors, smoke, dust, gas,
noise or vibrations to emanate from the Premises, nor take any other action
which would constitute a nuisance or would disturb or endanger any other
tenants of the Project or unreasonably interfere with their use of their
respective premises.
Tenant shall not permit the Premises to be used for any purpose or
in any manner (including without limitation any method of storage) which would
render the insurance thereon void or the insurance risk more hazardous or cause
the state insurance authority to disallow any sprinkler credits. If any
increase in the fire and extended coverage insurance premiums paid by Landlord
or other tenants for the Project is caused by Tenant's use and occupancy of the
Premises, or if Tenant vacates the Premises and causes any increase in such
premiums, then Tenant shall pay as additional Rent the amount of such increase
to Landlord, and, upon demand by Landlord, correct at Tenant's expense the cause
of such disallowance, increased cost, penalty or surcharge to the satisfaction
of the particular insurance provider or authority, as applicable. Landlord
hereby represents that to Landlord's actual knowledge (without independent
inquiry or investigation) the permitted use of the Premises set forth in item 8
of the Basic Lease Provisions, in and of itself, will not (i) render Landlord's
insurance thereon void, (ii) render the insurance risk more hazardous, (iii)
cause the state insurance authority to disallow any sprinkler credits, or (iv)
cause an increase in Landlord's insurance premiums.
3.2 HAZARDOUS MATERIAL. Tenant hereby represents, warrants and
covenants that Tenant's business operations in the Premises do not and will not
involve the use, storage or generation of "Hazardous Materials" (as defined
below). Tenant shall not cause or permit any Hazardous Material to be brought
upon, stored, manufactured, generated, blended, handled, recycled, disposed of,
used or released on, in, under or about the Premises and/or Project by Tenant or
Tenant's Parties and Tenant shall keep, operate and maintain the Premises in
compliance with all, and shall not permit the Premises to be in violation of
any, federal (including, but not limited to, the Comprehensive Environmental
Response Claim and Liability Act of 1980, 42 U.S.C. Section 9601 ET. SEQ.),
state or local environmental, health and/or safety related law, decision of any
court of law, ordinance, rule, regulation, code, order, directive, guideline,
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permit or permit condition currently existing and as amended, enacted, issued or
adopted in the future which is applicable to the Premises (collectively,
"ENVIRONMENTAL LAWS").
Without limiting in any way Tenant's obligations under any other
provision of this Lease, Tenant and its successors and assigns shall indemnify,
protect, defend and hold Landlord, its partners, officers, directors,
shareholders, employees, agents, lenders, contractors and each of their
respective successors and assigns (collectively, the "INDEMNIFIED PARTIES")
harmless from any and all claims, judgments, damages, penalties, enforcement
actions, taxes, fines, remedial actions, liabilities, losses, costs and expenses
(including, without limitation, actual attorneys' fees, litigation, arbitration
and administrative proceeding costs, expert and consultant fees and laboratory
costs) including, without limitation, diminution in the value of the Project or
any portion thereof, damages for the loss of the Project, damages arising from
any adverse impact on the marketing of space in the Project, and sums paid in
settlement of claims, which arise during or after the Term in whole or in part
as a result of the presence or suspected presence of any Hazardous material, in,
on, under or about the Premises or the Project and/or other properties due to
Tenant's or Tenant's Parties, activities, or failure to act, on or about the
Project. Without limiting the foregoing, if any Hazardous Material is found in,
on, under or about the Premises or the Project at any time during or after the
Term, the presence of which was caused by Tenant and/or Tenant's Parties, Tenant
shall, at its sole cost and expense, promptly take all actions as are necessary
to return the Project to the condition existing prior to the introduction or
release of such Hazardous Material in accordance with applicable Environmental
Laws and Landlord's prior written approval.
Landlord hereby represents that to Landlord's actual knowledge as of
the date of this Lease, (a) neither Landlord nor its agents or employees has
released or disposed of any Hazardous Materials in violation of any
Environmental Laws on or about the Premises or the Building, and (b) Landlord
has not received any written notices of any violations of Environmental Laws
with respect to the Premises or the Building.
For purposes of this Lease, the term "HAZARDOUS MATERIAL" means any
chemical, substance, material, controlled substance, object, condition, waste or
combination thereof which is or may be hazardous to human health or safety or to
the environment due to its radioactivity, ignitability, corrosiveness,
reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other
harmful or potentially harmful properties or effects, including, without
limitation, petroleum and petroleum products, asbestos, radon, polychlorinated
biphenyls (PCBs) and all of those chemicals, substances, materials, controlled
substances, objects, conditions, wastes or combinations thereof which are now or
become in the future listed, defined or regulated in any manner by any
Environmental Law based upon, directly or indirectly, such properties or
effects.
3.3 USE OF COMMON AREAS. Tenant and Tenant's Parties shall have the
non-exclusive right, in common with the other parties occupying the Project, to
use the grounds, sidewalks, parking areas, driveways and alleys of the Project,
subject to such reasonable rules and regulations as Landlord may from time to
time prescribe. Tenant and Tenant's Parties may park only up to the maximum
number of automobiles and trucks shown in Item 9 of the Basic Lease Provisions
in the area depicted on Exhibit "F" attached hereto during normal business
hours on a non-exclusive basis. Subject to all governmental requirements and
any covenants, conditions and restrictions affecting the Project, Tenant shall
be permitted to use its parking spaces after hours as reasonably required by
Tenant for the conduct of its business operations. Outside storage, including
without limitation,
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trucks and other vehicles, is prohibited without Landlord's prior written
consent, which may be withheld in Landlord's sole and absolute discretion.
Tenant shall not succeed to any of Landlord's easement rights over and relating
to the project, nor shall Tenant obtain any rights to common areas, as
designated by Landlord, other than those rights specifically granted to Tenant
in this lease. Landlord shall have the sole right of control over the use,
maintenance, configuration, repair and improvement of the common area. Landlord
may make such changes to the use or configuration of, or improvements
comprising, the common area as Landlord may elect without liability to Tenant
(including the right to add or eliminate buildings from the Project), subject
only to Tenant's vehicular parking rights shown in Item 9 of the Basic Lease
Provisions.
4. TAXES.
4.1 PAYMENT OF REAL PROPERTY TAXES. Landlord agrees to pay, before they
become delinquent, all real property taxes; current installments of any general
or special assessments; license fees, commercial rental taxes, in lieu taxes,
levies, charges, penalties or similar impositions imposed by any authority
having the direct power to tax, and are paid or incurred by Landlord, including
but not limited to, the following: (a) any tax on or measured by Rent received
by Landlord from the Project or as against Landlord's business of leasing any of
the Project; (b) any assessment, tax, fee, levy or charge imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, transportation, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants; (c)
assessments due to deed restrictions and/or owner associations; and (d) costs of
determining, filing, contesting and appealing any such tax, assessment or
charge, including accountants', attorneys' and consultants' fees, but excluding
any income, inheritance, estate or corporate franchise taxes of Landlord
(collectively, "TAXES").
Taxes shall also include any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of Taxes. It is hereby acknowledged
by Tenant and Landlord that Proposition 13 was adopted by the voters of
California in June 1978 and that assessments, taxes, fees, levies and charges
may be imposed by governmental agencies for such services as fire protection,
street, sidewalk and road maintenance, transportation, refuse removal and other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges, and all similar
assessments, taxes, fees, levies and charges be included within the definition
of Taxes for purposes of this Lease.
4.2 LIABILITY FOR ALL PERSONAL PROPERTY TAXES. Tenant shall be liable
for all taxes levied or assessed against personal property, furniture, fixtures,
above-standard Tenant Improvements and alterations, additions or improvements
placed by or for Tenant in the Premises. If any such taxes for which Tenant is
liable are levied or assessed against Landlord or Landlord's property and if
Landlord elects to pay the same or if the assessed value of Landlord's property
is increased by inclusion of personal property, furniture, fixtures, above-
standard Tenant Improvements or alterations, additions or improvements placed by
or for Tenant in the Premises, and Landlord elects to pay the Taxes based on
such increase, Tenant shall pay to Landlord upon demand that portion of the
Taxes.
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5. LANDLORD'S MAINTENANCE AND REPAIR.
5.1 LANDLORD'S MAINTENANCE. Landlord shall maintain and repair only the
exterior portions of the roof, and the foundation and the structural soundness
of the exterior walls of the Building and utility facilities stubbed to the
Premises in good condition, reasonable wear and tear excepted. The term "WALLS"
as used herein shall not include windows, glass or plate glass, doors, special
store fronts or office entries, unless otherwise specified by Landlord in
writing. Landlord shall maintain, repair and repaint the exterior walls,
overhead doors, canopies, entries, handrails, gutters and other exposed parts of
the Building as deemed necessary by Landlord to maintain safety and aesthetic
standards. Landlord shall maintain, repair, and operate the common areas of the
Project, including but not limited to, mowing grass and general landscaping,
maintenance of parking areas, driveways and alleys, parking lot sweeping, paving
and restriping, exterior lighting, painting, pest control and window washing.
The cost of all of the foregoing, including the cost of all supplies, uniforms,
equipment, tools and materials, together with utility costs not otherwise
charged directly to Tenant or other tenants, all wages and benefits of employees
and independent contractors engaged in the operation, maintenance and repair of
the Project, all expenses for security and safety services and equipment, any
license, permit and inspection fees required in connection with the operation,
maintenance or repair of the Project (but not related to improvements to tenant
space), management, consulting, legal and accounting fees of independent
contractors engaged by Landlord (but not related to the negotiation or
enforcement of leases), other costs and expenses actually incurred by Landlord
in connection with the ownership, operation, leasing and management of the
Project, and other usual costs and expenses which are typically paid by other
landlords to provide on-site operation of industrial, warehouse and service
center projects, are collectively referred to herein as "OPERATING EXPENSES".
To the extent that an Operating Expense consists of a maintenance or repair
(including renovation and refurbishment) expense that is not properly fully
deductible as an expense in the year incurred in accordance with generally
accepted accounting principles, such expense shall be amortized over its useful
life. Any amounts which are amortized, together with landlord's actual cost of
funds, shall result in equal payments being included in Operating Expenses for
the year of expenditure and succeeding years during the amortization period.
Notwithstanding anything in this Paragraph 5.1 to the contrary, the following
items shall be excluded from Operating Expenses:
1. Repairs, other work or any expenditures for which Landlord has been
reimbursed from any source (including its insurance carrier or any tenant's
insurance carrier).
2. Cost of maintenance and/or repairs, for any reason other than Tenant's
misuse, to the roof or HVAC systems.
3. Leasing commissions, attorneys' fees, costs and disbursements and other
expenses incurred in connection with negotiations or disputes with tenants,
other occupants or prospective tenants or occupants of the Project.
4. Costs, including permit, license and inspection costs, incurred with
respect to the installation of tenant improvements made for new tenants in
the Building or Project or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other
occupants of the Building or Project.
5. Depreciation and amortization except as provided above.
6. Expenses in connection with services or other benefits of a type which are
not provided to Tenant but which are provided to another tenant or
occupant.
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7. Costs incurred due to violation by Landlord of the terms and conditions of
any lease and expenses directly resulting from the negligence of Landlord,
its agents, servants or employees.
8. Overhead and profit increment paid to subsidiaries or affiliates of
Landlord for services on or to the Project, but only to the extent that the
costs of such services exceed competitive costs of such services were they
not rendered by a subsidiary or affiliate.
9. Interest on debt or amortization payments on any mortgage or mortgages, and
rental under any ground or underlying lease or leases.
10. Landlord's general overhead except as it directly relates to the operation
and management of the Building.
11. Any compensation paid to clerks, attendants or other persons in commercial
concessions operated by Landlord.
12. All items and services for which Tenant has reimbursed Landlord or for
which Tenant contracts directly with third parties.
13. Advertising and promotional expenditures.
14. Any costs, fines or penalties incurred due to violations by Landlord of any
governmental rule or authority; provided, however, Landlord shall be
permitted to contest and appeal any Taxes and such cost shall be passed
through to Tenant as provided in Paragraph 4.1 above.
15. Management fees to the extent they exceed those typically charged in
comparable projects in the immediately surrounding vicinity.
16. Electric power costs for which any tenant directly contracts with the local
public service company.
17. Costs for sculptures, paintings or other works of art.
18. Any recalculation of or additional Operating Expenses actually incurred
more than two (2) years prior to the year Landlord proposes that such costs
be included.
19. Salaries paid to any executive employees above the grade of senior property
manager.
20. Financing costs, including but not limited to points, commitment fees and
legal fees incurred in connection with obtaining financing.
21. Any bad debt loss, rent loss or reserves for bad debts or rent loss.
It is understood that Operating Expenses shall be reduced by all cash discounts,
trade discounts or quantity discounts received by Landlord or Landlord's
managing agent in the purchase of goods, utilities or services in connection
with the operating of the Building or Project. In the calculation of any
expenses hereunder, it is understood that no expense shall be charged more than
once. Landlord shall use commercially reasonable efforts to effect an equitable
proration of hills for services rendered to the Building and to any other
property owned by Landlord. Landlord agrees to keep books and records showing
the Operating Expenses in accordance with generally accepted accounting
principles consistently maintained on a year-to-year basis. In the event Tenant
shall dispute Landlord's determination of Operating Expenses, Tenant shall, upon
reasonable advance notice to Landlord, be entitled to inspect Landlord's books
and records (at Landlord's office) as they relate to the computation of
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Operating Expenses, but Tenant will in no event be entitled to inspect such
books and records more than once per calendar year.
5.2 PROCEDURE AND LIABILITY. Tenant shall immediately give Landlord
written notice of any defect or the need for repair of the items for which
Landlord is responsible, after which Landlord shall have reasonable opportunity
to repair the same or cure such defect. Landlord's liability with respect to
any defects, repairs or maintenance for which Landlord is responsible under any
of the provisions of this Lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect. If Tenant or Tenant's Parties caused
any damage necessitating such repair, then Tenant shall pay the cost thereof,
upon demand. Tenant hereby waives the benefit of California Civil Code Sections
1941 and 1942, and any other statute providing a right to make repairs and
deduct the cost thereof from the Rent. Tenant waives any right to terminate
this Lease or offset or abate Rent by reason of any failure of Landlord to make
repairs to the Premises.
6. TENANT'S MAINTENANCE AND REPAIR.
6.1 TENANT'S MAINTENANCE. Tenant shall, at its own cost and expense,
keep and maintain all parts of the Premises (except those listed as Landlord's
responsibility in Paragraph 5.1 above) in good and sanitary condition, promptly
making all necessary repairs and replacements, including but not limited to,
windows, glass and plate glass, doors, any special store front or office entry,
interior walls and finish work, floors and floor covering, heating and air
conditioning systems, dock boards, truck doors, dock bumpers, plumbing work and
fixtures, termite and pest extermination, and regular removal of trash and
debris. If Tenant shall fail to make any repair for which Tenant is responsible
within ten (10) days following notice from Landlord requiring the same (or if
more than ten (10) days are reasonably required for the repair, if Tenant has
not commenced said repair within said ten (10) day period and thereafter
diligently prosecuted the same to completion), Landlord and its agents and
contractors shall have the right, but not the obligation, to enter upon the
Premises and perform such repairs, the full cost of which shall be deemed to be
Rent and shall be due and payable by Tenant to Landlord immediately upon demand.
In the case of emergency, Landlord, its agents and contractors may enter upon
the Premises to perform such repairs without the necessity of prior notice to
Tenant. Tenant shall maintain its trash receptacles within the Premises.
Repairs shall be made in accordance with all applicable laws, including without
limitation, the Americans with Disabilities Act of 1990. The cost of
maintenance and repair of any common party wall (any wall, divider, partition or
any other structure separating the Premises from any adjacent premises occupied
by other tenants) shall be shared equally by Tenant and the tenant(s) occupying
such adjacent premises. Tenant shall not damage any party wall or disturb the
integrity and support provided by any party wall and shall, at its sole cost and
expense, promptly repair any damage or injury to any party wall caused by Tenant
or Tenant's Parties.
6.2 MAINTENANCE/SERVICE CONTRACTS. Tenant shall, at its own cost and
expense, enter into a regularly scheduled preventive maintenance/service
contract with a maintenance contractor for serving the heating and air
conditioning equipment and systems within the Premises. The maintenance
contractor and the contract must be approved in writing by Landlord in advance.
The service contract shall include all services recommended by the equipment
manufacturer within the operation/maintenance manual and shall become effective
(and a copy thereof delivered to Landlord) within thirty (30) days following the
date Tenant takes possession of the Premises.
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7. ALTERATIONS.
Tenant shall make no alterations, additions or improvements to the Premises
(including, without limitation, roof and wall penetrations) or any part thereof
without obtaining the prior written consent of Landlord in each instance. Such
consent may be granted or withheld in Landlord's reasonable discretion.
Notwithstanding the foregoing, Tenant shall have the right, without obtaining
Landlord's prior consent, to make minor non-structural, non-electrical, non-
mechanical alterations to the Premises in an amount not to exceed Twenty-Five
Thousand and 00/100 Dollars ($25,000.00) in any single instance or One Hundred
Thousand and 00/100 Dollars ($100,000.00) in the aggregate over the Term.
Landlord may impose as a condition to such consent such requirements as Landlord
may deem necessary, in its sole and absolute discretion, including, without
limitation that: (a) Landlord be furnished with working drawings before work
commences; (b) performance and labor and material payment bonds in form and
amount and issued by a company satisfactory to Landlord be furnished; (c)
Landlord approve the contractor by whom the work is to be performed; (d)
adequate course of construction and general liability insurance be in place and
Landlord be named as an additional insured under the contractor's liability and
property insurance policies; and (e) Landlord's instructions relating to the
manner in which the work is to be performed and the times during which it is to
be accomplished shall be complied with. All such alterations, additions or
improvements must be performed in a good and workmanlike manner in compliance
with all laws, rules and regulations, including, without limitation, the
Americans with Disabilities Act of 1990, and diligently prosecuted to
completion. Tenant shall deliver to Landlord upon commencement of such work, a
copy of the building permit with respect thereto, and a certificate of
occupancy, if applicable, immediately upon completion of the work. All such
work shall be performed so as not to obstruct the access to the premises of any
other tenant in the Building or Project. Should Tenant make any alterations
without Landlord's prior written consent, or without satisfaction of any of the
conditions established by Landlord in conjunction with granting such consent,
Landlord shall have the right, in addition to and without limitation of any
right or remedy Landlord may have under this Lease, at law or in equity, to
require Tenant to remove all or some of the alterations, additions or
improvements at Tenant's sole cost and restore the Premises to the same
condition as existed prior to undertaking the alterations, or if Tenant shall
fail to do so, Landlord may cause such removal or restoration to be performed at
Tenant's expense and the cost thereof shall be Additional Rent to be paid by
Tenant immediately upon demand. Provided that Landlord has notified Tenant at
the time Landlord issued its consent to such alterations that Landlord shall
require their removal upon the expiration or earlier termination of this Lease,
Landlord shall have the right to require Tenant, at Tenant's expense, to remove
any and all alterations, additions or improvements and to restore the Premises
to its prior condition upon the expiration or sooner termination of this Lease.
Tenant shall notify Landlord in writing at least ten (10) days prior to the
commencement of any such work in or about the Premises, and Landlord shall have
the right at any time and from time to time to post and maintain notices of
nonresponsibility in or about the Premises.
8. LIENS.
Tenant shall have no authority, express or implied, to create or place any
lien or encumbrance of any kind or nature whatsoever upon, or in any manner to
bind, the interest of Landlord or Tenant in the Premises or to charge the Rent
payable hereunder for any claim in favor of any person dealing with Tenant,
including those who may furnish materials or perform labor for any construction
or repairs. Tenant shall pay or cause to be paid all sums legally due and
payable by it on account of any labor performed or materials furnished in
connection with any
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work performed by Tenant on the Premises. Tenant shall discharge of record by
payment, bonding or otherwise any lien filed against the Premises on account of
any labor performed or materials furnished in connection with any work performed
by Tenant on the Premises within ten (10) days following Tenant's notification
of the filing of any claim of lien. Tenant shall indemnify, defend and hold
Landlord harmless from any and all liability, loss, cost or expense based on or
arising out of asserted claims or liens against the leasehold estate or against
the right, title and interest of Landlord in the Project or this Lease arising
from the act or agreement of Tenant. Tenant agrees to give Landlord immediate
written notice of the placing of any lien or encumbrance against the Premises.
Landlord shall have the right, at Landlord's option, of paying and discharging
the same or any portion thereof without inquiry as to the validity thereof, and
any amounts so paid, including expenses and applicable late charge, shall be
Additional Rent immediately due and payable by Tenant upon rendition of a bill
therefor.
9. SIGNS.
9.1 LANDLORD'S SIGNAGE PROGRAM. Tenant shall abide by the terms of
Landlord's signage program attached hereto as EXHIBIT "D" and incorporated
herein as the same may be changed from time to time at Landlord's sole
discretion. Upon vacation of the Premises or the removal or alteration of its
sign for any reason, Tenant shall be responsible, at its sole cost, for the
repair, painting and/or replacement of the structure (in the general area where
Tenant's sign(s) was affixed) to which signs are attached to its original
condition. If Tenant fails to perform such work, Landlord may cause the same to
be performed, and the cost thereof shall be Additional Rent immediately due and
payable upon rendition of a bill therefor.
9.2 CRITERIA FOR CHANGES. Tenant shall not, without Landlord's prior
written consent, which may be withheld in Landlord's sole and absolute
discretion: (a) make any changes to or paint the exterior of the Building; (b)
install any exterior lights, decorations or paintings; or (c) erect or install
any signs, window or door lettering, placards, decorations or advertising media
of any type which can be viewed from the exterior of the Premises. All signs,
decorations, advertising media, blinds, draperies and other window treatment or
bars or other security installations visible from outside the Premises shall be
subject to the prior written approval of Landlord as to construction, method of
attachment, size, shape, height, design, lighting, color and general appearance.
All signs shall be in compliance with all applicable laws and regulations and
all covenants, conditions and restrictions relating to the Premises. All signs
shall be kept in good condition and in proper operating order at all times.
10. UTILITIES.
Tenant shall pay for all separately metered water, gas, heat, light,
telephone, sewer and sprinkler charges and for other utilities and services
used on or from the Premises, together with any taxes, penalties, surcharges
or the like pertaining thereto and any maintenance charges for utilities, and
shall furnish all electric light bulbs and tubes. If any utilities serving
the Premises are not separately metered, Tenant shall pay to Landlord its
proportionate share of the cost thereof as reasonably determined by Landlord.
Landlord shall in no event be liable for any damages directly or indirectly
resulting from or arising out of the interruption or failure of utility
services on the Premises. Tenant shall have no right to terminate this Lease
nor shall Tenant be entitled to any abatement in Rent as a result of any such
interruption or failure of utility services. No such interruption or failure
of utility services shall be deemed to constitute a constructive eviction of
Tenant.
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11. FIRE AND CASUALTY DAMAGE.
11.1 NOTICE OF DESTRUCTION. If the Premises are damaged or destroyed by
fire, earthquake or other casualty, Tenant shall give immediate written notice
thereof to Landlord. Within thirty (30) days following the occurrence of such
damage or destruction, Landlord shall provide Tenant with written notice of its
good faith estimate of the time required to repair or restore the Premises and
whether the insurance proceeds are available to cover the loss.
11.2 LOSS COVERED BY INSURANCE. If at any time prior to the expiration
or termination of this Lease, the Premises or the Project are wholly or
partially damaged or destroyed, the loss to Landlord from which is fully covered
by proceeds of insurance maintained by Landlord or for Landlord's benefit, which
damage renders the Premises totally or partially inaccessible or unusable by
Tenant in the ordinary conduct of Tenant's business, then:
(a) If all repairs to the Premises or Project can, in Landlord's
judgment, be completed within one hundred eighty (180) days following the date
of notice to Landlord of such damage or destruction without the payment of
overtime or other premiums, Landlord shall, at Landlord's expense (provided
Landlord can obtain all necessary governmental permits and approvals therefor at
reasonable cost and on reasonable conditions), repair the same, and this Lease
shall remain in full force and effect and a proportionate reduction of Rent
shall be allowed Tenant for such portion of the Premises as shall be rendered
inaccessible or unusable to Tenant during the period of time that such portion
is unusable or inaccessible. There shall be no proportionate reduction of Rent
by reason of any portion of the Premises being unusable or inaccessible for a
period equal to three (3) consecutive business days or less.
(b) If all such repairs cannot, in Landlord's judgment, he
completed within one hundred eighty (180) days following the date of notice to
Landlord of such damage or destruction without the payment of overtime or other
premiums, either party may, at its sole and absolute option, by written notice
to the other given within twenty (20) days following the date of Landlord's
notice to Tenant stating that all such repairs cannot in Landlord's judgment, be
completed within one-hundred eighty (180) days, terminate this Lease as of the
date of the occurrence of such damage or destruction; provided, however, if
neither party elects to terminate this Lease within said twenty (20) day period,
then this Lease shall remain in full force and effect and Landlord shall, at
Landlord's expense (provided Landlord can obtain all necessary governmental
permits and approvals therefor at reasonable cost and on reasonable conditions),
repair the same, and a proportionate reduction of Rent shall be allowed Tenant
for such portion of the Premises as shall be rendered inaccessible or unusable
to Tenant during the period of time that such portion is unusable or
inaccessible (however, there shall be no proportionate reduction of Rent by
reason of any portion of the Premises being unusable or inaccessible for a
period equal to three (3) consecutive business days or less).
Tenant shall pay to Landlord, within thirty (30) days following
Landlord's demand therefor, Tenant's Proportionate Share of the amount of the
deductible under Landlord's insurance policy. If the damage involves portions
of the Project other than the Premises, Tenant shall pay only a portion of the
deductible based on the ratio of the cost of repairing the damage in the
Premises to the total cost of repairing all of the damage in the Project.
11.3 LOSS NOT COVERED BY INSURANCE. If, at any time prior to the
expiration or termination of this Lease, the Premises or the Project are totally
or partially damaged or destroyed from a
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risk, the loss to Landlord from which is not fully covered by insurance
maintained by Landlord or for Landlord's benefit, which damage renders the
Premises inaccessible or unusable to Tenant in the ordinary course of its
business, and if such damage or destruction is not the result of the negligence
or willful misconduct or omission of Tenant or Tenant's Parties, Landlord may,
at its option, upon written notice to Tenant within thirty (30) days after
notice to Landlord of the occurrence of such damage or destruction, elect to
repair or restore such damage or destruction, or Landlord may elect to terminate
this Lease. if Landlord elects to repair or restore such damage or destruction,
this Lease shall continue in full force and effect, but the Rent shall be
proportionately reduced as provided in Paragraph 11.2(a). If Landlord elects to
terminate this Lease, such termination shall be effective as of the date of the
occurrence of such damage or destruction. Notwithstanding the foregoing, if
Landlord elects to repair or restore such damage or destruction, Landlord shall
notify Tenant within thirty (30) days following such damage destruction, if such
repairs cannot, in Landlord's judgment, be completed within one hundred eighty
(180) days without the payment of overtime or other premiums. If Landlord
notifies Tenant that such repairs cannot, in Landlord's judgment, be completed
within said one hundred eighty (180) days, Tenant may terminate this Lease upon
written notice to the Landlord given within twenty (20) days after Landlord's
notice to Tenant that all such repairs cannot, in Landlord's judgment, be
completed within said one hundred eighty (180) days; provided, however, if
Tenant fails to terminate this Lease within said twenty (20) day period from
Landlord's notice, then Tenant shall have no further right to terminate this
Lease under this paragraph 11.3.
11.4 LOSS CAUSED BY TENANT OR TENANT'S PARTIES. If the Premises or the
Project are wholly or partially damaged or destroyed as a result of the
negligence or willful misconduct or omission of Tenant or Tenant's Parties,
Tenant shall forthwith diligently undertake to repair or restore all such damage
or destruction at Tenant's sole cost and expense, or Landlord may at its option
undertake such repair or restoration at Tenant's sole cost and expense;
provided, however, that Tenant shall be relieved of its repair and payment
obligations pursuant to this Paragraph 11.4 to the extent that insurance
proceeds are collectible by Landlord to repair such damage, although Tenant
shall in all such events pay to Landlord the full amount of the deductible under
Landlord's insurance policy and any amounts not insured. This Lease shall
continue in full force and effect without any abatement or reduction in Rent or
other payments owed by Tenant.
11.5 DESTRUCTION NEAR END OF TERM. Notwithstanding the foregoing, if the
Premises or the Project are wholly or partially damaged or destroyed within the
final six (6) months of the Term, either party may, at its option, elect to
terminate this Lease upon written notice given to the other within thirty (30)
days following such damage or destruction.
11.6 DESTRUCTION OF IMPROVEMENTS AND PERSONAL PROPERTY. In the event of
any damage to or destruction of the Premises or the Project, under no
circumstances shall Landlord be required to repair, replace or compensate
Tenant, Tenant's Parties or any other person for the personal property, trade
fixtures, machinery, equipment or furniture of Tenant or any of Tenant's
Parties, or any alterations, additions or improvements installed in the Premises
by Tenant, and Tenant shall promptly repair and replace all such personal
property and improvements at Tenant's sole cost and expense.
11.7 EXCLUSIVE REMEDY. The provisions of this Paragraph 11 shall
constitute Tenant's sole and exclusive remedy in the event of damage or
destruction to the Premises or the Project, and Tenant waives and releases all
statutory rights and remedies in favor of Tenant in the event of damage or
destruction,
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including without limitation those available under California Civil Code
Sections 1932 and 1933(4). No damages, compensation or claim shall be payable
by Landlord for any inconvenience, any interruption or cessation of Tenant's
business, or any annoyance, arising from any damage or destruction of all or any
portion of the Premises of the Project.
11.8 LENDER DISCRETION. Notwithstanding anything herein to the contrary,
in the event the holder of any indebtedness secured by a mortgage or deed of
trust covering the Premises requires that the insurance proceeds from insurance
held by Landlord be applied to such indebtedness, then Landlord shall have the
right to deliver written notice to Tenant terminating this Lease.
12. INDEMNITY AND INSURANCE
12.1 INDEMNITY. Tenant hereby releases all Indemnified Parties, and
shall indemnify, protect, defend and hold the Indemnified Parties harmless
from any and all claims, judgments, damages, liabilities, losses, sums paid
in settlement of claims, cost and expenses (including, but not limited to,
reasonable attorneys' fees and litigations costs), obligations, liens and
causes of action, whether threatened or actual, direct or indirect
(collectively, "CLAIMS"), which arise in any way, directly or indirectly,
resulting from or in connection with, in whole or in part, Tenant's or
Tenant's Parties' activities in, on or about the Premises or Project,
including, without limitation, Tenant's breach or default of any obligation
of Tenant to be performed under the terms of this Lease, the conduct of
Tenant's business, the nonobservance or nonperformance of any law, ordinance
or regulation or the negligence or misconduct of Tenant or Tenant's Parties,
the buildings and improvements located on the Project becoming out of repair,
the leakage of gas, oil, water, steam or electricity emanating from their
usual conduits, or due to any cause whatsoever; except injury to persons or
damage to property to the extent caused by the negligence or willful
misconduct of Landlord (for which Landlord shall indemnify Tenant and
Tenant's Parties), or the wrongful failure of Landlord to repair any part of
the Project which Landlord is obligated to repair and maintain hereunder
within a reasonable time after the receipt of written notice from Tenant of
needed repairs. Landlord shall not be liable to Tenant for any damages
arising from any act, omission or neglect of any other tenant in the Project.
12.2 LANDLORD'S INSURANCE. Landlord shall maintain (i) fire insurance
and extended all risk insurance covering the Project in an amount not less than
ninety percent (90%) of the replacement thereof, and (ii) such other types (an
in such amounts) of insurance as Landlord deems necessary or desirable in its
sole discretion, which may include, without limitation, liability, property
damage and/or loss or rental income coverage. Such insurance shall be for the
sole benefit of Landlord and under its sole control. The premiums for any such
insurance shall be an Operating Expense.
12.3 TENANT'S INSURANCE OBLIGATIONS. Tenant agrees that at all times
from and after date Tenant is given access to the Premises for any reason,
Tenant shall carry and maintain, at its sole cost and expense, the following
types, amounts and forms of insurance:
12.3.1 GENERAL LIABILITY INSURANCE. A broad form comprehensive
general liability or commercial general liability policy covering property
damage, personal injury, advertising injury and bodily injury, and including
blanket contractual liability coverage for obligations under this Lease,
covering the Project in an amount of not less than the amount per occurence
specified in Item 10 of the Basic Lease Provisions. Such policy shall be in
the occurence form with a per location general aggregate. Each policy shall
name Landlord as an additional
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insured, and shall provide primary coverage to Landlord; when any policy issued
to Landlord provides duplicate coverage or is similar in coverage, Landlord's
policy will be excess over Tenant's policies. No deductibles in excess of Five
Thousand Dollars ($5,000) per occurrence shall be permitted. Tenant shall pay
any deductibles. The amounts of such insurance required hereunder shall be
subject to adjustment from time to time as required by Landlord based upon
Landlord's reasonable determination as to (a) the amounts of such insurance
generally required at such time for comparable tenants, premises and buildings
in the general geographical location of the Building; (b) as requested by any
lender with an interest in the Building or Project; (c) Tenant's activities; (d)
increases in recovered liability claims; (e) increased claims consciousness by
the public; or (f) any combination of the foregoing.
12.3.2 PROPERTY INSURANCE. A policy or policies, including the
Special Causes of Loss form of coverage ("ALL RISKS"), including vandalism and
malicious mischief, theft, sprinkler leakage (excluding earthquake and flood,
but including earthquake sprinkler leakage) and water damage coverage in an
amount equal to the full replacement value, new without deduction for
depreciation, on an agreed amount basis (no co-insurance requirement), of all
trade fixtures, furniture and equipment in the Premises, and all alterations,
additions and improvements to the Premises installed by or for Tenant or
provided to Tenant. Such insurance shall also include business interruption and
extra expense coverage for Tenant's operations and debris removal coverage for
removal of property of Tenant and Tenant's Parties which may be damaged within
the Premises. Such coverage shall name the Landlord as an additional insured
and/or loss payee as its interest may appear. No deductibles in excess of Five
Thousand Dollars ($5,000) shall be permitted. Tenant shall pay any deductibles.
12.3.3 WORKERS' COMPENSATION INSURANCE. Workers' compensation
insurance, including employers' liability coverage, shall comply with applicable
California law.
12.4 EVIDENCE OF COVERAGE. All of the policies required to be obtained
by Tenant pursuant to Paragraph 12.3 shall be with companies and in form
reasonably satisfactory to Landlord. Each insurance company providing coverage
shall have a current Best's Rating of "A-XII" or better. Upon notice from
Landlord, Tenant shall add any mortgagee of Landlord as an additional insured or
loss payee, as applicable. Tenant shall provide Landlord with certificates and
copies of endorsements of insurance acceptable to Landlord issued by each of the
insurance companies issuing any of the policies required pursuant to the
provisions of Paragraph 12.3, and said certificates and endorsements shall
provide that the insurance issued thereunder shall not be altered, cancelled or
non-renewed until after ten (10) days' written notice to Landlord for Tenant's
failure to pay or thirty (30) days' written notice to Landlord for any other
reason. "CLAIMS MADE" policies shall not be permitted. Each policy shall
permit the waiver in Section 12.5 below. Evidence of insurance coverage shall
be furnished to Landlord prior to Tenant's possession of the Premises and
thereafter not fewer than fifteen (15) days prior to the expiration date of any
required policy. Tenant may satisfy its insurance obligations hereunder by
carrying such insurance under a so-called blanket policy or policies of
insurance which are acceptable to Landlord. If Tenant fails to obtain any
insurance required hereby or provide evidence thereof to Landlord, Landlord may,
but shall not be obligated to, and Tenant hereby appoints Landlord as its agent
to, procure such insurance and bill the cost of the insurance plus a ten percent
(10%) handling charge to Tenant. Tenant shall pay such costs to Landlord as
Additional Rent with the next monthly payment of Rent.
12.5 WAIVERS OF SUBROGATION. Landlord waives any and all rights of
recovery against Tenant for or arising out of damage
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to, or destruction of the Building or the Premises to the extent that Landlord's
insurance policies then in force or the policies required by this Lease, which
ever is broader, insure against such damage or destruction. Tenant waives any
and all rights of recovery against Landlord for or arising out of damage to or
destruction of any property of Tenant to the extent that Tenant's insurance
policies then in force or the policies required by this Lease, whichever is
broader, insure against such damage or destruction. Landlord and Tenant agree
that their respective insurance policies shall include an appropriate clause or
endorsement under which their respective insurance carriers waive such rights of
subrogation.
13. LANDLORD'S RIGHT OF ACCESS.
Tenant shall permit Landlord and its employees and agents, at all
reasonable times (upon twenty-four [24] hours advance notice, except in the case
of emergency in which event no notice is required) and at any time in case of
emergency, in such manner as to cause as little disturbance to Tenant as
reasonably practicable (a) to enter into and upon the Premises to inspect them,
to protect the Landlord's interest therein, or to post notices of non-
responsibility, (b) to take all necessary materials and equipment into the
Premises, and perform necessary work therein, and (c) to perform environmental
testing, monitoring, sampling, digging, drilling and analysis for Hazardous
Materials on, under or about the Premises, Building and/or Land and to review
and copy any documents, materials, data, inventories, financial data, notices or
correspondence to or from private parties or governmental authorities in
connection therewith. No such work shall cause or permit any rebate of Rent to
Tenant for any loss of occupancy or quiet enjoyment of the Premises, or damage,
injury or inconvenience thereby occasioned, or constitute constructive eviction.
Landlord may at any time place on or about the Building any ordinary "for sale"
and "for lease" signs. Tenant shall also permit Landlord and its employees and
agents, upon request, to enter the Premises or any part thereof, at reasonable
times during normal business hours, to show the Premises to any fee owners,
lessors of superior leases, holders of encumbrances on the interest of Landlord
under the Lease, or prospective purchasers, mortgagees or lessees of the Project
or Building as an entirety. During the period of six (6) months prior to the
expiration date of this Lease, Landlord may exhibit the Premises to prospective
tenants.
14. ASSIGNMENT AND SUBLETTING.
14.1 LANDLORD'S CONSENT. Tenant shall not assign all or any portion of
its interest in this Lease, whether voluntarily, by operation of law or
otherwise, and shall not sublet all or any portion of the Premises, including,
but not limited to, sharing them, permitting another party to occupy them or
granting concessions or licenses to another party, except with the prior written
consent of Landlord (which shall not be unreasonably withheld or delayed), which
Landlord may withhold for any reasonable condition, including, but not limited
to: (a) Tenant is in default of this Lease; (b) the assignee or subtenant is
unwilling to assume in writing all of Tenant's obligations hereunder; (c) the
assignee or subtenant has a financial condition which is reasonably
unsatisfactory to Landlord or Landlord's mortgagee; (d) the Premises will be
used for a purpose inconsistent with the other uses in the Building or for a use
requiring or generating increased or different Hazardous Materials, (e) the
proposed assignee or subtenant or its business is subject to compliance with
additional requirements of the law (including related resolutions) commonly
known as the Americans with Disabilities Act of 1990 beyond those requirements
applicable to Tenant; and (f) Tenant proposes to assign less than all of its
interest in this Lease or to sublet the Premises in units that are less than
twelve thousand five hundred (12,500) square feet.
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14.2 FEES. Tenant shall pay Landlord's reasonable attorneys' fees
incurred in evaluating any proposed assignment or sublease and documenting
Landlord's consent.
14.3 PROCEDURE. Whenever Tenant has obtained an offer to assign any
interest in this Lease or to sublease all or any portion of the Premises, Tenant
shall provide to Landlord the name and address of said proposed assignee or
sublessee, the base rent and all other compensation to be paid to Tenant, the
proposed use by the proposed assignee or sublessee, the proposed effective date
of the assignment or subletting, and any other business terms which are material
to the offer and/or which differ from the provisions of this Lease ("NOTICE OF
OFFER"). Tenant shall also provide to Landlord the nature of business,
financial statement and business experience resume for the immediately preceding
two (2) years of the proposed assignee or sublessee and such other information
concerning such proposed assignee or sublessee as Landlord may require. The
foregoing information shall be in writing and shall be received by Landlord no
less than thirty (30) days prior to the effective date of the proposed
assignment or sublease.
within fifteen (15) days following its receipt of a Notice of Offer
for the proposed assignment or subletting, Landlord shall be entitled to
terminate this Lease as to all of the Premises (unless Tenant proposes a
sublease of a portion of the Premises, in which event Landlord may terminate
this Lease as to such portion) by written notice to Tenant ("TERMINATION
NOTICE"), and such termination shall be effective as of the proposed effective
date of the proposed assignment or sublease. If Landlord does not elect to
terminate this Lease, Landlord shall either notify Tenant in writing that
Landlord consents to the proposed assignment or subletting or withholds its
consent for commercial reasons to be specified in the notice. If Landlord does
not provide a Termination Notice or a notice withholding its consent to Tenant
within fifteen (15) days following its receipt of a Notice of Offer, Landlord
shall be deemed to have consented to the proposed assignment or subletting.
Notwithstanding the foregoing, Landlord shall have no right to deliver a
Termination Notice with respect to Tenant's sublease of approximately twenty-six
thousand five hundred thirty-five (26,535) square feet to Pacific Communications
Concepts, Inc. ("Pacific") during either the first or second year of the Term.
14.4 BONUS RENT. If any interest in this Lease is assigned or all or any
portion of the Premises is subleased, Landlord shall receive fifty percent (50%)
of the "BONUS RENT" to be realized from such assignment or subletting. The
bonus rent shall mean any lump sum payment or other value received by Tenant,
plus any base rent, percentage rent or periodic compensation received by Tenant
from or for the benefit of an assignee or sublessee in excess of (a) all amounts
owed for Rent and other charges pursuant to this Lease, (b) all reasonable
commissions and fees paid to any real estate broker or finder who is
unaffiliated with Tenant in connection with the assignment or subletting, and
(c) the unamortized cost of the Tenant Improvements (excluding any portion of
the Tenant Improvements covered by the Tenant Improvement Allowance [as defined
in Exhibit "B"]) and any other alterations made by Tenant and paid to
unaffiliated third parties which were reasonably necessary to obtain such
subtenant or assignee. If a portion of the Premises is subleased, the amount in
clause (a) shall be prorated based on the portion of the Premises' rentable area
to be subleased. The bonus rent shall be paid on the first (1st) day of each
calendar month next following tenant's receipt of each payment from its assignee
or sublessee, after reduction for all amounts described in clauses (a), (b) and
(c) above, amortized over the full term of the assignment or sublease.
Notwithstanding the foregoing, Landlord shall not share in the bonus rent, if
any, resulting from the sublease of twenty-six thousand five hundred thirty-five
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(26,535) square feet to Pacific for either the first or second year of the Term.
14.5 CONTINUING TENANT OBLIGATIONS. No subleasing or assignment shall
relieve Tenant from liability for payment of all forms of Rent and other charges
herein provided or from Tenant's obligations to keep and be bound by the terms,
conditions and covenants of this Lease.
14.6 WAIVER, DEFAULT AND CONSENT. The acceptance of Rent from any other
person shall not be deemed to be a waiver of any of the provisions of this Lease
or a consent to the assignment or subletting of the Premises. Any assignment or
sublease without the Landlord's prior written consent shall be voidable, at
Landlord's election, and shall constitute a noncurable event of default under
this Lease. Consent to any assignment or subletting shall not be deemed a
consent to any future assignment or subletting.
14.7 RESTRUCTURING OF BUSINESS ORGANIZATIONS. Any transfer of corporate
shares or partnership interests of Tenant, so as to result in a change in the
present voting control of Tenant by the person or persons owning a majority of
said corporate shares or partnership interests on the date of this Lease (except
for trading on an exchange), shall constitute an assignment and shall be subject
to the provisions of this Paragraph 14. Notwithstanding the foregoing, an
assignment of this Lease by operation of law as a result of a merger or
consolidation of Tenant, and an assignment of this Lease in conjunction with (i)
the sale of all or substantially all of Tenant's assets, or (ii) a public
offering of the stock of Tenant, shall not constitute an assignment of this
Lease under this Paragraph 14, provided that, and only so long as, the surviving
tenant or assignee has a net worth greater than or equal to that of the Tenant
as of the date hereof. Notwithstanding the foregoing, an assignment of this
Lease to a corporation or partnership which owns, or is owned by, Tenant, shall
not constitute an assignment of this Lease under this paragraph 14, provided
that (a) such corporation or partnership owns more than fifty percent (50%) of
the outstanding shares of all classes of voting stock of Tenant, or (b) Tenant
owns more than fifty percent (50%) of the outstanding shares of all classes of
voting stock, or partnership units, or other controlling interest (as
applicable) of such assignee, as the case may be (an "Affiliate Entity"), and
provided that in either such case, the assignee has a net worth at least
equal to that of Tenant as of the date hereof.
14.8 ASSIGNMENT OF SUBLEASE RENT. Tenant immediately and irrevocably
assigns to Landlord, as security for Tenant's obligations under this Lease, all
rents from any subletting of all or any part of the Premises, and Landlord, as
assignee and as attorney-in-fact for Tenant for purposes hereof, or a receiver
for Tenant appointed on Landlord's application, may collect such rents and apply
same toward Tenant's obligations under this Lease, except that, until the
occurrence of an event of default by Tenant, Tenant shall have the right and
license to collect such rents.
14.9 ASSIGNMENT IN BANKRUPTCY. If this Lease is assigned to any person
or entity pursuant to the provisions of the United States Bankruptcy Code, 11
U.S.C. Section 101 ET. SEQ., or such similar laws or amendments thereto which
may be enacted from time to time (the "BANKRUPTCY CODE"), any and all monies
or other considerations payable or otherwise to be delivered in connection
with such assignment shall be paid or delivered to Landlord, shall be and
remain the exclusive property of Landlord and shall not constitute property
of Tenant or of the estate of Tenant within the meaning of the Bankruptcy
Code. Any and all monies or other considerations constituting Landlord's
property under the preceding sentence not paid or delivered to Landlord shall
be
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held in trust for the benefit of Landlord and be promptly paid or delivered to
Landlord.
14.10 ASSUMPTION OF OBLIGATIONS. Any person or entity to which this Lease
is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed,
without further act or deed, to have assumed all of the obligations arising
under this Lease on and after the date of such assignment. Any such assignee
shall upon demand execute and deliver to Landlord an instrument confirming such
assumption.
15. CONDEMNATION.
15.1 TOTAL TAKING. If the whole or any substantial part of the Premises
or the Project shall be taken or damaged because of the exercise of the power of
eminent domain, whether by condemnation proceedings or otherwise, including acts
or omissions constituting inverse condemnation, or any transfer of the Premises
or Project or portion thereof in avoidance of the exercise of the power of
eminent domain (collectively, a "TAKING"), and the Taking would prevent or
materially interfere with the use of the Premises for the purpose for which they
are being used, this Lease shall terminate effective when the physical Taking of
the Premises shall occur.
15.2 PARTIAL TAKING. If part of the Premises shall be subject to a
Taking and this Lease is not terminated as provided in the Paragraph 15.1 above,
this Lease shall not terminate but the Rent payable hereunder during the
unexpired portion of this Lease shall be reduced in proportion to the area of
the Premises rendered unusable by Tenant.
15.3 CONDEMNATION AWARD. The entire award or compensation for any Taking
of the Project and/or the Premises, or any part thereof, or for diminution in
value, shall be the property of Landlord, and Tenant hereby assigns its interest
in any such award to Landlord; provided, however, Landlord shall have no
interest in any separate award made to Tenant for loss of business, for
relocation purposes, or for the taking of Tenant's fixtures and improvements.
15.4 EXCLUSIVE REMEDY. This Paragraph 15 shall be Tenant's sole and
exclusive remedy in the event of any Taking. Tenant hereby waives the benefits
of California Code of Civil Procedure Section 1265.130 or any other statute
granting Tenant specific rights in the event of a Taking which are contrary to
the provisions of this Paragraph 15.
16. SURRENDER AND HOLDING OVER.
16.1 SURRENDER. Upon the expiration or sooner termination of this Lease,
Tenant shall surrender the Premises in as good condition as when received,
reasonable wear and tear excepted, broom clean and free of trash and rubbish,
and free from all tenancies or occupancies by any person. Subject to Landlord's
rights under Paragraph 19.8, Tenant shall remove all trade fixtures, furniture,
equipment and other personal property installed in the Premises prior to the
expiration or earlier termination of this Lease. Provided that Landlord has
notified Tenant at the time that Landlord issued its consent to such alterations
that Landlord shall require their removal upon the expiration or earlier
termination of this Lease, unless otherwise provided in Paragraph 7 or waived by
Landlord in writing prior to the expiration or earlier termination of this
Lease, Tenant shall remove at its sole cost all alterations, additions and
improvements made by Tenant to the Premises. Alterations, additions and
improvements remaining on the Premises at the expiration or earlier termination
of this Lease shall become the property of Landlord. Tenant shall, at its own
cost, completely repair any and all damage to the Premises and the Building
resulting from or caused by such removal. The provisions of Paragraph 7 shall
apply to such removal and repair work.
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16.2 HOLDING OVER. If Landlord agrees in writing that Tenant may hold
over after the expiration or earlier termination of this Lease, unless the
parties hereto otherwise agree in writing as to the terms of such holding over,
the holdover tenancy shall be subject to termination by Landlord or Tenant at
any time upon not less than thirty (30) days' prior written notice. If Tenant
holds over without the consent of Landlord, the same shall be a tenancy at will
terminable at any time, and Tenant shall be liable to Landlord for, and Tenant
shall indemnify, protect, defend and hold Landlord harmless from and against,
any damages, liabilities, losses, costs, expenses or claims suffered or caused
by such holdover, including damages and costs related to any successor tenant of
the Premises to whom Landlord could not deliver possession of the Premises when
promised. All of the other terms and provisions of this Lease shall be
applicable during any holdover period, with or without consent, except that
Tenant shall pay to Landlord from time to time upon demand, as Rent for the
period of any holdover, an amount equal to one hundred fifty percent (1500%) of
the then applicable Base Rent plus all Additional Rent in effect on the
termination date, computed on a daily basis for each day of the holdover period.
No holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease. The preceding provisions of this Paragraph 16.2
shall not be construed as Landlord's consent to any holding over by Tenant.
16.3 ENTRY AT END OF TERM. If during the last month of the Term, Tenant
shall have removed substantially all of Tenant's property and personnel from the
Premises, Landlord may enter the Premises and repair, alter and redecorate the
same, without abatement of Rent and without liability to Tenant, and such acts
shall have no effect on this Lease. In the event Tenant shall vacate the
Premises more than one (1) month prior to the expiration of the Term, Tenant
shall give written notice to Landlord at least thirty (30) days prior to
vacating the Premises and shall arrange to meet with Landlord for a joint
inspection of the Premises prior to vacating. In the event of Tenant's failure
to give such notice or arrange such joint inspection, Landlord's inspection at
or after Tenant's vacation of the Premises shall be conclusively deemed correct
for purposes of determining Tenant's responsibility for repairs and restoration.
17. QUIET ENJOYMENT.
Landlord represents and warrants that it has full rights and
authority to enter into this Lease and that Tenant, upon paying the Rent and
performing its other covenants and agreements herein set forth, shall peaceably
and quietly have, hold and enjoy the Premises for the Term without hindrance or
molestation from Landlord, subject to the terms and provisions of this Lease,
any ground lease, any mortgage or deed of trust now or hereafter encumbering the
Premises or the Project, and all matters of record.
18. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default
by Tenant under this Lease:
18.1 FAILURE TO PAY RENT. Tenant shall fail to pay any installment of
the Rent herein reserved within five (5) days following Landlord's delivery of
written notice to Tenant of Tenant's failure to pay Rent (or any other payment
or reimbursement to Landlord required herein) when due.
18.2 INSOLVENCY. Tenant or any guarantor of Tenant's obligations
hereunder shall admit in writing the inability to pay its debts or shall make a
general assignment for the benefit of creditors.
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18.3 APPOINTMENT OF RECEIVER. A receiver or trustee (or similar
official) shall be appointed for all or substantially all of the assets of
Tenant.
18.4 BANKRUPTCY. The filing of any voluntary petition by Tenant under
the Bankruptcy Code, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of sixty
(60) days.
18.5 ATTACHMENT. The attachment, execution or other judicial seizure or
non-judicial seizure of all or substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
ten (10) business days after the levy thereof.
18.6 VACATION OF PREMISES. Tenant shall abandon all or a substantial
portion of the Premises, while Tenant is in default of the Rent or other charges
due under this Lease.
18.7 CERTIFICATES. Tenant shall fail to deliver to Landlord any
subordination agreement within the time limit prescribed in Paragraph 21 below,
or a Certificate of Occupancy, all financial statements or an estoppel
certificate within the time limits prescribed in Paragraph 22.7 below.
18.8 FAILURE TO DISCHARGE LIENS. Tenant shall fail to discharge any lien
placed upon the Premises in violation of Paragraph 8 hereof and such failure
shall continue for a period of five (5) business days following written notice
thereof from Landlord to Tenant.
18.9 FALSE FINANCIAL STATEMENT. Landlord discovers that any financial
statement given to Landlord by Tenant, or successor in interest of Tenant, or
any guarantor of Tenant's obligations hereunder, or any of them, was materially
false when given to Landlord.
18.10 FAILURE TO COMPLY WITH LEASE TERMS. Tenant shall fail to comply
with any other term, provision or covenant of this Lease, and shall not cure
such failure within thirty (30) days after written notice thereof to Tenant;
provided, however, if the nature of Tenant's obligation is such that it is not
susceptible to cure within said thirty (30) day period, then Tenant shall not be
in default if Tenant commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
18.11 GUARANTOR DEFAULT. Any guarantor of Tenant's obligations hereunder
shall be in default under the terms of its guaranty.
19. LANDLORD'S REMEDIES.
Upon the occurrence of any event of default, Landlord may, at its option
without further notice or demand and in addition to any other rights and
remedies hereunder or at law or in equity, do any or all of the following:
19.1 TERMINATION. Terminate Tenant's right to possession of the Premises
by any lawful means upon at least 3 days' written notice (which notice may be
satisfied by any notice which may be given by Landlord pursuant to Paragraph 18,
if applicable), in which case Tenant shall immediately surrender possession of
the Premises to Landlord and, in addition to any rights and remedies Landlord
may have at law or in equity, Landlord shall have the following rights:
(a) To re-enter the Premises then or at any time thereafter and
remove all persons and property and possess the Premises, without
prejudice to any other remedies Landlord may have by reason of
Tenant's
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default or of such termination, and Tenant shall have no further
claim hereunder.
(b) To recover all damages incurred by Landlord by reason of the
default, including without limitation (i) the worth at the time of
the award of the payments owed by Tenant to Landlord under this
Lease that were earned but unpaid at the time of termination; (ii)
the worth at the time of the award of the amount by which the
payments owed by Tenant to Landlord under the Lease that would have
been earned after the date of termination until the time of the
award exceeds the amount of the loss of payments owed by Tenant to
Landlord under this Lease for the same period that Tenant proves
could have been reasonably avoided; (iii) the worth at the time of
the award of the amount by which the payments owed by Tenant to
Landlord for the balance of the Term after the time of the award
exceeds the amount of the loss of payments owed by Tenant for the
same period that Tenant proves could have been reasonably avoided;
(iv) all costs incurred by Landlord in retaking possession of the
Premises and restoring them to good order and condition; (v) all
costs, including without limitation brokerage commissions,
advertising costs and restoration and remodeling costs, incurred by
Landlord in reletting the Premises; plus (vi) any other amount,
including without limitation attorneys' fees and audit expenses,
necessary to compensate Landlord for all detriment proximately
caused by Tenant's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to
result therefrom. "The worth at the time of the award," as used in
clauses (i) and (ii) of this paragraph, is to be determined by
computing interest as to each unpaid payment owed by Tenant to
Landlord under the Lease, at the greater of (A) ten percent (10%),
or (B) two hundred basis points plus the "prime rate" (as most
recently published in the Wall Street Journal) (but not to exceed
the maximum rate permitted by law). "The worth at the time of the
award," as referred to in clause (iii) of this paragraph, is to be
determined by discounting such amount, as of the time of award, at
the discount rate of the San Francisco Federal Reserve Bank, plus
1%.
(C) To remove, at Tenant's sole risk, any and all personal property
in the Premises and place such in a public or private warehouse or
elsewhere at the sole cost and expense and in the name of Tenant.
Any such warehouser shall have all of the rights and remedies
provided by law against Tenant as owner of such property. If Tenant
shall not pay the cost of such storage within thirty (30) days
following Landlord's demand, Landlord may, subject to the provisions
of applicable law, sell any or all such property at a public or
private sale in such manner and at such times and places as Landlord
deems proper, without notice to or demand upon Tenant. Tenant
waives all claims for damages caused by Landlord's removal, storage
or sale of the property and shall indemnify and hold Landlord free
and harmless from and against any and all loss, cost and damage,
including without limitation court costs and attorneys, fees.
19.2 CONTINUATION OF LEASE. Maintain Tenant's right to possession, in
which case this Lease shall continue in effect whether or not Tenant shall have
abandoned the Premises. In such event, Landlord may enforce all of Landlord's
rights and remedies under this Lease, including the right to recover rent as it
becomes due hereunder, and, at Landlord's election, to re-enter
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and relet the Premises on such terms and conditions as Landlord deems
appropriate. without limiting the generality of the foregoing, Landlord shall
have the remedy described in California Civil Code Section 1951.4 (lessor may
continue lease in effect after lessee's breach and abandonment and recover rent
as it becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitations). If Landlord relets the Premises or any portion thereof,
any rent collected shall be applied against amounts due from Tenant. Landlord
may execute any lease made pursuant hereto in its own name, and Tenant shall
have no right to collect any such rent or other proceeds. Landlord's re-entry
and/or reletting of the Premises or any other acts, shall not be deemed an
acceptance of surrender of the Premises or Tenant's interest therein, a
termination of this Lease or a waiver or release of Tenant's obligations
hereunder. Landlord shall have the same rights with respect to Tenant's
improvements and personal property as under Paragraph 19.1 above, even though
such re-entry and/or reletting do not constitute acceptance of surrender of the
Premises or termination of this Lease.
19.3 APPOINTMENT OF RECEIVER. Cause a receiver to be appointed in any
action against Tenant and to cause such receiver to take possession of the
Premises and to collect the rents or bonus rent derived therefrom. The
foregoing shall not constitute an election by Landlord to terminate this Lease
unless specific notice of such intent is given.
19.4 LATE CHARGE. Charge late charges as provided in Paragraph 2.7.
19.5 INTEREST. Charge interest on any amount not paid when due as
provided in Paragraph 22.2. Interest shall accrue from the date funds are first
due or, if the payment is for funds expended by Landlord on Tenant's behalf,
from the date Landlord expends such funds.
19.6 ATTORNEYS' FEES. Collect, upon demand, all reasonable attorneys,
fees and expenses incurred by Landlord in enforcing its rights and remedies
hereunder.
19.7 INJUNCTION. To restrain by injunction or other equitable means any
breach or anticipated breach of this Lease.
20. TENANT'S REMEDIES.
20.1 LANDLORD'S DEFAULT. Landlord shall not be in default under this
Lease unless Landlord fails to perform obligations required of Landlord within
forty-five (45) days after written notice is delivered by Tenant to Landlord and
to the holder of any mortgages or deeds of trust (collectively, "LENDER")
covering the Premises whose name and address shall have theretofore been
furnished to Tenant in writing, specifying the obligation which Landlord has
failed to perform; provided, however, that if the nature of Landlord's
obligation is such that more than forty-five (45) days are required for
performance, then Landlord shall not be in default if Landlord or Lender
commences performance within such forty-five (45) day period and thereafter
diligently prosecutes the same to completion. All obligations of Landlord
hereunder shall be construed as covenants, not conditions.
20.2 TENANT'S REMEDIES. In the event of any default, breach or violation
of Tenant's rights under this Lease by Landlord, Tenant's exclusive remedies
shall be an action for specific performance or action for damages. Tenant
hereby waives the benefit of any laws granting it the right to perform
Landlord's obligation, a lien upon the property of Landlord and/or upon Rent due
Landlord, or the right to terminate this Lease or withhold Rent on account of
any Landlord default. Notwithstanding the foregoing provisions of this
paragraph 20.2, if Landlord has failed to make any repair, provide any
improvement or perform any other obligation required of Landlord hereunder,
within the forty (45) day period provided for in
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paragraph 20.1 (or such shorter period of time as is reasonable in light of the
circumstances), then five (5) business days following Landlord's receipt of a
new written notice from Tenant stating that such failure remains uncured (and
provided that such cure has not yet performed), Tenant shall be entitled to
cause the same to be performed and Landlord shall reimburse Tenant for the
reasonable cost thereof, within thirty (30) days following presentation to
Landlord of copies of paid invoices for all such work. Notwithstanding anything
to the contrary set forth herein, Tenant may not make any repairs to, or perform
any other work affecting, the structural integrity, external appearance or
plumbing, electrical, heating, ventilating or air conditioning systems of the
Premises.
20.3 NON-RECOURSE. Notwithstanding anything to the contrary in this
Lease, any judgment obtained by Tenant or any of Tenant's Parties against
Landlord or any Indemnified Parties shall be satisfied only out of Landlord's
interest in the Building and the legal parcel of land on which it sits. Neither
Landlord nor any Indemnified Parties shall have any personal liability for any
matter in connection with this Lease or its obligations as Landlord of the
Premises, except as provided above. Tenant shall not institute, seek or enforce
any personal or deficiency judgment against Landlord or any Indemnified Parties,
and none of their property shall be available to satisfy any judgment hereunder,
except as provided in this Paragraph 20.3.
20.4 SALE OF PREMISES. In the event of any sale or transfer of the
Premises (and provided that any security deposit held by the seller, transferor
or assignor (collectively, "Seller") is delivered or credited to the purchaser,
transferee or assignee (collectively, "Purchaser"), the Seller shall be and
hereby is entirely freed and relieved of all agreements, covenants and
obligations of Landlord thereafter to be performed and it shall be deemed and
construed without further agreement between the parties or their successors in
interest or between the Seller and the Purchaser on any such sale, transfer or
assignment that such Purchaser has assumed and agreed to carry out any and all
agreements, covenants and obligations of Landlord hereunder arising thereafter.
21. MORTGAGES.
Tenant accepts this Lease subject and subordinate to any ground lease,
mortgage and/or deed of trust now or at any time hereafter constituting a
lien or encumbrance upon the Premises. Notwithstanding any such
subordination, Tenant's right to quiet possession of the Premises shall not
be disturbed if Tenant is not in default and so long as Tenant shall pay the
Rent and observe and perform all of its obligations hereunder, unless this
Lease is otherwise terminated pursuant to its terms. If any ground lessor,
mortgagee or beneficiary under a deed of trust elects to have Tenant's
interest in this Lease superior to any such instrument, then by notice to
Tenant from such ground lessor, mortgagee or beneficiary, this Lease shall be
deemed superior to such ground lease or lien, whether this Lease was executed
before or after said ground lease, mortgage or deed of trust. Tenant shall
at any time hereafter on demand execute any instruments, releases or other
documents which may be required lay any ground lessor or mortgagee for the
purpose of attornment or subjecting and subordinating this Lease to any
ground lease or the lien of any such mortgage. Tenant's failure to execute
each instrument, release or document within ten (10) days after written
demand shall constitute an event of default by Tenant hereunder without
further notice to Tenant.
Within one hundred eighty (180) days following the Commencement Date,
Landlord shall deliver a written request to the current mortgagee(s) of the
Project wherein Landlord shall request a nondisturbance agreement with respect
to this Lease on such mortgagee's standard form. Notwithstanding the foregoing,
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Tenant hereby acknowledges that Landlord shall have no obligation to obtain any
such non-disturbance agreement, and Tenant's obligations under this Lease are
not in any way conditioned upon Landlord's obtaining any nondisturbance
agreement.
22. GENERAL PROVISIONS.
22.1 SINGULAR AND PLURAL. Words of any gender used in this Lease shall
be held and construed to include any other gender, and words in the singular
number shall be held to include the plural, unless the context otherwise
requires.
22.2 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided to the contrary, any amount due to Landlord not paid when due shall
bear interest at the greater of (i) ten percent (10%), or (ii) two hundred
basis points plus the "prime rate" as most recently published in the Wall Street
Journal (but not to exceed the maximum rate then allowable by law) from the date
due. Payment of such interest shall not excuse or cure any default by Tenant
under this Lease, provided, however, that interest shall not be payable on late
charges incurred by Tenant.
22.3 TIME OF ESSENCE. Time is of the essence.
22.4 BINDING EFFECT. The terms, provisions and covenants and conditions
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon, the parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly provided.
22.5 CHOICE OF LAW. This Lease shall be governed by the laws of the
State of California applicable to contracts made and to be performed in such
state.
22.6 CAPTIONS. The captions inserted in this Lease are for convenience
only and in no way define, limit or otherwise describe the scope or intent of
this Lease, or any provision hereof, or in any way affect the interpretation of
this Lease.
22.7 CERTIFICATES. Tenant agrees from time to time within ten (10) days
after request of Landlord, to deliver to Landlord, or Landlord's designee, a
Certificate of Occupancy for work performed by Tenant or Tenant's Parties in the
Premises, annual financial statements for each of the previous three (3) fiscal
years of Tenant, and an estoppel certificate stating that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect), the date to which Rent has been paid, the unexpired Term of
this Lease and such other matters pertaining to this Lease as may be requested
by Landlord or Landlord's designee. Any such certificate may be conclusively
relied upon by Landlord or Landlord's designee. At Landlord's option, Tenant's
failure to timely deliver such certificate shall be an event of default by
Tenant or it shall be conclusive upon Tenant that this Lease is in full force
and effect, without modification except as may be represented by Landlord, that
there are no uncured defaults in Landlord's performance, and that not more than
one (1) month's rent has been paid in advance.
22.8 AMENDMENTS. This Lease may not be altered, changed or amended
except by an instrument in writing signed and dated by both parties hereto.
Tenant agrees to make such reasonable modifications to this Lease as may be
required by any lender in connection with the obtaining of financing or
refinancing of the Project or any portion thereof, provided such modifications
do not materially and adversely affect Tenant's rights under this Lease.
22.9 ENTIRE AGREEMENT. This Lease constitutes the entire understanding
and agreement of Landlord and Tenant with respect
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to the subject matter of this Lease, and contains all of the covenants and
agreements of Landlord and Tenant with respect thereto, and supersedes all prior
agreements or understandings. Landlord and Tenant each acknowledge that no
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations not expressly set forth in this Lease are of no
force or effect.
22.10 WAIVERS. The waiver by Landlord or Tenant of any term, covenant,
agreement or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant, agreement or
condition herein contained, nor shall any custom or practice which may arise
between the parties in the administration of this Lease be construed to waive or
lessen the right of Landlord or Tenant to insist upon the performance by the
other in strict accordance with all of the provisions of this Lease. The
subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any provisions, covenant, agreement
or condition of this Lease, other than the failure of Tenant to pay the
particular Rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.
22.11 ATTORNEYS' FEES. If either Landlord or Tenant commences or engages
in, or threatens to commence or engage in, an action by or against the other
party arising out of or in connection with this Lease or the Premises, including
but not limited to any action for recovery of Rent due and unpaid, to recover
possession or for damages for breach of this Lease, the prevailing party shall
be entitled to have and recover from the losing party reasonable attorneys' fees
and other costs incurred in connection with the action, preparation for such
action, any appeals relating thereto and enforcing any judgments rendered in
connection therewith.
22.12 MERGER. The voluntary or other surrender of this Lease by Tenant or
a mutual cancellation hereof shall not constitute a merger. Such event shall,
at the option of Landlord, either terminate all or any existing subtenancies or
operate as an assignment to Landlord of any or all of such subtenancies.
22.13 SURVIVAL OF OBLIGATIONS. Paragraphs 2, 3.2, 4.2, 5.2, 8, 12.1,
12.5, 15.3, 16, 19, 20 and 22 and all obligations of Tenant hereunder not fully
performed as of the expiration or earlier termination of the Term shall survive
the expiration or earlier termination of the Term, including without limitation,
all payment obligations with respect to Rent and all obligations concerning the
condition of the Premises. Upon the expiration or earlier termination of the
Term, and prior to Tenant vacating the Premises, Tenant shall pay to Landlord
any amount reasonably estimated by Landlord (i) as necessary to perform Tenant's
duties under paragraphs 6.1 and 16.1 and put the Premises, including without
limitation, all heating and air conditioning systems and equipment therein (to
the extent of any deterioration as a result of Tenant's failure to maintain such
system in accordance with Paragraph 6.2), in good condition and repair, and (ii)
as sufficient to meet Tenant's obligation hereunder for prorated Additional Rent
for the year in which the Lease expires or terminates. All such amounts shall
be used and held by Landlord for payment of such obligations, with Tenant being
liable for any additional costs therefor upon demand by Landlord, or with any
excess to be returned to Tenant after all such obligations have been determined
and satisfied as the case may be. Any Security Deposit held by Landlord shall
be credited against the amounts payable by Tenant under this Paragraph 22.13.
22.14 SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or
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future laws effective during the Term, the remainder of this Lease shall not be
affected thereby, and in lieu of each clause or provision of this Lease that is
illegal, invalid or unenforceable, there shall be added as a part of this Lease
a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
22.15 SECURITY MEASURES. Tenant hereby acknowledges that the Rent payable
to Landlord hereunder does not include the cost of guard service or other
security measures, and that Landlord shall have no obligation whatsoever to
provide same. Tenant assumes all responsibility for the protection of Tenant,
Tenants' Parties and their property from acts of third parties.
22.16 EASEMENTS. Landlord reserves to itself the right, from time to
time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of parcel maps, easement
agreements and covenants, conditions and restrictions, so long as such
easements, rights, dedications, maps and covenants, conditions and restrictions
do not unreasonably interfere with the permitted use of the Premises by Tenant.
Tenant shall sign any of the aforementioned documents upon request of Landlord
and failure to do so shall constitute a material breach of this Lease.
22.17 MULTIPLE PARTIES. If more than one person or entity is named as
Tenant herein, the obligations of Tenant hereunder shall be the joint and
several responsibility of all persons or entities so named.
22.18 CONFLICT. Any conflict between the printed provisions of this Lease
and any typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
22.19 NO THIRD PARTY BENEFICIARIES. This Lease is not intended by either
party to confer any benefit on any third party, including without limitations
any broker, finder, or brokerage firm.
22.20 EFFECTIVE DATE/NONBINDING OFFER. Submission of this Lease for
examination or signature by Tenant does not constitute an offer or option for
lease, and it is not effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant.
22.21 NOTICES. Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by one party to the other shall be deemed to be complied with when and if the
following steps are taken:
(a) All Rent and other payments required to be made hereunder shall
be payable to the applicable party hereto as follows: to Landlord at the address
set forth in Item 12 of the Basic Lease Provisions, and to Tenant at the
Premises, or at such other addresses as the parties may have hereafter specified
by written notice. All obligations to pay Rent and/or any other amounts under
the terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by the respective party.
(b) Wherever any notice is required or permitted hereunder, such
notice shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered (i) upon personal delivery;
(ii) seventy-two (72) hours after deposit thereof in the United States mail,
postage prepaid, certified or registered mail, return receipt requested; (iii)
upon confirmation of delivery by Federal Express or other reputable overnight
delivery service; or (iv) upon
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written confirmation of delivery by telegraph, telecopy or other electronic
written transmission device; correctly addressed to the parties hereto as
follows: if to Tenant before the Commencement Date, then at the address
specified in Item 11 of the Basic Lease Provisions; if to Tenant after the
Commencement Date, then at the Premises; and if to Landlord, then at the address
specified in Item 12 of the Basic Lease Provisions; or at such other address
(but no more than one (1) address at a time, except as provided in Paragraph
20.1) as the recipient may theretofore have specified by written notice.
22.22 WATER, OIL AND MINERAL RIGHTS. Landlord reserves all right, title
or interest in water, oil, gas or other hydrocarbons, other mineral rights and
air and development rights, together with the sole and exclusive right of
Landlord to sell, lease, assign or otherwise transfer the same, but without any
right of Landlord or any such transferee to enter upon the Premises during the
Term except as otherwise provided herein.
22.23 INTENTIONALLY OMITTED.
22.24 BROKER'S FEES. Tenant represents and warrants that it has dealt
with no broker, agent or other person in connection with this transaction and
that no broker, agent or other person brought about this transaction, other
than the brokerage firm specified in Item 13 of the Basic Lease Provisions,
if any, and Tenant shall indemnify, defend, protect and hold Landlord
harmless from and against any claims, losses, liabilities, demands, costs,
expenses or causes of action by any other broker, agent or other person
claiming a commission or other form of compensation by virtue of having dealt
with Tenant with regard to this leasing transaction.
22.25 REMEDIES CUMULATIVE. All rights, privileges and remedies of the
parties are cumulative and not alternative or exclusive to the extent permitted
by law, except as otherwise provided herein.
22.26 RETURN OF CHECK. If Tenant's check, given to Landlord in payment of
any sum, is returned by the bank for nonpayment, Tenant shall pay to Landlord
immediately on demand, as Additional Rent, all expenses incurred by Landlord as
a result thereof.
22.27 NO RECORDATION OF LEASE. Neither this Lease nor any memorandum
hereof may be recorded.
22.28 AUTHORITY. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of such entity represents and warrants
that he or she is duly authorized to execute and deliver this Lease. Tenant
shall, within thirty (30) days following execution of this Lease, deliver to
Landlord evidence of such authority satisfactory to Landlord.
22.29 INTERPRETATION. This Lease shall be construed fairly according to
its terms without regard to which party, or which party's attorneys, prepared
its form.
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22.30 INTENTIONALLY OMITTED.
22.31 ADDITIONAL PROVISIONS. Those additional provisions set forth in
EXHIBIT "E", if any, are hereby incorporated by this reference as if fully set
forth herein.
LANDLORD: TENANT:
NEWCROW III, a California OSP PUBLISHING, INC., a
joint venture California corporation
By: Crow Los Angeles #8, a
Texas limited partnership By: /s/Joseph Angard
-------------------------
Its: Chairman
--------------------
By: /s/Richard B. Putnam
------------------------- By:
Richard B. Putnam -------------------------
Authorized Agent Its:
--------------------
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EXHIBIT "A"
[DRAWING OF BUILDING]
<PAGE>
EXHIBIT "B"
WORK LETTER AND CONSTRUCTION AGREEMENT
(Landlord to Construct Improvements)
1. TENANT'S IMPROVEMENTS.
Except as set forth herein, Tenant accepts the Premises and existing
improvements therein in their "as is" condition. Landlord shall furnish and
install within the Premises those items of general construction, but not
personal property or trade fixtures (the "Tenant Improvements"), shown on the
plans and specifications finally approved by Landlord and Tenant, pursuant to
Paragraph 2 below in compliance with all applicable codes and regulations. All
Tenant Improvements shall be constructed pursuant to this Work Letter and shall
be performed by Landlord's general contractor utilizing those subcontractors
selected by Landlord in accordance with this Work Letter; provided, however,
Tenant shall have the right within five (5) days following Landlord's request
therefor to designate an additional general contractor (such designated
contractor being subject to Landlord's approval, which approval shall not be
unreasonably withheld) to submit a bid for the Tenant Improvements project.
Landlord agrees to bid the Tenant Improvements project to a minimum of three (3)
general contractors (in addition to the general contractor designated by Tenant)
and Landlord shall then select the most cost-effective contractor, after
consulting with Tenant with respect to all final bids.
2. PLANS AND SPECIFICATIONS FOR IMPROVEMENTS.
2.1 Tenant shall retain a licensed architect of its choice, subject to
Landlord's reasonable approval, to prepare the plans and specifications
described hereinafter for the Tenant Improvements. The plans and specifications
shall be subject to Landlord's approval, which approval shall not be
unreasonably withheld or delayed.
2.2 Within ten (10) days following the date of execution of the Lease by
Tenant, Tenant shall cause its architect to furnish to Landlord for Landlord's
approval space plans sufficient to convey the architectural design of the
Premises, including, without limitation, the location of doors, partitions,
electrical and telephone outlets, plumbing fixtures, heavy floor loads and other
special requirements (collectively, the "Space Plan"). If required by Landlord,
Tenant's architect shall consult with Landlord's engineer in preparing the Space
Plan, and incorporate such engineer's requirements into the Space Plan. The
fees of such engineer shall be a Cost of Tenant Improvements (as hereafter
defined). If Landlord fails to disapprove the Space Plan within the ten (10)
day period following its receipt of the Space Plan, the Space Plan shall be
deemed approved. If Landlord shall disapprove of any portion of the Space Plan
within such ten (10) day period, Landlord shall advise Tenant of the reasons
therefor and shall notify Tenant of the revisions to the Space Plan that are
reasonably required by Landlord for the purpose of obtaining approval. Tenant
shall within seven (7) days submit to Landlord, for Landlord's approval, a
redesign of the Space Plan, incorporating the revisions required by Landlord.
If the redesign of the Space Plan is not approved by Landlord within ten (10)
days following Landlord's receipt of same, then the period from the date of
Landlord's disapproval of such redesign until the date Landlord approves a
subsequent redesign shall be deemed "Tenant Delay" (as hereinafter defined).
2.3 Tenant shall cause its architect to prepare from Tenant's approved
Space Plan, complete architectural plans, drawings and specifications within ten
(10) business days after Landlord approves the Space Plan. Such complete plans,
drawings and specifications are referred to herein as the "Plans". Tenant's
Plans shall (i) be compatible with the Building shell
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<PAGE>
and with the design, construction and equipment of the Building; (ii) comply
with all applicable laws and ordinances, and the rules and regulations of all
governmental authorities having jurisdiction; (iii) comply with all applicable
insurance regulations; and (iv) be consistent with the approved Space Plan.
Tenant shall submit the Plans for the approval of Landlord in the same manner as
provided in Subparagraph 2.2 above for approval by Landlord of Tenant's Space
Plan.
2.4 Tenant shall cause its architect to provide documentation for all
changes to the Plans at the time each change is authorized for construction,
pursuant to the requirements of Paragraph 6. At the conclusion of construction,
Tenant shall cause its architect to update Tenant's plans and specifications as
necessary to reflect all changes to the Plans during the course of construction
and to issue a set of sepias to the contractor for its review and mark up.
Tenant shall cause its architect to review and certify the contractor's marked
up plans and provide to Landlord's designated construction representative a
"record set" of as-built sepias within thirty (30) days following completion of
the Tenant Improvements. Landlord shall have no liability to Tenant or to any
other person for errors or omissions in the Plans, Landlord's review being for
Landlord's own purposes. Tenant shall rely solely on the advice and experience
of Tenant's architect in assuring the accuracy and sufficiency of the Plans for
Tenant's purposes.
3. NON-STANDARD TENANT IMPROVEMENTS.
3.1 Subject to obtaining Landlord's prior written consent, which consent
shall not be unreasonably withheld or delayed, Tenant may specify non-standard
floor covering and wall finishes. Such non-standard floor covering and wall
finish deviations shall not be of a lesser quality than Landlord's standard such
improvements.
3.2 Landlord shall not be required to approve any non-standard finishes
that do not conform to applicable government regulations or are disapproved by
any governmental agency.
4. BUILDING SHELL CHANGES.
If the Plans or any amendment thereof or supplement thereto shall require
changes in the Building shell, the cost of the Building shell work caused by
such Plans, amendment or supplement, shall be charged against Tenant. The
preceding sentence shall not be construed as requiring that Landlord must
approve any Plans which specify changes in the Building shell. If Building
shell work is permitted by Landlord, the cost thereof shall include all
architectural and/or engineering fees and expenses in connection therewith, as
well as compensation to Landlord for the costs of any delays which arise from
such changes (which delays shall also constitute Tenant Delay). Landlord shall,
at its sole cost and expense, repair any defects in the initial construction of
the Building shell, and comply with any requirements imposed by any governmental
agency pertaining to the Building shell, unless such requirements arise out of
laws, codes or ordinances enacted or effective after the Commencement Date, or
out of the Tenant Improvements to the Premises or Tenant's use of the Premises.
5. LEASEHOLD IMPROVEMENT APPROVAL AND COST.
5.1 Landlord's general contractor will be entitled to a contractor's
fee and general conditions fee (not to exceed the current market rate for
such fees. Upon receipt of the selected general contractor's cost of
construction, Landlord shall provide Tenant with a detailed breakdown of the
cost of furnishing and installing the Tenant Improvements, including, without
limitation: the cost of constructing standard and non-standard improvements;
the cost of preparing engineering plans; governmental agency plan check,
permit and other fees; sales and
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<PAGE>
use taxes; Title 24 fees; all other costs to be expended by Tenant in the
construction of the Tenant Improvements; and a Landlord's administration fee of
five percent (5%) of the cost of the Tenant Improvements (collectively, the
"Cost of Tenant Improvements") (such five percent (5%) fee to be based on five
percent (5%) of the Excess Cost of Tenant Improvements [defined below]). The
Cost of Tenant Improvements may include expenses and "soft costs" incurred by
Tenant, such as the fees of Tenant's architect. Tenant shall approve in writing
the estimated cost of Tenant Improvements within five (5) days following its
receipt of same. No construction of Tenant Improvements shall commence until
such approval is received by Landlord. At Landlord's election, any delay by
Tenant in giving such approval shall constitute Tenant Delay.
5.2 Landlord shall establish an allowance (the "Tenant Improvement
Allowance") of One Hundred Thousand and 00/100 Dollars ($100,000.00), which
Tenant Improvement Allowance shall be used by Landlord solely for the design and
installation of the Tenant Improvements. Tenant shall have the right to use the
Tenant Improvement Allowance for any improvements described in the approved
Plans. In no event shall the Tenant Improvement Allowance be used to pay for
costs of Tenant's furniture or other personal property, which shall be paid for
by Tenant at its sole cost and expense. If the Cost of Tenant Improvements
exceeds the Tenant Improvement Allowance ("Excess Cost of Tenant Improvements"),
prior to commencement of construction, Tenant shall deposit with Landlord, in
cash, the amount of such Excess Cost of Tenant Improvements to be disbursed by
Landlord following full disbursement of the Tenant Improvement Allowance, and
the balance, if any, to be returned to Tenant, without interest, following
completion of the Tenant Improvements.
5.3 If the Cost of Tenant Improvements increases due to the requirements
of any governmental agency subsequent to Landlord's approval of the bids
pursuant to Paragraph 5.1, or for any other reason, Tenant shall pay to Landlord
the amount of any such increase within twenty (20) days after receipt of notice
of such cost increases; provided, however, that Landlord shall absorb its pro-
rata share, if any, of any increase to the extent of any remaining balance in
the Tenant Improvement Allowance.
5.4 Subject to the terms of Paragraph 16.1 of the Lease, all of the
Tenant Improvements, whether or not the cost thereof is covered by the Tenant
Improvement Allowance, shall become the property of Landlord upon expiration or
earlier termination of the Lease and shall remain on the Premises at all times
during the Term.
6. TENANT CHANGES.
Tenant may request a change, addition or alteration in the Tenant
Improvements as shown by the Plans after Landlord's final approval of such Plans
(a "Change Order") by delivery of a written request to Landlord for its approval
and for the general contractor's determination of (i) the increase in the cost
of work to implement the Change Order, and (ii) the estimated delay, if any, in
the construction of the Tenant Improvements occasioned by the Change Order.
Tenant's architect shall complete all working drawings necessary to show the
change, addition or alteration, and a Change Order in form satisfactory to
Landlord. Following its approval of the Change Order and any delays in
construction occasioned by the Change Order, Landlord shall deliver to Tenant
its written approval of the Change Order and authorization to proceed with the
work as shown by the Change Order, conditioned upon payment by Tenant to
Landlord, in advance and in full, of any cost increase occasioned thereby.
Landlord may decline any proposed Change Order if the change is inconsistent
with the provisions of any of paragraphs 1 through 5 above. Any delay caused by
work stoppage pending Landlord's approval of a Change Order or payment by Tenant
of any cost increase shall constitute Tenant Delay.
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<PAGE>
7. CONSTRUCTION OF TENANT IMPROVEMENTS.
7.1 Upon approval by Landlord of the Plans and Cost of the Tenant
Improvements, the general contractor shall proceed to secure a building permit
and commence construction.
7.2 The construction of Tenant Improvements shall be subject to the
following:
(i) As part of the Cost of the Tenant Improvements to be paid by
Tenant (subject to Landlord's contribution of the Tenant
Improvement Allowance), Tenant shall reimburse Landlord for all
costs directly or indirectly related to the Tenant Improvements,
including, without limitation: costs of site services, facilities
and utilities (such as trash removal, use of vertical
transportation, electrical service, etc.); costs of remedying
deficient or faulty work or inadequate clean-up done by Tenant or
its contractor(s); and costs incurred by reason of delays caused
by such work.
(ii) All Tenant Improvements shall be installed only under the
supervision of Landlord or its designated agent, and Tenant shall
pay to Landlord an administration fee in the amount of five
percent (5%) as described in Paragraph 5 above, which cost may
be paid out of the Tenant Improvement Allowance.
7.3 "Tenant Delay" shall include, without limitation, any delay in the
completion of construction of Tenant Improvements resulting from (i) Tenant's
failure to comply with the provisions of this Work Letter and Construction
Agreement or the Lease, including without limitation Tenant's failure to meet
any time deadlines established herein, (ii) any additional time as reasonably
determined by Landlord required for ordering, receiving, fabricating and/or
installing items of materials or other components of the construction of Tenant
Improvements, including, without limitation, mill work, which are not used in
the construction of Tenant Improvements in accordance with Landlord's building
standards and which causes a delay in the Substantial Completion of the Tenant
Improvements beyond the time when such improvements would otherwise be completed
if constructed in accordance with the standards used in the remainder of the
Building, (iii) delay in work caused by submission by Tenant of a request for
any Change Order following Landlord's approval of the Plans, (iv) any additional
time, as reasonably determined by Landlord, required for implementation of any
Change Order with respect to the Tenant Improvements, (v) any changes in the
Building Shell, or (vi) any other delay arising from the act or omission of
Tenant or Tenant's Parties. If there shall be any Tenant Delay, then Landlord
may require Tenant to commence the payment of Rent under the Lease based upon
when Substantial Completion would have occurred but for the Tenant Delay.
Landlord shall not be liable for, and Tenant waives all claims against Landlord
for, any defaults of the general contractor and all subcontractors and suppliers
relating to construction of the Tenant Improvements. In the event of any such
default, Tenant shall look solely to the general contractor or the
subcontractors or suppliers.
8. MISCELLANEOUS.
8.1 Any default of Tenant in this Work Letter and Construction Agreement
shall constitute a default of Tenant under the Lease, and Landlord's remedies
shall be as set forth therein. All provisions of the Lease are fully
incorporated in this Exhibit "B" as though set forth herein at length.
8.2 Tenant shall designate one (1) construction Representative
authorized to act for Tenant upon whom Landlord
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<PAGE>
can rely, and who shall consult with Landlord and Landlord's contractors,
employees and agents in connection with the construction of the Tenant
Improvements.
8.3 Tenant shall indemnify, defend, protect and hold the Indemnified
Parties (as defined in the Lease) harmless from all Claims (as defined in the
Lease) which arise in any way, directly or indirectly from or in connection with
the design of the Tenant Improvements, including without limitation arising from
the work of Tenant's architect, engineer, employees or agents.
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<PAGE>
EXHIBIT "C"
Intentionally Omitted.
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<PAGE>
EXHIBIT "D"
TENANT SIGN CRITERIA
1. TENANT'S RESPONSIBILITIES:
A. Tenant shall pay for and obtain all City permits and/or licenses. All
signs and their installation must comply with all City local building
codes. The City sign ordinance should be consulted for any items not
covered in this criteria.
B. The Tenant's sign contractor shall be responsible for the fulfillment
of all requirements and specifications completing the installation in
a workmanlike manner, cleanup, patching and painting all surfaces
damaged by them.
C. The Tenant is responsible for the sign fabrication, installation, cost
and maintenance in its entirety.
2. LOCATION AND SIZE:
Sign shall be located above tenant entryway as illustrated on Exhibit D-1
(attached). A maximum of one (1) sign will be permitted per Tenant,
limited to one (1) row of copy, with maximum letter height of eighteen
inches (18") and a minimum height of nine inches (9"). The maximum length
of the sign will not exceed eighteen feet (18') or 70% of store frontage,
whichever is less.
3. COPY AND LOGO:
The "copy and logo" criteria for each sign shall be evaluated by Landlord
on an individual basis.
a. Tenants shall display only their established trade names.
b. The copy (letter type) and logos for all tenants must be
submitted to and approved by Landlord.
c. Univers 65 upper case copy will be used when tenant does not have
an established logo or letter type.
4. COLOR SELECTION:
Letter color selection shall be established colors related to trade names
or one of five project colors, as specified on Exhibit D-1. All colors
shall have a semigloss finish and will be subject to Landlord's approval.
5. CONSTRUCTION:
All building signs shall be one inch (1") thick, 2.1 density closed cell
foam consisting of extruded polystyrene with integral surface skins. The
signs will be mounted flush to wall facia with clear construction silicone
sealant.
6. APPROVALS:
Tenant must obtain prior written approval from Landlord of sign shop
drawings and color samples prior to submittal to the City. The drawings
shall address the criteria listed in this exhibit. Tenant shall submit a
minimum of four (4) shop drawings, a color sample, and a sample of the foam
to Landlord. Two (2) drawings will be returned with an approval and/or
comments within a reasonable amount of time. Once Tenant has Landlord
approval, Tenant may submit drawings to the City for permits. Permits
should be obtained prior to initiating manufacture.
D-1
<PAGE>
7. REMEDIES:
If Tenant's sign violates any of the above criteria, Landlord shall request
Tenant to remove the sign. Failure of Tenant to remove sign and repair
wall to its original condition within five days will allow Landlord to
remove the sign and repair wall at Tenant's expense.
LANDLORD'S INITIALS /s/RP TENANT'S INITIALS /s/JA
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<PAGE>
EXHIBIT "E"
ADDITIONAL LEASE PROVISIONS
A. OPTION TO EXTEND TERM. Landlord grants to Tenant one (1) option to
extend the Term of this Lease for a sixty (60) month period (the "Option")
commencing upon the expiration of the initial Term (or upon the expiration of
the preceding Option if any), upon each of the following conditions and terms:
1. Tenant shall give to Landlord, and Landlord shall actually
receive, on a date which is at least six (6) months and not more than twelve
(12) months prior to the then scheduled expiration date of the Term, a written
notice of Tenant's exercise of such Option (the "Option Notice"), time being of
the essence. If the Option Notice is not timely so given and received, such
Option shall automatically expire.
2. Tenant shall have no right to exercise an Option, notwithstanding
any provision hereof to the contrary, (a) during the time commencing from the
date Landlord gives to Tenant a notice of default pursuant to Paragraph 18.10 of
this Lease and continuing until the noncompliance alleged in said notice of
default is cured, or (b) during the period of time commencing on the day after a
monetary obligation to Landlord is due from Tenant and unpaid (without any
necessity for notice thereof to Tenant) and continuing until the obligation is
paid, or (c) if Landlord has given to Tenant four (4) or more notices of default
under Paragraph 18.10 of this Lease, whether or not the defaults are cured, or
Tenant has been late on three or more occasions in the payment of a monetary
obligation to Landlord (without any necessity for notice thereof to Tenant),
during the 12 month period of time immediately prior to the time that Tenant
attempts to exercise the Option, or (d) if Tenant has committed any noncurable
breach, or is otherwise in monetary default of any of the terms, covenants or
conditions of this Lease.
3. The period of time within which the Option may be exercised shall
not be extended or enlarged by reason of Tenant's inability to exercise an
Option because of the provisions of Paragraph A.2 above.
4. All Option rights of Tenant under this Paragraph A. shall
terminate and be of no further force or effect, notwithstanding Tenant's due and
timely exercise of the Option, if, after such exercise and during the initial
Term of this Lease (as and if previously extended), (a) Tenant fails to pay to
Landlord a monetary obligation of Tenant for a period of ten (10) business days
after the date Landlord gives Tenant notice of such failure to pay, or (b)
Tenant fails to commence to cure a default specified in Paragraph 18.10 of this
Lease within thirty (30) days after the date that Landlord gives notice to
Tenant of such default and/or Tenant fails thereafter to diligently prosecute
said cure to completion, or (c) Landlord gives to Tenant two (2) or more notices
of default under Paragraph 18.10 of this Lease, or Tenant is late on one (1) or
more occasions in the payment of a monetary obligation to Landlord (without any
necessity of notice thereof to Tenant), whether or not the defaults are cured,
or (d) Tenant has committed any incurable breach, or is otherwise in monetary
default of any of the terms, covenants and conditions of this Lease.
5. The Option granted to Tenant in this Lease is personal to the
original Tenant and may be exercised only by the original Tenant while occupying
the Premises who does so without the intent of thereafter assigning this Lease
or subletting the Premises or any portion thereof, and may not be exercised or
be assigned, voluntarily or involuntarily, by or to any person or entity other
than Tenant. The Option herein granted to Tenant is not assignable separate and
apart from this Lease, nor may the
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<PAGE>
Option be separated from this Lease in any manner, either by reservation or
otherwise.
6. All of the terms and conditions of this Lease except where
specifically modified by this Paragraph A shall apply during the extended Term.
7. The monthly Base Rent payable during the first year of any
extended Term (each of which such extended Terms is herein referred to as an
"Option Period") shall be equal to the then current fair market value for the
Premises (taking into account tenant improvement allowances and other market
rental concessions) determined as of the beginning of such Option Period, as
follows:
(i) Promptly following receipt by Landlord of Tenant's Option
Notice, Landlord and Tenant shall attempt to reach agreement on the initial Base
Rent for the Option Period, which Base Rent shall be set at the then current
fair market monthly rental value for the Premises. If Landlord and Tenant are
able to agree on the initial Base Rent for the Option Period, Landlord and
Tenant shall immediately execute an amendment to this Lease stating the initial
Base Rent for such Option Period.
(ii) If the parties are unable to agree on the initial Base Rent
for the Option Period within forty-five (45) days following Landlord's receipt
of the Option Notice, then each party, at its cost and by giving notice to the
other party, shall have ten (10) days within which to appoint an MAI full-time
commercial appraiser experienced in the area in which the Premises are located,
to appraise and set the initial Base Rent for such Option Period at the then
current fair market monthly rental value of the Premises for a term equal to the
Option Period. If a party does not appoint an appraiser within such ten (10)
day period, the single appraiser appointed shall be the sole appraiser and shall
set the initial Base Rent for such Option Period. If two appraisers are
appointed by the parties as stated in this paragraph, they shall meet promptly
and attempt to set the initial Base Rent for such Option Period. If they are
unable to agree within forty five (45) days after the second appraiser has been
appointed, they shall attempt to select a third appraiser meeting the
qualifications stated in this paragraph within ten (10) days after the last day
the two appraisers are given to set the initial Base Rent for such Option
Period. If they are unable to agree on the third appraiser, either of the
parties to this Lease, by giving ten (10) days notice to the other party, may
apply to the presiding judge of the Superior Court of the County in which the
Premises are located, for the selection of a third appraiser who meets the
qualifications stated in this paragraph. Each of the parties shall bear the
cost of its own appraiser and one-half (1/2) of the cost of appointing the third
appraiser and of paying the third appraiser's fee. The third appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either party.
(iii) Within twenty (20) days after the selection of the third
appraiser, a majority of the appraisers shall set the initial Base Rent for
the Option Period. If a majority of the appraisers are unable to agree upon
the initial Base Rent within the stipulated period of time, the two closest
appraisals shall be added together and their total divided by two, and the
resulting quotient shall be the initial Base Rent for the Premises during
such Option Period.
8. If the Base Rent for the initial year of an Option Period has not
been determined by the commencement date of the Option Period, then until such
Base Rent is determined, Tenant shall pay Base Rent to Landlord at the rate in
effect immediately preceding the Option Period, and if the actual Base Rent for
the initial year of the Option Period is determined to be higher, then within
ten (10) days after the determination of such higher
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<PAGE>
Base Rent, Tenant shall pay to Landlord the difference for each month of the
Option Period for which Base Rent has already become due.
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<PAGE>
EXHIBIT "F"
[DRAWING OF BUILDING]
<PAGE>
STOCK PURCHASE AND REGISTRATION RIGHTS AGREEMENT
Global One Distribution & Merchandising Inc.
5548 Lindbergh Lane
Bell, California 90201-6410
Attention: Joseph C. Angard
1. SUBSCRIPTION. The undersigned ("Purchaser") hereby makes application
to purchase _____________________ shares (the "Shares") of common stock ("Common
Stock") of GLOBAL ONE DISTRIBUTION & MERCHANDISING INC., a Delaware corporation
(the "Company"), as described in the Private Placement Memorandum of the Company
dated May 3, 1996 (the "Memorandum") to which this Agreement is an exhibit.
(Capitalized terms not otherwise defined herein shall have the meanings assigned
to them in the Memorandum.) Consummation of the purchase and sale of the Shares
(the "Closing") shall occur simultaneously with, but in no event prior to, the
closing of the Merger at the offices of Manatt, Phelps & Phillips, LLP, Los
Angeles, California. Payment of the Purchase Price will be made in United
States dollars by certified or bank cashier's check or wire transfer payable to
the order of the Company. The Company and Purchaser shall each be responsible
for their own costs, fees and expenses incurred in connection with the Offering
including, but not limited to, applicable attorney, brokerage or consultant
fees. The Purchaser understands that this subscription may be rejected in whole
or in part, or accepted in whole or in part, by the Company.
2. EXPIRATION DATE. Subscriptions will be received until 5:00 p.m.,
California Time, on May 10, 1996, unless extended by the Company as described in
the Memorandum (the "Subscription Expiration Date"). The Company reserves the
right to terminate the Offering earlier or extend the Subscription Expiration
Date without notice to subscribers.
3. SUBSCRIPTION AMOUNT. The funds received by the Company from the
Purchaser shall be invested by the Company as described in the Memorandum,
without any liability by the Company to the Purchaser.
4. ACCEPTANCE. The Purchaser will receive written notice of the
acceptance or rejection, in whole or in part, of this Agreement as soon as
practicable but in no event later than ten (10) days following the earlier to
occur of (i) the Subscription Expiration Date and (ii) receipt of this
Agreement.
5. RESTRICTIONS ON TRANSFER. The Purchaser agrees, for a period of one
(1) year after the date of the Closing, not to, directly or indirectly, offer
for sale, sell or otherwise dispose of, or enter into any agreement, transaction
or device which is designed to, or could reasonably be expected to, result in
the disposition or purchase by any person at any time in the future of any of
the Shares, without the prior written consent of the Company. The Purchaser is
aware and understands that each certificate representing the Shares will bear a
legend, and stop transfer instructions will be placed on the Shares, to the
foregoing effect.
6. REGISTRATION RIGHTS.
6.1 DEMAND REGISTRATION RIGHTS ON FORM S-3.
(a) Provided that the Company qualifies under the rules and
regulations of the Securities and Exchange Commission ("SEC") to effect a
registration of its securities under the Securities Act of 1933, as amended (the
"Act"), on Form S-3, one or more Purchasers shall, during the two (2) year
period beginning one (1) year from the date of the Closing, have the right to
demand three separate registrations (each a "Demand Registration") of their
shares of Common Stock acquired in this Offering on Form S-3. The Company will,
after the Closing, use its best efforts to qualify as promptly as possible and
remain qualified to register securities with the SEC on Form S-3.
Notwithstanding the foregoing, however, any such registration must relate to
Common Stock having a reasonably anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $2,000,000. Any request for
a Demand Registration must be in writing and specify the aggregate number of
shares of Common Stock to be sold and the proposed managing underwriter, if any,
for the public sale. Upon receipt of a Demand Registration, the Company shall
promptly give written notice of the proposed registration to all of the other
Purchasers.
(b) The Company shall, as soon as practicable following the
receipt of a written request for a Demand Registration, use its best efforts to
effect such registration (including, without limitation, filing post-effective
amendments and obtaining appropriate qualifications under applicable state
securities or "blue-sky" laws) to facilitate the sale and distribution of all or
such portion
<PAGE>
of such shares of Common Stock as are permitted to be registered pursuant to
the terms of this Agreement. The Company shall use its best efforts to file a
registration statement and any necessary amendments thereto covering the shares
of Common Stock so requested to be registered and thereupon to cause such
registration statement to be declared effective. Such registration may include
other securities of the Company and may include securities of the Company being
sold for its own account or the account of stockholders other than the
Purchasers.
(c) If the Company shall furnish to the Purchasers requesting a
Demand Registration a certificate signed by an officer of the Company stating
that the Board of Directors of the Company has determined (which determination
shall be made in good faith in the sole discretion of the Board of Directors)
that the filing of the registration statement should be deferred because the
offering contemplated by the Demand Registration would be significantly
disadvantageous to the Company, then the Company may direct that such
registration be delayed for as long as the basis for the Board of Directors'
judgment continues to exist, but in no event for more than three months;
provided, however, that in such event, any Purchaser shall be entitled to
withdraw from the offering and the Company will pay all registration expenses in
connection with such proposed registration.
(d) Any registration which shall not have become effective or
remained effective in accordance with the provisions of this Section 6.1, or any
registration from which a Purchaser has withdrawn, shall not be deemed to be a
Demand Registration for any purpose hereunder.
6.2 PIGGYBACK REGISTRATION RIGHTS.
(a) If, at any time or from time to time during the two (2) year
period beginning one (1) year from the date of the Closing, the Company shall
determine to register any of its Common Stock (either for its own account or the
account of a security holder or holders), or shall be required to register
Common Stock pursuant to a Demand Registration or otherwise, other than (i) a
registration relating solely to stock option or employee benefit plans, or (ii)
a registration relating solely to a transaction or transactions covered by Rule
145 under the Act, the Company will promptly give each Purchaser written notice
thereof, and such notice will offer each Purchaser the opportunity to register
such number of shares of Common Stock as each such Purchaser may request (a
"Piggyback Registration"). The Company shall use its best efforts to cause the
managing underwriter of the proposed offering to include in such registration
(and any related qualification under state securities or "blue-sky" laws), and
in any underwriting involved therein (including with respect to any
over-allotment shares), all of the securities specified in a written request or
requests made by any Purchaser within fifteen (15) days after receipt of such
written notice from the Company.
(b) If the registration of which the Company gives notice is for
a public offering involving an underwriting, the Company shall so advise the
Purchasers as part of the written notice given pursuant to Section 6.2(a). In
such event, the right of any Purchaser to registration pursuant to this Section
6.2 shall be conditioned upon such Purchaser's participation in such
underwriting and the inclusion of the Common Stock owned by the Purchaser in the
underwriting to the extent provided under this Section 6.2. All Purchasers
proposing to distribute their Common Stock through such underwriting shall
(together with the Company and any other holders of securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement with the underwriters in the form customarily used by the
managing underwriter (including, without limitation, a reasonable lock-up period
as determined by the underwriter and the Company), with such changes thereto as
the parties thereto shall agree.
6.3 UNDERWRITERS' CUTBACKS.
(a) Notwithstanding any provision of this Section 6, if the
managing underwriter states in writing to the Company that marketing factors
require that the number of shares of Common Stock requested to be included in a
registered underwritten offering be limited, the managing underwriter may reduce
the number of shares to be included in such registration. In the event of any
such reduction, the shares of Common Stock proposed to be sold by the Purchasers
will be treated as a class (the "Purchasers' Shares"). In the case of a Demand
Registration, the reduction will be allocated first to shares of Common Stock
that are not Purchasers' Shares and then to the Purchasers' Shares, and in the
case of a Piggyback Registration triggered by an event other than a Demand
Registration, the reduction will be allocated first to the Purchasers' Shares
and the shares of any other stockholders of The Company to be included in the
registration, taken as a class, on a pro rata basis, and then to the other
shares to be sold in the proposed offering.
(b) The Company shall advise all Purchasers as to any such
reduction and the number of shares that may be included in the registration and
underwriting. If any Purchaser disapproves of the terms of any such
underwriting, such Purchaser may elect to withdraw therefrom by written notice
to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
2
<PAGE>
6.4 EXPENSES AND CERTAIN PROCEDURES.
(a) All expenses incurred in connection with any registrations
pursuant to this Section 6 shall be borne by the Company, except that any
underwriting discount, selling commissions and stock transfer taxes applicable
to the securities registered by the Purchasers, and all fees and disbursements
of counsel for any Purchaser relating to securities registered on behalf of the
Purchasers, shall be borne by the Purchasers pro rata based upon the total
number of securities included in the registration or, if such expenses are
specifically allocable to securities held by specific Purchasers, by such
specific Purchasers to the extent related to the registration or sale of such
securities.
(b) In the event of a Demand Registration or Piggyback
Registration, each Purchaser shall furnish to the Company such information
regarding such Purchaser, the securities held by them and the distribution
proposed by such Purchaser as the Company may from time to time reasonably
request as required in connection with any registration, qualification or
compliance referred to in this Agreement. The Purchaser or Purchasers shall,
upon request by the Company and the managing underwriter, execute and deliver
custodian agreements and powers of attorney in form and substance reasonably
satisfactory to the Company and such Purchaser or Purchasers as shall be
reasonably necessary to consummate the registration and offering.
7. ISSUANCE OF CERTIFICATES. At the Closing and upon payment in full of
the subscription amount, the Purchaser hereby requests that the Company issue
certificates representing the Shares of Common Stock, duly subscribed and paid
for, as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print the exact name(s) of subscriber(s) as it should appear on Common
Stock certificate(s).
- --------------------------------------------------------------------------------
TYPE OF OWNERSHIP
-----------------
(Check One)
<TABLE>
<CAPTION>
<S> <C>
/ / INDIVIDUAL OWNERSHIP (One signature required) / / COMMUNITY PROPERTY (One signature
required if interest held in one name,
I.E., managing spouse; two signatures
required if interest held in both names)
/ / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP / / TENANTS IN COMMON (Both or all parties
(Both or all parties must sign) must sign)
/ / PARTNERSHIP (Please include a certified copy of / / CORPORATION (Please include certified
partnership authority for signature) corporate resolution authorizing signature)
- ---------------------------------------------------------------------------------------------------------------
REPRESENTATIONS REGARDING INVESTOR SUITABILITY. COMPLETE BOTH A AND B.
- ---------------------------------------------------------------------------------------------------------------
A. The Purchaser represents that it, he or she is (initial one of the following paragraphs):
1./ / An organization described in section 3./ / A director or executive officer of Global
501(c)(3) of the Internal Revenue Code, One Distribution & Merchandising inc.
corporation, Massachusetts or similar
business trust, or partnership, not formed
for the specific purpose of acquiring the
securities offered, with total assets in
excess of $5,000,000.
3./ / A natural person whose individual net worth, 4./ / A natural person who had an individual
or joint net worth with that person's spouse, income in excess of $200,00 in
as of the date hereof exceeds $1,000,000. each of the two most recent years of
joint income with my spouse in excess
of $300,000 in each of those years.
I have a reasonable expectation of
reaching the same income level in the
current year.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
5./ / A bank as defined in section 3(a)(5)(A) 6./ / A private business development company
of the Securities Act of 1933, as amended as defined in section 202(a)(22) of the
(the "Act"), or a savings and loan association Investment Advisers Act of 1940.
or other institution as defined in section
3(a)(5)(A) of the Act whether acting in its
individual or fiduciary capacity; a broker or
dealer registered pursuant to section 15 of
the Securities Exchange Act of 1934; a
insurance company as defined in section 2(13)
of the Act; a investment company registered
under the Investment Company Act of 1940 or a
business development company as defined in
section 2(a)(48) of that Act; a Small Business
Investment Company licensed by the U.S. Small
Business Administration under section 301(c)
or (d) of the Small Business Investment Act of
1958; a plan established and maintained by a
state, its political subdivisions, or any
agency or instrumentality of a state or its
political subdivisions, for the benefit of its
employees, if such plan has total assets in
excess of $5,000,000; a employee benefit plan
within the meaning of the Employee Retirement
Income Security Act of 1974, if the investment
decision is made by a fiduciary, as defined in
section 3(21) of such act, which is either a
Company, savings and loan association, insurance
company, or registered investment adviser, or if
the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan,
with investment decisions made solely by persons
that are accredited investors.
7./ / A trust, with total assets in excess of 8./ / An entity in which all of the equity
$5,000,000, not formed for the specific owners are "accredited investors" as
purpose of acquiring the securities offered, defined in Rule 501(a) under the Act.
whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii)
under the Act.
- ---------------------------------------------------------------------------------------------------------------
B. I also represent (initial and complete at least one of the following paragraphs):
1./ / My knowledge and experience in financial and business matters makes me able to evaluate the
risks and merits of investment in the Common Stock. I am able to bear the economic risk of
my investment in the Common Stock, including a complete loss of the investment. Set forth
below are my education, business or professional experience upon which I base this
representation. (Attach additional pages if necessary.)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
2./ / My knowledge and experience, together with that of the persons listed below, make us together
able to evaluate the risks and merits of investment in the Common Stock. I am able to bear
the economic risk of my investment in the Common Stock, including a complete loss of the
investment. Attached is a Purchaser Representative Questionnaire for each person listed
below.
Purchaser Representative:
--------------------------------------------------------------------
Purchaser Representative:
--------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
9. LEGENDS.
9.1 FOR ARIZONA RESIDENTS ONLY:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF ARIZONA, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
9.2 FOR MISSOURI RESIDENTS ONLY:
I UNDERSTAND THAT: (I) THESE SECURITIES I AM PURCHASING ARE
NOT REGISTERED; (II) THESE SECURITIES MAY BE DISPOSED OF
ONLY THROUGH A MISSOURI-LICENSED BROKER-DEALER; AND (III) IT
IS A FELONY TO SELL SECURITIES IN VIOLATION OF THE MISSOURI
SECURITIES ACT.
9.3 FOR SOUTH DAKOTA RESIDENTS ONLY:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER CHAPTER 47-
31A OF THE SOUTH DAKOTA SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF FOR VALUE EXCEPT
PURSUANT TO REGISTRATION, EXEMPTION THEREFROM, OR OPERATION
OF LAW. EACH SOUTH DAKOTA RESIDENT PURCHASING ONE OR MORE
WHOLE OR FRACTIONAL UNITS MUST WARRANT THAT HE HAS EITHER
(1) THE MINIMUM NET WORTH (EXCLUSIVE OF HOME, HOME
4
<PAGE>
FURNISHINGS AND AUTOMOBILES) OF $30,000 AND A MINIMUM ANNUAL GROSS
INCOME OF $30,000 OR (2) A MINIMUM NET WORTH (EXCLUSIVE OF HOME, HOME
FURNISHINGS AND AUTOMOBILES) OF $75,000. ADDITIONALLY, EACH INVESTOR
WHO IS NOT AN ACCREDITED INVESTOR OR WHO IS AN ACCREDITED INVESTOR
FULLY BY REASON OF HIS NET WORTH, INCOME OR AMOUNT OF INVESTMENT,
SHALL NOT MAKE AN INVESTMENT IN THE PROGRAM IN EXCESS OF 20% OF HIS
NET WORTH (EXCLUSIVE OF HOME, HOME FURNISHINGS OR AUTOMOBILES).
SIGNATURES
The Purchaser hereby represents that the information contained herein is
true and correct as of the date hereof and that it, he or she has read the
entire Stock Purchase and Registration Rights Agreement and the Memorandum dated
May 3, 1996.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Investor No. 1 Investor No. 2
- ----------------------------------------------------------------------------------------------------
<S> <C>
SIGNATURE: SIGNATURE:
X X
- ----------------------------------------------------------------------------------------------------
PRINT OR TYPE NAME: PRINT OR TYPE NAME:
- ----------------------------------------------------------------------------------------------------
MAILING ADDRESS: MAILING ADDRESS:
- ----------------------------------------------------------------------------------------------------
ZIP CODE
ZIP CODE
- ----------------------------------------------------------------------------------------------------
OCCUPATION: TELEPHONE NO.: OCCUPATION: TELEPHONE NO.:
- ----------------------------------------------------------------------------------------------------
SOCIAL SECURITY OR TAXPAYER I.D. NO. SOCIAL SECURITY OR TAXPAYER I.D. NO.:
- ----------------------------------------------------------------------------------------------------
</TABLE>
ALL SUBSCRIBERS MUST SIGN THIS AGREEMENT
Return original and one copy to the Company and retain one copy for your
records.
5
<PAGE>
[MILLER, JOHNSON & KUEHN LETTERHEAD]
May 17, 1996
Mr. Joseph Angard
Global One Distribution & Merchandising Inc.
5548 Lindbergh Lane
Bell, California 90201-6410
Gentlemen:
This letter is to confirm the agreement between Global One Distribution &
Merchandising Inc. (the "Company") and Miller, Johnson & Kuehn, Incorporated
("MJK") as follows:
1. The Company authorizes MJK on behalf of and as non-exclusive agent for the
Company, to offer at private sale, and MJK agrees to use its best efforts
to offer to a limited number of accredited investors at private sale, up to
$6,000,000 of shares of common stock of the Company (the "Shares") at $1.50
per Share (the "Offering"). No closing of the Offering shall occur unless
(a) MJK has sold at least $4,000,000 of the Shares and (b) at least
$6,000,000 of Shares has been sold. The parties acknowledge that certain
potential investors may be referred to MJK by officers of the Company. Such
potential investors are hereinafter referred to as the "Referral
Investors."
2. In connection with the Offering, MJK is authorized by the Company to
transmit to prospective purchasers of the Shares, as the Company's
agent, the Private Placement Memorandum dated May 3, 1996, as
supplemented by a letter dated May 6, 1996 (the "PPM") describing the
Company, which has been prepared by the Company.
3. The Company agrees to indemnify MJK, and hold MJK harmless, from and
against all liability, costs and expenses (including, without limitation,
reasonable attorney's fees and accountable expenses of investigation) by
reasons of actions or proceedings or other claims brought or threatened
against MJK based on any misstatement or alleged misstatement or omission
or alleged omission in the PPM; provided, that such liability does not
result from information provided to potential investors or other persons
by MJK which was not authorized by the Company. Without the Company's
prior written approval, MJK shall not provide prospective investors with
any written information regarding the Company, other than the PPM.
4. MJK, as agent for the Company, represents and agrees that it has not and
will not offer, directly or indirectly, any
<PAGE>
Mr. Joseph Angard
May 17, 1996
Page 2
Shares, nor solicit any offers to acquire the same from, or otherwise
approach or negotiate in respect thereof, with any person or persons so as
to violate, or cause the Company to be in violation of, any federal or
state securities law in respect of the offer, sale and delivery of any
Shares.
5. As compensation for the services described herein, the Company will pay to
MJK, at any Closing of the Offering, (a) a commission equal to 10% of the
aggregate selling price of all Shares sold by MJK, except for Shares sold
to Referral Investors, as to which MJK shall receive a 5% commission;
PROVIDED, HOWEVER, that in the event MJK sells at least $5,000,000 of the
Shares to investors other than Referral Investors, it shall receive a
commission equal to 10% of the aggregate price of the Shares sold to the
Referral Investors; (b) a Warrant to purchase a number of shares of common
stock equal to 10% of the number of Shares sold hereunder, which shall be
substantially in the form of Exhibit A hereto; and (c) an amount equal to
the reasonable, accountable fees and disbursements of counsel for MJK
incurred in connection with the Offering.
6. This Agreement shall supersede all prior written and oral agreements
between the parties with respect to the subject matter hereof and shall
be governed by the laws of the state of California.
If the foregoing correctly expresses the agreement between us, kindly
confirm such agreement by signing and returning the enclosed duplicate of this
letter.
Very truly yours,
MILLER, JOHNSON & KUEHN, INCORPORATED
By /s/ David B. Johnson
-----------------------------------
Accepted:
GLOBAL ONE DISTRIBUTION &
MERCHANDISING INC.
By /s/ Joseph C. Angard
-----------------------
Dated: May 22, 1996
<PAGE>
Exhibit A
COMMON STOCK WARRANT
To Purchase ___________
Shares of Common Stock of
Global One Distribution & Merchandising Inc.
___________________, 1996
THIS CERTIFIES THAT, in consideration for its payment of $50.00 to Global
One Distribution & Merchandising Inc. (the "Company"), a Delaware corporation,
Miller, Johnson & Kuehn, Incorporated ("MJK") or its registered assigns is
entitled to subscribe for and purchase from the Company at any time after the
date hereof to and including ______________, 1999, ____________________________
fully paid and nonassessable shares of the Company's Common Stock, $.01 par
value, at a price of $1.50 per share:
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this Warrant may
be exercised by the holder hereof, in whole or in part (but not as to a
fractional share of common stock), by written notice of exercise delivered to
the Company twenty (20) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it by certified or bank check or wire
transfer of the purchase price for such shares.
This Warrant may be transferred subject to the following conditions:
(i) during the first year after the date of this Warrant, it may not be sold,
transferred, assigned or hypothecated except to persons who are (x) both
officers and shareholders of MJK, or (y) both officers and employees of MJK, and
(ii) after such period, the Warrant shall be transferable without restriction,
but subject to the opinion of counsel as provided by paragraph 7 herein that
such transfer is not in violation of federal or state securities laws.
2. ISSUANCE OF SHARES. The Company agrees that the shares purchased
hereby shall be and are deemed to be issued to the record holder hereof as of
the close of business on the date on which this Warrant shall have been
exercised by surrender of the Warrant and payment for the shares. Subject to
the provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a reasonable
time, not exceeding ten (10) days after the rights represented by this Warrant
shall have been so exercised, and, unless this Warrant has expired, a new
Warrant representing the
<PAGE>
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be required
to deliver any certificate for shares of stock upon exercise of this Warrant,
except in accordance with the provisions, and subject to the limitations, of
paragraph 7 hereof.
3. COVENANTS OF COMPANY. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Company covenants and agrees that it will from time to time take all such action
as may be required to assure that the par value per share of common stock is at
all times equal to or less than the then effective purchase price per share of
the common stock issuable pursuant to this Warrant. The Company further
covenants and agrees that, during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its common stock to provide for the exercise of the rights represented by this
Warrant.
4. ANTI-DILUTION ADJUSTMENTS. The above provisions are, however, subject
to the following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the exercise price of this Warrant in effect immediately prior to
the subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in common stock.
Upon each adjustment of the exercise price, the holder of this Warrant shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the exercise price
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of
2
<PAGE>
the capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of common stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall
not effect any such consolidation, merger or sale unless prior to the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation purchasing such
assets, shall assume by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
Notwithstanding any language to the contrary set forth in this
paragraph 4 (c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record holder
hereof, such corporation shall be obligated to purchase this Warrant (or the
unexercised part hereof) from the record holder without requiring the holder to
exercise all or part of the Warrant. If such corporation refuses to so purchase
this Warrant then the Company shall purchase the Warrant for cash. In either
case the purchase price shall be the amount per share that shareholders of the
outstanding common stock of the Company shall receive as a result of the
transaction multiplied by the number of shares covered by the Warrant, minus the
aggregate exercise price of the Warrant. Such purchase shall be closed within
60 days following the election of the holder to sell this Warrant.
3
<PAGE>
(d) Upon any adjustment of the Warrant purchase price, then, and in
each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith determination
of the Board of Directors of the Company the other provisions of this paragraph
4 are not strictly applicable or if strictly applicable would not fairly protect
the purchase rights of the holder of this Warrant or of common stock in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid.
5. COMMON STOCK. As used herein, the term "common stock" shall mean and
include the Company's presently authorized shares of common stock and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company; provided that the shares purchasable pursuant to
this Warrant shall include shares designated as common stock of the Company on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. NO VOTING RIGHTS. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
7. TRANSFER OF WARRANT OR RESALE OF SHARES. In the event the holder of
this Warrant desires to transfer this Warrant, or any common stock issued upon
the exercise hereof, the holder shall provide the Company with a written notice
describing the manner of such transfer and an opinion of counsel (reasonably
acceptable to the Company) that the proposed transfer may be effected without
registration or qualification (under any Federal or State law), whereupon such
holder shall be entitled to transfer this Warrant or to dispose of shares of
common stock received upon the previous exercise hereof in accordance with the
notice delivered by such holder to the Company; PROVIDED, that an appropriate
legend may be endorsed on this Warrant or the certificates for such shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel satisfactory to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"); and PROVIDED, FURTHER, that the
4
<PAGE>
holder shall not be entitled to transfer this Warrant in part if such transfer
would result in a Warrant for less than one thousand (1,000) shares (unless such
amount represents the residual balance of the number of shares subject to this
Warrant).
If, in the opinion of either of the counsel referred to in this
paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of common stock
issued upon the exercise hereof, the Company shall promptly give written notice
thereof to the holder hereof, and such holder will limit its activities in
respect to such proposed transfer or disposition as, in the opinion of both such
counsel, are permitted by law.
8. REGISTRATION RIGHTS. (a) If the Company proposes to claim an
exemption under Section 3(b) of the Securities Act for a public offering of any
of its securities or to register under the Securities Act (except by a claim of
exemption or registration statement on a form that does not permit the inclusion
of shares by its security holders) any of its securities, it will give written
notice to all registered holders of Warrants, and all registered holders of
shares of common stock acquired upon the exercise of Warrants, of its intention
to do so and, on the written request of any such registered holders given within
twenty (20) days after receipt of any such notice (which request must be made
within three (3) years after the date of exercise of Warrant from the date of
this Warrant), the Company will use its best efforts to cause all such shares,
the registered holders of which shall have requested the registration or
qualification thereof, to be included in such notification or registration
statement proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying any
such registration initiated by it. If any such registration shall be
underwritten in whole or in part, the Company may require that the shares
requested for inclusion pursuant to this section be included in the underwriting
on the same terms and conditions as the securities otherwise being sold through
the underwriters. In the event that, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the shares
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares otherwise
to be included pursuant to this Section in the underwritten public offering may
be reduced; provided, however, that any such required reduction in the number
of shares to be included shall be pro rata among the warrantholders and
all other persons having registration rights and requesting registration at
such time. Those shares
5
<PAGE>
which are thus excluded from the underwritten public offering shall be withheld
from the market for a period, not to exceed 90 days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering. All expenses of such offering, except the fees of
special counsel to such holders and brokers' commissions or underwriting
discounts payable by such holders, shall be borne by the Company.
(b) If and whenever the Company is required by the provisions of
Section 8(a) hereof to effect the registration of shares issued upon the
exercise of the Warrants under the Securities Act, the Company will:
(i) Prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine (9) months;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary to
effect the sale of such securities, not to exceed nine (9) months;
(iii) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 30 days following the original
filing of such registration statement, except that the Company shall
not for any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such registration statement has become effective or a
supplement to any prospectus
6
<PAGE>
forming a part of such registration statement has been filed;
(vi) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Warrants or
shares by such holder;
(viii) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading;
(ix) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should
be issued;
7
<PAGE>
(x) at the request of any such holder, furnish on the
effective date of the registration statement and, if such registration
includes an underwritten public offering, at the closing provided for
in the underwriting agreement: (i) opinions, dated such respective
dates, of the counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the
holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii)
letters, dated such respective dates, from the independent certified
public accountants of the Company, addressed to the underwriters, if
any, and to the holder or holders making such request, covering such
matters as such underwriters and holder or holders may reasonably
request, in which letter such accountants shall state (without
limiting the generality of the foregoing) that they are independent
certified public accountants within the meaning of the Securities Act
and that in the opinion of such accountants the financial statements
and other financial data of the Company included in the registration
statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting
requirements of the Securities Act.
(c) The Company hereby indemnifies the holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement, prospectus, notification or
offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein, and each such holder by its acceptance hereof severally agrees that it
will indemnify and hold harmless the Company and each of its officers who signs
such registration statement and each of its directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
with respect to losses, claims, damages or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein.
9. ADDITIONAL RIGHT TO CONVERT WARRANT.
(a) The holder of this Warrant shall have the right to
8
<PAGE>
require the Company to convert this Warrant (the "Conversion Right") at any time
prior to its expiration into shares of Common Stock as provided for in this
Section 9. Upon exercise of the Conversion Right, the Company shall deliver to
the holder (without payment by the holder of any Exercise Price) that number of
shares of Common Stock equal to the quotient obtained by dividing (x) the value
of the Warrant at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price for the Warrant Shares in effect
immediately prior to the exercise of the Conversion Right from the aggregate
Fair Market Value for the Warrant Shares immediately prior to the exercise of
the Conversion Right) by (y) the Fair Market Value of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time
or from time to time, prior to its expiration, on any business day by delivering
a written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Warrantholder will
purchase pursuant to such conversion and (ii) a place and date not less than one
nor more than 20 business days from the date of the Conversion Notice for the
closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
(d) "FAIR MARKET VALUE" means, with respect to the Company's Common
Stock, as of any date:
(i) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
National Market System, the reported closing price of the Common Stock on such
exchange or by the NASDAQ National Market System as of such date (or, if no
shares were traded on such day, as of the next preceding day on which there was
such a trade); or
(ii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National Market System,
and bid and asked prices therefor in the over-the-counter market are reported by
the NASDAQ system or National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked prices as of such
date, as so reported by the NASDAQ System, or, if not so reported thereon, as
reported by National Quotation Bureau, Inc. (or such comparable reporting
service); or
9
<PAGE>
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the NASDAQ National Market System,
and such bid and asked prices are not so reported by the NASDAQ system or
National Quotation Bureau, Inc. (or any comparable reporting service), such
price as the Company's Board of Directors determines in good faith in the
exercise of its reasonable discretion.
(e) Nothing in this Section 9 shall provide the holder of this
Warrant with the right to require the Company to convert this Warrant into
shares of Common Stock for a price less than $1.50 per share.
IN WITNESS WHEREOF, Global One Distribution & Merchandising Inc. has caused
this Warrant to be executed by its duly authorized officers and this Warrant to
be dated as of ___________, 1996.
GLOBAL ONE DISTRIBUTION &
MERCHANDISING INC.
By ______________________________
This Warrant has not been registered under the Securities Act of 1933, as
amended, or applicable state securities laws, and may not be sold or transferred
without an effective registration thereof under such Act or pursuant to an
exemption from the registration requirements of such Act or applicable state
securities laws, supported by an opinion of counsel, reasonably acceptable to
the Company, that such registration is not required.
10
<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder ______________ shares of the Common Stock, $.001 par value,
of Global One Distribution & Merchandising Inc. and herewith makes payment of
$________________ therefor, and requests that the certificates for such shares
be issued in the name of _____________________________________ and be delivered
to _________________________________ whose address is _________________________
_______________________________________________________________________________
_______________.
Dated: ________________ ________________________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the warrant)
(Address)
(City - State - Zip)
11
<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto ________________________________________ the right represented by the
within warrant to purchase ______________ of the shares of Common Stock, $.01
par value, of Global One Distribution & Merchandising Inc. to which the within
warrant relates, and appoints ______________________ attorney to transfer said
right on the books of Global One Distribution & Merchandising Inc., with full
power of substitution in the premises.
Dated: ________________ ________________________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the warrant)
(Address)
(City - State - Zip)
In the presence of:
12
<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to purchase _______________ shares of the Common Stock, $.01 par value, of
Global One Distribution & Merchandising Inc. The closing of this conversion
shall take place at the offices of the undersigned on ____________________.
Certificates for the shares to be delivered at the closing shall be issued in
the name of __________________________________________, whose address is
___________________________________________.
Dated: ________________ ________________________________________
(Signature must conform in all respects
to the name of holder as specified on
the face of the Warrant)
(Address)
(City - State - Zip)
13
<PAGE>
MARK S. HAUSER
83 GARDEN ROAD
SCARSDALE, NEW YORK 10583
------------------
May 10, 1996
OSP Publishing, Inc.
5548 Lindbergh Lane
Bell, CA 90201
Attention: Mr. Joseph Angard
Dear Sirs:
This letter, (the "Engagement Agreement") confirms our complete
understanding and agreement with respect to the retention of Mark S. Hauser
("Hauser") as financial advisor to OSP Publishing, Inc. and is successor,
Global One Distribution and Merchandising, Inc. ("Client").
1. SCOPE AND CERTAIN CONDITIONS OF SERVICE
As requested by Client from time to time, Hauser hereby agrees to provide
Client with general financial advice relating to such things as financings,
acquisitions, growth strategies, etc.
2. TERM OF RETENTION
The term of the Engagement Letter shall commence on the effective date of
the merger with Kelly Russell Studios, Inc. (the "Effective Date") and run
through and including the earlier of (i) thirty-six months from the Effective
Date, (ii) the mutual written agreement of the parties to terminate the term
of the Engagement Agreement; and (iii) termination of the Engagement
Agreement by Client if and only if Hauser is no longer on the Board of
Directors of Client.
<PAGE>
OSP Publishing, Inc.
May 10, 1996
Page 2
3. FEES AND COMPENSATION
In consideration of the advisory services to be rendered by Hauser
hereunder, Client agrees to pay or grant to Hauser;
(a) a monthly retainer (the "Retainer") equal to 7,500 per month, the
first payment being 30 days after the Effective Date; and;
(b) a one-time issuance of warrants to purchase 52,500 common shares of
Client exercisable at $1.50 per share, vesting in equal annual 17,500
increments commencing on the Effective Date.
4. EXPENSES
Client shall promptly reimburse Hauser for all out-of-pocket expenses
incurred in rendering services hereunder, upon the presentation by Hauser of
an itemized statement of such expenses with accompanying invoices. Hauser
shall obtain from Client prior written approval before incurring individual
expenses in excess of $500.
5. MISCELLANEOUS
The Engagement Agreement, shall be governed by, and interpreted and
enforced in accordance with, the laws of the State of New York applicable to
instruments made and to be performed entirely within such State.
The Engagement Agreement, with exhibits, constitutes the entire
understanding and agreement between the parties with respect to its subject
matter and there are no agreements or understandings with respect to the
subject matter which are not contained in the Engagement Agreement. The
Engagement Agreement may be modified only in writing signed by both parties
to be charged hereunder.
* * *
If the foregoing correctly sets forth our agreement, please confirm this
by signing and returning to us the duplicate copy of this letter.
<PAGE>
OSP Publishing, Inc.
May 1, 1996
Page 3
I appreciate this opportunity to be of service and am looking forward to
working with you on this matter.
Very truly yours,
By: /s/ Mark S. Hauser
-------------------------------
Mark S. Hauser
Agreed to and Accepted
as of the Effective Date
OSP PUBLISHING, INC.
By: /s/ Joseph Angard
--------------------------------
Joseph Angard
<PAGE>
[TAMARIX CAPITAL CORPORATION LETTERHEAD]
July 27, 1995
OSP Publishing, Inc.
5548 Lindberg Lane
Bell, CA 90201
Attention: Mr. Joseph Angard
Dear Sirs:
This letter, including Exhibits A, B and C annexed hereto and made part
hereof, all which taken together constitute the "Engagement Agreement",
confirms our complete understanding and agreement with respect to the
retention of Tamarix Capital Corporation ("Tamarix") as financial advisor to
OSP Publishing, Inc. ("Client").
1. SCOPE AND CERTAIN CONDITIONS OF SERVICE
As requested by client from time to time, Tamarix hereby agrees to
provide Client with the following services, among others:
(a) assisting Client in preparing a business plan;
(b) assisting Client in financial matters relating to the implementation
of the strategic aspects of the business plan;
(c) assisting Client in negotiating a debt facility;
(d) assisting Client in identifying, negotiating and consummating a
transaction with equity capital partners, whether through a private placement
or a public offering (the "Financing"); and
(e) providing such other services as are consistent with the foregoing.
In connection therewith, Tamarix agrees to provide a significant amount
of Mark Hauser's time to this matter and
<PAGE>
TAMARIX CAPITAL CORPORATION
OSP Publishing, Inc.
July 27, 1995
Page 2
Mark Hauser shall be the principal Client contact in charge of the account
throughout the term of the Engagement Letter.
2. TERM OF RETENTION
The term of the Engagement Letter shall commence on July 27, 1995 (the
"Effective Date") and run through and including the earlier of
(i) twelve months from the Effective Date; (ii) the consummation of the
Financing; (iii) the mutual written agreement of the parties to terminate the
term of the Engagement Agreement; and (iv) termination of the Engagement
Agreement by Client if and only if Tamarix fails to provide any of the
services outlined in paragraph 1. or abide by the standard terms and
conditions and Tamarix continues to fail to provide such services and/or
abide by the same after receiving from Client a written notice giving Tamarix
30 days to provide any of such services or abide by such terms, as the case
may be. The Engagement Agreement may be extended up to an additional
twelve (12) months upon the written agreement of Tamarix and Client. In
addition, Client may terminate the term of the Engagement Agreement in the
event Mark Hauser does not work on this account or at any time he is no
longer a principal in Tamarix.
Notwithstanding anything herein to the contrary, the obligation to pay
the Retainer, and the Sucess Fees, if any (as set forth below in Section 3),
Section 4 below, and paragraphs 2, 6, 8, and 9 of Exhibit A, and all of
Exhibit B and Exhibit C shall survive any termination or expiration of the
term of the Engagement Agreement. Any transaction consummated within one year
after the expiration of the term of the Engagement Agreement with any party
for which Tamarix would otherwise receive a Success Fee hereunder and with
which Tamarix had discussions principally in connection with the provision of
services to Client hereunder shall result in a Success Fee being due and
payable by Client to Tamarix under the same terms of Section 3(b) below. Upon
request by Client, Tamarix shall within two weeks furnish a list in writing
naming all such parties.
3. FEES AND COMPENSATION
In consideration of the advisory services to be rendered by Tamarix
hereunder, Client agrees to pay or grant to Tamarix:
<PAGE>
TAMARIX CAPITAL CORPORATION
OSP Publishing, Inc.
July 27, 1995
Page 3
(a) a monthly retainer (the "Retainer") equal to $5,000 per month, the
first payment being on the date of execution hereof;
(b) additional fees (the "Success Fees") comprising the following:
(i) a one-time cash fee of $25,000 upon execution with CIT or Sanwa
Business Credit or Union Bank of an agreement relating to Client's principal
debt facility, or the one-time fee of $100,000 upon execution of such a
facility with another institution;
(ii) a one-time cash fee equal to 5% (reduced to 3% in connection
with an initial public offering of Client) of funds raised or committed or
obligations assumed through the Financing (against which the Retainer is
credited) and a one-time issuance of warrants to purchase such number of
common shares of Client equal to 5% of the number of shares sold in the
Financing exercisable at the per share price obtained in the Financing at any
time over the next five years with piggy-back registration rights (provided
that Tamarix agrees to terms customarily requested by an underwriter if
Client undertakes a public offering of equity in the Financing); and
(iii) additional fees for items described above for services rendered
to Client in amounts to be agreed for organizing joint ventures or other
strategic operational endeavors or advising on acquisitions or mergers.
4. EXPENSES
Client shall promptly reimburse Tamarix for all out-of-pocket expenses
incurred in rendering services hereunder, upon the presentation by Tamarix of
an itemized statement of such expenses with accompanying invoices. Within
seven (7) days of the execution hereof and receipt of an appropriate invoice,
Client shall advance to Tamarix the sum of Ten Thousand Dollars ($10,000) on
account of such expenses, any unused portion to be promptly returned to
Client; Tamarix shall monthly inform Client as to the utilization of these
funds in writing. Tamarix shall obtain from Client prior written approval
before incurring any individual expenses in excess of $500.
<PAGE>
TAMARIX CAPITAL CORPORATION
OSP Publishing, Inc.
July 27, 1995
Page 4
5. MISCELLANEOUS
The Engagement Agreement, shall be governed by, and interpreted and
enforced in accordance with, the laws of the State of New York applicable to
instruments made and to be performed entirely within such State.
The Engagement Agreement, with exhibits, constitutes the entire
understanding and agreement between the parties with respect to its subject
matter and there are no agreements or understandings with respect to the
subject matter which are not contained in the Engagement Agreement. The
Engagement Agreement may be modified only in writing signed by both parties
to be charged hereunder.
Each party shall pay its own expenses in connection with the negotiation
and execution of the Engagement Agreement. Tamarix and Client shall at all
times keep the terms of the Engagement Agreement confidential.
* * *
If the foregoing correctly sets forth our agreement, please confirm this
by signing and returning to us the duplicate copy of this letter.
We appreciate this opportunity to be of service and are looking forward
to working with you on this matter.
Very truly yours,
TAMARIX CAPITAL CORPORATION
By: /s/ Mark S. Hauser
-------------------------------
Mark S. Hauser
Agreed to and Accepted
as of the Effective Date:
OSP PUBLISHING, INC.
By: /s/ Joseph Angard
-----------------------------
Joseph Angard
<PAGE>
TAMARIX CAPITAL CORPORATION
Exhibit A
STANDARD TERMS AND CONDITIONS
*Unless otherwise indicated, capitalized terms used herein shall have the
meaning associated to them in the Engagement Letter to which this is attached as
Exhibit A.
1. Client shall use commercially reasonable efforts to promptly provide
Tamarix with information about Client and the transaction (to the extent
available to Client in the case of parties other than the Client) that shall be
reasonably requested or required by Tamarix.
2. Tamarix shall keep all information obtained from Client strictly
confidential in accordance with the confidentiality agreement dated December 22,
1994, a copy of which is attached hereto as Exhibit "D" and incorporated herein
by this reference. This confidentiality agreement is deemed repeated herein
except that it is hereby amended to permit Tamarix to contact potential lenders,
investors, underwriters, or strategic partners on behalf of Client consistent
with two terms of the Engagement Letter.
3. Client recognizes that in order for Tamarix to perform properly its
obligations in a professional manner, it is necessary that Tamarix be informed
of and, to the extent practicable, participate in meetings and discussions
between Client and any third party relating to the matters covered by the terms
of Tamarix's engagement.
4. Client agrees that any report or opinion, oral or written, delivered to it
by Tamarix is prepared solely for its confidential use and shall not be
reproduced, summarized, or referred to in any public document or given or
otherwise divulged to any other person without Tamarix's prior written consent
which shall not be unreasonably withheld or delayed, except as may be required
by applicable law or regulation.
5. Any Success Fee payable by Client to Tamarix shall be paid upon the
closing of, and availability of drawdown of funds from, the transaction
contemplated by this Engagement Agreement.
6. Unless otherwise agreed in writing by Tamarix and Client, no fee payable by
Client to any other financial advisor or lender shall reduce or otherwise affect
any fee payable by Client to Tamarix.
<PAGE>
TAMARIX CAPITAL CORPORATION
Exhibit A
Page 2
7. Each party represents and warrants to the other that: (a) it has full
right, power and authority to enter into this agreement and to perform all of
its obligations hereunder; (b) this Engagement Agreement has been duly
authorized and executed and constitutes a valid and binding agreement of Client
enforceable in accordance with its terms; (c) the execution and delivery of the
Engagement Agreement and the consummation of the transactions contemplated
hereby does not conflict with or result in a breach of (i) each party's
certificate of incorporation or by-laws or (ii) any agreement to which Client is
a party or by which any of its property or assets is bound; and (d) there are no
additional representations, warranties or agreements except as expressly
provided herein.
8. Nothing contained in the Engagement Agreement shall be construed to place
Tamarix Capital Corporation and Client in the relationship of partners or joint
venturers. Neither Tamarix Capital Corporation nor Client shall represent
itself as the agent or legal representative of the other for any purpose
whatsoever nor shall either have the power to obligate or bind the other in any
manner whatsoever. Tamarix Capital Corporation in performing its services
hereunder, shall at all times be an independent contractor.
9. The Engagement Agreement has been and is made solely for the benefit of
Tamarix and Client and each of the persons, agents, employees, officers,
directors and controlling persons referred to in Exhibit B and their respective
heirs, executors, personal representatives, successors and assigns, and nothing
contained in the Engagement Agreement shall confer any rights upon, nor shall
this agreement be construed to create any rights in, any person who is not a
party to such agreement other than as set forth in this paragraph. Tamarix may
not assign the Engagement Agreement or its rights and obligations hereunder to
any third party (including via a sale of the stock or assets of Tamarix or a
sale of Mark Hauser's interest in Tamarix).
10. In order to protect Client's confidential information and for other good
and valuable consideration receipt of which is hereby acknowledged, neither
Tamarix nor Mark Hauser shall during the term of the Engagement Agreement: (i)
render services of any kind to any other corporation, individual or other entity
directly competitive with Client or (ii) solicit any of Client's customers,
employees, accounts or the like.
<PAGE>
TAMARIX CAPITAL CORPORATION
Exhibit B
INDEMNIFICATION
*Unless otherwise indicated, capitalized terms used herein shall have the
meanings associated to them in the Engagement Letter to which this is attached
as Exhibit B.
Client agrees that it shall indemnify and hold harmless, Tamarix Capital
Corporation, its stockholders, directors, officers, employees, agents,
affiliates and controlling persons within the meaning of Section 20 of the
Securities Exchange Act of 1934 and Section 15 of the Securities Act of 1933,
each as amended (any and all of whom are referred to as an "Indemnified Party"),
from and against any and all losses, claims, damages or liabilities, and all
actions in respect thereof (including, but not limited to, all legal or other
expenses reasonably incurred by an Indemnified Party in connection with the
preparation for or defense of any claim, action or proceeding, whether or not
resulting in any liability), sustained or incurred by an Indemnified Party: (a)
arising out of, or in connection with, any untrue statement or alleged untrue
statement of a material fact contained in any of the financial or other
information furnished to Tamarix Capital Corporation by or on behalf of Client
or the omission (or alleged omission) of a material fact necessary to made the
statements therein, in light of the circumstances under which they were made,
not misleading; or (b) with respect to, caused by, or otherwise arising out of
any transaction contemplated by the Engagement Agreement or Tamarix's
performing the services contemplated hereunder; PROVIDED, HOWEVER, Client will
not be liable under clause (a) or (b) hereof to the extent that any loss,
claim, damage or liability is found in a final judgment by a court of competent
jurisdiction to have resulted from Tamarix's gross negligence or bad faith in
performing such services.
If the indemnification provided for herein is conclusively determined (by
an entry of final judgment by a court of competent jurisdiction and the
expiration of the time or denial of the right to appeal) to be unenforceable by
an Indemnified Party hereunder in respect to any losses, claims, damages or
liabilities referred to therein, then Client, in lieu of indemnifying such
Indemnified Party, Indemnified Party shall contribute any amounts paid or
payable by such Indemnified Party in such proportion as is appropriate and
equitable under all circumstances taking into account the relative benefits
received and the relative fault of each such party; PROVIDED, HOWEVER, in no
event shall Tamarix and/or any Indemnified Party be required to
<PAGE>
TAMARIX CAPITAL CORPORATION
Exhibit B
Page 2
contribute an amount in excess of net compensation received by Tamarix Capital
Corporation and/or such Indemnified Party pursuant to this Engagement Agreement.
The foregoing indemnification and contribution provisions are not in lieu
of, but in addition to, any rights which any Indemnified Party may have
hereunder or otherwise.
Each of the parties hereto agrees to notify the other promptly of the
assertion against it or to the its knowledge any other person of any claim or
the commencement of any action or proceeding relating to any activity
contemplated by this Engagement Agreement; PROVIDED, HOWEVER, the failure to
so notify the other party shall not alter any parties' rights or obligations
under the Engagement Agreement.
<PAGE>
[TAMARIX CAPITAL CORPORATION LETTERHEAD]
May 10, 1996
OSP Publishing, Inc.
5548 Lindbergh Lane
Bell, CA 90201
Attention: Mr. Joseph Angard
Dear Sirs:
This letter, including Exhibits A, B and C annexed hereto and made part
hereof, all which taken together constitute the "Engagement Agreement",
confirms our complete understanding and agreement with respect to the
retention of Tamarix Capital Corporation ("Tamarix") as financial advisor to
OSP Publishing, Inc. and its successor Global One Distribution and
Merchandising, Inc. ("Client").
1. SCOPE AND CERTAIN CONDITIONS OF SERVICE
As requested by Client from time to time, Tamarix hereby agrees to
provide Client with the following services, among others:
(a) assisting Client in financial matters relating to the implementation of
the strategic aspects of Client's business plan;
(b) assisting Client in identifying and negotiating various financing
arrangements;
(c) assisting Client in identifying, negotiating and consummating
acquisitions; and
(d) providing such other services as are consistent with the foregoing.
In connection therewith, Tamarix agrees to provide a significant amount
of Mark Hauser's time to this matter and Mark Hauser shall be the principal
Client contact in charge of the account throughout the term of the
Engagement Letter.
<PAGE>
TAMARIX CAPITAL CORPORATION
OSP Publishing, Inc.
May 10, 1996
Page 2
2. TERM OF RETENTION
The term of the Engagement Letter shall commence on the effective date of
the merger with Kelly Russell Studios, Inc. (the "Effective Date") and run
through and including the earlier of (i) twelve months from the Effective
Date; (ii) the mutual written agreement of the parties to terminate the term
of the Engagement Agreement; and (iii) termination of the Engagement
Agreement by Client if and only if Tamarix fails to provide any of the
services outlined in paragraph 1, or abide by the standard terms and
conditions and Tamarix continues to fail to provide such services and/or
abide by the same after receiving from Client a written notice giving Tamarix
30 days to provide any of such services or abide by such terms, as the case
may be. The Engagement Agreement may be extended up to an additional
twelve (12) months upon the written agreement of Tamarix and Client. In
addition, Client may terminate the term of the Engagement Agreement in the
event Mark Hauser does not work on this account or at any time he is no
longer a principal in Tamarix.
Notwithstanding anything herein to the contrary, the obligation to pay
the Success Fees, if any (as set forth below in Section 3), Section 4 below,
and paragraphs 2, 6, 8, and 9 of Exhibit A, and all of Exhibit B and Exhibit C
shall survive any termination or expiration of the term of the Engagement
Agreement. Any transaction consummated within one year after the expiration
of the term of the Engagement Agreement with any party for which Tamarix would
otherwise receive a Success Fee hereunder and with which Tamarix had
discussions principally in connection with the provision of services to
Client hereunder shall result in a Success Fee being due and payable by
Client to Tamarix under the same terms of Section 3(b) below. Upon request by
Client, Tamarix shall within two weeks furnish a list in writing naming all
such parties.
3. FEES AND COMPENSATION
In consideration of the advisory services to be rendered by Tamarix
hereunder, Client agrees to pay or grant to Tamarix success fees (the
"Success Fees") comprising the following:
(i) a one-time cash fee equal to 2% of funds raised or committed or
obligations assumed through a
<PAGE>
TAMARIX CAPITAL CORPORATION
OSP Publishing, Inc.
May 10, 1996
Page 3
financing and a one-time issuance of warrants to purchase such number of
common shares of Client equal to 2% of the number of shares sold in the
financing exercisable at the per share price obtained in the financing at any
time over the next five years with piggy-back registration rights (provided
that Tamarix agrees to terms customarily requested by an underwriter if
Client undertakes a public offering of equity in the financing);
(ii) a one-time cash fee equal to 1% of the consideration (including
payments made and debt assumed) paid in an acquisition; and
(iii) additional fees for other services rendered to Client in
amounts to be agreed based on customary investment banking fees for such
services.
4. EXPENSES
Client shall promptly reimburse Tamarix for all out-of-pocket expenses
incurred in rendering services hereunder, upon the presentation by Tamarix of
an itemized statement of such expenses with accompanying invoices. Tamarix
shall obtain from Client prior written approval before incurring any
individual expenses in excess of $500.
5. MISCELLANEOUS
The Engagement Agreement, shall be governed by, and interpreted and
enforced in accordance with, the laws of the State of New York applicable to
instruments made and to be performed entirely within such State.
The Engagement Agreement, with exhibits, constitutes the entire
understanding and agreement between the parties with respect to its subject
matter and there are no agreements or understandings with respect to the
subject matter which are not contained in the Engagement Agreement. The
Engagement Agreement may be modified only in writing signed by both parties
to be charged hereunder.
Each party shall pay its own expenses in connection with the negotiation
and execution of the Engagement Agreement. Tamarix and Client shall at all
times keep the terms of the Engagement Agreement confidential.
* * *
<PAGE>
TAMARIX CAPITAL CORPORATION
OSP Publishing, Inc.
May 10, 1996
Page 4
If the foregoing correctly sets forth our agreement, please confirm this
by signing and returning to us the duplicate copy of this letter.
We appreciate this opportunity to be of service and are looking forward to
working with you on this matter.
Very truly yours,
TAMARIX CAPITAL CORPORATION
By: /s/ Mark S. Hauser
-----------------------------
Mark S. Hauser
Agreed to and Accepted
as of the Effective Date:
OSP PUBLISHING, INC.
By: /s/ Joseph Angard
----------------------------
Joseph Angard
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Global One
Distribution & Merchandising Inc. on Form S-4 of our report dated April 5, 1996
(May 24, 1996 as to Note 14) appearing in the Prospectus, which is a part of
this Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Long Beach, California
May 24, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to use in this Registration Statement on Form S-4 of our
report dated March 11, 1996 relating to the financial statements of Kelly
Russell Studios, Inc. (Kelly Russell) as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 (which report
contained an explanatory paragraph discussing Kelly Russell's ability to
continue as a going concern), and to the references to our Firm under the
captions "Selected Financial Data" and "Experts" (as it relates to the financial
statements of Kelly Russell) in the Prospectus.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
May 28, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF THE EQUISOURCE GROUP
We hereby consent to inclusion of our opinion as Appendix C to the Proxy
Statement/Prospectus of Kelly Russell Studios, Inc. and Registration on Form S-4
of Global One Distribution & Merchandising Inc., and further consent to
reference therein to such opinion under the headings "The KRSI Merger -- Kelly
Russell's Financial Advisor" and "Summary" and in the Kelly Russell Studios,
Inc. letter to shareholders regarding the proposed Merger. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 and the rules
and regulations thereunder.
THE EQUISOURCE GROUP
Houston, Texas
May 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OSP PUBLISHING, INC. AS OF DECEMBER 31, 1995 AND FOR THE
THREE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 74,828 377,778
<SECURITIES> 0 0
<RECEIVABLES> 7,332,537 6,893,156
<ALLOWANCES> 1,644,697 1,374,361
<INVENTORY> 4,066,012 4,991,559
<CURRENT-ASSETS> 10,134,873 12,448,185
<PP&E> 1,999,595 2,079,621
<DEPRECIATION> 813,796 895,527
<TOTAL-ASSETS> 11,698,476 13,933,067
<CURRENT-LIABILITIES> 6,823,711 9,163,187
<BONDS> 2,965,897 4,151,160
0 0
0 0
<COMMON> 1,262,500 1,262,500
<OTHER-SE> (2,561,273) (3,115,363)
<TOTAL-LIABILITY-AND-EQUITY> 11,698,476 13,933,067
<SALES> 38,227,958 8,940,658
<TOTAL-REVENUES> 38,227,958 8,940,658
<CGS> 17,016,038 4,347,317
<TOTAL-COSTS> 21,646,881 5,269,523
<OTHER-EXPENSES> 15,171,593 3,804,849
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 841,173 267,659
<INCOME-PRETAX> 568,311 (401,373)
<INCOME-TAX> (77,336)<F1> 67,323<F1>
<INCOME-CONTINUING> 645,647 (469,696)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 402,592 (514,116)
<EPS-PRIMARY> .03 (.05)
<EPS-DILUTED> .03 (.05)
<FN>
<F1>ASSUMES TERMINATION OF S CORPORATION STATUS OCCURRED AT JANUARY 1 ,1995.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
KELLY RUSSELL STUDIOS, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints and and each
of them as proxies, each with full power of substitution, to vote as designated
below all shares of common stock of Kelly Russell Studios, Inc. held of record
as of , 1996, which the undersigned would be entitled to vote if
personally present at the Meeting of Shareholders to be held on ,
1996, at a.m., local time, at , Minneapolis, Minnesota, at any
adjournment or adjournments thereof, upon the following matters:
Proposal to approve the principle terms of the Final Amended and Restated
Agreement and Plan of Reorganization providing for the merger of Kelly Russell
Studios, Inc. with and into KRSI Acquisition Corp., a wholly owned subsidiary of
Global One Distribution & Merchandising Inc., which will be the surviving
company. KRSI Acquisition Corp. will change its name to and conduct its business
under the name "Kelly Russell Studios, Inc." A copy of the Final Amended and
Restated Agreement and Plan of Reorganization is attached as Appendix A to the
Proxy Statement/Prospectus for the Meeting.
<TABLE>
<S> <C> <C>
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
<PAGE>
This proxy will be voted as specified by the shareholder, but if no choice
is specified, this proxy will be voted FOR approval of the Merger Agreement.
IMPORTANT: Please sign exactly as name or names appear on this Proxy. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title as such. When
signing as a corporation or a partnership, please sign in the name of the entity
by an authorized person.
Dated: ________________________________
_______________________________
(Please sign name exactly as it
appears hereon)
_______________________________
(Signature of joint owner, if any)
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED PROXY RETURN
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF AN
ENVELOPE IS NOT ENCLOSED OR HAS BEEN MISPLACED, PLEASE RETURN THIS COMPLETED
PROXY TO NORWEST BANK MINNESOTA, N.A., STOCK TRANSFER DEPARTMENT, P.O. BOX 119,
SOUTH SAINT PAUL, MINNESOTA 55075-9988.
<PAGE>
EXHIBIT 99.2
CONSENT OF MARK S. HAUSER
I hereby consent to all references to me as a nominated director in the
Registration Statement on Form S-4 of Global One Distribution & Merchandising
Inc. and the Proxy Statement/Prospectus constituting a part thereof.
MARK S. HAUSER
New York, New York
May 23, 1996
<PAGE>
EXHIBIT 99.3
CONSENT OF THOMAS R. KING
I hereby consent to all references to me as a nominated director in the
Registration Statement on Form S-4 of Global One Distribution & Merchandising
Inc. and the Proxy Statement/Prospectus constituting a part thereof.
THOMAS R. KING
Minneapolis, Minnesota
May 23, 1996
