<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: COMMISSION FILE NUMBER:
JUNE 30, 1997 000-21049
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4578632
(State or other jurisdiction (IRS Employer Identification
of incorporation or organization) Number)
5548 LINDBERGH LANE, BELL, CALIFORNIA 90201-6410
(Address and zip code of principal executive offices)
213-980-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
the filing requirements for at least the past 90 days.
YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at August 8, 1997
----- -----------------
Common Stock, $.01 par value 13,011,947
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996.......................... 3
Consolidated Statements of Operations for the Six
Months Ended June 30, 1997 and 1996
(Unaudited)................................................ 5
Consolidated Statements of Operations for the Three
Months Ended June 30, 1997 and 1996
(Unaudited)................................................ 7
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996
(Unaudited)................................................ 8
Notes to Unaudited Consolidated
Financial Statements...................................... 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 22
Item 2. Changes in Securities..................................... 22
Item 3. Defaults Upon Senior Securities........................... 22
Item 4. Submission of Matters to a Vote of Security Holders....... 22
Item 5. Other Information......................................... 23
Item 6. Exhibits and Reports on Form 8-K.......................... 24
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<PAGE>
PART I. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 32,248
Accounts receivable -- trade, net of allowance for doubtful accounts and
returns of $2,523,069 and $2,506,893 at June 30, 1997 and December 31, 1996,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,260,110 4,667,818
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,624,877 2,560,603
Prepaid royalty advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 716,136 576,347
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . 406,057 643,791
Note receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,575,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,089,248 1,089,248
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,096,428 11,145,055
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,150,338 1,149,775
GOODWILL, net of accumulated amortization of $469,532 and $222,724 at June 30,
1997 and December 31, 1996, respectively . . . . . . . . . . . . . . . . . . . . . . 4,296,074 4,550,531
DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172,960 189,659
------------ ------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,715,800 $ 17,035,020
------------ ------------
------------ ------------
(CONTINUED)
</TABLE>
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit. . . . . . . . . . . . . . . . . . . . . . . . $ 2,766,380 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,427,656 $ 4,826,256
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,744 723,016
Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792,099 1,382,549
Due to customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,809 253,536
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 53,042 53,042
Current maturities of:
Capitalized lease obligations . . . . . . . . . . . . . . . . . . . . 100,041 95,254
Subordinated long-term debt . . . . . . . . . . . . . . . . . . . . . 300,000 675,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 10,693,771 8,008,653
------------ ------------
REVOLVING LINE OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . - 3,813,334
CAPITALIZED LEASE OBLIGATIONS,
less current maturities . . . . . . . . . . . . . . . . . . . . . . . . 51,979 55,612
SUBORDINATED LONG-TERM DEBT,
less current maturities . . . . . . . . . . . . . . . . . . . . . . . . 1,694,556 1,731,904
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized, 30,000,000 shares, issued
and outstanding, 13,011,947 and 13,010,947 shares at June 30, 1997
and December 31, 1996, respectively . . . . . . . . . . . . . . . . . 130,1961 30,109
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 10,661,874 10,639,439
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (9,516,576) (7,344,031)
------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 1,275,494 3,425,517
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,715,800 $ 17,035,020
------------ ------------
------------ ------------
(CONCLUDED)
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
NET SALES. . . . . . . . . . . . . . . $ 10,603,858 $ 20,329,801
------------- -------------
COST OF SALES:
Cost of goods sold. . . . . . . . . 4,467,049 11,132,974
License and royalty expense . . . . 1,836,068 2,163,371
------------- -------------
Total cost of sales . . . . . . . 6,303,117 13,296,345
------------- -------------
GROSS PROFIT . . . . . . . . . . . . . 4,300,741 7,033,456
------------- -------------
OPERATING EXPENSES:
Warehouse and selling . . . . . . . 3,696,409 5,277,889
Warehouse relocation (Note 6) . . . 110,000 --
General and administrative. . . . . 2,262,377 3,088,020
------------- -------------
Total operating expenses. . . . . 6,068,786 8,365,909
------------- -------------
OPERATING LOSS . . . . . . . . . . . . (1,768,045) (1,332,453)
INTEREST EXPENSE . . . . . . . . . . . 403,443 596,451
------------- -------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST. . . . . . . . . . (2,171,488) (1,928,904)
INCOME TAX PROVISION . . . . . . . . . 1,054 58,000
------------- -------------
LOSS BEFORE MINORITY INTEREST. . . . . (2,172,542) (1,986,904)
MINORITY INTEREST IN INCOME
OF SUBSIDIARIES. . . . . . . . . . . -- 93,726
------------- -------------
NET LOSS . . . . . . . . . . . . . . . $ (2,172,542) $ (1,893,178)
------------- -------------
------------- -------------
</TABLE>
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
-------------- --------------
<S> <C> <C>
NET LOSS DATA (1996 PRO FORMA):
Loss before income taxes, as reported. . $ (2,171,488) $ (1,928,904)
Provision (benefit) for income taxes . . 1,054 (603,630)
Minority interest in income of
subsidiaries . . . . . . . . . . . . . -- 93,726
------------- -------------
Net loss . . . . . . . . . . . . . . $ (2,172,542) $ (1,231,548)
------------- -------------
------------- -------------
NET LOSS PER SHARE (1996 PRO
FORMA) (Note 5):
Loss from operations . . . . . . . . . . $ (0.17) $ (0.16)
Minority interest in income of
subsidiaries . . . . . . . . . . . . . -- 0.01
------------- -------------
Net loss . . . . . . . . . . . . . . $ (0.17) $ (0.15)
------------- -------------
Weighted average shares outstanding . . 13,011,947 8,036,602
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
------------ -------------
<S> <C> <C>
NET SALES........................... $ 5,477,322 $11,389,143
------------ -------------
COST OF SALES:
Cost of goods sold............... 2,418,191 6,785,657
License and royalty expense...... 1,146,642 1,241,165
------------ -------------
Total cost of sales.......... 3,564,833 8,026,822
------------ -------------
GROSS PROFIT........................ 1,912,489 3,362,321
------------ -------------
OPERATING EXPENSES:
Warehouse and selling................. 1,913,482 2,500,926
Warehouse relocation (Note 6)...... (970,000) -
General and administrative......... 1,013,222 2,060,134
----------- ------------
Total operating expenses....... 1,956,704 4,561,060
----------- ------------
OPERATING LOSS........................ (44,215) (1,198,739)
INTEREST EXPENSE...................... 207,000 328,792
------------ ------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST.................. (251,215) (1,527,531)
INCOME TAX PROVISION.................. 797 (9,323)
------------ --------------
LOSS BEFORE MINORITY INTEREST......... (252,012) (1,518,208)
MINORITY INTEREST IN INCOME
OF SUBSIDIARIES................... - 139,146
------------ --------------
NET LOSS.............................. $ (252,012) $(1,379,062)
------------ --------------
------------ --------------
NET LOSS DATA (1996 PRO FORMA):
Loss before income taxes, as reported.. $ (251,215) $(1,527,531)
Provision (benefit) for income taxes... 797 (518,516)
Minority interest in income of
subsidiaries.......................... - 139,146
------------- --------------
Net loss................. $ (252,012) $ (869,869)
-------------- --------------
NET LOSS PER SHARE (1996 PRO
FORMA)(Note 5):
Loss from operations.................. $ (.02) $ (0.13)
Minority interest in income of
subsidiaries........................ .00 .02
-------------- --------------
Net loss.......................... $ (.02) $ (0.11)
------------- --------------
------------- --------------
Weighted average shares outstanding... 13,011,947 8,036,602
------------- --------------
------------- --------------
(CONTINUED)
</TABLE>
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss............................. $ (2,172,542) $ (1,893,178)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 464,541 164,488
Provision for warehouse relocation... 110,000 0
Minority interest in income of
subsidiaries..................... - (93,744)
Changes in operating assets and
liabilities:
Accounts receivable................ 407,708 (106,465)
Inventories........................ 935,726 (1,130,336)
Prepaid royalty advances........... (139,789) (399,795)
Prepaid expenses and other current
assets........................... 237,734 (365,706)
Accounts payable................... (398,600) 2,039,400
Accrued expenses................... 170,728 126,764
Royalties payable.................. 409,550 137,997
Due to customers................... (2,727) (25,903)
Income taxes payable............... - (202,189)
------------- -------------
Net cash provided by (used in)
operating activities......... 22,329 (1,748,667)
------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment... (152,650) (105,857)
Deposits............................. 16,699 -
-------------- ---------------
Net cash used in investing
activities.................... (135,951) (105,857)
-------------- ----------------
-------------- ----------------
(CONTINUED)
</TABLE>
-8-
<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayment) borrowings on line of credit. . . $(1,046,954) $2,086,627
Payments on subordinated debt . . . . . . . . . . (412,348) (31,460)
Proceeds of note receivable . . . . . . . . . . . 1,575,000 -
Dividends paid. . . . . . . . . . . . . . . . . . - (99,753)
Proceeds from exercise of stock options . . . . . 22,522
Payment on capital lease obligations. . . . . . . (56,846) (40,243)
----------- ----------
Net cash provided by financing activities . . 81,374 1,915,171
----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . (32,248) 60,647
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . 32,248 74,828
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . $ - $ 135,475
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . $ 305,692 $ 522,004
Income taxes. . . . . . . . . . . . . . . . . . $ 0 $ 7,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTION
Capital lease obligations of approximately $58,000 were incurred in
1997 when the Company entered into an agreement for the purchase of
new equipment.
(CONCLUDED)
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________
1. BASIS OF PRESENTATION
The consolidated balance sheet as of June 30, 1997 and the related
consolidated statements of operations and of cash flows for the six months
ended June 30, 1997 and 1996 have been prepared by Global One Distribution &
Merchandising Inc. ("Global One" or the "Company") without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) have been made which are necessary to present fairly the financial
position, results of operations and cash flows of the Company at June 30,
1997 and for the six-month period then ended.
Although the Company believes that the disclosure in the consolidated
financial statements is adequate for a fair presentation thereof, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The December 31, 1996 audited statements
were included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on April 15, 1997. These consolidated
financial statements should be read in conjunction with the audited financial
statements and notes thereto contained in that document.
The results of operations for the three- and six-month periods ended June 30,
1997 are not necessarily indicative of the results for the full year.
2. INVENTORIES
Inventories consisted of the following:
JUNE 30, DECEMBER 31,
1997 1996
---------- -----------
Products in process $ 74,786 $ 252,893
Finished products 1,158,562 1,796,604
Packaging materials 391,529 511,106
---------- -----------
$1,624,877 $2,560,603
---------- -----------
---------- -----------
3. MERGER AND PRIVATE PLACEMENT
On March 27, 1996, OSP Publishing, Inc. ("OSP") entered into an agreement to
acquire Kelly Russell Studios, Inc. ("KRSI"), a publicly-traded entity.
Global One was formed to serve as a holding company for OSP and its
subsidiaries and to acquire KRSI. On August 28, 1996, the Company acquired
KRSI through a merger of KRSI into a wholly owned subsidiary of the Company
(the "KRSI Merger"). In connection with the KRSI Merger, the Company issued
2,041,189 shares of Common Stock to the former shareholders of KRSI.
Concurrently with the KRSI Merger, the Company acquired its affiliates, OSP
and The Button Exchange, Inc., through a merger of those companies into
wholly owned subsidiaries of the Company (the "Reorganization"). In
connection with the Reorganization, the Company issued 6,448,442 shares to
the former shareholders of OSP. Also concurrently with the KRSI Merger and
the Reorganization, the Company issued 4,324,238 shares of Common Stock to
investors in a private placement (the "Private Placement" and, together with
the "KRSI Merger" and the "Reorganization," the "Transactions"). Net
proceeds (less commissions and expenses and distributions) to the Company as
a result of the Private Placement were $2,824,000. The Company's Common
Stock commenced trading on the NASDAQ
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<PAGE>
SmallCap Market effective August 28, 1996.
4. SALE OF SDI AND PRO FORMA RESULTS OF OPERATION
In 1996, OSP entered into an agreement with the minority shareholder and
President of Stanley DeSantis, Inc. ("SDI") under which the minority
shareholder had an option to purchase the 51% ownership of SDI held by OSP at
a determined price. Effective December 31, 1996, the minority shareholder
exercised the option and purchased the 51% of the common stock of SDI held by
OSP for total consideration of $1,575,000. The consolidated financial
statements of the Company include the statement of operations for SDI for
only the six months ended June 30, 1996. The consolidated balance sheet at
December 31,1996 reflected the sale of SDI. Net sales and the net loss of
SDI for the six months ended June 30, 1996 were approximately $9.7 million
and $191,000, respectively.
As noted in Note 3, the Company merged with a public entity effective August
28, 1996. The following table sets forth (in thousands, except per share
data) the unaudited pro forma results of operations as if the acquisition of
KRSI and disposition of SDI were consummated at the beginning of 1996. The
unaudited results of operations data consists of historical results of the
Company as adjusted to give effect to (1) amortization of the excess of the
purchase price over the net assets acquired for KRSI, (2) elimination of the
allocation of the profit to the minority shareholder of SDI and (3) pro forma
effect of income taxes as if OSP had been taxed as a C Corporation. The
unaudited pro forma results of operations do not include cost reductions from
the elimination of duplicated operating expenses such as personnel, rent and
warehouse operations. The unaudited pro forma weighted average number of
common and common equivalent shares outstanding give effect to the
Transactions described in Note 3 for all periods presented.
Six Months Ended
June 30, 1996
----------------
Net sales .................................. $12,247
Cost of sales............................... 7,173
----------------
Gross profit ............................... 5,074
Operating expenses.......................... 7,326
----------------
Operating loss ............................. (2,252)
Interest expense ........................... 488
----------------
Loss before taxes .......................... (2,740)
Provision for income taxes.................. 185
----------------
Net loss ................................... $(2,925)
----------------
----------------
Net loss per share ......................... $ (0.23)
----------------
----------------
Weighted average shares outstanding......... 12,994
----------------
----------------
5. PRO FORMA NET LOSS PER SHARE
In connection with the organization of Global One as the parent company of
OSP, the stockholders of OSP received 6,448,442 shares of common stock of
Global One in exchange for the common stock outstanding at December 31, 1995.
The pro forma weighted average shares outstanding for 1996 assumes that this
exchange had occurred throughout the period 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 in
1996. 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 $2,350,000
-11-
<PAGE>
that was declared prior to the closing of the KRSI acquisition and private
placement offering and was paid from the proceeds of the offering. Common and
common equivalent shares issued during the 12-month period prior to the
offering have been included in the calculation using the treasury stock
method as if they were outstanding for all periods presented.
6. WAREHOUSE RELOCATION
The Company had recorded an accrual for the quarter ended March 31,
1997 in anticipation of entering into an arrangement to outsource its
warehouse facility including the inventory, distribution and shipping
functions as well as certain accounting functions. The accrual was based on
the estimated costs of employee severance arrangements and accrued but unpaid
vacation time for employees to be terminated. It also included the estimated
physical moving and relocation costs as well as the write-off of leasehold
improvements at the Company's current warehouse location. The Company
subsequently entered into an outsourcing arrangement with Prodispak U.S.A.
Inc. ("Prodispak") (see "Liquidity and Capital Resources"); accordingly the
originally anticipated outsourcing did not take place. As a result, the
recorded accrual has been significantly reduced (from $1,080,000 to $110,000)
because the relocation was within California and not to New Jersey. The
current accrual is based on expected equipment and warehouse reconfiguration
costs associated with the Prodispak arrangement. Alan Saloner who owns
250,000 shares of Common Stock (or 0.019% of the outstanding Common Stock)
and is the general partner of The Saloner Family Investment Limited
Partnership (see "Note 7"), is the President of Prodispak.
7. RELATED PARTY TRANSACTIONS
In September, 1996, the Company entered into an agreement with
several persons for the formation of a company, The Speedway, LLC, a
California limited liability company ("Speedway"), to engage in the business
of developing, advertising, marketing and promoting a chain of racing themed
entertainment restaurants and the sale of merchandise in connection
therewith. The Company contributed approximately $85,000 in cash to Speedway
for an approximately 25% interest in the enterprise.
On July 28, 1997, the Company sold its economic interest in Speedway
for $200,000 to The Saloner Family Investment Limited Partnership ("TSFILP").
The Company received payment on the sale date, and will record a gain in the
third quarter period. Alan Saloner who owns 250,000 shares of Common Stock
(or 0.019% of the outstanding Common Stock) and is the President of Prodispak
(see "Note 6"), is the general partner of TSFILP.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock. This
statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. In June 1997 the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 130, Reporting for Comprehensive Income and No. 131,
Disclosures about Segments of an Enterprise and Related Information. These
statements are effective for financial statements issued for periods
beginning after December 15, 1997. The Company has not yet analyzed the
impact of adopting these statements.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY
RESULTS OF OPERATIONS
The business of the Company is conducted through the Company's
subsidiaries, OSP Publishing, Inc. ("OSP"), BEx Corp. ("BEx") and, since
August 28, 1996, Kelly Russell Studios, Inc. ("KRSI"), 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. BEx develops and markets
licensed and non-licensed buttons, key rings and stickers. KRSI creates,
markets and distributes sports related art for the collectible market. Prior
to 1997, the Company owned 51% of Stanley DeSantis, Inc. ("SDI"). SDI was
sold on December 31, 1996 to the minority stockholder. SDI developed and
marketed licensed and non-licensed T-shirts, sweatshirts, hats, boxer shorts
and mugs.
-13-
<PAGE>
The following tables set forth the net sales, total cost of sales and gross
profit of OSP, SDI, KRSI, BEx and the Company for the three months and six
months ended June 30, 1996 and 1997.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
% OF % OF % OF % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
NET SALES
OSP . . . . . . . . $ 5.4 100.0 $4.3 100.0 $10.0 100.0 $ 9.1 100.0
SDI (1) . . . . . . 5.6 100.0 0.0 0.0 9.7 100.0 0.0 0.0
KRSI (2). . . . . . 0.0 100.0 0.4 100.0 0.0 0.0 0.6 100.0
BEx . . . . . . . . 0.4 100.0 0.8 100.0 0.6 100.0 0.9 100.0
----- ---- ----- -----
Company . . . . . . $11.4 100.0 $5.5 100.0 $20.3 100.0 $10.6 100.0
----- ---- ----- -----
----- ---- ----- -----
COST OF GOODS SOLD
OSP . . . . . . . . $ 2.6 48.2 $2.0 46.5 $ 4.4 44.0 $ 3.8 41.8
SDI (1) . . . . . . 3.8 67.9 0.0 0.0 6.2 63.9 0.0 0.0
KRSI (2). . . . . . 0.0 0.0 0.1 25.0 0.0 0.0 0.2 33.3
BEx . . . . . . . . 0.4 100.0 0.4 50.0 0.5 83.3 0.5 55.6
----- ---- ----- -----
Company . . . . . . $ 6.8 59.7 $2.5 45.5 $11.1 54.7 $ 4.5 42.5
----- ---- ----- -----
----- ---- ----- -----
LICENSE AND ROYALTY
EXPENSE
OSP . . . . . . . . $ 0.6 11.1 $0.9 20.9 $ 1.2 12.0 $ 1.6 17.6
SDI (1) . . . . . . 0.6 10.7 0.0 0.0 0.9 9.3 0.0 0.0
KRSI (2). . . . . . 0.0 0.0 0.1 25.0 0.0 0.0 0.1 16.7
BEx . . . . . . . . 0.1 25.0 0.1 12.5 0.1 16.7 0.1 11.1
----- ---- ----- -----
Company . . . . . . $ 1.3 11.4 $1.1 20.0 $ 2.2 10.8 $ 1.8 17.0
----- ---- ----- -----
----- ---- ----- -----
TOTAL COST OF SALES
OSP . . . . . . . . $ 3.2 59.3 $2.9 67.4 $ 5.6 56.0 $ 5.4 59.3
SDI (1) . . . . . . 4.4 78.6 0.0 0.0 7.1 73.2 0.0 0.0
KRSI (2). . . . . . 0.0 0.0 0.2 50.0 0.0 0.0 0.3 50.0
BEx . . . . . . . . 0.5 125.0 0.5 62.5 0.6 100.0 0.6 66.7
----- ---- ----- -----
Company . . . . . . 8.1 71.1 $3.6 65.5 $13.3 65.5 $ 6.3 59.4
----- ---- ----- -----
----- ---- ----- -----
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GROSS PROFIT
OSP . . . . . . . . 2.2 40.7 $1.4 32.6 $ 4.4 44.0 $ 3.7 40.7
SDI (1) . . . . . . 1.2 21.4 0.0 0.0 2.6 26.8 0.0 0.0
KRSI (2). . . . . . 0.0 0.0 0.2 25.0 0.0 0.0 0.3 50.0
BEx . . . . . . . . (0.1) (25.0) 0.3 37.5 0.0 0.0 0.3 33.3
----- ---- ----- -----
Company . . . . . . 3.3 29.0 $1.9 34.6 $ 7.0 34.5 $ 4.3 40.6
----- ---- ----- -----
----- ---- ----- -----
_____________________________________
(1) Sold effective December 31,1996
(2) Acquired on August 28, 1996
The following tables set forth the percentage of net sales of certain income
and expense items for the three months and six months ended June 30, 1996 and
1997.
PERCENTAGE OF
NET SALES
THREE MONTHS ENDED *PERIOD TO PERIOD
JUNE 30, PERCENTAGE CHANGE
------------------ -----------------
1996 1997 1996 VS. 1997
------ ------ -----------------
Net sales . . . . . . . . . . . . 100.0% 100.0% -51.9
Cost of goods sold. . . . . . . . 59.7 45.5 -64.4
License and royalty expense . . . 11.4 20.0 -7.6
Gross profit. . . . . . . . . . . 29.0 34.5 -43.1
Warehouse and selling expenses. . 22.0 34.9 -23.5
Warehouse relocation. . . . . . . 0.0 -17.7 -100.0
General and administrative. . . . 18.1 18.5 -50.8
Operating loss. . . . . . . . . . -10.5 -0.8 -96.3
Interest expense. . . . . . . . . 2.9 3.8 -37.0
Minority interest in income
of subsidiaries . . . . . . . . 1.2 0.0 -100.0
Net loss. . . . . . . . . . . . . -4.2 -4.6 -81.7
______________________________________
* Based on dollar amounts on page 5.
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PERCENTAGE OF
NET SALES
SIX MONTHS ENDED *PERIOD TO PERIOD
JUNE 30, PERCENTAGE CHANGE
------------------ -----------------
1996 1997 1996 VS. 1997
------ ------ -----------------
Net sales . . . . . . . . . . . . 100.0% 100.0% -47.8
Cost of goods sold. . . . . . . . 48.3 42.5 -59.9
License and royalty expense . . . 10.1 17.0 -15.1
Gross profit. . . . . . . . . . . 41.6 40.6 -38.9
Warehouse and selling expenses. . 26.3 34.9 -30.0
Warehouse relocation. . . . . . . 0.0 1.0 100.0
General and administrative. . . . 16.3 21.3 -26.7
Operating loss. . . . . . . . . . -1.5 -16.7 32.7
Interest expense. . . . . . . . . 3.0 3.8 -32.4
Minority interest in income
of subsidiaries . . . . . . . . -0.5 0.0 -100.0
Net loss. . . . . . . . . . . . . -5.8 -20.5 14.8
_______________________________________
* Based on dollar amounts on page 7.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
The Company's net sales decreased $9.7 million, or 47.8%, for the
six months ended June 30, 1997 compared to the six months ended June 30,
1996. This decrease was primarily a result of the sale of SDI on December
31, 1996, which contributed sales of $9.7 million in the six months ended
June 30, 1996. OSP experienced decreased sales of $872,393, or 6.1%, for the
six months ended June 30, 1997 compared with 1996. This decrease can be
attributed to an accrual recorded in anticipation of returns from a major
customer. The decrease was offset by sales of products acquired from Zanart
Entertainment in late 1996, which consisted primarily of STAR WARS framed
prints associated with the re-release of the trilogy of movies produced by
Lucasfilms. BEx's sales increased $ 221,155, or 34.7%, for the two quarters
compared with the comparable period in 1996 as a result of the redirection of
marketing and sales efforts which focuses on sales of products produced for
major movie promotions. KRSI was merged into the Company effective August
28, 1996 and contributed sales of $621,184 for the six months ended June 30,
1997.
Cost of goods sold decreased $6.6 million, or 59.5%, for the six
months ended June 30, 1997 to $4.5 million compared with $11.1 million for
the same period in 1996. As a percentage of net sales, cost of goods sold
decreased to 42.5% for the six months ended June 30, 1997 from 54.7% for the
six months ended June 30, 1996. The Company's cost of goods sold decreased
primarily because SDI, which historically has had a higher cost of goods sold
percentage, had costs of $6.2 million for the six months ended June 30, 1996.
OSP's cost of goods sold decreased $0.6 million, or 13.6%, for the
six months ended June 30, 1997 to $3.8 million compared to $4.4 million for
the same period in 1996. For the first two quarters of 1997, OSP's costs of
goods
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<PAGE>
sold as a percentage of net sales was 41.8% compared with 44.0% in the first
two quarters of 1996. This is primarily due to the sales of STAR WARS
products which were purchased at a discount from Zanart Entertainment's
historical costs and therefore carried higher margins for OSP.
BEx's cost of goods sold for the first two quarters of 1997 was $0.5
million, or 44.4% of net sales, compared with $0.5 million, or 55.6% of net
sales, for the first two quarters of 1996. The decrease in cost of goods
sold as a percentage of net sales is due primarily to the relocation of the
Company's manufacturing and sales operations from Michigan to Bell,
California in 1996 and the write-down of certain inventory at the time.
KRSI's cost of goods sold as a percentage of net sales for the six month
period was 33.3%.
License and royalty expense as a percentage of net sales increased to
17.0% for the six months ended June 30, 1997 from 10.8% for the six months
ended June 30, 1996. OSP's royalty rate increased to 17.6% for the six
months ended June 30, 1997 from 12.0 % for the same period in 1996 due
primarily to the increased sales under Disney licenses which have higher
royalty rates. Additionally, SDI, which has historically had the lowest
royalty rate, had a royalty rate of 9.3% in the six-month period ended
June 30, 1996, which lowered the Company's combined royalty rate. Since SDI
was sold on December 31, 1996, this effect was not present in the six-month
period ended June 30, 1997.
Warehouse and selling expenses decreased $1.6 million, or 30.0%, to
$3.7 million for the six months ended June 30, 1997 from $5.3 million for the
same period in 1996. SDI had costs of approximately $1.0 million which
represented approximately 10.6% of net sales. The remaining decreases after
removing the effect of SDI were primarily the result of lower salaries and
wages as well as efficiencies with the cost reductions of BEx, which more
than offset the increase associated with the addition of KRSI. Warehouse and
selling expenses as a percentage of net sales increased to 34.9% for the six
months ended June 30, 1997 from 26.3% for the same period in 1996 due to the
sale of SDI which had lower warehouse and selling expenses as a percentage of
net sales than OSP.
Warehouse relocation expense represents an estimated $100,000 accrual for
the costs associated with the outsourcing arrangement with Prodispak U.S.A,
Inc. (see "Liquidity and Capital Resources").
General and administrative expenses decreased by $825,643, or 26.7%, to
$2.3 million for the six months ended June 30, 1997 from $3.1 million for the
same period in 1996 due primarily to the sale of SDI. SDI contributed
approximately $1.1 million in general and administrative costs in the
six-month period ended June 30, 1996. Offsetting that decrease were
increases in general and administrative costs primarily as a result of higher
amortization due to the goodwill from the KRSI acquisition, which totaled
$229,204 for the six months ended June 30, 1997. Other increased costs were
insurance and professional fees as a result of being a public entity.
Interest expense decreased $193,008, or 32.4%, to $403,443 for the six
months ended June 30, 1997 from $596,451 for the same period in 1996. The
decrease in interest expense is due primarily to the sale of SDI.
The Company recorded income tax expense of approximately $58,000 in the
first two quarters of 1996 as a result of the profits of the Company's 51%
owned subsidiary, SDI, which was sold on December 31, 1996. There was only
a $1,054 provision in the first two quarters of 1997 as a result of operating
losses and no income tax benefit was recognized for the losses since the
additional deferred tax asset from the net operating loss carryforwards was
offset by an increased valuation allowance.
For the six months ended June 30, 1996, 49% of the income of SDI was
allocated to the minority stockholder and totaled $93,726. Since SDI was
sold on December 31, 1996, there was no allocation of profit or loss in 1997.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
The Company's net sales decreased $5.9 million, or 51.8%, for the three
months ended June 30, 1997 compared to the three months ended June 30, 1996.
This decrease was primarily a result of the sale of SDI on December 31, 1996,
which contributed sales of $5.6 million in the three months ended June 30,
1996. OSP experienced decreased sales of
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<PAGE>
$1.1 million, or 20.4%, for the three months ended June 30, 1997 compared
with 1996. This decrease can be attributed to processing of a backlog of
credits for returns and an accrual recorded in anticipation of returns from a
major customer. BEx's sales increased $400,000, or 100%, for the quarter
compared with the comparable period in 1996 as a result of the redirection of
marketing and sales efforts which focuses on sales of products produced for
major movie promotions. KRSI was merged into the Company effective August
28, 1996 and contributed sales of $400,000 for the quarter ended June 30,
1997.
Cost of goods sold decreased $4.3 million, or 64.4%, for the three months
ended June 30, 1997 to $2.5 million compared with $6.8 million for the same
period in 1996. As a percentage of net sales, cost of goods sold decreased
to 45.5% for the three months ended June 30, 1997 from 59.7% for the three
months ended June 30, 1996. The Company's cost of goods sold decreased
primarily because SDI, which historically has had a higher cost of goods sold
percentage, had costs of $3.8 million for the three months ended June 30,
1996.
OSP's cost of goods sold decreased $600,000, or 23.19%, for the three
months ended June 30, 1997 to $2.0 million compared to $2.6 million for the
same period in 1996. For the second quarter of 1997, OSP's costs of goods
sold as a percentage of net sales was 46.5% compared with 48.2% in the first
quarter of 1996. This is primarily due to the sales of STAR WARS products
which were purchased at a discount from Zanart Entertainment's historical
costs and therefore carried higher margins for OSP.
BEx's cost of goods sold for the second quarter of 1997 was $0.4 million,
or 50.0% of net sales, compared with $0.4 million, or 100.0% of net sales,
for the second quarter of 1996. The decrease in cost of goods sold as a
percentage of net sales is due primarily to the relocation of the Company's
manufacturing and sales operations from Michigan to Bell, California in 1996
and the write-down of certain inventory at the time.
KRSI's cost of goods sold as a percentage of net sales for the second
quarter was 25.0%.
License and royalty expense as a percentage of net sales increased to
20.0% for the three months ended June 30, 1997 from 11.4% for the three
months ended June 30, 1996. OSP's royalty rate increased to 20.9% for the
three months ended June 30, 1997 from 11.1% for the same period in 1996 due
primarily to the increased sales under Disney licenses which have higher
royalty rates and the write-off of prepaid royalties on expired licenses.
Additionally, SDI, which has historically had the lowest royalty rate, had a
royalty rate of 10.7% in the second quarter of 1996, which lowered the
Company's combined royalty rate. Since SDI was sold on December 31, 1996,
this effect was not present in the second quarter of 1997.
Warehouse and selling expenses decreased $587,444, or 23.5%, to $1.9
million for the three months ended June 30, 1997 from $2.5 million for the
same period in 1996. SDI had costs of approximately $575,556 which
represented approximately 10.3% of net sales. The remaining decreases after
removing the effect of SDI were primarily the result of lower salaries and
wages as well as efficiencies with the cost reductions of BEx, which more
than offset the increase associated with the addition of KRSI. Warehouse and
selling expenses as a percentage of net sales increased to 34.9% for the
three months ended June 30, 1997 from 22.0% for the same period in 1996 due
to the sale of SDI which had lower warehouse and selling expenses as a
percentage of net sales than OSP.
Warehouse relocation expense represents an estimated $100,000 accrual for
the costs associated with the outsourcing deal arranged with Prodispak
U.S.A., Inc. (see "Liquidity and Capital Resources").
General and administrative expenses decreased by $1,046,912, or 50.8%, to
$1.0 million for the three months ended June 30, 1997 from $2.1 million for
the same period in 1996 due primarily to the sale of SDI. SDI contributed
approximately $756,047 in general and administrative costs in the second
quarter of 1996. Offsetting that decrease were increases in general and
administrative costs primarily as a result of higher amortization due to the
goodwill from the KRSI acquisition, which totaled $112,000 for the three
months ended 1997. Other increased costs were insurance and professional
fees as a result of being a public entity.
-18-
<PAGE>
Interest expense decreased $121,792, or 37.0%, to $207,000 for the three
months ended June 30, 1997 from $328,792 for the same period in 1996. The
decrease in interest expense is due primarily to the sale of SDI.
The Company recorded income tax expense of approximately $58,000 in the
first two quarters of 1996 as a result of the profits of the Company's 49%
owned subsidiary, SDI, which was sold on December 31, 1996. There was no
provision in the second quarter of 1997 as a result of operating losses and
no income tax benefit was recognized for the losses since the additional
deferred tax asset from the net operating loss carryforwards was offset by an
increased valuation allowance.
In the second quarter of 1996, 49% of the income of SDI was allocated to
the minority stockholder and totaled $139,146. Since SDI was sold on
December 31, 1996, there was no allocation of profit or loss in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, working capital was a deficit of approximately $2.6
million primarily as a result of the Company's line of credit being
classified as a current liability for the reasons set forth below.
Net cash provided by operating activities during the six months ended June
30, 1997 was $22,329 due primarily to the reductions in inventories and
increase in royalties payable, which were partially offset by increases in
prepaid royalty advances and reductions in accounts receivable and accounts
payable. Net cash used in investing activities was $135,951 primarily as a
result of the purchase of property and equipment. Net cash provided by
financing activities during the six months ended June 30, 1997 was $81,374
due primarily to proceeds from the collection of the note receivable from the
sale of SDI partially offset by repayment of a portion of the revolving line
of credit as well as payment of subordinated debt to a vendor.
On August 28, 1996, the Company acquired KRSI through a merger and
effected a reorganization of OSP Publishing, Inc. and The Button Exchange,
Inc. Concurrently with these transactions, the Company issued 4,324,237
shares of common stock to investors in a private placement (the "Private
Placement"). Net proceeds (less commissions and expenses and distributions)
to the Company as a result of the Private Placement were $2,824,000. Prior
to the effectiveness of the Transactions, OSP paid a dividend of $2,350,000
to Joseph C. Angard and Michael Malm, former OSP shareholders and the
Chairman of the Board and Chief Executive Officer and the Chief Operating
Officer of the Company, respectively.
On December 31, 1996, the Company consummated the sale of its 51%-owned
subsidiary, SDI, pursuant to a redemption of all of the SDI stock held by OSP
(the "SDI Stock"). Following the redemption, Stanley DeSantis, SDI's
President and the owner of the remaining 49%, was the sole stockholder of
SDI. In consideration of the SDI Stock, the Company received an aggregate of
$1.575 million, $417,000 of which was paid upon the redemption and
$1,158,000 of which was paid on February 28, 1997. The consideration for
the SDI Stock was based upon a formula relating to SDI's prior four years of
operating income.
In September, 1996, the Company entered into an agreement with several
persons for the formation of a company, The Speedway, LLC, a California
limited liability company ("Speedway"), to engage in the business of
developing, advertising, marketing and promoting a chain of racing themed
entertainment restaurants and the sale of merchandise in connection
therewith. The Company contributed approximately $85,000 in cash to Speedway
for an approximately 25% interest in the enterprise.
On July 28, 1997, the Company sold its economic interest in Speedway for
$200,000 to The Saloner Family Investment Limited Partnership. The Company
received payment on the sale date, and will record a gain in the third
quarter period. Alan Saloner who owns 250,000 shares of Common Stock (or
0.019% of the outstanding Common Stock) and is the President of Prodispak, is
the general partner of TSFILP.
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<PAGE>
In July 1997, one of the Company's major customers indicated its refusal
to pay $700,000 of its account with the Company. This refusal seriously
impaired the Company's cash flow and, as discussed below, resulted in the
Company's inability to obtain financing under its line of credit. The
Company has booked a reserve with respect to such receivable; however, the
Company may decide to pursue legal or other means against the customer so
that a portion or all of the delinquent account is paid. The Company has a
line of credit with Foothill Capital Corporation ("Foothill") which
provides for maximum borrowings of $7,500,000 subject to certain conditions.
Effective July 22, 1997, Foothill ceased advancing funds to the Company under
the Company's revolving line of credit because the Company was no longer in
compliance with the lending formulas under the line. As a result of one of
the Company's receivables discussed in the preceding paragraph no longer
qualifying under the line, the Company was over advanced approximately
$700,000 as of July 22, 1997. The Company is currently in negotiations with
Foothill to determine the future of their lending relationship.
The Company has been seeking ways to reduce the Company's cash
requirements. Effective July 1, 1997, the Company outsourced all warehousing,
assembly, shipping, distribution, data entry and other MIS functions of the
Company to Prodispak U.S.A. Inc. ("Prodispak"). The Company had previously
signed a letter of intent with a New Jersey-based corporation for this
purpose, but an agreement was never reached. Under the outsourcing
agreement, Prodispak receives 7-1/4% of the Company's gross sales for
providing these services. The arrangement relieves some cash flow
limitations on the Company because it reduces the Company's fixed costs. In
addition, the arrangement improves inventory management control by, among
other things, expediting shipping. The Company has significantly reduced its
administrative and warehouse personnel and discontinued many non-performing
poster titles, and plans to reduce the number of new licenses signed in 1997.
This will reduce the initial cash outlays of pre-production, art and design
costs and effort. Alan Saloner who owns 250,000 shares of Common Stock (or
0.019% of the outstanding Common Stock) and is the general partner of The
Saloner Family Investment Limited Partnership (see "Note 7" and "Liquidity
and Capital Resources"), is the president of Prodispak.
On June 6, 1997, the Company entered into a 10-year distribution agreement
(the "Distribution Agreement") with 2d Interactive, Inc. ("2d"), a media
company with an electronic merchandising kiosk used in the display and sale
of posters and advertising images ("PosterCruisers") and other media
programs. The Distribution Agreement provides that the Company will serve as
2d's exclusive placement agent for PosterCruisers and certain
merchandise-based products. The Company has agreed to place and maintain a
minimum number of PosterCruisers each year at various retailer distributors
and to manage all aspects of 2d's poster distribution program. In addition,
2d will serve as the Company's exclusive placement agent for certain of the
Company's media programs and advertising, with such media advertising being
placed on PosterCruisers as well as other media programs. The Company will
receive all revenues from the sale of posters to the Company's retail
accounts under the Distribution Agreement and 2d will receive a royalty of
6-1/2% of the net sales of all of 2d's products distributed and sold to the
Company's accounts. In addition, 2d will pay the Company a media fee for the
placement of PosterCruisers and non-PosterCruisers media programs and the
sale of media advertising through existing Company displays in an amount
ranging from 8% to 50% of the revenues from such programs (based on the type
of media program and 2d's allocation of total media advertising between
advertisers, media programs and locations), a portion of which the Company
may be required to pass on to the retailers. Subsequent to entering into the
Distribution Agreement, verbal modifications to the Distribution Agreement
were made by the parties throughout July 1997. Management anticipates that
final documentation will be completed and the transaction closed during the
Company's third fiscal quarter.
In connection with the Distribution Agreement, on June 6, 1997, the
Company entered into a Share Purchase and Sale Agreement (the "Stock Exchange
Agreement") which provides for, among other things, (i) the Company's
issuance to 2d of an aggregate of 550,00 shares of common stock to be issued
upon 2d's raising (A) $2,500,000 on or prior to within 18 months of closing
the transaction and (B) $5,000,000 (including the amount set forth in clause
(A)) within 24 months of closing the transactions, (ii) 2d's issuance to the
Company of an aggregate of 78,500 shares of 2d in equal installments upon the
occurrence of the above financings and the Company's performance of various
covenants under the Distribution Agreement (the shares issued pursuant to
clauses (i) and (ii) shall be referred to as "Shares"), (iii) 2d's repurchase
right in the event that the Company does not perform such covenants, (iv)
piggyback registration rights for the Shares, (v) the Company's right of
first refusal in the event that 2d sells 51% of its common stock to a third
party, (vi) the Company's right to elect one Board member to 2d's Board so
long as the Company owns 5% or more of 2d's
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<PAGE>
outstanding common stock, (vii) 2d's right to send a representative to
participate, but not vote, at the Company's Board meetings, (viii) the
Company's and 2d's right of first refusal with respect to the Shares and (i)
2d's option to repurchase the Company's Shares under certain circumstances.
Subsequent to entering into the Stock Exchange Agreement, verbal
modifications to the Stock Exchange Agreement were made by the parties
throughout July 1997. Management anticipates that final documentation will be
completed and the transaction closed during the Company's third fiscal
quarter.
The Company is negotiating an agreement which provides for a $900,000
financing of the Company's operations in connection with the resignation from
the Company and partial buy-out of Joseph C. Angard, the Company's Chairman
of the Board and Chief Executive Officer and a 0.36% stockholder. The
primary terms of the transaction are: (i) the resignation of Mr. Angard and
the termination of his employment agreement with the Company, (ii) Mr.
Angard's loan of $900,000 to the Company at an interest rate of prime plus 2%
secured by certain of the Company's receivables, (iii) Mr. Angard's surrender
of 920,000 shares of the Company's common stock ("Common Stock") to the
Company, and (iv) the Company's 10-year option to purchase up to 970,000
shares of Common Stock held by Mr. Angard at a purchase price of $1.00 per
share. The transaction will be conditioned upon, among other things, the
purchase by means of a private placement, facilitated by Miller, Johnson &
Kuehn, Incorporated, as selling agent, the Company's placement agent in
connection with its private placement of Common Stock effected as of August
1996, of 2,000,000 shares of Common Stock held by Mr. Angard for $0.50 per
share. Following the transaction, Mr. Angard will own 1,723,192 shares of
Common Stock (or 0.14% of the outstanding Common Stock) and options to
purchase 199,998 and 100,002 shares at exercise prices of $1.50 and $1.50,
respectively. In addition, Mr. Angard will be retained as a consultant to
the Company for three years with aggregate payment of $220,000 plus certain
benefits. The Company believes the transaction will be finalized and closed
shortly.
The Company has experienced operating losses for the first six months
of 1997. Although, the Company's sales typically fluctuate based on seasonal
releases of major films and the Company has continued to focus and has moved
aggressively to reduce its operating costs, the Company cannot continue to
sustain losses or continue to operate without financing in the near future.
The Company is negotiating to enter into a Forbearance Agreement (the
"Forbearance Agreement") with Foothill Capital Corporation ("Foothill")
providing, among other things, that Foothill will refrain from seeking legal
or equitable remedies against the Company for breach of the credit line
provided by Foothill to the Company and will instead be paid amounts
outstanding from the collection of receipts presently outstanding and from
the sale of existing inventory. In connection therewith, Senoral, Inc., a
company controlled by Alan Saloner, who owns 250,000 shares of Common Stock
(or 0.019% of the outstanding Common Stock) and is the general partner of The
Saloner Family Investment Limited Partnership, and is the President of
Prodispak U.S.A. Inc., has orally committed to lend the Company $600,000
secured by new accounts receivable and, Management understands, has agreed to
purchase the outstanding debt, if any, of Foothill from Foothill, existing
ninety (90) days after Foothill's collection period, provided the Forbearance
Agreement is entered into. The Company has been seeking alternative sources
of financing, including short-term lending and seeking investors. However,
there can be no assurances that the Company will be able to reach an
agreement with Foothill on its line of credit or that such other financing
will be available. In the event that the Company is unable to obtain
financing in the near future, the Company may be required to seek relief
pursuant to a restructuring of the Company.
FORWARD LOOKING STATEMENTS
With the exception of the actual reported financial results and other
historical information, the statements made in this filing, including in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward looking statements that involve risks and
uncertainties that could affect future results. Such risks and uncertainties
include, but are not limited to: timing and size of orders from large
customers, general economic conditions, inventory management, the health of
the retail environment, supply constraints, supplier performance and other
risks indicated in the Company's filings with the Securities and Exchange
Commission.
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In May 1997, the Company filed an action in U.S. District Court in
California against Mark Hauser, a director and financial advisor of
the Company, alleging, among other things, the breach by Mr. Hauser
and Tamarix Capital Corporation (of which Mr. Hauser is a principal)
of financial advisory services agreements with the Company. On
August 11, 1997, effective June 3, 1997, the parties entered into a
Mutual General Release which provided for, among other things: (i)
the dismissal of the lawsuit with prejudice, (ii) the termination of
the financial advisory agreements, (iii) the modification of warrants
to purchase an aggregate of 379,922 shares of the Company's common
stock held by Mr. Hauser and two affiliates of Tamarix to extend the
term from August 28, 1999 to June 3, 2000 and reduce the exercise
price from $1.50 to $1.00 (subject to adjustments), (iv) the
resignation of Mr. Hauser from the Board of Directors, (v) the
Company's payment of approximately $900 of expenses of Tamarix and
(vi) the Company's payment to Tamarix of certain fees in the event that
various transactions are consummated on or before December 3, 1998.
In June 1997, the Company was served with a complaint alleging that
Justman Packaging Company ("Justman") is owed a debt of approximately
$70,000. Justman is a manufacturer of cardboard displays. The case was
filed in Los Angeles County Superior Court in California as Case
No. BC 171512. The Company has filed its answer denying responsibility
for the debt and is investigating potential liability. Management
believes the case, if adversely decided, will not have a material
adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company has a line of credit with Foothill Capital Corporation
("Foothill") which provides for maximum borrowings of $7,500,000
subject to certain conditions. Effective July 22, 1997, Foothill
ceased advancing funds to the Company under the Company's revolving
line of credit because the Company was no longer in compliance with
the lending formulas under the line. As a result of one of the
Company's receivables no longer qualifying under the line, the Company
was overadvanced approximately $700,000 as of July 22, 1997. The
Company is currently in negotiations with Foothill to determine the
future of their lending relationship (see "Liquidity and Capital
Resources").
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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<PAGE>
ITEM 5. OTHER INFORMATION.
On May 16, 1997, the number of directors of Global One was increased
to five (5) and George Vrabeck was elected as a Class I director and
William Kampf was elected as a Class II director. In addition, George
Vrabeck was elected to serve as the Chief Operating Officer of Global
One and the Chief Executive Officer and President of OSP. Effective
July 7, 1997, William Righeimer was elected to serve as the Chief
Financial Officer and Secretary of Global One.
On July 31, 1997, Messrs. Angard and Sacks resigned as directors of
the Company and Mr. Angard resigned as the Chairman of the Board and
Chief Executive Officer. George Vrabeck gave up his titles as
President and Chief Operating Officer to succeed as Chairman of the
Board and Chief Executive Officer. William Righeimer was also elected
as Executive Vice President.
The following business risks as disclosed in the S-4 Registration
Statement No. 333-4655 filed with the Securities and Exchange
Commission on May 29, 1996, are hereby incorporated by reference as
those set forth fully herein:
Reliance on license agreements
Market acceptance of licensed properties
Seasonality and fluctuations in operating results
Risk and fluctuations in operating results
Concentrated customer base
Dependence on key personnel
Control by existing shareholders
Possible insufficiency of working capital
Anti-takeover effect of undesignated preferred stock
Material returns of unsold products
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Final Amended and Restated Agreement and Plan of
Merger incorporated by reference to Exhibit 2.1
of the Company's Registration Statement on Form
S-4 (No. 333-4655)
3(i).1 Certificate of Incorporation of the Company
incorporated by reference to Exhibit 3(i).1 of
the Company's Registration Statement on Form S-4
(No. 333-4655)
3(ii).1 Bylaws of the Company incorporated by reference
to Exhibit 3(ii).1 of the Company's Registration
Statement on Form S-4 (No. 333-4655)
10.1 Mutual General Release, dated as of June 3,
1997, among Global One, Mark Hauser, Ara Cohen,
William Spier and Tamarix Capital Corporation
10.2 Distribution Agreement dated as of June 6, 1997,
between the Company and 2d Interactive, Inc.
10.3 Share Purchase and Sale Agreement dated as of
June 6, 1997 between the Company and
2d Interactive, Inc.
11.1 Statement re: computation of per share earnings
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
DATED: August 13, 1997 By: /s/ George J. Vrabeck
------------------------------
George J. Vrabeck
Chairman of the Board and
Chief Executive Officer
DATED: August 13, 1997 By: /s/ William Righeimer
-----------------------------
William Righeimer
Chief Financial Officer and Secretary
(Duly Authorized Officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Final Amended and Restated Agreement and Plan of
Merger incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-4
(No. 333-4655)
3(i).1 Certificate of Incorporation of the Company incorporated by
reference to Exhibit 3(i).1 of the Company's Registration
Statement on Form S-4 (No. 333-4655)
3(ii).1 Bylaws of the Company incorporated by reference to
Exhibit 3(ii).1 of the Company's Registration Statement on
Form S-4 (No. 333-4655)
10.1 Mutual General Release, dated as of June 3, 1997, among Global
One, Mark Hauser, Ara Cohen, William Spier and Tamarix Capital
Corporation
10.2 Distribution Agreement dated as of June 6, 1997, between the
Company and 2d Interactive, Inc.
10.3 Share Purchase and Sale Agreement dated June 6, 1997 between
the Company and 2d Interactive, Inc.
11.1 Statement re: computation of per share earnings
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<PAGE>
GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1997 1996
------------- --------------
Common stock outstanding at beginning of
period..................................... 13,010,947 6,448,442
Exercise of stock option..................... 1,000 --
------------- --------------
Common stock outstanding at end of period.... 13,011,947 6,448,442
------------- --------------
------------- --------------
Weighted average shares outstanding
during the period assuming exercise of
warrants................................... 13,011,947 6,645,157
Shares assumed outstanding approximating
the number of shares sold (at the net
offering proceeds per share of $1.26) to
fund the S Corporation distribution........ -- 1,393,550
Shares assumed to be repurchased under
the treasury stock method at a fair market
value per share of $1.19 for the three
months ended March 31, 1996................ -- (2,105)
------------- --------------
Total 13,011,947 8,036,602
------------- --------------
------------- --------------
Net loss data (1996 Pro forma):
Loss before income taxes..................... $ 2,171,488 $ (1,928,904)
Provision (benefit) for income taxes......... 1,054 (603,630)
Minority interest in income of subsidiaries.. 93,726
------------- --------------
Net loss................................... $ 2,172,542 $ (1,231,548)
------------- --------------
------------- --------------
Net loss per share (1996 Pro forma):
Loss from operations......................... $ (0.17) $ (0.16)
Minority interest in loss of subsidiaries.... -- 0.01
------------- --------------
Net loss per share......................... $ (0.17) $ (0.15)
------------- --------------
------------- --------------
EXHIBIT 11.1
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<PAGE>
MUTUAL GENERAL RELEASE
This Mutual General Release (this "Release") is made as of June 3,
1997, by and among GLOBAL ONE DISTRIBUTION AND MERCHANDISING INC., a Delaware
corporation ("Global One"), on the one hand and MARK HAUSER, an individual
("Hauser"), ARA COHEN, an individual ("Cohen"), WILLIAM SPIER, an individual
("Spier"), and TAMARIX CAPITAL CORPORATION ("Tamarix"), on the other hand.
Hauser, Cohen, Spier and Tamarix are sometimes collectively referred to as
the "Tamarix Parties." Global One and the Tamarix Parties are sometimes
collectively referred to as the "Parties."
FACTUAL BACKGROUND
1. In or about July, 1995, certain of the Tamarix Parties and
Global One's predecessor in interest, OSP Publishing, Inc. ("OSP") entered
into a written agreement (the "1995 Agreement") whereby certain of the
Tamarix Parties agreed to act as financial advisors for OSP and to provide
certain specified financial services in exchange for certain specified
compensation.
2. At the end of August 1996, Global One completed a merger
transaction (the "Merger") and Hauser was named to its Board of Directors.
3. Prior to completion of the Merger, certain of the Tamarix
Parties and OSP entered into two new written agreements (the "1996 Hauser
Agreement" and the "1996 Tamarix Agreement," respectively) (collectively,
"the 1996 Agreements") pursuant to which certain of the Tamarix Parties were
to act as financial advisors to OSP (and Global One upon completion of the
Merger). The 1996 Hauser Agreement, by its terms, obligated Hauser personally
to provide the services described in such agreement. Hauser was to receive
certain monetary and other compensation pursuant to the 1996 Hauser Agreement.
4. The 1996 Tamarix Agreement obligated Tamarix to provide
specified financial services to OSP (and Global One upon completion of the
Merger). In consideration of such services, Tamarix was to receive fees to
be agreed upon by the parties based on customary investment banking fees for
such services, as well as
1
<PAGE>
certain success fees payable upon the completion of the happening of certain
events.
5. Following completion of the Merger, Global One issued warrants
to purchase 239,922 shares of Global One's common stock to Hauser; warrants
to purchase 50,000 shares of Global One's common stock to Cohen; and warrants
to purchase 90,000 shares of Global One's common stock to Spier. (Such
warrants are collectively referred to as the "Warrants").
6. A dispute has arisen regarding, among other things, the
services to be provided pursuant to the 1996 Agreements, the terms and
conditions of the Warrants, Hauser's position as a Director on Global One's
Board, and payments of amounts owed by Global One to the Tamarix Parties.
7. Each of the Parties now desires to (i) release each of the
others from the obligations contained in the 1995 Agreement and the 1996
Agreements; (ii) modify the Warrants as set forth below; (iii) effectuate
Hauser's resignation from his position on Global One's Board of Directors;
and (iv) take such other actions as set forth herein.
AGREEMENT
Now, therefore, in consideration of the foregoing, the mutual
promises set forth herein and effective upon the satisfaction of the
deliveries set forth below in paragraph A, the Parties agree as follows:
A. (i) Upon the execution hereof by all parties, Hauser shall
deliver his resignation from Global One's Board of Directors in the form set
forth in Exhibit "A" attached hereto.
(ii) Upon receipt of the delivery required by Section A.(i),
Global One shall dismiss, with prejudice, the lawsuit captioned GLOBAL ONE
DISTRIBUTION & MERCHANDISING INC. V. MARK HAUSER, ET AL., United States
District Court Case No. CV-97-3897 CBM (SHx)(the "Lawsuit").
B. (i) Global One and its respective trustees, employees, agents,
representatives, affiliates and attorneys ("Affiliates") hereby releases and
discharges each of the Tamarix
2
<PAGE>
Parties and their Affiliates, and each of the Tamarix Parties hereby releases
and discharges Global One and its Affiliates from any and all claims, debts,
liabilities, obligations and causes of action of every nature and character,
whether known or unknown, now existing or hereafter arising, now owned or
hereafter acquired, which Global One or any of the Tamarix Parties now have
or may hereafter claim to have by reason of any matter, fact or thing
whatsoever occurred, done or admitted to be done, prior to the date of this
Release, arising out of or in connection with or in respect to any of the
matters or disputes involved in or related to the 1995 Agreement, the 1996
Agreements, the Warrants, Hauser's position on Global One's Board of
Directors (including compensation relating thereto), or any matter covered or
relating to the Lawsuit. The foregoing releases shall extend to and apply to
and are hereby made for the express benefit of the past and present officers,
directors, trustees, employees, agents, attorneys, affiliates and
representatives of Global One and the Tamarix Parties and their past and
present Affiliates.
(ii) In connection with the foregoing release, Global One and
each of the Tamarix Parties hereby waives all rights and benefits which may
be afforded to them by or under California Civil Code Section 1542, and
further acknowledges that if any of them hereafter discovers any facts
different from or in addition to those which such party now knows or believes
to be true with respect to any of the claims or other matters so released,
then such party's foregoing release nonetheless shall be and remain effective
in all respects. Global One and each of the Tamarix Parties acknowledges that
Section 1542 of the California Civil Code provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
(iii) Global One and each of the Tamarix Parties, and each of
them, on their own behalf and on behalf of each of their Affiliates,
represent and warrant that no party heretofore has assigned, transferred or
hypothecated or set over to any person or entity any interest in any of the
claims that are the subject of this Release.
3
<PAGE>
(iv) The 1995 Agreement and the 1996 Agreements are terminated
and of no further force or effect. The Indemnification Agreement, dated
August 28, 1996, between Global One and Mark S. Hauser shall survive
according to its stated terms and conditions.
(v) Upon the execution hereof by all parties, Global One shall
reimburse Tamarix for expenses in the amount of $900.00.
(vi) Upon the execution hereof by all parties and return of the
presently outstanding and issued Warrants to Global One, Global One shall
issue replacements to the Warrants modifying the Warrants to (a) adjust the
exercise price thereof to $1.00 per share of Global One common Stock (or to
such lower amount, in the event Global One issues any of its shares for a
lower monetary consideration on or before June 3, 1998); and (b) provide
"piggy-back" registration rights for the Warrants for a period of three (3)
years from the date hereof in the event Global One conducts a registration of
its shares during such time period. In all other substantive respects the
replacement Warrants shall be identical to the existing Warrants.
(vii) Tamarix shall receive a "Success Fee" as set forth on
Schedule "I" attached hereto in the event Global One completes a transaction
with any of the entities set forth on Schedule "I" on or before December 3,
1998 (except as otherwise limited to a shorter period as described thereon).
C. The negotiations concerning this Release were conducted in
California between counsel for the parties and this Release is made with
reference to and consideration of California law. Accordingly, the validity,
enforcement, interpretation and construction of this Release shall be in
accordance with and under and pursuant to the laws of the State of
California. Any action at law or in equity arising under this agreement shall
be filed only in an appropriate State or Federal Court located in the County
of Los Angeles, California. The parties to this Agreement hereby consent and
submit to the personal jurisdiction of such courts for the purposes of
litigating any such action.
D. This Release shall bind, and inure to the benefit of, the
respective heirs, assigns, successors, shareholders, officers, directors,
employers, trustees, and legal representatives of Global One and each of the
Tamarix Parties.
4
<PAGE>
E. Global One and each of the Tamarix Parties represents and
warrants that they have full power and authority to execute this Release.
Nothing contained in this Release shall release or impair any of the rights,
obligations or liabilities created by, or any of the acknowledgments,
covenants, agreements, representations or warranties contained in this
Release.
F. In executing this Release, Global One and each of the Tamarix
Parties represents and warrants that they do so with full knowledge of all
rights which they may have and that they have received independent legal
advice from their attorneys. Global One and each of the Tamarix Parties are
relying on their own judgment, belief and knowledge with regard to the
subject of this Release, and each party to this Release acknowledges that
they have not been influenced to any extent whatsoever in making this Release
by any representations or statements by any other party or counsel for any
other party. This Release is freely and voluntarily entered into.
G. This Release has been prepared jointly for the parties and is
to be construed fairly and not in favor of or against any party as the
draftsman thereof.
H. In the event that any of the provisions of this Release is held
to be unenforceable, invalid or illegal by any court of competent
jurisdiction, such illegality shall not invalidate the whole of this Release,
but rather this Release shall be construed as if it did not contain the
illegal part, and the rights and obligations of the parties shall be
construed and enforced accordingly.
I. In the event of any controversy, claim or dispute relating to
this Release or the breach of any party thereof, the prevailing party shall
be entitled to recover from the losing party reasonable expenses, attorneys'
fees and costs, including costs of enforcing any judgment.
J. This Release may not be amended, modified or otherwise changed
in any respect whatsoever except by a writing duly executed by authorized
representatives of Global One and each of the Tamarix Parties.
5
<PAGE>
K. It is understood that the delivery and execution of this
Release does not constitute an admission of liability but is a compromise of
disputed claims.
L. This Release may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same instrument.
M. This Release constitutes the entire agreement between the
parties herein named. Any oral representations or modifications concerning
this Release shall be of no force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Release
effective as of the date first set forth above.
GLOBAL ONE DISTRIBUTION
& MERCHANDISING INC.
By: /s/ George J. Vrabeck /s/ Mark Hauser
------------------------- -----------------------------
MARK HAUSER
Its: President
-------------------------
/s/ Ara Cohen
-----------------------------
ARA COHEN
/s/ William Spier
-----------------------------
WILLIAM SPIER
TAMARIX CAPITAL CORPORATION
By: /s/ Mark Hauser
--------------------------
Its: President
-------------------------
6
<PAGE>
EXHIBIT "A"
FORM OF RESIGNATION BY MARK HAUSER
June 3, 1997
Mr. Joseph C. Angard, Chairman of the Board
Global One Distribution & Merchandising Inc.
5548 Lindbergh Lane
Bell, California 90201
Dear Joe:
Please accept, effective immediately, my resignation from Global One's Board.
Sincerely,
Mark Hauser
7
<PAGE>
SCHEDULE "I"
The following companies and their successors are the entities referred to in
Section B.(vii) subject to the following Success Fee.
PROTECTED PROSPECTS
Golder Thoma Cresey
Scandecor
Devon Group
Shansby
Landmark (protected for one (1) year from the date hereof).
SUCCESS FEE
1. A one-time cash fee equal to two percent (2%) of funds raised or committed
or obligations assumed through a financing and a one-time issuance of
warrants to purchase such number of common shares of Global One equal to
two percent (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
following 5 years with piggy-back registration rights (provided that
Tamarix agrees to terms customarily requested by an underwriter if Global
One undertakes a public offering of equity in the financing); or
2. A one-time cash fee equal to one percent (1%) of the consideration
(including payments made and debt assumed) paid in an acquisition.
8
<PAGE>
DISTRIBUTION AGREEMENT
This agreement ("Agreement") is made as of this 6th day of June, 1997, by
and between Global One Distribution and Merchandising, Inc., a Delaware
corporation ("Global One"), and 2d Interactive, Inc., a Delaware corporation
("2d").
BACKGROUND RECITALS
WHEREAS, Global One, through one of its subsidiaries, OSP Publishing,
Inc., is one of the nations leading publishers and distributors of posters;
WHEREAS, 2d is a media company that has developed an electronic
merchandising kiosk ("PosterCruiser") to be used in connection with the
display and sale of posters that contain advertising images, and other media
programs;
WHEREAS, 2d and Global one believe that it is in their mutual interest to
develop certain exclusive business relationships with respect to 2d's media
programs, subject to the terms and conditions of this Distribution Agreement;
WHEREAS, simultaneous with the execution of this Distribution Agreement,
2d and Global One have entered into a Stock Purchase and Sale Agreement for
the exchange of certain shares of common stock and for the additional sale of
common stock subject to the performance of this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual agreements
and understandings herein set forth:
1. EXCLUSIVE RELATIONSHIPS
(a) EXCLUSIVE PLACEMENT AGENT
2d hereby appoints, and Global One hereby accepts the right and
responsibility of being 2d's exclusive placement agent for (i) the placement
of 2d's existing PosterCruisers, as more fully described on a schedule to
this Agreement, and (ii) the sale of 2d's merchandise based products in
accordance with the terms and conditions of this Distribution Agreement.
Merchandise based products shall include all tangible products currently made
or developed by Global One or its subsidiaries or which may be developed or
produced by Global One or its suppliers as a reasonable extension of its
existing product line, and that can be sold on a wholesales basis to
retailers by Global One. The terms of this exclusive relationship shall not
apply to media
1
<PAGE>
opportunities available to 2d which are outside of Global One's accounts and
do not incorporate poster products or other merchandise based products.
(b) EXCLUSIVE MEDIA AGENT
Global One hereby appoints, and 2d hereby accepts the right to be Global
One's exclusive placement agent for the sale and placement of any media
programs and advertising in Global One's accounts. Global One's accounts
shall include Targeted and Non-Targeted Accounts, and any other accounts
Global One, or its subsidiaries or affiliates, distributes it's products. 2d
agrees to use its best efforts to sell and place media advertising in Global
One's accounts. The placement of media advertising may include the placement
of advertising on 2d's PosterCruisers, as well as any other media programs,
including, but not limited to, point-of-sale advertising, in-store
promotions, image based advertising, and product displays.
2. PLACEMENT OBLIGATIONS AND GUIDELINES
Global One agrees to use its best efforts to provide for the placement
and retention of 2d's PosterCruisers in certain of Global One's accounts as
selected by 2d and in such other locations as may be selected by 2d and
accepted by Global One, in accordance with this Distribution Agreement.
(a) INITIAL POSTERCRUISER PLACEMENT OBLIGATIONS
Global One agrees to place and maintain during the term of this
Distribution Agreement, 1,000 PosterCruisers in certain targeted Global One
accounts (the "Targeted Accounts") as set forth on Exhibit A, attached hereto
and made a part hereof. The initial 1,000 PosterCruisers shall be placed on
or before July 1, 1998, or such later date as may be extended in accordance
with paragraph 2(e) of this Distribution Agreement. Global One shall arrange
and secure the relocation of PosterCruisers with Targeted Accounts as may be
necessary in order to maintain 1,000 PosterCruisers at all times during the
term of this Agreement. 2d and Global One may at any time, by written
agreement signed by both parties, add Targeted Accounts to the list set forth
on Exhibit A.
(b) ADDITIONAL POSTERCRUISER PLACEMENT OBLIGATIONS
From and after the placement of the initial 1,000 PosterCruisers, Global
One agrees to place and maintain additional PosterCruisers in Targeted
Accounts in
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<PAGE>
accordance with the Distribution Schedule attached hereto and made a part
hereof. In the event that 2d intends to place a PosterCruiser in a new
account outside the Global One accounts, 2d shall give Global One an
opportunity to accept such account as a Global One account. Upon acceptance
of such an account, it shall become subject to the terms and conditions of
this Distribution Agreement as a Global One Account.
(c) POSTERCRUISER PLACEMENT GUIDELINES
Global One agrees to adhere to the following Placement Guidelines in
securing, placing and maintaining, PosterCruisers in all Global One
distribution locations:
(i) Global One shall arrange and secure Retail Placement Agreements
with all Targeted Accounts substantially in accordance with the terms and
conditions of the attached Retail Placement Agreement. Global One
acknowledges that the Retail Placement Agreement will require the placement
of PosterCruisers in desirable high traffic locations. Global One also
acknowledges that the Retail Placement Agreements will provide for
exclusivity arrangements with retailers with respect to the sale and display
of electronic advertising images and posters.
(ii) Although Global One cannot guarantee which Targeted or
Non-Targeted accounts will accept and receive 2d's Products or
PosterCruisers, Global One agrees to secure the total number of placement
obligations set forth herein.
(iii) Global One and 2d agree to work together to determine (1) which
Targeted or Non-Targeted Accounts will be approached, (2) the manner in which
each account will be approached, and (3) when the placements of the 2d's
Products or PosterCruisers will occur.
(iv) 2d shall have the final approval with respect to which accounts
receive 2d's Products or PosterCruisers. 2d may reject Targeted Accounts
based on a good faith determination by 2d that the accounts fail to meet any
of the following placement criteria: (1) the location must have a significant
proportion of customers between 18-24 years of age; (2) total foot traffic at
the location must be above industry average for comparable size stores in
competing industries; (3) the location must be predominantly selling either
books, music, movie videos, posters, or sporting goods; (4) the location
and/or national chain must be financially sound; and (5) the specific
location of the PosterCruiser within a store must be acceptable to 2d.
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<PAGE>
(d) JOINT PROMOTION OBLIGATIONS
(i) 2d agrees to attend a mutually acceptable number of conventions
and/or tradeshows of Global One for the purpose of promoting the use and
display of 2d's products and PosterCruisers to Global One distribution
accounts. 2d shall not be responsible for paying any costs associated with
such trade shows, other than its reasonable travel and lodging expenses to
and from such conventions and trade shows including technical representation.
A breach of this provision shall not be a material breach of this Agreement.
Provided however, 2d shall be responsible for the cost of providing all of
its advertising material and literature, and the costs of installing,
maintaining, and providing technical assistence for the PosterCruisers at
agreed upon convention or joint promotion locations.
(ii) 2d agrees to provide, subject to its financial resources and
availability, a reasonable amount of advertising literature and material for
Global One's use and distribution for the promotion of 2d's products and
PosterCruisers. All 2d Products will contain the 2d brand name and such
other identification information as 2d may reasonably determine.
(e) POSTERCRUISER FINANCING CONTINGENCY
Global One's obligations to place the PosterCruisers and meet the
distribution schedules set forth herein, shall be subject to 2d's ability and
willingness to finance and provide available PosterCruisers. The
distribution dates and obligations set forth herein shall be extended by any
periods associated with 2d's failure to timely provide PosterCruisers once
Targeted or Non-Targeted Accounts have been selected for distribution and
placement. Global One's obligation to place and maintain PosterCruisers
pursuant to this Agreement is further subject to 2d willingness to continue
to develop and expand its PosterCruiser program in accordance with its
business plans and objectives. In the event that 2d determines that the
expansion of the PosterCruiser program in such Global One locations is not in
the bests interests of 2d, then Global One's obligations to place
PosterCruiser shall thereafter cease.
(f) RELOCATION OF POSTERCRUISERS
2d shall have the right to relocate any non-performing PosterCruisers to
other locations within or outside the Global One accounts upon 60 days
advance notice to Global One. Non-performing shall mean PosterCruisers that
fail to meet the performance guidelines developed by 2d and the applicable
retailer from time to time. In the event 2d causes the relocation of a
PosterCruiser, it shall pay all applicable
4
<PAGE>
technical relocation fees and costs. During the term of this agreement
Global One shall have the right to cause 2d to relocate the PosterCruisers to
other Global One distribution locations upon 60 days advance notice to 2d.
Global One agrees to assume relocation costs for each PosterCruiser
relocation, provided all technical aspects of the relocation shall be managed
by 2d. In the event that a creditor of 2d causes the removal of a
PosterCruiser, 2d agrees to indemnify and hold Global One harmless from any
and all costs and expenses associated with the removal of such PosterCruiser.
(g) NON-POSTERCRUISER MEDIA PROGRAM
Throughout the term of this Agreement, Global One agrees to provide for
the placement of 2d's advertising posters, signs, and other products,
(collectively "2d's Products") as determined by 2d in certain Targeted and
Non-Targeted Accounts, as set forth on Exhibit B, attached hereto and made a
part hereof. 2d will work with Global One to determine which Targeted and
Non-Targeted accounts will receive 2d's Products and Global One will use its
best efforts to arrange for the placement of 2d's Products in such Targeted
and Non-Targeted accounts. 2d and Global One may at any time, by written
agreement signed by both parties, add Targeted and Non-Targeted Accounts to
the list set forth on Exhibits A and B. In addition, Global One agrees to
the following specific media programs for Targeted and Non-Targeted Accounts:
(i) During the term of this Agreement, Global One shall provide 2d
with the opportunity to place 2d posters in a minimum of 4 wing rack slots at
up to 5,000 Global One Targeted Accounts and a minimum of 6 wing rack slots
at up to 10,000 Non-Targeted Accounts with guaranteed placement in at least 2
wing rack slots at both Targeted and Non-Targeted Accounts.
(ii) Global One agrees to provide 2d with the opportunity to place 2d
advertising images on between 2 and 4 marquee signs at up to 5,000 Targeted
Accounts and 2 marquee signs at up to 10,000 Non-Targeted Accounts.
(iii) Global One agrees to allow 2d to develop and place other media
programs at Targeted or Non-Targeted Account, subject to the approval of such
accounts.
(h) 2d'S PERFORMANCE OBLIGATIONS
Global One's placement obligations shall be subject to 2d's obligation to
timely, deliver, install, and maintain in good operating condition the
PosterCruisers in the selected locations. 2d represents that the
PosterCruisers will be fit for their intended purposes and tasks. 2d further
represents that the design and configuration of its
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PosterCruiser does not violate any copyright, trademark or patent, or other
intellectual property right of any other person, firm, or entity. In the
event that 2d does not diligently fulfill its obligations pursuant to this
paragraph, then Global One's obligation to provide for the placement of such
PosterCruisers shall be suspended until such time as 2d can consistently
fulfill such obligations and provide adequate assurances that it can continue
to fulfill such obligations.
3. POSTER PROGRAM
(a) POSTER PROGRAM MAINTENANCE
In consideration of receiving the poster revenues set forth in
subparagraph (b) below, Global One agrees to manage all aspects of 2d's
poster distribution program including the following primary obligations: (i)
maintain a flexible inventory program that encourages each PosterCruiser to
be fully stocked with 2d's products at all times; (ii) ensure an initial
stocking order of 432 posters for each PosterCruiser location or such other
number as may be required to fill all distribution slots in each
PosterCruiser; (iii) use its best efforts to keep the PosterCruisers fully
stocked with posters from each SKU; (iv) maintain minimum inventory levels of
3 posters per SKU; (v) supply all posters to accounts at its traditional and
standard listed wholesale prices, subject to annual price adjustments; (vi)
provide a contact person who can supply 2d with bi-monthly inventory counts
to assure that the PosterCruisers are fully stocked and maintained; (vii)
recall and replace from its accounts all expired poster images, as hereafter
defined, with new posters as designated by 2d; (viii) display and stock
posters in PosterCruisers for which 2d has a designated advertising contract
or as 2d may otherwise direct; (ix) provide a 100% poster return policy to
all retail accounts; and (x) manage all printing, fulfillment, returns, and
billings aspects of the poster program. An expired poster shall mean a poster
for which an advertising agreement period has expired with 2d. 2d projects
that it will rotate images on a quarterly or more frequent basis.
(b) POSTER REVENUES & ROYALTIES
In consideration of Global One maintaining 2d's poster program, 2d hereby
grants to Global One the right to receive all revenues from the sale of
posters to Global One distribution accounts (Targeted and Non-Targeted).
Provided, Global One agrees to pay 2d a royalty of six and one half percent
(6.5%) of the net sales of all of 2d's Products being distributed and sold to
Global One accounts. Net sales shall be defined as all revenue received from
the sale of 2d's Products by Global One or its affiliates, less customary
trade discounts and product returns. Royalty payments will be made to
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2d on a quarterly basis by the last day of the month following the end of
each quarter for which royalties are due. Global One shall provide detailed
sales reports in connection with each royalty payment which shall include,
but not be limited to, the quantities of each 2d Product sold for each Global
One account. 2d reserves the right to offset total royalties due 2d from the
total Media Fee due Global One in accordance with paragraph 4 below. All
sales of 2d's Products shall be made directly to Global One retail accounts
and not through any intermediary, affiliate or other distributor.
(c) POSTER PRINTING, PUBLISHING SCHEDULE & CUSTOMER SERVICE
2d agrees to give Global One 6 weeks advance notice of which posters need
to be printed prior to the intended distribution date along with the intended
distribution sites. Global One agrees to secure any and all necessary
retailer approval of the distribution of the intended posters prior to
printing. Global One agrees to provide 2d with a printing schedule to
coordinate poster printing. The cost of all printing and production charges
for all posters and related 2d Products shall be paid by Global One. All
customer service calls related to 2d's Products produced by Global One shall
be handled by Global One, unless otherwise directed by 2d. Global One shall
submit to 2d final proofs and production samples of each 2d Product to be
produced by Global One, for 2d's final written approval prior to printing.
2d reserves the right to reject any 2d Products produced by Global One that
do not conform to the final proofs or production samples, or products for
which no approval was obtained.
(d) BOOKS AND RECORDS
Global One shall keep true and complete books and records pertaining to
the manufacture and sale of the 2d Products pursuant to this Distribution
Agreement. 2d shall have the right to inspect and audit Global One's books
and records by mail or at Global One's office during normal business hours to
determine and verify 2d Product sales figures and royalty payments. In the
event that such audit reveals additional payments due 2d, Global One shall
pay upon demand all such amounts due plus interest at a rate of twelve
percent per annum from the date such amounts are determined due and owing.
All such audits shall be at 2d's sole cost and expense, provided however, in
the event that the amount due 2d as a result of such audit is equal to six
percent (6%) or more of the amount initially paid, then Global One shall
reimburse 2d for all reasonable costs of the audit including travel, meals,
lodging, and time expenses at a rate of $100 per hour spent conducting the
audit.
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(e) DISPLAY OF GLOBAL ONE POSTERS
Global One shall have the right to display one or more Global One Posters
(posters bearing images owned or licensed by Global One) in the 2d
PosterCruiser as reasonably determined by Global One and 2d. The goal and
priority of the product mix to be placed in the PosterCruisers, between 2d
Products and Global One Products, will be to fill the PosterCruisers with the
highest generating media revenue posters.
4. MEDIA REVENUE
2d agrees to pay Global One a Media Fee for the placement of 2d's
PosterCruisers, the placement of Non-PosterCruiser media programs, and for
the sale of media advertising in each case through existing Global One
displays. The Media Fee shall vary depending on the type of media program at
each Global One account. The types of media programs for which Media Fees
are payable will include (1) PosterCruiser media programs, (2)
Non-PosterCruiser media programs such as in-store signage, and (3) Global One
display rack media programs. The Media Fee payable to Global One shall be
determined by multiplying the applicable Media Rates for each media program
times the applicable Media Revenues generated by each program.
(a) MEDIA RATE
The Media Rate for the PosterCruiser media program shall be equal to up
to eight percent (8%), depending on the amount given to retailers pursuant to
the Retail Placement Agreement. Global One shall be required to offer up to
four percent (4%) of the media rate to retailers as may be necessary to
provide an incentive for the retailer to place the PosterCruisers. The rate
given to retailers will be deducted from the rate paid to Global One pursuant
to the PosterCruiser media program. The Media Rate for all Non-PosterCruiser
media programs shall be equal to ten percent (10%). The Media Rate for
Global One display wing racks shall be equal to fifty percent (50%).
(b) MEDIA REVENUE
Media Revenue related to each location for each type of media program is
determined by allocating 2d's total media revenue from each advertiser to
each type of media program and then to each location where the media program
is being displayed. 2d will allocate media revenue received from advertisers
to each of its media programs and locations in accordance with its
established practices which will be consistently
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applied. Media Revenue shall include any and all media programs and
advertising placed by 2d in Global One accounts.
(c) MEDIA FEES
Media Fees will be paid to Global One quarterly on the last day of the
month following the end of each calendar quarter during the term of this
Distribution Agreement. Media Fees shall be based on the Media Revenue
recognized during the quarter times the applicable Media Rate. In general,
2d's Media Revenue is recognized during the period in which the advertising
is placed for display. 2d shall submit an accounting statement certified by
2d's Treasurer or other officer attesting to the timing and allocation of the
Media Revenue, applicable Media Rate, and resulting Media Fees payable to
Global One.
(d) RIGHT OF OFFSET
In the event of a breach of any term of this Agreement by one party, the
other party shall have the right to withhold all fees or royalties payable to
the other during any period of breach and to offset the payment of such fees
or royalties with any damages or lost profits caused to the non-breaching
party as a result of such breach.
(e) BOOKS AND RECORDS
2d shall keep true and complete books and records pertaining to the all
media revenue and media fees paid in connection with this Distribution
Agreement. Global One shall have the right to inspect and audit 2d's books
and records by mail or at 2d's office during normal business hours to
determine and verify the media revenue and media fees paid pursuant to this
Distribution Agreement. In the event that such audit reveals additional
payments due Global One, 2d shall pay upon demand all such amounts due plus
interest at a rate of twelve percent per annum from the date such amounts are
determined due and owing. All such audits shall be at Global One's sole cost
and expense, provided however, in the event that the amount due Global One as
a result of such audit is equal to six percent (6%) or more of the amount
initially paid, then 2d shall reimburse Global One for all reasonable costs
of the audit including travel, meals, lodging, and time expenses at a rate of
$100 per hour spent conducting the audit..
5. TERM OF AGREEMENT.
The initial term of this Agreement shall be for a period of Ten (10)
Years from the date of this Agreement. Prior to or upon expiration of this
Agreement, Global One
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and 2d agree to meet to review the performance of the program during the
initial term. Upon mutual agreement of the parties, this agreement may be
extended for one or more successive periods.
6. MAINTENANCE AND OWNERSHIP OF POSTERCRUISERS & INTELLECTUAL PROPERTY RIGHTS
(a) MAINTENANCE
2d will provide installation service and complete technical maintenance
and servicing of the PosterCruisers, including regular polling of
PosterCruisers to insure that software is functioning properly. 2d agrees to
provide Global One distribution sites with relevant program instructions and
PosterCruiser operation instructions. Global One agrees to cause its accounts
to provide access to one dedicated telephone line. 2d agrees to pay regular
installation and monthly telephone charges for such line. Should any
hardware problems occur, 2d will provide on-line or on-site technical service
to ensure proper functioning of each PosterCruiser. 2d will install all
PosterCruisers at no cost to Global One.
(b) OWNERSHIP OF POSTERCRUISERS
Ownership of the PosterCruisers and all digital or electronic images will
remain with 2d at all times. In the event that a Global One distribution
location prematurely terminates or breaches its retail placement agreement,
Global One agrees to pay the costs of relocating the PosterCruiser to another
Global One account.
(c) TRADEMARKS, PATENTS, & INTELLECTUAL PROPERTY RIGHTS
Nothing contained herein shall convey any right, title or interest of any
2d patents, trademarks, copyrights or other intellectual property rights to
Global One. All products, programs, designs, materials, and concepts, that
may be patented, copyrighted, trademarked or otherwise protected, which are
developed by 2d, with or without the participation of Global One, before,
during, or after the term of this Distribution Agreement related to the
distribution and sale of media advertising and/or merchandising of 2d's
Products, including the PosterCruiser, shall be or become the property of 2d.
(d) RIGHTS OF LICENSED PROPERTIES
Global One shall use its best efforts to secure the electronic media
rights to display all of Global One's images which may be placed on 2d's
PosterCruisers or
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Products. Global One agrees to defend and hold 2d harmless from an against
Global One's failure to secure the necessary rights to display images on the
PosterCruiser or 2d's Products.
7. ADDITIONAL COVENANTS
(a) LANDLORD'S WAIVER AND CONSENT
Global One shall obtain the consent and waiver of lien, on a form
acceptable to 2d, of each Landlord or Financial Institution of a retail
account that maintains a prior lien on the property located in or about the
retail premises, prior to the placement of each PosterCruiser. The purpose
of the waiver and consent shall be to prevent a landlord or financial
institution of a retail establishment from maintaining possessory rights to
the PosterCruisers being placed in each retail account. 2d agrees to provide
or execute any and all necessary indemnifications required by retailers with
respect to loss or damage resulting from the installation or removal of the
PosterCruisers.
(b) NON-COMPETITION
During the term of this Agreement and for a period of three years from
the termination hereof for any reason, Global One agrees not to (i) directly
or indirectly engage in any business, whether as a proprietor, parent or
subsidiary, partner, joint venturer, employer, agent, consultant, or
beneficial or record owner of the capital stock of any corporation or
association, which is engaged in the activities in competition with the
business of media advertising or merchandising kiosks conducted by 2d or any
subsidiary of 2d, or (ii) disclose or appropriate to its own use or the use
of any other person or entity any trade secret or confidential information of
or confidential knowledge pertaining in any way to the business of 2d or any
subsidiary of 2d. Provided however, nothing contained herein shall prevent
Global One, or its subsidiaries and affiliates, from carrying on its existing
lines of business. Global One represents and warrants that it is currently
not developing or competing in the media advertising or electronic
merchandising kiosks businesses.
(c) BREACH OF AGREEMENT
The failure of either party to carry out and adhere to the obligations
and covenants set forth herein shall be considered a material breach of this
Agreement, provided however, either party shall have a right to cure any
material breach of this Agreement within 30 days of notice by the
non-breaching party of such breach. In addition, the bankruptcy, whether
voluntary or involuntary, or admitted insolvency of either party shall be
considered a material breach of this Agreement. In the event of a
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breach of this Agreement the non-breaching party shall have the cumulative
rights to terminate this Agreement, pursue the breaching party for all
amounts due and owing pursuant to this Agreement, seek specific performance
by injunction or otherwise, exercise any right of offset set forth herein,
and/or exercise any remedy provided in the Stock Sales Agreement with respect
to a breach of the Distribution Agreement. Such rights shall be cumulative
and may be exercised by the non-breaching party in any manner deemed
sufficient to compensate the non-breaching party for the loss, damage, or
harm proximately caused by the breaching party. The prevailing party in any
action brought to enforce the terms and conditions of this Distribution
Agreement shall be entitled to attorneys fees, costs, and all expenses
related to the enforcement of its remedies provided for herein.
(d) NON-SOLICITATION OF EMPLOYEES/CONTRACTORS
Each party to this Agreement agrees that it will not, without the prior
written consent of the other, directly or indirectly solicit for employment
or offer any position of employment or retain as an independent contractor,
any employee or contractor of the other during the term of this Agreement and
for a period of one year thereafter
(e) MEETING WITH GLOBAL ONE ACCOUNTS
Throughout the term of this Distribution Agreement, 2d shall have the
right to meet and work directly with Global One accounts to better achieve
the objectives of this Distribution Agreement.
8. MISCELLANEOUS TERMS
a) ARBITRATION OF DISPUTES
Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in accordance with the
rules of the American Arbitration Association in the State of Delaware.
Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
b) RELATIONSHIP OF PARTIES
Nothing herein contained shall be construed to place the parties hereto
in the relationship of partners or joint ventures, and neither party shall
have the authority to bind the other for any legal obligation.
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c) COMPLETE AGREEMENT
This Agreement supersedes all prior contracts and understandings between
the parties and may not be modified, changed or altered by any premise or
statement by whomsoever made and may only be modified by further written
agreement signed by all parties hereto.
d) SEVERABILITY AND GOVERNING LAW
Each of the provisions of this Agreement shall be enforceable
independently of any other provision of this Agreement and independent of any
other claim or cause of action. In the event of any dispute arising under
this Agreement, it is agreed between the parties that the law of the State of
Delaware will govern the interpretation, validity and effect of this
Agreement without regard to the place of execution or place of performance
thereof.
e) WAIVER OF BREACH
The failure of either party at any time to require the performance of the
other of any of the provisions herein shall in no way effect the respective
rights of either party to enforce the same nor shall the waiver by either
party of any breach of any provisions hereunder be construed to be a waiver
of any succeeding breach or as a waiver or modification of the provisions of
the Agreement itself.
f) AUTHORIZATION
The parties executing this agreement represent and warrant that they have
the necessary authorization and authority to bind the party on behalf of
which they are executing the agreement.
g) NOTICES
Each notice, request, approval, consent, or payment statement made
pursuant to this Agreement shall be in writing and shall be considered
effective and received on the day of deposit with the United States Postal
system, postage pre-paid, to such party at such address(es) as set forth
below (notices may also be made by facsimile provided a copy of the same is
deposited in the United States Postal system on the same day):
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If to 2d: Mr. Dominic Ianno
2d Headquarters
186 South Street
Boston, MA 02111
Facsimile 617-574-7326
with copy to: Steven J. Thayer
Thayer & Associates, Ltd.
333 W. Wacker Drive, Suite 2020
Chicago, IL 60606
Facsimile 312-357-2551
If to Global One: George Vrabeck
5548 Lindbergh Lane
Belle, CA 90201
Facsimile 213-263-9258
with copy to: Daniel H. Wolff
Weissmann, Wolff, Bergman,
Coleman & Silverman, LLP
9665 Wilshire Boulevard, Suite 900
Beverly Hills, CA 90212-2345
(h) MUTUAL INDEMNIFICATION
In consideration of the mutual covenants, agreements, and undertakings
set forth therein, each party (the "Indemnifying Party") hereto hereby agrees
to indemnify and hold harmless the other party and its affiliates and the
respective directors, officers, agents, representatives, advisors and
employees and its affiliates and each other person, if any, controlling such
other party or any of its affiliates (each an "Indemnified Person") from and
against all losses, claims, damages, liabilities, actions, taxes and expenses
incurred by any Indemnified Person (including fees and disbursements of
counsel) which are related to or arise, directly or indirectly, out of or in
connection with (i) any material breach of this Distribution Agreement, (ii)
any failure to have the necessary intellectual property rights to produce its
products, or (iii) actions taken or omitted to be taken (including any untrue
statements made or any statements omitted to be made) by the Indemnifying
Party or any of its affiliates. The Indemnifying Party will reimburse any
Indemnified Person for all expenses (including fees and disbursements of
counsel) as they are incurred by such Indemnified Person in connection with
investigating, preparing or defending any such action or claim,
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whether or not in connection with pending or threatened litigation in which
such Indemnified Person is a party. The Indemnifying Party also agrees that
no Indemnified Person shall have any liability to the Indemnifying Party or
its affiliates for or in connection, except for such liability for losses,
claims, damages, liabilities, actions, taxes or expenses incurred by the
Indemnifying Party or its affiliates insofar as a court of competent
jurisdiction has determined in a final and nonappealable order that such
liability has resulted primarily from the gross negligence, recklessness, bad
faith or willful misconduct of the Indemnified Person, and the Indemnifying
Party agrees that it will not, and will procure that its affiliates will not,
make any claim against any Indemnified Person in respect of any such
liability. The Indemnifying Party further agrees that it will not, without
the prior written consent of the Indemnified Person (such consent not to be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder.
The parties hereto, intending this Agreement to be effective as of the
day and year first set forth above, have caused this Agreement to be duly
executed by the authorized representative set forth below.
2D INTERACTIVE, INC. GLOBAL ONE DISTRIBUTION &
MARKETING, INC.
By: /s/ Dominic Ianno By: /s/ Joseph Angard
--------------------- -------------------------
Dominic Ianno, President Joseph Angard, CEO
Attest: Attest:
------------------ --------------------
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SCHEDULE I
Global One agrees to place and maintain PosterCruisers in accordance with the
following schedule:
1,000 PosterCruisers installed by July 1, 1998
2,500 PosterCruisers installed by July 1, 1999
5,000 PosterCruisers installed by July 1, 2000
Maintain a minimum of 2,500 PosterCruisers at all times after April 1, 1999.
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SCHEDULE II
POSTERCRUISERS shall be defined as electronic merchandising kiosks which display
advertising and poster images on a computer touch screen driven by a central
processing unit located in a frame which also serves as a display and rack for
the merchandising of posters and other products.
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EXHIBIT A
TARGETED ACCOUNTS
Blockbuster Entertainment
Tower Records
Virgin Records
Hastings Books and Music
Musicland
Hollywood Video
TransWorld
Wherehouse Entertainment
HMV Music
Movie Gallery
National Record Mart
Movies Video
Lowes Movie Theaters
AMC Theaters
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EXHIBIT B
Non-Targeted Accounts
K-Mart
Target
JC Penney
Sports Authority
Big 5
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SHARE PURCHASE & SALE AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of June 6, 1997, is entered
into by and between 2d Interactive, Inc., a Delaware corporation ("2d"), and
Global One Distribution & Marketing, Inc., a Delaware corporation ("Global
One").
WHEREAS, 2d and Global One wish to provide for the mutual sale and
exchange of common stock, on the terms and conditions herein set forth.
NOW THEREFORE, in consideration of the premises and the mutual agreements
and understandings herein set forth:
1. ISSUANCE, SALE AND PURCHASE OF THE SHARES
(a) EXCHANGE, ISSUANCE, AND DELIVERY OF CERTIFICATES
(i) Within 30 days of the satisfaction of the conditions precedent
set forth in section 4(c)(i) of this Agreement, 2d shall issue and deliver to
Global One, 19,625 shares of 2d common stock, and Global One shall issue and
deliver to 2d, one-half of the number of Global One common stock shares
determined in accordance with section 1(b)(iii) below.
(ii) Within 30 days of the satisfaction of the conditions precedent
set forth in section 4(c)(ii) of this Agreement, 2d shall issue and deliver
to Global One, 19,625 shares of 2d common, and Global One shall issue and
deliver to 2d, one-half of the number of Global One common stock shares
determined in accordance with section 1(b)(iii) below.
(iii) The total number of common stock shares to be issued by Global
One pursuant to section 1(a)(i) and 1(a)(ii) shall be equal to 550,000 shares
of common stock at $2.00 per share.
(iv) 2d will, on the Closing Date, issue and deliver to Global One,
19,625 shares of 2d common stock, for and in consideration of Global One's
faithful and diligent performance of that certain Distribution Agreement,
subject to applicable cure periods as contained therein, to be entered into
by and between the parties as of the Closing Date, a copy of which is
attached hereto and made a part hereof. In the event of a material breach of
the Distribution Agreement by Global One during the initial term of such
Distribution Agreement, 2d shall have the right, in addition to any other
available remedies available at law or in equity, to repurchase the 2d Shares
issued pursuant to this paragraph (iv), at a purchase price of one cent
($.01) per share. Provided however, the number of 2d Shares that 2d may
purchase pursuant to this purchase option shall be reduced by 10% for each
year the Distribution Agreement remains in full force and effect.
(v) Within 30 days of Global One's satisfaction in every respect of
the conditions set forth in
<PAGE>
paragraph 2(a) of the Distribution Agreement with respect to the placement of
1,000 2d PosterCruisers during the first year of the Distribution Agreement,
2d will issue and deliver to Global One, 19,625 shares of 2d common stock.
In the event that the conditions of paragraph 2(a) of the Distribution
Agreement are not satisfied in every respect by Global One or in the event
that there is a material breach of the Distribution Agreement by Global One,
then Global One's right to receive 2d Shares pursuant to this paragraph (iii)
shall terminate and have no further force or effect. In the event of a
material breach of the Distribution Agreement by Global One during the
initial term of such Distribution Agreement, 2d shall have the right to
repurchase the 2d Shares issued pursuant to this paragraph (v), at a purchase
price of one cent ($.01) per share. Provided however, the number of 2d
Shares that 2d may purchase pursuant to this purchase option shall be reduced
by the percentage of PosterCruisers actually placed by Global One (determined
by dividing actual PosterCruiser Placement by 1,000), further provided, that
Global One achieves a minimum placement of 75% of the 1,000 PosterCruisers.
(vi) The Global One and 2d common stock referred to above shall
collectively be referred to as "Shares", and shall be referred to separately
as either the "2d Shares" or the "Global One Shares."
(vii) Until and prior to the issuance of the 2d Shares, the number of
2d Share to be issued pursuant to this Agreement shall be subject to
adjustment (i) in the event that 2d at any time or from time to time after
the date hereof, but prior to the issuance thereof, shall declare or pay any
dividend on common stock payable in common stock, or effect a subdivision of
the outstanding shares of common stock into a greater number of shares of
common stock (by reclassification or otherwise than by payment of a dividend
in common stock), then, in any such event, the number of 2d shares shall be
increased proportionately, and (ii) in the event that the outstanding shares
of 2d common stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of 2d common stock, the number of
2d Shares to be issued to Global One shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
adjusted.
(b) RESTRICTED NATURE OF THE SHARES
(i) Global One recognizes and acknowledges that:
(1) the 2d Shares have been offered by 2d, and are being
purchased by Global One, without registration pursuant to, and in reliance on
the exemption from registration provided for in Section 4(2) of, the
Securities Act of 1933, as amended (the "Act"),
(2) the disposition of any or all of the 2d Shares by Global One
will be restricted under the Act and the rules and regulations thereunder, and
(3) the certificates for the 2d Shares will each bear a
conspicuous legend which states that the 2d Shares have not been registered
under the Act, and refers to the restrictions on the transferability of the
2d Shares, and the repurchase rights set forth in section 1(a) hereof.
<PAGE>
(ii) 2d recognizes and acknowledges that:
(1) the Global One Shares have been offered by Global One, and
are being purchased by 2d without registration pursuant to, and in reliance
on the exemption from registration provided for in Section 4(2) of, the
Securities Act of 1933 as amended (the "Act"),
(2) the disposition of any or all of the Global One Shares by 2d
will be restricted under the Act and the rules and regulations thereunder, and
(3) the certificates for the Global One Shares will each bear a
conspicuous legend which states that the Global One Shares have not been
registered under the Act, and refers to the restrictions on the
transferability thereof.
2. REPRESENTATIONS AND WARRANTIES
OF 2D AND GLOBAL ONE
2d and Global One hereby represent and warrant to each other that:
(a) ISSUE AND SALE OF THE SHARES
Except as otherwise provided in this Agreement, upon fulfillment of the
conditions precedent set forth in paragraph 4, each party will have all
necessary corporate and other power, and all necessary authorization of such
party's board of directors and shareholders, and any other authorization
necessary to issue and sell the Shares to the other party hereunder. The
Shares, when issued and sold hereunder, will be free and clear of any and all
liens, claims, encumbrances and restrictions of every kind, except for
restrictions imposed under the Act and other laws and governmental
regulations applicable to unregistered securities.
(b) CAPITALIZATION
(i) Upon execution of this Agreement, 2d's total outstanding capital
stock consists of 230,744 shares of common stock, exclusive of the 2d Shares
being issued pursuant to this Agreement, with a par value of $.01, and 195
shares of preferred stock, with a par value of $.01. Each share of preferred
stock has the right and option to convert into 461.35 shares of 2d common
stock. In addition, on the Closing Date, there is anticipated to be
outstanding warrants, options and other rights (both vested and non-vested)
to acquire up to 26,675 shares of 2d common stock. The 2d Shares will, when
delivered hereunder, be validly issued, fully authorized and paid, and
non-assessable.
(ii) Upon execution of this Agreement, Global One's outstanding
capital stock consists of 13,010,947, shares of common stock, exclusive of
the Global One Shares being issued pursuant to this Agreement, with a par
value of $.01, and 0 shares of preferred stock, with a par value of $.01. In
<PAGE>
addition, on the Closing Date, there is anticipated to be outstanding
warrants, options and other rights (both vested and non-vested) to acquire up
to 3,143,033 shares of Global One common stock. The Global One Shares will,
when delivered hereunder, be validly issued, fully authorized and paid, and
non-assessable.
(c) CORPORATE EXISTENCE AND STANDING
(i) 2d is duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has the corporate power and authority,
and all requisite governmental licenses and consents, to carry on its
business as it is contemplated to be conducted, and to own, lease and operate
its properties. The copies of 2d's Articles of Incorporation (certified as of
the date hereof by 2d's Secretary) and By-laws (certified as of the date
hereof by 2d's Secretary) which have been delivered to Global One are
complete and correct, and there have been no amendments thereto prior to the
Closing Date. The directors and officers of 2d will be at the Closing Date
set forth and certified by the Secretary of 2d. On the Closing Date, 2d will
deliver certified copies of resolutions from its Board of Directors (i)
authorizing the execution of this Agreement, (ii) the issuance of the 2d
Shares, and (iii) the performance of the transactions contemplated by this
Agreement and the Distribution Agreement. On the Closing Date, 2d will
deliver certificates of good standing from the State of Delaware.
(ii) Global One is duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the corporate power
and authority, and all requisite governmental licenses and consents, to carry
on its business as it is contemplated to be conducted, and to own, lease and
operate its properties. Global One is, or will on the Closing Date be, duly
qualified and in good standing as a foreign corporation, and authorized to do
business in all other states or jurisdictions in which the nature of its
properties owned, or business conducted, necessitates such qualification or
authorization. The copies of Global One's Articles of Incorporation
(certified as of the date hereof by Global One's Secretary) and By-laws
(certified as of the date hereof by Global One's Secretary) which have been
delivered to 2d are complete and correct, and there have been no amendments
thereto prior to the Closing Date. The directors and officers of Global One
will on the Closing Date be set forth and certified by the Secretary of
Global One. On the Closing Date, Global One will deliver certified copies of
resolutions from its Board of Directors (i) authorizing the execution of this
Agreement, (ii) the issuance of the Global One Shares, and (iii) the
performance of the transactions contemplated by this Agreement and the
Distribution Agreement. On the Closing Date, Global One will deliver
certificates of good standing from the State of Delaware.
(d) AUTHORITY
(i) 2d, and any authorized agent signing this Agreement on behalf of
2d, have all necessary corporate, and other legal power, authority and
authorization to execute and deliver this Agreement, and to consummate the
transactions contemplated by this Agreement. This Agreement constitutes a
legal, valid and binding obligation of 2d enforceable in accordance with its
terms. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated herein, will violate
<PAGE>
any provision of the Articles of Incorporation or By-Laws, or violate or
constitute a default under any agreement, instrument or arrangement to or by
which 2d is a party or is bound, or any statute, regulation, order, judgment,
or decree or award of any governmental body, court or arbitrator binding upon
2d.
(ii) Global One, and any authorized agent signing this Agreement on
behalf of Global One, have all necessary corporate, and other legal power,
authority and authorization to execute and deliver this Agreement, and to
consummate the transactions contemplated by this Agreement. This Agreement
constitutes a legal, valid and binding obligation of Global One enforceable
in accordance with its terms. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated herein, will
violate any provision of the Articles of Incorporation or By-Laws, or violate
or constitute a default under any agreement, instrument or arrangement to or
by which Global One is a party or is bound, or any statute, regulation,
order, judgment, or decree or award of any governmental body, court or
arbitrator binding upon Global One.
(e) FINANCIAL STATEMENTS
(i) 2d has furnished to Global One (I) its unaudited balance sheet as
of December 31, 1996, and its related income statement for the year then
ended, and (2) its April 30, 1997, unaudited interim financial statements.
Such statements reasonably present 2d's financial position as of the dates
thereof, and the results of its operations for the periods covered thereby.
Since April 30, 1997, there has been no material adverse change in 2d's
condition, (other than a material reduction in 2d's available cash and
working capital), properties or operations as shown on such financial
statements, except as otherwise disclosed in writing as part of this
transaction, or as reflected on the interim financial statements dated
April 30, 1997, and since such date no dividends have been declared or
paid on any 2d stock.
(ii) Global One has furnished to 2d (1) its audited balance sheet as
of December 31, 1996, and its related income statement for the year then
ended, certified by Deloitte & Touche, certified public accountants, and (2)
its March 31, 1997, interim unaudited financial statements. Such statements
were prepared in accordance with generally accepted accounting principles
consistently applied, and present Global One's financial position as of the
dates thereof, and the results of its operations for the periods covered
thereby. Since March 31, 1997, there has been no material adverse change in
Global One's condition (financial or otherwise), properties or operations as
shown on such financial statements, except as otherwise disclosed in writing
as part of this transaction, or as reflected on the interim financial
statements dated March 31, 1997, and since such date no dividends have been
declared or paid on any Global One stock.
(f) SUBSIDIARIES, JOINT VENTURES, ETC.
(i) As of the date hereof 2d has no subsidiaries, and is not a
shareholder, partner, member, or affiliate of any other corporation, limited
liability company, partnership, or joint venture.
<PAGE>
(ii) As of the date hereof Global One has three subsidiaries: OSP
Publishing, Inc., Kelly Russell Studios, Inc., BEx Corp., and is not a
shareholder, partner, member, or affiliate of any other corporation, limited
liability company, partnership, or joint venture.
(g) PROCEEDINGS
(i) There are no proceedings pending or threatened against or
affecting 2d in any court or before any governmental authority, arbitration
board or tribunal which, if adversely determined, would materially and
adversely affect 2d's business or condition (financial or otherwise), or the
ability of 2d to perform its respective obligations under this Agreement or
any other agreement relating to the transactions contemplated herein. To the
best of its knowledge, 2d is not in default with respect to any order,
judgment or decree of any court or governmental authority.
(ii) There are no proceedings pending or threatened against or
affecting Global One in any court or before any governmental authority,
arbitration board or tribunal which, if adversely determined, would
materially and adversely affect Global One's business or financial condition,
or the ability of Global One to perform their respective obligations under
this Agreement or any other agreement relating to the transactions
contemplated herein. To the best of its knowledge, Global One is not in
default with respect to any order, judgment or decree of any court or
governmental authority.
(h) ACCURACY OF INFORMATION
No information furnished in connection with the transactions contemplated
herein, as of the date hereof, contains any untrue statement or omission of a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading.
(i) TAX RETURNS AND TAX LIABILITIES
Each party has filed all tax returns required to be filed prior to the
date hereof, and has paid in full, or made provisions in the financial
statements described in Section 2(e) for the payment of, all taxes due
thereon. There are no pending audits, assessments or deficiencies, and each
party has not executed or agreed to execute any waivers or extensions of
statutes of limitations with respect to any such taxes.
(j) INVESTMENT REPRESENTATION
(i) 2d is acquiring the Global One Shares for its own account for
investment and not with a view to distribution or resale, and the Global One
Shares will not be sold or transferred unless (i) such sale is registered in
accordance with the provisions of the Act and any applicable state laws or
(ii) 2d delivers an opinion of counsel reasonably satisfactory to Global One
that registration under the Act or any applicable state laws is not required.
2d has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of an investment in the
Global One Shares, and its financial condition is such that there is no
present necessity or obligation requiring it to dispose
<PAGE>
of the Global One Shares to satisfy any commitment, and it is able to bear
the economic risk of the investment in the Global One Shares for an
indefinite period of time. 2d acknowledges that Global One has made available
to 2d the opportunity to request and receive all requested information
concerning Global One and has independently conducted its own due diligence
concerning the facts, risks, and circumstances surrounding Global One's
business and the transactions contemplated by this Agreement.
(ii) Global One is acquiring the 2d Shares for its own account for
investment and not with a view to distribution or resale, and the 2d Shares
will not be sold or transferred unless (i) such sale is registered in
accordance with the provisions of the Act and any applicable state laws or
(ii) Global One delivers an opinion of counsel reasonably satisfactory to 2d
that registration under the Act or any applicable state laws is not required.
Global One has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in the 2d Shares, and its financial condition is such that there
is no present necessity or obligation requiring it to dispose of the 2d
Shares to satisfy any commitment, and it is able to bear the economic risk of
the investment in the 2d Shares for an indefinite period of time. Global One
acknowledges that 2d has made available to Global One the opportunity to
request and receive all requested information concerning 2d and has
independently conducted its own due diligence concerning the facts, risks,
and circumstances surrounding 2d's business and the transactions contemplated
by this Agreement.
3. COVENANTS OF 2D AND GLOBAL ONE
Each party hereto hereby agrees that:
(a) CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE
Except for transactions expressly approved in writing by the other party
hereto, from the date hereof to the Closing Date each party will operate its
business only in the usual, regular and ordinary course of business.
(b) NO ORGANIC CHANGE
Except as provided in subparagraph (d) below, prior to the Closing Date
neither party shall: (i) amend its Articles of Incorporation or By-laws; (ii)
cause or allow a change to be made in its outstanding capital stock by
reclassification, subdivision, reorganization or otherwise; (iii) enter into
or negotiate a merger or consolidation with any other corporation or other
entity; or (iv) sell any substantial assets, or purchase substantially all of
the assets of any other entity.
(c) NO DIVIDENDS, ETC.
Prior to the Closing Date, neither party shall cause a dividend or other
distribution or payment to be declared, paid or made by it with respect to
shares of its capital stock, or cause a purchase,
<PAGE>
redemption or other acquisition to be made by it with respect of any of such
shares.
(d) 2D STOCK OFFERING
Notwithstanding the foregoing, 2d shall have the right and opportunity to
pursue an offering of its authorized common or preferred stock, or any other
security, for the purpose of raising capital on such terms and conditions as
the shareholders and/or board of directors of 2d deem appropriate in order to
carry out the business plans and objectives of 2d.
4. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
(a) 2d Conditions to Closing
The obligations of 2d to perform and carry out the terms and conditions
of this Agreement shall be contingent upon 2d securing (i) a written waiver
of certain pre-emptive rights of 2d's preferred stock Shareholders, within
twenty (20) business days of acceptance of this Agreement; and, (ii) a
resolution from 2d's Board of Directors approving of this transaction within
five (5) business days of acceptance of this Agreement.
(b) Global One Conditions to Closing
The obligations of Global One to perform and carry out the terms and
conditions of this Agreement shall be contingent upon Global One securing (i)
a resolution from its board of directors approving of this transaction with
five (5) business days of acceptance of this Agreement, and (ii) a Voting
Agreement by and between Global One and Dominic Ianno, Gregory Baldwin and
Mitch Fournier as trustees of that certain Voting Trust Agreement dated May
1, 1996, to vote certain common stock shares in accordance with paragraph
6(d) hereof, within five (5) business days of acceptance of this Agreement.
(c) Conditions to Issuance of Shares
(i) The issuance of the 2d Shares and Global One Shares as set forth
in section 1(a)(i) shall be conditioned upon and subject to 2d raising
capital in the aggregate amount of two and one half million dollars
($2,500,000), through an offering of equity, debt, or other securities, or
pursuant to a line-of-credit or equipment lease arrangement within eighteen
(18) months from the Closing Date. In the event that such capital is not
raised by 2d, then each party's obligation to issue such shares shall
terminate, provided however, Global One may elect to waive this condition by
written notice to 2d, upon which the obligations shall remain in full force
and effect, and shall as soon thereafter be completed.
(ii) The issuance of the 2d Shares and Global One Shares as set forth
in section 1(a)(ii) shall be conditioned upon and subject to 2d raising total
capital, including the amount raised pursuant to subparagraph (i) above, of
five million dollars ($5,000,000), through an offering of equity, debt, or
other
<PAGE>
securities, or pursuant to a line-of-credit or equipment lease arrangement
within twenty-four (24) months from the Closing Date. In the event that such
capital is not raised by 2d, then each party's obligation to issue such
shares shall terminate, provided however, Global One may elect to waive this
condition by written notice to 2d, upon which the obligations shall remain in
full force and effect, and shall as soon thereafter be completed.
(c) Waiver & Best Efforts
Either party may waive the conditions precedent to its obligations to
perform this Agreement. Absent a waiver or extension of this Agreement for
the fulfillment of each condition, this Agreement shall automatically
terminate upon failure to meet each stated condition. Each party shall use
its best efforts to secure the necessary agreements, documents and approvals
stated herein.
5. CLOSING
(a) TIME AND PLACE
The closing of this transaction will take place at 2d Interactive, Inc.,
at 1:00 p.m. local time, on July 16, 1997 (the "Closing Date"), or at such
other time and date as the parties may agree.
(b) 2D DELIVERIES ON CLOSING DATE
(i) At the Closing, 2d shall deliver to Global One certificates for
the total amount of shares of common stock to be issued to Global One
pursuant to paragraph 1(a)(iv), which certificates shall have been, on the
Closing Date, registered in Global One's name in the stock transfer records
of 2d.
(ii) At the Closing, 2d shall execute and deliver to Global One two or
more fully executed copies of the Distribution Agreement.
(iii) At the Closing, 2d shall execute and deliver to Global One two or
more fully executed copies of the Standstill Agreement and 2d Voting
Agreement.
(iv) At the Closing, 2d shall deliver the resolutions and documents
set forth in paragraph 2(c) hereof.
(c) GLOBAL ONE DELIVERIES ON CLOSING DATE
(i) At the Closing, Global One shall execute and deliver to 2d, two
or more fully executed copies of the Distribution Agreement.
(ii) At the Closing, Global One shall execute and deliver to 2d, two
or more fully executed
<PAGE>
copies of the Standstill Agreement and 2d Voting Agreement.
(iii) At the Closing, Global One shall deliver the resolutions and
documents set forth in paragraph 2(c) hereof.
6. POST CLOSING AGREEMENTS
(a) REGISTRATION COVENANTS
(i) If at any time after the Closing Date 2d shall determine to
register under the Act any of the shares of its common stock, 2d will
promptly notify Global One of such determination and give Global One an
opportunity to include any of the shares then held by Global One as part of
such registration, at no cost to Global One, except for its share of
applicable commissions, discounts, and underwriting fees.
(ii) If at any time after the Closing Date Global One shall determine
to register under the Act any of the shares of its common stock, Global One
will promptly notify 2d of such determination and give 2d an opportunity to
include any of the Global One Shares then held by 2d as part of such
registration, at no cost to 2d, except for its share of applicable
commissions, discounts, and underwriting fees.
(iii) Either party's obligation to effect registration of the Shares
for the other party shall include using its best efforts in attempting to
qualify under the Act and any other applicable Blue Sky or state securities
laws as may be necessary to enable such party to offer and sell such shares
or any part thereof. The shares registered pursuant to this section shall be
subject to such restrictions on transfer as may be determined by the board of
directors of the company registering such shares.
(iv) If a registration pursuant to this Section 6 involves an
underwritten offering and the managing underwriter shall advise the company
in writing that in its opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the number of shares of Registrable Securities to be included in
such registration shall be allocated pro rata among all Selling Shareholders
on the basis of the relative number of shares of each shareholder.
(v) In the event of any registration of any securities of either
company under the Securities Act pursuant to Section 3 or 4 hereof, such
company will, and it hereby does, indemnify and hold harmless, to the extent
permitted by law, the seller of any Registrable Securities covered by such
registration statement, its directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
Parties"), against any and all losses, claims, damages or liabilities, joint
or several, and expenses to which any of the Indemnified Parties may become
subject under the Securities Act, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof, whether or not such Indemnified Party is a party thereto) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which such
securities
<PAGE>
were registered under the Securities Act, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in light of the circumstances then existing. Such company will reimburse each
Indemnified Party for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided that such company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus
in reliance upon and in conformity with written information furnished to such
company through an instrument duly executed by such seller specifically
stating that it is for use in the preparation thereof, and provided further
that such company will not be liable to any Person who participates as an
underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, under the indemnity agreement in this Section 6(a) with
respect to any preliminary prospectus or the final prospectus or the final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, claim, damage or liability of such underwriter or controlling
Person results from the fact that such underwriter sold Registrable
Securities to a person to whom there was not sent or given, at or prior to
the written confirmation of such sale, a copy of the final prospectus
(including any documents incorporated by reference therein) or of the final
prospectus as then amended or supplemented (including any documents
incorporated by reference therein), whichever is most recent, if such company
has previously furnished copies thereof to such underwriter. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such seller or any Indemnified Party and shall survive the
transfer of such securities by such seller.
(vi) INDEMNIFICATION BY THE SELLERS. A party registering securities
pursuant to this Section 6 may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 5 hereof, that such company shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Subsection 6(v)) such party
with respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to such
party through an instrument duly executed by such seller or underwriter
specifically stating that it is for use in the preparation of such
registration statement, preliminary, final or summary prospectus or amendment
or supplement, or a document incorporated by reference into any of the
foregoing. Such indemnification shall remain in full force and effect
regardless of any investigation made by or on behalf of such company or any
of the prospective sellers, or any of their respective affiliates, directors,
officers or controlling persons and shall survive the transfer of such
securities by such seller.
<PAGE>
(vii) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subdivisions of
this Section 6, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party, give written notice to the latter
of the commencement of such action; provided that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of
this Section 6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably 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 for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof. No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
(b) GLOBAL ONE RIGHT OF FIRST REFUSAL
In the event that at any time prior to the expiration of one year from
the Closing Date, 2d wishes to issue shares of common stock representing on
the date of issuance fifty-one percent of the outstanding common stock of 2d,
2d shall notify Global One of such desire and shall give Global One the first
right and opportunity, subject to the rights of the 2d Preferred Stock
shareholders, to purchase such shares on certain terms and conditions
determined by 2d. Thereafter, Global One shall have fifteen days in which to
accept such offer and immediately provide for the purchase of such shares, or
decline such offer. In the event that Global One declines such offer and 2d
is able to secure the sale of such shares on terms substantially similar to
the offer or more favorable than the offer, this option shall have no further
force or effect and shall terminate in all respects, provided however, in the
event that 2d is able to secure an offer to sell such interest on financial
terms that are less favorable to 2d then the offer made to Global One, then
Global One shall have the right to match such offer and immediately proceed
with the purchase of such shares in accordance with the terms and conditions
of such offer.
(c) STANDSTILL AGREEMENT
2d and Global One agree to execute and deliver at Closing the Standstill
Agreement attached hereto and made a part hereof.
(d) ELECTION OF 2D DIRECTORS
Within 5 business days of execution of this Agreement, 2d will use its
best efforts, subject to
<PAGE>
applicable provisions of Delaware law, to secure the execution of a Voting
Agreement with the trustees of that certain Voting Trust dated May 1, 1996,
that will provide for the right to at all times during which Global One
remains the owner of 5% or more of the outstanding common stock:
(i) to vote his or its shares of stock to elect to the Board of
Directors of 2d one person nominated by Global One and reasonably
satisfactory to 2d, and
(ii) in the event of a vacancy in a position held by a director
nominated by Global One, to vote his or its shares of stock and/or to take
appropriate steps to cause the remaining directors to appoint a Global One
nominee to fill such vacancy.
The initial election of a Global One representative shall occur with 30 days
of the Closing Date. The covenants contained in this Section 6(d) shall be
binding upon all transferees and assigns of any voting securities of 2d now
or at any time held by the Shareholders or any of them, and the Shareholders
jointly and severally agree that all such securities shall bear a legend
referring to the terms of this Section 6(d).
(e) RIGHT TO PARTICIPATE IN GLOBAL ONE BOARD MEETINGS
From and after the Closing Date, 2d shall have the right to receive from
Global One reasonable advance written notice of all meetings of the Board of
Directors of Global One, and further, shall have the right to nominate a
representative of 2d who may participate in such meeting in person, by
telephone, by video conference, or by other means. Such 2d representative
shall not be entitled to any vote on the board of directors and shall have no
liability with respect to the actions taken by such Global One board of
directors. In addition, copies of any and all resolutions, minutes, and
other actions taken by the Board of Global One shall be timely given to such
2d representative.
(f) RIGHT OF FIRST REFUSAL ON TRANSFER OF SHARES
Provided the shares referred to herein have not been registered pursuant
to the Act,
(i) 2d and Global One each agrees that it will not sell, convey,
transfer, pledge, donate or assign any Shares except under the terms and
conditions set forth in this Section.
(ii) If 2d or Global One (the "Offering Party") shall at any time
receive a bona fide arms-length written offer ("Offer") from a responsible
party to purchase for cash any of the Shares being issued pursuant to this
Agreement and owned by the Offering Party (such Shares which are the subject
of the Offer being herein called the "Offered Shares"), which Offer such
party desires in good faith to accept, the Offering Party shall give to the
other party hereto written notice of the Offer by providing such other party
with a copy of the Offer and a full description of all terms thereof
including without limitation price, payment terms and the name and address of
the offerer.
<PAGE>
(iii) If the other party hereto desires to purchase the Offered Shares
it shall have the option to purchase all, but not part, of the Offered Shares
at the purchase price and terms specified in the Offer within a period of
forty-five days following the giving of the written notice provided for in
the preceding paragraph.
(iv) If, but only if, such option is not exercised, the Offering Party
shall be free to sell the Offered Shares pursuant to the terms of the Offer
(provided that the purchaser pursuant to such purchase shall acquire such
shares subject to the provisions and restrictions of this Section), at any
time within forty-five days after the end of the forty-five-day period
referred to in the preceding paragraph.
(v) The option provided for in this Section shall be exercisable by
written notice from the party exercising such option to the Offering Party
given within the period of time provided in this Agreement for the exercise
of such option. The Offered Shares shall thereafter be transferred to such
party at a closing to be held at a mutually agreeable place and time not more
than thirty days after exercise of said option.
(g) MUTUAL INDEMNIFICATION
In consideration of the mutual covenants, agreements, and undertakings
set forth therein, each party (the "Indemnifying Party") hereto hereby agrees
to indemnify and hold harmless the other party and its affiliates and the
respective directors, officers, agents, representatives, advisors and
employees and its affiliates and each other person, if any, controlling such
other party or any of its affiliates (each an "Indemnified Person") from and
against all losses, claims, damages, liabilities, actions, taxes and expenses
incurred by any Indemnified Person (including fees and disbursements of
counsel) which are related to or arise, directly or indirectly, out of or in
connection with (i) any material breach of this Agreement or the agreements
attached hereto, or (ii) actions taken or omitted to be taken (including any
untrue statements made or any statements omitted to be made) by the
Indemnifying Party or any of its affiliates. The Indemnifying Party will
reimburse any Indemnified Person for all expenses (including fees and
disbursements of counsel) as they are incurred by such Indemnified Person in
connection with investigating, preparing or defending any such action or
claim, whether or not in connection with pending or threatened litigation in
which such Indemnified Person is a party. The Indemnifying Party also agrees
that no Indemnified Person shall have any liability to the Indemnifying Party
or its affiliates for or in connection, except for such liability for losses,
claims, damages, liabilities, actions, taxes or expenses incurred by the
Indemnifying Party or its affiliates insofar as a court of competent
jurisdiction has determined in a final and nonappealable order that such
liability has resulted primarily from the gross negligence, recklessness, bad
faith or willful misconduct of the Indemnified Person, and the Indemnifying
Party agrees that it will not, and will procure that its affiliates will not,
make any claim against any Indemnified Person in respect of any such
liability. The Indemnifying Party further agrees that it will not, without
the prior written consent of the Indemnified Person (such consent not to be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder.
<PAGE>
Promptly after receipt by an Indemnified Person of notice of any
complaint or the commencement of any claim, action, suit or proceeding with
respect to which indemnification is being sought hereunder, such person will
notify the Indemnifying Party in writing of such complaint or of the
commencement of such claim, action, suit or proceeding, but failure so to
notify the Indemnifying Party will not relieve the Indemnifying Party from
any liability for indemnification or reimbursement of expenses hereunder. If
the Indemnifying Party so elects or is requested by such Indemnified Person,
the Indemnifying Party will assume the defense of such action or proceeding,
including the employment of counsel reasonably satisfactory to the
Indemnified Person, and the Indemnifying Party agrees to pay the fees and
disbursements of such counsel. In the event, however, that counsel for such
Indemnified Person reasonably determines in its judgment that having common
counsel would present such counsel with a conflict of interest or if the
Indemnifying Party fails to assume the defense of the claim, action, suit or
proceeding in a timely manner, then such Indemnified Person may employ
separate counsel to represent or defend it in any such claim, action, suit or
proceeding and the Indemnifying Party agrees to pay the fees and
disbursements of such counsel; provided, however, that the Indemnifying Party
will not be required to pay the fees and disbursements of more than one
separate counsel for all Indemnified Persons in any jurisdiction in any
single claim, action, suit or proceeding. In any claim, action, suit or
proceeding the defense of which the Indemnifying Party assumes, the
Indemnified Person will have the right to participate in such litigation and
to retain its own counsel at such Indemnified Person's own expense.
(h) 2D REPURCHASE OPTION
In the event that Global One (i) issues common stock which equals fifty
percent or more of the then outstanding common stock, (ii) receives a tender
offer for the purchase of fifty percent or more of the outstanding shares of
Global One common stock, (iii) declares bankruptcy, becomes insolvent or
makes an assignment for the benefit of creditors, or (iv) replaces two or
more of its directors or executive officers, during any six month period, and
in the reasonable good faith opinion of 2d such circumstances materially
jeopardize Global One's ability to carry out the strategic purposes of this
Distribution Agreement, then 2d shall have the right and option to repurchase
the 2d Shares for the then current fair market value of the 2d Shares as
determined by an independent appraisal to be conducted by an appraiser
selected by the mutual agreement of the parties, or in the event that the
parties cannot agree upon an appraiser, than an appraiser shall be appointed
by an arbitrator who shall be selected pursuant to section 9(b) below. All
2d Shares not yet issued pursuant to this Agreement, shall upon exercise of
this option terminate in all respects along with all rights and obligations
of Global One to issue Global One Shares. Upon exercise of this option by 2d,
the Distribution Agreement shall terminate and all obligations contained
therein shall terminate, except for obligations which would otherwise extend
beyond the term of the Distribution Agreement.. In the event that 2d shall
own any Global One stock at the time of the exercise of this option, it may,
at its election use such stock as part of the purchase price to be paid in
accordance herewith. The value of the Global One stock held by 2d shall be
equal to the value of the stock on the date of exercise of this option as
quoted on the NASDAQ Stock Exchange (Symbol "GOGO").
<PAGE>
(i) INCOME TAX ALLOCATIONS/ELECTIONS
On or before the Closing Date, 2d and Global One agree to value for
income tax purposes the stock being transferred to Global One pursuant to
sections 1(a)(iv) and 1(a)(v), and to make any and all income tax elections
that may be necessary in order to preserve the income tax effects of such
allocations. In the event that the parties do not agree on or before the
Closing to such allocations, or in the event that they cannot otherwise
agree, an arbitrator selected pursuant to section 9 shall be appointed to
select an independent account to make such a determination.
7. MISCELLANEOUS
(a) ENTIRE AGREEMENT
This document and the documents referenced herein, set forth the entire
agreement and understanding among the parties relating to the subject matter
contained herein and merges and supersedes all prior and contemporaneous
discussions and documents relating thereto.
(b) WAIVERS
The failure of a party at any time to require another party's performance
of any obligation under this Agreement shall not affect the right to require
performance of that obligation in the future. Any waiver by any party of any
breach of any provision hereof shall not be construed as a waiver of any
continuing or succeeding breach of such provision, a waiver or modification
of the provision itself, or a waiver or modification of any other right under
this Agreement.
(c) ASSIGNMENTS
Neither this Agreement nor any right or obligation hereunder is
assignable in whole or in part, whether by operation of law or otherwise, by
any party without the prior written consent of the other party.
(d) FURTHER DOCUMENTS
Following the execution hereof the parties will, to the extent deemed
reasonably necessary, execute and deliver all such additional documents or
instruments of further assurance as shall be necessary or appropriate to
carry out the intent of this Agreement.
(e) NOTICES
Except as otherwise specifically provided herein, any notice hereunder
may be given by one party to the others in writing and by delivery or tender
either in person or by depositing it in the United
<PAGE>
States mail in a sealed envelope, with postage prepaid, addressed:
If to 2d: Dominic Ianno
186 South St.
Boston, Massachusetts 02111
with copy to: Steven J. Thayer
Thayer & Associates, Ltd.
333 W. Wacker Dr., Suite 2020
Chicago, IL 60606
If to Global One: George Vrabeck
Global One Distribution & Marketing, Inc.
5548 Lindbergh Lane
Bell, CA 90201
with copy to: Daniel H. Wolff
Weissmann, Wolff, Bergman,
Coleman & Silverman, LLP
9665 Wilshire Boulevard, Suite 900
Beverly Hills, CA 90212-2345
or to such other address as the party to which it is addressed shall have
previously designated by notice given in accordance with this Section 7(e).
All such notices shall be effective when delivered in person, or two days
after deposit in the U.S. mail, or one day after deposit with an overnight
courier.
(f) HEADINGS
Descriptive headings contained in this Agreement are for convenience only
and shall not control or affect the meaning or construction of any provisions
hereof.
(g) COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which, when all of the parties have signed one counterpart, shall constitute
together but one and the same instrument. The parties may execute this
Agreement and exchange signatures by facsimile, provided there is proof of
transmission and provided original copies of the same are mailed to the
other party within 3 business
<PAGE>
days of execution.
(h) TERMINATION
This Agreement may be terminated or extended any time prior to the
closing by the mutual consent of all of the parties hereto.
(i) EXPENSES
Each party shall bear its legal, accounting and other fees and costs
incurred by such party in negotiating, preparing and carrying out the terms
of this Agreement, whether the issuance and exchange is consummated or this
Agreement is terminated.
(j) SURVIVAL OF WARRANTIES, ETC.
Notwithstanding any investigation made by or on behalf of either party,
all warranties and representations of the parties contained herein or in
documents or certificates delivered pursuant hereto on or prior to the
closing, and all agreements hereunder which shall not have been fully
performed at or prior to the closing, shall survive the closing and the
consummation at the closing of the transactions herein provided to be
consummated at the closing.
(k) AMENDMENT
This Agreement may be amended only by a writing signed by both parties
hereto.
(l) SEVERABILITY
Every provision of this Agreement is intended to be severable, and, if any
term or provision is determined to be illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the legality or
validity of the remainder of this Agreement, and, where possible, such
provision shall be modified to the extent necessary to make it legal, valid,
and enforceable.
(m) BINDING EFFECT
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective legal representatives,
successors, and permitted assigns.
8. LAW TO GOVERN
The validity, construction and enforceability of this Agreement shall be
governed in all respects by the laws of the State of Delaware without giving
effect to choice of law principles.
<PAGE>
9. ARBITRATION OF DISPUTES
(a) AGREEMENT TO ARBITRATE
Except as otherwise provided in herein, any controversy, dispute or claim
between the parties arising out of, related to or in connection with this
Agreement or the performance or breach hereof, shall be submitted to and
settled by arbitration conducted by the American Arbitration Association in
the State of Delaware, or any other mutualy agreeable place,, in accordance
with its commercial arbitration rules then in effect.
(b) ARBITRATOR
Such arbitration shall be by a single arbitrator mutually selected by 2d
and Global One , and if 2d and Global One do not agree within twenty (20)
days after the date of notification of a request for such arbitration made by
either of the parties, the selection of the single arbitrator shall be made
by the American Arbitration Association in accordance with its rules then in
effect.
(c) RELIEF
In addition to, and not in substitution for, any and all other relief in
law or equity that may be granted by the arbitrator, the arbitrator may grant
equitable relief and specific performance to compel compliance hereunder.
(d) DETERMINATION
The determination of the arbitrator shall be accompanied by a written
opinion of the arbitrator and shall be final, binding and conclusive on the
parties, and judgment on the arbitrator's award, including without limitation
equitable relief and specific performance, may be entered in and enforced by
any court having competent jurisdiction thereof.
(e) FEES AND EXPENSES
Fees and expenses of the American Arbitration Association and of the
arbitrator shall be borne as shall be determined by the arbitrator, and the
arbitrator may in his or her discretion award attorneys' fees and expenses in
addition to any other remedy that is allowed, regardless of whether such
remedy includes an award of damages.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
GLOBAL ONE DISTRIBUTION &
MERCHANDISING, INC.
Attest:
By: /s/ Joseph Angard
-------------------------- ----------------------------------
CEO , Secretary
------------------------
2D INTERACTIVE, INC.
Attest:
By: /s/ Dominic Ianno
-------------------------- ----------------------------------
Dominic Ianno, President , Secretary
------------------------
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<PERIOD-START> JAN-01-1997
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