<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1999
REGISTRATION NO. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL MEDIA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 4541 91-1842480
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification Number)
Incorporation or Code Number)
Organization)
400 ROBSON STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6B 2B4
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
ROBERT FULLER
CHIEF EXECUTIVE OFFICER
GLOBAL MEDIA CORP.
400 ROBSON STREET
VANCOUVER, BRITISH COLUMBIA
CANADA V6B 2B4
(604) 688-9994
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Co-Agents for Service)
---------------
COPY TO:
Eric A. DeJong, Esq.
Eugenie D. Mansfield, Esq.
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101-1688
(206) 622-3150
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) SHARE PRICE (2) FEES
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issued upon conversion of
Series A preferred stock and exercise of
investment options 6,083,153 $ 8.063 (2) $49,045,422 (2) $13,635
Common stock issued upon exercise of
warrants 1,360,000 $8.4375 (3) $11,475,000 (3) $3,190
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 7,443,153 -- $60,520,422 $16,825
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of shares being registered represents our good faith estimate
of the maximum number of shares we may issue upon (a) conversion of our Series A
convertible preferred stock, (b) exercise of investment options to purchase an
equal number of shares as are converted, and (c) exercise of common stock
purchase warrants. For purposes of estimating the number of shares of common
stock to be included in this registration statement, we calculated 200% of the
maximum number of shares of common stock issuable in connection with:
- the conversion of the Series A preferred stock, based on a conversion
price of $8.063, which is the average of the seven lowest consecutive
closing bid prices of our common stock reported on the National
Association of Securities Dealers Over-the-Counter Bulletin Board (the
"OTC Bulletin Board") during the 35 consecutive trading days ending
July 22, 1999;
- the exercise of the same number of investment options at the same
exercise price; and
- the exercise of the warrants at an exercise price of $8.4375.
The actual number of shares of common stock received upon conversion of the
Series A preferred stock and exercise of the investment options and warrants may
vary from this number. In addition to the shares set forth in the table, the
amount of shares to be registered under this registration statement includes an
indeterminate number of shares issuable upon conversion of or in respect of the
Series A preferred stock and the investment options and warrants, as such number
may be adjusted as a result of stock splits, stock dividends and similar
transactions in accordance with Rule 416 under the Securities Act of 1933.
(2) Based on the average of the reported high and low prices of the common
stock reported on the OTC Bulletin Board on July 22, 1999, for the purpose of
calculating the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
(3) Based on the warrant exercise price of $8.4375 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, JULY 30, 1999
PROSPECTUS
7,443,153 SHARES
[GLOBAL MEDIA LOGO]
COMMON STOCK
---------------
GLOBAL MEDIA CORP. We have prepared this prospectus to allow
400 Robson Street selling stockholders to sell up to 7,443,153
Vancouver, British Columbia shares of our common stock which the selling
Canada V6B 2B4 stockholders may acquire on conversion or
exercise of:
- shares of our outstanding Series A
convertible preferred stock;
- related investment options, and
- warrants.
SELLING STOCKHOLDERS: We are registering these shares by filing a
registration statement with the Securities
See page 43 for the names of and Exchange Commission using a "shelf"
the selling stockholders registration process. This process allows
the selling stockholders to sell their shares
of common stock over a period of time and in
varying amounts. We expect that the selling
stockholders will sell their shares of common
stock from time to time as described under
"Plan of Distribution."
TRADING MARKET AND SYMBOL: We will receive no proceeds from the
conversion of blue Series A Convertible
Preferred Stock or the sale of the offered
shares. We will receive the proceeds from
the selling stockholders' exercise of
investment options on conversion of the
Series A preferred stock and their exercise
of the warrants, if any. The selling
stockholders are under no obligation to
exercise the investment options or warrants.
NASD OTC Bulletin Board - GLMC
---------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is ________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY........................................................1
RISK FACTORS..............................................................5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.....................17
USE OF PROCEEDS..........................................................18
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY..........................19
CAPITALIZATION...........................................................20
SELECTED FINANCIAL DATA..................................................21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................22
BUSINESS.................................................................28
MANAGEMENT...............................................................38
CERTAIN TRANSACTIONS.....................................................41
SELLING STOCKHOLDERS.....................................................43
PLAN OF DISTRIBUTION.....................................................44
PRINCIPAL STOCKHOLDERS...................................................45
DESCRIPTION OF CAPITAL STOCK.............................................47
SHARES ELIGIBLE FOR FUTURE SALE..........................................52
LEGAL MATTERS............................................................53
EXPERTS..................................................................53
WHERE YOU CAN FIND ADDITIONAL INFORMATION................................53
</TABLE>
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"Global Media," "globalmedia.com," "Global Media Network," "Global Media
Broadcast Network," "indielife.com," "indieaudio.com," "globalmediacorp.com" and
"gmcorp.net" are trademarks and service marks of Global Media Corp. All other
trademarks, service marks or tradenames referred to in this prospectus are the
property of their respective owners. Except as otherwise required by the
context, all references in this prospectus to (a) "we," "us," "our" or "Global
Media" refer to the consolidated operations of Global Media Corp., a Nevada
corporation, and its wholly-owned subsidiaries, Westcoast Wireless Cable Ltd.
and Global Media (Canada) Entertainment Corporation, (b) "you" refers to
prospective investors in the common stock, (c) the "Web" refers to the World
Wide Web and (d) "our site" refers to our Web site at www.globalmedia.com.
Unless otherwise indicated or unless the context otherwise requires, all
information in this prospectus assumes the conversion of all the shares of
Series A preferred stock and the exercise of all the warrants and investment
options by the selling stockholders as more fully described in "Selling
Stockholders," "Description of Capital Stock" and "Plan of Distribution."
This prospectus includes statistical data regarding us and the Internet
industry. Such data are based on our records or are taken or derived from
information published by various sources, including International Data
Corporation.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND THIS OFFERING. BECAUSE
IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING
THE SECTION ENTITLED "RISK FACTORS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS
AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THIS PROSPECTUS. SEE "CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS."
GLOBAL MEDIA
OVERVIEW. Global Media is an online seller of music compact discs (CDs),
home video cassettes, digital video disks (DVDs), books and other entertainment
products. We are striving to become a leading online seller of music and
entertainment merchandise and a major entertainment destination on the Web by
combining an extensive catalogue of products, easy-to-use navigation and search
capabilities, rich, entertainment-focused content and a vibrant online community
for fans of music, books and entertainment.
Our initial product is our "Global Media Network, " which will provide
radio and television stations and other businesses an end-to-end, private label
e-commerce solution. In order to demonstrate this solution to potential network
associates, and to also generate revenues from direct product sales, we launched
our own internet storefront at "www.globalmedia.com" in May 1999.
In addition, we are currently developing our "Global Media Broadcast
Network" which will allow us to offer broadcast network associates the capacity
to stream live and simulated live audio, video and other multimedia content
(such as radio feeds) over the Internet. When these Internet-broadcasting
abilities are combined with our private label storefront product, we will be
able to offer an integrated e-commerce and multimedia content delivery
solution.
MARKET OPPORTUNITY. International Data Corporation estimates that the
number of persons accessing the Web will reach 320 million by 2002 and that
worldwide business-to-consumer sales over the Internet will increase from
approximately $11 billion in 1998 to approximately $93 billion by 2002.
Advances in technology, such as streaming media technologies which enable the
continuous transmission and playback of multimedia content, and broadband access
are making the Internet an increasingly important new medium for multimedia
content delivery and distribution. We are positioning ourselves to take
advantage of the explosive growth in online business and services and the
convergence of traditional audio and video media with the Internet and
electronic commerce.
NETWORK ASSOCIATE PROGRAM. Through the Global Media Network program, our
network associates will be able to offer a online entertainment merchandise
store under their own private-label brands. We will offer our network associates
a complete, end-to-end entertainment merchandise e-commerce solution consisting
of a customized, merchant-branded storefront on the network associate's own Web
site integrated with our own back-end e-commerce systems, order fulfillment
services and customer service support. Network associates will pay us a low,
up-front price plus a percentage of the gross margin realized on products sold
through the network associate's private label online storefront.
We plan to market our Global Media Network program initially to the media
industry (radio and television) to take advantage of the synergies between
entertainment product retailing and the media industry. By establishing network
associate relationships with radio and television stations and other businesses,
we will leverage off the existing brand identities and marketing efforts - both
online and offline - of our network associates to drive sales of our
entertainment merchandise. Eventually, we intend to market our Global Media
Network program to a wide variety of businesses ranging from small Internet
start-ups to large "bricks-and-mortar" retailers.
STREAMING MEDIA SERVICES. We are developing the Global Media Broadcast
Network through a strategic relationship with RealNetworks. The Global Media
Broadcast Network will be combined with our private label e-commerce product to
enable broadcast network associates to deliver simulated live and live Internet
broadcast of audio, video and other multimedia content from their Web sites.
While we will offer streaming media services to customers on a stand-alone
basis, we believe that the Global Media Broadcast Network will be a compelling
solution to radio and
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<PAGE>
television stations that are interested in extending their brands onto the
Internet and developing new sources of revenues.
OUR WEB SITES. In October 1998, we began developing our online store,
globalmedia.com. We commercially launched our online store in May 1999. We
currently operate two other related Web sites, "indielife.com" and
"indieaudio.com." These sites focus on content and community oriented to
independent lifestyles, musicians and fans of alternative music and help route
business to our online store.
Our online store offers customers a rich variety of content to entertain
and engage them and to enhance the shopping experience. We currently offer a
catalogue of more than 1.3 million entertainment products, including over
353,000 CD titles, over 85,000 home video, and 4,000 DVD titles, and over
1,000,000 book titles. In addition, we offer book, music and movie reviews,
current entertainment news, interviews with artists and authors, and artist
biographies and lists of their works. Customers can browse our catalog through
using a selection of search parameters, such as title, author or artist, subject
matter, keyword, publication date or ISBN (International Standard Book Number).
We are currently in the process of extending our online offerings to
include digital audio files that can be downloaded for purchase from the
Internet and we intend to expand into magazine subscription, concert and event
ticket sales and other entertainment-oriented services. We aim to enhance the
shopping experience of our music customers by enabling them to sample music
clips from many CDs we offer, before they order them. We intend to build an
online community centered on music, movies and books by encouraging our
customers, artists and others in the music and entertainment industry to post
their own reviews, sponsor competitions and provide various forums for
discussion.
BACKGROUND. Global Media was incorporated in Nevada in April 1997. In May
1997, we acquired Westcoast Wireless Cable Ltd., which marketed direct-to-home
satellite broadcast hardware and programming services, from our controlling
stockholder. However, in late 1997, a Canadian federal court prohibited the
delivery of U.S.-based satellite programming in Canada, which had been a
significant part of our business. As a result, we wound down our home satellite
business and discontinued those operations completely in fourth quarter fiscal
1998. In October 1997, we began operating a call center, which provided
investor relations services to U.S. and Canadian public companies. We
discontinued those operations in third quarter fiscal 1999 after we adopted our
e-commerce business plan.
Our principal executive offices are located at 400 Robson Street,
Vancouver, British Columbia, Canada V6B 2B4 and our telephone number is (604)
688-9994.
INFORMATION CONTAINED ON OUR WEB SITES SHOULD NOT
BE CONSIDERED A PART OF THIS PROSPECTUS.
2
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THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY SELLING STOCKHOLDERS: 7,443,153 shares
COMMON STOCK OUTSTANDING BEFORE THIS OFFERING: 20,653,331 shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING: 28,096,484 shares
USE OF PROCEEDS FROM CONVERSION OF SERIES A We will receive no proceeds from conversion of the Series
PREFERRED STOCK: A preferred stock, nor will we receive any of the proceeds
from sale of the shares by the selling stockholders.
USE OF PROCEEDS FROM EXERCISE OF THE INVESTMENT We will receive the exercise price of any investment
OPTIONS AND WARRANTS: options and warrants that are exercised by the selling
stockholders. Assuming exercise of all of the investment
options and warrants, the gross proceeds to us from the
exercise of (a) the investment options would be
approximately $8,595,477 (plus additional amounts which
after the date of this prospectus would accrue from time
to time on the stated value of the outstanding Series A
preferred stock), and (b) the warrants would be $5,737,500.
We intend to use any proceeds from exercise of the
investment options and warrants for working capital and
general corporate purposes.
NASD OTC BULLETIN BOARD SYMBOL "GLMC"
</TABLE>
---------------
The number of shares offered by the selling stockholders set forth above
represents the total number of shares that we have reserved, as of the date of
this prospectus , for issuance upon conversion of the Series A preferred stock,
exercise of the related investment options and exercise of the warrants. See
"Selling Stockholders." Because the actual conversion price of the Series A
preferred stock and the exercise price of the related investment options may
vary with fluctuations in the market price of our common stock, as described in
"Description of Capital Stock - Preferred Stock, Series A Convertible Preferred
Stock - Conversion Rights," the actual number of shares offered by the selling
stockholders and therefore the number of shares outstanding after this offering
may be higher or lower than the numbers set forth above.
The number of shares to be outstanding after this offering set forth above
does not include 3,328,169 shares reserved for issuance upon exercise of
outstanding stock options granted under our stock option plans and other
warrants currently outstanding.
RISK FACTORS
Potential investors should carefully consider the risk factors set forth
under the caption "Risk Factors" beginning on page 5 and the other information
included in this prospectus prior to purchasing our common stock. An investment
in our common stock involves a high degree of risk. We have a limited operating
history and anticipate losses and negative operating cash flow for the
foreseeable future. Our operations are dependent on the growth and commercial
acceptance of the Internet and e-commerce, the viability of our unproven
business model, the implementation of our network associate program, our
relationships with strategic partners and key vendors, and the availability of
additional capital. Our business is subject to intense competition, rapid
technological change, government regulation and legal uncertainties associated
with the Internet, and systems interruptions security risks. See "Risk Factors"
for a description of these and other risks.
3
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SUMMARY FINANCIAL DATA
The following summary financial information was derived from our historical
consolidated financial statements. Net revenues excludes the results of
operations of our discontinued home satellite and call center businesses, as
described in "Prospectus Summary - Global Media." See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Discontinued Operations." You should read this information in conjunction with
the Consolidated Financial Statements and the related Notes and the discussion
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, NINE MONTHS ENDED APRIL 30,
-------------------------------------------------------------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................. $ -- $ -- $ -- $ --
Loss from continuing operations.......... (72,214) (304,919) (171,840) (1,257,322)
Loss from discontinued operations........ (36,785) (167,755) (57,961) (2,080)
Net loss................................. (108,999) (472,674) (229,801) (1,259,402)
Net loss applicable to common stockholders
$ (108,999) $ (472,674) $ (229,801) $ (1,259,402)
--------------- --------------- -------------- ---------------
--------------- --------------- -------------- ---------------
Basic and diluted loss per share......... $ (0.01) $ (0.02) $ (0.01) $ (0.06)
Shares used in computing basic and diluted
loss per share........................... 11,059,400 19,890,831 19,619,116 20,253,942
APRIL 30,
----------------
CONSOLIDATED BALANCE SHEET DATA: 1999
(UNAUDITED)
Working capital deficiency...................................................................... $ (991,176)
Total assets............................................................................... 742,656
Total liabilities.......................................................................... 111,890
Total stockholders' equity (deficiency).................................................... (369,234)
</TABLE>
4
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RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. WE HAVE DESCRIBED THESE RISKS AND UNCERTAINTIES UNDER THE
FOLLOWING GENERAL CATEGORIES: "RISKS RELATED TO OUR BUSINESS," "RISKS RELATED TO
THE INTERNET INDUSTRY" AND "RISKS RELATED TO THIS OFFERING AND OUR COMMON
STOCK." OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE
MATERIALLY AND ADVERSELY AFFECTED BY ANY OF THESE OR OTHER RISKS. IN THAT CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR
PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. YOU SHOULD ALSO CONSIDER
THE RISKS AND UNCERTAINTIES ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS PROSPECTUS WITH RESPECT TO OUR PLANS, OBJECTIVES, EXPECTATIONS, AND
INTENTIONS. SEE "CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS."
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED HISTORY OF CURRENT OPERATIONS ON WHICH TO EVALUATE OUR
POTENTIAL FOR FUTURE SUCCESS
We were incorporated in April 1997 and acquired Westcoast in May 1997. We
discontinued Westcoast's historical operations, the sale and servicing of
direct-to-home satellite broadcast hardware and programming services, in the
fourth quarter of fiscal 1998, and discontinued our other historical operations,
the operation of an investor relations call center, in the third quarter of
fiscal 1999. We launched our main e-commerce site in May 1999, and have
generated minimal revenues from our new operations. We have not yet launched
private label e-commerce sites for any network associates nor have we
implemented our streaming media product. Accordingly, we have a very limited
operating history on which you can evaluate our business and prospects. You
must consider the risks and uncertainties frequently encountered by early stage
companies in new and rapidly evolving markets, such as electronic commerce. To
address the risks and uncertainties we face, we must:
- successfully implement our Global Media Network and Global Media
Broadcast Network;
- establish and maintain broad market acceptance of our online
entertainment product merchandising and streaming media services and
convert that acceptance into direct and indirect sources of revenue;
- further develop our site, improve reliability and performance of both
front-end and back-end systems and order fulfillment, and timely and
successfully develop new features and functionality of our site;
- successfully respond to competition to our entertainment product
e-commerce operations from Amazon.com, Inc., CDNow, Inc. and others,
and to our streaming media services from Broadcast.com, Inc. and
others;
- develop and maintain strategic relationships to enhance the features
(including content) and utility of our online store and to enable us to
deliver streaming media services;
- recruit and retain key management, technical and other employees; and
- implement adequate internal processes and controls to manage our
growth.
Our business strategy may be unsuccessful and we may be unable to address
the risks we face in a cost-effective manner, if at all. Our inability to
successfully address these risks will cause significant harm to our business,
financial condition and results of operations.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE
Since our inception, we have incurred significant losses, including losses
from discontinued operations. Since refocusing our business on the online
merchandising of entertainment products, we have continued to incur net losses,
resulting primarily from costs related to developing our e-commerce products
and our Web sites, developing or acquiring technologies to be used in our
business and general corporate overhead. At April 30, 1999, we had an
accumulated deficit of $1.94 million. We plan to invest heavily in:
5
<PAGE>
- implementing the Global Media Network program;
- completing and launching the Global Media Broadcast Network;
- enhancing our e-commerce site and improving its reliability and
functionality;
- development of infrastructure and applications;
- marketing and promotion; and
- hiring additional employees.
As a result, we expect to incur net losses for the foreseeable future. We
believe these expenditures are necessary to attract more customers to our site
and the Web sites of our network associates, and to generate greater online
revenues. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater. We
may never achieve or sustain profitability.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR QUARTERLY OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY
Our revenues for the foreseeable future will remain primarily dependent on
the number of visitors that we are able to attract to our site or that our
network associates are able to attract to their sites and on how many of those
visitors purchase our products. After we launch the Global Media Broadcast
Network, our revenues will also be dependent to a significant extent on our
ability to attract customers (such as radio and television stations) for these
streaming media services. We cannot forecast with any degree of certainty the
number of visitors to our site or the Web sites of our network associates, the
number of visitors that will become customers, the number of customers we will
be able to secure for our streaming media services, or the amount of
entertainment product sales and streaming media services revenues.
We expect our operating results to fluctuate significantly from period to
period. Both seasonal fluctuations in Internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book and music industries usually
increase significantly in the fourth calendar quarter of each year and are
correspondingly lower in other quarters. If similar seasonal patterns emerge in
e-commerce business, our revenues may vary significantly.
Other factors which may cause our operating results to fluctuate
significantly from quarter to quarter include:
- technical difficulties with our system, downtime, system failures or
interruptions in Internet access;
- our ability to attract new and repeat visitors to our site and convert
them into customers;
- our ability to attract and retain network associates;
- our network associates' ability to attract new and repeat visitors to
their sites and convert them into customers;
- our ability to keep current with the evolving tastes of our target
markets;
- the frequency of repeat purchases by customers, our average order size
and the mix of products we sell;
- the success of our existing competitors, the emergence of new
competitors, and the ability of our competitors to offer new or
enhanced Web site features, products or services;
- our ability, through our fulfillment partners, to ensure sufficient
product supply;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to scale technology and upgrade order processing
capabilities;
- price competition;
6
<PAGE>
- the demand for the streaming media services that we will offer over the
Global Media Broadcast Network;
- varying operating costs and capital expenditures related to the
expansion of our business operations and infrastructure, including the
hiring of new employees, and to the acquisition or development of new
technologies or businesses;
- unanticipated cost increases, delays or interruptions in transaction
processing and order fulfillment;
- unanticipated delays or cost increases with respect to the introduction
of new products or services; and
- the costs, timing and impact of our marketing and promotion
initiatives.
Because of these and other factors, we believe that period-to-period
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of investors
and other market participants in some future periods, then our stock price may
decline.
CONSUMERS OF ENTERTAINMENT MERCHANDISE MAY NOT ACCEPT OUR ONLINE SOLUTION
If a high volume of first-time and repeat customers are not attracted to
the Web sites of our network associates and our online store at a reasonable
cost, our business and operating results will be negatively affected. We may not
be able to convert a large number of customers from traditional shopping methods
to online shopping for CDs, videos, DVDs, books and other entertainment
merchandise. Specific factors that could prevent widespread customer acceptance
of our solution, and our ability to grow revenues, include:
- shipping charges, which do not apply to shopping at traditional
retailers of the merchandise we offer;
- delivery time associated with Internet orders, as compared to the
immediate receipt of products at a physical store;
- pricing that does not meet customer expectations of finding the lowest
price on the Internet;
- lack of consumer awareness of our online store;
- customer concerns about the security of online transactions and the
privacy of their personal information;
- product damage incurred during shipping or shipments of wrong products
from our fulfillment partners, resulting in a failure to establish
customers' trust in buying items online;
- delays in responses to customer inquiries or in deliveries to
customers; and
- difficulties in returning or exchanging orders.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially-available software. We
may not be able to compete successfully against current and future competitors.
Further, as a strategic response to changes in the competitive environment, we
may, from time to time, make certain pricing, service or marketing decisions or
acquisitions that could adversely affect our business, results of operations and
financial condition.
We currently or potentially compete with a number of other companies. We
compete with traditional physical retailers of entertainment merchandise,
including large, well-established book, music and video stores such as Barnes &
Noble, Inc., Borders Group, Inc. and Wherehouse Entertainment, Inc., and mass
market retailers such as Wal-Mart and Kmart Corporation. In the market for
online retailing of books, CDs, video cassettes and DVDs, we compete with large,
well-established companies such as Amazon.com, CDNow.com, barnesandnoble.com,
inc. and Borders Online, Inc. Once we begin offering streaming media services,
we will be competing with large, well-established Internet broadcasters such as
Broadcast.com and InterVU Inc.
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Certain of our competitors currently offer, either alone or through
strategic relationships with other companies, a blend of multimedia content
delivery and e-commerce services to the principal target market for our network
associate program. For example, a visitor to the Web site of Broadcast.com,
which broadcasts the radio signals of over 400 radio stations and over 40
television stations, can listen to a CD on Broadcast.com's site and purchase it
by seamlessly clicking through to Amazon.com's site to place an order, or can
listen to an audio book and purchase the print version from Amazon.com. In
addition, other companies offer e-commerce and content delivery services,
including streaming media, to the radio industry, such as Onradio.com, Inc.,
which provides content delivery and e-commerce capabilities through strategic
relationships with Amazon.com (for e-commerce), Microsoft (for its Media
Player), InterVU (for streaming media services) and Vibe/SPIN Ventures (for
other music-focused content). Because companies like Broadcast.com and
Onradio.com already have established relationships with significant numbers of
radio stations (in many cases, under exclusive contracts), we may have
difficulty establishing market acceptance of our network associate program in
the media industry even if we can offer a better integrated content delivery and
e-commerce solution than these and other companies. Moreover, since our
solution relies on technologies which are not proprietary to us, other
competitors could license, acquire or develop the same or similar technologies
to deliver a similar solution.
Certain of our current and many of our potential competitors have longer
operating histories, larger customer bases, greater brand recognition in other
business and Internet markets, and significantly greater financial, marketing,
technical and other resources than us. In addition, other online retailers may
be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Therefore, certain of our
competitors with other revenue sources may be able to devote greater resources
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to Web site and systems development than
us. Competitive pressures created by any one of these companies, or by our
competitors collectively, may result in loss of market share and reduced
operating margins, any of which could have a material adverse effect on our
business, results of operations and financial condition.
WE FACE THE RISK OF SYSTEMS INTERRUPTIONS AND CAPACITY CONSTRAINTS
The satisfactory performance, reliability and availability of our
recently-opened online store, transaction processing systems and network
infrastructure are critical to our reputation and our ability to attract and
retain customers and to maintain adequate customer service levels. From time to
time, we have experienced temporary system interruptions for a variety of
reasons, including software bugs and lack of reliable integration between
various elements of our e-commerce and other systems and those of our vendors.
We may not be able to correct any problem in a timely manner. Because we
outsource certain aspects of our system and because some of the reasons for a
systems interruption may be outside of our control, we also may not exercise
sufficient control to remedy the problem quickly or at all. Any future system
interruption that results in the unavailability of our site or reduced order
fulfillment performance could result in negative publicity and reduce the volume
of goods sold and the attractiveness of our online store, which would negatively
affect our business.
We opened our site for customers in May 1999 and to the extent that
customer traffic grows substantially, we may need to expand the capacity of our
systems to accommodate a larger number of visitors. We may be required to add
additional software and hardware and further develop and upgrade our existing
technology, transaction-processing systems, network infrastructure and
distribution capabilities to accommodate increased traffic on our site and those
of our network associates, and increased sales volume through our
transaction-processing systems. Any inability to scale our systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and speed of order fulfillment, or delays
in reporting accurate financial information. We are not certain that we will be
able to:
- accurately project the rate or timing of increases, if any, in the use
of our site and those of our network associates;
- effectively upgrade and expand our transaction-processing and other
systems in a timely manner; or
- integrate smoothly any newly developed or purchased modules within our
existing systems.
WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR NETWORK ASSOCIATE PROGRAM OR OUR
NETWORK ASSOCIATES MAY FAIL TO ATTRACT SIGNIFICANT NUMBERS OF CUSTOMERS
Our business and results of operations will depend in large part on the
success of our Global Media Network program. While we have started to market
the Global Media Network to companies in our target markets for those
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services, to date, we have only entered into a limited number of definitive
agreements with any network associates. In order to attract and retain
significant numbers of network associates, we must:
- build a larger sales force to promote our network associate program,
particularly to the radio and television industries;
- successfully promote the benefits of our end-to-end e-commerce solution
to potential network associates;
- be able to offer customized, merchant-branded store fronts with content
and merchandise selection that can be specifically tailored to
different types of potential network associates with different target
markets or customers; and
- successfully compete against other companies that offer, or in the
future may offer, similar e-commerce and content-delivery solutions,
either on their own or through strategic relationships with other
parties.
In addition, in order to retain our network associates:
- our e-commerce system must work reliably and effectively with our
network associates' own Web sites;
- we must reliably fulfill orders of customers who purchase products
through our network associates' storefronts;
- we must provide a high level of customer service; and
- our program must result in significant direct or indirect financial
benefit to our network associates.
We may encounter significant barriers to our ability to establish a large
base of network associates with a substantial online customer presence,
particularly in the radio and television industries. We may face obstacles in
signing up significant numbers of network associates in the media industry,
despite the appeal to radio and television stations of our private label
e-commerce solution bundled with streaming media services. For example,
Broadcast.com, a leading Internet broadcaster of radio, television and other
multimedia content, has established relationships with more than 400 radio
stations across the country, including stations in 18 of the top 20 radio
markets in the U.S., and can offer its streaming media customers some e-commerce
solutions that are competitive to our own through strategic relationships with
other companies such as Amazon.com. Because Broadcast.com has exclusive
relationships with many of its streaming media customers, those customers may
not be willing or able contractually to become network associates.
We intend to control our own marketing and promotion expenditures by
relying on the marketing efforts of our network associates. Our business and
results of operations may therefore suffer if our network associates are
unsuccessful in attracting significant numbers of visitors to their Web sites.
While we analyze our potential network associates' plans for increasing traffic
to their Web sites, we have no control of the steps they actually take to
attract visitors to their sites.
WE DEPEND SIGNIFICANTLY ON OUR STRATEGIC RELATIONSHIP WITH REALNETWORKS AND WE
HAVE ONLY A NON-EXCLUSIVE LICENSE TO THE TECHNOLOGIES THEY ARE DEVELOPING FOR US
Our business will depend significantly on the successful implementation of
the Global Media Broadcast Network, the successful marketing of that solution to
potential network associates in the radio and television industries, and our
ability to maintain relationships with those network associates after they have
become customers of the Global Media Broadcast Network streaming media services.
We have entered into a strategic relationship with RealNetworks to develop that
system and provide streaming media services to our network associates in the
Global Media Broadcast Network. Our ability to implement our media-focused
network associate program would be negatively affected and our business would be
harmed by:
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- any termination of our agreement with RealNetworks prior to their
completion of the Global Media Broadcast Network;
- any other unexpected delay in the development or deployment of the
Global Media Broadcast Network; or
- failure of the Global Media Broadcast Network to provide expected
functionality with third-party systems, to perform as expected, or to
operate reliably.
We will have no proprietary ownership interest in or exclusive license to
the technologies developed by RealNetworks for our Global Media Broadcast
Network. Although our rights to use those technologies will be perpetual, they
will be non-exclusive. Consequently, RealNetworks could license those
technologies to one or more of our existing or future competitors or could use
those technologies themselves to launch a competitive solution. Although our
streaming media services agreement with RealNetworks has a term of three years
which automatically renews for successive terms, any early termination of that
agreement as a result of our breach or otherwise would significantly disrupt our
business and potentially result in claims against us by customers of our
streaming media services.
WE MAY FAIL TO ESTABLISH AN EFFECTIVE INTERNAL SALES ORGANIZATION TO ATTRACT
NETWORK ASSOCIATES
We believe that successful implementation of our Global Media Network
program will depend on our ability to establish an aggressive and effective
internal sales organization. Our internal sales team currently has five
members. We will need to substantially increase this sales force in the coming
year in order to execute our business plan. Our ability to increase our sales
force involves a number of risks and uncertainties, including competition for
employees and the length of time for new sales employees to become productive.
If we do not develop an effective internal sales force, we are likely to have
difficulty securing significant numbers of network associates and our business
will be negatively affected.
WE DEPEND ON OUR FULFILLMENT PARTNERS; IF THEY DO NOT PERFORM OR OUR
RELATIONSHIP WITH THEM IS TERMINATED, OUR BUSINESS MAY SUFFER
To generate the significant customer traffic, volume of purchases and
repeat purchases that we believe are crucial to obtaining sufficient revenues,
we must develop and maintain customer trust in the timing and accuracy of our
product deliveries. We currently carry no inventory of our own and depend on
fulfillment partners for rapid order fulfillment. We currently purchase all of
the merchandise we offer online from two fulfillment partners, Baker & Taylor,
Inc. (through its Entertainment and Books division) and the iFill division of
Valley Media, Inc., who performs order fulfillment for us. We also need to
secure other fulfillment partners to expand the range of titles that we can
currently offer through Baker & Taylor and Valley Media. While we intend to
enter into other fulfillment agreements to have alternative sources of supply
and expand our product offerings, we are primarily dependent on Baker & Taylor
and Valley Media for order fulfillment. We may not be able to secure
alternative fulfillment partners on acceptable terms in a timely manner, or at
all. Negotiating and implementing relationships with additional fulfillment
partners would take substantial time and resources. If for any reason our
relationship with Baker & Taylor or Valley Media were terminated before we were
able to establish and implement alternative fulfillment arrangements, we might
be unable to fulfill our customers' orders and our business would suffer. Our
agreements with Baker & Taylor have one-year terms (ending in May 2000). While
these agreements renew on an annual basis for up to five succeeding years, they
can be terminated prior to the annual renewal date. We cannot be certain that
our contract with Baker & Taylor will be renewed or that they will not terminate
our agreement earlier for breach.
Our ability to fulfill our customers' orders may be significantly hampered
and our business will suffer major disruptions if Baker & Taylor, Valley Media,
or any alternative fulfillment partners with whom we may establish relationships
in the future:
- fail to comply with federal, state and local regulations that apply to
their performance of services for us;
- breach or terminate their agreements with us;
- suffer adverse developments that affect their ability to supply
products to us, such as employee strikes, system crashes and inclement
weather;
- are unable or unwilling to supply products to us in sufficient
quantities or in a timely manner; or
- are unable or unwilling to ship products to any markets in which we
have customers.
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Because we rely on third parties to fulfill orders, we depend on their
systems for tracking inventory and financial data. In addition, our order
fulfillment and distribution process requires us to cooperate extensively with
our fulfillment partners with respect to the coordination of separate
information technology systems. From time to time we have experienced problems
relating to the integration of our systems with those of Baker & Taylor, which
has affected our ability to timely fill customers' orders. While we have
corrected these problems, we cannot ensure that any future problems will be
resolved on a timely basis or at all. In addition, if we establish new
fulfillment partner relationships, we cannot be sure that we will be able to
integrate our respective information systems on a timely basis. If our
fulfillment partners' systems fail or are unable to scale or adapt to changing
needs, our ability to timely fill customers' orders may be hindered and we may
not have adequate, accurate or timely inventory or financial information. Our
failure to have adequate, accurate or timely inventory and financial information
would harm our ability to manage our business effectively.
WE RELY HEAVILY ON THIRD PARTIES FOR ESSENTIAL BUSINESS OPERATIONS AND MAY BE
ADVERSELY AFFECTED BY DISRUPTIONS OR FAILURES IN SERVICE
We depend on third parties for important aspects of our business, including
Internet access and Web hosting services, development of software for our Global
Media Broadcast Network system, and new Web site features and content. We have
limited control over these third parties, and we are not their only client. We
may not be able to maintain satisfactory relationships with any of them on
acceptable commercial terms. Further, we cannot be certain that the quality of
products and services that they provide will remain at levels needed to enable
us to conduct our business effectively. We may not be able to renew agreements
with third party vendors on current terms.
Our dependence on other vendors entails various risks, including:
- our current vendors may not continue to provide services to us on
current terms;
- we may not be able to establish new or extend current vendor terms on a
timely basis or at all; and
- we depend on our vendors to comply with federal, state and local
regulations that apply to their performance of services for us.
If we cannot develop and maintain relationships with vendors that allow us
to obtain sufficient quantities of merchandise or necessary services on
acceptable commercial terms or if our vendors fail to comply with applicable
law, our business may be harmed.
We also rely on third-party carriers for product shipments, including
shipments to and from our fulfillment partners' distribution facilities. We are
therefore subject to the risks, including employee strikes and inclement
weather, associated with third-party carriers' ability to provide delivery
services to meet our shipping needs. Failure to deliver products to our
customers in a timely and accurate manner would harm our reputation, and our
business and results of operations.
OUR SYSTEMS AND OPERATIONS, AND THOSE OF OUR VENDORS AND DISTRIBUTORS, ARE
VULNERABLE TO NATURAL DISASTERS, SYSTEMS INTERRUPTIONS AND OTHER UNEXPECTED
PROBLEMS
Substantially all of our computer and communications hardware is located
at our leased facilities in Nanaimo and Vancouver, British Columbia, Canada,
and our systems infrastructure is hosted at third-party hosting providers'
facilities in Vancouver, British Columbia, Seattle, Washington, and San
Diego, California. The continuing and uninterrupted performance of those
systems is critical to our success. Our systems and operations and those of
our hosting providers are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, earthquakes and similar
events. In addition, our servers are vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and fulfill
customer orders. Sustained or repeated system failures or interruptions of
our site connection services would reduce the attractiveness of our site to
customers, and could therefore have a material adverse effect on our
business. We do not currently have redundant systems or a formal disaster
recovery plan and do not carry sufficient business interruption insurance to
compensate for losses that may occur. Our fulfillment partners, including
Baker & Taylor and Valley Media, may also face these risks.
We depend on the efficient operation of Internet connections from customers
to our systems. These connections, in turn, depend on the efficient operation
of Web browsers, Internet service providers and Internet backbone service
providers, all of which have had periodic operational problems or experienced
outages. Any system delays, failures or
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loss of data, whatever the cause, could reduce customer satisfaction with our
applications and services and harm our business.
We retain confidential customer information in our processing centers.
Therefore, it is critical that our facilities and infrastructure remain secure
and that our facilities and infrastructure are perceived by the marketplace to
be secure. A material security breach could damage our reputation or result in
liability to us.
WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT
We are currently experiencing a period of significant expansion. In order
to execute our business plan, we must continue to grow significantly. This
growth will strain our personnel, management, systems, policies and procedures
and other resources. To manage our growth, we must implement operational and
financial systems and controls and recruit, train and manage new employees. We
cannot be certain that we will be able to integrate new executives and other
employees into our organization effectively. If we do not implement adequate
systems and controls, recruit, integrate and retain necessary personnel or
otherwise manage growth effectively, our business, results of operations and
financial condition will be materially and adversely affected.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS
Our performance is substantially dependent on the continued services of our
executive officers and other key employees, particularly Michael Metcalfe, our
Chairman and President, Robert Fuller, our Chief Executive Officer, L. James
Porter, our Chief Financial Officer and Winston V. Barta, our Vice President of
Marketing and Business Development. The loss of the services of any of our
executive officers could materially and adversely affect our business. We do
not maintain key man insurance on any of our employees. Additionally, we
believe we will need to attract, retain and motivate talented management and
other highly skilled employees, particularly those with technical backgrounds,
to be successful. Competition for employees that possess knowledge of both the
Internet industry and our target market is intense. We may be unable to retain
our key employees or attract, assimilate and retain other highly qualified
employees in the future.
WE MAY NEED FURTHER CAPITAL
We currently anticipate that our available funds will be sufficient to meet
our anticipated needs for working capital, capital expenditures and business
expansion through the second quarter of fiscal 2000, which ends January 31,
2000. Thereafter, we may need to raise additional funds. We may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new or
enhanced services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution and such securities may have rights, preferences
and privileges senior to those of our common stock. There can be no assurance
that additional financing will be available on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms, we
may not be able to develop or enhance services or products, respond to
competitive pressures, fund expansion or take advantage of unanticipated
acquisition opportunities. Such inability could negatively impact our business.
WE MAY FAIL TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH OTHER WEB
SITES TO INCREASE NUMBERS OF CUSTOMERS AND INCREASE OUR REVENUES
We intend to establish alliances with other Web sites to increase the
number of visitors to our site. There is intense competition for placements on
these sites, and we may not be able to enter into these relationships on
commercially reasonable terms or at all. Even if we enter into alliances with
other Web sites, they themselves may not attract significant numbers of users to
our site. Moreover, we may have to pay significant fees to establish these
relationships. Our inability to enter into alliances with popular Web sites -
or the failure of such alliances to provide the expected benefits - could
adversely affect our business.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE
To be successful, we must adapt to rapidly changing Internet technologies
and continually enhance the features and services provided on our site and to
our network associates. We could incur substantial, unanticipated costs if we
need to modify our site, software and infrastructure to incorporate new
technologies demanded by our customers or our
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network associates. We may use new technologies ineffectively or we may fail to
adapt our site, transaction-processing systems and network infrastructure to
user requirements or emerging industry standards.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, WEB ADDRESSES AND
PROPRIETARY RIGHTS
We rely or may in the future rely on a combination of patent, trademark,
trade secret and copyright law and contractual restrictions to protect the
proprietary aspects of our technology and proprietary content. These legal
protections afford only limited protection for our intellectual property and
trade secrets. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our proprietary technology
or otherwise obtain and use information that we regard as proprietary.
We have not filed any U.S. or foreign applications for trademark
registration of "Global Media," "globalmedia.com," "Global Media Network,"
"Global Media Broadcast Network" or any of our other trademarks. Were we to
file for such registrations, we may be unable to secure them. It is also
possible that our competitors or others will adopt service names similar to
ours, thereby possibly leading to customer confusion. In addition, there could
be potential trade name or trademark infringement claims brought by owners of
other trademarks that incorporate variations of the term "Global Media." Any
claims or customer confusion related to our trademarks, or our failure to obtain
trademark registrations, could negatively affect our business.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names and determine the
validity and scope of the proprietary rights of others. If third parties
prepare and file applications in the United States or other countries that claim
trademarks used or registered by us, we may oppose those applications and be
required to participate in proceedings before the United States Patent and
Trademark Office or foreign regulatory agencies to determine priority of rights
to the trademarks. Any litigation or adverse priority proceeding could result in
substantial costs and diversion of resources and could seriously harm our
business and operating results. Finally, to the extent that we sell products
internationally, the laws of many countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Many
countries have a "first-to-file" trademark registration system. As a result, we
may be prevented from registering or using our trademarks in certain countries
if third parties have previously filed applications to register or have
registered the same or similar trademark. Our means of protecting our
proprietary rights may not be adequate, and our competitors could independently
develop similar technology.
We hold rights to various Web domain names, including "globalmedia.com,"
"gmcorp.net," "globalmedia corp.com," "indieaudio.com" and "indielife.com."
Governmental agencies typically regulate domain names. These regulations are
subject to change. We may not be able to acquire or maintain appropriate domain
names in all countries in which we do business. Furthermore, regulations
governing domain names may not protect our trademarks and similar proprietary
rights. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or diminish the value of our trademarks and
other proprietary rights.
WE MAY BE FOUND TO INFRINGE THE PROPRIETARY RIGHTS OF OTHERS OR FACE LIABILITY
FOR CONTENT ON OUR WEB SITES
Third parties may claim infringement by us with respect to past, current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, or require us to
enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to us or at all.
Because we post our own content and content licensed from third parties on
our site, we face potential liability for negligence, copyright, patent,
trademark, defamation, indecency and other claims based on the nature and
content of the materials that we post. Such claims have been brought, and
sometimes successfully pressed, against Internet content distributors. In
addition, we could be exposed to liability with respect to the unauthorized
duplication of content.
Although we maintain general liability insurance, our insurance may not
cover potential claims of the types described above or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
harm our business.
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WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT
Any failure of our material systems, our vendors' material systems or the
Internet to be year 2000 compliant would have material adverse consequences for
us. Such consequences would include difficulties in operating our site
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business. While we have assessed the year 2000
readiness of the software, computer technology and other systems that we use
internally and believe them to be year 2000 compliant, we have not begun
inquiries of our material vendors as to the year 2000 compliance of their own
systems or whether they have finalized any contingency plans to address year
2000 problems that may arise. At this time, we have not yet developed a
contingency plan to address situations that may result if our systems or the
systems of our vendors are not year 2000 compliant. The cost of developing and
implementing such a plan, if necessary, could be significant.
We also depend on the year 2000 compliance of the computer systems and
financial services used by consumers. A significant disruption in the ability
of consumers to reliably access the Internet or portions of it or to use their
credit cards would have an adverse effect on demand for our products and
services. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Year 2000" for a further description of the issues we
face with regard to the year 2000.
OUR SALES COULD BE NEGATIVELY AFFECTED IF WE ARE REQUIRED TO CHARGE TAXES ON
PURCHASES AND OUR BUSINESS COULD BE NEGATIVELY AFFECTED BY ANY NEW
INTERNET-RELATED TAXES We currently do not collect United States sales or
other similar taxes in respect of goods sold by us However, one or more states,
provinces or other jurisdictions may seek to impose the obligation to collect
sales or other similar taxes on out-of-jurisdiction companies (such as us) which
engage in or facilitate online commerce. A successful assertion by one or more
states, provinces or foreign countries that we should collect further sales or
other similar taxes on the sales of products through our site or those of our
network associates could negatively affect our revenues and business. A number
of proposals have been made at the state and local level in the U.S. that would
impose additional taxes on the sale of goods and services through the Internet.
Such proposals, if adopted, could substantially impair the growth of electronic
commerce, and could adversely affect our opportunity to derive financial benefit
from such activities. Although there is currently a U.S. federal moratorium on
the imposition of new taxes on the sale of goods and services through the
Internet, this moratorium is set to expire in October 2001, and may not be
renewed.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
Our industry is new and rapidly evolving. Our business would be adversely
affected if Web usage and e-commerce does not continue to grow. Web usage may
be inhibited for a number of reasons, including:
- inadequate Internet infrastructure;
- security concerns;
- inconsistent quality of service;
- unavailability of cost-effective, high-speed service; or
- imposition of transactional or other taxes.
If Web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth, or its performance and reliability may
decline. In addition, Web sites, including ours, have experienced a variety of
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Web usage, including usage of our Web sites or
the Web sites of our network associates, could grow slowly or decline.
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OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE E-COMMERCE MARKET AND
THE MARKET FOR STREAMING MEDIA SERVICES, WHICH IS UNCERTAIN
Our future revenues and profits depend substantially on the widespread
acceptance and use of the Web as an effective medium of commerce by consumers,
as well as the widespread acceptance of the Internet as a medium of broadcast by
consumers and producers of audio, video and other multimedia content. Rapid
growth in the use of the Web and consumer e-commerce is a recent phenomenon and
the commercial use of the Internet as a broadcast medium is in its early stages.
Demand for recently introduced services and products over the Web is subject to
a high level of uncertainty. The development of the Web as a viable commercial
marketplace or as a broadcast medium is subject to a number of factors,
including the following:
- e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
- Internet broadcasts of multimedia content are generally of lower
quality than broadcasts in traditional mediums and are subject to
frequent interruptions and packet loss;
- radio listeners, television viewers and consumers of other multimedia
content may be unwilling to shift their consumption of such content to
the Internet or it may be more difficult to establish viable revenue
streams from Internet broadcasts;
- insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
- adverse publicity and consumer concerns about the security of commerce
transactions on the Internet could discourage its acceptance and
growth.
BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF E-COMMERCE AND
SUBJECT US TO LIABILITY
The need to securely transmit confidential information (such as credit card
and other personal information) over the Internet has been a significant barrier
to e-commerce and communications over the Web. Any well-publicized compromise
of security could deter more people from using the Web or from using it to
conduct transactions that involve transmitting confidential information, such as
purchases of goods or services. To the extent that our activities or the
activities of third-party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
disrupt our business, damage our reputation and expose us to a risk of loss or
litigation and possible liability. We could be liable for claims based on
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. Claims could also be based on other misuses of personal
information, such as for unauthorized marketing purposes. We may need to spend
a great deal of money and use other resources to protect against the threat of
security breaches or to alleviate problems caused by security breaches.
WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES
SURROUNDING THE INTERNET
Any new law or regulation pertaining to, or the application or
interpretation of existing laws to, the Internet could increase our cost of
doing business or otherwise adversely affect our business. Laws and regulations
directly applicable to Internet communications, commerce and advertising are
becoming more prevalent. The law governing the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws governing
intellectual property, copyright, privacy, obscenity, libel and taxation apply
to the Internet. In addition, the growth and development of e-commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. Governments in foreign jurisdictions may regulate Internet
or other online services in such areas as content, privacy, network security,
encryption or distribution more stringently than in the United States. This may
affect our ability to conduct business internationally. We also may be subject
to future regulation not specifically related to the Internet, including laws
affecting direct marketers.
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE
As of July 23, 1999, 8,500 shares of our Series A preferred stock, having
an aggregate stated value of $8.5 million, were issued and outstanding. The
shares of Series A preferred stock are convertible into such number of shares
15
<PAGE>
of our common stock as is determined by dividing the stated value of the
Series A preferred stock being converted, plus an additional amount which
accrues at the rate of 5% per annum, by the conversion price in effect at the
time of conversion. The conversion price is determined by reference to the
then-current market price of our common stock or, if less, a fixed conversion
price. In addition, the holders of the Series A preferred stock hold investment
options under which they may purchase an additional share of common stock at an
exercise price equal to the then-current conversion price for each share of
common stock received upon conversion. If the selling stockholders had
converted the total number of shares of Series A preferred stock on July 23,
1999, and exercised the related investment options in full, the number of shares
of our common stock that we would have issued to the selling stockholders would
have been 3,041,577 shares. However, the actual number of shares that may be
issued on conversion of the Series A preferred stock and exercise of the related
investment options may prove to be significantly greater in the event of a
decrease in the trading price of our common stock. Purchasers of common stock
could therefore experience substantial dilution of their investment upon
conversion of the Series A preferred stock and exercise of the related
investment options by the selling stockholders.
As of July 23, 1999, warrants to purchase 680,000 shares of common stock
issued to the holders of the Series A preferred stock were outstanding. These
warrants may be exercised over the next five years at a price of $8.4375, which
price may be adjusted from time to time under certain antidilution provisions.
As of July 23, 1999, 3,328,169 shares of common stock were reserved for issuance
upon exercise of outstanding stock options granted under our stock option plans
and warrants, other than those issued in connection with the Series A preferred
stock, at exercise prices ranging from $4.00 to $6.25 per share. Of such stock
options and other warrants, 2,559,336 are currently exercisable. Purchasers of
common stock could experience substantial dilution of their investment upon
exercise of stock options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market in the future, including shares issued upon the conversion or
exercise of outstanding shares of Series A preferred stock, investment options
and warrants, then the market price of our common stock could fall.
At July 23, 1999, 20,653,331 shares of our common stock were outstanding.
Of these outstanding shares, 4,835,331 were freely tradeable without restriction
under our Form S-8 Registration Statements. The remaining 15,818,000 shares are
eligible for sale in the public markets within the limits of Rule 144 under the
Securities Act. See "Shares Eligible for Future Sale."
We have also filed registration statements to register all shares of common
stock issuable under certain of our stock option plans. Options covering a
total of 3,265,400 shares, 2,198,567 of which are currently vested, are
outstanding under these plans. Consequently, shares issued upon exercise of
stock options granted under those plans will be eligible for resale in the
public market without restriction (except to the extent they are issued to our
executive officers and directors).
To date, we have had limited trading volume in our common stock. Sales of
substantial amounts of common stock under Rule 144, the registration statement
of which this prospectus is a part, our other registration statements or
otherwise could adversely affect the prevailing market price of our common stock
and could impair our ability to raise capital at that time through the sale of
our securities.
WE ARE CONTROLLED BY OFFICERS, DIRECTORS AND EXISTING STOCKHOLDERS, IN
PARTICULAR OUR CHAIRMAN AND PRESIDENT
Executive officers, directors and entities affiliated with them, in the
aggregate, beneficially own approximately 92.4%, and Michael Metcalfe, our
Chairman and President beneficially owns approximately 71.4%, of our outstanding
shares of common stock (without giving effect to this offering). Mr. Metcalfe
is able to control substantially all matters requiring approval by our
stockholders, including the election of directors, amendments to our articles of
incorporation, and mergers or other business combination transactions.
Mr. Metcalfe's substantial equity stake could also make us a much less
attractive acquisition candidate to potential acquirers, because Mr. Metcalfe
alone could have sufficient votes to prevent the approval or the tax-free
treatment of an acquisition.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT
We are a Nevada corporation. The anti-takeover provisions of Nevada law
could make it more difficult for a third party to acquire or gain control of us,
even if such a transaction would be beneficial to stockholders. Our articles of
incorporation provide that our board of directors may issue preferred stock
without stockholder approval. The issuance of preferred stock could make it
more difficult for a third party to acquire us. Each of these factors could
adversely affect
16
<PAGE>
prevailing market prices for our common stock. See "Description of Capital
Stock - Nevada Anti-Takeover Laws and Certain Charter Provisions."
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE
The market price of our common stock has been, and is likely to continue to
be, highly volatile. For example, during the 48-week period between the date
our common stock began trading on August 24, 1998 and July 27, 1999, the price
of our common stock ranged from $0.4375 to $13.375 per share. Purchasers of our
common stock may not be able to resell their shares following periods of
volatility because of the market's adverse reaction to volatility. The trading
prices of many technology and Internet-related companies' stocks have reached
historical highs within the last 52 weeks and have reflected valuations
substantially above historical levels. During the same period, these companies'
stocks have also been highly volatile and have recorded lows well below
historical highs. We cannot assure you that our stock will trade at the same
levels of other Internet stocks or that Internet stocks in general will sustain
their current market prices. Factors that could cause volatility in our stock
price may include, among other things:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements of technological innovations, new products or services by
us or our competitors;
- changes in financial estimates or recommendation by securities
analysts;
- conditions or trends in the Internet industry;
- changes in the market valuations of other Internet companies;
- the addition or loss of strategic relationships or key vendors;
- conditions or trends in the Internet, online commerce and media
streaming markets;
- changes in the market valuations of other Internet, online service or
software companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of our common stock; and
- general stock market conditions and conditions in the technology and
Internet sectors in particular.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology. These forward-looking statements include,
without limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our business
plan, and the adequacy of our available cash resources. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. The information set forth under the headings "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," identify important additional factors that could materially
adversely affect our actual results and performance. All forward-looking
statements attributable to us are expressly qualified in their entirety by the
foregoing cautionary statement. Moreover, neither we nor anyone else assumes
responsibility for the accuracy and completeness of such statements. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
17
<PAGE>
USE OF PROCEEDS
We not receive any proceeds upon conversion of the Series A preferred
stock, nor will we receive any of the proceeds from the sale by the selling
stockholders of the shares issued upon such conversion.
We will receive the exercise price of any investment options and warrants
that are exercised by the selling stockholders. Assuming exercise of all of the
investment options and warrants, the gross proceeds to us from the exercise of
(a) the investment options would be approximately $8,595,477 (plus additional
amounts which after the date of this prospectus would accrue from time to time
on the stated value of the outstanding Series A preferred stock), and (b) the
warrants would be $5,737,500. We intend to use any proceeds from exercise of the
investment options and warrants for working capital and general corporate
purposes.
18
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been traded on the OTC Bulletin Board under the
trading symbol "GLMC" since August 24, 1998. Prior to that date, our common
stock was not traded in the public market. The following table sets forth, for
the periods indicated, the high and low closing prices for our common stock as
reported on the OTC Bulletin Board. The quotations do not reflect adjustments
for retail mark-ups, mark-downs, or commissions and may not necessarily
represent actual transactions. On July 23, 1999, the closing price for our
common stock on the OTC Bulletin Board was $8.062 per share.
<TABLE>
<CAPTION>
PERIOD LOW CLOSE HIGH CLOSE
<S> <C> <C>
Fiscal Year Ending July 31, 1999:
--------------------------------
Fourth Quarter (through July 23, 1999) $4.00 $13.375
Third Quarter $4.00 $ 5.10
Second Quarter $ .437 $ 8.875
First Quarter (from August 24, 1998) $ .437 $ 2.50
</TABLE>
To date, we have not declared or paid any dividends on any of our capital
stock. Westcoast, however, paid $114,632 in cash dividends in fiscal 1997 prior
to its acquisition by the Company. We currently intend to retain earnings, if
any, to fund the development and growth of our business and do not anticipate
paying cash dividends in the foreseeable future. Payment of future dividends,
if any, will be at the discretion of our Board of Directors after taking into
account various factors, including our financial condition, operating results,
current and anticipated cash needs and plans for expansion. So long as shares
of Series A preferred stock are outstanding, the payment of dividends on our
common stock will require the consent of the holders of a majority of the shares
of Series A preferred stock then outstanding.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of April 30, 1999: (a) our actual
capitalization, (b) our pro forma capitalization after giving effect to our sale
on May 6, 1999 of convertible debentures in the original principal amount of
$8,500,000 and related warrants to RGC International Investors, LDC as described
in "Certain Transactions - Offering of Debentures and Warrants," and (c) our pro
forma capitalization as adjusted to give effect to our conversion on July 19,
1999 of the debentures into 8,500 shares of Series A preferred stock as
described in "Certain Transactions - Offering of Debentures and Warrants" and
"Description of Capital Stock - Preferred Stock - Series A Convertible Preferred
Stock." This information should be read in conjunction with our Consolidated
Financial Statements and the related Notes appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1999
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt:
Convertible debentures.......................................... $ -- $ 8,500,000 $ --
------------- ------------- ---------------
Stockholders' equity:
Preferred Stock, $0.001 par value per share:
Authorized shares - none actual or pro forma; 100,000,000 shares
pro forma as adjusted
Series A preferred stock, designated -
none actual or pro forma; 8,500 shares pro forma as adjusted Issued and
outstanding - none actual or pro forma; 8,500
pro forma as adjusted................................... -- -- 8,500,000(1)
Common stock, $0.001 par value per share:
Authorized shares - 200,000,000 shares actual, pro forma, and pro
forma as adjusted
Issued and outstanding - 20,544,431 shares actual, pro forma,
and pro forma as adjusted(2)............................... 12,546 12,546 12,546
Additional paid-in capital............................... 1,550,771 1,550,771 1,550,771
Accumulated deficit...................................... (1,941,221) (1,941,221) (1,941,221)
Cumulative translation adjustment........................ 8,670 8,670 8,670
------------- ------------- ---------------
Total stockholders' equity (deficit)........................ (369,234) (369,234) 8,130,766(1)
------------- ------------- ---------------
Total capitalization.................................... $ (369,234) $ 8,130,766 $ 8,130,766
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
- ------------------
(1) Inclusion of the stated value of the Series A preferred stock in our
stockholders' equity may be disallowed under applicable accounting rules if
the registration statement of which this prospectus is a part is not
declared effective by the SEC by November 6, 1999.
(2) Excludes:
- 346,400 shares of common stock issuable on exercise of options
outstanding at April 30, 1999 with an exercise price of $0.50 per
share; and
- 2,933,000 shares of common stock issuable upon the exercise of options
outstanding at April 30, 1999 with an exercise price of $4.00 per
share.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial information was derived from our
historical consolidated financial statements. The selected historical financial
information for the fiscal years ended July 31, 1998 and 1997 is derived from
our consolidated financial statements, which were audited by Ernst & Young LLP,
independent chartered accountants. The selected historical financial
information for the nine-months ended April 30, 1999 and 1998 is derived from
our unaudited consolidated financial statements. In our opinion, the unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
for the periods presented. Net revenues, gross profit and operating expenses in
the table set forth below do not include the results of operations of our
discontinued home satellite and call center businesses described in "Prospectus
Summary - Global Media." See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Discontinued Operations."
You should read this information in conjunction with the Consolidated
Financial Statements and the related Notes and the discussion in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, NINE MONTHS ENDED APRIL 30,
----------------------------------------------------------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................ $ -- $ -- $ -- $ --
Gross profit................................ -- -- -- --
Operating expenses.......................... (72,214) (304,919) (171,840) (1,257,322)
Loss from continuing operations............. (72,214) (304,919) (171,840) (1,257,322)
Loss from discontinued operations........... (36,785) (167,755) (57,961) (2,080)
Net loss.................................... (108,999) (472,674) (229,801) (1,259,402)
Net loss applicable to common stockholders.. $ (108,999) $ (472,674) $ (229,801) $ (1,259,402)
------------- ------------ ------------- --------------
------------- ------------ ------------- --------------
Basic and diluted loss per share............ $ (0.01) $ (0.02) $ (0.01) $ (0.06)
Weighted-average shares outstanding used in
computing basic and diluted loss per share.. 11,059,400 19,890,831 19,619,116 20,253,942
<CAPTION>
JULY 31, APRIL 30,
---------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1997 1998 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Working capital (deficiency)........................ $ 53,967 (279,214) (991,176)
Total assets........................................ 295,458 271,562 742,656
Liabilities......................................... 220,925 378,141 1,111,890
Total stockholders' equity (deficiency)............. 74,533 (106,579) (369,234)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our
future performance. They are subject to risks and uncertainties related to
business operations, some of which are beyond our control. Our actual results
may differ materially from those anticipated in these forward-looking
statements. See "Cautionary Note Regarding Forward-Looking Statements."
- --------------------------------------------------------------------------------
OVERVIEW
Global Media is an online seller of CDs, home video cassettes, DVDs, books
and other entertainment products. In May 1999, we launched our main e-commerce
site "globalmedia.com". We have also begun marketing our "Global Media Network"
associate program. Under this program, we will offer radio and television
stations and other businesses online entertainment product merchandising
capabilities for a low, up-front cost. Our network associates will be able to
offer a customized, private label online entertainment merchandise store to
their customers and we will provide an integrated back-end e-commerce system,
order fulfillment services and customer service support. We anticipate that the
Global Media Network will significantly extend our customer reach on the Web and
provide additional revenue streams beyond product sales through our own
globalmedia.com online store. In addition, through a strategic relationship
with RealNetworks, we are developing the "Global Media Broadcast Network," which
will enable our network associates to stream live and simulated live audio,
video and other multimedia content (such as radio feeds) over the Internet. The
Global Media Broadcast Network streaming capabilities will be able to be
combined with our Global Media Network e-commerce program to provide a highly
integrated e-commerce and multimedia content delivery solution. See "Business".
Before launching our e-commerce and streaming media businesses, we were
originally engaged in the home satellite marketing business until fourth quarter
fiscal 1998 through our subsidiary, Westcoast Wireless Cable Ltd. ("Westcoast
Wireless"), and in the business of providing call center services until third
quarter fiscal 1999. See " - Discontinued Operations."
Because of our discontinued operations, and because of the seasonality
inherent in a retail business, our results of operations discussed below are not
necessarily indicative of the results you should expect for any future
comparable period. See " - Seasonality". Inflation has not historically had
any material effect on our operations.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion have been
restated to exclude our discontinued call center and home satellite
businesses. For summary financial results from those operations, see
"- Discontinued Operations".
- --------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997
NET REVENUES. We had no revenues from our e-commerce or streaming media
operations in fiscal 1998 as we did not adopt our internet-focused plan until
first quarter fiscal 1999.
OPERATING EXPENSES. Our operating expenses increased 322% to $304,919 in
fiscal 1998 from $72,214 in fiscal 1997. This increase was due primarily to
one-time costs for legal and accounting fees associated with registering as a
public reporting company with the SEC, and the costs associated with renting and
occupying our new facility in Nanaimo, British Columbia, as follows:
- Advertising expense increased to $6,691 from zero in fiscal 1997, due
to the cost of press releases.
- Amortization increased to $29,973 in fiscal 1998 from zero in fiscal
1997, due to our purchase of computer equipment, leasehold improvements
and office furniture.
- Professional fees increased 199% to $147,500 in fiscal 1998 from
$49,386 in fiscal 1997, for legal and accounting services for our SEC
registration.
22
<PAGE>
- Office expenses increased 213% to $68,402 from $21,842 in fiscal 1997,
mainly due to increased rent for the new facility.
- Travel expenses increased to $21,174 in fiscal 1998 from zero in
fiscal 1997, for travel associated with trade shows and funding
efforts.
- Wages and benefits increased 1,109% to $17,659 in fiscal 1998 from
$1,461 in fiscal 1997, due to hiring office staff.
INTEREST EXPENSE. Our net interest expense and financing fees increased
192% to $1,298 in fiscal 1998 from $445 in fiscal 1997, due primarily to
interest assessed on late paid payroll withholdings.
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $304,919 net loss
from our continuing operations in fiscal 1998, up 322% from our $72,214 net
loss from continuing operations in fiscal 1997, as the result of our lack of
revenues from continuing operations and increased operating expenses, as
discussed above.
NET LOSS FROM ALL OPERATIONS. We experienced a $472,674 net loss from all
operations in fiscal 1998, up 334% from our $108,999 net loss from all
operations in fiscal 1997 as the result of our increased operating expenses and
declining revenues from discontinued operations. See " - Discontinued
Operations."
NINE MONTHS ENDED APRIL 30, 1999 COMPARED TO NINE MONTHS ENDED APRIL 30, 1998
NET REVENUES. We had no revenues from our e-commerce and streaming media
operations in the nine months ended April 30, 1999, as our internet-focused
business did not begin generating revenue until May 1999. See " - Recent
Events".
OPERATING EXPENSES. Our operating expenses increased 606% to $1,210,039 in
the nine months ended April 30, 1999, from $171,494 in the nine months ended
April 30, 1998. This increase was due primarily to compensation expense
relating to stock option grants to our employees' and directors' increased
legal, accounting and other expense related to being a public reporting company,
expenses related to our new facility, and development and launch of our internet
sites and our network associate programs, as follows:
- Advertising, investor relations and marketing expenses increased 3,999%
to $144,648 in the nine months ended April 30, 1999, from $3,529 in the
nine months ended April 30, 1998, due to investigations regarding
development of the e-commerce model, marketing of the network associate
program, and related press releases.
- Amortization increased 440% to $90,060 in the nine months ended April
30, 1999, from $16,678 in the nine months ended April 30, 1998, due to
our acquisition of additional capital assets and our incurring a full
nine months of depreciation as opposed to a partial period in the
previous year.
- Professional fees increased 84% to $159,114 in the nine months ended
April 30, 1999, from $86,586 in the nine months ended April 30, 1998,
due to the issuance of stock options in lieu of consulting fees.
- Office and miscellaneous expenses increased 175% to $114,740 in the
nine months ended April 30, 1999, from $41,708 in the nine months ended
April 30, 1998, due to the increased cost of our new facility.
- Travel expense increased 385% to $75,549 in the nine months ended April
30, 1999, from $15,590 in the nine months ended April 30, 1998, due to
travel relating to development of strategic alliances, working with web
site designers and developers, attending industry related
conferences and meeting with potential financing sources.
- We incurred stock option compensation expenses of $548,800 in the nine
months ended April 30, 1999, compared to zero in the nine months ended
April 30, 1998, as the result of issuing stock options to certain
officers and employees of the Company for less than the market trading
price of our common stock on the date we began trading on the OTC
Bulletin Board. See "Certain Transactions."
23
<PAGE>
INCREASE OF INTEREST EXPENSE. Our net interest expense and financing fees
increased 13,566% to $47,283 in the nine months ended April 30, 1999, from $346
in the nine months ended April 30, 1998, due primarily to interest payments on
the Rolling Oaks Enterprises, LLC loan. See "- Financing Activities."
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $1,257,322 net loss
from continuing operations for the nine months ended April 30, 1999, up 632%
from our $171,840 net loss from continuing operations for the nine months ended
April 30, 1998, due primarily to the increase in operating expenses and the lack
of revenues from continuing operations.
NET LOSS FROM ALL OPERATIONS. We experienced a $1,259,402 net loss from
all operations for the nine months ended April 30, 1999, up 448% from our
$229,801 net loss from all operations for the nine months ended April 30, 1998.
See " - Discontinued Operations".
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion have been
restated to exclude our discontinued call center and home satellite
businesses. For summary financial results from those operations, see "
- Discontinued Operations". This section should be read in conjunction
with "- Results of Operations," above.
- --------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997
FINANCING ACTIVITIES. We financed our operations and capital expenditures
in fiscal 1998 primarily by selling common stock through private placements
which were exempt from registration under Rule 504 of Regulation D under the
Securities Act. Cash from sales of common stock decreased 22% to $221,267 in
fiscal 1998 from $283,700 in fiscal 1997. However, in fiscal 1998 we paid no
dividends to our stockholders, as compared to $114, 632 in dividends paid out in
fiscal 1997.
CAPITAL EXPENDITURES AND COMMITMENTS. Our capital expenditures increased
1,336% to $189,706 in fiscal 1998 from $13,209 in fiscal 1997, primarily due to
purchases of office equipment and leasehold improvements for our new facility,
and computer equipment and software. As of fiscal year end 1998 we had no
material commitments outstanding for purchases of additional capital assets.
WORKING CAPITAL (DEFICIENCY). At fiscal year ends 1998 and 1997, we had
working capital (deficiency) of ($279,214), and $66,029, and working capital
ratios of .26 and 1.32, respectively.
NINE MONTHS ENDED APRIL 30, 1999 COMPARED TO NINE MONTHS ENDED APRIL 30, 1998
FINANCING ACTIVITIES. We financed our operations and capital expenditures
in the nine months ended April 30, 1999 primarily from the proceeds of common
stock sales, and loans from stockholders and a third-party lender. See "-
Recent Events." Cash from common stock sales upon the exercise of stock options
increased 48% to $326,800 in the nine months ended April 30, 1999, from $221,267
from common stock sales in the nine months ended April 1998. In the nine months
ended April 30, 1999, we obtained cash from loans totaling $825,751. The
loans consisted of a one-year loan of $500,000, with a 24% interest rate, from
Rolling Oaks Enterprises, LLC, and $325,751 in net short-term loans from
stockholders and affiliates, as compared to our net loan repayment of $36,697 in
the nine months ended April 30, 1998. These stockholder loans had no fixed term
of repayment and were therefore classified as current liabilities on our balance
sheet for April 30, 1999.
CAPITAL EXPENDITURES AND COMMITMENTS. Our capital expenditures increased
180% to $462,463 in the nine months ended April 30, 1999, from $165,414 in the
nine months ended April 30, 1998, primarily as the result of capitalized
development costs for our Web sites and our other initiatives, and computer
hardware and software purchases. As of April 30, 1999, we had no material
commitments outstanding for purchases of additional capital assets, except for
our April 20, 1999 engagement of RealNetworks Inc. to perform consulting
services in connection with the design and development of the Global Media
Broadcast Network. Under the terms of the agreement, as amended on June 4, 1999,
we are required to make payments totaling $3,655,000 over the duration of the
project with the final payment date projected to be December 21, 1999.
WORKING CAPITAL (DEFICIENCY). At April 30, 1999 and April 30, 1998, we had
working capital (deficiency) of ($991,176) and ($279,844), and working capital
ratios of .11 and .26, respectively.
24
<PAGE>
RECENT EVENTS
CONVERTIBLE DEBENTURE AND WARRANT OFFERING. In May 1999, we raised
$8.5 million through the sale of a convertible debenture, in the original
principal amount of $8.5 million, and a five-year warrant to purchase 680,000
shares of common stock, to RGC International Investors LDC. We converted the
debentures into 8,500 shares of our Series A preferred stock on July 19, 1999,
once our stockholders authorized us to issue preferred stock. The Series A
preferred stock and the investment options related to that stock are convertible
pursuant to a market-based formula, and the warrants are exercisable at $8.3475
per share (135% of the average closing bid price of our common stock for the
three trading days ending April 30, 1999, the date RGC committed to the
investment).
The debenture and warrants were sold pursuant to a Securities Purchase
Agreement between us and RGC, in a private placement pursuant to Regulation D
under the Securities Act of 1933, as amended. The debenture was convertible at
our option into shares of Series A preferred stock pending the effectiveness of
stockholder approval of articles of amendment to our articles of incorporation
authorizing 100 million shares of preferred stock and authorizing our Board of
Directors to designate the number and the rights, preferences, privileges and
restrictions of that preferred stock from time to time in series, our filing of
those articles of amendment with the Nevada Secretary of State, and our filing
with the Nevada Secretary of State of a certificate of designation of the
rights, preferences, privileges and restrictions of Series A preferred stock
adopted by resolution of our board of directors. On July 19, 1999, we exercised
our right to convert the debenture into shares of Series A preferred stock. The
terms of the debenture were substantially similar to the terms of the Series A
preferred stock.
The stated value, plus an amount accruing thereon at the rate of 5% per
annum, of each share of Series A preferred stock is convertible from time to
time into shares of our common stock based upon the lesser (a) a fixed
conversion price of $8.125, which is 130% of the three-day average ending April
30, 1999, the date RGC committed to the investment, or (b) a variable conversion
price equal to 100% of the future market price of the common stock at the time
of conversion. The fixed conversion price and the applicable percentage of the
future market price are subject to adjustment if our common stock is not listed
on the Nasdaq National Market or the Nasdaq SmallCap Market by November 6, 1999.
Under the terms of the Series A preferred stock, RGC or its assigns have the
option, exercisable simultaneously with their conversion of the Series A
preferred stock into common stock from time to time, to purchase an equal number
of additional shares of common stock at a per share price equal to the
conversion price in effect at the time of conversion. Without giving effect to
the accrual of additional amounts on the stated value of the Series A preferred
stock since May 6, 1999, the exercise in full of the these investment options
could result in an additional $8.5 million being invested by RGC, for a total
investment by RGC of $17 million. To the extent not previously converted, the
shares of Series A preferred stock will automatically convert into common stock
on May 6, 2002. See "Description of Capital Stock - Preferred Stock - Series A
Convertible Preferred Stock."
The Series A preferred stock has no voting rights, except that the holders
of the Series A preferred stock have the right to vote on issues directly
affecting the Series A preferred stock as a class. Under certain circumstances,
the Series A preferred stock may become redeemable, mandatorily or at the option
of RGC depending on the applicable circumstance. See "Description of Capital
Stock - Preferred Stock - Series A Convertible Preferred Stock."
Pursuant to a Registration Rights Agreement entered between us and RGC, we
were obligated to file with the SEC by a certain date the registration statement
of which this prospectus is a part to register for resale the shares of our
common stock which may be acquired upon conversion of, and exercise of the
investment options relating to, the shares of Series A preferred stock issued to
RGC, as well as the shares of common stock issuable upon exercise of the
warrants. See "Description of Capital Stock - Registration Rights."
LOAN REPAYMENT. In May 1999, we repaid the $500,000 loan from Rolling Oaks
Enterprises, LLC, plus $48,200 in accrued interest, from the proceeds of the
convertible debenture offering.
LAUNCH OF E-COMMERCE SITE. We launched our "globalmedia.com" online store
on May 18, 1999. We adopted an initial pricing policy intended to result in a
small initial volume of transactions while site development and systems
integration is fully completed. We intend to generally lower prices during the
first quarter fiscal 2000, which is anticipated to have the effect of increasing
sales. We do not anticipate earning significant revenues until we implement the
pricing changes and launch our Global Media Network program.
FUTURE CAPITAL REQUIREMENTS
We expect negative cash flow from operations to continue for the
foreseeable future, as we continue to develop and market our internet-focused
operations. We believe that the net proceeds from our convertible debenture
offering and
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revenue from our Web sites, plus the potential availability of additional
stockholder and affiliate loans, will be sufficient to meet our operating
cash requirements and budgeted capital expenditures through second quarter
fiscal 2000. We expect to meet our long-term cash and operational
requirements through equity financings and revenues from our Web sites,
Global Media Network program and Global Media Broadcast Network streaming
media program.
SEASONALITY
We expect our operating results to fluctuate significantly from period to
period. Both seasonal fluctuations in internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book and music industries usually
increase significantly in the fourth calendar quarter of each year and are
correspondingly lower in other quarters. If similar seasonal patterns emerge in
e-commerce, our revenues may vary significantly from period to period.
FOREIGN CURRENCY TRANSLATION
We have translated our monetary assets and liabilities which are
denominated in a foreign currency into U.S. dollars at the period-end
exchange rate, and have translated other balances at the rates in effect on
the dates of the transaction. We have translated our income and expense
items at the average exchange rates prevailing during the fiscal period. We
have historically recorded the resulting translation adjustments for
Westcoast as a separate component of stockholders' equity. Exchange gains
and losses arising on translation are reflected in net income for the period.
DISCONTINUED OPERATIONS
CALL CENTER BUSINESS.
Our discontinued call center business provided small U.S. and Canadian
public companies with investor relations and information dissemination
services in various industries, using its customized contact management
software and contact database. This database was based in part on the
customer list from our home satellite business. See "- Home Satellite
Business." We began our call center business in first quarter fiscal 1998
and discontinued it in third quarter fiscal 1999, due to the difficulty of
replacing a terminated key employee and our decision to focus on e-commerce
activities. We have accounted for the call center business as a discontinued
operation, and accordingly, its operations have been segregated in the
accompanying consolidated statements of operations. The following chart
summarizes the Company's revenue and expenses from the call center business:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
JULY 31, APRIL 30,
--------------------- -----------------------
1997 1998 1998 1999
--------------------- -----------------------
<S> <C> <C> <C> <C>
Total revenue $ 0 $326,279 $261,954 $20,534
General and
administrative expenses 0 217,666 115,457 20,534
------ -------- -------- -------
Net profit $ 0 $108,613 $146,497 $ 0
------ -------- -------- -------
------ -------- -------- -------
</TABLE>
HOME SATELLITE BUSINESS.
Westcoast Wireless Cable Ltd., one of our wholly-owned subsidiaries, was in
the business of direct marketing of home satellite programming and hardware
since May 1994. Our president, Michael Metcalfe, was originally the sole owner
of Westcoast. The Company acquired all of the stock of Westcoast from Mr.
Metcalfe in May 1997, in exchange for 8,000,000 shares of the Company's common
stock and $100,000 in cash. See "Certain Transactions." Westcoast discontinued
its home satellite operations in the fourth quarter of fiscal 1998 following a
decision by the Canadian Federal Court of Appeal in November, 1997 prohibiting
the sale of U.S.-based satellite and programming services in Canada.
26
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED
JULY 31,
---------------------------
1997 1998
---------------------------
<S> <C> <C>
Total revenue $1,637,732 $ 591,938
Cost of sales 755,446 418,167
Commission paid 621,597 133,934
----------- -----------
Gross profit 260,689 39,837
General and administrative expenses 297,474 324,887
Income tax recovery -- 8,682
----------- -----------
Net profit (loss) $ (36,785) $ (276,368)
----------- -----------
----------- -----------
</TABLE>
RISKS ASSOCIATED WITH THE YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. Any failure of our material systems, our vendors' material
systems or the Internet to be year 2000 compliant would have material adverse
consequences for us. These consequences would include difficulties in operating
our site effectively, taking product orders, making product deliveries or
conducting other fundamental parts of our business.
We are currently assessing the year 2000 readiness of the software,
computer technology and other systems that we use internally which may not be
year 2000 compliant. However, we do not believe that we have material exposure
to the year 2000 issue with respect to our own information systems since our
existing systems correctly define the year 2000.
We have not begun inquiries of our material vendors as to the year 2000
compliance of their own systems or whether they have or finalized any
contingency plans to address year 2000 problems that may arise. We are
currently unable to predict the extent to which the year 2000 issue will affect
our suppliers, or the extent to which it would be vulnerable to our suppliers'
failure to remediate any year 2000 issues on a timely basis. The failure of a
major supplier subject to the year 2000 issue to convert its systems on a timely
basis or a conversion that is incompatible with our systems could have a
material adverse effect on us.
We also depend on the year 2000 compliance of the computer systems and
financial services used by consumers. A significant disruption in the ability
of consumers to reliably access the Internet or portions of it or to use their
credit cards would have an adverse effect on demand for our products and
services. We anticipate that most of the sales through our e-commerce site will
be made with credit cards. Our business and results of operations therefore may
be materially adversely affected to the extent that our customers are unable to
use their credit cards due to year 2000 issues that are not rectified by their
credit card providers. One further, and more extreme, case may be the failure
of the communication mode (telephone, cable or satellite), over the Internet,
which could significantly impact our ability to generate sales.
At this time, we have not yet developed a contingency plan to address
situations that may result if we, our suppliers or the credit card systems used
by our customers are unable to achieve year 2000 compliance. The cost of
developing and implementing such a plan, if necessary, could be significant and
could have a material adverse effect on our business.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS133, "Accounting
for derivative instruments and hedging activities". SFAS 133 is effective
for financial statements for fiscal years beginning after June 15, 2000. We are
unable to predict to what extent, if any, that our business will be effected
once SFAS 133 is effective.
27
<PAGE>
BUSINESS
OVERVIEW
Global Media is an online seller of music CDs, home videos, cassettes,
DVDs, books and other entertainment products. Through our "Global Media
Network," we intend to offer radio and television stations and other businesses
an end-to-end, private label e-commerce solution that will significantly extend
our customer reach on the Web and provide additional revenue streams beyond
product sales on our own site. Our "network associates" will be able to offer a
customized online entertainment merchandise store under their own brands. Our
direct sales storefront can be found on the Web at www.globalmedia.com. By
combining an extensive catalogue of products, easy-to-use navigation and search
capabilities, rich, entertainment-focused content and a vibrant online community
for fans of music, books, videos, and other entertainment products, we are
striving to demonstrate our e-commerce solution to potential network associates
and to generate direct sales of music and entertainment merchandise. In
addition, using the Global Media Broadcast Network, which we are developing
through a strategic relationship with RealNetworks, Inc., our network associates
will be able to stream live and simulated live audio, video and other multimedia
content (such as radio feeds) over the Internet. Once developed, these
Internet-broadcasting abilities will be able to be combined with the private
label storefront to offer an integrated e-commerce and multimedia content
delivery solution.
INDUSTRY BACKGROUND
The impact of the Internet on, and its importance to, the global economy is
increasing significantly. International Data Corporation estimates that the
number of persons accessing the Web will reach 320 million by 2002 and total
Internet commerce - the purchase of goods and services over the Internet by both
businesses and consumers - will approach $250 billion by 2002. Advances in
technology, such as streaming media technologies, and broadband access are
making the Internet an increasingly important new medium for multimedia content
delivery and distribution. We believe that the increase in usage of the Web for
commerce and multimedia content delivery will be due to a number of factors,
including the following:
- a large and growing base of personal computers and other Web
access devices in the home and workplace;
- declines in the cost of personal computers and other Web access
devices;
- declines in the cost of Internet access;
- increases in the performance of personal computers;
- broadband access and increases in Internet bandwidth;
- advances in streaming media technologies that enable the
continuous transmission and playback of multimedia content, such
as audio and video, which will improve the type and quality of
content available on the Web;
- the availability of a broader range of online products and
services; and
- growing awareness by businesses and consumers of the benefits of
online shopping and the delivery or consumption of multimedia
content.
The Internet is unique as a multipurpose medium for communicating,
delivering and finding information and other content and purchasing products and
services. The Internet offers powerful characteristics, such as instant access
to a wide variety of content and commerce destinations, vast selection,
interactivity and personalization, that differentiate it from traditional media
and commerce distribution channels. We believe that, among other things, these
characteristics will facilitate use of the Internet as a purchasing medium.
International Data Corporation estimates that worldwide business-to-consumer
sales over the Internet will increase from approximately $11 billion in 1998 to
approximately $93 billion by 2002.
Traditional channels of entertainment merchandise retail distribution, such
as music stores, home video stores, bookstores and mass market retailers, have
many limitations, including:
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- INCONVENIENCE. Shopping at a physical store can be inconvenient.
It involves time-consuming activities such as making a trip to the
store, finding a parking space, searching for desired merchandise
and waiting in line to make a purchase. Searching for merchandise
can be especially time-consuming if the consumer is simply
browsing (i.e., is not looking for a particular title or artist),
since searching generally for entertainment merchandise that may
interest the consumer can involve significant time combing through
aisles of CDs or rows and rows of books or videos.
- NARROW SELECTION. Consumers of entertainment products value the
opportunity to select items from a broad range of products that
best fit their interests. Often, consumers must choose from a
narrow selection at traditional store-based retailers. In the
entertainment merchandising industry, stores often specialize in
particular types of products, such as books or music only, forcing
the consumer to make a trip to more than one store. Even mass
market retailers that offer selections from a wide variety of
entertainment product categories often have a narrow selection of
titles or genres within those categories because of limitations on
the amount of shelf-space and the resulting need to offer only the
fastest selling titles, genres or products.
- LACK OF INFORMATION AND PERSONALIZATION. Physical retailers are
space-constrained and invest heavily in inventory, real estate,
building improvements and hiring and training of store personnel.
Although some large entertainment merchandisers have made strides
to include customized information and better opportunities for
consumers to sample the products they carry (such as kiosks at
music retailers that allow customers to preview CDs), physical
retailers generally lack the display space and resources to
provide consumers in-depth information, such as book or music
reviews and interviews with authors and artists, that could
greatly enhance the shopping experience. Physical retailers also
have no way of instantaneously gauging and responding to an
individual consumer's personal tastes.
Because online retailers of entertainment products incur a fraction of the
costs for physical space and personnel and have almost unlimited "virtual"
shelf space, they can offer consumers a broader range of product categories, and
selections within those categories, than can physical retailers. In addition,
online retailers can provide consumers with a wide range of useful and
entertaining information as part of the online shopping experience, such as
interviews with authors or artists, book, music or video reviews, discographies
and other lists of artists' works, historical perspectives and feedback from
other consumers. The online shopping experience can be interactive, such as
giving consumers the opportunity to provide their own personal reviews of
products that they have bought. Online retailing also offers the opportunity to
create communities of like-minded consumers. Finally, online retailers can also
use technology to instantaneously gauge and respond to a particular consumer's
interests, such as offering online recommendations or suggestions by e-mail of
other products the consumer may be interested in based on the buying patterns of
customers who bought the same product or information provided by the consumer
about his or her own interests.
Many online retailers of entertainment merchandise provide a shopping
experience that, while convenient, informative and offering a wide selection of
products, fails to fully deliver on entertainment value. Certain strategic
relationships between online retailers and multimedia content delivery companies
have attempted to create a blended online commerce and entertainment experience,
but these initiatives are often limited in the product selection offered on the
content deliverer's Web site and give a "piecemeal" impression to consumers, who
are exposed to multiple companies' brands and Web site "look-and-feel" as part
of the shopping/entertainment experience.
Many online retailers initially assumed heavy spending on marketing and
brand creation would be limited to the early years of their companies'
histories. However, with barriers to entry in online retailing low and price
competition intense, we believe that the cost of attracting and keeping online
retail customers will remain high and even increase. Many in the online
retailing industry now believe that continued heavy spending on marketing will
be necessary just to defend market share, making profitability in online
retailing all that more elusive.
OUR SOLUTION
Our e-commerce solution leverages the Internet's capabilities for
delivering multimedia content, including live video and audio programming, to
create a unique, integrated shopping and entertainment experience for the
customers of our network associates and our own online store. The key features
of our solution consist of the following:
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- CONVENIENCE. Our online store and those of our network associates
may be reached from wherever the customer has access to the Web,
such as the home or office. Customers may shop 24 hours a day,
seven days a week. We deliver directly to the customer's home or
office, obviating the need for a trip to a physical store.
Customers can quickly search an extensive catalogue of products
using a variety of search parameters.
- SELECTION. Without the inventory or shelf-space limitations of
physical retailers, we offer a large selection of CDs, videos,
DVDs and books and will expand that selection as we add more
fulfillment partners. We also intend to become involved in new
forms of distribution of entertainment products, such as direct
download of audio files, and intend to offer complementary
products and services, such as T-shirt, magazine subscription and
concert and event ticket sales.
- CONTENT. We currently offer entertainment-focused content on our
site, ranging from music and entertainment news to interviews with
artists and authors, biographies and lists of their works. We
will also offer content in formats designed to enhance the
customer's shopping experience, such as music clips that customers
may sample before ordering CDs. Because we believe that online
consumers of entertainment merchandise expect a more entertaining
and informative shopping experience than they can find at
traditional retail stores and in most online stores, we are
planning to further integrate streaming media into our online
merchandising solution.
- COMMUNITY. To create an online experience that will encourage
customers to return to our site, we strive to build community by
inviting customers and artists to post reviews of the products we
sell, sponsor competitions and host entertainment-oriented chat
sessions. On our indielife.com and indieaudio.com sites, we offer
content and community relating to alternative music and
independent lifestyles and enable visitors to those sites to click
through to our main storefront if they desire to purchase
products.
- EXTENDED REACH THROUGH NETWORK ASSOCIATE AND BROADCASTING
PROGRAMS. Our Global Media Network program will extend our reach
on the Web for consumers of entertainment merchandise. We will
initially target the radio and television industry to take
advantage of the obvious synergies between entertainment product
retailing and that industry. We will offer our network associates
a customized, private label online storefront. In addition,
through a strategic relationship with RealNetworks, we are
developing the Global Media Broadcast Network, which we will offer
to network associates to enable them to stream audio, video and
other multimedia content and create a blended entertainment and
e-commerce experience.
OUR STRATEGY
Our objective is to become a leading online seller of music, videos, books
and other entertainment merchandise and a leading on-line broadcaster of audio
and video streams. To achieve our objective, we intend to attract a growing
base of consumers of entertainment products and content to our network
associates Web sites and to our online store, and provide them with a superior
shopping and entertainment experience. Key elements of our strategy include:
- FOCUS ON CORE STRENGTHS AND ENHANCE STRATEGIC RELATIONSHIPS. We
intend to leverage off our management team's extensive experience
and understanding of the entertainment industry and the
convergence of entertainment and the Internet to deliver an
integrated entertainment merchandise retailing and content
solution. We will rely extensively on third parties for cutting
edge technologies to enable us to provide e-commerce and
multimedia streaming services and for inventory management, order
fulfillment and shipment. By aggregating the best in technology,
content, entertainment products and distribution services through
strategic relationships with third parties, we believe that we can
maintain our focus on continuously enhancing the shopping and
entertainment experiences of our customers.
- CONTINUOUSLY IMPROVE OUR ONLINE STORE AND SERVICES. We seek to
combine a wide product selection and eye-catching multimedia
content and information with the unique aspects of the Internet to
deliver a convenient, entertaining and personalized shopping
experience. To improve our site, we intend to expand our product
offerings, both within our existing categories and by extending
into other categories of entertainment-oriented products and
services, improve the depth
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and variety of content on our site, including streamed audio,
video and other multimedia content, and offer more personalized
services, such as recommendations based on purchases by consumers
of similar product selections or preferences provided by the
customer.
- EXTEND REACH THROUGH NETWORK ASSOCIATE AND BROADCASTING
INITIATIVES. We intend to aggressively pursue our Global Media
Network and Global Media Broadcast Network programs to drive sales
of our entertainment merchandise and provide additional revenue
streams. By offering our network associates a low-cost solution
for offering online entertainment product retailing and, if
desired, multimedia content streaming capabilities, we believe
that we will extend our customer reach on the Web on a more
cost-effective basis than if we were to try to establish and
maintain that reach solely through our own direct marketing and
promotion efforts.
- MAINTAIN TECHNOLOGY FOCUS. We intend to use technology that we
develop or that we acquire or license through strategic
relationships with third parties. We will continue to develop our
site's navigation and search capabilities and features to further
personalize our customers' shopping experience and their ability
to find products and content. We will also use technology to
increase the efficiency of order processing and fulfillment
services.
- ENSURE QUICK AND EFFICIENT DISTRIBUTION. We intend to
continuously increase the automation and efficiency of our
fulfillment and distribution capabilities. Because we outsource
our order fulfillment operations, we intend to work with our
fulfillment partners to find more ways to ensure prompt order
processing and delivery to our customers.
OUR GLOBAL MEDIA NETWORK PROGRAM AND THE GLOBAL MEDIA BROADCAST NETWORK
We have developed a "network associate" program, the Global Media Network,
to drive sales of the entertainment merchandise that we carry. Under this
program, we will offer network associates a complete, end-to-end entertainment
product e-commerce solution. Using storefront templates that we have developed,
we will design a customized online storefront through which the network
associate can provide the e-commerce services and related content that we offer.
Unlike the affiliate or associate programs that are prevalent in the consumer
e-commerce industry, our program will enable a network associate to maintain a
private-label online store under its own brand and "look and feel." The network
associate maintains this private label storefront on its own Web site and the
store can be customized to offer products and related content tailored to the
network associate's target audience. We integrate the network associate's
online storefront with our back end e-commerce system and services. While
visitors to the network associate's storefront will have an associate-branded
shopping experience, the orders will actually be placed through and processed
by our back-end system, the orders will be fulfilled and shipped by our
fulfillment partners and we will provide all related customer service. We will
share with our network associates a small percentage of sales revenue generated
through our network associates' stores.
We believe our Global Media Network program will be attractive to companies
for a variety of reasons. In particular, our program:
- enables companies that lack the financial resources and expertise
to develop and maintain their own proprietary e-commerce solutions
to enter into the e-commerce business for a low up-front cost and
minimal continuing direct cost (other than what they spend to
market their online stores);
- helps companies expand their Web sites to provide additional
revenue streams and enhance the appeal to their online audiences;
- allows companies to extend their brands onto the Web or maintain
their existing online brands and avoid the "brand dilution" and
disjointed customer experience engendered by industry-prevalent
e-commerce affiliate programs, which are offered under the
merchant partner's own brand - sometimes with an entirely
different "look and feel" from the affiliate's own Web site;
- allows companies to focus on core businesses and strengths by
outsourcing their e-commerce business to us.
To take advantage of significant improvements in multimedia streaming
technologies, the resulting convergence of radio, television and other
multimedia content with the Internet, and the potential for creating a
compelling e-
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commerce and entertainment system, we are developing the "Global Media Broadcast
Network" through a strategic relationship with RealNetworks. The Global Media
Broadcast Network will provide cutting-edge multimedia content delivery
capabilities and can be combined with the private label entertainment product
merchandising solution offered under our Global Media Network program. Using a
customized RealNetworks multimedia player, other software being developed by
RealNetworks, and the Real Broadcast Network multimedia streaming
infrastructure, the Global Media Broadcast Network will enable our participating
network associates in the Global Media Broadcast Network to deliver live and
simulated live multimedia content such as radio feeds and, if desired,
e-commerce functions over their own Web sites. As with our standard network
associate program, network associates in the Global Media Broadcast Network
offer their own branded storefront while we will provide the back end systems,
order fulfillment services and customer service. In addition to the revenues we
derive from product sales on the networks associate's Web site, we will derive
revenues from resale of streaming media bandwidth on the Real Broadcast Network
to our Global Media Broadcast Network associates.
We believe our network associate programs, including the Global Media
Broadcast Network, will significantly extend our customer reach on the Web and
drive sales of the entertainment merchandise we carry while minimizing the
efforts and expense we believe we would otherwise expend to establish and
maintain that reach under our own online store. The programs will allow us to
leverage off the efforts of our network associates to promote their own brands
and other businesses, both online and offline.
OUR WEB SITES
OUR MAIN STORE.
Visitors to globalmedia.com see a home page that highlights our three
product "departments," Music, Books and Videos, as well as content such as
entertainment focused news and interviews with artists and authors. We
periodically rotate specific title promotions in each of the departments on our
home page. A visitor can launch the "Global Media Radio" station, which
continuously streams commercial-free music in various genres, from our home page
and enjoy the music while browsing the store. A shopper can browse the store by
clicking on the permanently displayed department names to move directly to the
department home page and view selected title promotions within that department,
current top-selling titles and additional content oriented to the products
offered in that department. Shoppers can also search the store by entering
text, such as a title, an artist's or author's name, or a keyword, in the search
box at the top of any page. Search results return a list of one or more
products that relate to the search term, and customers can click on a link to
the desired item to obtain more information such as:
- CDs: artist name, genre, label, release date, song titles and
price
- Books: author name, genre, format (hardcover or paperback),
number of pages, publication date, publisher and prices
- Videos: director name, names of actors, studio name, format (video
cassette or DVD), available releases and prices
A customer can order a product by clicking on the "buy" button next to the
desired product (and, if relevant, format). The product is then added to the
customer's "shopping cart." The customer can add or delete items from his or
her shopping cart at any time prior to final purchase. When the customer
finishes selecting the desired products, he or she goes to checkout. (A
first-time purchaser registers his or her name, e-mail address, password,
shipping address and valid credit card information. All of this information is
maintained in a secure format and remains available for the customer's future
access. The next time he or she wants to purchase products from our site, our
system automatically recalls this registration information to make the checkout
process quick and easy.) The checkout page presents the customer with the
various items he or she has selected, the subtotal, tax (if applicable) and
shipping charges. The customer may add or delete products at this stage or
change the method of shipping. When satisfied with the order, the customer
clicks on the "purchase" button and the final order is entered into our system.
A customer will be notified by e-mail of the receipt of the order, if the credit
card information was declined, and when the products ordered have been shipped.
We strive to use content effectively to encourage purchases by customers
who may be browsing our site without a specific title, author or artist in mind.
All of the textual content we provide on our main home page and department home
pages have direct links to related products. For example, an interview with a
member of a particular rock band might include a "buy" button that links the
customer to the product listing for the band's latest release. We also seek to
use content to enhance the information and entertainment value of our customers'
shopping experience. For example, for
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many of the CDs we carry, customers can sample audio tracks before purchasing
the CD. We also include useful and entertaining textual information about many
of our products, such as a summary review of the CD, video or book, information
about the artists, and short excerpts from third party reviews. We enable
visitors to submit reviews of products we carry that can be read by other
visitors as part of their shopping experience.
OUR OTHER SITES.
We currently operate two other related Web sites, indielife.com and
indieaudio.com, which focus on content and community oriented to independent
lifestyles, musicians and fans of alternative music. While we expect that these
sites may generate some revenues from advertising and other activities, we
currently view these sites primarily as means of driving customer traffic to our
main online store. Our indielife.com and indieaudio.com sites currently offer:
- the latest alternative music news (from tours to upcoming new
releases), reviews of new music and in-depth interviews with the
artists and other personalities active in the alternative music
and independent lifestyle scenes;
- other news and content about issues of concern or interest to the
target audience;
- forums to chat with other visitors;
- interactive games;
- audio/visual content such as animation and streamed video from
content providers such as Honkworm International and Pseudo TV; and
- three series of online radio channels broadcasting media streams.
Our indieaudio.com site also recently became an affiliate in Liquid Audio,
Inc.'s "Liquid Music Network." As a Liquid Music Network associate, we offer
for purchase on our indieaudio.com site downloadable, CD-quality audio files
from selected titles of various artists in the Liquid Music Network catalogue.
Using Liquid Audio's technology, customers can purchase individual songs from
one or more artists and create their own unique digital mixes.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers (and those of our network associates) and to
encourage repeat visits and purchases will depend in part on the strength of our
customer support and service operations. We intend to expand our customer
support and service staff and automate certain of the tools used by them to
enhance the efficiency and quality of our customer support and service efforts.
In addition, we will seek to achieve frequent communication with and feedback
from our customers to continually improve our e-commerce solution, product
offerings and related services.
MARKETING AND PROMOTION
While we view our network associate programs as the critical component of
our plan to increase sales of our entertainment products, our marketing strategy
will also focus on:
- increasing traffic to our main online store and the indielife.com
and indieaudio.com sites;
- building customer loyalty;
- maximizing repeat purchases; and
- developing incremental revenue opportunities.
We intend to pursue a variety of media, business development and
promotional methods to achieve these goals, including online and traditional
advertising and public relations activities (such as sponsoring concerts and
other events). We also offer our own affiliate program, which will embed one or
more general or product-specific links to our site on our affiliates' Web sites.
Affiliates will be paid a commission on orders placed by customers who are
directed to our site from the affiliates' Web sites.
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<PAGE>
STRATEGIC ALLIANCES
In order to maintain and improve our online store and related services and
increase traffic to our site, we seek to enter into strategic relationships with
business partners who can offer technology, content and distribution
capabilities, as well as marketing and cross-promotional opportunities.
Examples include:
- OUR RELATIONSHIP WITH REALNETWORKS. We have entered into an
agreement with RealNetworks under which they are developing an
advanced multimedia player and other software that will be
combined with our e-commerce, ad-serving and other systems to
create the Global Media Broadcast Network. We will also rely on
RealNetwork's streaming media infrastructure, the Real Broadcast
Network, to deliver streaming media services to our network
associates in the Global Media Broadcast Network.
- OUR RELATIONSHIP WITH FULFILLMENT PARTNERS. We have outsourced
our order fulfillment and shipping operations to Baker & Taylor
and Valley Media. We also intend to pursue other fulfillment
partners to expand our product offerings. These relationships will
allow us to focus on our core strengths of developing and enhancing
compelling online entertainment product merchandising and content
delivery initiatives. Moreover, we avoid the need to invest in
warehouse and other distribution infrastructure or carry
inventory.
- OUR RELATIONSHIPS WITH CONTENT PROVIDERS. We currently license
content from a variety of sources, including online publishers of
entertainment and music news and artist interviews, games,
animation and multimedia content.
TECHNOLOGY OPERATIONS
We employ a broad range of technologies for both our e-commerce and
streaming media services operations. Our e-commerce systems are being developed
using open source technologies to ensure scalability, reliability and
innovation. Highlights of our e-commerce systems include the following:
NETWORK:
- Partnership with key tier 1 Internet provider to deliver high bandwidth
scalable connectivity
- Several peering arrangements to ensure redundancy, speed, and minimal
network bottlenecks
SYSTEMS AND SOFTWARE:
- Standards-based architecture on open source software
- High portability avoiding "vendor specific lock-in"
- High performance platform
- Modular design for rapid application development
Our streaming media services solution will be provided through several
strategic technological partnerships with industry leaders and through the
implementation of our own proprietary advancements. We have developed a key
relationship with MCI/WorldCom to provide Internet connectivity for our Global
Media Broadcast Network. In addition, we have established a strategic
relationship with RealNetworks to develop an advanced multimedia player and
other software that will be combined with our e-commerce, ad-serving and other
systems to create the Global Media Broadcast Network.
COMPETITION
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially-available software. We
may not be able to compete
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<PAGE>
successfully against current and future competitors. Further, as a strategic
response to changes in the competitive environment, we may, from time to time,
make certain pricing, service or marketing decisions or acquisitions that could
adversely affect our business, results of operations and financial condition.
We currently or potentially compete with a number of other companies. We
compete with traditional physical retailers of entertainment merchandise,
including large, well-established book, music and video stores such as Barnes &
Noble, Inc., Borders Group, Inc. and Wherehouse Entertainment, Inc., and mass
market retailers such as Wal-Mart Stores, Inc. and Kmart Corporation. In the
market for online retailing of books, CDs, video cassettes and DVDs, we compete
with large, well-established companies such as amazon.com, cdNow.com,
barnesandnoble.com and borders.com. At such time as we begin offering streaming
media services through our strategic relationship with RealNetworks, we will be
competing with large, well-established Internet broadcasters such as
broadcast.com and InterVU.
Certain of our competitors currently offer, either alone or through
strategic relationships with other companies, a blend of multimedia content
delivery and e-commerce services to the principal target market for our network
associate program. For example, a visitor to the Web site of broadcast.com,
which broadcasts the radio signals of over 400 radio stations and over 40
television stations, can listen to a CD on broadcast.com's site and purchase it
by seamlessly clicking through to amazon.com's site to place an order, or can
listen to an audio book and purchase the print version from amazon.com. In
addition, other companies offer e-commerce and content delivery services,
including streaming media, to the radio industry, such as onradio.com, which
provides content delivery and e-commerce capabilities through strategic
relationships with amazon.com (for e-commerce), Microsoft (for its Media
Player), InterVU (for streaming media services) and Vibe/SPIN Ventures (for
other music-focused content). Because companies like broadcast.com and
onradio.com already have established relationships with significant numbers of
radio stations (in many cases, under exclusive contracts), we may have
difficulty establishing market acceptance of our network associate program in
the media industry even if we can offer a better integrated content delivery and
e-commerce solution than these and other companies. Moreover, since our
solution relies on technologies which are not proprietary to us, other
competitors could license, acquire or develop the same or similar technologies
to deliver a similar solution.
Certain of our current and many of our potential competitors have longer
operating histories, larger customer bases, greater brand recognition in other
business and Internet markets and significantly greater financial, marketing,
technical and other resources than us. In addition, other online retailers may
be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Therefore, certain of our
competitors with other revenue sources may be able to devote greater resources
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to Web site and systems development than
us. Competitive pressures created by any one of these companies, or by our
competitors collectively, may result in loss of market share and reduced
operating margins, either of which could have a material adverse effect on our
business, results of operations and financial condition.
INTELLECTUAL PROPERTY
We rely or may in the future rely on a combination of patent, trademark,
trade secret and copyright law and contractual restrictions to protect the
proprietary aspects of our technology and proprietary content. These legal
protections afford only limited protection for our intellectual property and
trade secrets. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our proprietary technology
or otherwise obtain and use information that we regard as proprietary.
We have not filed any U.S. or foreign applications for trademark
registration of "Global Media," "globalmedia.com," "Global Media Network,"
"Global Media Broadcast Network" or any of our other trademarks. Were we to
file for such registrations, we may be unable to secure them. It is also
possible that our competitors or others will adopt service names similar to
ours, possibly leading to customer confusion. In addition, there could be
potential trade name or trademark infringement claims brought by owners of other
registered trademarks or trademarks that incorporate variations of the term
"Global Media." Any claims or customer confusion related to our trademarks, or
our failure to obtain trademark registrations, could negatively affect our
business.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names and determine the
validity and scope of the proprietary rights of others. If third parties
prepare and file applications in the United States or other countries that claim
trademarks used or registered by us, we may oppose those applications and be
required to participate in proceedings before the United States Patent and
Trademark Office or foreign regulatory agencies to determine priority of rights
to the trademark. Any litigation or adverse priority proceeding could result in
substantial costs and diversion of resources and could seriously harm our
business and operating results. Finally, to the extent that we sell our
products internationally, the laws of many countries do not protect our
proprietary
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<PAGE>
rights to as great an extent as do the laws of the United States. Many
countries have a "first-to-file" trademark registration system. As a result, we
may be prevented from registering or using our trademarks in certain countries
if third parties have previously filed applications to register or have
registered the same or similar trademark. Our means of protecting our
proprietary rights may not be adequate, and our competitors could independently
develop similar technology.
We hold rights to various Web domain names, including "globalmedia.com,"
"gmcorp.net," "globalmediacorp.com," "indieaudio.com" and "indielife.com."
Governmental agencies typically regulate domain names. These regulations are
subject to change. We may not be able to acquire or maintain appropriate domain
names in all countries in which we do business. Furthermore, regulations
governing domain names may not protect our trademarks and similar proprietary
rights. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or diminish the value of our trademarks and
other proprietary rights.
GOVERNMENT REGULATION
Our company, operations and products and services are all subject to
regulations set forth by various U.S. and Canadian federal, state, provincial
and local regulatory agencies. We take measures to ensure our compliance with
all such regulations as promulgated by these agencies from time to time. There
are currently few laws and regulations directly applicable to the Internet. Any
new law or regulation pertaining to, or the application or interpretation of
existing laws to, the Internet could increase our cost of doing business or
otherwise adversely affect our business. Laws and regulations directly
applicable to Internet communications, commerce and advertising are becoming
more prevalent. It is possible that a number of laws and regulations may be
adopted with respect to the Internet covering issues such as user privacy,
pricing, content, copyrights, distribution, antitrust and characteristics and
quality of products and services. The growth of the market for online commerce
may prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online both in the
United States and abroad. Governments in foreign jurisdictions may regulate
Internet or other online services in such areas as content, privacy, network
security, encryption or distribution more stringently than in the United States.
This may affect our ability to conduct business internationally. Tax
authorities in a number of states in the U.S. are currently reviewing the
appropriate tax treatment of companies engaged in online commerce, and new state
tax regulations may subject us to additional state sales and income taxes.
Several states in the U.S. have also proposed legislation that would limit
the uses of personal user information gathered online or require online services
to establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for our products and services or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or could in some other manner have a material adverse
effect on our business, results of operations and financial condition. In
addition, because our sites are accessible worldwide and we facilitate sales of
goods to users worldwide, other jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in a particular state or foreign
country. Our failure to qualify as a foreign corporation in a jurisdiction
where it is required to do so could subject us to taxes and penalties for the
failure to qualify and could result in our inability to enforce contracts in
such jurisdictions. Any such new legislation or regulation, or the application
of laws or regulations from jurisdictions whose laws do not currently apply to
our business, could have a material adverse effect on our business, results of
operations and financial condition.
LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims which
may have a material adverse effect on our business. We are not aware of any
current legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on our business, prospects, financial
condition or results of operations.
EMPLOYEES
As of July 23, 1999, we employed approximately 50 full time staff. We also
engage independent contractors from time to time for Web site development and to
provide content such as editorials. None of our employees is represented by a
labor union, and we consider our employee relations to be good. Competition for
qualified personnel in our industry is intense, particularly for software
development and other technical staff and management. We believe our future
success will depend in part on our ability to attract, hire and retain qualified
personnel.
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<PAGE>
FACILITIES
Our principal executive office and operations are located in Vancouver,
British Columbia, Canada in approximately 13,000 square feet of leased office
space. The lease expires in August 2004. We also continue to lease 6,000
square feet of office space in Nanaimo, British Columbia. This lease expires
July, 2002. We believe our leased facilities are adequate for our current
operations and that additional leased space can be obtained if needed.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our current directors, executive officers and other key employees, and
their ages, as of July 23, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael Metcalfe 42 Chairman of the Board and
President
Robert Fuller 38 Director and Chief Executive
Officer
Winston V. Barta 28 Director, Vice President of
Marketing and Business
Development and Secretary
L. James Porter 34 Chief Financial Officer and
Assistant Secretary
Monte Walls-Burris 29 Vice President of Corporate
Affairs
Annie Ho 29 Vice President of Human
Resources
Jack MacDonald 70 Director
Barr Potter 50 Director
</TABLE>
MICHAEL METCALFE. Mr. Metcalfe is Global Media's founder. Mr. Metcalfe
has held the positions of Chairman of the Board and President since Global
Media's formation in April 1997, and previously held the same positions with
Westcoast Wireless since May 1994. Mr. Metcalfe was director of sales and
marketing for Starscan Communications, a marketer of satellite equipment and
television programming located in Vancouver, B.C., from October 1991 to April
1994; and executive director of production for North American Pictures, Inc., a
film production company, located in Vancouver, B.C., from January 1985 through
June 1991.
ROBERT FULLER. Mr. Fuller has been Global Media's Chief Executive Officer
and a director since May 1997. Mr. Fuller has also been the president and a
director of Lifestyle Development Ltd., a private fitness center operator
located in Nanaimo, B.C. since September 1991. Prior to joining Global Media,
Mr. Fuller was the president and a director of 375801 BC Ltd., a private
operator of a hotel and pub located in Bamfield, B.C., from June 1994 to May
1997; the president and a director of Promark Construction Co. Inc., a private
real estate developer located in Nanaimo, B.C., from February 1992 to December
1997; and an accountant with, and then a manager in, the Entrepreneurial
Division of Ernst & Young, Chartered Accountants in Vancouver, B.C. from
May 1983 to September 1989. Mr. Fuller is a Canadian Chartered Accountant and
received a bachelor of commerce degree from the University of British Columbia
in accounting and management information systems.
WINSTON V. BARTA. Mr. Barta has been Global Media's Vice President of
Marketing and Business Development, Secretary, and a director since
September 1997. Previously, Mr. Barta was a vice president of marketing for
Starnet Communications, a publicly traded Internet company located in Vancouver,
B.C., from July 1996 to July 1997, and a senior account executive at Motion
Works Group, a publicly traded consumer software developer company located in
Vancouver, B.C., from June 1995 to April 1996. Mr. Barta has a bachelor of
commerce degree in marketing from Concordia University in Montreal and an MBA in
marketing from Simon Fraser University in Vancouver, B.C.
L. JAMES PORTER. Mr. Porter has been Global Media's Chief Financial
Officer since April 1999 and assistant secretary since May 1999. Since
August 1998, Mr. Porter has served as president of LJ Ventures, a financial
consulting firm. From February 1995 through July 1998, Mr. Porter was a
director, chief financial officer and secretary of Harriston Corporation, a
diversified holding
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company with offices in Vancouver B.C., New York, New York, and Costa Mesa,
California. From September 1987 through January 1995, Mr. Porter was a senior
manager and held other positions with Arthur Andersen, Chartered Accountants, in
Vancouver, B.C. Mr. Porter has a bachelor of commerce degree in Finance from
the University of British Columbia. He is a Canadian Chartered Accountant, a
U.S. Certified Public Accountant, and a U.S. Chartered Financial Analyst.
MONTE WALLS-BURRIS. Mr. Burris has been Global Media's Vice President of
Corporate Affairs since January 1998. Previously, Mr. Burris was an
institutional trader at Dominick & Dominick, a private stock brokerage and
market maker located in New York, New York, with offices in Vancouver, B.C.,
from August 1996 to January 1998. From January 1995 to June 1996, he was a vice
president, international business at Hansa bank in the British West Indies.
Mr. Burris earned a bachelor of arts degree in Art History and 20th Century
American History from the University of Western Ontario.
ANNIE HO. Ms. Ho has been Global Media's Vice President of Human Resources
since April 1999. From March 1996 to March 1996, she was a human resources
manager for R.A. Malatest and Associates Ltd. ("Malatest"), an economic and
market research company located in Victoria, B.C., and from October 1993 until
April 1999 she served as a senior researcher at Malatest. Ms. Ho holds a
bachelor of arts degree in Economics and Sociology from the University of
Victoria and a master of arts degree in organizational leadership and training
from Royal Road University.
JACK D. MACDONALD. Mr. MacDonald has been a director of Global Media since
November, 1997. Mr. MacDonald was a director of TKO Resources Inc., a publicly
traded mining exploration company located in Vancouver, B.C., from May 1996 to
September 1997, and was the president, chief executive officer and a director
of Salus Resource Corp., and of its predecessor, Arapaho Mining Corp., a
publicly-traded mining exploration company located in Vancouver, B.C., from May
1990 to October 1996.
BARR POTTER. Mr. Potter has been a director of Global Media since
May 1999. Mr. Potter currently serves as the chairman and chief executive
officer of Tripod Entertainment, Inc., a feature films production and
distribution company located in Los Angeles, California. From April 1, 1994
through March 31, 1999, Mr. Potter was the chairman and chief executive officer
of Largo Entertainment, Inc., a feature films production and distribution
company located in Los Angeles, California and a subsidiary of JVC
Entertainment, Inc. ("JVC Entertainment"). Mr. Potter earned a bachelor of arts
degree in Economics from Yale University and a juris doctor degree from Columbia
University School of Law.
BOARD OF DIRECTORS
Under our Articles of Incorporation and Bylaws, our directors hold office
until the next annual meeting of the Company's stockholders and until their
successors have been elected and duly qualified, and the Board of Directors
appoint our executive officers at the first Board of Directors' meeting after
each annual meeting of stockholders. Executive officers hold office at the
pleasure of the Board of Directors. To date, we have not held a stockholders
meeting to elect directors or otherwise. Mr. Metcalfe was appointed a director
upon formation of Global Media and each of Mr. Fuller, Mr. Barta, Mr. MacDonald
and Mr. Potter was appointed by the Board of Directors to fill a vacancy created
by an increase in the authorized number of directors approved by the Board of
Directors.
Our directors do not receive cash compensation for their services as
directors or members of committees of the Board of Directors, if any, but are
eligible to receive stock options under our stock option plans. Director stock
option grants are determined on a case by case basis. See " - Benefit Plans"
and "Certain Transactions." We also reimburse directors for their reasonable
expenses incurred in attending meetings of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to our President and
Chief Executive Officer during the fiscal years ended July 31, 1998
(collectively, the "Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------------------- ALL OTHER
SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Metcalfe, President 54,525 -- -- --
Robert Fuller, Chief Executive Officer -- -- -- --
</TABLE>
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<PAGE>
OPTION GRANTS, OPTION EXERCISES AND OPTION VALUES
No stock options were granted to the Named Executives during the fiscal
year ended July 31, 1998 and the Named Executive Officers held no stock options
at the end of such fiscal year.
EMPLOYMENT AGREEMENTS
None of our executive officers have employment agreements with us.
BENEFIT PLANS
We have three stock option plans which provide for the grant of options to
purchase shares of our common stock to executives, directors, employees,
consultants or advisors. The plans are summarized as follows as of July 23,
1999:
<TABLE>
<CAPTION>
SHARES OPTIONS AVAILABLE OPTIONS
PLAN NAME EFFECTIVE DATE RESERVED ISSUED SHARES EXERCISED
- -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
1997 Directors and Officers Stock April 8, 1997 500,000 0 500,000 0
Option Plan
1998 Directors and Officers Stock August 21, 1998 1,000,000 1,000,000 0 757,100
Option Plan
1999 Stock Option Plan March 24, 1999 4,000,000 3,022,500 977,500 0
</TABLE>
Each of the plans expires ten years from its effective date. The plans
are administered by the board of directors who have sole discretion and
authority to determine individuals eligible for awards. The conditions of
exercise of each grant are determined individually by the board at the time of
the grant. We intend to cancel the 1997 stock option plan in the near future.
We have registered the options and shares of common stock issuable under the
1998 and 1999 stock option plans on Form S-8 registration statements, and
approximately 457,100 of such shares have been sold under those registration
statements upon exercise of options under those plans. See "Certain
Transactions."
The options granted under our 1998 stock option plan had exercise price of
$.50 per share. All of these options were fully exercisable from the date of
grant. The options granted under our 1999 stock option plan have exercise
prices ranging from $4.00 to $6.25 per share. Of these options, 768,853 are
subject to vesting requirements, and 2,253,667 are fully exercisable.
KEY MAN INSURANCE
We do not currently have any key man insurance and have no plans to
purchase such insurance in the near future.
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<PAGE>
CERTAIN TRANSACTIONS
STOCK ISSUANCES TO FOUNDER AND OTHER INSIDERS
In connection with our formation and initial capitalization in April 1997,
we offered and sold a total 11,000,000 shares of our common stock at a price of
$0.01 per share per share to various individual investors, including Michael
Metcalfe, our founder, President and Chairman of the Board. Mr. Metcalfe
purchased six million shares for total consideration of $60,000 and Mr. Fuller
purchased 1 million shares for total consideration of $10,000.
In connection with our second round of financing, from June 1997 until
November 1997, we offered and sold a total of 890,831 shares of our common stock
at a price of $0.50 per share to various individual and other investors,
including Robert Fuller, our Chief Executive Officer and a director. Mr. Fuller
purchased 288,000 shares for total consideration of $144,000.
ACQUISITION OF WESTCOAST FROM FOUNDER
In May 1997, we entered into an agreement with Mr. Metcalfe relating to
the acquisition of Westcoast Wireless Cable, Ltd. At the time, Mr. Metcalfe
was the sole shareholder of Westcoast. Under that agreement, we purchased
from Mr. Metcalfe all of his Westcoast stock in exchange for eight million
shares of our common stock and cash in the amount of $100,000.
LOANS TO AND FROM AFFILIATES
LOANS FROM BENJAMIN METCALFE. From October 1998 through December 1999,
Benjamin Metcalfe, Michael Metcalfe's father and one of our stockholders,
advanced a total of approximately $263,000 to us, of which $220,552 in
principal is still outstanding. The proceeds of these loans were used for
working capital. These loans had no fixed repayment or interest terms. In
connection with our convertible debenture and warrant financing described
below, we agreed to (a) repay one-half of the principal balance, plus $16,724
in accrued interest, by issuing shares of our common stock at the fair market
price as of the date of conversion, and (b) issue a promissory note for the
remaining one-half of the principal balance plus $16,724 in accrued interest,
which is to be repaid in four quarterly installments and which will bear
interest at 9% per annum.
LOANS FROM ROBERT FULLER AND AFFILIATES. From November 1998 to March
1999, Mr. Fuller and companies which his family controls, advanced a total of
approximately $187,000 to us, of which $137,931 in principal is still
outstanding. The proceeds of these loans were used for working capital.
These loans had no fixed repayment or interest terms. In connection with our
convertible debenture and warrant financing, we agreed to (a) repay Mr.
Fuller $8,848 plus approximately $1,352 in interest from the proceeds of the
convertible debenture offering proceeds, (b) repay one-half of the remaining
outstanding principal balance plus $10,345 in accrued interest, by issuing
shares of our common stock at the fair market price as of the date of
conversion, and (c) issue a promissory note for the remaining one-half of the
principal balance plus $10,345 in accrued interest, which is to be repaid in
four quarterly installments and which will bear interest at 9% per annum.
LOANS TO AND FROM MICHAEL METCALFE AND AFFILIATES. When we purchased
Westcoast in April 1997, it had a $71,065 receivable due from a company owned by
Michael Metcalfe, and a $79,269 payable due to Michael Metcalfe. In August
1998, Michael Metcalfe and the Company agreed to offset the receivable owed
Westcoast by his affiliated company against the payable which Westcoast owed
him.
FISCAL 1999 OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
1998 PLAN. We granted 600,000 of the 1,000,000 options granted under our
1998 Plan to our directors and executive officers as follows:
<TABLE>
<CAPTION>
NAME POSITION OPTIONS
---- -------- -------
<S> <C> <C>
Michael Metcalfe Chairman of the Board; President 200,000
Robert Fuller Chief Executive Officer; Director 200,000
Winston V. Barta Vice President of Marketing and 100,000
Business Development; Director
Monte Walls Burris Vice President of Corporate Affairs 100,000
-------------
TOTAL 600,000
</TABLE>
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<PAGE>
None of these options were subject to vesting requirements and were fully
exercisable from the date of grant. These option grants were made as of August
21, 1998. Prior to that time, there had been no public market for our common
stock and the price at which we last sold any of our common stock was at $0.50
per share. The options were granted with an exercise price of $0.50 per share.
However, on August 24, 1998, our common stock began trading on the OTC Bulletin
Board and closed that day at $1.06 per share. As a result of the disparity
between the closing price on August 24, 1998 and the exercise price of the
options granted on August 21, 1998, we were required under established
accounting principles to recognize compensation expense totaling $548,800 for
the 980,000 options granted to directors, executive officers and employees. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Nine months ended April 30, 1999 compared
to nine months ended April 30, 1998." All options held by executives have
been exercised and approximately one-half of the shares issued upon exercise
have been sold pursuant to a Form S-8 registration statement.
1999 PLAN. We granted 1,910,000 of the 3,022,500 options currently
outstanding under our 1999 Plan to our shareholders, directors and executive
officers as follows:
<TABLE>
<CAPTION>
NAME POSITION OPTIONS VESTED UNVESTED
- ---- -------- ------- ------- --------
<S> <C> <C> <C> <C>
Michael Metcalfe Chairman of the Board; President 500,000 500,000 0
Robert Fuller Chief Executive Officer; Director 500,000 500,000 0
Winston V. Barta Vice President of Marketing and 250,000 250,000 0
Business Development and Director
L. James Porter Chief Financial Officer 200,000 200,000 0
Monte Walls Burris Vice President of Corporate Affairs 250,000 250,000 0
Annie Ho Vice President of Human Resources 60,000 20,000 40,000
Jack McDonald Director 25,000 25,000 0
Barr Potter Director 125,000 125,000 0
------- ------- -------
TOTALS 1,910,000 1,870,000 40,000
</TABLE>
These option grants were made as of April 23, 1999 at an exercise price of $4.00
per share. During that day, our common stock traded at $4.00 per share on the
OTC Bulletin Board. Consequently, we are not required to recognize any related
compensation expense. As of July 23, 1999, none of these options had been
exercised.
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<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the offering by RGC International Investors, LDC
and its pledgees, donees, transferees or other successors in interest
(collectively, the "selling stockholders") for resale of shares of our common
stock acquired by them upon conversion or exercise of shares of Series A
preferred stock, related investment options and warrants which the selling
stockholders received in a private placement transaction. See "Certain
Transactions - Offering of Debentures and Warrants" and "Description of Capital
Stock - Preferred Stock" and " - Registration Rights." All of the shares of
common stock offered by this prospectus are being offered by the selling
stockholders for their own accounts.
The following table sets forth certain information with respect to the
common stock beneficially owned by the selling stockholders as of the date of
this prospectus, including shares obtainable under convertible debentures upon
conversion or exercise of shares of Series A preferred stock, related investment
options and/or warrants convertible or exercisable within 60 days of such date.
The selling stockholders provided us the information included in the table
below. To our knowledge, each of the selling stockholders has sole voting and
investment power over the shares of common stock listed in the table below. No
selling stockholder, to our knowledge, has had a material relationship with us
during the last three years, other than as an owner of our common stock or other
securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON BENEFICIAL OWNERSHIP OF COMMON STOCK
STOCK PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------------------------------------------------------------------------
NUMBER OF SHARES
NUMBER OF TO BE SOLD UNDER
SELLING STOCKHOLDER SHARES THIS PROSPECTUS NUMBER OF SHARES PERCENT OF CLASS
------------------- ------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
RGC International 0 0
Investors, LDC 7,443,153 7,443,153
</TABLE>
The number of shares set forth in the table for RGC represents an estimate
of the number of shares of common stock which may be offered by RGC. The actual
number of shares of common stock issuable upon conversion of the Series A
preferred stock and exercise of the related investment options and warrants is
indeterminate, is subject to adjustment and could be materially less or more
than such estimated number depending on factors which cannot be predicted by us
at this time, including, among other factors, the future market price of our
common stock. The actual number of shares of common stock offered in this
prospectus, and included in the registration statement of which this prospectus
is a part, includes such additional number of shares of common stock as may be
issued or issuable upon conversion of the Series A preferred stock and exercise
of the related investment options and warrants by reason of any stock split,
stock dividend or similar transaction involving our common stock, in accordance
with Rule 416 under the Securities Act. Under the terms of the Series A
preferred stock, if the Series A preferred stock had been actually converted on
July 27, 1999, the conversion price would have been $5.652, which is the lesser
of (a) 100% of the average of the seven consecutive lowest closing bid prices of
the common stock reported on the OTC Bulletin Board during the 35 trading days
ending July 27, 1999; and (b) 130% of the average of the closing bid prices of
the common stock for the three consecutive trading days ending April 30, 1999,
at which price the Series A preferred stock would have been converted into
approximately 1,520,785 shares of common stock and the related investment
options would have, assuming full exercise, resulted in the issuance of an
additional 1,520,785 shares. The warrants issued to RGC are exercisable into
680,000 shares of common stock at an exercise price of $8.4375. In accordance
with our agreement with RGC, we have reserved 200% of the total number of shares
currently issuable on conversion at exercise of the Series A preferred stock,
investment options and warrants to assure adequate shares are available in the
event of decreases in the conversion price of the Series A preferred stock and
the exercise price of the investment options.
Under the terms of the Series A preferred stock and the warrants, the
shares of Series A preferred stock are convertible and the warrants are
exercisable by any holder only to the extent that the number of shares of common
stock issuable pursuant to such securities, together with the number of shares
of common stock owned by such holder and its affiliates (but not including
shares of common stock underlying unconverted shares of Series A preferred stock
or unexercised warrants) would not exceed 4.9% of our then-outstanding common
stock as determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of common stock set forth in the table for RGC
exceeds the number of shares of common stock that RGC could own beneficially at
any given time through its ownership of the Series A preferred stock and the
warrants. In that regard, the beneficial ownership of our common stock by RGC
set forth in the table is not determined in accordance with Rule 13d-3 under the
Exchange Act.
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<PAGE>
PLAN OF DISTRIBUTION
The shares being offered by the selling stockholders or their respective
pledgees, donees, transferees or other successors in interest, will be sold from
time to time in one or more transactions (which may involve block transactions):
- on the OTC Bulletin Board or on such other market on which the common
stock may from time to time be trading,
- in privately-negotiated transactions,
- through the writing of options on the shares,
- short sales, or
- any combination thereof.
The sale price to the public may be the market price prevailing at the time
of sale, a price related to such prevailing market price, at negotiated prices
or such other price as the selling stockholders determine from time to time.
The shares may also be sold pursuant to Rule 144. The selling stockholders
shall have the sole and absolute discretion not to accept any purchase offer or
make any sale of shares if they deem the purchase price to be unsatisfactory at
any particular time.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. There
can be no assurance that all or any of the shares offered by this prospectus
will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered by this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act or the Exchange Act, or the rules and
regulations under such acts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered by this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a
selling stockholder enters into such an agreement or agreements, the relevant
details will be set forth in a supplement or revisions to this prospectus.
The selling stockholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations under such act,
including, without limitation, Regulation M, which provisions may restrict
certain activities of, and limit the timing of purchases and sales of any of the
shares by the selling stockholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the selling stockholders or their
respective pledgees, donees, transferees or other successors in interest, may be
required to make in respect of such liabilities.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows, to the best of our knowledge, the common stock
beneficially owned as of July 23, 1999, by:
- each person, or group of affiliated persons, who we know beneficially
owns 5% or more of our common stock (as determined under Rule 13d-3 of
the Exchange Act);
- each of our directors and executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated in the footnotes to the table, (a) the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own, and (b) the address of each beneficial owner
listed below is c/o Global Media Corp., 400 Robson Street, Vancouver, British
Columbia, Canada V6B 2B4.
None of the shares beneficially owned by the following directors and
officers will be offered for sale or sold in this Offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED (1) PERCENT OF CLASS(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael Metcalfe 14,600,000 (2) 71.4
Robert Fuller 2,068,000 (3) 12.1
Winston V. Barta 300,000 (4) 2.6
Jack MacDonald 75,000 (5) *
1904 111 Beach Ave.
Vancouver, B.C. Canada V6E 1T9
Barr Potter 125,000 (6) 1.2
2029 Century Park East, Suite 2500
Los Angeles, CA 90067
L. James Porter 200,000 (7) 1.9
Monte Walls-Burris 300,000 (8) 2.6
Annie Ho 20,000 (9) *
----------
All Officers and Directors as a Group 17,688,000 92.7%
(8 persons shown above) ---------- -----
---------- -----
</TABLE>
- ---------------------
* Less than 1%.
(1) Shares that a person has the right to acquire within 60 days are
treated as outstanding for determining the amount and percentage of
common stock owned by such person but are not deemed to be outstanding
as to any other person or group.
(2) Includes currently exercisable options to purchase 500,000 shares of
common stock owned by Mr. Metcalfe.
(3) Includes (a) currently exercisable options to purchase 500,000 shares
of common stock owned by Mr. Fuller, and (b) 200,000 shares owned by
his wife, Jasmine Fuller.
(4) Includes currently exercisable options to purchase 250,000 shares of
common stock.
(5) Includes currently exercisable options to purchase 25,000 shares of
common stock.
45
<PAGE>
(6) Consists of currently exercisable options to purchase 125,000 shares of
common stock.
(7) Consists of currently exercisable options to purchase 200,000 shares of
common stock.
(8) Includes currently exercisable options to purchase 250,000 shares of
common stock.
(9) Consists of currently exercisable options to purchase 40,000 shares of
common stock. Does not include unvested options to purchase 20,000
shares.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and various provisions of our
articles of incorporation and our bylaws are summaries. Statements contained in
this prospectus relating to such provisions are not necessarily complete, and
reference is made to the articles of incorporation, as amended, and bylaws, as
amended, copies of which have been filed with the SEC as exhibits to our
registration statement of which this prospectus constitutes a part, and
provisions of applicable law.
Our authorized capital stock consists of (a) 200,000,000 shares of common
stock, par value $0.001 per share, of which 20,653,331 shares were issued and
outstanding as of July 23, 1999, and (b) 100,000,000 shares of preferred stock,
of which 8,500 shares had been designated Series A convertible preferred stock,
of which all 8,500 were issued and outstanding as of July 23, 1999. See "-
Preferred Stock." As of July 23, 1999, we estimated that there were
approximately 43 holders of record of our common stock.
COMMON STOCK
The holders of outstanding shares of common stock are entitled to share
ratably in dividends declared out of assets legally available for dividends at
such time and in such amounts as the board of directors may from time to time
lawfully determine. Each holder of common stock is entitled to one vote for
each share held. Cumulative voting in elections of directors and all other
matters brought before stockholders meetings, whether they be annual or special,
is not provided for under the Company's articles of incorporation or bylaws.
The common stock is not entitled to conversion or preemptive rights and is not
subject to redemption or assessment. Upon liquidation, dissolution or winding
up of Global Media, any assets legally available for distribution to
stockholders as such are to be distributed ratably among the holders of the
common stock at that time outstanding. The common stock presently outstanding
is fully paid and nonassessable.
PREFERRED STOCK
GENERALLY
Our articles of incorporation give us the authority to issue the preferred
stock from time to time in such series, in such amounts and subject to such
rights and preferences as the board of directors shall determine prior to
issuance, without further action or approval by the stockholders. These rights
and preferences can be superior to those of common stock and include but are not
limited to dividend preferences, special voting rights, rights to convert into
common stock, redemption rights, and priority over common stock on distributions
of assets in the event of liquidation or dissolution of Global Media.
A series of preferred stock may also be used to create voting impediments
or to frustrate persons seeking to effect a merger with us or to otherwise gain
control of us. If used for such an anti-takeover purpose, such series of
preferred stock could be privately placed with persons affiliated with us with
an agreement or understanding as to the manner in which the shares of such
series of preferred stock would be voted. We do not contemplate the declaration
of an anti-takeover series of preferred stock. Moreover, we could not create
such a series of preferred stock without the approval by the holders of at least
a majority of the outstanding shares of Series A preferred stock.
The issuance of series of preferred stock from time to time would likely
affect the holders of common stock by taking priority as to distributions
dividends or of assets upon the liquidation or dissolution of Global Media
remaining after the payment of creditors. In addition, special voting rights
and rights to convert preferred stock into common stock would reduce the voting
power of holders of the common stock.
SERIES A CONVERTIBLE PREFERRED STOCK
In May 1999, we issued and sold to RGC International Investors, LDC in a
private transaction a convertible debenture in the original principal amount of
$8.5 million. However, in accordance with its terms, under certain
circumstances we had the option to convert the debenture into shares of Series A
convertible preferred stock having certain rights and preferences. In
connection with the RGC transaction, our Board of Directors approved a
certificate of designation relating to the Series A preferred stock, subject to
the effectiveness of the stockholder consent approving articles of amendment to
our articles of incorporation authorizing the preferred stock and the filing of
those articles of amendment with the Nevada Secretary of State. Immediately
after filing the articles of amendment, we filed the certificate of designation
with respect to the Series A preferred stock. On July 19, 1999, we effected the
conversion of RGC's convertible debenture into 8,500 shares of Series A
preferred stock.
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<PAGE>
The following is a summary of the rights and preferences of the Series A
preferred stock:
- DIVIDENDS: The Series A preferred stock does not bear any dividends.
However, so long as Series A preferred stock is outstanding, no
dividends may be declared on the common stock or any other subsequently
designated and issued junior securities without the prior consent of
the holders of a majority of the outstanding shares Series A preferred
stock.
- LIQUIDATION PREFERENCE: In the event of Global Media's bankruptcy,
insolvency, appointment of a receiver, dissolution or similar events
and there are assets and funds available for distribution to the
holders of our capital stock, the holders of the outstanding shares of
Series A preferred stock will receive an amount equal to $1,000, the
stated value per share of the Series A preferred stock, plus five
percent per annum from May 6, 1999 (the liquidation preference) prior
to any distribution to the holders of common stock. At the option of
the holders of the Series A preferred stock, certain fundamental
corporate changes, such as mergers, consolidations and the sale of
shares representing 50% or more of the voting power of Global Media,
may be treated as a liquidating event, enabling the holders to receive
an amount equal to 118% of their liquidation preference.
- MANDATORY REDEMPTION: In the event of certain mandatory redemption
events, we must redeem outstanding shares of Series A preferred stock
upon the demand of the holders of at least 50% of such shares, or
automatically, in the case of certain mandatory redemption events.
Mandatory redemption events include: the failure to timely issue common
stock upon conversion of the Series A preferred stock; failure to
obtain or maintain effectiveness of a registration statement enabling
the holders of the Series A preferred stock to publicly resell the
shares of common stock acquired on conversion; bankruptcy, insolvency
or similar events involving Global Media; and failure to maintain the
listing of the common stock on the OTC Bulletin Board or, after
becoming listed on the Nasdaq Stock Market or certain other designated
securities markets, the failure to maintain such listing.
The redemption would be at an amount equal to the greater of (i) 120%
of the stated value of the shares being redeemed plus 5% per annum
thereon from May 6, 1999 through the redemption payment date, together
with certain other payments due as a result of our breach of certain
covenants under the Series A preferred stock certificate of designation
or related agreements, and (ii) the "parity value" of the shares to be
redeemed. The parity value is an amount equal to the maximum number of
shares of common stock issuable to the holder of the Series A preferred
stock times the highest closing price for the common stock during the
period between the date of the mandatory redemption event and the
effective date of the redemption.
- TRADING MARKET REDEMPTION: In the event the Series A preferred stock
is not convertible as a result of limitations imposed on us by any
stock exchange or the Nasdaq Stock Market requiring stockholder
approval, and we have not obtained that stockholder approval, then we
must immediately redeem the number of shares not convertible as a
result of such limitation for the mandatory redemption amount.
- CONVERSION RIGHTS: Holders of the Series A preferred stock may, at
their own option, convert their shares into our common stock in whole
or in part. The conversion amount is determined by dividing (i) the
sum of the stated value of the Series A preferred stock ($1,000) being
converted plus a premium amount equal to 5% per annum thereon by (ii)
the conversion price (described below) in effect on the conversion
date. However, in no event may a holder exercise the conversion rights
in excess of an amount that will result in the holder's beneficial
ownership of common stock being greater than 4.9% of our outstanding
common stock. The conversion price is the lesser of a fixed conversion
price or a variable conversion price. The variable conversion price is
equal to 100% of the lowest average closing bid prices for our common
stock for any seven consecutive trading days during the 35 trading days
prior to the date of conversion (the "market price"). If our common
stock is not listed for trading on the Nasdaq National Market or Nasdaq
SmallCap Market prior to November 6, 1999, then (i) the fixed
conversion price will be the lesser of $8.125 and 110% of the average
of closing bid prices for our common stock for the ten consecutive
trading days ended November 6, 1999 and (ii) the applicable percentage
of the market price for purposes of determining the variable conversion
price from time to time will be 80%. The conversion price is also
subject to adjustment as a result of stock splits, stock dividends,
merger, consolidation or exchange of shares for periods during which
the registration statement of which this prospectus is a part is not
effective.
48
<PAGE>
- INVESTMENT OPTIONS: On any conversion date, for each share of common
stock issuable to the holder converting shares of Series A preferred
stock, that holder has the option to acquire one additional share of
common stock by paying us an amount per share equal to the conversion
price in effect at that time.
- AUTOMATIC CONVERSION: Subject to the terms and conditions of set forth
in the Series A preferred stock certificate of designation, each share
of Series A preferred stock outstanding on May 6, 2002 shall be
converted into common stock at the applicable conversion price in
effect at that time.
- VOTING RIGHTS: The Series A preferred stock does not have voting
rights except as required by Nevada law or the certificate of
designation. The holders of the Series A preferred stock are entitled
to receive the same notice as holders of common stock of any
stockholders meeting or corporate action. In the event a vote of the
holders of the Series A preferred stock as a class is required, each
share of Series A preferred stock shall be entitled to one vote and a
majority of the shares of Series A preferred stock shall constitute
approval of that series.
- PROTECTIVE RIGHTS: So long as shares of Series A preferred stock are
outstanding, we may not take the following actions without the prior
approval of at least a majority of the then outstanding shares of the
Series A preferred stock:
a. alter or change the rights, preferences or privileges of the
Series A preferred stock or any other capital stock so as to
adversely affect the Series A preferred stock;
b. create or issue any new class or series or capital stock having a
preference over the Series A preferred stock as to distribution
of assets upon our liquidation, dissolution or winding up;
c. create or issue any new class or series or capital stock ranking
the same as the Series A preferred stock as to distribution of
assets upon our liquidation, dissolution or winding up;
d. increase the authorized number or par value of shares of Series A
preferred stock;
e. do any act not authorized or contemplated by the certificate of
designation which would result in taxation of the holders of the
Series A preferred stock.
REGISTRATION RIGHTS
Under a registration rights agreement with RGC entered into on May 6, 1999,
we agreed to register the shares of common stock issuable to RGC and its
successors and assigns upon conversion of shares of Series A preferred stock,
exercise of the related investment options and exercise of the warrants. This
prospectus is part of the registration statement intended to satisfy this
obligation. The registration rights agreement requires us to file a
registration statement with respect to the shares and to have the registration
statement be declared effective within a certain period of time (November 6,
1999). We must also keep the registration statement effective until all of the
common stock offered pursuant to such registration statement have been sold. We
are responsible for the payment of all of our fees and costs associated with the
registration of the common stock covered by the registration statement. We are
required to indemnify and hold harmless each selling stockholder and its
representatives and RGC and its agents or representatives against: (i) any
untrue statement of a material fact in the registration statement; (ii) any
untrue statement or alleged untrue statement contained in any preliminary
prospectus if used prior to the effective date of the registration statement; or
(iii) any violation or alleged violation of the Securities Act or the Exchange
Act. Specific procedures for carrying out such indemnification are set forth in
the agreement. Under the registration rights agreement, RGC also has the right
to include all or a part of its common stock in a registration filed by us for
purposes of a public offering ("piggyback registration") in the event that we
fail to satisfy our other obligations as to the registration of the common stock
acquired by RGC.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF NEVADA LAW AND GLOBAL MEDIA'S
CERTIFICATE OF INCORPORATION AND BYLAWS
We are incorporated under the laws of the State of Nevada and are therefore
subject to various provisions of the Nevada corporation laws which may have the
effect of delaying or deterring a change in the control or management of Global
Media.
49
<PAGE>
Nevada's "Combination with Interested Stockholders Statute," Nevada Revised
Statutes 78.411-78.444, which applies to Nevada corporations like us having at
least 200 stockholders, prohibits an "interested stockholder" from entering into
a "combination" with the corporation, unless certain conditions are met. A
"combination" includes (a) any merger with an "interested stockholder," or any
other corporation which is or after the merger would be, an affiliate or
associate of the interested stockholder, (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets, in one transaction or
a series of transactions, to an "interested stockholder,' having (i) an
aggregate market value equal to 5% or more of the corporation's assets, (ii) an
aggregate market value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation, or (iii) representing 10% or more of the
earning power or net income of the corporation, (c) any issuance or transfer of
shares of the corporation or its subsidiaries, to the "interested stockholder,"
having an aggregate market value equal to 5% or more of the aggregate market
value of all the outstanding shares of the corporation, (d) the adoption of any
plan or proposal for the liquidation or dissolution of the corporation proposed
by the "interested stockholder," (e) certain transactions which would have the
effect of increasing the proportionate share of outstanding shares of the
corporation owned by the "interested stockholder," or (f) the receipt of
benefits, except proportionately as a stockholder, of any loans, advances or
other financial benefits by an "interested stockholder." An "interested
stockholder" is a person who (i) directly or indirectly owns 10% or more of the
voting power of the outstanding voting shares of the corporation or (ii) an
affiliate or associate of the corporation which at any time within three years
before the date in question was the beneficial owner, directly or indirectly, of
10% or more of the voting power of the then outstanding shares of the
corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the Board of Directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the
three-year period expires, the combination may be consummated if all the
requirements in the Articles of Incorporation are met and either (a)(i) The
Board of Directors of the corporation approves, prior to such person becoming an
"interested stockholder," the combination or the purchase of shares by the
"interested stockholder" or (ii) the combination is approved by the affirmative
vote of holders of a majority of voting power not beneficially owned by the
"interested stockholder" at a meeting called no earlier than three years after
the date the "interest stockholder" became such or (b) the aggregate amount of
cash and the market value of consideration other than cash to be received by
holders of common shares and holders of any other class or series of shares
meets the minimum requirements set forth in Sections 78.411 through 78.443,
inclusive, and prior to the consummation of the combination, except in limited
circumstances, the "interested stockholder" will not have become the beneficial
owner of additional voting shares of the corporation.
Nevada's "Control Share Acquisition Statute," Nevada Revised Statutes
78.378-78.379, prohibits an acquiror, under certain circumstances, from voting
shares of a target corporation's stock after crossing certain threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While we do not currently exceed these thresholds, we may
well do so in the near future. In addition, although we do not presently "do
business" in Nevada within the meaning of the Control Share Acquisition Statute,
we may do so in the future. Therefore, it likely that the Control Share
Acquisition Statute will apply to us in the future. The statute specifies three
thresholds: at least one-fifth but less than one-third, at least one-third but
less than a majority, and a majority or more, of all the outstanding voting
power. Once an acquiror crosses one of the above thresholds, shares which it
acquired in the transaction taking it over the threshold or within ninety days
become "Control Shares" which are deprived of the right to vote until a majority
of the disinterested stockholders restore that right. A special stockholders'
meeting may be called at the request of the acquiror to consider the voting
rights of the acquiror's shares no more than 50 days (unless the acquiror agrees
to a later date) after the delivery by the acquiror to the corporation of an
information Statement which sets forth the range of voting power that the
acquiror has acquired or proposes to acquire and certain other information
concerning the acquiror and the proposed control share acquisition. If no such
request for a stockholders' meeting is made, consideration of the voting rights
of the acquiror's shares must be taken at the next special or annual
stockholders' meeting. If the stockholders fail to restore voting rights to the
acquiror or if the acquiror fails to timely deliver an information Statement to
the corporation, then the corporation may, if so provided in its articles of
incorporation or bylaws, call certain of the acquiror's shares for redemption.
Our articles of incorporation and bylaws do not currently permit us to call an
acquiror's shares for redemption under these circumstances. The Control Share
Acquisition Statute also provides that the stockholders who do not vote in favor
of restoring voting rights to the Control Shares may demand payment for the
"fair value" of their shares (which is generally equal to the highest price paid
in the transaction subjecting the stockholder to the statute).
50
<PAGE>
Certain provisions of our bylaws which are summarized below may affect
potential changes in control of Global Media. The board of directors believes
that these provisions are in the best interests of stockholders because they
will encourage a potential acquiror to negotiate with the board of directors,
which will be able to consider the interests of all stockholders in a change in
control situation. However, the cumulative effect of these terms may be to make
it more difficult to acquire and exercise control of Global Media and to make
changes in management more difficult.
The bylaws provide the number of directors of Global Media shall be
established by the board of directors, but shall be no less than one. Between
stockholder meetings, the board may appoint new directors to fill vacancies or
newly created directorships. A director may be removed from office by the
affirmative vote of 66-2/3% of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of directors.
The bylaws further provide that stockholder action may be taken at a
meeting of stockholders and may be effected by a consent in writing if such
consent is signed by the holders of the percentage of our shares required to
approve the action at a meeting.
We are not aware of any proposed takeover attempt or any proposed attempt
to acquire a large block of common stock.
The provisions described above may have the effect of delaying or deterring
a change in the control of management of Global Media.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We believe that certain provisions of our articles of incorporation and
bylaws will be useful to attract and retain qualified persons as directors and
officers. Our articles of incorporation limit the liability of directors and
officers to the fullest extent permitted by Nevada law. This is intended to
allow our directors and officers the benefit of Nevada's corporation law which
provides that directors and officers of Nevada corporations may be relieved of
monetary liabilities for breach of their fiduciary duties as directors, except
under certain circumstances, including (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) the payment
of unlawful distributions.
There is no pending litigation or proceeding involving a director, officer,
associate or other agent of Global Media as to which indemnification is being
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification by any director, officer, associate or other agent.
TRANSFER AGENT AND REGISTRAR
Pacific Stock Transfer Company is the transfer agent and registrar for our
common stock.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
On July 23, 1999, 20,653,331 shares of our common stock were outstanding,
and 3,265,400 shares of common stock were subject to options granted under our
stock option plans. See "Management--Employee Benefit Plans." In addition,
3,721,577 shares of common stock were issuable upon conversion or exercise of
Series A preferred stock, the related investment options and warrants held by
the selling stockholders, and 62,769 shares of common stock were issuable upon
exercise of outstanding warrants held by parties other than the selling
stockholders. Of the outstanding shares, 4,835,331 shares of common stock are
immediately eligible for sale in the public market without restriction or
further registration under our Form S-8 Registration Statements, unless held by
any "affiliate" of ours, as that term is defined in Rule 144, described below.
All other outstanding shares of our common stock are "restricted securities" as
such term is defined under Rule 144, in that such shares were issued in private
transactions not involving a public offering, and/or are "control securities" as
such term is defined under Rule 144, in the such shares are held by our
officers, directors or other affiliates. Restricted and control securities may
not be sold in the absence of registration other than in accordance with
Rule 144(d) or 144(k) promulgated under the Securities Act or another exemption
from registration.
In general, under Rule 144(d), as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned restricted securities for at least one year is entitled to
sell, within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of (a) 1% of the
then outstanding shares of our common stock or (b) the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of such sale is filed, subject to various restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned
restricted securities proposed to be sold for at least two years would be
entitled to sell those shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate, such person's holding period for the purpose of effecting a sale
under Rule 144 commences on the date of transfer from the affiliate. An
officer, director or other affiliate who holds control securities which are not
restricted may sell shares within the volume limitations described above but is
not subject to the holding period described above. As of July 23, 1999,
15,818,000 of our outstanding shares were eligible for sale in compliance with
Rule 144.
The shares of common stock issuable upon conversion or exercise of the
shares of Series A preferred stock, investor related options, and warrants held
by the selling stockholders are being registered on the registration statement
of which this prospectus is a part. Upon effectiveness of that registration
statement, such shares will also be immediately eligible for sale in the public
market subject to restrictions included in our agreements with the selling
stockholders. See "Description of Capital Stock--Preferred Stock--Series A
Convertible Preferred Stock." We also have filed registration statements on
Form S-8 to register for resale the 5,000,000 shares of common stock originally
reserved for issuance under our 1998 and 1999 stock option plans. Shares
covered by those registration statements are eligible for sale in the public
market upon exercise of the options. As of July 23, 1999, 3,265,400 of the
options were outstanding, 2,496,567 of which were currently exercisable and
768,833 of which were unvested.
There has been very limited trading volume in our common stock to date.
Sales of substantial amounts of our common stock under Rule 144, this prospectus
or otherwise could adversely affect the prevailing market price of our common
stock and could impair our ability to raise capital through the future sale of
our securities. See "Risk Factors--Shares Eligible For Future Sale By Our
Current Stockholders May Adversely Affect Our Stock Price."
52
<PAGE>
LEGAL MATTERS
The validity of the issuance of common stock offered by this prospectus has
been passed upon for us by Dennis Brovarone, Esq., Westminster, Colorado.
EXPERTS
The balance sheets as of July 31, 1997 and 1998 and the statements of
operations, changes in stockholders' equity (deficiency) and cash flows for the
years then ended included in this prospectus have been audited by Ernst & Young
LLP, independent chartered accountants, to the extent and for the periods set
forth in their reports appearing elsewhere herein and in the registration
statement of which this prospectus is a part, and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2. This
prospectus, which is a part of the registration statement, does not contain all
of the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any contract, agreement or
other document of Global Media, such references are not necessarily complete and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement or other document. You may review a
copy of the registration statement, including exhibits, at the SEC's public
reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 or Seven World Trade Center, 13th Floor, New York, New York 10048 or
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms.
We also file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information on file at the public reference rooms. You can also
request copies of these documents, for a copying fee, by writing to the SEC.
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding registrants
that are filed electronically with the SEC.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GLOBAL MEDIA, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C>
RESTATED AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
Report of Independent Auditors..................................................................................F-2
Consolidated Balance Sheets as at July 31, 1998 and 1997......................................................F-3
Consolidated Statements of Operations for the years ended July 31, 1998 and 1997................................F-4
Consolidated Statements of Shareholders' Equity (Deficiency) for the years ended
July 31, 1998 and 1997........................................................................................F-5
Consolidated Statements of Cash Flows for the years ended July 31, 1998 and 1997................................F-6
Notes to Consolidated Financial Statements......................................................................F-7
RESTATED UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of April 30, 1999 and July 31, 1998.............................................F-16
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and
nine months ended April 30, 1999 and 1998 ...................................................................F-17
Consolidated Statements of Shareholders' Equity (Deficiency) for the nine months ended April 30, 1999
and the years ended July 31, 1998 and 1997...................................................................F-18
Consolidated Statements of Cash Flows for the nine months ended April 30, 1999 and 1998 .......................F-19
Notes to Restated Financial Statements.........................................................................F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
GLOBAL MEDIA CORP.
We have audited the accompanying consolidated balance sheets of GLOBAL MEDIA
CORP. as at July 31, 1998 and 1997 and the consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for the years then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of the company as at
July 31, 1998 and 1997 and the consolidated results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Vancouver, Canada,
October 23, 1998 (except as to /s/ Ernst & Young LLP
Notes 1, 3 and 10 which are as of June Chartered Accountants
18, 1999).
F-2
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at July 31 (in US dollars)
1998 1997
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash 14,996 121,890
Accounts receivable, net of allowance for
doubtful accounts of $92,366 [1997 - $13,307] 206 58,838
Inventory 1,992 15,469
Prepaid expenses 8,229 917
Due from affiliated companies [NOTE 4] 71,065 77,778
Income taxes recoverable [NOTE 5] 2,439 --
- --------------------------------------------------------------------------------------------------
98,927 274,892
Capital assets [NOTES 3, 4 AND 6] 172,635 20,566
- --------------------------------------------------------------------------------------------------
271,562 295,458
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accrued liabilities 201,234 94,649
Taxes payable 51,354 30,124
Due to affiliated company [NOTE 4] 46,284 --
Due to shareholders [NOTE 4] 79,269 84,090
- --------------------------------------------------------------------------------------------------
378,141 208,863
Deferred revenue -- 12,062
- --------------------------------------------------------------------------------------------------
378,141 220,925
- --------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital [NOTE 7] 11,892 11,059
Additional paid in capital [NOTE 7] 543,525 128,641
Unissued share capital [NOTE 7] -- 144,001
Deficit (681,819) (209,145)
Cumulative translation adjustment 19,823 (23)
- --------------------------------------------------------------------------------------------------
(106,579) 74,533
- --------------------------------------------------------------------------------------------------
271,562 295,458
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
F-3
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended July 31 (in US dollars)
1998 1997
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Sales -- --
- --------------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES [NOTE 4]
Advertising and marketing 6,691 --
Amortization 29,973 --
Bad debts -- --
Bank charges, interest and financing fees 1,298 445
Foreign exchange 12,222 (920)
Professional fees 147,500 49,386
Office and miscellaneous 68,402 21,842
Travel 21,174 --
Wages and benefits 17,659 1,461
- --------------------------------------------------------------------------------------------------
304,919 72,214
- --------------------------------------------------------------------------------------------------
Loss from continuing operations (304,919) (72,214)
- --------------------------------------------------------------------------------------------------
Discontinued operations [NOTES 1 AND 3]
call center 108,613 --
satellite (276,368) (36,785)
- --------------------------------------------------------------------------------------------------
Loss from discontinued operations (167,755) (36,785)
- --------------------------------------------------------------------------------------------------
LOSS FOR THE YEAR (472,674) (108,999)
- --------------------------------------------------------------------------------------------------
Loss per common share from continuing operations (0.02) (0.01)
Loss per common share from discontinued operations (0.01) (0.00)
- --------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.03) (0.01)
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
F-4
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Year ended July 31 (in US dollars)
COMMON STOCK ADDITIONAL UNISSUED RETAINED CUMULATIVE
----------------- PAID-IN SHARE EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL CAPITAL (DEFICIT) ADJUSTMENT
# $ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1996 [NOTE 7] -- -- -- 1 14,486 (408)
Common shares issued for cash 11,059,400 11,059 128,641 -- -- --
Unissued common shares [NOTE 7] -- -- -- 144,000 -- --
Movement on cumulative translation -- -- -- -- -- 385
Loss for the year -- -- -- -- (108,999) --
Dividends declared and paid -- -- -- -- (114,632) --
- ----------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1997 11,059,400 11,059 128,641 144,001 (209,145) (23)
Common shares issued for cash [NOTE 7] 730,533 731 364,536 (144,000) -- --
Common shares issued for other than
cash consideration:
Consideration for shares in
Westcoast Wireless [NOTES 1 AND 7] 8,000,000 1 -- (1) -- --
In kind services 100,898 101 50,348 -- -- --
Movement on cumulative translation -- -- -- -- -- 19,846
Loss for the year -- -- -- -- (472,674) --
- ----------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998 19,890,831 11,892 543,525 -- (681,819) 19,823
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
F-5
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended July 31 (in US dollars)
1998 1997
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the year (472,674) (108,999)
Items not requiring an outlay of funds
Amortization 38,658 3,957
Services settled through share issuance 50,449 --
Deferred revenue (12,062) 12,062
- --------------------------------------------------------------------------------------------------
(395,629) (92,980)
Changes in non-cash operating working capital
Accounts receivable 58,632 47,216
Inventory 13,477 20,233
Prepaid expenses (7,312) 599
Income taxes recoverable (2,439) --
Accounts payable and accrued liabilities 106,585 11,090
Accrued wages payable -- (58,527)
Taxes payable 21,230 5,034
Advances from (to) shareholder (4,821) 79,266
Advances from (to) affiliated companies 52,997 (80,309)
- --------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (157,280) (68,378)
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (189,706) (13,209)
Decrease in loan receivable from shareholder -- 18,306
- --------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (189,706) 5,097
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends -- (114,632)
Share subscriptions 221,267 283,700
- --------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 221,267 169,068
- --------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 18,825 198
INCREASE (DECREASE) IN CASH DURING THE YEAR (106,894) 105,985
Cash, beginning of year 121,890 15,905
- --------------------------------------------------------------------------------------------------
CASH, END OF YEAR 14,996 121,890
- --------------------------------------------------------------------------------------------------
Interest - paid 9,180 357
Income taxes paid (recovered) (6,783) 10,354
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
F-6
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Global Media Corp. (the "Company") was incorporated on April 8, 1997 in the
State of Nevada and is headquartered in Nanaimo, B.C., Canada. The Company
(through its now-subsidiary Westcoast Wireless Cable Ltd. ("Westcoast
Wireless") was originally engaged in the marketing of satellite programming and
hardware and later was engaged in the business of providing call center services
[see note 3]. The Company discontinued its satellite line of business by the end
of fiscal 1998, and the call center business during the first quarter of fiscal
1999. During the first quarter of fiscal 1999, the company adopted an
internet-focused business plan. As of April 30, 1999, the Company had not yet
commenced revenue generating activities and was engaged primarily in the
development of an electronic commerce web site, the development of a broadcast
network over the internet, and the development of templates for the application
of the e-commerce back-end system to multiple sites on the internet. Subsequent
to the quarter ended April 30, 1999, the e-commerce web site, globalmedia.com,
was launched on May 18, 1999.
Subsequent to the issuance of the Company's financial statements for the year
ended July 31, 1998, the Company discontinued its call center business. As a
result, the Company has restated its financial statements for the year ended
July 31, 1998 in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business". These financial statements reflect this restatement.
On May 20, 1997 the Company issued 8,000,000 common shares and paid $100,000 in
cash for all of the outstanding shares of Westcoast Wireless Cable Ltd.
("Westcoast Wireless"), a company which markets direct to home satellite
hardware and programming services.
Westcoast Wireless contracted for the sales of certain satellite hardware and
programming services, therefore the majority of the purchases were sourced from
a single supplier.
These financial statements reflect the continuity of interests of the former
shareholder of Westcoast Wireless, due to the continuation of common control.
The consolidated statements of operations, shareholders' equity (deficiency),
and cash flows for the period from August 1, 1996 to May 20, 1997 (included in
the results for the year ended July 31, 1997) represent the results of
operations and cash flows of Westcoast Wireless during those periods.
References to "the Company" in these financial statements include Westcoast
Wireless (for events occurring prior to May 20, 1997).
F-7
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONT'D.)
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America.
The Company has not yet achieved a profitable level of operations. The Company's
continued operation is dependent upon achieving a profitable level of operations
from its electronic commerce web site, scheduled to commence operations in March
1999, and upon obtaining additional financing and the continued support of the
Company's shareholders [note 10], to fund both current operations, and web site
construction.
2. SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is recorded at the lower of cost, using the first in, first out
method, and net realizable value.
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost. Amortization has been calculated using the
following methods and rates, except in the year of acquisition when one half of
the rate is used.
<TABLE>
<S> <C>
Call center infrastructure 3 year straight line
Office furniture and equipment 20% declining balance
Software 20% declining balance
Computer equipment 30% declining balance
Leasehold improvements 5 year straight line
</TABLE>
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are expensed as incurred.
F-8
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiary, Westcoast
Wireless, are translated into US dollars at fiscal period end exchange rates.
Income and expense items are translated at average exchange rates prevailing
during the fiscal period. The resulting translation adjustments are recorded as
a separate component of shareholders' equity.
Monetary assets and liabilities of the Company denominated in a foreign currency
are translated at period end exchange rates. Other balances are recorded at
rates in effect on the dates of the transaction. Exchange gains and losses
arising are reflected in net income for the period.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company's management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related notes to the financial statements.
Actual results may differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments approximate fair
values, except as otherwise disclosed in the financial statements.
LOSS PER SHARE
The Company has adopted SFAS128, `Earnings per share' in the current year on a
retroactive basis. There is no impact on previously reported loss per share
amounts.
F-9
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS130, `Reporting
comprehensive income', SFAS131, `Disclosures about segments of an enterprise and
related information', SFAS132 `Employers' Disclosures about pensions and other
postretirement benefits' and SFAS133 `Accounting for derivative instruments and
hedging activities'. SFAS130, SFAS131 and SFAS132 are effective for financial
statements for fiscal years beginning after December 15, 1997. SFAS133 is
effective for financial statements for fiscal years beginning after June 15,
1999.
SFAS130 establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS131, SFAS132 and SFAS133 currently have no impact on the Company.
3. DISCONTINUED OPERATIONS
In November 1997, a decision was made by the Canadian Federal Court of Appeal
of, ruling that sale of US satellite and programming services in Canada was not
permitted. Following a period of trading in Canadian satellite and programming
services the management of Westcoast Wireless decided to withdraw completely
from the home satellite business in late fiscal 1998. The home satellite
business includes all operations of Westcoast Wireless.
This subsidiary company has been accounted for as a discontinued operation, and
accordingly, its operations have been segregated in the accompanying
consolidated statements of operations.
Revenues of the discontinued satellite operations for the year ended July 31,
1998 were $591,938 [1997 - $1,617,528]. At July 31, 1998, net current
liabilities of the discontinued satellite operations were $130,076 [1997 -
$31,578] consisting principally of accounts payable and balances due to
shareholder. Net non-current assets at July 31, 1998 were $15,352 [1997 -
$8,504].
F-10
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
3. DISCONTINUED OPERATIONS (CONT'D.)
The Company was engaged in providing call center services until the third
quarter of fiscal 1999. The Company elected to abandon the business and focus
its efforts on its internet-focused business plan. Accordingly, the call center
operations have been segregated and accounted for as a discontinued operation in
the accompanying consolidated statement of operations.
Revenues of the discontinued call center operations for the year ended July 31,
1998 were $326,279 [1997-nil]. At July 31, 1998, net current liabilities of the
discontinued call center operations were $19,484 [1997 - nil] consisting
principally of accounts payable.
4. RELATED PARTY TRANSACTIONS
All related party balances as disclosed in the balance sheet are non-interest
bearing and without specific terms of repayment.
The affiliated companies are related to Global Media Corp. by virtue of control
by officers of the Company. The fair values of the balances are not determinable
since they have no fixed repayment terms.
The Company's consolidated statement of operations for the year ended July 31,
1998 includes the following related party transactions:
- - wages and benefits expense of $81,747 [1997 - $45,565], to a shareholder
and spouse.
- - income from recharge of wages of $nil [1997 - $72,610], to a company
related by virtue of control by an officer of the Company.
During the year ended July 31, 1998 the following capital asset additions were
purchased from related parties:
- - $32,909 [1997 - $nil] for call center development from shareholders of
the Company.
- - $2,454 [1997 - $nil] for call center development from an officer of
the Company.
- - $5,709 [1997 - $nil] for office equipment, $4,171 [1997 - $nil] for
leasehold improvements and $12,170 [1997 - $nil] for call center
development from a company controlled by an officer of the Company.
F-11
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
5. INCOME TAXES
At July 31, 1998, the Company had a domestic net operating loss of $240,407
which will begin to expire in 2011, and foreign net operating loss carryforwards
of $250,671 which will expire in 2005. Utilization of these carryforwards
depends on the recognition of future taxable income.
For financial reporting purposes, a valuation allowance has been established for
all deferred tax assets due to the uncertainty of realization. As a result of
certain stock transactions, utilization of the Company's net operating loss
carryforwards may be subject to certain limitations in the event that a change
in ownership has occurred, as defined in Section 382 of the Internal Revenue
Code of 1986, as amended.
Deferred tax assets reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JULY 31,
1998
$
- ------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards 196,094
Tax vs. accounting value in fixed assets 5,431
Unrealized foreign exchange loss 4,155
- ------------------------------------------------------------------
Total gross deferred tax assets 205,680
Less valuation allowance (205,680)
Deferred tax liability --
- ------------------------------------------------------------------
NET DEFERRED TAX ASSETS --
- ------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JULY 31, 1998
Office furniture and equipment 18,859 4,842 14,018
Computer equipment 70,107 13,117 56,990
Leasehold improvements 8,594 4,905 3,689
Call center infrastructure 91,575 17,325 74,250
Software 27,209 3,520 23,689
- ---------------------------------------------------------------------------------------------------
216,344 43,702 172,635
- ---------------------------------------------------------------------------------------------------
JULY 31, 1997
Office furniture and equipment 9,794 2,576 7,218
Computer equipment 8,814 2,187 6,627
Leasehold improvements 2,029 709 1,320
Software 6,001 600 5,401
- ---------------------------------------------------------------------------------------------------
26,638 6,072 20,566
- ---------------------------------------------------------------------------------------------------
</TABLE>
7. SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
# #
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED
Common shares, par value $0.001 each 200,000,000 200,000,000
ISSUED
Common shares 19,890,831 11,059,400
Unissued common shares -- 8,288,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
As at July 31, 1997, 8,000,000 shares issued in consideration for the shares in
Westcoast Wireless and 288,000 of the shares issued for cash had not been
issued; however, legal agreements for the issue of these shares were in place at
July 31, 1997. The amounts were recorded as unissued share capital of $1 and
$144,000 respectively as at July 31, 1997. All of these shares were issued in
the year ended July 31, 1998.
F-13
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
7. SHARE CAPITAL (CONT'D.)
Effective April 8, 1997, the Company adopted the 1997 Directors and Officers
Stock Option Plan (the "Plan"). The Plan is administered by the Board of
Directors who have sole discretion and authority to determine individuals
eligible for awards under the Plan. The Plan provides for issuance of a total of
500,000 options, within a period of 10 years from the effective date. The
conditions of exercise of each grant are determined individually by the Board at
the time of the grant. During the current year, this plan was amended to
increase the number of options from 500,000 to 1,000,000 shares.
At July 31, 1998, no options were outstanding under the Plan.
8. SEGMENTED INFORMATION
The Company's business segment which derived revenue from the marketing of
direct to home satellite hardware and programming services, has been presented
as a discontinued operation in the current year [note 3].
The remaining segment of the business related to call center services which was
discontinued during the 3rd quarter of fiscal 1999 [note 3]. The Global Media
call center provided internet integrated call center services to US based
clients from its location in Nanaimo, Canada.
9. COMMITMENTS AND CONTINGENCIES
Global Media entered into a commercial lease for office space effective October
1, 1997, and will pay a total of $52,939 per year until July 31, 2002.
10. SUBSEQUENT EVENTS
On November 5, 1998, the Company entered into a loan agreement with Rolling Oaks
Enterprises, LLC allowing the Company to draw on a line of credit of up to
$500,000, repayable within one year. The interest rate on the credit facility is
24% per annum, with an origination fee of 1% payable on the receipt of funds.
F-14
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Year ended July 31 (in US dollars)
10. SUBSEQUENT EVENTS (CONT'D.)
The loan is collateralized by a first charge on all available fixed assets of
the Company, and 1,000,000 of common shares in the Company at a price of $1 per
share currently in issue.
Since July 31, 1998, two principal shareholders of the Company have advanced
funds of $218,000 to the Company. The shareholder loans at July 31, 1998, and
advanced since the balance sheet date, have no fixed terms of repayment and
therefore are classified as current liabilities in the balance sheet. However,
the shareholders have indicated their intent to continue to support the
operations of the Company, and to not request repayment of the loans until a
profitable level of operations have been achieved.
Effective May 6, 1999, the Company entered into a Securities Purchase Agreement
and ancillary agreements with RGC International Investors LDC ("RGC") pursuant
to which the Company issued, for cash, a convertible debenture to RGC in the
aggregate principal amount of $8,500,000 and warrants to purchase 680,000 shares
of the Company's common stock at an exercise price of $8.3475 per share. The
convertible debenture is convertible from time to time at RGC's option into
shares of Common Stock of the Company at the lesser of a fixed conversion price
or a variable conversion price based on the market price of the Common Stock at
the time of conversion. The debenture includes an investment option, exercisable
by RGC at the time of conversion, to acquire a number of additional shares of
Common Stock equal to the number of shares with respect to which RGC is
converting the debenture, at an exercise price equal to the conversion price
then in effect. The debenture has a three year term, after which any previously
unconverted portion is converted automatically into Common Stock. The debenture
may be converted at the option of the Company into convertible preferred shares
of the Company (having the same basic terms as the convertible debenture) once
the Company's articles of incorporation have been amended to allow for the
issuance of the preferred shares. On or about June 9, 1999, the Company mailed
to its shareholders an Information Statement concerning this matter, and as
majority shareholder approval has already been obtained for the amendment of the
Company's articles of incorporation to allow for the issuance of the preferred
shares, the Company expects that the convertible debentures will have been
converted into convertible preferred shares of the Company by July 31, 1999, the
Company's fiscal year-end. Further details on this matter are also available by
referring to the Company's Form 8-K filing made May 20, 1999.
On May 18, 1999, the Company fully repaid its $500,000 line of credit, and
$48,200 of accrued interest, to Rolling Oaks Enterprises, LLC.
F-15
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED BALANCE SHEETS
Unaudited
(in US dollars)
<TABLE>
<CAPTION>
April 30 July 31
1999 1998
$ $
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash 85,299 14,996
Accounts receivable 28,993 206
Inventory -- 1,992
Prepaid expenses 3,891 8,229
Due from affiliated companies [NOTE 4] -- 71,065
Income tax recoverable 2,531 2,439
- --------------------------------------------------------------------------------------
120,714 98,927
Capital assets [NOTE 6] 621,942 172,635
- --------------------------------------------------------------------------------------
742,656 271,562
- --------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 158,704 201,234
Employee withholdings 24,747 51,354
Due to affiliated company [NOTE 4] 137,703 46,284
Note Payable [NOTE 9] 548,200 --
Due to shareholders [NOTE 4] 242,536 79,269
- --------------------------------------------------------------------------------------
1,111,890 378,141
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital [NOTE 7] 12,546 11,892
Additional paid in capital [NOTE 7] 1,550,771 543,525
Deficit (1,941,221) (681,819)
Cumulative translation adjustment 8,670 19,823
- --------------------------------------------------------------------------------------
(369,234) (106,579)
- --------------------------------------------------------------------------------------
742,656 271,562
- --------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
F-16
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Unaudited
(in US dollars)
<TABLE>
<CAPTION>
For the 3 Months For the 9 Months
Ended April 30 Ended April 30
---------------- ----------------
1999 1998 1999 1998
$ $ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE -- -- -- --
- -----------------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising, marketing and investor
relations 51,361 505 144,648 3,529
Amortization 54,783 5,645 90,060 16,678
Foreign exchange 2,921 (3,923) 7,280 7,403
Professional fees 61,597 19,112 159,114 86,586
Office and miscellaneous 51,831 17,703 114,740 41,708
Travel 41,583 6,655 75,549 15,590
Wages and benefits 26,604 -- 69,848 --
Stock option compensation expense -- -- 548,800 --
- -----------------------------------------------------------------------------------------------------
290,680 45,697 1,210,039 171,494
Net interest expense and financing fees 36,814 209 47,283 346
- -----------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (327,494) (45,906) (1,257,322) (171,840)
- -----------------------------------------------------------------------------------------------------
Income (Loss) from operations of discontinued
call center and satellite businesses
[NOTE 3]
Call center -- 82,631 -- 146,497
Satellite -- (27,401) (2,080) (204,458)
- -----------------------------------------------------------------------------------------------------
INCOME (LOSS) RECOVERY FROM DISCONTINUED OPERATIONS -- 55,230 (2,080) (57,961)
- -----------------------------------------------------------------------------------------------------
NET AND COMPREHENSIVE INCOME (LOSS) FOR PERIOD (327,494) 9,324 (1,259,402) (229,801)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Loss per common share from continuing operations (0.02) (0.00) (0.06) (0.01)
Loss per common share from discontinued operations (0.00) (0.00) (0.00) (0.00)
- -----------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.02) (0.00) (0.06) (0.01)
- -----------------------------------------------------------------------------------------------------
Shares used in the computation of loss per share 20,544,431 19,890,831 20,253,942 19,619,116
</TABLE>
SEE ACCOMPANYING NOTES
F-17
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
Unaudited
(in US dollars)
<TABLE>
<CAPTION>
ADDITIONAL UNISSUED RETAINED CUMULATIVE
COMMON STOCK PAID-IN SHARE EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL CAPITAL (DEFICIT) ADJUSTMENT
# $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1996 [NOTE 7] -- -- -- 1 14,486 (408)
Common shares issued for cash 11,059,400 11,059 128,641 -- -- --
Unissued common shares [NOTE 7] -- -- -- 144,000 -- --
Movement on cumulative translation -- -- -- -- -- 385
Loss for the year -- -- -- -- (108,999) --
Dividends declared and paid -- -- -- -- (114,632) --
- -----------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1997 11,059,400 11,059 128,641 144,001 (209,145) (23)
Common shares issued for cash [NOTE 7] 730,533 731 364,536 (144,000) -- --
Common shares issued for other than
cash consideration:
Consideration for shares in
Westcoast Wireless [NOTES 1 AND 7] 8,000,000 1 -- (1) -- --
In kind services 100,898 101 50,348 -- -- --
Movement on cumulative translation -- -- -- -- -- 19,846
Loss for the year -- -- -- -- (472,674) --
- -----------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998 19,890,831 11,892 543,525 -- (681,819) 19,823
Stock options exercised 653,600 654 326,146
Stock options compensation 681,100
Movement on cumulative translation (11,153)
Loss for the Period (1,259,402)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 30, 1999 20,544,431 12,546 1,550,771 -- (1,941,221) 8,670
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
F-18
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in US dollars)
<TABLE>
<CAPTION>
For the 9 Months Ended
----------------------
April 30 April 30
1999 1998
$ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period (1,259,402) (229,801)
Items not requiring an outlay of funds
Interest expense accrued on bridge loan 48,200 --
Share option compensation expense 548,800 --
Share option professional fees expense 37,300 --
Amortization 90,060 16,678
Services settled through share issuance -- 50,449
Deferred revenue -- (12,062)
- ----------------------------------------------------------------------------------------------------
(535,042) (174,736)
Changes in non-cash operating working capital
Accounts receivable (28,787) (2,124)
Inventory 1,992 9,275
Prepaid expenses 4,338 (11,000)
Income tax recoverable (92) --
Accounts payable and accrued liabilities (42,530) 34,387
Employee withholdings (26,607) 11,576
Advances from (to) shareholder 163,267 (39,026)
Advances from affiliated companies 162,484 2,329
- ----------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (300,977) (169,319)
- ----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (462,463) (165,414)
- ----------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (462,463) (165,414)
- ----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Bridge loan 500,000 --
Share subscriptions 326,800 221,267
- ----------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 826,800 221,267
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 6,973 4,422
INCREASE (DECREASE) IN CASH DURING THE PERIOD 70,303 (109,044)
Cash, beginning of period 14,996 121,890
- ----------------------------------------------------------------------------------------------------
CASH, END OF PERIOD 85,299 12,846
- ----------------------------------------------------------------------------------------------------
Interest - paid 4,190 4,470
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
F-19
<PAGE>
NOTES TO RESTATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Global Media Corp. (the "Company") was incorporated on April 8, 1997 in the
State of Nevada and is headquartered in Nanaimo, B.C., Canada. The Company
(through its now-subsidiary Westcoast Wireless Cable Ltd. ("Westcoast
Wireless")) was originally engaged in the marketing of satellite programming and
hardware and later was engaged in the business of providing call center
services, both of which lines of business are now discontinued (SEE note 3). In
the first quarter of fiscal 1999, the Company adopted an internet-focused
business plan. As of April 30, 1999 the Company had not yet commenced revenue
generating activities and was engaged primarily in the development of an
electronic commerce web site, the development of a broadcast network over the
internet, and the development of templates for the application of the e-commerce
back-end system to multiple sites on the internet. Subsequent to quarter-end,
the e-commerce web site, globalmedia.com, was launched on May 18, 1999.
The accompanying unaudited interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States of America ("GAAP"). All significant intercompany amounts have
been eliminated in the consolidation process. The preparation of financial
statements in conformity with GAAP requires the Company's management to make
estimates and assumptions that affect the amounts reported in the financial
statements and related notes. Actual results may differ from these estimates. In
the opinion of management, all adjustments necessary to fairly state the results
for the quarters and nine months ended April 30, 1999 and April 30, 1998 have
been made. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with GAAP have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. These unaudited interim consolidated financial statements should
therefore be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended July 31, 1998.
The results of operations for the quarters and nine months ended April 30, 1999
and 1998 are not necessarily indicative of the results to be expected or
anticipated for the full fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost. Amortization has been calculated using
the following methods and rates, except in the year of acquisition when one
half of the rate is used.
<TABLE>
<S> <C>
Communications infrastructure 3 year straight line
Office furniture and equipment 20% declining balance
Purchased software, other than for
web site development 20% declining balance
Capitalized development costs
and purchased software for web
site development 3 year straight line
Computer equipment 30% declining balance
Leasehold improvements 5 year straight line
</TABLE>
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's wholly-owned Canadian subsidiaries
Westcoast Wireless and Global Media Entertainment Corp. are translated into
US dollars at the period-end exchange rate. Income and expense items are
translated at average exchange rates prevailing during the fiscal period. The
resulting translation adjustments are recorded as a separate component of
shareholders' equity.
Monetary assets and liabilities of the Company denominated in a foreign currency
are translated into US dollars at period end exchange rates. Other balances are
recorded at rates in effect on the dates of the transaction. Exchange gains and
losses arising on translation are reflected in net income for the period.
LOSS PER SHARE
F-20
<PAGE>
The Company has adopted SFAS128, "Earnings per share", in the current year on a
retroactive basis. In accordance with Statement 128, basic earnings per share is
computed using the weighted average number of common shares outstanding. Diluted
earnings per share is computed using the weighted average number of common
shares per dilutive common share equivalents outstanding during the period using
the treasury stock method. Due to the net loss during the quarter and nine
months ended April 30, 1999, the same number of shares were used to compute both
basic and fully diluted earnings per share.
3. DISCONTINUED OPERATIONS
The Company was engaged in providing call center services until the third
quarter of fiscal 1999, and Westcoast Wireless was engaged in the marketing of
direct-to-home satellite hardware and programming services until the fourth
quarter of 1998.
4. RELATED PARTY TRANSACTIONS
The affiliated companies are related to the Company by virtue of control by an
officer of the Company. No related party transactions occurred during the nine
months ending April 30, 1999 with the exception of:
(i) A partial repayment ($71,065) of a shareholder loan, which was
used to repay a receivable owed to the Company by an affiliate
owned by the same shareholder;
(ii) Advances from an affiliated company in the amount of $ 162,484;
and,
(iii) Shareholder loans of $ 242,536.
5. INCOME TAXES
For financial reporting purposes, a valuation allowance has been established for
all deferred tax assets due to the uncertainty of realization. As a result of
certain stock transactions, utilization of the Company's net operating loss
carryforwards may be subject to limitations in the event that a change in
ownership has occurred, as defined in Section 382 of the Internal Revenue Code
of 1986, as amended.
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
APRIL 30, 1999
Office furniture and equipment 22,431 2,696 19,735
Computer equipment 134,028 30,728 103,300
Leasehold improvements 3,832 762 3,070
Communications infrastructure 91,146 33,887 57,259
Web site development costs 402,393 38,420 363,973
Web site purchased software 24,550 3,068 21,482
Other purchased software 65,250 12,127 53,123
- ----------------------------------------------------------------------------------------------------
743,630 121,688 621,942
- ----------------------------------------------------------------------------------------------------
JULY 31, 1998
Office furniture and equipment 18,859 4,842 14,018
Computer equipment 70,107 13,117 56,990
Leasehold improvements 8,594 4,905 3,689
Communications infrastructure 91,575 17,325 74,250
Web site development costs -- -- --
Web site purchased software -- -- --
Other purchased software 27,209 3,520 23,689
- ----------------------------------------------------------------------------------------------------
216,344 43,709 172,635
- ----------------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE>
7. SHARE CAPITAL
<TABLE>
<CAPTION>
QUARTER ENDED APRIL 30 YEAR ENDED JULY 31
---------------------- ------------------
1999 1998
# #
- --------------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED
Common shares, par value $0.001 each 200,000,000 200,000,000
ISSUED
Common shares 20,544,431 19,890,831
- --------------------------------------------------------------------------------------------
</TABLE>
STOCK OPTION PLANS
Effective April 8, 1997 the Company adopted the 1997 Directors and Officers
Stock Option Plan (the "1997 Plan"). The 1997 Plan is administered by the Board
of Directors who have sole discretion and authority to determine individuals
eligible for awards under the 1997 Plan. The 1997 Plan provides for issuance of
a total of 500,000 options, within a period of 10 years from the effective date.
The conditions of exercise of each grant are determined individually by the
Board at the time of the grant. No options have been granted under this plan.
Effective August 21, 1998 the Company adopted the 1998 Directors and Officers
Stock Option Plan (the "1998 Plan"). The Plan is administered by the Board of
Directors who have sole discretion and authority to determine individuals
eligible for awards under the 1998 Plan. The 1998 Plan provides for issuance of
a total of 1,000,000 options, within a period of 10 years from the effective
date. The conditions of exercise of each grant are determined individually by
the Board at the time of the grant. 1,000,000 options at an exercise price of
$0.50 per share have been granted under this plan. No grants occurred in the
quarter ended April 30, 1999. Of these options, 980,000 were granted to
directors, officers, employees and inside consultants, and the $548,800 imputed
value thereof as calculated pursuant to APB 25 has been charged to compensation
expense. The remaining 20,000 were granted to an outside consultant and the
$12,600 imputed value thereof as calculated pursuant to FAS 123 has been charged
to professional fees expense. SEE Note 12.
Effective March 24, 1999 the Company adopted the 1999 Directors and Officers
Stock Option Plan (the "1999 Plan"). The 1999 Plan is administered by the
Board of Directors who have sole discretion and authority to determine
individuals eligible for awards under the 1999 Plan. The 1999 Plan provides
for issuance of a total of 4,000,000 options, within a period of 10 years
from the effective date. The conditions of exercise of each grant are
determined individually by the Board at the time of the grant. 2,933,000
options at exercise prices of $4.00 have been granted under this plan and all
of these grants occurred in the quarter ended April 30, 1999. Of these
options, 25,000 were issued to acquire the globalmedia.com domain name and
the $95,000 imputed value thereof has been capitalized to web site
development costs. Additionally, 10,000 options were issued to an outside
consultant and the $24,700 imputed value thereof, as calculated pursuant to
FAS 123, has been charged to professional fees expense. SEE Note 12.
As of April 30, 1999, 653,600 options had been exercised under the 1998 Plan and
no options had been exercised under the 1999 Plan.
8. COMMITMENTS AND CONTINGENCIES
The Company entered into a commercial lease for office space effective October
1, 1997 and will pay a total of $52,939 per year until July 31, 2002.
By agreement dated April 20, 1999, as amended on June 4, 1999, the Company
entered into an arrangement to engage RealNetworks, Inc. to perform consulting
services in connection with the Global Media Broadcast Network project. Under
the terms of the agreement, the Company is required to make payments totaling
$3,655,000 over the duration of the project with the final payment date
projected to be December 21, 1999.
F-22
<PAGE>
9. NOTE PAYABLE AND DUE TO SHAREHOLDERS
On November 5, 1998, the Company entered into a bridge loan agreement with
Rolling Oaks Enterprises, LLC allowing the Company to draw on a line of credit
of up to $500,000, repayable within one year. The interest rate on the credit
facility was 24% per annum, with an origination fee of 1% payable on receipt of
the funds.
The shareholder loans as of April 30, 1999 had no fixed terms of repayment and
therefore are classified as current liabilities on the balance sheet. Subsequent
to quarter-end, the Company and the shareholders agreed to settle the loans by
way of the issuance of shares, partial repayment and partial conversion to new
promissory notes.
10. SUBSEQUENT EVENTS
Effective May 6, 1999 the Company entered into a Securities Purchase Agreement
and ancillary agreements with RGC International Investors LDC ("RGC") pursuant
to which the Company issued, for cash, a convertible debenture to Rose Glen in
the aggregate principal amount of $8,500,000 and warrants to purchase 680,000
shares of the Company's common stock at an exercise price of $8.4375 per share.
The convertible debenture is convertible from time to time at RGC's option into
shares of Common Stock of the Company at the lesser of a fixed conversion price
or a variable conversion price based on the market price of the Common Stock at
the time of conversion. The debenture includes an investment option, exercisable
by RGC at the time of conversion, to acquire a number of additional shares of
Common Stock equal to the number of shares with respect to which RGC is
converting the debenture, at an exercise price equal to the conversion price
then in effect. The debenture has a three year term, after which any previously
unconverted portion is converted automatically into Common Stock. The debenture
may be converted at the option of the Company into convertible preferred shares
of the Company (having the same basic terms as the convertible debenture) once
the Company's articles of incorporation have been amended to allow for the
issuance of the preferred shares. On or about June 9, 1999 the Company mailed to
its shareholders an Information Statement concerning this matter, and as
majority shareholder approval has already been obtained for the amendment of the
Company's articles of incorporation to allow for the issuance of the preferred
shares, the Company expects that the convertible debentures will have been
converted into convertible preferred shares of the Company by July 31, 1999, the
Company's fiscal year-end. Further details on this matter are also available by
referring to the Company's Form 8-K filing made May 20, 1999.
On May 18, 1999 the Company fully repaid its $500,000 line of credit, and
$48,200 of accrued interest, to Rolling Oaks Enterprises, LLC.
The Company launched its main e-commerce internet site, globalmedia.com, on May
18, 1999.
11. RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company does not believe that it has material exposure to the Year 2000
issue with respect to its own information systems since its existing systems
correctly define the Year 2000. The Company is in the process of inquiring as to
the extent to which its major suppliers' systems (insofar as they relate to the
Company's business) are subject to the Year 2000 issue. The Company is currently
unable to predict the extent to which the Year 2000 issue will affect its
suppliers, or the extent to which it would be vulnerable to its suppliers'
failure to remediate any Year 2000 issues on a timely basis. The failure of a
major supplier subject to the Year 2000 issue to convert its systems on a timely
basis or a conversion that is incompatible with the Company's systems could have
a material adverse effect on the Company. In addition, historically most of the
purchases from the Company will be made with credit cards and the Company's
operations may be materially adversely affected to the extent its customers are
unable to use their credit cards due to Year 2000 issues that are not rectified
by their credit card providers. One further, and more extreme, case may be the
failure of the communication mode (telephone, cable or satellite), over the
internet, which could significantly impact the Company's ability to generate
sales.
F-23
<PAGE>
12. RESTATEMENT
Subsequent to the issuance of the Company's financial statements for the quarter
ended April 30, 1999, the Company identified accounting issues with regard to
its treatment of stock options granted during the first and third quarters of
fiscal 1999. SEE Note 7. As a result, the Company has restated its financial
statements for the three and nine months ended April 30, 1999. The effects of
such restatement, and of the Company's discontinuance of its call center
operation (SEE Note 3) are summarized as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
April 30, 1999 April 30, 1999
$ $
--------------------- -------------------
<S> <C> <C>
Net sales before restatement - -
Net sales after restatement - -
General and administrative expenses before restatement 265,980 623,939
General and administrative expenses after restatement 290,680 1,210,039
Net loss before restatement (302,794) (673,302)
Net loss after restatement (327,494) (1,259,402)
Net loss per common share before restatement (0.01) (0.03)
Net loss per common share after restatement (0.02) (0.06)
</TABLE>
<TABLE>
<CAPTION>
At April 30, 1999
$
------------------------
<S> <C>
Capital assets before restatement 526,942
Capital assets after restatement 621,942
Total stockholders' deficit before restatement (464,234)
Total stockholders' deficit after restatement (369,234)
</TABLE>
F-24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIMITATIONS ON DIRECTORS' LIABILITIES UNDER NEVADA LAW.
The General Corporation Law of Nevada (the "GCL") permits a corporation
organized thereunder to indemnify its directors and officers for certain of
their acts. Article 11 of the Bylaws of Global Media Corp., Inc. provides that:
(a) to the full extent of Section 78.751 of the GCL, the Company shall
indemnify all persons who may be indemnified pursuant thereto, and that every
person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the GCL from time to time against all expenses, liability and loss (including
attorneys' fees, judgments, fines and amounts paid or to be paid in settlement)
reasonably incurred or suffered by him in connection therewith; and
(b) the Company shall pay any expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding as they are incurred
and in advance of the final disposition of the action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the Company; and
(c) this right of indemnification is a contract right which may be enforced
in any manner desired by such person, and is not be exclusive of any other right
which such directors, officers or representatives may have or hereafter acquire
and, without limiting the generality of such statement, they shall be entitled
to their respective rights of indemnification under any bylaw, agreement, vote
of stockholders, provisions of law or otherwise, as well as their rights under
Article 11 of the Bylaws of Global Media Corp., Inc.
Should the indemnified person be successful on the merits, Section 78.751
provides that such person shall be indemnified against expenses incurred by him.
In a suit, action or proceeding against such person brought by or on behalf of
the corporation in which such person was found to be liable to the corporation,
any indemnification must be approved by the court in which such action is
brought. Section 78.752 of the GCL empowers corporations to purchase and
maintain insurance on behalf of an officer or director of the corporation
against any liability, regardless of whether the corporation could indemnify
such person against such liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses incurred in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the SEC registration fee.
II-1
<PAGE>
<TABLE>
<S> <C>
SEC registration fee..................................... $16,825
Transfer agent fee....................................... 500
Printing expenses........................................ 8,000
Legal fees and expenses.................................. 125,000
Accounting fees and expenses............................. 30,000
Blue sky fees and expenses, including legal fees......... 15,000
Miscellaneous............................................ 500
--------
TOTAL.............................................. $195,825
--------
--------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
RULE 504 OFFERINGS.
The Company conducted the following offerings of its common stock to
Canadian investors:
- - 11,000,000 shares of common stock at $.01 per share in April and May 1997,
for $110,000 total offering proceeds, less a commission of $11,000 to the
placement agent, and
- - 12,000 shares of common stock at $.25 per share in April 1997, for $3,000
total offering proceeds less a commission of $30 to the placement agent, and
- - 890,831 shares of common stock at $.50 per share from June to November,
1997, for $415,527 total offering proceeds less a commission of $4,155 to
the placement agent.
Each of these offerings were exempt from registration under the Securities
Act in reliance upon Rule 504 of Regulation D as transactions by an issuer not
involving a public offering. The recipients of securities in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or sale in connection with any distribution. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information. The placement agent in
each of these offerings was Pacific Rim Investment Inc., a corporation organized
under the law of the Pacific island nation Vanuatu.
SHARE EXCHANGE.
The Company issued 8 million shares of its common stock to Michael
Metcalfe, a Canadian resident, in exchange for all of the outstanding shares of
Westcoast Wireless Cable Ltd., pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act. See "Certain Transactions."
No commissions were paid in connection with the transaction.
CONVERTIBLE DEBENTURE OFFERING.
In May 1999, the Company issued a convertible debenture for $8.5 million in
principal amount, and warrants to purchase an aggregate of 680,000 shares of
common stock to the selling stockholder named in the registration statement.
This sale was exempt from registration under Section 4(2) of, or Regulation D
under, the Securities Act, and the purchasers represented their intention to
acquire the securities for investment only and not with a view to distribution.
Appropriate legends disclosing the restricted nature of such securities were
affixed to the debenture and warrant certificate. The selling stockholder
certified that it is an accredited investor and received adequate information
about the Company to make an informed investment decision. The Company paid a
$510,000 commission to Broadmark Capital Corporation in connection with this
offering.
In July 1999, the Company exercised its right to convert the debenture into
shares of Series A Convertible Preferred Stock and issued the holder of the
debenture 8,500 of such shares. Such issuance was exempt from registration
under Section 3(a)(9) of the Securities Act. Appropriate legends disclosing the
restricted nature of such securities were affixed to the certificate evidencing
the shares of Series A Convertible Preferred Stock.
II-2
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.1 Articles of Incorporation of the Company as filed on April 8, 1997,
with the Secretary of State of the State of Nevada. (1)
3.2 Articles of Amendment to the Articles of Incorporation of the
Company, authorizing the issuance of preferred stock, as filed on
June 30, 1999, with the Secretary of State of the State of
Nevada. (8)
3.3 Certificate of Designation, designating Series A preferred stock,
as filed on June 30, 1999, with the Secretary of State of the State
of Nevada. (8)
3.4 Bylaws of the Company. (1)
4.1 Form of specimen certificate for common stock. (8)
4.2 Registration Rights Agreement, dated May 6, 1999, between the
Company and RGC International Investors, LDC. (4)
5.1 Opinion of Dennis Brovarone, Esq. (8)
10.1 1997 Stock Option Plan. (1)
10.2 1998 Stock Option Plan. (2)
10.3 1999 Stock Option Plan. (3)
10.4 Offering Sales Agency Agreement, dated April 25, 1997, between the
Company and Pacific Rim Investment, Inc. (1)
10.5 Plan of Reorganization, dated May 20, 1997, between the Company and
Westcoast Wireless Cable, Ltd. (1)
10.6 Secured Promissory Note, dated November, 1998, from the Company to
Rolling Oaks Enterprises, LLC. (5)
10.7 Security Agreement, dated November 30, 1998 from the Company to
Rolling Oaks Enterprises, LLC. (5)
10.8 Securities Purchase Agreement dated May 6, 1999, between the
Company and RGC International Investors, LDC. (4)
10.9 Convertible Debenture, dated May 6, 1999, from the Company to RGC
International Investors, LDC. (4)
10.10 Stock Purchase Warrant dated May 6, 1999 from the Company to RGC
International Investors, LDC. (4)
10.11 Streaming Media Services Agreement, dated April 19, 1999, between
the Company and RealNetworks, Inc. (5) (6)
10.12 Letter Agreement for consulting services from RealNetworks, Inc. to
the Company, dated and accepted on April 20, 1999. (7) (6)
10.13 Letter from RealNetworks, Inc. to the Company, dated and accepted
on June 4, 1999, amending the April 20, 1999 letter
agreement. (7) (6)
10.14 Order Fulfillment Agreement, dated May 15, 1999, between the
Company and i.FILL (a division of Valley Media, Inc.). (8) (6)
10.15 Drop Ship Agreement, dated May 14, 1999, between the Company and
Baker & Taylor, Inc. (8) (6)
10.16 Distribution Agreement, dated May 14, 1999, between the Company and
Baker & Taylor, Inc. (8) (6)
10.17 License Agreement, dated August 7, 1998, between the Company and
Muze Inc. (8) (6)
21 List of Subsidiaries. (8)
23.1 Consent of Ernst & Young, LLP. (8)
23.2 Consent of Dennis Brovarone, Esq. (included in opinion filed as
Exhibit 5.1). (8)
24 Power of Attorney (included on signature page). (8)
27 Financial Data Schedule. (8)
</TABLE>
- ---------------------------------
(1) Incorporated by reference to the Company's Form 10-SB Registration
Statement filed on December 11, 1997.
(2) Incorporated by reference to the Company's Form S-8 Registration Statement
filed on August 21, 1998.
(3) Incorporated by reference to the Company's Form S-8 Registration Statement
filed on March 24, 1999.
(4) Incorporated by reference to the Company's Current Report on Form 8-K filed
on May 19, 1999.
(5) Incorporated by reference to the Company's Form 10-QSB filed June 14, 1999.
(6) Subject to a request for confidential treatment.
(7) Incorporated by reference to the Company's Form 10-QSB/A for the quarter
ended April 30, 1999, filed June 30, 1999.
(8) Filed with this Form SB-2 Registration Statement.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
RULE 415 OFFERINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement; and
(iii) include any additional or changed material information on
the plan of distribution.
2. That, for determining liability under the Securities Act, it will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
REQUEST FOR ACCELERATION OF EFFECTIVE DATE UNDER RULE 461 OF THE
SECURITIES ACT.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, GLOBAL MEDIA CORP. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Nanaimo, British Columbia, Canada on July 28,
1999.
GLOBAL MEDIA CORP.
By /s/ Robert Fuller
--------------------------------------
Name: Robert Fuller
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below hereby authorizes and appoints Robert Fuller and L. James Porter, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this registration statement, including any and all post-effective
amendments.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities indicated on July 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
----------------------------
Michael Metcalfe Chairman of the Board and President
/s/ Robert Fuller
----------------------------
Robert Fuller Director and Chief Executive Officer
(Principal Executive Officer)
----------------------------
Winston V. Barta Director, Vice President of Marketing
and Business Development, and Secretary
/s/ L. James Porter
----------------------------
L. James Porter Chief Financial Officer (Principal
Accounting Officer)
/s/ Jack MacDonald
----------------------------
Jack MacDonald Director
/s/ Barr Potter
----------------------------
Barr Potter Director
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company as filed on April 8, 1997,
with the Secretary of State of the State of Nevada. (1)
3.2 Articles of Amendment to the Articles of Incorporation of the
Company, authorizing the issuance of preferred stock, as filed on
June 30, 1999, with the Secretary of State of the State of
Nevada. (8)
3.3 Certificate of Designation, designating Series A preferred stock,
as filed on June 30, 1999, with the Secretary of State of the State
of Nevada. (8)
3.4 Bylaws of the Company. (1)
4.1 Form of specimen certificate for common stock. (8)
4.2 Registration Rights Agreement, dated May 6, 1999, between the
Company and RGC International Investors, LDC. (4)
5.1 Opinion of Dennis Brovarone, Esq. (8)
10.1 1997 Stock Option Plan. (1)
10.2 1998 Stock Option Plan. (2)
10.3 1999 Stock Option Plan. (3)
10.4 Offering Sales Agency Agreement, dated April 25, 1997, between the
Company and Pacific Rim Investment, Inc. (1)
10.5 Plan of Reorganization, dated May 20, 1997, between the Company and
Westcoast Wireless Cable, Ltd. (1)
10.6 Secured Promissory Note, dated November, 1998, from the Company to
Rolling Oaks Enterprises, LLC. (5)
10.7 Security Agreement, dated November 30, 1998 from the Company to
Rolling Oaks Enterprises, LLC. (5)
10.8 Securities Purchase Agreement dated May 6, 1999, between the
Company and RGC International Investors, LDC. (4)
10.9 Convertible Debenture, dated May 6, 1999, from the Company to RGC
International Investors, LDC. (4)
10.10 Stock Purchase Warrant dated May 6, 1999 from the Company to RGC
International Investors, LDC. (4)
10.11 Streaming Media Services Agreement, dated April 19, 1999, between
the Company and RealNetworks, Inc. (5) (6)
10.12 Letter Agreement for consulting services from RealNetworks, Inc. to
the Company, dated and accepted on April 20, 1999. (7) (6)
10.13 Letter from RealNetworks, Inc. to the Company, dated and accepted
on June 4, 1999, amending the April 20, 1999 letter
agreement. (7) (6)
10.14 Order Fulfillment Agreement, dated May 15, 1999, between the
Company and i.FILL (a division of Valley Media, Inc.). (8) (6)
10.15 Drop Ship Agreement, dated May 14, 1999, between the Company and
Baker & Taylor, Inc. (8) (6)
10.16 Distribution Agreement, dated May 14, 1999, between the Company and
Baker & Taylor, Inc. (8) (6)
10.17 License Agreement, dated August 7, 1998, between the Company and
Muze Inc. (8) (6)
21 List of Subsidiaries. (8)
23.1 Consent of Ernst & Young, LLP. (8)
23.2 Consent of Dennis Brovarone, Esq. (included in opinion filed as
Exhibit 5.1). (8)
24 Power of Attorney (included on signature page). (8)
27 Financial Data Schedule. (8)
</TABLE>
- ------------------------------
(1) Incorporated by reference to the Company's Form 10-SB Registration
Statement filed on December 11, 1997.
(2) Incorporated by reference to the Company's Form S-8 Registration
Statement filed on August 21, 1998.
(3) Incorporated by reference to the Company's Form S-8 Registration
Statement filed on March 24, 1999.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
filed on May 19, 1999.
(5) Incorporated by reference to the Company's Form 10-QSB filed June 14,
1999.
(6) Subject to a request for confidential treatment.
(7) Incorporated by reference to the Company's Form 10-QSB/A for the quarter
ended April 30, 1999, filed June 30, 1999.
(8) Filed with this Form SB-2 Registration Statement.
II-6
<PAGE>
Exhibit 3.2
Certificate of Amendment to Articles of Incorporation
For Profit Nevada Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock
-Remit in Duplicate-
1. Name of corporation: GLOBAL MEDIA CORP.
2. The Articles have been amended as follows (provide article numbers if
available)
ARTICLE FOUR
The members of the governing board shall be styled Directors. The number
of directors of this corporation shall be determined in the manner
specified by the Bylaws and may be increased or decreased from time to
time in the manner provided therein.
ARTICLE SIX
The total authorized capitalization of this Corporation shall be and is
the sum of 200,000,000 shares of Common Stock at $0.001 par value and
100,000,000 shares of Preferred Stock. The common stock shall carry
full voting power and the common stock shall be issued fully paid at
such time as the Board of Directors may designate in exchange for cash,
property, or services, the stock of other corporations or other values,
rights, or things, and the judgement of the Board of Directors as to the
value thereof shall be conclusive. The preferred stock may be issued in
different series, the rights and preferences thereof shall be determined
by the Board of Directors.
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater portion of the voting power as may be required in the case of a vote
by classes or series, or as may be required by the provisions of the articles
of incorporation have voted in favor of the amendment is 10,272,216. The
holder of a total of 14,100,000 shares consented to the Amendments.
4. Signatures:
<PAGE>
/s/ Michael Metcalfe /s/ James Porter
- --------------------------------- ----------------------------------
Michael Metcalfe, President James Porter, Assistant
Secretary
State of: ________________
County of: _______________
This instrument was acknowledged before me on June 30, 1999, by Michael
Metcalfe and James Porter, known or proved to be the persons executing the
above instrument.
/s/
- ---------------------------------
Notary Public
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
GLOBAL MEDIA CORP.
(Pursuant to Section 78.1955 of the
Nevada General Corporation Law)
GLOBAL MEDIA CORP., a corporation organized and existing under the
Nevada General Corporation Law (the "CORPORATION"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the
Corporation by unanimous written consent, pursuant to authority of the Board
of Directors as required by Section 78.195 of the Nevada General Corporation
Law:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the
"BOARD") in accordance with the provisions of its Articles of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $0.001 per share (the
"PREFERRED STOCK"), and hereby states the designation and number of shares,
and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
Series A Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of Eight Thousand
Five Hundred (8,500) shares of Preferred Stock, is Series A Convertible
Preferred Stock (the "SERIES A PREFERRED STOCK") and the stated value shall
be One Thousand Dollars ($1,000) per share (the "STATED VALUE").
II. RANK
The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $0.001 per share (the "COMMON STOCK");
(ii) prior to any class or series of capital stock
-1-
<PAGE>
of the Corporation hereafter created (unless, with the consent of the holders
of Series A Preferred Stock obtained in accordance with Article IX hereof,
such class or series of capital stock specifically, by its terms, ranks
senior to or PARI PASSU with the Series A Preferred Stock) (collectively,
with the Common Stock, "JUNIOR SECURITIES"); (iii) PARI PASSU with any class
or series of capital stock of the Corporation hereafter created (with the
consent of the holders of Series A Preferred Stock obtained in accordance
with Article IX hereof) specifically ranking, by its terms, on parity with
the Series A Preferred Stock ("PARI PASSU SECURITIES"); and (iv) junior to
any class or series of capital stock of the Corporation hereafter created
(with the consent of the holders of Series A Preferred Stock obtained in
accordance with Article IX hereof) specifically ranking, by its terms, senior
to the Series A Preferred Stock ("SENIOR SECURITIES"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
III. DIVIDENDS
The Series A Preferred Stock shall not bear any dividends. In no
event, so long as any Series A Preferred Stock shall remain outstanding,
shall any dividend whatsoever be declared or paid upon, nor shall any
distribution be made upon, any Junior Securities, nor shall any shares of
Junior Securities be purchased or redeemed by the Corporation nor shall any
moneys be paid to or made available for a sinking fund for the purchase or
redemption of any Junior Securities (other than a distribution of Junior
Securities), without, in each such case, the written consent of the holders
of a majority of the outstanding shares of Series A Preferred Stock, voting
together as a class.
IV. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Corporation shall commence a
voluntary case under the Federal bankruptcy laws or any other applicable
Federal or State bankruptcy, insolvency or similar law, or consent to the
entry of an order for relief in an involuntary case under any law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of
its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other
applicable Federal or state bankruptcy, insolvency or similar law resulting
in the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and any such decree or order shall be unstayed and in effect
for a period of thirty (30) consecutive days and, on account of any such
event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (each such event
being considered a "LIQUIDATION EVENT"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities) upon liquidation, dissolution or winding up unless prior thereto,
the holders of shares of Series A Preferred Stock, subject to this Article
IV, shall have received the Liquidation Preference (as defined in Article
IV.C) with respect to each share. If upon the occurrence of a Liquidation
Event, the assets and funds available for
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<PAGE>
distribution among the holders of the Series A Preferred Stock and holders of
PARI PASSU Securities (including any dividends or distribution paid on any
PARI PASSU Securities after the date of filing of this Certificate of
Designation) shall be insufficient to permit the payment to such holders of
the preferential amounts payable thereon, then the entire assets and funds of
the Corporation legally available for distribution to the Series A Preferred
Stock and the PARI PASSU Securities shall be distributed ratably among such
shares in proportion to the ratio that the Liquidation Preference payable on
each such share bears to the aggregate liquidation preference payable on all
such shares. Any prior dividends or distribution made after the date of
filing of this Certificate of Designation shall offset, dollar for dollar,
the amount payable to the class or series to which such distribution was made.
B. CERTAIN ACTS DEEMED LIQUIDATION EVENT. At the option of any
holder of Series A Preferred Stock, (a) the sale, conveyance or disposition
of all or substantially all of the assets of the Corporation, (b) the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or (c) the consolidation, merger or other business combination
of the Corporation with or into any other Person (as defined below) or
Persons when the Corporation is not the survivor, shall either: (i) be deemed
to be a liquidation, dissolution or winding up of the Corporation pursuant to
which the Corporation shall be required to distribute upon consummation of
and as a condition to such transaction an amount equal to 118% of the
Liquidation Preference with respect to each outstanding share of Series A
Preferred Stock or (ii) if applicable, be treated pursuant to Article VI.C(b)
hereof. Any holder of Series A Preferred Stock making an election under this
Article IV.B. shall notify the Corporation of such election prior to the
closing of the transaction which would trigger such holder's rights pursuant
to this Article IV.B. The above provisions shall similarly apply to
successive consolidations, mergers, business combinations, sales or
dispositions. "PERSON" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
C. LIQUIDATION PREFERENCE. For purposes hereof, the "LIQUIDATION
PREFERENCE" with respect to a share of the Series A Preferred Stock shall
mean an amount equal to the sum of (i) the Stated Value thereof plus (ii) an
amount equal to five percent (5%) per annum of such Stated Value for the
period beginning on May 6, 1999 (the "CLOSING DATE") and ending on the date
of final distribution to the holder thereof (prorated for any portion of such
period). The liquidation preference with respect to any PARI PASSU Securities
shall be as set forth in the Certificate of Designation filed in respect
thereof.
V. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each, a
"MANDATORY REDEMPTION EVENT") shall occur:
(i) The Corporation fails to issue shares of Common Stock
to the holders of Series A Preferred Stock upon exercise by the holders of
their conversion rights in accordance
-3-
<PAGE>
with the terms of this Certificate of Designation (including upon exercise of
or otherwise pursuant to the Investment Options (as defined in Article VI.G
below)) (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VI.E below and the Corporation is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), fails to
transfer or to cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
holders upon conversion of or otherwise pursuant to the Series A Preferred
Stock (or upon exercise of or otherwise pursuant to the Investment Options)
as and when required by this Certificate of Designation or the Registration
Rights Agreement, dated as of May 6, 1999, by and among the Corporation and
the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), fails to
remove any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate or any shares of Common Stock issued
to the holders of Series A Preferred Stock upon conversion of or otherwise
pursuant to the Series A Preferred Stock (or upon exercise of or otherwise
pursuant to the Investment Options) as and when required by this Certificate
of Designation, the Securities Purchase Agreement dated as of May 6, 1999, by
and between the Corporation and the other signatories thereto (the "PURCHASE
AGREEMENT") or the Registration Rights Agreement, or fails to fulfill its
obligations pursuant to Sections 4(c), 4(d), 4(e), 4(i), 4(j) or 5 of the
Purchase Agreement (or makes any announcement, statement or threat that it
does not intend to honor the obligations described in this paragraph) and any
such failure shall continue uncured (or any announcement, statement or threat
not to honor its obligations shall not be rescinded in writing) for ten (10)
days after the Corporation shall have been notified thereof in writing by any
holder of Series A Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC"), prior to November 6, 1999 of
the Registration Statement(s) (as defined in the Registration Rights
Agreement, the "REGISTRATION STATEMENT(s)") required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement, or fails to obtain the
effectiveness of any additional Registration Statement (required to be filed
pursuant to Section 3(b) of the Registration Rights Agreement) within sixty
(60) days after the Registration Trigger Date (as defined in the Registration
Rights Agreement), or any such Registration Statement, after its initial
effectiveness and during the Registration Period (as defined in the
Registration Rights Agreement), lapses in effect or sales of all of the
Registrable Securities (as defined in the Registration Rights Agreement, the
"REGISTRABLE SECURITIES") otherwise cannot be made thereunder (whether by
reason of the Corporation's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement, the
Corporation's failure to file and obtain effectiveness with the SEC of any
additional Registration Statement required pursuant to Section 3(b) of the
Registration Rights Agreement or otherwise) for more than thirty (30)
consecutive days or more than sixty (60) days in any twelve (12) month period
after such Registration Statement becomes effective;
(iii) The Corporation or any Significant Subsidiary (as
defined in Rule 1-02(w) of Regulation S-X promulgated by the SEC) (a
"SIGNIFICANT SUBSIDIARY") of the Corporation shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of
-4-
<PAGE>
a receiver or trustee for it or for all or substantially all of its property
or business; or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against the
Corporation or any Significant Subsidiary of the Corporation;
(v) The Corporation shall (i) fail to maintain the listing
of the Common Stock on the Over-the-Counter Bulletin Board (the "OTC BB") and
such failure shall remain uncured for at least ten (10) days or (ii)
following the date on which listing or quotation of the Common Stock on the
Nasdaq National Market ("NASDAQ"), the New York Stock Exchange (the "NYSE")
or the American Stock Exchange ("AMEX") or, if the Corporation is not
eligible for Nasdaq, the NYSE or AMEX, the Nasdaq SmallCap Market (the
"NASDAQ SMALLCAP") has been secured by the Corporation, fails to maintain
such listing on any of Nasdaq, Nasdaq SmallCap, the NYSE or AMEX,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), at the option
of the holders of at least 50% of the then outstanding shares of Series A
Preferred Stock exercisable by the delivery of written notice (the "MANDATORY
REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption Event, or
upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs (iii) or (iv), the then outstanding shares of Series A
Preferred Stock shall become immediately redeemable and the Corporation shall
purchase each holder's outstanding shares of Series A Preferred Stock for an
amount per share equal to the greater of (1) 120% multiplied by the sum of
(a) the Stated Value of the shares to be redeemed plus (b) an amount equal to
five percent (5%) per annum of such Stated Value for the period beginning on
the Closing Date and ending on the date of payment of the Mandatory
Redemption Amount (the "MANDATORY REDEMPTION DATE"), plus (c) all Conversion
Default Payments (as defined in Article VI.E below), Delivery Default
Payments (as defined in Article VI.D below) and any other amounts owed to
such holder pursuant to Section 2(c) of the Registration Rights Agreement,
and (2) the "PARITY VALUE" of the shares to be redeemed, where parity value
means the product of (a) the highest number of shares of Common Stock
issuable upon conversion of such shares of Series A Preferred Stock in
accordance with Article VI below (without giving effect to any limitations on
conversions contained herein and treating the Trading Day (as defined in
Article VI.B) immediately preceding the Mandatory Redemption Date as the
"CONVERSION DATE" (as defined in Article VI.B(a)) for purposes of determining
the lowest applicable Conversion Price (as defined below), unless the
Mandatory Redemption Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price (as defined
below) for the Common Stock during the period beginning on the date of first
occurrence of the Mandatory Redemption Event and ending one day prior to the
Mandatory Redemption Date (the greater of such amounts being referred to as
the "MANDATORY REDEMPTION AMOUNT"). "CLOSING PRICE," as of any date, means
the last sale price of the Common Stock on the OTC BB as reported by
Bloomberg Financial Markets or an equivalent reliable reporting service
mutually acceptable to and hereafter designated by the holders of a
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majority in interest of the shares of Series A Preferred Stock and the
Corporation ("BLOOMBERG") or, if OTC BB is not the principal trading market
for such security, the last sale price of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or, if no last sale price of such security is
available in any of the foregoing manners, the average of the bid prices of
any market makers for such security that are listed in the "pink sheets" by
the National Quotation Bureau, Inc. If the Closing Price cannot be
calculated for such security on such date in the manner provided above, the
Closing Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority-in-interest of shares of Series A
Preferred Stock being converted for which the calculation of the Closing
Price is required in order to determine the Conversion Price of such Series A
Preferred Stock.
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B. TRADING MARKET REDEMPTION. If and to the extent the Series A
Preferred Stock ceases to be convertible by any holder as a result of the
limitations described in Article VI.A(b) below (a "TRADING MARKET REDEMPTION
EVENT"), and the Corporation has not, prior to the date that such Trading
Market Redemption Event arises, (i) obtained the Stockholder Approval (as
defined in Article VI.A(b)) or (ii) eliminated any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities on the Corporation's ability to
issue shares of Common Stock in excess of the Maximum Share Amount (as
defined in Article VI.A(b)), then the Corporation shall be obligated to
redeem immediately all of the then outstanding Series A Preferred Stock which
ceases to be convertible as a result of the Maximum Share Amount, in
accordance with this Article V.B. An irrevocable redemption notice (the
"TRADING MARKET REDEMPTION NOTICE") shall be delivered promptly to the
holders of Series A Preferred Stock at their registered address appearing on
the records of the Corporation and shall state (i) that the Maximum Share
Amount (as defined in Article VI.A(b)) has been issued upon conversion of the
Series A Preferred Stock, (ii) that the Corporation is obligated to redeem
all of the outstanding Series A Preferred Stock and (iii) the Mandatory
Redemption Date, which shall be a date within five (5) business days of the
earlier of (a) the date of the Redemption Notice or (b) the date on which the
holders of the Series A Preferred Stock notify the Corporation of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount
(as defined in Article V.A above) in cash.
C. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory
Redemption Event, if the Corporation fails to pay the Mandatory Redemption
Amount within five (5) business days of written notice that such amount is
due and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, each holder of Series A Preferred
Stock shall have the right at any time, so long as the Mandatory Redemption
Event continues, to require the Corporation, upon written notice, to
immediately issue (in accordance with and subject to the terms of Article VI
below), in lieu of the Mandatory Redemption Amount, the number of shares of
Common Stock of the Corporation equal to such applicable redemption amount
divided by any Conversion Price (as defined below), as chosen in the sole
discretion of the holder of Series A Preferred Stock, in effect from the date
of the Mandatory Redemption Event until the date such holder elects to
exercise its rights pursuant to this Article V.C.
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. OPTIONAL CONVERSION
(a) CONVERSION AMOUNT. Subject to Article VI.A(b) below,
each holder of shares of Series A Preferred Stock may, at its option at any
time and from time to time, upon surrender of the certificates therefor,
convert any or all of its shares of Series A Preferred Stock into Common
Stock as set forth below (an "OPTIONAL CONVERSION"). Each share of Series A
Preferred Stock shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as such Common Stock exists on the date
of issuance of the Series A Preferred Stock (the
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"ISSUE DATE"), or any other shares of capital stock or other securities of
the Corporation into which such Common Stock is thereafter changed or
reclassified, as is determined by dividing (1) the sum of (a) the Stated
Value thereof plus (b) the Premium Amount (as defined below), by (2) the then
effective Conversion Price (as defined below); PROVIDED, HOWEVER, that in no
event (other than pursuant to the Automatic Conversion (as defined in Article
VII)) shall a holder of shares of Series A Preferred Stock be entitled to
convert any such shares (or exercise any Investment Options in connection
with any such conversion) in excess of that number of shares upon conversion
of which the sum of (x) the number of shares of Common Stock beneficially
owned by the holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series A Preferred Stock, the
unexercised Investment Options or the unexercised or unconverted portion of
any other securities of the Corporation (including, without limitation, the
warrants issued by the Corporation pursuant to the Securities Purchase
Agreement (the "WARRANTS")) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (y) the number of shares
of Common Stock issuable upon the conversion of the shares of Series A
Preferred Stock (and upon the exercise, if any, of Investment Options in
connection therewith) with respect to which the determination of this proviso
is being made, would result in beneficial ownership by a holder and such
holder's affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (x) of such proviso. The
"PREMIUM AMOUNT" means the product of the Stated Value, multiplied by .05,
multiplied by (N/365), where "N" equals the number of days elapsed from the
Closing Date to and including the Conversion Date (as defined in Article
VI.B).
(b) TRADING MARKET LIMITATION. Unless the Corporation either
(i) is permitted (or not prohibited) by the applicable rules and regulations of
the principal securities market on which the Common Stock is listed or traded to
issue shares of Common Stock upon conversion of or otherwise pursuant to the
Series A Preferred Shares and upon exercise of or otherwise pursuant to the
Investment Options in excess of the Maximum Share Amount (as defined below) or
(ii) has obtained approval of the issuance of the Common Stock upon conversion
of or otherwise pursuant to the Series A Preferred Stock and upon exercise of or
otherwise pursuant to the Investment Options in excess of the Maximum Share
Amount in accordance with applicable law and the rules and regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities
(the "STOCKHOLDER APPROVAL"), in no event shall the total number of shares of
Common Stock issued upon conversion of or otherwise pursuant to the Series A
Preferred Stock and upon exercise of or otherwise pursuant to the Investment
Options (including shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Debentures (as defined in the Purchase Agreement, the
"DEBENTURES")(including shares issuable upon exercise of or otherwise pursuant
to the Investment Options contained therein), shares issuable upon exercise of
or otherwise pursuant to the Warrants and any shares of capital stock or rights
to acquire shares of capital stock issued by the Corporation which are
aggregated or integrated with the Common Stock issued or issuable upon
conversion of or otherwise pursuant to
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the Series A Preferred Stock and upon exercise or otherwise pursuant to the
Investment Options for purposes of any such rule or regulation) exceed
4,106,831 (19.99% of the total shares of Common Stock outstanding on the
Issue Date) (the "MAXIMUM SHARE AMOUNT"), subject to equitable adjustments
from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring
after the Issue Date. With respect to each holder of Series A Preferred
Stock, the Maximum Share Amount shall refer to such holder's PRO RATA share
thereof determined in accordance with Article X below. In the event that the
sum of (x) the aggregate number of shares of Common Stock actually issued
upon conversion of or otherwise pursuant to the shares of Series A Preferred
Stock and upon exercise of or otherwise pursuant to the Investment Options
(including shares of Common Stock actually issued upon conversion of or
otherwise pursuant to the Debentures (including shares issued upon exercise
of or otherwise pursuant to the Investment Options contained therein), shares
issued upon exercise of or otherwise pursuant to the Warrants and any shares
of capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued
or issuable upon conversion of or otherwise pursuant to the Series A
Preferred Stock and upon exercise or otherwise pursuant to the Investment
Options for purposes of any such rule or regulation) PLUS (y) the aggregate
number of shares of Common Stock that remain issuable upon conversion of or
otherwise pursuant to the outstanding shares of Series A Preferred Stock at
the then effective Conversion Price, upon exercise of or otherwise pursuant
to the Investment Options, upon exercise of or otherwise pursuant to the
Warrants at the then effective Exercise Price (as defined in the Warrants)
and any shares of capital stock or rights to acquire shares of capital stock
issuable by the Corporation which are aggregated or integrated with the
Common Stock issued or issuable upon conversion of or otherwise pursuant to
the Series A Preferred Stock and upon exercise or otherwise pursuant to the
Investment Options for purposes of any such rule or regulation, represents at
least one hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING
EVENT"), the Corporation will use its best efforts to seek and obtain
Stockholder Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event.
B. CONVERSION PRICE.
(a) CALCULATION OF CONVERSION PRICE. Subject to subparagraph
(b) below, the "CONVERSION PRICE" shall be the lesser of the Variable Conversion
Price (as defined herein) and the Fixed Conversion Price (as defined herein).
The Conversion Price shall be subject to adjustments pursuant to the provisions
of Article VI.C below. "VARIABLE CONVERSION PRICE" shall mean the product of
(x) the Applicable Percentage (as defined below) and (y) the Market Price (as
defined below). "MARKET PRICE" shall mean the lowest average of the Closing Bid
Prices for any seven (7) consecutive Trading Day period (the "MARKET PRICE
DAYS") during the thirty-five (35) consecutive Trading Day period ending one (1)
Trading Day prior to the date (the "CONVERSION DATE") the Notice of Conversion
(as defined in Article VI.E) is sent by a holder to the Corporation via
facsimile (the "PRICING PERIOD"). The Market Price Days shall be designated by
the converting holder (from among the days comprising the Pricing Period) in the
Notice of Conversion. "FIXED CONVERSION PRICE" shall mean $8.125; PROVIDED,
HOWEVER, that if the Common Stock is not listed
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on Nasdaq or, if the Corporation is not eligible for Nasdaq, the Nasdaq
SmallCap on November 6, 1999, the Fixed Conversion Price shall mean the
lesser of $8.125 and 110% of the average of the Closing Bid Prices for the
ten (10) consecutive Trading Days ending November 6, 1999. "APPLICABLE
PERCENTAGE" shall mean 100%; PROVIDED, HOWEVER, that if the Common Stock is
not listed on Nasdaq or, if the Corporation is not eligible for Nasdaq, the
Nasdaq SmallCap prior to November 6, 1999, or, if so listed on or prior to
that date, the Common Stock is at any time thereafter delisted from Nasdaq or
the Nasdaq SmallCap (other than delisting, for no more than two (2) Trading
Days, solely in connection with the simultaneous listing of the Common Stock
on the NYSE or AMEX), the Applicable Percentage shall mean 80%. "CLOSING BID
PRICE" means, for any security as of any date, the closing bid price on the
OTC BB as reported by Bloomberg or, if the OTC BB is not the principal
trading market for such security, the closing bid price of such security on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or, if no closing bid price of
such security is available in any of the foregoing manners, the average of
the bid prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date in the manner
provided above, the Closing Bid Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in
interest of shares of Series A Preferred Stock being converted for which the
calculation of the Closing Bid Price is required in order to determine the
Conversion Price of such Series A Preferred Stock. "TRADING DAY" shall mean
any day on which the Common Stock is traded for any period on the OTC BB, or
on the principal securities exchange or other securities market on which the
Common Stock is then being traded.
(b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS.
Notwithstanding anything contained in subparagraph (a) of this Paragraph B to
the contrary, in the event the Corporation (i) makes a public announcement
that it intends to consolidate or merge with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged) or sell or transfer all or
substantially all of the assets of the Corporation or (ii) any person, group
or entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock then outstanding (or
any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the "ANNOUNCEMENT DATE"),
then the Conversion Price shall, effective upon the Announcement Date and
continuing through the Adjusted Conversion Price Termination Date (as defined
below), be equal, for each such date, to the lower of (x) the Conversion
Price which would have been applicable for an Optional Conversion occurring
on the Announcement Date and (y) the Conversion Price that would otherwise be
in effect on such date. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, "ADJUSTED
CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any proposed
transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this subparagraph (b) has been made, the date
upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or
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abandonment of the proposed transaction or tender offer (or takeover scheme)
which caused this subparagraph (b) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT,
STOCK DIVIDEND, ETC. If at any time when Series A Preferred Stock is issued
and outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend, combination,
reclassification, rights offering below the Trading Price (as defined below)
to all holders of Common Stock or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any Optional Conversion or Automatic Conversion of the Series A
Preferred Stock, then the Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation
shall notify the Transfer Agent of such change on or before the effective
date thereof. "TRADING PRICE," which shall be measured as of the record date
in respect of the rights offering, means (i) the average of the last reported
sale prices for the shares of Common Stock on the OTC BB as reported by
Bloomberg, as applicable, for the five (5) Trading Days immediately preceding
such date, or (ii) if the OTC BB is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as
reported by Bloomberg, or (iii) if market value cannot be calculated as of
such date on any of the foregoing bases, the Trading Price shall be the fair
market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, (b) at the option of a majority-in-interest
of the holders of the outstanding Series A Preferred Stock, by an independent
investment bank of nationally recognized standing in the valuation of
businesses similar to the business of the Corporation.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at
any time when Series A Preferred Stock is issued and outstanding and prior to
the conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another
class or classes of stock or securities of the Corporation or another entity,
or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation (each a "Change of Control Transaction"), then
the holders of Series A Preferred Stock shall thereafter have the right to
receive upon conversion of the Series A Preferred Stock (and upon exercise of
the Investment Options), upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion (and upon exercise of the Investment
Options), such stock, securities or assets which the holders of Series A
Preferred Stock would have been entitled to receive in such transaction had
the Series A Preferred Stock been converted (and had the Investment Options
been exercised) in full immediately prior to such transaction (without regard
to any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect
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to the rights and interests of the holders of Series A Preferred Stock to the
end that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock (and upon
exercise of the Investment Options)) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion of Series A Preferred Stock (and
upon exercise of the Investment Options). The Corporation shall not effect
any transaction described in this subsection (b) unless (a) it first gives,
to the extent practical, thirty (30) days' prior written notice (but in any
event at least fifteen (15) business days prior written notice) of the record
date of the special meeting of stockholders to approve, or if there is no
such record date, the consummation of, such merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event or sale of
assets (during which time the holders of Series A Preferred Stock shall be
entitled to convert the Series A Preferred Stock (and exercise the Investment
Options)) and (b) the resulting successor or acquiring entity (if not the
Corporation) and, if an entity different from the successor or acquiring
entity, the entity whose capital stock or assets the holders of the Common
Stock are entitled to receive as a result of such Change of Control
Transaction, assumes by written instrument the obligations of the Corporation
under this Certificate of Designation (including under this subsection (b)).
The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
(c) [Intentionally Omitted]
(d) ADJUSTMENT DUE TO DISTRIBUTION. Subject to Article
III, if the Corporation shall declare or make any distribution of its assets
(or rights to acquire its assets) to holders of Common Stock as a dividend,
stock repurchase, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a "DISTRIBUTION"), then the holders of Series A Preferred Stock
shall be entitled, upon any conversion of shares of Series A Preferred Stock
(and upon any exercise of Investment Options) after the date of record for
determining shareholders entitled to such Distribution, to receive the amount
of such assets which would have been payable to the holder with respect to
the shares of Common Stock issuable upon such conversion (or upon such
exercise of Investment Options) had such holder been the holder of such
shares of Common Stock on the record date for the determination of
shareholders entitled to such Distribution.
(e) PURCHASE RIGHTS. Subject to Article III, if at any
time when any Series A Preferred Stock is issued and outstanding, the
Corporation issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to
the record holders of any class of Common Stock, then the holders of Series A
Preferred Stock will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could
have acquired if such holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Series A Preferred Stock
(including upon exercise of the Investment Options) (without regard to any
limitations on conversion contained herein) immediately before the date on
which a record is taken for the grant, issuance or sale of such
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Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
(f) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that
(i) the Corporation fails to obtain effectiveness with the SEC of any
Registration Statement (as defined in the Registration Rights Agreement)
required to be filed pursuant to the Registration Rights Agreement on or
prior to the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement, or (ii)
any such Registration Statement, after its initial effectiveness and during
the Registration Period (as defined in the Registration Rights Agreement),
lapses in effect, or sales of all the Registrable Securities otherwise cannot
be made thereunder, whether by reason of the Corporation's failure or
inability to amend or supplement the prospectus (the "PROSPECTUS") included
therein in accordance with the Registration Rights Agreement or otherwise
(including, without limitation, during an Allowed Delay (as defined in
Section 3(f) of the Registration Rights Agreement), then, at the election of
each holder of Series A Preferred Stock, the Pricing Period shall be
comprised of, (x) in the case of an event described in clause (i), the
thirty-five (35) Trading Days preceding the date on which such Registration
Statement is required to become effective pursuant to the terms of the
Registration Rights Agreement, plus all Trading Days through and including
the third (3rd) Trading Day following the date of actual effectiveness of
such Registration Statement; and (y) in the case of an event described in
clause (ii), the thirty-five (35) Trading Days preceding the date on which
the holder of the Series A Preferred Stock is first notified that sales may
not be made under the Prospectus, plus all Trading Days through and including
the third (3rd) Trading Day following the date on which the Holder is first
notified that such sales may again be made under the Registration Statement.
If a holder of Series A Preferred Stock determines that sales may not be made
pursuant to the Registration Statement (whether by reason of the
Corporation's failure or inability to amend or supplement the Prospectus or
otherwise) it shall so notify the Corporation in writing and, unless the
Corporation provides such holder with a written opinion of the Corporation's
counsel to the contrary, such determination shall be binding for purposes of
this paragraph.
D. MECHANICS OF CONVERSION. In order to convert Series A
Preferred Stock into full shares of Common Stock, a holder of Series A
Preferred Stock shall: (i) submit a copy of the fully executed notice of
conversion in the form attached hereto as Exhibit A ("NOTICE OF CONVERSION")
to the Corporation by facsimile dispatched prior to Midnight, New York City
time (the "CONVERSION NOTICE DEADLINE"), on the date specified therein as the
Conversion Date (or by other means resulting in, or reasonably expected to
result in, notice to the Corporation on the Conversion Date) to the office of
the Corporation or its designated Transfer Agent for the Series A Preferred
Stock, which notice shall specify the number of shares of Series A Preferred
Stock to be converted, the applicable Conversion Price and a calculation of
the number of shares of Common Stock issuable upon such conversion (including
the number of shares issuable upon exercise of the Investment Options, if
any), together with a copy of the first page of each certificate to be
converted; and (ii) surrender the original certificates representing the
Series A Preferred Stock being converted (the "PREFERRED STOCK
CERTIFICATES"), duly endorsed, along with a copy of the Notice of Conversion
to the office of the Corporation or the Transfer Agent for the Series A
Preferred Stock as soon as
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practicable thereafter. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to
the Corporation or its Transfer Agent as provided above, or the holder
notifies the Corporation or its Transfer Agent that such certificates have
been lost, stolen or destroyed (subject to the requirements of subparagraph
(a) below). In the case of a dispute as to the calculation of the Conversion
Price, the Corporation shall promptly issue such number of shares of Common
Stock that are not disputed in accordance with subparagraph (b) below. The
Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall audit the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the
time it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive absent manifest error.
(a) LOST OR STOLEN CERTIFICATES. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute
and deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall, within two (2) business days after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a)
above) (the "DELIVERY PERIOD"), issue and deliver (or cause its Transfer
Agent to so issue and deliver) in accordance with the terms hereof and the
Purchase Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order
of the holder (i) that number of shares of Common Stock for the portion of
the shares of Series A Preferred Stock converted (and, if applicable, the
number of shares of Common Stock issuable upon exercise of Investment Options
in connection therewith) as shall be determined in accordance herewith and
(ii) a certificate representing the balance of the shares of Series A
Preferred Stock not converted, if any. In addition to any other remedies
available to the holder, including actual damages and/or equitable relief,
the Corporation shall pay to a holder $2,000 per day in cash for each day
beyond a two (2) business day grace period following the Delivery Period that
the Corporation fails to deliver Common Stock (a "DELIVERY DEFAULT") issuable
upon conversion of shares of Series A Preferred Stock (or exercise of
Investment Options) until such time as the Corporation has delivered all such
Common Stock (the "DELIVERY DEFAULT PAYMENTS"). Such Delivery Default
Payments shall be paid to such holder by the fifth day of the month following
the month in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the month following the month
in which it has accrued), shall be convertible into Common Stock in
accordance with the terms of this Article VI.
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So long as the Common Stock issuable upon conversion to the holder
is either registered under the 1933 Act or such shares may be sold under Rule
144 promulgated under the 1933 Act without restriction as to the number of
shares as of a particular date that can then be immediately sold, in lieu of
delivering physical certificates representing the Common Stock issuable upon
conversion, provided the Corporation's Transfer Agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the holder and its compliance with the provisions
contained in Article VI.A and in this Article VI.D, the Corporation shall use
its best efforts to cause its Transfer Agent to electronically transmit the
Common Stock issuable upon conversion to the holder by crediting the account
of holder's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission ("DWAC") system. The time periods for delivery and penalties
described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) NO FRACTIONAL SHARES. If any conversion of Series A
Preferred Stock would result in a fractional share of Common Stock or the
right to acquire a fractional share of Common Stock, such fractional share
shall be disregarded and the number of shares of Common Stock issuable upon
Conversion of the Series A Preferred Stock shall be the next higher number of
shares.
(d) CONVERSION DATE. The "CONVERSION DATE" shall be the
date specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, notice) to the Corporation or its Transfer
Agent before Midnight, New York City time, on the date so specified,
otherwise the Conversion Date shall be the first business day after the date
so specified on which the Notice of Conversion is actually received by the
Corporation or its Transfer Agent. The person or persons entitled to receive
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock (or exercise of Investment Options) shall be treated for all purposes
as the record holder or holders of such securities as of the Conversion Date
and all rights with respect to the shares of Series A Preferred Stock
surrendered shall forthwith terminate except the right to receive the shares
of Common Stock or other securities or property issuable on such conversion
and except that the holders preferential rights as a holder of Series A
Preferred Stock shall survive to the extent the Corporation fails to deliver
such securities.
E. RESERVATION OF SHARES. A number of shares of the authorized
but unissued Common Stock sufficient to provide for the full conversion of
the Series A Preferred Stock outstanding (based on the lesser of the then
current Variable Conversion Price in effect from time to time and the Fixed
Conversion Price in effect from time to time) and the exercise in full of
the Investment Options shall at all times be reserved by the Corporation,
free from preemptive rights, for such conversion or exercise. As of the date
of issuance of the Series A Preferred Stock, 6,061,978 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of the Series A Preferred Stock and upon exercise of the
Investment Options (the "RESERVED AMOUNT"). The Reserved Amount shall be
increased from time to time in accordance with the Company's obligations
pursuant to Section 4(h) of the Purchase Agreement. In addition,
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<PAGE>
if the Corporation shall issue any securities or make any change in its
capital structure which would change the number of shares of Common Stock
into which each share of the Series A Preferred Stock shall be convertible
and for which the Investment Options shall be exercisable, the Corporation
shall at the same time also make proper provision so that thereafter there
shall be a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the outstanding
Series A Preferred Stock and exercise of the Investment Options.
If at any time a holder of shares of Series A Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (including
any Investment Options exercised in connection therewith) (a "CONVERSION
DEFAULT"), subject to Article X, the Corporation shall issue to the holder
all of the shares of Common Stock which are available to effect such
conversion. The number of shares of Series A Preferred Stock (or number of
shares of Common Stock underlying the Investment Options) included in the
Notice of Conversion which exceeds the amount which is then convertible (or
exercisable) into available shares of Common Stock (the "EXCESS AMOUNT")
shall, notwithstanding anything to the contrary contained herein, not be
convertible (or exercisable) into Common Stock in accordance with the terms
hereof until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation to permit
such conversion (or exercise), at which time the Conversion Price in respect
thereof shall be the lesser of (i) the Conversion Price on the Conversion
Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation
shall use its best efforts to effect an increase in the authorized number of
shares of Common Stock as soon as possible following the earlier of (i) such
time that a holder of Series A Preferred Stock notifies the Corporation or
that the Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof
and (ii) a Conversion Default. In addition, the Corporation shall pay to the
holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in
the amount of (a) .24, multiplied by (b) the sum of the Stated Value plus the
Premium Amount per share of Series A Preferred Stock held by such holder
through the Authorization Date (as defined below), multiplied by (c) (N/365),
where N = the number of days from the day the holder submits a Notice of
Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT
DATE") to the date (the "AUTHORIZATION DATE") that the Corporation authorizes
a sufficient number of shares of Common Stock to effect conversion of the
full number of shares of Series A Preferred Stock. The Corporation shall
send notice to the holder of the authorization of additional shares of Common
Stock, the Authorization Date and the amount of holder's accrued Conversion
Default Payments. The accrued Conversion Default Payment for each calendar
month shall be paid in cash or shall be convertible into Common Stock at the
applicable Conversion Price, at the holder's option, as follows:
(a) In the event the holder elects to take such payment in
cash, cash payment shall be made to holder by the fifth (5th) day of the
month following the month in which it has accrued; and
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<PAGE>
(b) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time
after the fifth day of the month following the month in which it has accrued
in accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the Borrower at
any time prior to 9:00 p.m., New York City Time, on the third (3rd) day of
the month following the month in which Conversion Default payments have
accrued. If no election is made, the holder shall be deemed to have elected
to receive cash. Nothing herein shall limit the holder's right to pursue
actual damages (to the extent in excess of the Conversion Default Payments)
for the Corporation's failure to maintain a sufficient number of authorized
shares of Common Stock, and each holder shall have the right to pursue all
remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief).
F. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Article VI, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Series A Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price at the
time in effect and (iii) the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be received
upon conversion of a share of Series A Preferred Stock.
G. INVESTMENT OPTIONS. On any Conversion Date relating to a
conversion of the Series A Preferred Stock by a holder thereof, the holder
shall have the option to purchase one additional share of Common Stock for
every share of Common Stock issuable as a result of such conversion at an
exercise price equal to the applicable Conversion Price (the option to
purchase such additional shares shall be referred to herein as the
"INVESTMENT OPTIONS"). The holder (i) shall indicate on the Notice of
Conversion in respect of such Conversion Date that it is exercising its
Investment Option with respect to such conversion and shall specify the
number of shares of Common Stock with respect to which the Investment Option
is being so exercised, and (ii) shall pay to the Corporation, in immediately
available funds, on or within one (1) business day following the Conversion
Date, the aggregate purchase price for the shares of Common Stock issuable as
a result of the exercise of such Investment Options. The provisions of
paragraphs A, D(b) (so long as the holder has delivered to the Corporation
the aggregate purchase price due in connection with the exercise of the
Investment Options) and E of this Article VI shall apply to any exercise by
the holder or the Series A Preferred Stock of Investment Options.
H. STATUS AS STOCKHOLDERS. Upon submission of a Notice of
Conversion by a holder of Series A Preferred Stock, (i) the shares covered
thereby (other than the shares, if any,
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<PAGE>
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as
a holder of such converted shares of Series A Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares
of Common Stock and to any remedies provided herein or otherwise available at
law or in equity to such holder because of a failure by the Corporation to
comply with the terms of this Certificate of Designation. Notwithstanding the
foregoing, if a holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration of the
Delivery Period with respect to a conversion of shares of Series A Preferred
Stock for any reason, then (unless the holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Corporation) the
holder shall regain the rights of a holder of such shares of Series A
Preferred Stock with respect to such unconverted shares of Series A Preferred
Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series A Preferred Stock to the holder or, if such
shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and
remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Article VI.E to the extent required thereby for
such Conversion Default and any subsequent Conversion Default and (ii) the
right to have the Conversion Price with respect to subsequent conversions
determined in accordance with Article VI.E.) for the Corporation's failure to
convert the Serie A Preferred Stock.
VII. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article VI.A(b) and so
long as (i) all of the shares of Common Stock issuable upon conversion of all
outstanding shares of Series A Preferred Stock (and upon exercise of the
Investment Options) are then (x) authorized and reserved for issuance, (y)
registered for re-sale under the 1933 Act by the holders of the Series A
Preferred Stock (or may otherwise be resold publicly without registration or
restriction) and (z) eligible to be traded on OTC BB, Nasdaq, the NYSE, the
AMEX or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, each share of Series A
Preferred Stock issued and outstanding on May 6, 2002 (the "AUTOMATIC
CONVERSION DATE"), automatically shall be converted into shares of Common
Stock on such date at the then effective Conversion Price in accordance with,
and subject to, the provisions of Article VI hereof (including the right to
exercise the Investment Options in accordance with Article VI.G) (the
"AUTOMATIC CONVERSION"). The Automatic Conversion Date shall be delayed by
one (1) Trading Day for each Trading Day occurring prior thereto and prior to
the full conversion of the Series A Preferred Stock that (i) any Registration
Statement required to be filed and to be effective pursuant to the
Registration Rights Agreement is not effective or sales of all of the
Registrable Securities otherwise cannot be made thereunder during the
Registration Period (as defined in the Registration Rights Agreement)
(whether by reason of the Corporation's failure to properly supplement or
amend the prospectus included therein in accordance with the terms of the
Registration Rights Agreement or otherwise, including any Allowed Delays (as
defined in Section 3(f) of the Registration Rights Agreement), (ii) any
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<PAGE>
Mandatory Redemption Event or Trading Market Redemption Event exists, without
regard to whether any cure periods shall have run or (iii) that the
Corporation is in breach of any of its obligations pursuant to Section 4(h)
of the Purchase Agreement. The Automatic Conversion Date shall be the
Conversion Date for purposes of determining the Conversion Price and the time
within which certificates representing the Common Stock must be delivered to
the holder.
VIII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Nevada General Corporation
Law ("NVGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of
the shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets
of the Corporation, or any proposed liquidation, dissolution or winding up of
the Corporation, the Corporation shall mail a notice to each holder, at least
ten (10) days prior to the record date specified therein (or thirty (30) days
prior to the consummation of the transaction or event, whichever is earlier),
of the date on which any such record is to be taken for the purpose of such
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such dividend, distribution, right or other event
to the extent known at such time.
To the extent that under the NVGCL the vote of the holders of the
Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the
shares of the Series A Preferred Stock represented at a duly held meeting at
which a quorum is present or by written consent of a majority of the shares
of Series A Preferred Stock (except as otherwise may be required under the
NVGCL) shall constitute the approval of such action by the class. To the
extent that under the NVGCL holders of the Series A Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series A Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it
is then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
Holders of the Series A Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy materials and
other information sent to shareholders) with respect to which they would be
entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the NVGCL.
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<PAGE>
IX. PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the NVGCL) of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock:
(a) alter, amend or repeal (whether by merger,
consolidation or otherwise) the rights, preferences or privileges of the
Series A Preferred Stock or any capital stock of the Corporation so as to
affect adversely the Series A Preferred Stock;
(b) create any new class or series of capital stock having
a preference over the Series A Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation (as previously
defined in Article II hereof, "SENIOR SECURITIES");
(c) create any new class or series of capital stock ranking
PARI PASSU with the Series A Preferred Stock as to distribution of assets
upon liquidation, dissolution or winding up of the Corporation (as previously
defined in Article II hereof, "PARI PASSU SECURITIES");
(d) increase the authorized number of shares of Series A
Preferred Stock;
(e) issue any Senior Securities or PARI PASSU Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by
this Certificate of Designation which would result in taxation of the holders
of shares of the Series A Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series
A Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to
such alteration or change (the "DISSENTING HOLDERS") and Dissenting Holders
shall have the right for a period of thirty (30) days to convert into Common
Stock pursuant to the terms of this Certificate of Designation as they exist
prior to such alteration or change or continue to hold their shares of Series
A Preferred Stock.
-20-
<PAGE>
X. PRO RATA ALLOCATIONS
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock issued to each holder. Each increase to the Maximum Share
Amount and the Reserved Amount shall be allocated pro rata among the holders
of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock held by each holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series A Preferred Stock,
each transferee shall be allocated a pro rata portion of such transferor's
Maximum Share Amount and Reserved Amount. Any portion of the Maximum Share
Amount or Reserved Amount which remains allocated to any person or entity
which does not hold any Series A Preferred Stock shall be allocated to the
remaining holders of shares of Series A Preferred Stock, pro rata based on
the number of shares of Series A Preferred Stock then held by such holders.
-21-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation as of the 30th day of June, 1999.
GLOBAL MEDIA CORP.
By: /s/ Michael Metcalfe
------------------------------
Name: Michael Metcalfe
Title: President
By: /s/ L. James Porter
------------------------------
Name: L. James Porter
Title: Assistant Secretary
Province of British Columbia)
) ss.
City of _ _ _ _ _ _ _ _ _ _ )
On June 30, 1999, personally appeared before me, a Notary Public,
Michael Metcalfe and L. James Porter, who acknowledged that they executed the
above instrument.
/s/
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Signature of Notary
(Notary Stamp or Seal)
-22-
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s). __________
(the "PREFERRED STOCK CERTIFICATES") into shares of common stock ("COMMON
STOCK") of Global Media Corp., a Nevada corporation (the "CORPORATION")
according to the conditions of the Certificate of Designation of Series A
Preferred Stock, as of the date written below. If securities are to be
issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any. A copy of each Preferred
Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned hereby irrevocably elects to convert $ in
Conversion Default Payments, $ in Delivery Default Payments
and or $ in payments pursuant to Section 2(c) of the
Registration Rights Agreement at the Applicable Conversion Price set forth
below.
The undersigned hereby irrevocably elects to exercise its Investment
Option to purchase _______________ shares of Common Stock of the Corporation
(up to the number of shares of Common Stock issuable pursuant to the
conversion of the Series A Preferred Stock) at the Applicable Conversion
Price set forth below and shall make payment of $__________ for such shares
by wire transfer of such amount to the Corporation simultaneously upon
transfer of the shares of Common Stock by the Corporation.
So long as the Common Stock issuable pursuant to this Notice of
Conversion is either registered under the Act (as defined below) or may be
sold under Rule 144 promulgated under the Act without restriction as to the
number of shares as of a particular date that can then be immediately sold,
the Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or
its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DWAC TRANSFER").
Name of DTC Prime Broker:___________________________
Account Number:_____________________________________
In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for
the number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:____________________________________
Address:_________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock and exercise of the Investment Options shall be
made pursuant to registration of the securities under the Securities Act of
1933, as amended (the "ACT"), or pursuant to an exemption from registration
under the Act.
Conversion Date:____________________________
<PAGE>
Applicable Conversion Price:________________
Number of Shares of Common Stock to be Issued
pursuant to:
(i) conversion of Series A Preferred Stock:
______________________________________________
(ii) exercise of Investment Options:__________
(iii) conversion of Conversion Default Payments,
Delivery Default Payments and/or payments pursuant
to Section 2 of the Registration Rights Agreement:
______________________________________________
Signature:____________________________________
Name:_________________________________________
Address:______________________________________
______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or
its Transfer Agent. The Corporation shall issue and deliver shares of Common
Stock to an overnight courier not later than two (2) business days following
receipt of the original Preferred Stock Certificate(s) to be converted, and
shall make payments pursuant to the Certificate of Designation for the number
of business days such issuance and delivery is late (subject to the
applicable grace period set forth in the Certificate of Designation).
<PAGE>
P:\sea\1602sea9\original\EX4-1.DOC
Seattle
P:\sea\1602sea9\original\EX4-1.DOC
Seattle
Exhibit 4.1
- ------ GLOBAL MEDIA CORP ------
NUMBER SHARES
- ------ INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA ------
200,000,000 SHARES COMMON STOCK AUTHORIZED $.001 PAR VALUE
This SIP 37935A 109
certifies SEE REVERSE FOR
CERTAIN DEFINITIONS
that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
GLOBAL MEDIA CORP.
transferable on the books of the corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are subject to the laws of the State of
Nevada, and to the Certificate of Incorporation and Bylaws of the Corporation,
as now or hereafter amended.
This certificate is not valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signature of
its duly authorized officers.
[CORPORATE SEAL]
------------------------------
PRESIDENT/
SECRETARY
COUNTERSIGNED
PACIFIC STOCK TRANSFER COMPANY
P.O. Box 93385
Las Vegas, NV 89193
By
----------------------------
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT.......Custodian.......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the right of Act...............................
with the right of survivorship (State)
and not as tenants in common
Additional abbreviations may also be used through not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
- -------------------------------------------------------------------------------,
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION
WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED___________________________________
X_______________________________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings
and Loan Associations and Credit Unions).
SIGNATURE GUARANTEED:
TRANSFER FEE WILL APPLY
<PAGE>
Exhibit 5.1
[Letterhead]
July 16, 1999
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 Sout Asaphs Road
Bala Cynwyd, PA 19004
Re: Global Media Corp.
Ladies and Gentlemen:
I have acted as counsel to Global Media Corp., a Nevada corporation
(the "Company"), in connection with the Securities Purchase Agreement dated as
of May 6, 1999, between you and the Company (the "Agreement") and the
transactions contemplated therein including the conversion of that certain
Convertible Debenture dated as of May 6, 1999 in the original principal amount
of $8,500,000 (the "Debenture") into shares of the Company's Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). Capitalized terms
used herein and not otherwise defined herein shall have the respective meanings
assigned to such terms in the Agreement.
In so acting, I have examined (i) the Agreement, (ii) the Debenture,
(iii) the Articles of Amendment to the Company's Articles of Incorporation as
filed with the Secretary of State of the State of Nevada (the "Secretary of
State") on July 8, 1999, (iv) the Certificate of Designations, Preferences, and
Rights of Series A Convertible Preferred Stock of the Company, as filed with the
Secretary of State on July 8, 1999 (the "Certificate of Designation"), and (v)
such other documents and instruments as I have deemed appropriate as a basis for
my opinions set forth below.
Based upon the foregoing and subject to the assumptions, limitations,
qualifications and exceptions stated herein, I am of the opinion that as of the
date hereof:
<PAGE>
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
July 19, 1999
1. The Company is a duly organized corporation, validly existing
and in good standing under the laws of the State of Nevada, has all requisite
corporate power and authority to conduct its business as described in the
Company's Annual Report on Form 10-KSB for its fiscal year ended July 31, 1998,
as amended, and is duly qualified as a foreign corporation to do business in
each jurisdiction in which the nature of the business conducted by the Company
makes such qualification necessary and in which the failure to so qualify would
have Material Adverse Effect.
2. The Certificate of Designation has been accepted for filing
with the Secretary of State.
3. (i) The Company has the requisite corporate power and
authority to issue the Preferred Shares upon conversion of the Debentures and to
issue the Conversion Shares in accordance with the terms of the Certificate of
Designation (including upon exercise of the Investment Options), (ii) the
authorization and issuance of the Preferred Shares by the Company upon
conversion of the Debentures and the issuance of the Conversion Shares in
accordance with the terms of the Certificate of Designations (including upon
exercise of the Investment Options) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board of Directors or its stockholders is required, and (iii) other than
necessary approvals that have been obtained, no authorization, approval or
consent of any court, governmental body, regulatory agency, self-regulatory
organization or stock exchange or market or, to my knowledge, any third party is
required to be obtained by the Company for the issuance and sale of the
Preferred Shares upon conversion of the Debentures or upon issuance of the
Conversion Shares upon conversion of the Preferred Shares (including upon
exercise of the Investment Options).
4. The authorized capital of the Company consists of (i)
200,000,000 shares of $0.01 par value common stock, and (ii) 100,000,000 shares
of $0.01 par value preferred stock, of which 8,500 shares have been designated
Series A Convertible Preferred Stock (the "Series A Preferred Stock"). The terms
and conditions of the Series A Preferred Stock are as set forth in the
Certificate of Designations. The Company has reserved 8,500 Preferred Shares for
issuance.
5. The issuance of the Preferred Shares upon conversion of the
Debenture does not violate any provision of the Company's Articles of
Incorporation, as amended to date, or Bylaws. To my knowledge, there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to securities holders) that
will be triggered by the issuance of the Preferred Shares or the Conversion
Shares. The Preferred Shares, upon issuance in accordance with the terms and
conditions of the Debenture, will be validly issued, fully paid and
non-assessable, and will be free from all taxes, liens and charges with respect
to the issue thereof.
6. A number of shares of Common Stock sufficient to meet the
Company's obligations to issue Common Stock upon full conversion of the
Preferred Shares (including upon
2
<PAGE>
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
July 19, 1999
exercise of the Investment Options) has been duly reserved. The Conversion
Shares are duly authorized and upon issuance in accordance with the terms and
conditions of the Certificate of Designations (including upon exercise of the
Investment Options) will be validly issued, fully paid and non-assessable, and
will be free from all taxes, liens and charges with respect to the issue
thereof.
7. The Company is not in violation of any term of the Articles of
Incorporation or Bylaws, each as amended to date. Neither the Articles of
Incorporation nor the Bylaws, each as amended to date, are in violation of the
Nevada General Corporation Law. The Certificate of Designations complies with
the Nevada General Corporation Law. The issuance of the Preferred Shares upon
conversion of the Debentures and the issuance of the Conversion Shares upon
conversion of the Preferred Shares in accordance with the terms and conditions
of the Certificate of Designations do not violate any provision of the Articles
of Incorporation or Bylaws, each as amended to date. To my knowledge, the
issuance of the Preferred Shares upon conversion of the Debentures and the
issuance of the Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms and conditions of the Certificate of Designations has
not resulted and will not result in any violation of, or constitute a default
under (or an event which with the passage of time or the giving of notice or
both would constitute a default under), or result in the creation of any lien,
security interest or encumbrance on the assets or properties of the Company
pursuant to, any contract agreement, instrument, judgment or decree binding upon
the Company which, individually or in the aggregate, would have a Material
Adverse Effect.
8. All approvals necessary for you (or any other holder of the
Preferred Shares) to acquire the Preferred Shares and the Conversion shares
under the laws of the State of Nevada have been obtained, and no further
approvals are required under Sections 78.378 - 78.3793 of the Nevada General
Corporation Law in order for you (or any other holder of the Preferred Shares)
to engage in a "business combination" with the Company because of your or their
acquisition of the Preferred Shares, Warrants, Conversion Shares or Warrant
Shares.
The opinions expressed herein are limited to the matters expressly
stated herein and are rendered solely for your benefit and may not be quoted or
relied upon for any other purpose or by any other person, except that the
opinions expressed in paragraph 6 may be relied upon by Pacific Stock Transfer
Company, Inc., as Transfer Agent
My examination of the law relevant to the matters covered by this
opinion is limited to the laws of the State of Nevada and the federal law of the
United States, and I express no opinion as to the effect on the matters covered
by this opinion of the laws of any other jurisdiction. To the extent that the
governing law with respect to any matters covered by this opinion is the law of
a jurisdiction other than the State of Nevada or federal law, I have assumed
that the law of such other jurisdiction is identical to Nevada law. In
furnishing the opinion regarding the valid existence and good standing of the
Company, I have relied solely upon a good standing certificate issued by the
Secretary of State of Nevada on July 8, 1999.
3
<PAGE>
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
July 19, 1999
This opinion is given as of the date hereof and I have assumed no
obligation, to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur.
Sincerely,
/s/ Dennis Brovarone
-----------------------
Dennis Brovarone
4
<PAGE>
Exhibit 10.14
ORDER FULFILLMENT AGREEMENT
This Order Fulfillment Agreement ("Agreement") is entered into effective as of
the 15th day of May, 1999, by and between GLOBAL MEDIA, INC. ("Retailer") and
I.FILL, a division of Valley Media, Inc. ("Valley").
BACKGROUND
A. Valley has created databases known as "audiofile' and
"audiotrax" which contain information regarding pre-recorded music and music
related products ("Audio Product"), theatrical video and video related products
("Video Product"), and theatrical DVD and DVD related products ("DVD Product").
Audio, Video, and DVD Product may be collectively referred to herein as
"Product."
B. i.FILL provides to various retailers "direct-to-consumer"
order fulfillment services, pursuant to which i.FILL picks, packs and ships
Product to the retailer's customers.
C. Retailer intends to operate on the World Wide Web an "on-line
retail store" (the "Site") through which it intends to sell Product.
AGREEMENT
Subject to the terms and conditions set forth below, the parties agree
as follows:
1. BASIC AGREEMENT. Retailer and i.FILL agree to develop a
computer and customer service interface for the purposes of conducting small
order Product transactions via an on-line music/video store and other direct
response marketing efforts. Retailer will build and maintain a web site.
Retailer will also conduct all marketing and merchandising efforts, collect all
orders and send such orders to i.FILL via EDI. i.FILL will be responsible for
picking, packing and shipping the orders directly to Retailer's customers.
2. NON-EXCLUSIVITY. i.FILL will be a non-exclusive supplier of
Product and related order fulfillment services for Retailer. In the event
Retailer wishes to amend this Agreement to name i.FILL its exclusive supplier of
Product and related order fulfillment services, the parties shall re-negotiate
the Product pricing and fulfillment fees to reflect the change to exclusivity.
3. TECHNICAL ASSISTANCE. i.FILL shall provide technical
assistance to Retailer for the testing of their EDI transmission of orders to
Valley's Bulletin Board System or FTP server.
4. AUDIOFILE DATABASE. i.FILL will license the audiofile database
for an annual licensing fee of $10,000. The fee for the first year of the
initial term of this Agreement is due and payable, pending i.FILL's review and
approval of Retailer's credit application, within thirty (30) days of execution
of this Agreement. If i.FILL does not approve Retailer's credit
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application, Retailer shall pay to Valley the audiofile licensing fee within
seventy-two (72) hours' notice of such credit denial, and if Retailer fails to
pay the fee within such time, access to the audiofile database will be
terminated. The fee for the second year of the initial term of this Agreement is
due and payable upon the first anniversary of the date of this Agreement.
5. AUDIO PRODUCT PRICING. i.FILL agrees to sell and Retailer
agrees to purchase Audio Product at Valley's wholesale prices (the "Invoice
Cost") as set forth in the Price Schedule, attached hereto as Exhibit A.
Wholesale prices may be revised by Valley from time to time, effective upon
written notice to Retailer of such changes.
6. VIDEO PRODUCT PRICING. i.FILL agrees to sell and Retailer
agrees to purchase Video Product at thirty-five percent (35%) below
Manufacturer's Suggested List Price ("MSLP").
7. DVD PRODUCT PRICING. i.FILL agrees to sell and Retailer agrees
to purchase DVD Product at twenty-five percent (25%) below MSLP.
8. CUSTOM INVOICE. i.FILL will create a custom invoice with
Retailer's logo, product return and customer service information printed on same
for a fee of $500, due and payable upon execution of this Agreement. Subsequent
changes to the invoice will be made for a fee to be negotiated by the parties.
9. ORDER PLACEMENT. Retailer will collect all orders and send
such orders to i.FILL via EDI.
9.1 AUDIO PRE-ORDERS. Orders for new release Product that
are placed with i.FILL prior to the date that that new release title is first to
be made available to consumers (the "Street Date") are defined as Pre-Orders,
Retailer shall collect Audio Product pre-orders until four days prior to the
Street Date, at which point such Pre-Orders will be forwarded in a separate
batch to i.FILL on the date and time of day required by i.FILL. i.FILL shall
ship all Pre-Orders no later than Street Date minus one day, provided [FILL has
received the new release title(s) from the label/distributor of such new
release(s) in time for processing, If a Street Date is delayed, Retailer will be
responsible for holding the Pre-Orders until four (4) days before the new Street
Date.
9.2 VIDEO AND DVD PRE-ORDERS. Retailer shall forward to
i.FILL all Video and DVD Pre-Orders as it receives them (in batches separate
from regular orders) up to one day prior to pre-book date. Retailer shall mark
each Pre-Order "ship complete" by typing a "Y" in the "ship complete" field of
the EDI inbound specifications. i.FILL shall ship all Pre-Orders no later than
Street Date minus one day, provided i.FILL has received the new release title(s)
from the studio/distributor of such new release(s) in time for processing. If a
Street Date is delayed, Retailer will be responsible for holding the Pre-Orders
until four (4) days before the new Street Date.
9.3 BACK-ORDERS. i.FILL shall ship the in-stock items of
an order as set forth in this Agreement and, except as set forth in this
section, will cancel the out of stock items.
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Retailer may elect to have i.FILL hold an order that has one or more items out
of stock until it is completely fulfilled by typing a "Y" in the "ship complete"
field of the EDI inbound specifications. Retailer will inform i.FILL the number
of days, up to a maximum of 25 days (the "Hold Period"), that i.FILL is to hold
the "ship complete" orders before shipping the available products and canceling
the out of stock products. In the event that all products included in an order
are out of stock, i.FILL will hold the order for the Hold Period before
canceling the order (subject to prior cancellation of such order by Retailer).
10. ORDER FULFILLMENT. The following sets forth i.FILL's
fulfillment practices:
10.1 PRIORITY. Priority orders are defined as orders
shipped domestically for overnight or second-day air freight delivery. Priority
orders received by i.FILL on any business day by 10:00 a.m. Pacific Time ("PT")
will be shipped on the same day. Orders received after 10:00 a.m. PT will be
shipped the following business day provided that the Product ordered is in stock
at that time.
10.2 STANDARD. Standard orders are defined as all orders
shipped domestically or internationally for other than overnight or second-day
air freight delivery. On any business day that i.FILL receives Standard orders
by 1:00 p.m. PT, it will ship the orders the following business day. Standard
orders received after 1:00 p.m. PT will be deemed received the next business day
and i.FILL will ship these orders the business day after the day they are deemed
to be received provided that the Product ordered is in stock at that time.
10.3 PEAK PERIODS. The first day of a business week and
any day on which order volume is greater than 20% above average (calculated on a
floating 30-day basis) is defined as a Peak Period. i.FILL shall use best
efforts to adhere to the fulfillment policies set forth above during Peak
Periods, but its failure to so adhere during Peak Periods shall not be
considered a default under this Agreement.
11. FULFILLMENT FEES. Unless otherwise provided in this Agreement,
Retailer agrees to pay i.FILL the following fees for each order fulfilled by
i.FILL.
11.1 PACKING AND HANDLING FEES. i.FILL will pick, pack and
prepare Product for shipment to Retailer's customers for a fee of $1.35 per unit
in a given order and $0.50 per subsequent unit in that same order.
11.2 SURCHARGES. Retailer agrees to pay to i.FILL the
following surcharges as applicable:
11.2.1 INTERNATIONAL SHIPMENT SURCHARGE. Surcharge
of $0.50 per order shipped internationally via integrated carrier.
11.2.2 USPS PRIORITY MAIL INSURED SURCHARGE.
Surcharge of $0.50 per order shipped USPS Priority Mail Insured.
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11.2.3 MANUAL PROCESSING OF SURCHARGE. In the event
i.FILL receives an order by any other means than EDI transmission (i.e., by
mail, facsimile, etc.) a surcharge of $1.50 per order shall be assessed.
12. SHIPPING.
12.1 RISK OF LOSS. All shipments under this Agreement
shall be F.O.B. Valley's shipping facility. Title and risk of loss with respect
to all orders and products shipped by i.FILL or Valley under this Agreement
shall pass to Retailer or it's customers upon delivery of the products to the
carrier at the point of shipment. In the event of shipping damage or orders lost
in shipment, i.FILL will assist in filing a claim on behalf of Retailer and will
credit Retailer any amounts received or credits to i.FILL in connection with
each claim.
12.2 CHOICE OF CARRIER. i.FILL will ship the order with
the carrier requested by Retailer or its customer. i.FILL will cancel any order
for which the delivery address is not serviced by the indicated carrier, and
will promptly notify Retailer of the same. Retailer shall have the option to
retransmit the order to be shipped via an alternate i.FILL supported carrier.
12.3 SHIPPING COST. i.FILL will invoice Retailer's
customers at such rates as are requested by Retailer. Retailer will pay i.FILL
shipping costs per the shipping tables attached hereto as Exhibit B (as amended
from time to time by i.FILL). i.FILL will provide Retailer written notice of
shipping rate changes and the effective date of such changes. i.FILL represents
that the shipping costs charged to Retailer are its actual shipping costs (not
considering rebates.)
13. PRODUCT RETURNS.
13.1 DEFINITIONS.
13.1.1 REJECTED RETURNS. Any of the following:
accessories; blank tape; counterfeit Product; imports; promos; limited editions;
Product identified in audiofile as non-returnable; Product sold by a record or
video club; Product sold on a one-way basis; Product with a last customer return
date (as defined in the audiofile license agreement) prior to the date the
returned product is received by i.FILL; Product without the original artwork or
liner notes; Schwann Guides; shopworn Product (items that have damage to the
artwork, have foreign substance on the media or have been defaced); all vinyl
Product; and all Game Product.
13.1.2 BREACHED PRODUCT. Any opened CDs from the
following companies: Intersound; RYKO; Sony Music Entertainment ("Sony");
Universal Music and Video Distributors ("UMVD"): and Warner, Elektra and
Atlantic ("WEA"), Opened UMVD cassettes are also considered Breached Product.
13.1.3 OPENED PRODUCT. Any Product with the top
spine label or original manufacturer's shrink wrap or "dog bone" holographic
sticker removed or cut in any way.
13.1.4 DEFECTIVE PRODUCT. Any Opened Product that
is identified as defective when returned and which is actually defective.
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13.1.5 ACCEPTED RETURNS. Any Product which is
neither Rejected Return nor Breached Product.
13.2 RETURN POLICY. Accepted Returns are returnable and
eligible for return credit to Retailer. Rejected Returns and Breached Product
are non-returnable and not eligible for return credit to Retailer.
13.3 RETURN FEES. In the event i.FILL receives Rejected
Returns or Breached Product from Retailer or its customers, such Product will be
returned to Retailer at Retailer's expense and a $1.00 per unit processing
charge will be imposed, Retailer may elect to have i.FILL keep the Product to
avoid the $1.00 per unit processing charge.
13.4 REFURBISHING FEES. Retailer will pay a $0.35 per unit
refurbishing fee on all Accepted Opened Product except for Defective Product.
13.5 RESTOCKING FEES. Retailer will pay a fifteen percent
(15%) restocking fee for processing all Accepted Returns except for Defective
Product and unopened Product returned as incorrect items.
13.6 RESHIPPING. i.FILL will accept and reship orders
returned by Retailer's customers at no Restocking or additional Fulfillment
Charge if the returned Product falls into any of the following categories: (1)
Unopened items returned as incorrect items shipped (items included in the
package that were not listed on the invoice); (2) items listed on the invoice as
fulfilled, but reported as missing by the consumer; and (3) otherwise correct
items returned as Defective, but not Breached.
13.7 RETURN PROCESSING INFORMATION. Return processing
information will be posted weekly to i.FILL's Bulletin Board System or FTP
server.
13.8 MODIFICATIONS. i.FILL reserves the right to modify
its return policies from time to time. Such modifications shall be effective
upon Receipt by Retailer of written notice thereof.
14. OPTIONAL SERVICES.
14.1 PAPER INSERTS. Retailer will pay a fee of $0. 10 per
Paper Insert packed by i.FILL at the request of Retailer in product shipped
under this Agreement. Retailer shall supply the Paper Inserts at no cost to
i.FILL. For purposes of this paragraph, Paper Inserts are defined as
lightweight, paper-based, promotional items the same size or smaller than a
standard single CD, or pre-folded to such size.
14.2 MERCHANDISE INSERTS. At Retailer's request, i.FILL
will pack Merchandise Inserts (promotional merchandise sold through Retailer,
other than the Paper Inserts described above in paragraph 14.1 into Retailer's
orders at a charge to be negotiated by the parties after a sample has been
received and reviewed for packing and shipping requirements. Retailer shall
supply Merchandise Inserts at no cost to i.FILL.
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14.3 MERCHANDISE MANAGEMENT FEE. Upon request by Retailer,
i.FILL will receive and warehouse Merchandise Inserts (described above in
paragraph 14.2 for a Merchandise Management Fee to be negotiated by the parties
after a sample has been received and reviewed for warehousing requirements, For
merchandise that is "standard product" (defined as a single CD, cassette, VHS,
or DVD) a Merchandise Management Fee of $0.50 per unit will be charged to
Retailer.
14.4 INSERT BAR CODES. A unique UPC bar-code is required
for each sticker and Paper or Merchandise Insert. Retailer should purchase and
apply a proprietary bar code on all inserts. At Retailer's request or if the
bar-code does not meet Valley's standards, i.FILL will create and apply a
bar-code for a fee of $0.30 per applied bar-code.
14.5 CUSTOM BOX STICKERS. At Retailer's request, i.FILL
will apply custom box stickers for of fee of $0.30 per applied sticker.
14.6 AUDIOTRAX. Upon Retailers request, i.FILL will
license the audiotrax database for an annual licensing fee $3,000.
15. BILLING AND PAYMENT. Pending i.FILL's review and approval of
Retailer's credit application, i.FILL will extend credit to Retailer under the
following terms and conditions:
15.1 INVOICES AND ACCOUNT RECONCILIATION. i.FILL will
provide Retailer with an account reconciliation on a monthly basis. Invoices are
due and payable thirty (30) days after the invoice date.
15.2 PAST DUE AMOUNTS. i.FILL includes an embedded two
percent (2%) discount for timely payment on all Product. This discount shall be
revoked in the event of a late payment by Retailer and a two percent (2%)
revoked discount fee will be charged on any amounts not paid within thirty (30)
days after the invoice date. Furthermore, all overdue balances not paid within
thirty (30) days after the invoice date, will be assessed interest at the lesser
of one and one-half percent (1.5%) or the maximum interest rate allowable by
law, beginning on the due date. i.FILL, in its sole discretion, may refer
collection of any past due amount to any agency or attorney, and Retailer will
be liable for the payment of all costs and expenses, including reasonable
attorneys' fees, associated therewith.
16. PROPRIETARY RIGHTS.
16.1 CONFIDENTIAL INFORMATION. The term "Confidential
Information" refers to this Agreement and the subject matter of this Agreement
and to all information which one party furnishes or makes available to the other
party and all information related to one party's business which the other party
acquires in the course of performing its obligations under this Agreement.
Disclosure of Confidential Information by a party is forbidden except in the
following circumstances: (i) to employees and outside parties, but only to the
extent necessary to fulfill its obligations under the Agreement; (ii) if the
Confidential Information disclosed is already publicly known through no fault of
the disclosing party: and (iii) if the Confidential Information is required to
be disclosed by law or legal process, provided that the party, from whom
disclosure is promptly required, gives the other party notice and agrees to
cooperate with the non-disclosing
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party as that party may reasonably request to oppose disclosure. Under no
circumstances may i.FILL (including its principles or affiliates) use Retailer's
customers' data for any commercial or improper purposes.
16.2 TRANSACTION INFORMATION. Both parties shall use best
efforts to ensure maximum security of transaction information maintained on each
party's computer system including, but not limited to, the names, addresses and
products ordered by Retailer's customers.
16.3 AUDIOFILE DATABASE. The rights to intellectual
property related to the audiofile database are governed by the audiofile License
(Exhibit C). Any termination of this Agreement will automatically terminate the
audiofile License, and any termination of the audiofile License will
automatically terminate this Agreement.
16.4 AUDIOTRAX DATABASE. The rights to intellectual
property related to the audiotrax database are governed by the audiotrax License
(Exhibit D). Any termination of this Agreement will automatically terminate the
audiotrax License.
16.5 NO RIGHTS TO MARKS. Each party is hereby granted no
rights in or to the other party's Marks. "Marks" means the trademarks, service
marks, trade names or other marks, registered or otherwise, used by either
i.FILL or Retailer, as applicable.
17. TERM.
17.1 INITIAL TERM. The initial term of this Agreement will
take effect on the date first written above, and shall continue in effect until
the second anniversary thereof unless terminated earlier or extended as set
forth herein.
17.2 EARLY TERMINATION. This Agreement shall terminate at
any time upon the mutual consent of the parties. This Agreement shall also
terminate according to its terms upon thirty (30) days' prior written notice by
either party under the following conditions:
17.2.1 Either party may terminate this Agreement,
absent a material breach, if i.FILL discontinues fulfillment services to on-line
customers or Retailer discontinues the on-line sale of Product.
17.2.2 i.FILL or Retailer delivers to the other
party a 30-day written notice of termination for a material breach of this
Agreement, and the other party fails to cure such breach within thirty (30)
days.
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18. LIMITATION OF REMEDIES AND EXCLUSION OF WARRANTIES. IN NO
EVENT SHALL i.FILL BE LIABLE TO RETAILER FOR INDIRECT OR CONSEQUENTIAL DAMAGES,
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
AND REGARDLESS OF THE FORM OF ACTION. ALL PRODUCT SOLD HEREUNDER IS SOLD "AS-IS"
AND i.FILL EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO
PRODUCT SOLD UNDER THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY AND FITNESS FOR PURPOSE.
19. REPRESENTATIONS AND WARRANTIES.
19.1 I.FILL'S REPRESENTATIONS AND WARRANTIES.
19.1.1 i.FILL has the right and authority to enter
into this Agreement,
19.1.2 i.FILL will use best efforts to deliver
Product to Retailer's customers in substantially the same condition as it was in
when it was received by Valley in Valley's distribution facility.
19.2 RETAILER'S REPRESENTATIONS AND WARRANTIES.
19.2.1 Retailer has the right and authority to
enter into this Agreement.
19.2.2 Retailer will not include any content on its
website that infringes on the intellectual property rights, including copyright
and trademark rights, of any third party.
19.2.3 Retailer will provide adequate customer
service and abide by its terms of service and privacy policies.
20. INDEMNIFICATION. Both parties will, at all times, indemnify
and hold the other party harmless from any and all third-party claims, damages,
liabilities, costs and expenses (including reasonable attorney's fees) arising
out of any breach or alleged breach by such party of any warranty or
representation made by such party in this Agreement. Retailer will further
indemnify and hold i.FILL and Valley harmless for any and all third-party
claims, damages, liabilities, costs and expenses (including reasonable
attorney's fees) arising out of any infringement or alleged infringement of
intellectual property belonging to a third-party or out of any error, omission,
misconduct or negligence an the part of Retailer in the performance of its
obligations under this Agreement.
21. FORCE MAJEURE. Neither party will be liable for failure to
perform, or the delay in performance of, any of its obligations under this
Agreement if, and to the extent, that such failure or delay is caused by events
substantially beyond its control, including, but not limited to, acts of God,
acts of the public enemy or governmental body in its sovereign or contractual
capacity, war, fire, floods, strikes, epidemics, quarantine restrictions, civil
unrest or riots, freight embargoes and/or unusually severe weather, Lack of
funds by either party shall not excuse timely performance. The party so affected
shall use commercially reasonable efforts to avoid or remove such causes of
nonperformance or delay, and shall continue performance hereunder with
reasonable dispatch whenever such causes are removed. If any such
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non-performance or delay continues for more than sixty (60) days, the unaffected
party may elect to terminate this Agreement without liability or any liquidated
or other damages upon written notice to the other party.
22. GENERAL.
22.1 NOTICE. All notices, including those related to
product pricing, ordering and fulfillment policies that will have a material
impact on the other party's business, shall be in writing and delivered by
certified mail, postage prepaid and return receipt requested, or transmitted
either by facsimile or electronic mail if confirmed contemporaneously by such
mailing, to the addresses provided in writing, from time to time, by the
parties.
22.2 ENTIRE AGREEMENT: AMENDMENTS. This Agreement
constitutes the entire agreement of the parties concerning the subject matter
hereof, superseding all prior proposals, negotiations and agreements concerning
the subject matter of this Agreement. No representation or promise relating to
and no amendment of this Agreement will be binding unless it is in writing and
signed by authorized representatives of both parties.
22.3 ASSIGNMENT. This Agreement may not be assigned by
either party without first obtaining the other party's written consent, except
that either party may, without the other party's prior written consent, assign
this Agreement to a purchaser of all or substantially all of its assets or a
majority or controlling interest in its voting stock, or to a subsidiary or
affiliate of such party, provided that such purchaser's net worth at the time of
purchase is equal to or greater than that of the assigning party's net worth.
This Agreement will be binding upon and inure to the benefit of successors and
permitted assigns of the parties hereto.
22.4 CAPTIONS; WAIVER; SEVERABILITY. The captions
appearing in this Agreement are inserted only as a matter of convenience and in
no way define, limit, construe or describe the scope or interpretation of this
Agreement. No waiver by a party of any breach of any provision of this Agreement
will constitute a waiver of any other provision of this Agreement. If any
provision of this Agreement shall be held invalid, void or unenforceable, the
remaining provisions hereof shall in no way be affected or impaired, and such
remaining provisions shall remain in full force and effect.
22.5 GOVERNING LAW AND ARBITRATION. This Agreement shall
be construed and enforced pursuant to the laws of the State of California. If
the parties are unable to settle any disagreements regarding this Agreement or
the project contemplated by this Agreement, such disagreements shall be
submitted to binding arbitration within the State of California under the rules
of the American Arbitration Association as then in effect.
22.6 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which will be considered one and the same
agreement, and will become a binding agreement when one or more counterparts
have been signed by each party and delivered to the other party. Facsimile
signatures shall be considered original in all respects.
In witness whereof, the parties hereto have executed this Agreement effective as
of the date first above written.
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I.FILL, a division of GLOBAL MEDIA, INC.
VALLEY MEDIA, INC.
By: \s\ By: \s\
-------------------------- -----------------------------
Its: Its:
-------------------------- -----------------------------
Address: Address:
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
Telephone: Telephone:
------------------- ----------------------
Facsimile: Facsimile:
------------------- ----------------------
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EXHIBIT LIST
Exhibit A Price Schedule
Exhibit B Shipping Tables
Exhibit C audiofile License
Exhibit D audiotrax License
11
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PRICE SCHEDULE FOR ALL LABELS
STANDARD PRICE STRUCTURE
[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
12
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[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
13
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I.FILL DOMESTIC
NEXT DAY SERVICE
<TABLE>
<CAPTION>
FED-EX NEXT DAY - PRIORITY FED-EX NEXT DAY - STANDARD
(SHIP CODE 920) (SHIP CODE 921)
# OF WEIGHT TOTAL # OF WEIGHT TOTAL
CD'S (LBS) CHARGE CD'S (LBS) CHARGE
<S> <C> <C> <C> <C> <C>
2 1 $7.00 2 1 $5.50
5 2 $7.95 5 2 $5.50
8 3 $8.70 8 3 $5.50
11 4 $9.45 11 4 $6.00
14 5 $10.45 14 5 $6.50
17 6 $11.70 17 6 $7.25
20 7 $12.95 20 7 $8.00
23 8 $14.20 23 8 $9.00
26 9 $15.45 26 9 $10.00
29 10 $16.70 29 10 $11.00
32 11 $17.95 32 11 $12.00
</TABLE>
This information is subject to change without prior notice.
Rates are effective as of February 1, 1999.
<PAGE>
i.FILL Domestic
Next Day Service
<TABLE>
<CAPTION>
UPS NEXT DAY AM - PRIORITY
(SHIP CODE 904)
# OF WEIGHT ZONE ZONE ZONE ZONE ZONE ZONE ZONE
CD'S (LBS) 2 3 4 5 6 7 8
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 1 $13.31 $14.01 $15.15 $15.57 $15.99 $16.41 $16.70
5 2 $13.87 $14.58 $16.27 $16.84 $17.26 $17.69 $17.97
8 3 $14.43 $15.15 $17.26 $17.97 $18.54 $18.82 $19.24
11 4 $15.00 $15.85 $18.25 $19.10 $19.67 $20.09 $20.52
14 5 $15.57 $16.41 $19.38 $20.23 $20.94 $21.36 $21.65
17 6 $15.99 $16.98 $20.52 $21.36 $22.21 $22.64 $22.91
20 7 $16.41 $17.55 $21.65 $22.64 $23.49 $23.77 $24.19
23 8 $16.84 $18.12 $22.78 $23.90 $24.75 $25.04 $25.32
26 9 $17.26 $18.68 $23.90 $25.04 $25.88 $26.17 $26.60
29 10 $17.69 $19.24 $25.04 $26.17 $27.02 $27.45 $27.72
32 11 $18.12 $19.95 $26.03 $27.30 $28.15 $28.57 $29.00
</TABLE>
<PAGE>
I.FILL DOMESTIC
NEXT DAY SERVICE
<TABLE>
<CAPTION>
UPS NEXT DAY - SAVER
(SHIP CODE 901)
# OF WEIGHT ZONE ZONE ZONE ZONE ZONE ZONE ZONE
CD'S (LBS) 2 3 4 5 6 7 8
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 1 $8.88 $9.44 $10.43 $10.86 $11.28 $11.56 $11.85
5 2 $9.44 $10.01 $11.42 $11.85 $12.27 $12.69 $12.97
8 3 $11.52 $12.22 $13.92 $14.49 $15.05 $15.33 $15.61
11 4 $11.94 $12.78 $14.76 $15.48 $16.04 $16.32 $16.74
14 5 $12.36 $13.21 $15.75 $16.46 $17.17 $17.45 $17.73
17 6 $12.78 $13.77 $16.74 $17.45 $18.16 $18.58 $18.87
20 7 $13.21 $14.20 $17.73 $18.58 $19.28 $19.57 $19.86
23 8 $13.63 $14.62 $18.72 $19.57 $20.27 $20.56 $20.85
26 9 $13.92 $15.19 $19.71 $20.56 $21.26 $21.55 $21.98
29 10 $14.66 $16.12 $21.21 $22.09 $22.81 $23.25 $23.54
32 11 $14.95 $16.70 $22.09 $23.10 $23.83 $24.27 $24.71
</TABLE>
This information is subject to change without prior notice.
Rates are effective as of February 1, 1999.
<PAGE>
I.FILL DOMESTIC
SECOND DAY SERVICE
<TABLE>
<CAPTION>
FED-EX SECOND-DAY FED-EX SECOND DAY INSURED1
(SHIP CODE 922) (SHIP CODE 923)
# OF WEIGHT TOTAL LIABILITY FEE
CD'S (LBS) CHARGE
<S> <C> <C> <C> <C>
2 1 $5.06 $0.01 - $100.00 $0.00
5 2 $5.06 $100.01 - $500.00 $2.75
8 3 $5.06 $500.01 - $600.00 $3.30
11 4 $5.06 $600.01 - $700.00 $3.85
14 5 $5.06 $700.01 - $800.00 $4.40
17 6 $5.06 $800.01 - $900.00 $4.95
20 7 $5.06 900.01 - $1,000.00 $5.50
23 8 $5.06
26 9 $5.06
29 10 $6.05
32 11 $7.15
</TABLE>
- --------
(1) Insured Fed-Ex 2-Day is the same rate as 2-Day service plus the applicable
fee.
This information is subject to change without prior notice.
Rates are effective as of February 1, 1999.
<PAGE>
I.FILL DOMESTIC
SECOND DAY SERVICE
<TABLE>
<CAPTION>
UPS SECOND DAY
(SHIP CODE 902)
# OF WEIGHT ZONE ZONE ZONE ZONE ZONE ZONE ZONE
CD'S (LBS) 2 3 4 5 6 7 8
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 1 $6.05 $6.18 $6.31 $6.45 $6.71 $6.97 $7.11
5 2 $6.18 $6.45 $6.71 $6.97 $7.24 $7.50 $7.77
8 3 $6.45 $6.71 $7.24 $7.50 $7.90 $8.16 $8.29
11 4 $6.71 $6.97 $7.63 $8.03 $8.56 $8.82 $9.09
14 5 $6.97 $7.37 $8.03 $8.56 $9.22 $9.61 $9.88
17 6 $7.37 $7.77 $8.43 $9.09 $10.01 $10.41 $10.80
20 7 $7.63 $8.16 $8.95 $9.75 $10.80 $11.20 $11.73
23 8 $7.90 $8.56 $9.48 $10.41 $11.59 $12.12 $12.52
26 9 $8.16 $8.95 $10.01 $11.07 $12.39 $12.91 $13.18
29 10 $8.43 $9.35 $10.54 $11.59 $13.18 $13.71 $13.97
32 11 $8.69 $9.75 $10.93 $12.12 $13.84 $14.37 $14.76
</TABLE>
This information is subject to change without prior notice.
Rates are effective as of February 1, 1999.
<PAGE>
I.FILL DOMESTIC
UPS GROUND SERVICE
<TABLE>
<CAPTION>
UPS GROUND - RESIDENTIAL
(SHIP CODE 903)
WEIGHT ZONE ZONE ZONE ZONE ZONE ZONE ZONE
(LBS) 2 3 4 5 6 7 8
<S> <C> <C> <C> <C> <C> <C> <C>
1 $3.93 $4.03 $4.25 $4.30 $4.48 $4.52 $4.62
2 $3.99 $4.18 $4.50 $4.60 $4.88 $4.97 $5.22
3 $4.07 $4.33 $4.70 $4.85 $5.13 $5.27 $6.67
4 $4.19 $4.47 $4.90 $5.10 $5.38 $5.52 $5.97
5 $4.32 $4.60 $5.07 $5.30 $5.58 $5.77 $6.27
6 $4.46 $4.72 $5.22 $5.50 $5.78 $6.02 $6.52
7 $4.60 $4.84 $5.32 $5.65 $5.98 $6.22 $6.77
8 $4.73 $4.96 $5.42 $5.75 $6.13 $6.47 $7.17
9 $4.86 $5.08 $5.52 $5.85 $6.28 $6.77 $7.57
10 $4.99 $5.19 $5.62 $6.00 $6.48 $7.17 $8.02
11 $5.12 $5.31 $5.72 $6.15 $6.73 $7.62 $8.52
</TABLE>
This information is subject to change without prior notice.
Rates are effective as of February 1, 1999.
<PAGE>
I.FILL DOMESTIC
UPS 1ST AND 4TH CLASS
<TABLE>
<CAPTION>
FIRST CLASS MAIL1 4TH CLASS MAIL STANDARD B
(SHIP CODE 952) (SHIP CODE 953)
# OF WEIGHT TOTAL CHARGE # OF WEIGHT TOTAL
CD'S (OZ) CD'S (LBS) CHARGE
<S> <C> <C> <C> <C> <C>
1 $0.33 2 1 $1.13
2 $0.55 5 2 $1.58
3 $0.77 8 3 $2.03
1 4 $0.99 11 4 $2.48
5 $1.21 14 5 $2.93
6 $1.43 17 6 $3.38
7 $1.65 20 7 $3.83
2 8 $1.87 23 8 $4.11
9 $2.09 26 9 $4.39
10 $2.31 29 10 $4.67
11 $2.53 32 11 $4.95
3 12 $2.75
13 $2.97
</TABLE>
This information is subject to change without prior notice.
Rates are effective as of January 10, 1999.
<PAGE>
I.FILL DOMESTIC
UPS PRIORITY MAIL RATES
<TABLE>
<CAPTION>
PRIORITY MAIL
(SHIP CODE 950)
WEIGHT ZONE ZONE ZONE ZONE ZONE ZONE
(LBS) 2&3 4 5 6 7 8
<S> <C> <C> <C> <C> <C> <C>
1 $3.20 $3.20 $3.20 $3.20 $3.20 $3.20
2 $3.20 $3.20 $3.20 $3.20 $3.20 $3.20
3 $4.30 $4.30 $4.30 $4.30 $4.30 $4.30
4 $5.40 $5.40 $5.40 $5.40 $5.40 $5.40
5 $6.50 $6.50 $6.50 $6.50 $6.50 $6.50
NOTE: ZONE(1) BASED PRICING STARTS AT SIX (6) LBS.
6 $6.60 $6.90 $7.10 $7.45 $7.70 $8.25
7 $6.70 $7.30 $7.70 $8.40 $8.90 $10.00
8 $6.80 $7.70 $8.30 $9.35 $10.10 $11.75
9 $6.90 $8.10 $8.90 $10.30 $11.30 $13.50
10 $7.00 $8.50 $9.50 $11.25 $12.50 $15.25
</TABLE>
- --------
(1) See attached zone chart to determine zone.
This information is subject to change without prior notice.
Rates are effective as of January 10, 1999.
<PAGE>
I.FILL DOMESTIC
UPS PRIORITY MAIL RATES
<TABLE>
<CAPTION>
PRIORITY MAIL INSURED(1)
(SHIP CODE 951)
LIABILITY2 FEE
<S> <C>
$.01 - $50.00 $0.85
$50.01 - $100.00 $1.80
$100.01 - $200.00 $2.75
$200.01 - $300.00 $3.70
$300.01 - $400.00 $4.65
$400.01 - $500.00 $5.60
$500.01 - $600.00 $6.55
$600.01 - $5,000.00 $6.55 +3
</TABLE>
- --------
(1) Insured Priority Mail is the same rate as Priority Mail (410) plus the
applicable fee.
(2) Max. liability is $5,000.00
(3) $0.95 for each $100 or fraction over $600 in declared value.
This information is subject to change without prior notice.
Rates are effective as of January 10, 1999.
<PAGE>
I. FILL DOMESTIC
INT'L MAIL - SMALL PACKET AIR
<TABLE>
<CAPTION>
INT'L MAIL - SMALL PACKET AIR MAIL
(SHIP CODE 970)
# OF WEIGHT Canada Mexico W. Hemisphere Europe Asia/Africa Pacific Rim
CD'S (LBS) CN MX WH EU AA PR
<S> <C> <C> <C> <C> <C> <C> <C>
1 .38 $1.37 $1.49 $2.19 $2.79 $3.24 $3.49
.50 $1.70 $1.86 $2.78 $3.57 $4.17 $4.51
2 .63 $2.04 $2.23 $3.38 $4.35 $5.10 $5.53
.75 $2.37 $2.60 $3.97 $5.13 $6.03 $6.56
3 .88 $3.04 $3.35 $4.57 $5.91 $6.96 $7.58
1.00 $3.04 $3.35 $5.16 $6.70 $7.89 $8.60
4 1.13 $3.79 $4.84 $5.44 $7.25 $8.63 $9.44
1.25 $3.79 $4.84 $5.72 $7.81 $9.37 $10.28
5 1.38 $3.79 $4.84 $6.00 $8.37 $10.12 $11.11
1.50 $3.79 $4.84 $6.28 $8.93 $10.86 $11.95
6 1.63 $4.53 $6.32 $6.56 $9.49 $11.61 $12.79
1.75 $4.53 $6.32 $6.84 $10.04 $12.35 $13.62
7 1.88 $4.53 $6.32 $7.11 $10.60 $13.09 $14.46
2.00 $4.53 $6.32 $7.39 $11.16 $13.84 $15.30
9 2.50 $5.27 $7.81 $8.51 $13.39 $16.81 $18.65
11 3.00 $6.02 $9.30 $9.63 $15.62 $19.79 $21.99
13 3.50 $6.76 $10.79 $10.74 $17.86 $22.77 $25.34
15 4.00 $7.51 $12.28 $11.86 $20.09 $25.74 $28.69
</TABLE>
*** The max. weight for Small Packet Airmail is 4 lbs.
This information is subject to change without prior notice.
Rates are effective as of February 9, 1998.
<PAGE>
I. FILL DOMESTIC
INT'L MAIL - PARCEL POST AIR
<TABLE>
<CAPTION>
INT'L MAIL - PARCEL POST AIR
(SHIP CODE 971)
# OF WEIGHT CANADA MEXICO ZONE ZONE ZONE ZONE ZONE
CD'S (LBS) CN MX A B C D E
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 1 N/A $6.05 $6.05 $7.67 $9.07 $10.42 $11.90
5 2 $6.51 $9.02 $9.17 $11.39 $13.98 $15.77 $17.86
8 3 $7.70 $12.00 $12.29 $15.11 $18.89 $21.13 $23.81
11 4 $8.89 $14.38 $15.42 $18.83 $23.80 $26.49 $29.76
14 5 $10.08 $16.76 $18.10 $21.81 $27.82 $31.40 $34.82
17 6 $11.27 $19.14 $20.78 $24.78 $31.83 $36.31 $39.88
20 7 $12.46 $21.52 $23.45 $27.76 $35.85 $41.22 $44.94
23 8 $13.65 $23.90 $26.13 $30.74 $39.87 $46.13 $50.00
26 9 $14.84 $26.28 $28.81 $33.71 $43.89 $51.04 $55.06
29 10 $16.03 $28.66 $31.49 $36.69 $47.90 $55.95 $60.12
32 11 $17.15 $30.75 $34.02 $39.37 $51.62 $59.97 $64.28
</TABLE>
See attached zone chart to determine zone.
<TABLE>
<CAPTION>
PARCEL POST AIR INSURED
(SHIP CODE 972)
LIABILITY FEE
Canada(1) All other
<S> <C> <C>
$50.00 $0.75 $1.60
$100.00 $1.60 $2.45
$200.00 $2.50 $3.35
$300.00 $3.40 $4.25
$400.00 $4.30 $5.15
$500.00 $5.20 $6.05
$600.00 $6.10 $6.95
$700.00 $7.40
$800.00 $7.85
$900.00 $8.30
$1,000.00 $8.75
</TABLE>
- --------
(1) Max. liability is $600.00 for Canada.
This information is subject to change without prior notice.
Rates are effective as of February 9, 1998.
<PAGE>
I. FILL DOMESTIC
INT'1 MAIL - PARCEL POST SURFACE
<TABLE>
<CAPTION>
USPS PARCEL POST SURFACE PARCEL POST SURFACE INSURED
(SHIP CODE 973) (SHIP CODE 974)
# OF WEIGHT CANADA ZONE ZONE LIABILITY FEE
CD'S (LBS) CN A(1) B(2)
<S> <C> <C> <C> <C> <C> <C> <C>
2 1 N/A N/A N/A Canada3
5 2 $6.46 $6.98 $8.37 $50.00 $0.75 $1.60
8 3 $7.65 $8.31 $10.16 $100.00 $1.60 $2.45
11 4 $8.84 $9.65 $11.94 $200.00 $2.50 $3.35
14 5 $10.03 $10.99 $13.73 $300.00 $3.40 $4.25
17 6 $11.23 $12.33 $15.51 $400.00 $4.30 $5.15
20 7 $12.42 $13.67 $17.30 $500.00 $5.20 $6.05
23 8 $13.61 $15.01 $19.08 $600.00 $6.10 $6.95
26 9 $14.80 $16.35 $20.87 $700.00 $7.40
29 10 $15.99 $17.69 $22.65 $800.00 $7.85
32 11 $17.10 $19.03 $24.44 $900.00 $8.30
$1,000.00 $8.75
</TABLE>
- --------
(1) Includes the following countries: Bahamas, Bermuda, Caribbean Islands,
Central America, Mexico, and St. Pierre & Miquelon.
(2) All other countries.
(3) Max. liability is $600.00 for Canada
This information is subject to change without prior notice.
Rates are effective as of February 9, 1998.
<PAGE>
<TABLE>
<CAPTION>
DHL INTERNATIONAL
(SHIP CODE 940)
WEIGHT LANE(1) LANE LANE LANE LANE LANE LANE LANE LANE
(LBS) 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $13.36 $19.88 $20.74 $13.36 $24.85 $32.60 $23.39 $31.38 $20.74
2 $14.94 $23.26 $24.98 $14.94 $27.27 $39.58 $25.29 $37.57 $24.98
3 $21.34 $27.36 $29.22 $17.29 $31.56 $46.55 $27.20 $43.75 $29.22
4 $24.53 $31.47 $33.46 $19.09 $35.85 $53.53 $29.10 $49.94 $33.50
5 $27.72 $35.57 $37.70 $20.89 $40.14 $60.51 $31.00 $56.12 $37.70
6 $30.91 $39.34 $41.08 $22.69 $44.43 $65.17 $32.91 $60.86 $41.08
7 $34.10 $43.10 $44.45 $24.49 $48.72 $69.83 $34.81 $65.59 $44.45
8 $37.29 $46.87 $47.83 $24.23 $53.01 $74.49 $36.71 $70.32 $47.83
9 $40.48 $50.64 $51.20 $28.09 $57.31 $79.15 $38.62 $75.06 $51.20
10 $43.67 $54.40 $54.58 $29.89 $61.60 $83.81 $40.52 $79.79 $54.58
11 $45.02 $55.68 $55.85 $30.80 $64.54 $86.85 $42.43 $84.52 $55.58
</TABLE>
- --------
(1) See attached Lane chart to determine Lane.
This information is subject to change without prior notice.
Rates are effective as of February 9, 1998.
<PAGE>
<TABLE>
<CAPTION>
UPS INTERNATIONAL EXPRESS SERVICE
(SHIP CODE 910)
WEIGHT ZONE(1) ZONE ZONE ZONE ZONE ZONE ZONE ZONE ZONE ZONE ZONE
(LBS) 81 82 84 901 902 903 904 905 906 907 908
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $13.80 $19.95 $19.95 $14.44 $18.56 $20.10 $19.64 $26.65 $21.10 $42.28 $44.60
2 $15.20 $23.09 $23.09 $16.63 $21.38 $23.87 $22.05 $30.07 $26.60 $49.45 $53.01
3 $17.12 $24.94 $27.08 $21.18 $26.09 $27.83 $27.17 $35.20 $33.81 $56.15 $61.42
4 $18.17 $26.65 $30.21 $23.87 $29.02 $31.02 $30.36 $39.33 $39.59 $62.70 $69.83
5 $19.32 $28.36 $33.49 $26.64 $31.96 $34.43 $33.55 $43.46 $45.36 $69.40 $78.09
6 $20.48 $30.07 $36.48 $28.21 $34.31 $37.29 $36.52 $47.31 $50.29 $75.95 $84.50
7 $21.53 $31.78 $39.62 $29.88 $36.54 $39.82 $39.49 $51.16 $55.23 $82.55 $90.92
8 $22.68 $34.20 $42.61 $31.54 $38.78 $42.24 $42.35 $54.86 $60.06 $89.85 $97.19
9 $23.84 $35.63 $45.74 $33.12 $41.01 $44.66 $45.32 $58.71 $64.89 $95.90 $103.60
10 $24.89 $37.19 $48.88 $34.78 $43.24 $47.08 $48.29 $62.56 $69.83 $102.60 $110.01
11 $25.83 $38.76 $50.30 $36.08 $45.24 $48.84 $50.71 $65.69 $74.66 $109.30 $116.28
</TABLE>
- --------
(1) See attached zone chart to determine zone.
This information is subject to change without prior notice.
Rates are effective as of February 9, 1998.
<PAGE>
AUDIOFILE LICENSE AGREEMENT
EXHIBIT A
LICENSEE INFORMATION: AGREEMENT DATE : May 10, 1999
GLOBAL MEDIA CORP.
- --------------------------------------------------------------------------------
(Legal Name of Business)
GLOBALMEDIA.COM
- --------------------------------------------------------------------------------
(Store Name)
83 VICTORIA CRESCENT
- --------------------------------------------------------------------------------
(Billing Address)
NAHAIMO, B.C. CANADA V9R 5B9
- --------------------------------------------------------------------------------
(City, State, ZIP Code)
888-322-2282 (250) 716-0502
- --------------------------------------------------------------------------------
(Phone Number) (Fax Number)
- --------------------------------------------------------------------------------
PUBLICLY TRADED COMPANY CHRIS RAMSAY ([email protected])
- --------------------------------------------------------------------------------
(Owner) (Technical Contact)
LOCATION(S) USING DATABASE: PLEASE USE ADDITIONAL ATTACHED SHEETS IF NECESSARY
1) STORE NAME: GLOBAL MEDIA.COM
------------------------------------------------------------------
PHYSICAL ADDRESS: N/A - INTERNET SITE
-----------------------------------------------------------
PHONE & CONTACT: L. JAMES PORTER, CHIEF FINANCIAL OFFICER
------------------------------------------------------------
2) STORE NAME:
------------------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------------
3) STORE NAME:
------------------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------------
PHONE & CONTACT:
-----------------------------------------------------------
AUDIOFILE USE ONLY
Medium for delivery of Database:
|_| 3.5" High Density Diskette
|_| Included with POS software Database Date ________________________
x/ Other: FTP Current Through ______________________
MEDIUM FOR DELIVERY OF UPDATES: Update Disk Type _____________________
|_| 3.5" High Density Diskette Update Frequency _____________________
|_| BBS Retrieval
x/ Other: FTP
OPERATING SYSTEM ON EQUIPMENT USING THE DATABASE/UPDATES:
|_| MS-DOS or PC-DOS Software System: ______________
|_| Macintosh
|_| SCO XENIX Modem Speed: ________________
x/ Other: MS-DOS & MICROSOFT NT
FEES:
<TABLE>
<S> <C>
Line 1, LICENSE FEE: $10,000.00 per year
Line 2, PRO-RATED UPDATE FEE: $0.00________ for the period from _________ to _________
Line 3, MISCELLANEOUS FEES: $0.00________
Line 4, TOTAL FEES DUE: $10,000.00___ upon receipt, to initiate your subscription.
Line 5, UPDATE FEE: $0.00________ per |_| Calendar Quarter (audiofile Rep initials ____)
(for periodic updatee) or |_| Year
</TABLE>
By initialing here, I agree that all information listed above is true and
correct, and that I have disclosed all locations using the Database and Database
Updates. \S\ (PLEASE INITIAL)
---------------
<PAGE>
AUDIOTRAX LICENSE AGREEMENT
EXHIBIT A
LICENSEE INFORMATION: AGREEMENT DATE: ________________
- --------------------------------------------------------------------------------
(Legal Name of Business)
- --------------------------------------------------------------------------------
(Store Name)
- --------------------------------------------------------------------------------
(Billing Address)
- --------------------------------------------------------------------------------
(City, State, ZIP Code)
- --------------------------------------------------------------------------------
(Phone Number) (Fax Number)
- --------------------------------------------------------------------------------
(Owner) (Technical Contact)
- --------------------------------------------------------------------------------
LOCATION(S) USING DATABASE: PLEASE USE ADDITIONAL ATTACHED SHEETS IF NECESSARY
1) STORE NAME:
------------------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------------
2) STORE NAME:
------------------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------------
3) STORE NAME:
------------------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------------
PHONE & CONTACT:
------------------------------------------------------------
AUDIOFILE USE ONLY
Medium for delivery of Database:
|_| 3.5" High Density Diskette Database Date _______________________
|_| Included with POS software Current Through _____________________
|_| Other: ________________________ Update Disk Type ____________________
MEDIUM FOR DELIVERY OF UPDATES: Update Frequency ____________________
|_| 3.5" High Density Diskette
|_| BBS Retrieval
|_| Other: ________________________
OPERATING SYSTEM ON EQUIPMENT USING THE DATABASE/UPDATES:
|_| MS-DOS or PC-DOS Software System: ______________
|_| Macintosh
|_| SCO XENIX Modem Speed: ________________
|_| Other: ________________________
FEES:
<TABLE>
<S> <C>
Line 1, LICENSE FEE: $10,000.00 per year
Line 2, PRO-RATED UPDATE FEE: $0.00________ for the period from _________ to _________
Line 3, MISCELLANEOUS FEES: $0.00________
Line 4, TOTAL FEES DUE: $10,000.00___ upon receipt, to initiate your subscription.
Line 5, UPDATE FEE: $0.00________ per |_| Calendar Quarter (audiofile Rep initials ____)
(for periodic updatee) or |_| Year
</TABLE>
By initialing here, I agree that all information listed above is true and
correct, and that I have disclosed all locations using the Database and Database
Updates. ________ (PLEASE INITIAL)
<PAGE>
ADDITIONAL LOCATION(S) USING DATABASE:
STORE NAME:
-----------------------------------------------------------------
PHYSICAL ADDRESS:
-----------------------------------------------------------
PHONE & CONTACT:
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<PAGE>
AUDIOFILE LICENSE AGREEMENT
This agreement ("Agreement") is entered into by and between Valley Media,
Inc. a Delaware corporation, (the "Licensor"); and the party identified in
Exhibit A as the "Licensee" (not including any subsidiaries, affiliates, or
franchisees). This Agreement is the complete and exclusive statement of the
agreement between the parties with respect to the subject matter hereof
(superseding all proposals, communications or prior agreements, oral or
written with respect to such subject matter); and may be amended only in a
writing signed by both parties. As used herein, "Database" means the
proprietary audio and video item database created and developed by Licensor,
and includes "Database Updates," periodic updates of information contained
in the Database.
1. LICENSE GRANT
(a) Licensor hereby grants to Licensee during the term of this
Agreement, a non-exclusive, non-transferable, non-sublicensable license to:
(i) Load, transmit, execute, store, or display the
Database for Licensee's Internal use at the location(s) specified in Exhibit
A attached hereto;
(ii) Modify the Database for internal use by Licensee; or
(iii) Incorporate the Database or portions thereof into its
own database for use by Licensee, provided, however, that the Database
portion of the resulting conjoined work may be used only in accordance with
the license granted in section 1(a) above.
(b) Licensee may not, without prior written consent from Licensor,
sublicense, sell, lend the Database or any portion thereof, or assign any of
its rights or obligations under this Agreement to any party; provided,
however, the Licensee may make copies of the Database sufficient for back-up,
development and production purposes.
2. FEES
(a) As consideration for the License granted herein, upon execution
of this Agreement, Licensee shall pay to Licensor the TOTAL FEES DUE set
forth on Fees-Line 4 of Exhibit A, which includes:
(i) The LICENSE FEE (Fees-Line 1 of Exhibit A) to operate
a single copy of the Database at the locations(s) listed in Exhibit A;
(ii) The PRO-RATED UPDATE FEE (Fees-Line 2 of Exhibit A)
for the Database Updates for the specified period; and
<PAGE>
(iii) MISCELLANEOUS FEES (Fees-Line 3 of Exhibit A) to reimburse
Licensor for any fees owed by Licensor to other vendors in connection with
the Database, and any fees assessed by Licensor other than License of
Database Update fees.
(b) Licensee shall also pay the UPDATE FEE (Fees-Line 5 of Exhibit A)
to Licensor as consideration for Licensor providing the Database Updates. The
subscription is to be paid quarterly in advance on the first day of each
calendar quarter (January 1, April 1, July 1 and October 1). The UPDATE FEE
entitles the Licensee to receive Database Updates for the succeeding three
(3) month period.
(c) Licensor shall provide Licensee with reasonable telephone support
for the Database and Database Updates at no additional charge.
3. RIGHTS IN TANGIBLE AND INTELLECTUAL PROPERTY
Licensor shall be the sole owner of the Database, Database Updates and
all supporting materials as between Licensor and Licensee, including any and
all copies thereof, and including all patent, trademark, copyright, trade
secret and other intellectual property rights associated therewith. Licensee
agrees to treat the Database, Database Updates and supporting materials as
confidential trade secrets of the Licensor.
4. TERM: TERMINATION
The term of the Agreement and the licenses granted hereunder shall
commence on the Agreement Date specified in Exhibit A and continue until
terminated as set forth herein:
(a) This Agreement may be terminated for the Database Update
subscription only (Licensee may continue to use the Database in accordance
with the terms of the Agreement):
(i) Unilaterally by the Licensor (other than for breach
of this Agreement by Licensee) upon ten (10) days advance written notice.
Licensor shall refund to Licensee a prorated portion of any UPDATE FEES paid
in advance by Licensee.
(ii) Unilaterally by the Licensor in the event that any
material breach by Licensee remains uncured for fifteen (15) days after
written notice, via certified mail, thereof, Licensee shall not be entitled
to the return of any prepaid UPDATE FEES; or
(iii) Unilaterally by the Licensee for any reason upon
ten (10) days advance written notice (Licensee must receive written
confirmation back from Licensor stating the effective date of cancellation).
Licensee shall not be entitled to the return of any prepaid UPDATE FEES.
(b) This Agreement may be terminated for the Database (which
will also cancel the Database Update subscription):
2
<PAGE>
(i) With the mutual written consent of both parties;
(ii) Unilaterally by the Licensee for any reason upon ten
(10) days advance written notice; or
(iii) Unilaterally by the Licensor in the event that any
material breach by Licensee remains uncured for fifteen (15) days after
written notice, via certified mail, thereof.
5. WARRANTY
(a) Licensor warranties that the media on which or transmission by
which the Database or Database Update are delivered will be free from
defects. Licensor's sole obligations under the foregoing warranty are limited
to:
(i) Replacement of any defective media;
(ii) Retransmission of the Database or the Database Update; or
(iii) Termination of this Agreement and refunding a pro-rated
portion of any Fees paid in advance by Licensee.
(b) EXCEPT AS SET FORTH IN SECTION 5(a) ABOVE:
(i) THE DATABASE AND DATABASE UPDATES ARE PROVIDED "AS IS"
AND LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE
CONTENT, SUFFICIENCY, ACCURACY, COMPLETENESS OR CURRENTNESS THEREOF; OR
(ii) LICENSOR EXPRESSLY DISCLAIMS ANY EXPRESS, IMPLIED OR
STATUTORY WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6. LIMITATIONS OF LIABILITIES
(a) IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
THE RESULTS OF LICENSEE'S USE OF THE DATABASE, FOR ANY IMPAIRMENT OF
LICENSEE'S ABILITY TO CONDUCT ITS BUSINESS AS A RESULT OF ITS USE OR
INABILITY TO USE THE DATABASE. NEITHER PARTY SHALL BE LIABLE FOR ANY LOSSES
OR DAMAGES, WHETHER DIRECT OR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL,
ARISING FROM THIS AGREEMENT; THE DESIGN, CONTENT, OPERATION OR USE OF THE
DATABASE; OR FOR ANY ERRORS OR OMISSIONS CONTAINED THEREIN, REGARDLESS OF THE
CAUSE, THE CIRCUMSTANCES, OR THE FORM OF THE ACTION.
(b) IN NO EVENT WILL LICENSOR'S LIABILITY TO LICENSEE FOR ANY
CLAIMS, LOSSES OR DAMAGES ARISING UNDER THIS AGREEMENT,
3
<PAGE>
WHETHER IN CONTRACT, TORT OR TO OTHER FORMS OF ACTION, EXCEED THE LICENSE
FEE SPECIFIED IN FEES-LINE 1 OF EXHIBIT A.
(e) THE PROVISIONS OF THIS SECTION 6 SHALL NOT APPLY TO ANY BREACH
BY LICENSEE OF THE TERMS OF THE LICENSE GRANTED IN SECTION 1 OF THIS
AGREEMENT OR TO LICENSOR'S INDEMNITY OBLIGATIONS UNDER SECTION 8 BELOW.
7. AMENDMENT
Licensor may increase the UPDATE FEE upon written notice to Licensee
provided at least thirty (30) days prior to the end of the calendar quarter
preceding the calendar quarter in which the increase is to be effective.
8. INDEMNIFICATION
Licensee will at all times indemnify and hold harmless Licensor from any
and all claims, damages, liabilities, costs and expenses, including
reasonable legal expenses and attorneys fees, arising out of any claims
involving Licensee's use of the Database.
9. ASSIGNMENT
This Agreement may not be assigned by either party without the express
written consent of the other party which shall not be unreasonably withheld;
provided, however, that without Licensee's consent, Licensor may assign its
right to receive funds hereunder and may assign this Agreement to an affiliate
or subsidiary of Licensor.
10. SURVIVAL
Section 6 and 7 of this Agreement will survive the expiration or
termination of the term of this Agreement.
11. TAX PAYER IDENTIFICATION NUMBER
Licensor represents and warrants that its Tax Payer Identification
Number is 942556440.
LICENSOR: LICENSEE
Valley Media, Inc. Global Media, Inc. /s/
1280 Santa Anita Court -----------------
Woodland, California 95776 Winston V. Barta, Vice President
By: /s/
------------------------- -----------------------------------
Its: Director New Markets By (Database):
---------------------
By (Database Updates):
-------------
Its:
-------------------------------
4
<PAGE>
AUDIOTRAX LICENSE AGREEMENT
This agreement ("Agreement") is entered into by and between Valley
Media, Inc. a Delaware corporation, (the "Licensor"); and the party
identified in Exhibit A as the "Licensee" (not including any subsidiaries,
affiliates, or franchisees). This Agreement is the complete and exclusive
statement of the agreement between the parties with respect to the subject
matter hereof (superseding all proposals, communications or prior agreements,
oral or written with respect to such subject matter); and may be amended only
in a writing signed by both parties. As used herein, "Database" means the
proprietary song title database created and developed by Licensor, and
includes "Database Updates," periodic updates of information contained in the
Database.
1. LICENSE GRANT
(a) Licensor hereby grants to Licensee during the term of this
Agreement, a non-exclusive, non-transferable, non-sublicensable license to:
(i) Load, transmit, execute, store, or display the Database
for Licensee's Internal use at the location(s) specified in Exhibit A
attached hereto;
(ii) Modify the Database for internal use by Licensee; or
(iii) Incorporate the Database or portions thereof into its own
database for use by Licensee, provided, however, that the Database portion of
the resulting conjoined work may be used only in accordance with the license
granted in section 1(a) above.
(b) Licensee may not, without prior written consent from Licensor,
sublicense, sell, lend the Database or any portion thereof, or assign any of
its rights or obligations under this Agreement to any party; provided,
however, that Licensee may make copies of the Database sufficient for
back-up, development and production purposes.
2. FEES
(a) As consideration for the License granted herein, upon execution
of this Agreement, Licensee shall pay to Licensor the TOTAL FEES DUE set
forth on Fees-Line 4 of Exhibit A, which includes:
(i) The LICENSE FEE (Fees-Line 1 of Exhibit A) to operate a
single copy of the Database at the location(s) listed in Exhibit A;
(ii) The PRO-RATED UPDATE FEE (Fees-Line 2 of Exhibit A) for
the Database Updates for the specified period; and
<PAGE>
(iii) MISCELLANEOUS FEES (Fees-Line 3 of Exhibit A) to
reimburse, Licensor for any fees owned by Licensor to other vendors in
connection with the Database, and any fees assessed by Licensor other than
License of Database Update fees.
(b) Licensee shall also pay the UPDATE FEE (Fees-Line 5 of Exhibit
A) to Licensor as consideration for Licensor providing the Database Updates.
The subscription is to be paid quarterly in advance on the first day of each
calendar quarter (January 1, April 1, July 1 and October 1). The UPDATE FEE
entitles the Licensee to receive Database Updates for the succeeding three
(3) month period.
(c) Licensor shall provide Licensee with reasonable telephone
support for the Database and Database Updates at no additional charge.
3. RIGHTS IN TANGIBLE AND INTELLECTUAL PROPERTY
Licensor shall be the sole owner of the Database, Database Updates and
all supporting materials as between Licensor and Licensee, including any and
all copies thereof, and including all patent, trademark, copyright, trade
secret and other intellectual property rights associated therewith. Licensee
agrees to treat the Database, Database Updates and supporting materials as
confidential trade secrets of the Licensor.
4. TERM: TERMINATION
The term of the Agreement and the licenses granted hereunder shall
commence on the Agreement Date specified in Exhibit A and continue until
terminated as set forth herein:
(a) This Agreement may be terminated for the Database Update
subscription only (Licensee may continue to use the Database in accordance
with the terms of the Agreement):
(i) Unilaterally by the Licensor (other than for breach
of this Agreement by Licensee) upon ten (10) days advance written notice.
Licensor shall refund to Licensee a prorated portion of any UPDATE FEES paid
in advance by Licensee.
(ii) Unilaterally by the Licensor in the event that any
material breach by Licensee remains uncured for fifteen (15) days after
written notice, via certified mail, thereof, Licensee shall not be entitled
to the return of any prepaid UPDATE FEES; or
(iii) Unilaterally by the Licensee for any reason upon ten
(10) days advance written notice (Licensee must receive written confirmation
back from Licensor stating the effective date of cancellation). Licensee
shall not be entitled to the return of any prepaid UPDATE FEES.
(b) This Agreement may be terminated for the Database (which will
also cancel the Database Update subscription):
2
<PAGE>
(i) With the mutual written consent of both parties;
(ii) Unilaterally by the Licensee for any reason upon ten
(10) days advance written notice; or
(iii) Unilaterally by the Licensor in the event that any
material breach by Licensee remains uncured for fifteen (15) days after
written notice, via certified mail, thereof.
5. WARRANTY
(a) Licensor warranties that the media on which or transmission by
which the Database or Database Update are delivered will be free from defects.
Licensor's sole obligations under the foregoing warranty are limited to:
(i) Replacement of any defective media;
(ii) Retransmission of the Database or the Database Update; or
(iii) Termination of this Agreement and refunding a pro-rated
portion of any Fees paid in advance by Licensee.
(b) EXCEPT AS SET FORTH IN SECTION 5(a) ABOVE:
(i) THE DATABASE AND DATABASE UPDATES ARE PROVIDED "AS IS" AND
LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE CONTENT,
SUFFICIENCY, ACCURACY, COMPLETENESS OR CURRENTNESS THEREOF; OR
(ii) LICENSOR EXPRESSLY DISCLAIMS ANY EXPRESS, IMPLIED OR
STATUTORY WARRANTY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6. LIMITATIONS OF LIABILITIES
(a) IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
THE RESULTS OF LICENSEE'S USE OF THE DATABASE, FOR ANY IMPAIRMENT OF
LICENSEE'S ABILITY TO CONDUCT ITS BUSINESS AS A RESULT OF ITS USE OR INABILITY
TO USE THE DATABASE. NEITHER PARTY SHALL BE LIABLE FOR ANY LOSSES OR DAMAGES,
WHETHER DIRECT OR INDIRECT, INCIDENTAL SPECIAL OR CONSEQUENTIAL, ARISING FROM
THIS AGREEMENT; THE DESIGN, CONTENT, OPERATION OR USE OF THE DATABASE; OR FOR
ANY ERRORS OR OMISSIONS CONTAINED THEREIN, REGARDLESS OF THE CAUSE, THE
CIRCUMSTANCES, OR THE FORM OF THE ACTION.
(b) IN NO EVENT WILL LICENSOR'S LIABILITY TO LICENSEE FOR ANY CLAIMS,
LOSSES OR DAMAGES ARISING UNDER THIS AGREEMENT,
3
<PAGE>
WHETHER IN CONTRACT, TORT OR TO OTHER FORMS OF ACTION, EXCEED THE LICENSE FEE
SPECIFIED IN FEES-LINE 1 OF EXHIBIT A.
(c) THE PROVISIONS OF THIS SECTION 6 SHALL NOT APPLY TO ANY BREACH
BY LICENSEE OF THE TERMS OF THE LICENSE GRANTED IN SECTION 1 OF THIS
AGREEMENT OR TO LICENSOR'S INDEMNITY OBLIGATIONS UNDER SECTION 8 BELOW.
7. AMENDMENT
Licensor may increase the UPDATE FEE upon written notice to Licensee
provided at least thirty (30) days prior to the end of the calendar quarter
preceding the calendar quarter in which the increase is to be effective.
8. INDEMNIFICATION
Licensee will at all times indemnify and hold harmless Licensor from any
and all claims, damages, liabilities, costs and expenses, including
reasonable legal expenses and attorneys fees, arising out of any claims
involving Licensee's use of the Database.
9. ASSIGNMENT
This Agreement may not be assigned by either party without the express
written consent of the other party which shall not be unreasonably withheld;
provided, however, that without Licensee's consent, Licensor may assign its
right to receive funds hereunder and may assign this Agreement to an
affiliate or subsidiary of Licensor.
10. SURVIVAL
Sections 6 and 7 of this Agreement will survive the expiration or
termination of the term of this Agreement.
11. TAX PAYER IDENTIFICATION NUMBER
Licensor represents and warrants that its Tax Payer Identification Number
is 942556440.
LICENSOR: LICENSEE
Valley Media, Inc. _____________________________________
1280 Santa Anita Court _____________________________________
Woodland, California 95776 _____________________________________
By: ________________________ By (Database): ______________________
Its: _______________________ By (Database Updates): ______________
Its: ________________________________
4
<PAGE>
Exhibit 10.15
DROP SHIP AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into this 14th day of May,
1999 by and between GLOBAL MEDIA CORP., a Nevada corporation having an address
at 83 Victoria Crescent, Nanaimo, British Columbia V9R5G9 ("Retailer") and BAKER
& TAYLOR, INC., ("B&T"), a Delaware corporation having an address at 1200
Highway 22 East, Bridgewater, New Jersey 08807.
WITNESSETH:
For valuable consideration, the receipt and legal sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
As used throughout this Agreement the following terms have the
following meanings:
1.1 "EDI" means electronic data interchange, using BISAC or X.12
formats.
1.2 "Effective Date" means May 14, 1999.
1.3 "Initial Expiration Date" means the day preceding the first
anniversary of the Effective Date.
1.4 "Expiration Date" means the day preceding an anniversary of the
Effective Date.
1.5 "Customers" means customers of Retailer within the United States
who order Products (hereinafter defined) from Retailer and to whom Retailer
wishes B&T to ship Products directly from B&T's distribution facilities.
1.6 "Products" means books, spoken word audio products and calendars.
2. SCOPE OF AGREEMENT. The services to be provided by B&T herein are also
subject to the terms and conditions set forth in the Methodology and
Requirements Documents attached to, and made a part of, this Agreement as
Exhibit A.
3. TERM
3.1 This Agreement will begin on the Effective Date and will expire on
the Initial Expiration Date, unless terminated on an earlier date pursuant to
the express terms of this Agreement or unless extended pursuant to the terms of
Section 3.2.
3.2 B&T will notify Retailer of any changes in the pricing and payment
terms hereunder by written notice (a "Pricing Notice") given not less than 60
days prior to the Initial Expiration Date or any subsequent Expiration Date
(hereinafter defined). If Retailer is not satisfied with any changes in the
pricing and payment terms set forth in the Pricing Notice,
<PAGE>
Retailer's only option will be to notify B&T that it does not wish that this
Agreement be renewed pursuant to the following sentence. Unless one of the
parties (the "Notifying Party") to this Agreement notifies the other party not
less than 45 days prior to the Initial Expiration Date or any subsequent
Expiration Date that the Notifying Party wishes that this Agreement not be
renewed, and if this Agreement otherwise is in full force and effect and no
Event of Default (hereinafter defined) has occurred, this Agreement
automatically may be renewed for not more than five (5) consecutive periods of
one (1) year each (each such period, a "Renewal Term") without further action by
either party and on the same terms and conditions as set forth herein (except
for any changes in pricing and payment terms as set forth in the Pricing Notice.
If the Notifying Party notifies the other party before the 60-day period that it
does not wish that this Agreement be renewed, this Agreement automatically will
expire on the Initial Expiration Date or on the next succeeding Expiration. As
used herein, "Expiration Date" means the anniversary of the Initial Expiration
Date in a Renewal Term to which the same relates. As used herein, "Term" means
the period beginning on the date hereof and ending on the Initial Expiration
Date or on an Expiration Date, as the case may be.
4. ORDER FULFILLMENT
4.1 Upon receipt of an order for one or more Products from Customers,
Retailer will transmit the order to B&T's EDI mailbox location by means of a
mutually acceptable form of EDI. Each order transmitted by Retailer to B&T will
contain the following information: (a) the Customer's name and shipping address;
(b) the method by which Products ordered must be shipped to the Customer; (c)
whether or not the order may be fulfilled in multiple shipments of Products to
the customer or if the order may only be fulfilled when B&T has all Products
ordered in stock; (d) the text of any standard retail messages and/or special
messages to the Customer; (e) instructions concerning specific package inserts
to be included in the order; and (f) instructions concerning gift wrapping and
gift cards.
4.2 If Retailer wishes B&T to include package inserts with orders to
Customers, Retailer will deliver to B&T a quantity of package inserts to be
included with orders to Customers in sufficient quantity to supply Customers as
directed by Retailer to B&T. Within five (5) business days after inquiry from
Retailer, B&T will notify Retailer of the quantity of the various package
inserts on hand at B&T's facilities. B&T will use reasonable commercial efforts
to assure that an adequate quantity of package inserts is maintained at each B&T
facility from which Products are being shipped to Customers. Retailer will give
B&T not less than five (5) business days' prior notice to include, or to cease
inclusion of, a particular package insert in shipments of orders to Customers.
4.3 After receipt of an order, B&T will (a) fill the order from
inventory of Products in stock at B&T's facilities; (b) gift wrap any Products
as instructed by Retailer; (c) print the text of any standard retailer message
and/or any special message requested by Retailer on the packing slip or on a
separate gift card included in the order; (d) include in the order up to three
(3) package inserts requested by Retailer; (e) pursuant to Retailer's
instructions and based upon availability of Products pursuant to Retailer's
instructions, and based upon availability of Products in stock, ship the order
to the Customer either as a multiple shipment or as one shipment; (f) pursuant
to Retailer's instructions, promptly place any Products ordered by Retailer
which B&T does not have in stock on a backorder report for review by B&T's
account manager,
2
<PAGE>
after which time such Products will be promptly ordered by B&T (collectively,
"Backordered Products") and (g) ship any Backordered Products, when received by
B&T, pursuant to the terms of the preceding clauses (a)-(e) and the following
two sentences. For all Products which B&T then has in stock, B&T will use
commercially reasonable efforts to fulfill on the same day all orders received
from Retailer not later than 12:00 P.M. Central time for orders received Monday
through Friday. If B&T from time to time is unable to meet the schedule
specified in the preceding sentence, B&T promptly will notify Retailer of the
same. Any orders received by B&T after such times will be fulfilled on the
following business day. Notwithstanding the foregoing, if any orders are
received on a day which is not a business day will be fulfilled on the following
business day. As used in this Agreement, "business day" means any day which is
not a recognized holiday on which B&T and the approved carrier or shippers
providing services under this Agreement are open for business.
4.4 B&T will acknowledge receipt of orders to Retailer via EDI at
Retailer's EDI mailbox location. The first acknowledgement will be made promptly
after an order is received and will identify Products as being in stock and/or
backordered and/or as for which the order is being cancelled. The second
acknowledgement will be made at the time an order is ready to be shipped to a
Customer and will contain the shipper's tracking number if provided by the
shipper to B&T. Each such acknowledgement is referred to herein as an "ASN."
4.5 B&T will use commercially reasonable efforts to fulfill orders from
Retailer. Retailer acknowledges that it does not expect B&T to maintain in stock
a complete inventory of all Products that may be ordered by Customer.
4.6 B&T will transmit all invoices to Retailer via EDI to Retailer's
mailbox location.
4.7 B&T will not be liable for delays arising from the failure of any
freight carrier to meet its respective delivery standards.
5. RETURNS
5.1 Each shipment of Products to Customers will include Retailer's
return policy, including instructions that Customers are to make returns of
Products to Retailer at B&T's return center address. Within three (3) business
days of B&T's receipt of same, all returned Products will be received into B&T's
inventory, the Products will be logged as having been received, Retailer will be
issued a credit by B&T for the price paid by Retailer to B&T for the returned
Products and B&T will provide Retailer with information in reasonably sufficient
detail to allow Retailer to properly credit Customers for such returns. Retailer
will reimburse B&T for any freight costs incurred by Products except for returns
of Defective Products, Unmerchandisable Products and/or Products shipped
erroneously to Customers, in which case B&T promptly will issue a credit to
Retailer equal to the U.S. Postal Service charges for shipment from Customer to
B&T for such Products, and B&T will be responsible for any freight costs to ship
replacement Products. On not less than 30 days' prior notice to B&T, Retailer
may elect to process all returns of Products shipped from Customers after the
date specified in such notice.
3
<PAGE>
5.2 As used in this Agreement:
(i) "Defective Products" means Products which
contain manufactured defects which prevent
them from being used for their intended
purpose;
(ii) "Damaged Products" means Products which are
damaged during shipment to Customers which
prevent them from being used for their
intended purpose; and
(iii) "Unmerchandisable Products" means Products
which are shopworn and/or soiled.
(b) Retailer promptly will reimburse B&T for any freight
costs incurred for Products returns, except for
returns of Defective Products, Unmerchandisable
Products (if shipped in that condition by B&T) and/or
Products shipped erroneously to Customers
(collectively, "Free Return Products"). B&T promptly
will issue a credit to Retailer equal to the U.S.
Postal Service charge for shipment from Customers to
B&T of Free Return Products and B&T will be
responsible for freight costs to ship replacement
Products to Customers for Free Return Products.
6. PRICING AND PAYMENT TERMS
6.1
(a) Retailer will pay B&T for all Products ordered by
Customers, and will pay all fees and reimbursables
payable to B&T herein, within 30 days from the date
of delivery of B&T's detailed invoice therefor. All
payments made to B&T will be in good funds and
delivered by check or wire transfer to the order of
B&T pursuant to B&T's instructions. Retailer may not
reduce and set off amounts payable hereunder against
any indebtedness or any other claim that it may have
against B&T, however or whenever arising.
(b) The price charged by B&T to Retailer for Products
purchased by B&T will be expressed on the basis of a
discount from the publishers' list prices for the
same as of the date of shipment of Products to
Customers, and as set forth on Schedule 6.2.
Publishers' list prices for Products are displayed on
B&T's title database of Products, which presently is
available for license by B&T to third parties
(including Retailer). Retailer acknowledges and
agrees that publishers' list prices for Products may
be subject to change without notice. Retailer
acknowledges and agrees that it is Retailer's
responsibility to determine the pricing of Products
to Customers and that B&T is not responsible if
Retailer sells Products at prices which result in a
lower selling margin than may be desired by Retailer.
4
<PAGE>
6.2
(a) Each party will be responsible for payment of its EDI
transmissions to the other party.
(b) Retailer will pay the charges and fees to B&T as more
particularly set forth on Schedule 6.2 attached
hereto and made a part hereof.
6.3 Retailer will pay all freight costs for all Product shipments to,
and Product returns from, Customers. Freight costs will be at the carriers'
published rates.
7. WARRANTIES
7.1 B&T warrants that it has good title to the Products delivered to
Customers pursuant to this Agreement. EXCEPT FOR THE FOREGOING WARRANTY, THERE
ARE NO OTHER EXPRESS WARRANTIES, AND THERE ARE NO IMPLIED WARRANTIES. EXPRESSLY
EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY B&T OR ITS AGENTS OR
EMPLOYEES WILL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF THE
FOREGOING WARRANTY.
7.2 B&T WILLNOT BE LIABLE FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, OR
INCIDENTIAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS
INTERRUPTION, AND THE LIKE) ARISING OUT OF THE DELIVERY OF, USE OF, OR INABILITY
TO USE, ANY PRODUCTS, EVEN IF B&T HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. The only liability B&T will have with respect to any Defective
Products, Unmerchandisable Products and/or Damaged Products will be the return
rights of Customers described herein. Retailer will indemnify and hold harmless
B&T, its officers, employees and agents, for any loss, claim, cost or expense
(including reasonable attorneys' fees and expenses) incurred by reason of any
claim made by a Customer concerning any matter to which the preceding limitation
of liability may apply.
7.3 The provisions of this Section shall survive the termination or
expiration of this Agreement.
8. TERMINATION
8.1
(a) Either party may terminate this Agreement upon the
occurrence of an Event of Default by the other party.
An "Event of Default" is hereby defined to mean the
defaulting party's failure to cure, (a) after receipt
of 30 days' written notice from the non-defaulting
party, of any of the following: (i) failure of the
defaulting party to observe or perform any condition
or obligation imposed under this Agreement on the
defaulting party not relating to the payment of
money; (ii) breach of any warranty
5
<PAGE>
made by the defaulting party under this Agreement;
(iii) filing of a voluntary petition in bankruptcy or
having an involuntary petition filed against it, the
appointment of a receiver or trustee, the execution
of an assignment for the benefit of creditors; and
(b) after receipt of 10 days' written notice from the
non-defaulting party of the failure of the defaulting
party to make any payments when due hereunder. The
option to terminate this Agreement shall be in
addition to, and not in lieu of, any other remedy
available to the terminating party under this
Agreement or at law or equity, all such remedies
being cumulative.
(b) In addition to the preceding remedies, upon the
occurrence of an Event of Default by Retailer
hereunder at any time and from time to time, B&T may
require Retailer to reduce its account balance with
B&T to a level determined by B&T in its sole
discretion (up to and including an account balance of
$0).
8.2 Termination of this Agreement upon either party's default, or the
expiration of this Agreement will not affect:
(a) the rights of either party with respect to any breach
of this Agreement, or
(b) the obligations of either party already accrued prior
to the effective date of expiration or termination
(including obligations with respect to returned
Products), or
(c) those obligations of the parties that, by their
terms, survive termination or expiration of this
Agreement.
8.3 In the event of the expiration or a termination of this Agreement,
Retailer promptly will reconcile accounts payable and receivable with B&T and
bring the balance owed, if any, current and up-to-date.
9. CONFIDENTIALITY
The parties acknowledge that each may be exposed to confidential
information relating to the other party's business under this Agreement,
including, but not limited to, the terms of this Agreement, quantities of
Products, dollar volumes, revenues of Products, wholesale prices and similar
information. The parties agree that during the Term, and for a period of three
(3) years after the termination or expiration of this Agreement, neither party
will disclose to any third party any such confidential information without the
prior written consent of the other party, except to employees, agents, auditors,
contractors, directors and similar entities solely required to fulfill the terms
of this Agreement, and as long as such third parties agree to be bound by the
confidentiality provisions hereof. The confidential information which each party
may receive from the other party for the above period will be treated with the
same degree of care used to protect its own confidential information. The
confidentiality obligations between the parties will not apply to any
information (a) which is in the public domain or which becomes part of the
public domain through no fault of the receiving party; (b) which is known to the
receiving party prior to the disclosure thereof by the disclosing party (as
established by documentary evidence);
6
<PAGE>
(c) which is lawfully received by the receiving party from a third party who
provided such information without breach of any separate confidentiality
obligation owed to the disclosing party; (d) which is disclosed by the
disclosing party to any third party without restriction on further disclosure;
or (e) which is independently developed by personnel having no access to the
disclosing party's confidential information (as established by documentary
evidence).
10. MISCELLANEOUS
10.1 The risk of parcel loss or damage shall pass from B&T to Retailer
when the parcels containing Products are tendered to Retailer's carriers for
shipment to Customers. Title to Products shall transfer from B&T to Retailer
when the parcels containing Products are tendered to Retailer's carriers for
shipment to Customers. Retailer will be liable for any Products for which
shipments are damaged, lost and/or misdirected by Retailer's carrier and/or
refused by Customers.
10.2 B&T will not be liable for any sales or related tax liability, if
any, associated with the sale to Customers of Products. Retailer will indemnify
and hold harmless B&T for any claim for payment of sales tax made upon B&T by
any state or other governmental authority for sales of Products to Customers
hereunder.
10.3 Neither party will be liable for any failure to perform, or delay
in the performance of, any of its obligations hereunder (nor will the same
constitute an Event of Default) if and to the extent the failure or delay is
caused, directly or indirectly, by events beyond its control, such as acts of
God, fires, floods, epidemics, quarantine restrictions, strikes or other labor
disputes (except strikes or labor disputes that are not industry wide but are
brought against Retailer or B&T solely), freight embargoes, and/or unusually
severe weather. Lack of funds by either party will not excuse its timely
performance of its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligation(s) so affected
as long as such circumstances prevail and if the party continues to use its best
efforts to recommence performance or observance whenever and to whatever extent
possible without delay.
10.4 Continued extension of credit to Retailer by B&T shall be subject
to Retailer paying B&T in a timely manner and to B&T's assessment of Retailer's
financial condition, which assessment shall be made in B&T's sole judgment.
Retailer will deliver B&T at its address at 501 South Gimdious St., Mormence,
IL, 60954-1799, Attn: Credit Manager, the following financial information:
(a) within seven (7) days of issuance but not later than
12 days after the end of each fiscal year of
Retailer, Retailer's audited financial statements
(including footnotes and accountant's opinion) as of
the last day of each of Retailer's fiscal year;
(b) within seven (7) days of issuance, but not later than
60 days after the end of each fiscal quarter,
Retailer's unaudited financial statements (including
comparative profit and loss and balance sheet
statements) dated as of the last day of each fiscal
quarter;
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<PAGE>
(c) other data that B&T may reasonably request to
establish and maintain a credit line for Retailer.
At any time and from time to time during the Term, B&T may require Retailer to
reduce its account balance with B&T to a level determined by B&T in its sole
discretion (up to and including an account balance of $0), based upon B&T's
determination that Retailer's financial condition warrants the same.
10.5 This Agreement shall be construed in accordance with the laws of
the State of New Jersey, without giving effect to the conflict of laws provision
thereof.
10.6 No representation, promise, inducement or agreement relating to
the transactions contemplated by this Agreement has been made by either party
that is not set forth in this Agreement, and neither party shall be bound by or
liable for any representation, promise, inducement or agreement not so set
forth.
10.7 All notices, demands, consents, approvals and requests given by
either party hereunder shall be in writing and shall be sent by a nationally
recognized overnight courier with receipt acknowledged and provision for payment
made, by telecopy, or by registered or certified mail (return receipt
requested), return postage pre-paid, to the parties at the following addresses:
If to B&T: Baker & Taylor, Inc.
2709 Water Ridge Parkway
Suite 500
Charlotte, NC 28217
Attn: Director, Sales Administration
If to Retailer: Global Media Corp.
83 Victoria Crescent
Nanaimo, BC
Canada V9R 5B9
Attn: L. James Porter
Chief Financial Officer
All notices given by courier or telecopy will be deemed received at the
notice address and all notices given by registered or certified mail will be
deemed delivered five (5) days after deposit with the U.S. Postal Service.
Either party may change its notice address from time to time by notification in
writing to the other party; however, any such notification will not be deemed
given until actually received by the recipient party.
10.8 The waiver or failure of either party to exercise in any respect
any right provided for herein will not be deemed a waiver of any further right
hereunder.
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<PAGE>
10.9 The provisions of this Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and each of their respective
successors and assigns.
10.10 Nothing contained in this Agreement shall be deemed or construed
to create a partnership or joint venture of or between [sic] and B&T, or to
create any other relationship between the parties other than that of independent
contractors.
10.11 The captions used herein are for convenience of reference only
and are not part of this Agreement, and shall in no way be deemed to define,
limit, describe, or modify the meaning of any provision of this Agreement.
10.12 If any term or provision of this Agreement or applications
thereof to any person or circumstances is, to any extent, held to be invalid or
unenforceable, the remaining terms and provisions of this Agreement or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, will not be affected
thereby, and each term and provision of this Agreement will be valid and
enforced to the fullest extent permitted by law.
10.13 If Retailer fails to make any payment due hereunder to B&T within
30 days after receipt of B&T's invoice therefor, then Retailer will pay B&T the
amount due, together with interest thereon until paid, calculated at the rate of
eighteen percent (18%) per annum.
10.14 This Agreement contains and embodies the entire agreement of the
parties hereto, and no representations, inducements, or agreements, oral or
otherwise between the parties not contained in this Agreement, if any, will be
of any force or effect. This Agreement may not be modified, changed or
terminated in whole or in part in any manner other by an agreement in writing
duly signed by both parties.
10.15 This Agreement may be signed in counterparts both of which taken
together shall be deemed one original. Telecopied facsimiles of a signed
counterpart of this Agreement from one party to the other will be deemed to be
delivery of a signed counterpart by the party sending the telecopied facsimile.
IN WITNESS WHEREOF, the parties have signed and delivered this
Agreement on the date first above written.
BAKER & TAYLOR, INC.
By Baker & Taylor Brooks
By: /s/
-------------------------------
Name:
-----------------------------
Title: VP Business Development
----------------------------
9
<PAGE>
[RETAILER]:
By: /s/
-------------------------------
Name: L. James Porter
-----------------------------
Title: Chief Financial Officer
----------------------------
10
<PAGE>
EXHIBIT A - 1
EXHIBIT A
METHODOLOGY AND REQUIREMENTS DOCUMENT
[TO BE PROVIDED]
EXHIBIT A - 1
<PAGE>
SCHEDULE 6.2
DROP SHIP SERVICE PRICING
[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
SCHEDULE 6.2 - 1
<PAGE>
Exhibit 10.16
GLOBAL MEDIA CORP. DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is entered this 14th day
of May, 1999 by and between Global Media Corp., a Nevada Corporation having an
address at 83 Victoria Cres., Nanaimo, British Columbia V9R 5B9 ("Company") and
BAKER & TAYLOR, INC., ("B&T"), a Delaware corporation having an address at 8140
North Lehigh Avenue, Morton Grove, Illinois 60053.
WITNESSETH:
For valuable consideration, the receipt and legal sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
As used throughout this Agreement the following terms have the
following meanings:
1.1 "Effective Date" means May 14, 1999.
1.2 "Initial Termination Date" means the day preceding the first
anniversary of the Effective Date.
1.3 "Customers" or "Customer" means customers of Company within
the United States who order Products (hereinafter defined) from Company by means
of Company's online retail store doing business over the Internet.
1.4 "Products" means [books, spoken word audio products,]
pre-recorded video products in VHS, laser disc and DVD formats, multi-media
products, and music audio products.
2. TERM
2.1 This Agreement will begin on the Effective Date and will
expire on the Initial Termination Date, unless terminated on an earlier date
pursuant to the express terms of this Agreement or unless extended pursuant to
thc terms of Section 2.2.
2.2 Unless one of the parties (the "Notifying Party") to this
Agreement notifies the other party not less than 60 days prior to the Initial
Termination Date or any subsequent Termination Date (hereinafter defined) that
the Notifying Party wishes that this Agreement not be renewed, and if this
Agreement otherwise is in full force and effect and no Event of Default
(hereinafter defined) has occurred, this Agreement automatically may be renewed
for not more than five (5) consecutive periods of one (1) year each (each such
period, a "Renewal Term") without further action by either party and on the same
terms and conditions as set forth herein. If the Notifying Party notifies the
other party before the 60 day period that it does not wish that this Agreement
be renewed, this Agreement automatically will expire on the Initial Termination
Date or on the next succeeding Termination Date. As used herein, "Termination
Date" means the anniversary of the Initial Termination Date in a Renewal Term to
which the same relates. As used herein, "Term" means the period beginning on the
date hereof and ending on the Initial Termination Date or a Renewal Term, as the
case may be.
<PAGE>
3. ORDER FULFILLMENT
3.1 Company will transmit orders in batches via the Internet to
B&T at B&T's Internet mailbox location by file transfer protocol ("FTP"). The
frequency of batched orders transmitted to B&T will be determined by the
parties' mutual agreement. Each order transmitted by Company to B&T will contain
the following information: (a) the Customer's name and shipping address, (b) the
method by which Products ordered must be shipped to the Customer, (c) whether or
not the order may be fulfilled in multiple shipments of Products to the Company
or if the order may only be fulfilled when B&T has all Products ordered in
stock, and (d) the text of any special messages to the Customer. B&T will
furnish Company with specifications for FTP communications. B&T may change such
specification from time to time on not less than 30 days' prior written notice
to Company.
3.2 After receipt of an order, B&T will (a) fill the order from
inventory of Products in stock at such of B&T's facilities in the United States
as B&T from time to time may designate collectively, ("Shipping Facilities"),
(b) print the text of any special message requested by Company on the standard
packing slip included in the order, (c) include any additional packing slips
requested by Company in the order, (d) pursuant to Company's instructions, and
based upon availability of Products in stock, ship the order to Customer either
as a multiple shipment or as one shipment, (e) promptly place any Products
ordered by Company which B&T does not have in stock on a backorder report for
review by B&T's account manager for Company, after which time such Products will
be promptly ordered by B&T (collectively, "Backordered Products"), and (f) ship
any Backordered Products, when received by B&T, pursuant to the terms of the
preceding clauses (a)-(d) and the following two sentences. B&T will ship on the
same business day all orders received by 1:00 P.M. Eastern time from Company on
such business day for Products which B&T then has in stock at a Shipping
Facility. Any orders received by B&T after 1:00 P.M. Eastern time will be
shipped on the following business day. As used in this Section, "business day"
means Monday through Friday, but excluding any Holidays. As used herein,
"Holiday" means any recognized holiday on which the approved carrier or shippers
providing services under this Agreement are closed for business.
3.3 B&T will print all packing slips, will insert all packing
slips and will print and affix shipping labels on orders being shipped to
Customers as part of its fulfillment obligations hereunder and at no expense to
Company, other than the fulfillment fee specified below.
3.4 Company acknowledges that it does not expect B&T to maintain
in stock a complete inventory of all Products that may be ordered by Customers.
B&T will maintain, and will update on a weekly basis, stock availability for
Products. In addition, B&T will provide stock availability to Company on demand
by FTP transmission.
3.5 Invoices enclosed in shipments by B&T to Customers will be
customized in accordance with Company's specifications. Company's specifications
will not exceed the capabilities of B&T's invoice printers.
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<PAGE>
3.6 (a) B&T will provide the following reports to Company:
(i) On a daily basis, B&T will transmit to \Company
a Ship Complete Report which details, by order, all orders
received from Company for the preceding week, all Products
contained in each order from Company, the fulfillment status of
each such order, and the number of days elapsed since the order
was made.
(ii) On a daily basis and on a weekly basis, B&T
will deliver to Company a Daily Log and a Weekly Log,
respectively, which details (x) all Product returns (identified by
invoice number) processed by B&T for the preceding business day or
for the preceding week, as the case may be, and indicating
quantity and amount, and (y) by order, all orders filled by B&T on
the preceding business day or the preceding week, as the case may
be, and which includes the following information for each such
order: the order number, the Customer's name and address, an
itemization of Products shipped, the price charged by B&T to
Company for each Product, and shipping and handling charges to
Customers and to Company.
(iii) On a daily basis, B&T will deliver to Company
a Canceled Order Report which specifies all orders canceled each
day during the previous week and includes the following
information for each cancelled order: the order number, the
Customer's name, the title of each Product, the quantity of all
Products, and the name of the person who cancelled the order on
behalf of the Customer.
(iv) on a daily basis, B&T will deliver to Company
an Inactive Product Report which specifies all orders of Products
which are on backorder during the previous week and for which any
Product contained in the order has been flagged as "inactive" in
B&T's inventory system. As used herein, "inactive" means all
Products which are out of print or otherwise permanently
unavailable for sale.
(v) On a monthly basis, B&T will deliver to Company
a statement of account which itemizes (x) all invoices sent to
company hereunder during the prior calendar month, (y) all
payments received from Company hereunder during the prior calendar
month which have been applied against invoices and (z) all
invoices unpaid by Company hereunder.
(b) The preceding reports will be delivered by FTP
transmission to Company's Internet address at no additional charge to Company.
3.7 If any Products ordered by a Company are placed on moratorium
by the vendor, B&T will notify Company and will supply the Product only while
B&T's supplies last, after which time B&T will cancel the order. If a shipment
from any vendor to B&T of any Products ordered by Customers is delayed, B&T will
notify Company within one (1) business day after being notified by the vendor of
the delay. B&T will not be liable for delays arising from the failure of any
freight carrier to meet its respective delivery standards. As used herein,
"placed on moratorium" means Products which are designated by the vendor as
being indefinitely unavailable for purchase from the vendor.
3
<PAGE>
4. RETURNS
4.1 (a) As used in this Agreement:
(i) "Defective Products" means Products which contain
manufactured defects which prevent them from being used for their
intended purpose;
(ii) "Damaged Products" means Products which are
damaged during shipment to Customers which prevent them from being
used for their intended purpose; and
(iii) "Unmerchandisable Products" means Products which
are shopworn and/or soiled.
(b) Each shipment of Products to Customers will include
Company's return policy, including instructions that Customers are to make
returns of Products to Company at B&T's return center address. Within three (3)
business days of B&T's receipt of the same, all returned Products will be
received into B&T's inventory, the Products will be logged as having been
received, Company will be issued a credit by B&T for the price paid by Company
to B&T for the returned Products and B&T will provide company with information
in reasonably sufficient detail to allow Company to properly credit Customers
for such returns. Company will reimburse B&T for any freight costs incurred for
Products returns within 30 days after receipt of B&T's invoice therefor, except
for returns of Defective Products, Unmerchandisable Products and/or Products
shipped erroneously to Customers, in which case B&T promptly will issue a credit
to Company equal to the U.S. Postal Service charge for shipment from Customers
to B&T of such Products, and B&T will be responsible for any freight costs to
ship replacement Products. On not less than 30 days' prior notice to B&T,
Company may elect to process all returns of Products from Customers after the
date specified in such notice.
(c) B&T will not be obligated to accept any returns of
Products submitted more than 60 days after shipment of such Products to a
Customer in the United States (or, if such Products have been shipped outside
the United States, more than 90 days after such shipment) including returns of
Defective Products, Damaged Products, Unmerchandisable Products and/or
erroneously shipped Products.
4.2 If returns of Products (other than returns of Defective
Products, Unmerchandisable Products or Products erroneously shipped by B&T)
during any calendar quarter exceed five percent (5%) of the total price charged
by B&T to Company of all Products shipped during the prior calendar quarter,
Company will pay B&T a return fee equal to seven and one-half percent (7.5%) of
the price charged by B&T to Company for such Products. Payment of any return
fees will be made within 30 days after Company's receipt of B&T's invoice
therefor. Credit memos for returns will be processed by B&T and delivered to
Company within 15 days after B&T's receipt of the returned product. Credits
issued to Company under any such credit memos will be applied immediately to
payables incurred by Company.
4.3 All Product returned to B&T (except for returns of Defective
Products and/or Unmerchandisable Products) during any calendar quarter must be
with the original packaging intact (including manufacturer's shrink wrap for
video and audio Products). Returns of any
4
<PAGE>
Products which are not in compliance with the preceding sentence will be subject
to a repackaging fee of $.40 per unit. Payment of any repackaging fees will be
made within 30 days after Company's receipt of B&T's invoice therefor.
4.4 (a) B&T will use commercially reasonable efforts to
not ship Unmerchandisable Products to Customers. If Unmerchandisable Products
are shipped by B&T to Customers, B&T's sole liability hereunder will be to
accept returns of the same within the time period specified above and, subject
to availability, promptly replace the same for Customers at no additional cost
to them or to Company. If replacement Products are not available, B&T promptly
will issue a credit to Company in the amount theretofore invoiced to Company for
the same.
(b) B&T will package for shipment to Customers in a
manner which is commercially reasonable to prevent damage during shipment. If
Products are damaged during shipment to Customers, B&T will accept a return of
the same made within the time period specified above and, subject to
availability, replace the same for Customers at no additional cost to Customers
within a reasonable period of time. If replacement Products are not available,
B&T promptly will issue a credit to Company in the amount theretofore invoiced
to Company for the same. Company will reimburse B&T for the freight charges
incurred by B&T for the return of such Products to B&T and for shipment of
replacement Products to Customers. Such reimbursement will be made within 30
days after Customer's receipt of B&T's invoice therefor. Company also will pay
B&T a fulfillment charge for supplying replacement Products in accordance with
the terms of Section 6.3(a) below. Company will not be responsible for
reimbursing B&T for the cost of replacement Products. B&T promptly will file a
claim with the carrier that shipped the Damaged Products (if permitted by such
carrier's terms), and will use commercially reasonable efforts to prosecute any
such claim. If any portion recovered by B&T from a carrier with respect to a
claim filed by B&T is specifically identified as reimbursement for freight
charges, B&T will issue a credit to Company in such amount within 30 days after
B&T's receipt thereof.
5. PRICING AND PAYMENT TERMS
5.1 (a) Company will pay B&T for all Products ordered by
Customers, and Company will pay all fees and reimbursables payable to B&T
herein, within 30 days after Customer's receipt of B&T's invoice therefor
(subject to financial review). All payments made to B&T will be in good funds
and delivered by check or wire transfer to the order of B&T pursuant to B&T's
instructions. Company may not reduce and set off amounts payable hereunder
against any indebtedness or any other claim that Company may have against B&T,
however or whenever arising, except as expressly provided herein.
(b) The purchase price payable by Company for Products
ordered by Customers during the Term will be the following:
(i) for VHS video products (other than for Disney
Classics having a list price of $26.9X) purchased for sale (i.e.,
for which the suggested retail price for a single unit is under
$30, or which is designated with "E" for the product group in B&T's
ordering system) the list price at the time an order is placed,
less a discount of 37%;
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(ii) for VHS video products which are designated
with "R" for the product group in B&T's ordering system, the list price
at the time an order is placed, less a discount of 33%;
(iii) for DVD video products, the list price at
the time an order is placed, less a discount of 30%;
(iv) for Laser Disc video products, the list
price at the time an order is placed, less a discount of 33%, except
those items designated as non-discountable;
(v) for music audio compact discs and music
audio cassettes, the published list price at the time an order is
placed, less a discount of 30% and 34% respectfully;
5.2 As Used in this Agreement, "list price" means, respectively, the
publisher's, studio's or audio label's published list price with respect to a
Product, unless the same does not exist, in which case "list price" means B&T's
published list price for such Product.
5.3 (a) Company will pay B&T an order fulfillment fee for each order
placed by a Company equal to $1.25 for the first unit in each order and $0.75
for each additional unit in each order, regardless of the number of shipments
made for each order or the number of locations from which the shipments are
made.
(b) Company will pay B&T a transmission fee of $0.18 per order for
all orders of Products made by Company to B&T by means of electronic data
interchange transmission through a value added network. No fee will be payable
if Company transmits orders to B&T by FTP.
(c) Company will reimburse B&T for all mail orders from Customers
to B&T at the rate of $1.00 for the first unit in each order and $0.30 for each
additional unit in each order.
5.4 Company and B&T have entered into a separate license agreement
by which B&T is licensing its database of Products to Company (the "License
Agreement"). If, during the Term, B&T fulfills orders from the Company, on a net
basis, for more than $10,000 in the aggregate, B&T will rebate to Company the
license fee paid by Company to B&T under the License Agreement.
5.5 Except as provided in Section 5 concerning returns of
Defective Products, Unmerchandisable Products and or erroneously shipped
Products, Company will pay all freight costs for all product shipments to, and
Product returns from, Customers. Freight costs will be at the carriers'
published rates. Company acknowledges that such freight charges are subject to
change.
5.6 The cost of any custom reporting functions or custom packaging
requested by Company and supplied by B&T hereunder will be determined by the
agreement of the parties from time to time.
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<PAGE>
5.7 A volume rebate will be available to Company to be paid on a
quarterly basis based on monthly net purchases from B&T. Purchases of items with
special discounted prices from B&T shall be excluded from the net purchase base
for the rebate calculation.
<TABLE>
<CAPTION>
Quarterly Purchases Rebate
----------------------------------------- -------------
<S> <C>
[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
</TABLE>
6. WARRANTY OF TITLE
6.1 B&T warrants that it has good title to the Products delivered
to Customers pursuant to this Agreement. EXCEPT FOR THE FOREGOING WARRANTY,
THERE ARE NO OTHER EXPRESS WARRANTIES, AND THERE ARE NO IMPLIED WARRANTIES.
EXPRESSLY EXCLUDED ARE ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY B&T OR ITS
AGENTS OR EMPLOYEES WILL CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF
THE FOREGOING WARRANTY.
6.2 NEITHER B&T NOR COMPANY WILL NOT BE LIABLE FOR ANY DIRECT,
INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF
BUSINESS PROFITS, BUSINESS INTERRUPTION, AND THE LIKE) ARISING OUT OF ANY
CUSTOMER'S USE OF, OR INABILITY TO USE, ANY PRODUCTS, EVEN IF EITHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. The only liability B&T will
have with respect to any Defective Products, damaged Products, Unmerchandisable
Products and/or Products erroneously shipped will be the return rights of
Customers described herein.
6.3 The provisions of this Section shall survive the termination
or expiration of this Agreement.
7. TERMINATION
7.1 Either party may terminate this Agreement forthwith upon the
occurrence of an Event of Default by the other party. As used herein, an "Event
of Default" means the defaulting party's failure to cure, after receipt of not
less than 30 days' prior written notice from the non-defaulting party, of any of
the following: (i) failure of the defaulting party to observe or perform any
condition or obligation imposed on the defaulting party under this Agreement
(including payment obligations), (ii) breach of any warranty made by the
defaulting party under this Agreement, and/or (iii) filing of a voluntary
petition in bankruptcy or having an involuntary petition filed against the
defaulting party, the appointment of a receiver or trustee for the defaulting
party, or the execution of an assignment for the benefit of creditors of the
defaulting party. The option to terminate this Agreement shall be in addition
to, and not in lieu of, any other
7
<PAGE>
remedy available to the terminating party under this Agreement or at law or
equity, all such remedies being cumulative.
7.2 Termination of this Agreement upon either party's default, or
the expiration of this Agreement will not affect:
(a) the rights of either party with respect to any breach
of this Agreement, or
(b) the obligations of either party already accrued prior
to the effective date of expiration or termination (including obligations with
respect to returned Products).
(c) those obligations of the parties that, by their
terms, survive termination or expiration of this Agreement.
7.3 In the event of the expiration or a termination of this
Agreement, the parties promptly will reconcile accounts payable and receivable
and bring the balance owed, it any, current and up-to-date to the party
concerned.
8. CONFIDENTIALITY.
The parties acknowledge that each may be exposed under this Agreement
to confidential information relating to the other party's business, including
but not limited to, the terms of this Agreement, quantities of Products, dollar
volumes, revenues of Products, wholesale prices and similar information. The
parties agree that, during the Term and for a period of three (3) years after
the termination or expiration of this Agreement, neither party will disclose to
any third party (except to the party's employees, agents, contractors, directors
and similar entities solely required to fulfill the terms of this Agreement) any
such confidential information without the prior written consent of the other
party, only if such third parties agree to be bound by the confidentiality
provisions hereof. The confidential information which each party may receive
from the other party for the above period will be treated with the same degree
of care used to protect its own confidential business information. The
confidentiality obligations between the parties will not apply to any
information (a) which is in the public domain or which becomes part of the
public domain through no fault of the party receiving the confidential
information (the "receiving party"); (b) which is known by the receiving party
prior to the disclosure thereof by the disclosing party (as established by
documentary evidence); (c) which is lawfully received by the receiving party
from a third party who provided such information without breach of any separate
confidentiality obligation owed to the disclosing party; (d) which is disclosed
by the disclosing party to any third party without restriction on further
disclosure; or (e) which is independently developed by personnel having no
access to the disclosing party's confirmation information (as established by
documentary evidence). Confidential information also may be disclosed to third
parties as may be required by law in the reasonable judgment of the receiving
party's attorneys. In the event of disclosure under the preceding sentence, the
receiving party promptly will notify the disclosing party of the same so that
the disclosing party may seek a protective order or other appropriate remedy,
and the receiving party will not oppose action by the disclosing party to obtain
such an order or remedy.
8
<PAGE>
9. MISCELLANEOUS.
9.1 The risk of loss for Products shall pass from B&T when the
Products are delivered to the carrier for shipment to Customers.
9.2 Sales Tax. Company shall be responsible for collecting all
applicable sales taxes from Customers and remitting such sales taxes to the
appropriate taxing authorities. Company shall indemnify and hold harmless B&T
for any sales tax due to a government entity on products shipped to the Customer
on behalf of the Company.
9.3 Neither party will be liable for any failure to perform, or
delay in the performance of, any of its obligations hereunder (nor will the same
constitute in an Event of Default) if and to the extent the failure or delay is
caused, directly or indirectly, by events beyond its control, such as acts of
God, acts of the public enemy, acts of any governmental body in its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes
or other labor disputes (except strikes or labor disputes that are not industry
wide but are brought against Company or B&T solely), freight embargoes, and/or
unusually severe weather. Lack of funds by either party will not excuse its
timely performance of its obligations hereunder. In the event of an occurrence
described in the first sentence, the non-performing party affected will be
excused from further performance or observance of the obligation(s) so affected
for as long as such circumstances prevail and if the party continues to use its
best efforts to recommence performance or observance whenever and to whatever
extent possible without delay.
9.4 This Agreement shall be construed in accordance with the laws
of the State of Illinois, without giving effect to the conflict of laws
provisions thereof.
9.5 The parties agree to bring any dispute, controversy or claim
arising out of this Agreement or the matters provided for in this Agreement and
which has not been resolved by the parties through an informal process within 45
days after either party notifies the other that a matter is in dispute, for
arbitration and settlement in Chicago, Illinois, in accordance with the Rules of
the American Arbitration Association (the "Rules"). Each party will bear its own
legal expenses, attorneys' fees and disbursements and costs of all experts and
witnesses called by it. However, if the claim of either party is upheld by the
arbitrators in all material respects, then the prevailing party promptly will be
reimbursed by the other party for its reasonable attorneys' fees and
disbursements and the reasonable costs of its experts and witnesses, and the
non-prevailing party also will pay all fees, costs and expenses of the
arbitration. Any award rendered will be final and conclusive upon the parties.
Any judgment thereon may be enforced in any court having jurisdiction. Both
parties will continue to perform their respective obligations under this
Agreement during any arbitration proceedings. Notwithstanding the Rules, the
arbitrator's determination will only be in favor of one party's position.
9.6 No representation, promise, inducement or agreement relating
to the transactions contemplated by this Agreement has been made by either party
that is not set forth in this Agreement, and neither party shall be bound by or
liable for any representation, promise, inducement or agreement not so set
forth.
9
<PAGE>
9.7 All notices, demands, consents, approvals and requests given
by either party hereunder shall be in writing and shall be sent by a nationally
recognized overnight courier with receipt acknowledged and provision for payment
made, or by registered or certified mail (return receipt requested), return
postage prepaid, to the parties at the following addresses:
If to B&T: Baker & Taylor, Inc.
c/o Baker & Taylor Entertainment
8140 North Lehigh Avenue
Morton Grove, IL 60053
Attn: Sherri L. Sawyer
Telecopy No.: 847-470-7860
If to Company: Global Media Corp.
83 Victoria Crescent
Nanaimo
British Columbia V9R 5B9
Attn.: L. James Porter
All notices given by courier will be deemed delivered when received at
the notice address and all notices given by registered or certified mail will be
deemed delivered five (5) days after deposit with the U.S. Postal Service.
Either party may change its notice address from time to time by notification in
writing to the other party, however any such notification will not be deemed
given until actually received by the recipient Party.
9.8 Either party (the "Auditing Party") may, on reasonable prior
notice to the other party (the "Audited Party"), at the Auditing Party's own
expense, during the Audited Party's regular business hours and at the place
where the Audited Party regularly keeps them, examine the books and records of
the Audited Party relating to the Audited Party's performance of its obligations
hereunder.
9.9 The waiver or failure of either party to exercise in any
respect any right provided for herein will not be deemed a waiver of any further
right hereunder.
9.10 The provisions of this Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and each of their respective
successors and assigns. Neither party may assign its interest in this Agreement
without the prior written consent of the other party, which consent will not be
unreasonably withheld or delayed. Notwithstanding the preceding sentence, either
party shall have the right, upon contemporaneous notice given to the other
party, and provided the assignee assumes all of the assigning party's
obligations under this Agreement accruing after the date of such assignment, to
assign this Agreement to any entity to which the assigning party may transfer
all or substantially all of its assets (or, in the case of B&T, the assets of
its operating unit presently known as Baker & Taylor Entertainment).
9.11 Nothing contained in this Agreement shall be deemed or
construed to create a partnership or joint venture of or between Company and
B&T, or to create any other relationship between the parties other than that of
independent contractors.
10
<PAGE>
9.12 The captions used herein are for convenience of reference only
and are not part of this Agreement, and shall in no way be deemed to define,
limit, describe, or modify the meaning of any provision of this Agreement.
9.13 If any term or provision of this Agreement or applications
thereof to any person or circumstances is, to any extent, held to be invalid or
unenforceable, the remaining terms and provisions of this Agreement, or the
applications of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, will not be affected
thereby, and each term and provision of this Agreement will be valid and
enforced to the fullest extent permitted by law.
9.14 If Company fails to make any payment to B&T within 30 days
after payment is due hereunder with respect to an invoice actually delivered to
Company, then Company will pay B&T the amount due, together with interest
thereon until paid, calculated at the rate of twelve percent (12%) per annum.
9.15 This Agreement contains and embodies the entire agreement of
the parties hereto, and no representations, inducements, or agreements, oral or
otherwise between the parties not contained in this Agreement, if any, will be
of any force or effect. This Agreement may not be modified, changed or
terminated in whole or in part in any manner other than by an agreement in
writing duly signed by both parties.
9.16 This Agreement may be signed in counterparts both of which
taken together shall be deemed one original. Telecopied facsimiles of a signed
counterpart of this Agreement from one party to the other will be deemed to be
delivery of a signed counterpart by the party sending the telecopied facsimile.
9.17 IN WITNESS WHEREOF, the parties have signed and delivered this
Agreement on the date first above written.
BAKER & TAYLOR, INC.
by Baker & Taylor Entertainment
By: /s/
---------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
Global Media Corp.
By: /s/ L. James Porter
----------------------------------------------
Name: L. James Porter
Title: Chief Financial Officer
11
<PAGE>
Exhibit 10.17
LICENSE AGREEMENT
Based on their respective representations, warranties, covenants, rights, and
responsibilities, set forth below, Muze Inc., at 304 Hudson Street, 8th Floor,
New York, NY 10013, Fax No. 212-741-1246, a New York corporation, and Global
Media Corp. at 83 Victoria Crescent, Nanaimo BC V9R 5B9 Canada, Fax No.
1-604-986-6410, a Canadian Corporation, enter into this License Agreement as
follows:
1. DEFINITIONS
"Agreement" means this License Agreement, including its attachment(s).
"Term and Conditions" means the specific additional terms and conditions of this
Agreement set forth in Attachment 1 (as may be amended from time to time).
"Effective Date" means the date this Agreement enters into force, noted in the
Terms and Conditions.
"Hardware" means the computer and other hardware on which the Products run (the
Hardware is listed in Attachment 1 unless Muze supplies any of the Hardware, in
which case Hardware and the terms of purchase are set forth in an Attachment 2).
"Licensee" means Global Media Corp.
"Muze" means Muze Inc.
"Products means data and/or software and periodic updates licensed by Muze to
Licensee under this Agreement, as set forth in the Terms and Conditions.
"Services" means the services provided by MUZE to Licensee under this Agreement,
if any, as described or provided for in the Terms and Conditions.
2. GRANT OF LICENSE
Muze grants Licensee a non-exclusive, non-transferable, limited right to use the
Products strictly in accordance with all the provisions of this Agreement. This
license shall be immediately terminable by Muze for any material breach by
Licensee of its obligations under this Agreement.
Unless terminated by Muze as provided for above, the license and this Agreement
shall continue in force for the time period set forth in the Terms and
Conditions. Should Muze terminate this Agreement because of a material breach by
Licensee, it will not refund any portion of the license fees or other fees (as
provided for in the Terms and Conditions) already paid by Licensee or already
accrued at the time of termination. Unless otherwise provided in the Terms and
Conditions, this Agreement shall automatically be extended for successive
one-year periods at the end of the initial term.
All ownership rights in the Products and any related know-how, and in any works
that may be created by Muze as a part of the Services, shall remain with Muze.
Licensee shall not contest Muze's ownership rights in the Products or any such
works.
3. LICENSEE'S OBLIGATIONS
LICENSEE SHALL:
a. Use the Products only on the Hardware, at the locations, and according to the
conditions specified in the Terms and Conditions.
b. Make all payments required by the Terms and Conditions in a timely manner.
c. Comply with all applicable laws and regulations regarding use of the
Products, including any laws or regulations relating to sale of goods and
services and to privacy rights. Licensee shall be responsible for determining
the existence and applicability of any such laws and regulations and for
obtaining any necessary permits or approvals for use of the Products.
d. Restrict its end users to non-commercial use of the Products and notify each
of its end users of the Products that the Products are owned by Muze and may bot
be copied or used without Muze's consent. Licensee shall incorporate the rights
notices set forth in the Terms and Conditions in its end-user interface.
e. Keep confidential all of Muze's proprietary information provided to it under
this Agreement (or under any previous Confidentiality Agreement) during the term
of this Agreement and for ten (10)
1
<PAGE>
years after termination. This obligation shall apply to any information
identified by Muze as confidential and any information that Licensee knows, or
should know under the circumstances, is proprietary. Muze proprietary
information may include the Products, documentation, technical information,
business or technical concepts or designs. Licensee's obligation shall not apply
to information: (1) lawfully in the public domain, (b) Licensee lawfully
possessed before disclosure by Muze, or (c) lawfully disclosed to Licensee by a
third party without obligation of confidentiality. Upon termination of this
Agreement, Licensee shall return or destroy, at Muze's election, any Muze
proprietary information still in its possession.
f. Upon termination of this Agreement, return or destroy, at Muze's election,
the Products and any copies, as well as any matter that incorporates any other
Muze proprietary or confidential information.
g. Permit Muze to use Licensee's name as a customer reference and prominently
feature a link to Muze's web site if the Products are available to end users on
the internet pursuant to the Terms and Conditions.
h. Indemnify Muze against any claims made against Muze (or its affiliates,
officers, directors, employees, or contractors) by third parties (including by
any of Licensee's employees or contractors) arising out of (a) content,
software, or hardware not provided by Muze, (b) Licensee's breach of any of its
obligations under this Agreement, or (c) any illegal or unauthorized use of the
Products by Licensee, its employees, contractors, or end users. Muze shall
promptly notify Licensee of any such claim. Licensee shall conduct the defense
of any such claim, at its own expense, subject to Muze's right to participate
and to approve any settlement that purports to bind Muze in any way.
LICENSEE SHALL NOT:
a. Use the Products other than at the sites and in the manner set forth in the
Terms and Conditions.
b. Reverse engineer, decompile, or disassemble the Products, nor shall it modify
the Products or create any derivative works.
c. Assign, sell, rent, timeshare or use the Products in any way not expressly
permitted in this Agreement.
d. Sublicense the Products to any party, including to its affiliates, unless
specifically authorized to do so in the Terms and Conditions.
e. Make any copies of the Products, except (a) as necessary to run the Products
on the Hardware, and (b) one copy for archival or backup purposes.
f. Intentionally or negligently permit any third party to copy the Products or
extract data or code from them.
g. Remove any Muze copyright or other proprietary rights notices included in or
on any of the Products.
h. Use Muze's trademarks without written consent.
Licensee represents and warrants that:
a. It is authorized to enter into this Agreement.
b. It is free to fully perform its obligations under this Agreement and will
comply with each of them.
4. MUZE'S OBLIGATIONS
MUZE SHALL:
a. Indemnify Licensee from any claim by a third party that proper use of the
Products infringes a U.S. intellectual property right of that third party. This
indemnity is conditioned on Licensee's (a) prompt notification of Muze of any
such claim and (b) compliance with its negative covenants. This indemnity shall
not apply to (i) graphical, audio, video, or other media content, or third-party
software, supplied with or as part of the Products or (ii) any software or
systems not provided by Muze. Muze shall have the right to conduct the defense
of any such claim, subject to Licensee's reasonable right to participate in any
settlement thereof that may affect it in any way not related to its use of the
Products. Should any such claim by a third party result in a material limitation
of Licensee's rights to use the Products, Muze shall, at its election: (a)
provide a functionally equivalent, non-infringing substitute for the Product(s);
(b) procure at its own expense the necessary licenses or rights for Licensee to
continue using the Product(s); or (c) refund any license fees paid by Licensee
for the period beginning upon such material limitation of Licensee's rights. In
no case shall Muze's liability under this Agreement exceed the total license and
other fees paid by Licensee.
2
<PAGE>
b. Perform the Services, if any, (specified in the Terms and Conditions) in a
professional manner and to a professional standard of quality and effectiveness.
MUZE REPRESENTS AND WARRANTS THAT:
a. It is authorized and has the right to enter into this Agreement and is free
to fully perform its obligations hereunder.
b. It shall comply with all of its obligations hereunder.
5. DISCLAIMER OF WARRANTIES; LIMITATION ON LIABILITY
EXCEPT AS SET FORTH ABOVE, Muze MAKES NO WARRANTIES, EXPRESS OR IMPLIED (BY LAW
OR OTHERWISE) AS TO ANY MATTER WHATSOEVER. THE PRODUCTS ARE PROVIDED "AS IS,"
AND ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE ARE EXPRESSLY EXCLUDED.
EXCEPT AS SET FORTH ABOVE, Muze SHALL NOT BE LIABLE FOR ANY CLAIMS AGAINST
Licensee BY ANY THIRD PARTY (INCLUDING BY Licensee's EMPLOYEES OR CONTRACTORS).
IN NO CASE SHALL ANY LIABILITY OF Muze EXCEED THE TOTAL LICENSE AND OTHER FEES
PAID TO Muze BY Licensee HEREUNDER. FURTHERMORE, Muze SHALL UNDER NO
CIRCUMSTANCES (OTHER THAN WILLFUL MISCONDUCT) BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL OR INDIRECT DAMAGES.
6. OTHER PROVISIONS
PRESS RELEASES: Muze and Licensee shall each have the reasonable right to
approve the other's press releases concerning the business relationship of the
parties. If one party does not respond to the other party's request for approval
within five (5) business days of receiving any such request, approval shall be
deemed granted.
GOVERNING LAW AND DISPUTE RESOLUTION: This Agreement shall be governed by New
York law, as though executed and fully performed in New York, and without
reference to New York's conflict of laws principles. Licensee consents to venue
and personal jurisdiction in the State and Federal courts located in New York
County for the resolution of any disputes arising out of this Agreement.
Licensee acknowledges that any breach by it of its obligations under this
Agreement may cause Muze irreparable harm for which there may be no adequate
remedy at law, and that Muze may therefore be entitled to equitable relief by
injunction or otherwise.
AMENDMENT OR WAIVER: Any amendment to this Agreement must be in writing and
signed by both parties. No provision of this Agreement may be waived except in
writing signed by the party against whom enforcement of the waiver is sought.
NOTICES: Notices shall be sent by courier or by certified mail to the addressee
set forth above, or to any succeeding address that may be provided.
INDEPENDENT CONTRACTORS: Both parties acknowledge that they are independent
contractors and that no joint venture, partnership, agency, or employment
agreement is created by this Agreement.
ENTIRE AGREEMENT: This Agreement and its Attachment(s) constitute the parties'
entire agreement with respect to the subject matter hereof and supersede all
prior and contemporaneous oral and written representations with respect thereto.
3
<PAGE>
Signed:
Muze Inc.
By /s/ Anthony Laudico
--------------------------------
Name: Anthony Laudico
Title: Chief Executive Officer
Global Media Corp.
By /s/ Michael Metcalfe
--------------------------------
Name: Michael Metcalfe
Title: President
August 7, 1998
4
<PAGE>
ATTACHMENT 1
TERMS AND CONDITIONS
EFFECTIVE DATE:
- - August 7, 1998
TERM:
- - Three (3) years from effective date.
- - Agreement will renew automatically for successive one (1) year periods
unless either of the parties notifies the other in writing of its desire to
terminate the Agreement at least sixty (60) days before the end of the term
or any successive term.
PRODUCTS, FORMAT MEDIUM:
- - CHECK ALL THAT APPLY
- - |X| Muze for Music (database only), on-line version
- - |X| Muze for Video (database only), on-line version
- - |_| Muze for Books (database only), on-line version
- - |X| Encyclopedia of Popular Music (database only), on-line version
SITES, HARDWARE, AND OTHER LIMITATIONS:
- - Licensee's use of the Products shall be limited to the following website(s)
(a separate license fee may be due for each site; see below for definition
of a single site):
- - List URL(s): www.GMCORP.NET.com
- - The Products may only run on a single server. Multiple URL's linked to the
same site for on-line sales transactions generally constitute a single sit,
as do mirrored on-line sales transactional sites.
- - Licensee shall not offer, or knowingly permit others to offer, public
internet access terminals at any retail location where its products are
sold.
- - Licensee shall not display to end users the catalog numbers (except for
catalog numbers for classical music) or UPC numbers that may be contained
in the Products.
PAYMENT AND TERMS:
- - Fees shall be payable beginning the earlier of the first month starting at
least thirty (30) days after the Effective Date or the date Licensee's site
(URL listed above) is running the Products and is accessible to Licensee's
end users via the internet.
[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
<PAGE>
[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
SERVICES:
<PAGE>
- - For so long as Licensee is in compliance with its obligations under the
Agreement, Muze will provide updates of data and/or software relevant to
the licensed Products approximately every week for Muze for Music and every
two weeks for Muze for Video.
- - Muze will provide the updates in one of Muze's standard formats/media, as
agreed by the parties. Licensee shall return each update (unless updates
are downloaded by agreement with Muze) before receiving the next update.
- - Any custom work provided by Muze shall be at Muze's standard rates
pursuant to an authorized work order.
RIGHTS NOTICES:
- - Licensee shall ensure that the following credits and rights notices appear
on each page of its website from which end users may access the Products:
- - For Muze for Music:
"Copyright 1948-(current year) Muze Inc. For personal non-commercial use only.
All rights reserved."
- - For Muze for Video:
"Copyright 1981-(current year) Muze Inc. For personal non-commercial use only.
All rights reserved."
- - For Encyclopedia of Popular Music:
"Copyright 1988-(current year) Muze UK Ltd. For personal non-commercial use
only. All rights reserved."
- - On all pages from which the Products may be accessed;
The Muze logo, as supplied electronically with the Products.
<PAGE>
RIDER TO THE AGREEMENT BETWEEN MUZE INC. AND GLOBAL MEDIA CORP.
As of January 18, 1999 the License Agreement and Terms and Conditions between
Muze Inc., and Global Media Corp., dated August 7, 1998, is hereby amended as
follows:
The "Products, Format, Medium" section of the Terms and Conditions shall be
amended to include the Muze for Books Product.
The copyright notices required to be included on Licensee's web pages shall be
expanded by adding the following notice to all web pages on which the Muze for
Books Product data appear:
"Copyright 1995-(current year) Muze Inc. For personal non-commercial use only.
All right reserved."
The minimum monthly license fee shall increase an additional $1,000 per month
(to reflect the addition of the Muze for Books Product), and the section
pertaining to rates shall be amended by adding the following:
For each Product licensed, if greater than the monthly minimum, the monthly
license fee shall be calculated based on the following rates, and shall be due
by the fifteenth day of the following month, with a credit for the minimum
already paid:
- - for each on-line sale of any Licensee product listed in the database of
the Muze for Books Product:
<TABLE>
<CAPTION>
ON-LINE SALES PERCENT OF RETAIL PRICE OF ALL
PAYABLE TO MUZE: (PER MONTH) SUCH SALES
---------------- ----------------------
<S> <C>
[Subject to request for confidential treatment
filed with the SEC on July 30, 1999]
</TABLE>
No other changes are made or intended by this rider.
Signed:
MUZE INC. GLOBAL MEDIA CORP.
By /s/ Anthony Laudico By /s/ Winston V. Barta
-------------------------------- -------------------------------
Name: Anthony Laudico Name: Winston V. Barta
Title: Chief Executive Officer Title: V.P.
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
Global Media [Canada] Entertainment, Corporation
Western Wireless Cable Ltd.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CHARTERED
ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our audit report dated October 28, 1998, except for Notes 1, 3 and 10, as to
which the date is June 18, 1999, on our audits of the consolidated financial
statements of GLOBAL MEDIA CORP. We also consent to the reference to our firm
under the caption "Experts".
/s/ Ernst & Young LLP
Vancouver, Canada, ----------------------------
July 29, 1999 Chartered Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (A) THE RESTATED AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
FOR THE YEAR ENDED JULY 31, 1998, AND (B) THE RESTATED UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY FOR THE NINE MONTHS ENDED APRIL 30, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1999
<PERIOD-START> AUG-01-1997 AUG-01-1999
<PERIOD-END> JUL-31-1998 APR-30-1999
<CASH> 14,996 85,299
<SECURITIES> 0 0
<RECEIVABLES> 92,572 28,993
<ALLOWANCES> 92,366 0
<INVENTORY> 1,992 0
<CURRENT-ASSETS> 98,927 120,714
<PP&E> 216,344 743,630
<DEPRECIATION> 43,702 121,688
<TOTAL-ASSETS> 271,562 742,656
<CURRENT-LIABILITIES> 378,141 1,111,890
<BONDS> 0 0
0 0
0 0
<COMMON> 11,892 12,546
<OTHER-SE> (118,471) (381,780)
<TOTAL-LIABILITY-AND-EQUITY> 271,562 742,656
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 304,919 1,210,039
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,298 47,283
<INCOME-PRETAX> (304,919) (1,257,322)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (304,919) (1,257,322)
<DISCONTINUED> (472,674) (2,080)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (472,674) (1,259,402)
<EPS-BASIC> (.03) (.06)
<EPS-DILUTED> (.03) (.06)
</TABLE>
