<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1999
REGISTRATION NO. 333-84145
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL MEDIA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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NEVADA 4541 91-1842480
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
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]
<PAGE>
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(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. [ ]
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, AUGUST 20, 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
and Exchange Commission using a "shelf"
See page 46 for the names registration process. This process allows
of the selling stockholders 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 the Series A convertible
NASD OTC Bulletin Board - GLMC preferred stock or 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.
---------------
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 August _____, 1999
<PAGE>
TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY...........................................................1
RISK FACTORS.................................................................5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS........................17
USE OF PROCEEDS.............................................................19
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY.............................20
CAPITALIZATION..............................................................21
SELECTED FINANCIAL DATA.....................................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..........................................23
BUSINESS....................................................................30
MANAGEMENT..................................................................40
CERTAIN TRANSACTIONS........................................................44
SELLING STOCKHOLDERS........................................................46
PLAN OF DISTRIBUTION........................................................47
PRINCIPAL STOCKHOLDERS......................................................48
DESCRIPTION OF CAPITAL STOCK................................................50
SHARES ELIGIBLE FOR FUTURE SALE.............................................55
LEGAL MATTERS...............................................................56
EXPERTS.....................................................................56
WHERE YOU CAN FIND ADDITIONAL INFORMATION...................................56
</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 our 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
entertainment company by building a network of private label entertainment
product storefronts on the Web and developing an online broadcast solution
for the delivery of streaming media over the Internet.
We currently offer an extensive catalogue of music, books and
movies, easy-to-use navigation and search capabilities and rich,
entertainment-focused content on our own branded online storefront at
"www.globalmedia.com," which we launched in May 1999. However, we are
focusing primarily on expanding our sales of entertainment merchandise
through our "Global Media Network" program, which we have begun marketing to
radio and television stations and other businesses. Under this program, we
provide an entertainment product e-commerce solution that combines a
customized, private label online storefront on the network associate's own
Web site with our back-end e-commerce systems and services. Visitors to the
network associate's Web site will be able to order merchandise on the
associate's branded online storefront, while the orders will be processed
through our back-end systems and fulfilled by our order fulfillment partners.
In addition to the private label e-commerce solution we offer under the
Global Media Network program, we are currently developing our "Global Media
Broadcast Network" to enable broadcast network associates to stream live and
simulated live audio, video and other multimedia content over the Internet. To
enable our network associates to offer an integrated online e-commerce and
entertainment experience, we are designing our Global Media Broadcast Network
system so that its streaming media capabilities can be combined with our private
label e-commerce 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, we
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 for the creation of the private
label storefronts and will be paid a percentage of the gross margin realized on
products sold through their sites.
<PAGE>
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, Inc.
The Global Media Broadcast Network will enable broadcast network associates
to deliver simulated live and live Internet broadcast of audio, video and
other multimedia content from their Web sites. We believe that the Global
Media Broadcast Network will be a compelling solution to radio and television
stations that are interested in extending their brands onto the Internet and
developing new sources of revenues. While we will offer streaming media
services on a stand-alone basis, the Global Media Broadcast Network is being
designed so that its streaming media capabilities can be combined with our
private label e-commerce solution. As a result, our network associates will
be able to offer an integrated online shopping and entertainment experience.
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.
We currently offer a catalogue of more than 1.3 million
entertainment products, including over 353,000 CD titles, over 85,000 home
video titles, over 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 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 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 online magazine subscription sales,
concert and event ticket sales and other entertainment-oriented services. 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
<PAGE>
THE OFFERING
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COMMON STOCK OFFERED BY SELLING STOCKHOLDERS: 7,443,153 shares
COMMON STOCK OUTSTANDING BEFORE THIS OFFERING: 20,678,631 shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING: 28,121,784 shares
USE OF PROCEEDS FROM CONVERSION OF SERIES A PREFERRED We will receive no proceeds from conversion of the Series
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 OPTIONS We will receive the exercise price of investment options
AND WARRANTS: and warrants that are exercised by the selling
stockholders, if any. 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 $8,620,000 (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 had reserved, as of the
date of filing the registration statement of which this prospectus is a part,
for issuance upon conversion of the Series A preferred stock, exercise of the
related investment options and exercise of the warrants. 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, 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. See
"Description of Capital Stock - Preferred Stock -Series A Convertible
Preferred Stock - Conversion Rights".
The number of shares to be outstanding after this offering set forth
above does not include 3,298,669 shares reserved for issuance upon exercise of
outstanding stock options granted under our stock option plans and other
warrants currently outstanding or 24,848 shares reserved for issuance under
certain shareholder loan restructuring arrangements described in "Certain
Transactions--Loans to and from Afiliates."
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
<PAGE>
SUMMARY FINANCIAL DATA
The following summary financial information was derived from our
historical consolidated financial statements. Net revenues exclude 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)
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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
</TABLE>
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<CAPTION>
APRIL 30,
----------------
CONSOLIDATED BALANCE SHEET DATA: 1999
----
(UNAUDITED)
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Working capital deficiency...................................................................... $ (991,176)
Total assets............................................................................... 742,656
Total liabilities.......................................................................... 111,890
Total stockholders' equity (deficiency).................................................... (369,234)
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4
<PAGE>
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 begun
offering streaming media services. 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 program by
establishing broad market acceptance of the program and rapidly
rolling out private label online storefronts for numerous network
associates;
- together with RealNetworks, complete development of the Global
Media Broadcast Network System and gain broad market acceptance of
the streaming media services we intend to offer through the Global
Media Broadcast Network program;
- 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 online store and those of our network associates;
- 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
those of our network associates 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 and the offering of streaming media
5
<PAGE>
services, 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:
- 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;
6
<PAGE>
- our ability to scale technology and upgrade order processing
capabilities;
- price competition;
- 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 and those of our
network associates;
- 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
7
<PAGE>
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.
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.
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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 services, to
date, we have only entered into a limited number of definitive agreements with
network associates and have not rolled out any private label online stores for
those with whom we have contracts. 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 broadcast 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 broadcast 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 system;
- 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
and Global Media Broadcast Network programs 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 division 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
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- are unable or unwilling to ship products to any markets in
which we have customers.
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.
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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 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.
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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 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.
15
<PAGE>
RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE
As of August 11, 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 of our common stock as is determined by dividing the stated
value of the Series A preferred stock being converted ($1,000 per share),
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 August 11, 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
2,744,288 shares (based on the conversion price in effect on August 11,
1999). 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 August 11, 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 August 11, 1999, 3,235,900 shares of common stock were
reserved for issuance upon exercise of outstanding stock options granted under
our stock option plans at exercise prices ranging from $4.00 to $6.25 per share.
In addition, at such date we had other warrants to purchase a total of 62,769
shares at an exercise price of $8.125 per share outstanding. Of such stock
options and other warrants, 2,530,136 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 August 11, 1999, 20,678,631 shares of our common stock were
outstanding. Of these outstanding shares, 4,860,631 were freely tradeable
without restriction. 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 filed registration statements to register all shares of common
stock issuable under certain of our stock option plans. Options covering a total
3,235,900 shares, 2,467,367 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 85.5%, and Michael Metcalfe, our
Chairman and President beneficially owns approximately 68.9%, 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
16
<PAGE>
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 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 50-week period between
the date our common stock began trading on August 24, 1998 and August 11, 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
17
<PAGE>
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.
18
<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, but they are under no
obligation to exercise. 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 $8,620,000 (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.
19
<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 August 11, 1999, the closing price for our
common stock on the OTC Bulletin Board was $6.47 per share.
<TABLE>
<CAPTION>
PERIOD LOW CLOSE HIGH CLOSE
<S> <C> <C>
Fiscal Year Ending July 31, 1999:
- ---------------------------------
Fourth Quarter $4.00 $13.375
Third Quarter $4.00 $ 5.000
Second Quarter $ .4375 $ 8.875
First Quarter (from August 24, 1998) $ .4375 $ 2.000
</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.
20
<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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Recent Events", 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 "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recent Events" 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
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(1).................................... 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
------------ ------------ ------------
Total capitalization......................................... $ (369,234) $ 8,130,766 $ 8,130,766
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(1) 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.
21
<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, 1997 and 1998 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, 1998 and 1999 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
</TABLE>
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
---------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1997 1998 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Working capital (deficiency)........................ $ 66,029 (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>
22
<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., 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
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.
23
<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."
24
<PAGE>
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.
25
<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.
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 satisfaction of
certain conditions, including stockholder approval of an amendment to our
articles of incorporation creating 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 and certain corporate filings with the Nevada Secretary of
State. On July 19, 1999, having satisfied those conditions, we exercised our
right to convert the debenture into 8,500 shares of Series A preferred stock.
The stated value ($1,000), of each share of Series A preferred stock,
plus an amount accruing thereon at the rate of 5% per annum, 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 warrants we issued to RGC 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 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 a 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.
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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.
SHAREHOLDER LOAN RESTRUCTURE
On July 26, 1999, we completed a restructure of loans received from
Benjamin Metcalfe, and from a company affiliated with Robert Fuller. In that
restructure, we issued the following shares of common stock and promissory notes
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act:
- 15,631 shares of common stock and a promissory note for
$127,000 in initial principal balance to Benjamin Metcalfe; and
- 9,217 shares of common stock and a promissory note for
$74,886.50 in initial principal balance to Sandcastle Inn Ltd.
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 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,
-------- ---------
27
<PAGE>
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>
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<PAGE>
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.
Westcoast has been accounted for as a discontinued operation, and accordingly,
its operations have been segregated in the accompanying consolidated statements
of operations. The following chart summarizes Westcoast's revenue and expenses:
<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.
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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.
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BUSINESS
OVERVIEW
Global Media is an online seller of music CDs, home video, cassettes,
DVDs, books and other entertainment products. Our online store, on the Web at
www.globalmedia.com, combines 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 currently do not intend to aggressively promote our
own online store because we believe the marketing efforts and expenditures
associated with creating a successful brand in the online entertainment product
retailing industry would strain our resources. Instead of pursuing a branded
online retailing strategy, we are striving to extend our customer reach on the
Web by implementing a network associate program under the "Global Media Network"
name. Through our Global Media Network program, we have begun offering radio and
television stations and other businesses an e-commerce solution which combines a
customizable, private label online entertainment merchandise store on the
network associate's own Web site with our back-end e-commerce system and
services. Visitors to a network associate's Web site will be able to order
merchandise on the associate's branded online storefront, while the orders will
be processed through our back-end systems and fulfilled by our order fulfillment
partners. In addition to our Global Media Network e-commerce business, we are
currently developing a streaming media solution, to be promoted under the
"Global Media Broadcast Network" name, through a strategic relationship with
RealNetworks, Inc. Once this system is complete and ready for commercial launch,
we will offer our network associates the ability to stream live and simulated
live audio, video and other multimedia content (such as radio feeds) over the
Internet. This system has been designed so that it can be combined with our
private label e-commerce solution and enable our network associates to offer an
integrated e-commerce and multimedia entertainment 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
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- 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:
- 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.
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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.
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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:
- 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 branded
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 entertainment company by
building a network of private label entertainment product storefronts on the Web
and developing an online broadcast solution for the delivery of streaming media
over the Internet. 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 own 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,
34
<PAGE>
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 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 complete online storefront under its own brand name consistent with
the "look and feel" of its own Web site. The network associate's private label
storefront 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 percentage of the gross margin realized on products
sold 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 and technical
resources 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);
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- 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-commerce and entertainment system, we are developing the "Global
Media Broadcast Network" through a strategic relationship with RealNetworks.
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. 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. 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 brand. 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
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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 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 genres 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.
37
<PAGE>
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.
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
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<PAGE>
- 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 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
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<PAGE>
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
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.
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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 August 11, 1999, we employed approximately 64 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.
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 approximately
5,700 square feet of office space in Nanaimo, British Columbia. This lease
expires in July 2002. We are currently negotiating a lease for an office in New
York, New York and are considering leasing space in Los Angeles, California. We
believe our leased facilities, when combined with these additional U.S.
offices, will be 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 August 11, 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
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firm. From February 1995 through July 1998, Mr. Porter was a director, chief
financial officer and secretary of Harriston Corporation, a diversified
holding 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 April 1999, 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 March 1996 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, 1999
(collectively, the "Named Executives"):
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<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ---------------------
SECURITIES ALL OTHER
UNDERLYING OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Metcalfe, President 0 0 700,000 0
Robert Fuller, Chief Executive Officer 0 0 700,000 0
</TABLE>
OPTION GRANTS, OPTION EXERCISES AND OPTION VALUES
The following table sets forth information on grants of stock options
or other similar rights by the Company during the last fiscal year to the Named
Executives.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL EXERCISE OR
NAME UNDERLYING OPTIONS OPTIONS GRANTED TO BASE PRICE EXPIRATION
GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) DATE
- ---------------------- --------------------- ------------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Michael Metcalfe 200,000 (1) .50 8/21/00
500,000 4.00 4/21/00
---------------------
Total 700,000 17.4%
Robert Fuller 200,000 (1) .50 8/21/00
500,000 4.00 4/23/04
---------------------
Total 700,000 17.4%
</TABLE>
- -----------------
(1) 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 $548,800 for the
980,000 options granted to directors, executive officers and employees. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Nine months ended April 30, 1999
compared to Nine Months ended April 30, 1998."
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES.
The following table sets forth information concerning exercise of stock
options during the last fiscal year by each Named Executive and the fiscal year
end value of unexercised options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
----------------------------- -------------------------------
SHARES ACQUIRED
NAME ON EXERCISE (#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------------ ---------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael Metcalfe 200,000 $700,000 500,000 0 $1,968,500 0
Robert Fuller 200,000 $700,000 500,000 0 $1,968,500 0
</TABLE>
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<PAGE>
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 August 11,
1999:
<TABLE>
<CAPTION>
SHARES OPTIONS AVAILABLE OPTIONS
PLAN NAME EFFECTIVE DATE RESERVED ISSUED SHARES EXERCISED
- -------------------------------------------------- ------------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
1997 Directors and Officers Stock Option Plan April 8, 1997 500,000 0 500,000 0
1998 Directors and Officers Stock Option Plan August 21, 1998 1,000,000 1,000,000 0 783,500
1999 Stock Option Plan March 24, 1999 4,000,000 3,023,700 976,300 4,300
</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.
The options granted under our 1998 stock option plan had an exercise price of
$.50 per share. All of these options were fully exercisable from the date of
grant, and, as of August 11, 1999, all of these options have been exercised. The
options granted under our 1999 stock option plan have exercise prices ranging
from $4.00 to $6.33 per share. As of August 11, 1999, 768,533 of these options
are subject to vesting requirements, and 2,250,867 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 consideration consisting of
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. 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 in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Events", we agreed to (a) repay one-half of the
principal balance outstanding at May 6, 1999 ($220,552), plus $16,724 in accrued
interest, by issuing shares of our common stock at $8.125 per share, 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. This restructuring
was completed as of July 26, 1999.
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. 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 principal balance outstanding at May 6, 1999 ($137,931),
plus $10,345 in accrued interest, by issuing shares of our common stock at
$8.125 per share, 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. This restructuring was completed as of July 26, 1999.
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
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<PAGE>
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>
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 granted to our executives
under our 1998 stock option plan have been exercised.
1999 PLAN. As of August 11, 1999, 1,910,000 of the total 3,023,700
options granted under our 1999 Plan were granted to 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 granted 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.
47
<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 STOCK BENEFICIAL OWNERSHIP OF COMMON STOCK AFTER
PRIOR TO THE OFFERING THE OFFERING
---------------------------------------- ----------------------------------------------
NUMBER OF SHARES TO
NUMBER OF BE SOLD UNDER THIS
SELLING STOCKHOLDER SHARES PROSPECTUS NUMBER OF SHARES PERCENT OF CLASS
------------------- ------ ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
RGC International
Investors, LDC 7,443,153 7,443,153 0 0
</TABLE>
The number of shares set forth in the table for RGC represents 200% of
the number of shares issuable upon conversion or exercise of the Series A
preferred stock, related investment options and warrants as of the date of
filing of the registration statement of which this prospectus is a part. 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
August 11, 1999, the conversion price would have been $6.277, 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 August 11, 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 1,372,144 shares of common stock and the related
investment options would have, assuming full exercise, resulted in the issuance
of an additional 1,372,144 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
48
<PAGE>
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.
49
<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.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table shows, to the best of our knowledge, the common
stock beneficially owned as of August 11, 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) 68.9
Robert Fuller 2,068,000 (3) 9.8
Winston V. Barta 299,000 (4) 1.4
Jack MacDonald 75,000 (5) *
1904 111 Beach Ave.
Vancouver, B.C. Canada V6E 1T9
Barr Potter 125,000 (6) *
2029 Century Park East, Suite 2500
Los Angeles, CA 90067
L. James Porter 200,000 (7) *
Monte Walls-Burris 283,000 (8) 1.4
Annie Ho 20,000 (9) *
------------
All Officers and Directors as a Group 17,670,000 85.5%
(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.
(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
Mr. Fuller's spouse.
(4) Includes currently exercisable options to purchase 250,000 shares of
common stock.
51
<PAGE>
(5) Includes currently exercisable options to purchase 25,000 shares of
common stock.
(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 20,000 shares of
common stock.
52
<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.
As of August 11, 1999, our authorized capital stock consists of (a)
200,000,000 shares of common stock, par value $0.001 per share, of which
20,678,631 shares were issued and outstanding, 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. See
"-Preferred Stock." As of August 11, 1999, we estimated that there were
approximately 38 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
53
<PAGE>
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.
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: If we declare bankruptcy, become
insolvent, appoint a receiver, file for dissolution, or similar
events, and there are assets and funds available for
distribution to the holders of our capital stock, then 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 interest at 5% per
year from May 6, 1999 prior to any distribution to the holders
of common stock. If we (a) sell all or substantially all of our
assets (b) effect a transaction or series of transactions in
which 50% or more of our common stock is sold, or (c) merge,
consolidate or otherwise combine with another business entity,
then the holders of the Series A preferred stock may elect to
treat such actions 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 (a) 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 (b) 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
54
<PAGE>
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.
- 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 by 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: (a) any untrue statement of a material fact in the
registration statement; (b) any untrue statement or alleged untrue statement
contained in any preliminary prospectus if used prior to the effective date of
the registration statement; or (c) 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.
55
<PAGE>
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.
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
56
<PAGE>
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).
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 (a) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (b) 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.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
On August 11, 1999, 20,678,631 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, 3,418,722 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, 4,860,631 shares of common
stock are immediately eligible for sale in the public market without restriction
or further registration. 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 promulgated under the Securities Act or another
exemption from registration.
In general, under Rule 144, 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. An officer, director or other affiliate who holds
shares which are not restricted securities may sell such shares within the
volume limitations described above but is not subject to the holding period
described above. As of August 11, 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, related investment options, and warrants
held by the selling stockholders are registered on the registration statement of
which this prospectus is a part and are currently 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 without restriction, unless held by an "affiliate" of
ours, as that term is defined under Rule 144. As of August 11, 1999, 3,235,900
of the options were outstanding, 2,467,367 of which were currently exercisable
and 768,533 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."
58
<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.
59
<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 18, 1999).
Chartered Accountants
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
<TABLE>
<CAPTION>
(in US dollars)
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
<TABLE>
<CAPTION>
(in US dollars)
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
<TABLE>
<CAPTION>
(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
- ---------------------------------------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
(in US dollars)
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 SEC. 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
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
F-20
<PAGE>
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>
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
</TABLE>
F-21
<PAGE>
<TABLE>
<S> <C> <C>
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.
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.
F-22
<PAGE>
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.
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:
F-23
<PAGE>
<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.
SHAREHOLDER LOAN RESTRUCTURE
II-2
<PAGE>
On July 26, 1999, we completed a restructure of loans received from
Benjamin Metcalfe, and from a company affiliated with Robert Fuller. In that
restructure, we issued the following shares of common stock and promissory notes
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act:
- 15,631 shares of common stock and a promissory note for
$127,000 in initial principal balance to Benjamin Metcalfe; and
- 9,217 shares of common stock and a promissory note for
$74,886.50 in initial principal balance to Sandcastle Inn Ltd.
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. (9)
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.). (6) (8)
10.15 Drop Ship Agreement, dated May 14, 1999, between the Company and
Baker & Taylor, Inc. (6) (8)
10.16 Distribution Agreement, dated May 14, 1999, between the Company
and Baker & Taylor, Inc. (6) (8)
10.17 License Agreement, dated August 7, 1998, between the Company and
Muze Inc. (6) (8)
10.18 Loan Restructure and Subscription Agreement, dated July 26,
1999, between the Company and Benjamin Metcalfe. (9)
10.19 Loan Restructure and Subscription Agreement, dated July 26,
1999, between the Company and Sandcastle Inn Ltd.(9)
10.20 Lease between Thomas Downie Holdings Ltd. and the Company dated
July 2, 1999 (Vancouver facility).(9)
21 List of Subsidiaries. (8)
23.1 Consent of Ernst & Young, LLP. (9)
II-3
<PAGE>
23.2 Consent of Dennis Brovarone, Esq. (included in opinion filed as
Exhibit 5.1). (9)
24 Power of Attorney (included on signature page). (8)
27 Financial Data Schedule. (9)
</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 on June 30, 1999.
(8) Incorporated by reference to the Company's Form SB-2 Registration Statement
filed on July 30, 1999.
(9) Filed with this Amendment No. 1 to Form SB-2 Registration Statement.
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 Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Vancouver, British Columbia, Canada
on August 19, 1999.
GLOBAL MEDIA CORP.
By /s/ Robert Fuller
------------------------------
Name: Robert Fuller
Title: Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated on August 19, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Michael Metcalfe
----------------------------
Michael Metcalfe Chairman of the Board and President
/s/ Robert Fuller
----------------------------
Robert Fuller Director and Chief Executive Officer
(Principal Executive Officer)
/s/ Winston V. Barta
----------------------------
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
*By /s/ Robert Fuller
------------------------
Robert Fuller
II-5
<PAGE>
(Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
INDEX TO 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. (9)
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.). (6) (8)
10.15 Drop Ship Agreement, dated May 14, 1999, between the Company and
Baker & Taylor, Inc. (6) (8)
10.16 Distribution Agreement, dated May 14, 1999, between the Company
and Baker & Taylor, Inc. (6) (8)
10.17 License Agreement, dated August 7, 1998, between the Company and
Muze Inc. (6) (8)
10.18 Loan Restructure and Subscription Agreement, dated July 26,
1999, between the Company and Benjamin Metcalfe. (9)
10.19 Loan Restructure and Subscription Agreement, dated July 26,
1999, between the Company and Sandcastle Inn Ltd.(9)
10.20 Lease between Thomas Downie Holdings Ltd. and the Company dated
July 2, 1999 (Vancouver facility).(9)
21 List of Subsidiaries. (8)
23.1 Consent of Ernst & Young, LLP. (9)
23.2 Consent of Dennis Brovarone, Esq. (included in opinion filed as
Exhibit 5.1). (9)
24 Power of Attorney (included on signature page). (8)
27 Financial Data Schedule. (9)
</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 on June 30, 1999.
(8) Incorporated by reference to the Company's Form SB-2 Registration Statement
filed on July 30, 1999.
(9) Filed with this Amendment No. 1 to Form SB-2 Registration Statement.
II-7
<PAGE>
EXHIBIT 5.1
[Letterhead]
August 19, 1998
Global Media Corp.
400 Robson Street
Vancouver, BC
Canada V6B 2B4
Ladies and Gentlemen:
I have acted as special Nevada counsel for Global Media Corp., a
Nevada corporation (the "Company") in connection with a Registration
Statement on Form SB-2, Registration No. 333-84145 (the "Registration
Statement") filed on July 30, 1999, under the Securities Act of 1933, as
amended (the "Securities Act"), covering the following securities of the
Company:
Up to 7,443,153 shares of Common Stock, par value $.001, which may
be sold by selling stockholders of the Company. The selling stockholders may
acquire the shares on conversion or exercise of shares of outstanding Series
A Convertible Preferred Stock ("Series A Preferred"), related investment
options, and warrants. The shares issuable upon conversion or exercise of the
outstanding Series A Preferred, related investment options, and warrants are
referred to herein collectively as the "Shares."
The conversion price of the Series A Preferred and the exercise
price of the related investment options are the lesser of a fixed price or a
variable price determined by reference to the market price of the Company's
Common Stock from time to time. As a result, the actual number of Shares that
the selling stockholders may receive from converting or exercising the Series
A Preferred, investment options and warrants may be more or less than the
number set forth above. The exercise price of the warrants is $8.4375 per
share.
In connection with this opinion, I have examined the originals or
copies, certified or otherwise identified to my satisfaction, of the
Registration Statement, the Company's Articles of Incorporation, as amended,
its Bylaws, as amended, resolutions of its Board of Directors, and such other
documents as we deemed necessary for purposes of rendering this opinion.
I have assumed the authenticity of all documents submitted to me as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to originals of all copies of all documents
submitted to us. I have relied upon the certificates of all public officials
and corporate officers, with respect to the accuracy of all matters contained
therein.
Based upon the foregoing, and subject to the qualifications set
forth therein, I am of the opinion that the Shares have been duly authorized
and, when the selling stockholders acquire the Shares on conversion or
exercise of shares of outstanding Series A Preferred, related investment
options and warrants in accordance with their respective terms and
conditions, the Shares will be validly issued, fully paid and non-assessable.
<PAGE>
Global Media Corp.
Page 2
The opinions set forth above are subject to the following
qualifications:
1) I express no opinion concerning the laws of any jurisdiction
other than the laws of the State of Nevada.
This opinion is intended solely for use in connection with the
transactions described herein. I hereby consent to the use of my name in the
Registration Statement and in the Prospectus filed as a part thereof and to
the filing of this opinion as an exhibit to the Registration Statement. In
giving such consent, I do not thereby admit that I am in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Dennis Brovarone
- ----------------------
Dennis Brovarone, Esq.
2
<PAGE>
EXHIBIT 10.18
LOAN RESTRUCTURE AND
SUBSCRIPTION AGREEMENT
This Agreement is made as of July 26, 1999, between GLOBAL MEDIA CORP., a
Washington corporation (the "Company"), and BENJAMIN METCALFE (the "Lender").
BACKGROUND
A. Between October 1, 1998 and December 1, 1998, the Lender advanced funds
to the Company on an open account (the "Advances"), and the Company made partial
payments against the Advances, in the amounts listed on the attached EXHIBIT A.
B. In connection with the Company's recent convertible debt offering, the
Company and the Lender agreed to restructure and document the Advances as set
forth in this Agreement.
AGREEMENT
In consideration of the terms and conditions of this Agreement, the parties
agree as follows:
1. CONFIRMATION OF AMOUNT AND TITLE. The Lender confirms and agrees that
the outstanding principal amount of the Advances as of the date of this
Agreement is $220,552. The Lender represents and warrants that it is the sole
owner of the Advances and that it has not transferred, assigned, pledged,
mortgaged, or conveyed any of its interest in the Advances.
2. RESTRUCTURE. Upon execution and delivery of this Agreement, the Company
shall execute and deliver to the Lender:
2.1 NOTE. A Note in the initial principal amount of $127,000, in
substantially the form attached as EXHIBIT B (the "Note"). The initial Note
amount is equal to $110,276 (one-half of the current balance of the Advances)
plus $16,724 in accrued interest.
2.2 SHARES. Instructions to the Company's Transfer Agent to issue a
certificate representing 15,631 shares of the Company's common stock (the
"Shares"), subject to Section 5.4, below. The number of Shares is equal to
$110,276 (one-half of the current balance of the Advances) plus $16,724 in
accrued interest, divided by $8.125.
3. CANCELLATION OF ADVANCES. The Lender hereby accepts the Note and the
Shares as payment in full of the Advances, and cancels any obligation of the
Company to repay the Advances, except as set forth in the Note.
4. SUBSCRIPTION. The Lender hereby irrevocably subscribes for the Shares at
a price of $8.125 per share, for a total purchase price of $127,000. The Lender
certifies that it is an "Accredited Investor" as defined in Regulation D of the
Securities Act of 1933, as amended.
5. OTHER SECURITIES ISSUES.
5.1 RISK OF LOSS. The Lender recognizes that an investment in the
Company involves certain substantial risks which could result in the loss of
the Lender's entire investment.
1
<PAGE>
5.2 INVESTMENT INTENT. The Lender certifies that it is purchasing
the Note and the Shares for investment for its own account and not on behalf
of any other person, nor with a view to, or for resale or other distribution
of the Note or the Shares.
5.3 NO REGISTRATION. The Lender acknowledges and understands that:
(a) the Note and the Shares have not been registered under either federal or
state securities laws; (b) the Note and the Shares are being offered and sold
to the Lender pursuant to Section 4(2) or other exemption available under the
Securities Act of 1933, as amended, and comparable state securities
exemptions; and (c) no federal or state agency has made any finding or
determination as to the fairness of this offering for investment, nor any
recommendation or endorsement of the Note or the Shares.
5.4 LEGEND. The Lender consents to the placement of a legend on the
Note and all certificates representing the Shares in substantially the
following form:
These securities have not been registered under the Securities Act of
1933, the Securities Act of Washington, or the securities act of any
other state. They may not be sold or offered for sale in the absence
of an effective registration statement under the applicable act, or
an opinion of counsel satisfactory to the issuer of the securities
that an exemption under the applicable act is available and that such
registration is not required.
5.5 RESTRICTIONS ON TRANSFER. The Lender understands and
acknowledges that: (a) no assignment, sale, transfer, exchange or other
disposition of the Note or the Shares can be made except in accordance with
applicable federal and state securities laws; (b) the Note and the Shares
cannot be sold or otherwise distributed in the absence of registration or an
exemption from the registration requirements of federal and state securities
laws; and (c) the Company is not obligated to take any actions to register
the Note or the Shares or make available any exemptions from federal or state
registration requirements.
5.6 RESIDENCE. The Lender certifies that it is a resident of the
jurisdiction set forth beneath its signature.
6. GENERAL PROVISIONS.
6.1 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall be for the benefit of the parties and their respective
successors and assigns.
6.2 AMENDMENT; WAIVER. The provisions of this Agreement, or of any
agreement or document executed in connection with this Agreement, may be
amended or waived only in a written agreement signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any
right or breach under this Agreement shall not be construed as a waiver of
any other or any subsequent right or breach.
6.3 SEVERABILITY. If any portion of this Agreement is held to be
invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
2
<PAGE>
6.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington, other than
its conflict of law rules. The parties consent to the jurisdiction of and
venue in any appropriate court in King County, Washington.
6.5 INDEPENDENT COUNSEL. The Lender acknowledges that it has been
represented by independent legal counsel with regard to this Agreement, and
has had an adequate opportunity to seek independent legal counsel with regard
to all documents executed in connection with this Agreement. The Lender
acknowledges that Davis Wright Tremaine LLP has represented the Company and
has not represented the Lender.
6.6 NOTICES. The parties shall deliver any notices required under
this Agreement in writing by personal or courier delivery, facsimile
transmission, or by registered or certified mail, return receipt requested,
postage prepaid, to the addresses set forth below, or to such other address
as specified by a party in writing. Notices shall be deemed effective as of
the date of personal or courier delivery, confirmed facsimile transmission,
or three days after the date on the postmark affixed to the notice.
6.7 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall insure to the benefit of the parties and their respective
successors and assigns.
<TABLE>
<S> <C>
------------------------------------- ---------------------------------------
IF TO THE COMPANY: WITH A COPY TO:
------------------------------------- ---------------------------------------
Global Media Corp. Davis Wright Tremaine LLP
400 Robson Street 2600 Century Square
Vancouver, BC Canada V6B 2B4 1501 Fourth Avenue
FACSIMILE: (604) 688-9996 Seattle, Washington 98101-1688
ATTENTION: James L. Porter, FACSIMILE: (206) 386-7500
Chief Financial Officer ATTENTION: Eugenie D. Mansfield, Esq.
------------------------------------- ---------------------------------------
IF TO LENDER: WITH A COPY TO:
------------------------------------- ---------------------------------------
___________________________________ ____________________________________
___________________________________ ____________________________________
FACSIMILE:_________________________ FACSIMILE:__________________________
ATTENTION: ________________________ ATTENTION: _________________________
------------------------------------- ---------------------------------------
</TABLE>
6.8 ATTORNEY FEES. The prevailing party in any arbitration or
litigation concerning this Agreement is entitled to reimbursement of its
reasonable attorneys' fees, costs and expenses from the non-prevailing party,
including fees, costs and expenses incurred on appeal or in bankruptcy
proceedings.
6.9 ENTIRE AGREEMENT. This Agreement, its attached schedules and
exhibits, and the documents executed in connection with this Agreement,
contain the entire agreement of the parties with respect to the subject
matter of this Agreement, and supersede any and all prior agreements, written
or oral, relating to their subject matter.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together will constitute the same instrument.
3
<PAGE>
Executed as of the first date written above.
LENDER:
BENJAMIN METCALFE
/s/ BENJAMIN METCALFE
------------------------------------
Jurisdiction of Residence:
----------
COMPANY:
GLOBAL MEDIA CORP.
By: /s/ L. JAMES PORTER
-------------------------------
Name: L. James Porter
Title: Chief Financial Officer
4
<PAGE>
EXHIBIT A
ADVANCE AND PAYMENT HISTORY
<TABLE>
<CAPTION>
DATE CDN FUNDS EXCHANGE RATE US FUNDS CUMULATIVE TOTAL
(US FUNDS)
$ $ $ $
<S> <C> <C> <C> <C>
10/01/98 50,407 1.47 34,290.48 34,290
10/13/98 (31,250) 1.47 (21,258.50) 13,032
10/23/98 (15,575 1.47 (10,595.20) 2,437
11/20/98 150,000 1.47 102,040.80 104,478
12/08/98 100,000 1.47 68,027.21 172,506
12/09/98 30,000 202,505
12/29/98 (11,000) 191,505
12/01/98 28,890 220,395
</TABLE>
5
<PAGE>
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, THE
SECURITIES ACT OF WASHINGTON, OR THE SECURITIES ACT OF ANY OTHER STATE. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE APPLICABLE ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THE SECURITIES THAT AN EXEMPTION UNDER THE APPLICABLE ACT IS AVAILABLE
AND THAT SUCH REGISTRATION IS NOT REQUIRED.
NOTE
PRINCIPAL: $127,000.00 DATE: July 26, 1999
1. PROMISE TO PAY. In return for value received, GLOBAL MEDIA CORP.
("Borrower") promises to pay to the order of Benjamin Metcalfe ("Lender"), at
the address below the Lender's signature, or at such other place as Lender may
designate, the principal amount of One Hundred Twenty-Seven Thousand Dollars
($127,000.00), plus interest and all other sums due under this Note.
2. INTEREST. Interest on the unpaid principal balance of this Note shall
accrue daily at rate 9% per annum, until all sums due under this Note are paid
in full.
3. PAYMENTS. Borrower shall make payments of $31,750.00 in principal plus
accrued and unpaid interest to Lender on October 31, 1999, January 31, 2000,
April 30, 2000, and July 31, 2000 (the "Due Date"). On the Due Date, the
Borrower shall also pay to Lender all outstanding principal, accrued interest,
and any other unpaid sums due under this Note. The Borrower may completely or
partially prepay this Note at any time. The Borrower, however, must continue to
make all payments when due, despite any prepayments. Lender shall apply every
payment or prepayment first to Lender's charges and costs, then to unpaid
accrued interest due under this Note, and then to the principal balance.
4. DEFAULT. Lender may declare the Borrower to be in default, and all
amounts due under this Note immediately due in full if the Borrower fails to
make any payment when due under this Note. However, Lender's failure to exercise
any right available to it upon the Borrower's default, or to strictly enforce
any term of this Note, the Loan Agreement or the Security Documents, does not
constitute a waiver of that right or term.
5. USURY. Lender and the Borrower specifically intend this Note to bear a
lawful rate of interest. If any competent court finds that this Note's rate of
interest is unlawful, the interest rate shall be reduced to the highest legal
rate. Lender shall apply any excess interest previously collected to this Note's
unpaid principal balance, or, if this Note is fully repaid, return it to the
Borrower.
6. WAIVERS. The Borrower and all other persons liable or to become liable
on this Note waive presentment, demand of payment, notice of dishonor, protest,
notice of nonpayment, and all other notices and demands.
7. APPLICABLE LAW, JURISDICTION; VENUE. This Note shall be governed by,
construed, and enforced under the laws of the state of Washington. The Borrower
submits to the jurisdiction and venue of any court located in King County,
Washington.
8. ATTORNEY FEES AND COSTS. The Borrower agrees to pay all of Lender's
reasonable costs incurred, with or without legal action, in collecting any
amounts due under this Note, or
6
<PAGE>
upon appeal or bankruptcy proceedings, including attorneys' fees incurred as a
result of a lawsuit, appeal and/or bankruptcy proceeding.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
GLOBAL MEDIA CORP.
By: /s/ L. JAMES PORTER
------------------------------
Name: L. James Porter
Title: Chief Financial Officer
7
<PAGE>
<PAGE>
EXHIBIT 10.19
LOAN RESTRUCTURE AND
SUBSCRIPTION AGREEMENT
This Agreement is made as of July 26, 1999, between GLOBAL MEDIA CORP., a
Washington corporation (the "Company"), and SANDCASTLE INN LTD. (the "Lender").
BACKGROUND
A. Between November 15, 1997 and March 31, 1999, the Lender advanced funds
to the Company on an open account (the "Advances"), and the Company made partial
payments against the Advances, in the amounts listed on the attached EXHIBIT A.
B. In connection with the Company's recent convertible debt offering, the
Company and the Lender agreed to restructure and document the Advances as set
forth in this Agreement.
AGREEMENT
In consideration of the terms and conditions of this Agreement, the parties
agree as follows:
1. CONFIRMATION OF AMOUNT AND TITLE. The Lender confirms and agrees that
the outstanding principal amount of the Advances as of the date of this
Agreement is $137,931. The Lender represents and warrants that it is the sole
owner of the Advances and that it has not transferred, assigned, pledged,
mortgaged, or conveyed any of its interest in the Advances.
2. RESTRUCTURE. Upon execution and delivery of this Agreement, the Company
shall execute and deliver to the Lender:
2.1 NOTE. A Note in the initial principal amount of $74,886.50, in
substantially the form attached as EXHIBIT B (the "Note"). The initial Note
amount is equal to $64,541.50 (one-half of the current balance of the
Advances) plus $10,345 in accrued interest.
2.2 SHARES. Instructions to the Company's Transfer Agent to issue a
certificate representing 9,217 shares of the Company's common stock (the
"Shares"), subject to Section 5.4, below. The number of Shares is equal to
$64,541.50 (one-half of the current balance of the Advances) plus $10,345 in
accrued interest, divided by $8.125.
3. CANCELLATION OF ADVANCES. The Lender hereby accepts the Note and the
Shares as payment in full of the Advances, and cancels any obligation of the
Company to repay the Advances, except as set forth in the Note.
4. SUBSCRIPTION. The Lender hereby irrevocably subscribes for the Shares at
a price of $8.125 per share, for a total purchase price of $74,886.50. The
Lender certifies that it is an "Accredited Investor" as defined in Regulation D
of the Securities Act of 1933, as amended.
<PAGE>
5. OTHER SECURITIES ISSUES.
5.1 RISK OF LOSS. The Lender recognizes that an investment in the
Company involves certain substantial risks which could result in the loss of
the Lender's entire investment.
5.2 INVESTMENT INTENT. The Lender certifies that it is purchasing
the Note and the Shares for investment for its own account and not on behalf
of any other person, nor with a view to, or for resale or other distribution
of the Note or the Shares.
5.3 NO REGISTRATION. The Lender acknowledges and understands that:
(a) the Note and the Shares have not been registered under either federal or
state securities laws; (b) the Note and the Shares are being offered and sold
to the Lender pursuant to Section 4(2) or other exemption available under the
Securities Act of 1933, as amended, and comparable state securities
exemptions; and (c) no federal or state agency has made any finding or
determination as to the fairness of this offering for investment, nor any
recommendation or endorsement of the Note or the Shares.
5.4 LEGEND. The Lender consents to the placement of a legend on the
Note and all certificates representing the Shares in substantially the
following form:
These securities have not been registered under the Securities Act of
1933, he Securities Act of Washington, or the securities act of any
other state. They may not be sold or offered for sale in the absence
of an effective registration statement under the applicable act, or
an opinion of counsel satisfactory to the issuer of the securities
that an exemption under the applicable act is available and that such
registration is not required.
5.5 RESTRICTIONS ON TRANSFER. The Lender understands and
acknowledges that: (a) no assignment, sale, transfer, exchange or other
disposition of the Note or the Shares can be made except in accordance with
applicable federal and state securities laws; (b) the Note and the Shares
cannot be sold or otherwise distributed in the absence of registration or an
exemption from the registration requirements of federal and state securities
laws; and (c) the Company is not obligated to take any actions to register
the Note or the Shares or make available any exemptions from federal or state
registration requirements.
5.6 RESIDENCE. The Lender certifies that it is a resident of the
jurisdiction set forth beneath its signature.
6. GENERAL PROVISIONS.
6.1 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall be for the benefit of the parties and their respective
successors and assigns.
6.2 AMENDMENT; WAIVER. The provisions of this Agreement, or of any
agreement or document executed in connection with this Agreement, may be
amended or waived only in a written agreement signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any
right or breach under this Agreement shall not be construed as a waiver of
any other or any subsequent right or breach.
2
<PAGE>
6.3 SEVERABILITY. If any portion of this Agreement is held to be
invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
6.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington, other than
its conflict of law rules. The parties consent to the jurisdiction of and
venue in any appropriate court in King County, Washington.
6.5 INDEPENDENT COUNSEL. The Lender acknowledges that it has been
represented by independent legal counsel with regard to this Agreement, and
has had an adequate opportunity to seek independent legal counsel with regard
to all documents executed in connection with this Agreement. The Lender
acknowledges that Davis Wright Tremaine LLP has represented the Company and
has not represented the Lender.
6.6 NOTICES. The parties shall deliver any notices required under
this Agreement in writing by personal or courier delivery, facsimile
transmission, or by registered or certified mail, return receipt requested,
postage prepaid, to the addresses set forth below, or to such other address
as specified by a party in writing. Notices shall be deemed effective as of
the date of personal or courier delivery, confirmed facsimile transmission,
or three days after the date on the postmark affixed to the notice.
6.7 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall insure to the benefit of the parties and their respective
successors and assigns.
<TABLE>
<S> <C>
--------------------------------------------------------------------------
IF TO THE COMPANY: WITH A COPY TO:
--------------------------------------------------------------------------
Global Media Corp. Davis Wright Tremaine LLP
400 Robson Street 2600 Century Square
Vancouver, BC Canada V6B 2B4 1501 Fourth Avenue
FACSIMILE: (604) 688-9996 Seattle, Washington 98101-1688
ATTENTION: James L. Porter, FACSIMILE: (206) 386-7500
Chief Financial Officer ATTENTION: Eugenie D. Mansfield, Esq.
--------------------------------------------------------------------------
IF TO LENDER: WITH A COPY TO:
--------------------------------------------------------------------------
___________________________________ ____________________________________
___________________________________ ____________________________________
FACSIMILE:_________________________ FACSIMILE:__________________________
ATTENTION: ________________________ ATTENTION: _________________________
--------------------------------------------------------------------------
</TABLE>
6.8 ATTORNEY FEES. The prevailing party in any arbitration or
litigation concerning this Agreement is entitled to reimbursement of its
reasonable attorneys' fees, costs and expenses from the non-prevailing party,
including fees, costs and expenses incurred on appeal or in bankruptcy
proceedings.
3
<PAGE>
6.9 ENTIRE AGREEMENT. This Agreement, its attached schedules and
exhibits, and the documents executed in connection with this Agreement,
contain the entire agreement of the parties with respect to the subject
matter of this Agreement, and supersede any and all prior agreements, written
or oral, relating to their subject matter.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together will constitute the same instrument.
Executed as of the first date written above.
LENDER:
SANDCASTLE INN LTD.
By: /s/
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Jurisdiction of Residence:
------------
COMPANY:
GLOBAL MEDIA CORP.
By: // L. James Porter
-----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
4
<PAGE>
EXHIBIT A
ADVANCE AND PAYMENT HISTORY
<TABLE>
<CAPTION>
DATE CANADIAN FUNDS CUMULATIVE TOTAL
(CANADIAN FUNDS)
$ $
<S> <C> <C>
11/15/97 5,950 5,950
11/30/97 840 6,790
12/05/97 7,588 14,378
12/05/97 465 14,843
12/05/97 480 15,323
12/09/97 138 15,761
12/15/97 11,214 26,975
12/15/97 785 27,760
12/31/97 3,061 30,821
12/31/97 187 31,008
01/03/98 2,210 33,218
01/12/98 2,091 35,309
137 35,446
01/14/98 3,327 38,773
232 39,005
02/02/98 6,000 45,005
03/03/98 1,935 46,940
03/05/98 2,182 49,122
03/25/98 332 49,454
04/02/98 11,095 60,549
04/27/98 (13,283) 47,266
04/28/98 (12,000) 35,266
04/30/98 2,266 37,534
05/01/98 1,824 39,358
05/03/98 200 39,558
05/15/98 10,948 50,506
05/19/98 8,970 59,476
05/31/98 7,844 67,320
06/05/98 (20,000) 47,320
06/03/98 857 48,177
06/05/98 (20,000) 28,177
06/15/98 7,505 35,682
06/15/98 625 36,307
06/18/98 3,698 40,005
06/30/98 9,438 49,443
06/30/98 12,000 61,443
07/03/98 (11,573) 49,870
07/09/98 8,967 58,837
07/10/98 5,000 63,837
7/31/98 6,140 69,977 (YEAR END)
08/07/98 13,173 83,150
08/07/98 (15,000) 68,150
5
<PAGE>
08/11/98 623 68,773
08/18/98 10,000 78,773
08/21/98 10,000 88,773
08/24/98 10,000 98,773
09/01/98 10,000 108,773
09/15/98 10,000 118,773
09/23/98 5,000 123,773
09/28/98 50,000 173,773
10/01/98 6,000 179,773
10/16/98 5,000 184,773
10/19/98 10,000 194,773
03/31/99 (194,773) 0
03/31/99 200,000 200,000
</TABLE>
When converted to US funds using the exchange rate of 1.45 the cumulative total
is $137,931.
6
<PAGE>
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, THE
SECURITIES ACT OF WASHINGTON, OR THE SECURITIES ACT OF ANY OTHER STATE. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE APPLICABLE ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THE SECURITIES THAT AN EXEMPTION UNDER THE APPLICABLE ACT IS AVAILABLE
AND THAT SUCH REGISTRATION IS NOT REQUIRED.
NOTE
PRINCIPAL: $74,886.50 DATE: July 26, 1999
1. PROMISE TO PAY. In return for value received, GLOBAL MEDIA CORP.
("Borrower") promises to pay to the order of SANDCASTLE INN LTD. ("Lender"), at
the address below the Lender's signature, or at such other place as Lender may
designate, the principal amount of Seventy-Four Thousand Eight Hundred
Eighty-Six Dollars and Fifty Cents ($74,886.50), plus interest and all other
sums due under this Note.
2. INTEREST. Interest on the unpaid principal balance of this Note shall
accrue daily at rate 9% per annum, until all sums due under this Note are paid
in full.
3. PAYMENTS. Borrower shall make payments of $18,721.63 in principal plus
accrued and unpaid interest to Lender on October 31, 1999, January 31, 2000,
April 30, 2000, and July 31, 2000 (the "Due Date"). On the Due Date, the
Borrower shall also pay to Lender all outstanding principal, accrued interest,
and any other unpaid sums due under this Note. The Borrower may completely or
partially prepay this Note at any time. The Borrower, however, must continue to
make all payments when due, despite any prepayments. Lender shall apply every
payment or prepayment first to Lender's charges and costs, then to unpaid
accrued interest due under this Note, and then to the principal balance.
7
<PAGE>
4. DEFAULT. Lender may declare the Borrower to be in default, and all
amounts due under this Note immediately due in full if the Borrower fails to
make any payment when due under this Note. However, Lender's failure to exercise
any right available to it upon the Borrower's default, or to strictly enforce
any term of this Note, the Loan Agreement or the Security Documents, does not
constitute a waiver of that right or term.
5. USURY. Lender and the Borrower specifically intend this Note to bear a
lawful rate of interest. If any competent court finds that this Note's rate of
interest is unlawful, the interest rate shall be reduced to the highest legal
rate. Lender shall apply any excess interest previously collected to this Note's
unpaid principal balance, or, if this Note is fully repaid, return it to the
Borrower.
6. WAIVERS. The Borrower and all other persons liable or to become liable
on this Note waive presentment, demand of payment, notice of dishonor, protest,
notice of nonpayment, and all other notices and demands.
7. APPLICABLE LAW, JURISDICTION; VENUE. This Note shall be governed by,
construed, and enforced under the laws of the state of Washington. The Borrower
submits to the jurisdiction and venue of any court located in King County,
Washington.
8. ATTORNEY FEES AND COSTS. The Borrower agrees to pay all of Lender's
reasonable costs incurred, with or without legal action, in collecting any
amounts due under this Note, or upon appeal or bankruptcy proceedings, including
attorneys' fees incurred as a result of a lawsuit, appeal and/or bankruptcy
proceeding.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
-----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
8
<PAGE>
<PAGE>
EXHIBIT 10.20
LOAN RESTRUCTURE AND
SUBSCRIPTION AGREEMENT
This Agreement is made as of July 26, 1999, between GLOBAL MEDIA CORP., a
Washington corporation (the "Company"), and SANDCASTLE INN LTD. (the "Lender").
BACKGROUND
A. Between November 15, 1997 and March 31, 1999, the Lender advanced funds
to the Company on an open account (the "Advances"), and the Company made partial
payments against the Advances, in the amounts listed on the attached EXHIBIT A.
B. In connection with the Company's recent convertible debt offering, the
Company and the Lender agreed to restructure and document the Advances as set
forth in this Agreement.
AGREEMENT
In consideration of the terms and conditions of this Agreement, the parties
agree as follows:
1. CONFIRMATION OF AMOUNT AND TITLE. The Lender confirms and agrees that
the outstanding principal amount of the Advances as of the date of this
Agreement is $137,931. The Lender represents and warrants that it is the sole
owner of the Advances and that it has not transferred, assigned, pledged,
mortgaged, or conveyed any of its interest in the Advances.
2. RESTRUCTURE. Upon execution and delivery of this Agreement, the Company
shall execute and deliver to the Lender:
2.1 NOTE. A Note in the initial principal amount of $74,886.50, in
substantially the form attached as EXHIBIT B (the "Note"). The initial Note
amount is equal to $64,541.50 (one-half of the current balance of the
Advances) plus $10,345 in accrued interest.
2.2 SHARES. Instructions to the Company's Transfer Agent to issue a
certificate representing 9,217 shares of the Company's common stock (the
"Shares"), subject to Section 5.4, below. The number of Shares is equal to
$64,541.50 (one-half of the current balance of the Advances) plus $10,345 in
accrued interest, divided by $8.125.
3. CANCELLATION OF ADVANCES. The Lender hereby accepts the Note and the
Shares as payment in full of the Advances, and cancels any obligation of the
Company to repay the Advances, except as set forth in the Note.
4. SUBSCRIPTION. The Lender hereby irrevocably subscribes for the Shares at
a price of $8.125 per share, for a total purchase price of $74,886.50. The
Lender certifies that it is an "Accredited Investor" as defined in Regulation D
of the Securities Act of 1933, as amended.
<PAGE>
5. OTHER SECURITIES ISSUES.
5.1 RISK OF LOSS. The Lender recognizes that an investment in the
Company involves certain substantial risks which could result in the loss of
the Lender's entire investment.
5.2 INVESTMENT INTENT. The Lender certifies that it is purchasing
the Note and the Shares for investment for its own account and not on behalf
of any other person, nor with a view to, or for resale or other distribution
of the Note or the Shares.
5.3 NO REGISTRATION. The Lender acknowledges and understands that:
(a) the Note and the Shares have not been registered under either federal or
state securities laws; (b) the Note and the Shares are being offered and sold
to the Lender pursuant to Section 4(2) or other exemption available under the
Securities Act of 1933, as amended, and comparable state securities
exemptions; and (c) no federal or state agency has made any finding or
determination as to the fairness of this offering for investment, nor any
recommendation or endorsement of the Note or the Shares.
5.4 LEGEND. The Lender consents to the placement of a legend on the
Note and all certificates representing the Shares in substantially the
following form:
These securities have not been registered under the Securities Act of
1933, he Securities Act of Washington, or the securities act of any
other state. They may not be sold or offered for sale in the absence
of an effective registration statement under the applicable act, or
an opinion of counsel satisfactory to the issuer of the securities
that an exemption under the applicable act is available and that such
registration is not required.
5.5 RESTRICTIONS ON TRANSFER. The Lender understands and
acknowledges that: (a) no assignment, sale, transfer, exchange or other
disposition of the Note or the Shares can be made except in accordance with
applicable federal and state securities laws; (b) the Note and the Shares
cannot be sold or otherwise distributed in the absence of registration or an
exemption from the registration requirements of federal and state securities
laws; and (c) the Company is not obligated to take any actions to register
the Note or the Shares or make available any exemptions from federal or state
registration requirements.
5.6 RESIDENCE. The Lender certifies that it is a resident of the
jurisdiction set forth beneath its signature.
6. GENERAL PROVISIONS.
6.1 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall be for the benefit of the parties and their respective
successors and assigns.
6.2 AMENDMENT; WAIVER. The provisions of this Agreement, or of any
agreement or document executed in connection with this Agreement, may be
amended or waived only in a written agreement signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any
right or breach under this Agreement shall not be construed as a waiver of
any other or any subsequent right or breach.
2
<PAGE>
6.3 SEVERABILITY. If any portion of this Agreement is held to be
invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
6.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington, other than
its conflict of law rules. The parties consent to the jurisdiction of and
venue in any appropriate court in King County, Washington.
6.5 INDEPENDENT COUNSEL. The Lender acknowledges that it has been
represented by independent legal counsel with regard to this Agreement, and
has had an adequate opportunity to seek independent legal counsel with regard
to all documents executed in connection with this Agreement. The Lender
acknowledges that Davis Wright Tremaine LLP has represented the Company and
has not represented the Lender.
6.6 NOTICES. The parties shall deliver any notices required under
this Agreement in writing by personal or courier delivery, facsimile
transmission, or by registered or certified mail, return receipt requested,
postage prepaid, to the addresses set forth below, or to such other address
as specified by a party in writing. Notices shall be deemed effective as of
the date of personal or courier delivery, confirmed facsimile transmission,
or three days after the date on the postmark affixed to the notice.
6.7 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall insure to the benefit of the parties and their respective
successors and assigns.
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------------------
IF TO THE COMPANY: WITH A COPY TO:
--------------------------------------------------------------------------
Global Media Corp. Davis Wright Tremaine LLP
400 Robson Street 2600 Century Square
Vancouver, BC Canada V6B 2B4 1501 Fourth Avenue
FACSIMILE: (604) 688-9996 Seattle, Washington 98101-1688
ATTENTION: James L. Porter, FACSIMILE: (206) 386-7500
Chief Financial Officer ATTENTION: Eugenie D. Mansfield, Esq.
--------------------------------------------------------------------------
IF TO LENDER: WITH A COPY TO:
--------------------------------------------------------------------------
___________________________________ ____________________________________
___________________________________ ____________________________________
FACSIMILE:_________________________ FACSIMILE:__________________________
ATTENTION: ________________________ ATTENTION: _________________________
--------------------------------------------------------------------------
</TABLE>
6.8 ATTORNEY FEES. The prevailing party in any arbitration or
litigation concerning this Agreement is entitled to reimbursement of its
reasonable attorneys' fees, costs and expenses from the non-prevailing party,
including fees, costs and expenses incurred on appeal or in bankruptcy
proceedings.
3
<PAGE>
6.9 ENTIRE AGREEMENT. This Agreement, its attached schedules and
exhibits, and the documents executed in connection with this Agreement,
contain the entire agreement of the parties with respect to the subject
matter of this Agreement, and supersede any and all prior agreements, written
or oral, relating to their subject matter.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together will constitute the same instrument.
Executed as of the first date written above.
LENDER:
SANDCASTLE INN LTD.
By: /s/ Robert Fuller
-----------------------------------
Name: Robert Fuller
---------------------------------
Title:
--------------------------------
Jurisdiction of Residence:
------------
COMPANY:
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
-----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
4
<PAGE>
EXHIBIT A
ADVANCE AND PAYMENT HISTORY
<TABLE>
<CAPTION>
<S> <C> <C>
DATE CANADIAN FUNDS CUMULATIVE TOTAL
$ (CANADIAN FUNDS)
$
11/15/97 5,950 5,950
11/30/97 840 6,790
12/05/97 7,588 14,378
12/05/97 465 14,843
12/05/97 480 15,323
12/09/97 138 15,761
12/15/97 11,214 26,975
12/15/97 785 27,760
12/31/97 3,061 30,821
12/31/97 187 31,008
01/03/98 2,210 33,218
01/12/98 2,091 35,309
137 35,446
01/14/98 3,327 38,773
232 39,005
02/02/98 6,000 45,005
03/03/98 1,935 46,940
03/05/98 2,182 49,122
03/25/98 332 49,454
04/02/98 11,095 60,549
04/27/98 (13,283) 47,266
04/28/98 (12,000) 35,266
04/30/98 2,266 37,534
05/01/98 1,824 39,358
05/03/98 200 39,558
05/15/98 10,948 50,506
05/19/98 8,970 59,476
05/31/98 7,844 67,320
06/05/98 (20,000) 47,320
06/03/98 857 48,177
06/05/98 (20,000) 28,177
06/15/98 7,505 35,682
06/15/98 625 36,307
06/18/98 3,698 40,005
06/30/98 9,438 49,443
06/30/98 12,000 61,443
07/03/98 (11,573) 49,870
07/09/98 8,967 58,837
07/10/98 5,000 63,837
7/31/98 6,140 69,977 (YEAR END)
08/07/98 13,173 83,150
08/07/98 (15,000) 68,150
5
<PAGE>
08/11/98 623 68,773
08/18/98 10,000 78,773
08/21/98 10,000 88,773
08/24/98 10,000 98,773
09/01/98 10,000 108,773
09/15/98 10,000 118,773
09/23/98 5,000 123,773
09/28/98 50,000 173,773
10/01/98 6,000 179,773
10/16/98 5,000 184,773
10/19/98 10,000 194,773
03/31/99 (194,773) 0
03/31/99 200,000 200,000
</TABLE>
When converted to US funds using the exchange rate of 1.45 the cumulative total
is $137,931.
6
<PAGE>
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, THE
SECURITIES ACT OF WASHINGTON, OR THE SECURITIES ACT OF ANY OTHER STATE. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE APPLICABLE ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THE SECURITIES THAT AN EXEMPTION UNDER THE APPLICABLE ACT IS AVAILABLE
AND THAT SUCH REGISTRATION IS NOT REQUIRED.
NOTE
PRINCIPAL: $74,886.50 DATE: July 26, 1999
1. PROMISE TO PAY. In return for value received, GLOBAL MEDIA CORP.
("Borrower") promises to pay to the order of SANDCASTLE INN LTD. ("Lender"), at
the address below the Lender's signature, or at such other place as Lender may
designate, the principal amount of Seventy-Four Thousand Eight Hundred
Eighty-Six Dollars and Fifty Cents ($74,886.50), plus interest and all other
sums due under this Note.
2. INTEREST. Interest on the unpaid principal balance of this Note shall
accrue daily at rate 9% per annum, until all sums due under this Note are paid
in full.
3. PAYMENTS. Borrower shall make payments of $18,721.63 in principal plus
accrued and unpaid interest to Lender on October 31, 1999, January 31, 2000,
April 30, 2000, and July 31, 2000 (the "Due Date"). On the Due Date, the
Borrower shall also pay to Lender all outstanding principal, accrued interest,
and any other unpaid sums due under this Note. The Borrower may completely or
partially prepay this Note at any time. The Borrower, however, must continue to
make all payments when due, despite any prepayments. Lender shall apply every
payment or prepayment first to Lender's charges and costs, then to unpaid
accrued interest due under this Note, and then to the principal balance.
7
<PAGE>
4. DEFAULT. Lender may declare the Borrower to be in default, and all
amounts due under this Note immediately due in full if the Borrower fails to
make any payment when due under this Note. However, Lender's failure to exercise
any right available to it upon the Borrower's default, or to strictly enforce
any term of this Note, the Loan Agreement or the Security Documents, does not
constitute a waiver of that right or term.
5. USURY. Lender and the Borrower specifically intend this Note to bear a
lawful rate of interest. If any competent court finds that this Note's rate of
interest is unlawful, the interest rate shall be reduced to the highest legal
rate. Lender shall apply any excess interest previously collected to this Note's
unpaid principal balance, or, if this Note is fully repaid, return it to the
Borrower.
6. WAIVERS. The Borrower and all other persons liable or to become liable
on this Note waive presentment, demand of payment, notice of dishonor, protest,
notice of nonpayment, and all other notices and demands.
7. APPLICABLE LAW, JURISDICTION; VENUE. This Note shall be governed by,
construed, and enforced under the laws of the state of Washington. The Borrower
submits to the jurisdiction and venue of any court located in King County,
Washington.
8. ATTORNEY FEES AND COSTS. The Borrower agrees to pay all of Lender's
reasonable costs incurred, with or without legal action, in collecting any
amounts due under this Note, or upon appeal or bankruptcy proceedings, including
attorneys' fees incurred as a result of a lawsuit, appeal and/or bankruptcy
proceeding.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
-----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
8
<PAGE>
<PAGE>
EXHIBIT 10.20
______________________________________________________________________________
LEASE
______________________________________________________________________________
BETWEEN
THOMAS DOWNIE HOLDINGS LTD.
AND
GLOBAL MEDIA CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. BASIC TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. FIXTURING OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . .4
4. DEMISE AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.1 Habendum. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.2 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . .5
5. RENT AND OTHER PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . .6
5.1 Amount of Rent. . . . . . . . . . . . . . . . . . . . . . . . .6
5.2 Payment of Basic Rent . . . . . . . . . . . . . . . . . . . . .6
5.3 Estimate of Additional Rent . . . . . . . . . . . . . . . . . .7
5.4 Payment of Additional Rent. . . . . . . . . . . . . . . . . . .7
5.5 Statement and Adjustment for Additional Rent. . . . . . . . . .7
5.6 Rights of Landlord with Respect to Additional Rent. . . . . . .7
5.7 Rent for Irregular Periods. . . . . . . . . . . . . . . . . . .7
5.8 GST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.9 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.10 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.11 Interest on Unpaid Rent . . . . . . . . . . . . . . . . . . . .8
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.13 Overholding Tenant. . . . . . . . . . . . . . . . . . . . . . .8
5.14 Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
i
<PAGE>
6. CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.1 Use of Premises . . . . . . . . . . . . . . . . . . . . . . . .9
6.2 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . 11
6.3 Landlord's Rights . . . . . . . . . . . . . . . . . . . . . . 12
7. ALTERATIONS AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Tenant's Right to Paint and Decorate. . . . . . . . . . . . . 12
7.2 Tenant's Repairs. . . . . . . . . . . . . . . . . . . . . . . 12
7.3 Landlord's Repairs. . . . . . . . . . . . . . . . . . . . . . 13
7.4 Fulfillment of Duty . . . . . . . . . . . . . . . . . . . . . 13
7.5 State of Repair at End of Term. . . . . . . . . . . . . . . . 13
7.6 Landlord's Right to Examine . . . . . . . . . . . . . . . . . 14
7.7 Cost to Tenant of Repairs by Landlord . . . . . . . . . . . . 14
7.8 Repair Work by Landlord . . . . . . . . . . . . . . . . . . . 14
7.9 No Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. DAMAGE, DESTRUCTION OR LANDLORD'S USE . . . . . . . . . . . . . . . . 15
8.1 Abatement of Rent and Termination by Landlord . . . . . . . . 15
8.2 Landlord's Use. . . . . . . . . . . . . . . . . . . . . . . . 16
9. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Tenant to Insure. . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Increase in or Cancellation of Insurance. . . . . . . . . . . 17
10. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . 17
10.1 Requirement for Consent . . . . . . . . . . . . . . . . . . . 17
10.2 Landlord's Rights . . . . . . . . . . . . . . . . . . . . . . 17
10.3 Tenant Continues Liable . . . . . . . . . . . . . . . . . . . 18
10.4 Change of Control . . . . . . . . . . . . . . . . . . . . . . 18
ii
<PAGE>
11. EXCLUSION OF LIABILITY AND INDEMNITY. . . . . . . . . . . . . . . . . 18
11.1 Exclusion of Liability. . . . . . . . . . . . . . . . . . . . 18
11.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 19
12. LANDLORD'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . 19
12.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.2 Execution, Receivership and Bankruptcy. . . . . . . . . . . . 20
12.3 Delivery of Possession. . . . . . . . . . . . . . . . . . . . 21
12.4 Payment of Landlord's Expenses. . . . . . . . . . . . . . . . 21
12.5 Landlord's Right to Re-let. . . . . . . . . . . . . . . . . . 21
12.6 Right of Landlord to Perform Tenant's Obligations . . . . . . 21
12.7 Money Paid by Landlord. . . . . . . . . . . . . . . . . . . . 22
12.8 Landlord's Right to Seize . . . . . . . . . . . . . . . . . . 22
12.9 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.10 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 22
13. MORTGAGES AND ASSIGNMENT BY LANDLORD. . . . . . . . . . . . . . . . . 23
13.1 Landlord May Charge Rights. . . . . . . . . . . . . . . . . . 23
13.2 Subordination . . . . . . . . . . . . . . . . . . . . . . . . 23
13.3 Status Statement. . . . . . . . . . . . . . . . . . . . . . . 23
13.4 Registration. . . . . . . . . . . . . . . . . . . . . . . . . 23
13.5 Assignment by Landlord. . . . . . . . . . . . . . . . . . . . 24
14. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.1 Management of Project . . . . . . . . . . . . . . . . . . . . 24
14.2 Showing Premises. . . . . . . . . . . . . . . . . . . . . . . 24
14.3 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . 24
14.4 No Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
iii
<PAGE>
14.5 Representations by Landlord . . . . . . . . . . . . . . . . . 25
14.6 No Partnership. . . . . . . . . . . . . . . . . . . . . . . . 25
14.7 Several Tenants . . . . . . . . . . . . . . . . . . . . . . . 25
14.8 Inurement . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.9 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.10 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . 26
14.11 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
14.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 26
14.13 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 26
14.14 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 26
15. SPECIAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.1 Option to Renew . . . . . . . . . . . . . . . . . . . . . . . 26
15.2 Landlord's Right to Terminate . . . . . . . . . . . . . . . . 27
15.3 Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.4 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.5 Fixturing Period. . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
iv
<PAGE>
- -------------------------------------------------------------------------------
LEASE
- -------------------------------------------------------------------------------
THIS LEASE dated for reference July 2, 1999 is made
BETWEEN
THOMAS DOWNIE HOLDINGS LTD., of Suite 305 - 814
Richards Street, Vancouver, British Columbia, V6B 3A7
(the "Landlord");
AND
GLOBAL MEDIA CORPORATION, of 83 Victoria Crescent,
Nanaimo, British Columbia V9R 5B9
(the "Tenant");
THIS LEASE WITNESSES THAT:
1. BASIC TERMS
The parties to this Lease approve the following terms (the "Basic Terms") and
agree that each reference in this Lease to the Basic Terms includes the
provisions set out in this Section as well as other terms and conditions in
this Lease:
(a) Landlord Thomas Downie Holdings Ltd.
(b) Address of Landlord Care of Parkside Property Management Ltd.
305 - 814 Richards Street
Vancouver, B.C. V6B 3A7
Facsimile: (604) 685-8492
Attention: Property Manager
(c) Tenant Global Media Corporation
(d) Address of Tenant 83 Victoria Street, Nanaimo, B.C. V9R 5B9
Facsimile: (250) 716-0502
1
<PAGE>
(e) Land 400 Robson Street, Vancouver, British
Columbia and more particularly
described as: Parcel Identifier:
002-890-488--Lot E Block 65 District
Lot 541 Plan 10599
(f) Term 5 years
(g) Commencement Date September 1, 1999
(h) Basic Rent
LEASE
Year 1
Per year $72,000
Per month $6,000
Year 2
Per year $94,500
Per month $7,875
Year 3
Per year $112,500
Per month $9,375
Year 4
Per year $120,500
Per month $10,041.67
Year 5
Per year $130,500
Per month $10,875
(i) Permitted Use business and technical office
(j) Deposit $18,056.23
(k) Renewal 1 renewal for a further five-year
term, subject to right of Landlord to
terminate for demolition
2. DEFINITIONS
In this Lease:
(a) "Additional Rent" means all sums of money to be paid by the Tenant
to the Landlord under this Lease, except the Basic Rent;
2
<PAGE>
(b) "Basic Rent" means the amount set out in Subsection 1(h);
(c) "Building" means all buildings, structures, improvements and
facilities located on the Land from time to time;
(d) "Commencement Date" means September 1, 1999;
(e) "Deposit" means the sum of $18,056.25;
(f) "GST" means any and all goods and services taxes, sales tax, value
added taxes, business transfer taxes or any other taxes imposed on
the Landlord from time to time with respect to Rent payable by the
Tenant to the Landlord under this Lease, or in respect of the
rental of space under this Lease, whether characterized as a goods
and services tax, sales tax, value added tax, business transfer
tax or otherwise;
(g) "Hazardous Materials" means:
(i) any oil, flammable substances, explosives, radioactive
materials, hazardous wastes or substances, toxic wastes or
substances or any other wastes, or pollutants which pose a
hazard to all or any part of the Premises, or any person,
business or occupant or user of the Premises; or cause all
or any part of the Premises or any user or occupant of the
Premises to be in violation of any Hazardous Materials
Laws;
(ii) asbestos in any form which is or could become friable, urea
formaldehyde foam insulation or transformers; and
(iii) any chemical, material or substance defined as or included
in the definition of "dangerous goods", "deleterious
substance", "extremely hazardous wastes", "restricted
hazardous waste", "toxic substances", "waste" or words of
similar import under any applicable local, provincial or
federal law or under the regulations adopted or
publications promulgated pursuant thereto.
(h) "Hazardous Materials Claims" mean any and all enforcement,
cleanup, removal, remedial, or other governmental or regulatory
actions instituted or contemplated pursuant to any Hazardous
Materials Laws;
(i) "Hazardous Materials Laws" means any local, provincial or federal
laws, rules, ordinances, regulations, orders or other edicts
having the force of law relating to the environment or any
Hazardous Materials or the environmental conditions on, under or
about the Premises including, without limitation, soil,
groundwater, and indoor and ambient air conditions;
(j) "Land" means the real property in the City of Vancouver legally
described as Parcel Identifier 002-890-488 Lot E Block 65 District
Lot 541 Plan 10599;
3
<PAGE>
(k) "Lease" means this instrument, all schedules attached to this
instrument, and the rules and regulations made from time to time
by the Landlord in respect to the Premises;
(l) "Lease Year" means a 12-month period beginning on the Commencement
Date or the anniversary of that date;
(m) "Municipality" means the City of Vancouver;
(n) "Operating Costs" means the total, without duplication, of all
expenses and costs of any kind incurred by the Landlord for
operating, renting, maintaining, insuring, repairing, replacing
and managing the Premises include the capital costs of fulfilling
the Landlord's repair obligations as set out in Section 7.3, such
capital costs to be amortized over a reasonable period of time, in
accordance with generally accepted accounting principles;
(o) "Premises" means the Land and the Building;
(p) "Rent" means all Basic Rent, Additional Rent and any other monies
payable by the Tenant pursuant to this Lease;
(q) "Tax Cost" means the total, without duplication, of sums paid by
the Landlord in respect of Taxes;
(r) "Taxes" means the aggregate of all taxes, local improvement or
similar rates, duties, assessments and charges, municipal realty
taxes, water taxes, school taxes, British Columbia corporation
capital tax, or any other taxes, rates, duties, assessments both
general or special or any rate, duty, assessment, charge or tax
levied, charged or assessed in their place by any taxing authority
levied or imposed on or in respect of the Premises by any Taxing
Authority;
(s) "Taxing Authority" means any duly constituted governmental
authority whether federal, provincial, municipal or otherwise
legally empowered to impose taxes, rates, assessments or charges
on, or in respect of the Premises;
(t) "Term" means the 5 year term of this Lease; and
(u) "Transfer" means an assignment of the whole or any part of this
Lease a sublease of all or any part of the Premises (whether by
the Tenant or a sub-tenant), any transaction whereby the rights of
the Tenant under this Lease or the rights of any sub-tenant of the
Premises are transferred to another, any transaction by which any
right of use or occupancy of all or any part of the Premises is
conferred on anyone, or any mortgage, charge or encumbrance of
this Lease (whether by assignment or sublease).
3. FIXTURING OF PREMISES
The Tenant acknowledges and agrees that:
4
<PAGE>
(a) the Landlord is providing the Premises to the Tenant on an "as is,
where is" basis;
(b) the Tenant will not begin any work in the Premises until
architectural and engineering plans and specifications relating to
the work have been supplied to the Landlord and approved by the
Landlord in writing and the Tenant has obtained at its sole cost
and expense all required municipal or governmental approvals and
permits;
(c) taking possession of the whole or any part of the Premises by the
Tenant will be conclusive evidence as against the Tenant that the
Premises are in good and satisfactory physical and environmental
condition on such date of taking possession and will constitute an
acknowledgement by the Tenant that the Premises are in the
condition called for by this Lease; and
(d) any alterations, additions, improvements and fixtures made to or
installed on or in the Premises at the expense of the Tenant other
than unattached moveable trade fixtures will remain on and be
surrendered to the Landlord with the Premises as part of the
Premises on the expiration or earlier termination of this Lease
and will become the absolute property of the Landlord, unless the
Landlord, by notice in writing, requires the Tenant to remove
them, in which event the Tenant covenants and agrees to restore
the Premises to the state in which they were prior to the
Commencement Date and will make good any damage or injury caused
to the Premises resulting from such installation and removal,
reasonable wear and tear only excepted.
4. DEMISE AND TERM
4.1 HABENDUM
In consideration of the rents, covenants and agreements reserved and contained
in this Lease (which are to be paid, observed and performed by the Tenant) the
Landlord hereby demises and leases unto the Tenant the Premises to have and to
hold for and during the Term from the Commencement Date unless sooner terminated
as provided in this Lease.
4.2 QUIET ENJOYMENT
The Landlord covenants and agrees with the Tenant that if the Tenant pays the
Rent reserved by this Lease and performs the covenants on its part contained in
this Lease, it will and may peaceably possess and enjoy the Premises for the
Term granted without any interruption or disturbance from the Landlord or any
other person or persons lawfully claiming by, from or under the Landlord.
5
<PAGE>
5. RENT AND OTHER PAYMENTS
5.1 AMOUNT OF RENT
The Tenant covenants and agrees to pay to the Landlord, or as the Landlord may
in writing direct, in lawful money of Canada, without any set off, compensation
or deduction whatsoever on the days and at the times specified in this Lease,
Rent which is the sum of:
(a) in and for each Lease Year, Basic Rent in the amount of year as
follows:
Year 1 September 1, 1999 to August 31, 2000 the sum of $72,000
payable on the first day of each month in advance in equal
consecutive monthly installments in the amount of $6,000, provided
however that the Tenant shall not be required to pay the Basic
Rent for the month of September;
Year 2 September 1, 2000 to August 31, 2001 the sum of $94,500
payable on the first day of each month in advance in equal
consecutive monthly installments in the amount of $7,875;
Year 3 September 1, 2001 to August 31, 2002 the sum of $112,500
payable on the first day of each month in advance in equal
consecutive monthly installments in the amount of $9,375;
Year 4 September 1, 2002 to August 31, 2003 the sum of $120,500
payable on the first day of each month in advance in equal
consecutive monthly installments in the amount of $10,041.67;
Year 5 September 1, 2003 to August 31, 2004 the sum of $130,500
payable on the first day of each month in advance in equal
consecutive monthly installments in the amount of $10,875.
(b) Tax Cost;
(c) Operating Costs;
(d) the cost, charge or expense for water, garbage collection,
electrical, gas, power, telephone and any other like service or
utility rendered to the Premises for the benefit of the Tenant and
paid by the Landlord; and
(e) all other sums of money required under this Lease to be paid to
the Landlord by the Tenant whether or not designated as Additional
Rent.
5.2 PAYMENT OF BASIC RENT
At the Landlord's request from time to time, the Tenant covenants and agrees to
forthwith deliver to the landlord such number of post-dated cheques so requested
for the Basic Rent plus GST plus Additional Rent as estimated by the Landlord.
6
<PAGE>
5.3 ESTIMATE OF ADDITIONAL RENT
The Landlord may, in respect of any or all of the items of Additional Rent
referred to in Subsections 5.1(b) to (e), estimate the amount the Tenant would
be required to pay for such period as the Landlord may determine and may from
time to time and at any time re-estimate any or all of such items of Additional
Rent.
5.4 PAYMENT OF ADDITIONAL RENT
With respect to any of item of Additional Rent the Landlord estimates pursuant
to Section 5.3, the Tenant will pay to the Landlord such amount in advance in
equal consecutive monthly installments on the same day of the month as monthly
installments of Basic Rent. With respect to any item of Additional Rent the
Landlord has not estimated pursuant to Section 5.3, the Tenant will pay to the
Landlord the amount of such item of Additional Rent within thirty business days
of receipt of an invoice for the amount.
5.5 STATEMENT AND ADJUSTMENT FOR ADDITIONAL RENT
Within 90 days after the end of each Lease Year the Landlord will furnish to the
Tenant a statement of the actual cost during such Lease Year of those items
comprised in Additional Rent as set out in Subsections 5.1(b) to (e). If the
amount payable by the Tenant as shown on such statement is greater or less than
the Additional Rent paid by the Tenant to the Landlord pursuant to
Subsections 5.1(b) to (e), then the parties to this Lease will make the proper
adjustment within seven business days after deliver of such statement. Any
payment made by the Landlord to the Tenant or made by the Tenant to the Landlord
in respect of any adjustment made under this Lease is without prejudice to the
right of the Landlord to claim a readjustment within 12 months from the date of
delivery of such statement.
5.6 RIGHTS OF LANDLORD WITH RESPECT TO ADDITIONAL RENT
If and so often as the Additional Rent is not paid when due, the Landlord has
the same rights and remedies and may take the same steps for its recovery as for
the recovery of Rent in arrears.
5.7 RENT FOR IRREGULAR PERIODS
All Rent reserved in this Lease, including the Additional Rent, accrues from day
to day, and if for any reason it becomes necessary to calculate Rent for
irregular periods of less than one year, an appropriate pro rata adjustment will
be made on a daily basis in order to compute Rent for such irregular period.
5.8 GST
Despite any other provision of this Lease, the Tenant will pay to the Landlord
on demand an amount equal to all GST, it being the intention of the parties that
the Landlord will be fully reimbursed by the Tenant with respect to all GST at
the full rate applicable from time to time in respect of Rent or the lease of
the Premises pursuant to this Lease. The Landlord will calculate the amount of
the GST so payable by the Tenant in accordance with the applicable legislation
and the Tenant will pay the GST so payable to the Landlord at the same time as
the amounts to
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which such GST apply are payable to the Landlord under the terms of this
Lease or on demand at such other time or times as the Landlord from time to
time determines. Despite any other provision of this Lease, the amount
payable by the Tenant is deemed not to be Rent, but the Landlord has the same
remedies for and rights of recovery of such amount as it has for the recovery
of Rent under this Lease.
5.9 UTILITIES
The Tenant covenants with the Landlord that the Tenant will pay promptly for its
gas, other fuel and electricity and water consumed on the Premises, for its
telephone, for all business taxes, license fees, rates, charges, garbage and
other like services and levies of any nature or kind levied or assessed on or in
respect of or in relation to the Tenant, the business carried on by the Tenant,
or the properties, fixtures, machinery, equipment or apparatus of the Tenant
installed in the Premises.
5.10 NET LEASE
The Tenant acknowledges and agrees that it is intended that this Lease will be a
completely carefree net lease for the Landlord except as is specifically
provided in Section 7.3 and as other expressly provided in this Lease, and that
the Landlord will not be responsible during the Term for any costs, charges,
expenses and outlays of any nature whatsoever arising from or relating to the
Premises and the Tenant, except as is otherwise expressly provided in this
Lease, will pay all charges, impositions and costs of every nature and kind
relating to the Premises and the Tenant covenants with the Landlord accordingly.
5.11 INTEREST ON UNPAID RENT
If the Tenant fails to pay any Basic Rent and Additional Rent payable by the
Tenant to the Landlord under this Lease promptly when due, then the Tenant will
pay to the Landlord interest on any unpaid Basic Rent and Additional Rent at a
rate of 12% per annum from the date on which such Basic Rent and Additional Rent
was due until actual receipt of payment of the unpaid Basic Rent, Additional
Rent and the interest due hereunder.
5.12 TAXES
The Landlord covenants with the Tenant to pay all Taxes and the Tenant covenants
with the Landlord to pay its portion of such taxes as provided in this Lease.
5.13 OVERHOLDING TENANT
If the Tenant remains in possession of the Premises after the end of the Term
and without the execution and delivery of a new lease, there shall be no tacit
renewal of this Lease or the Term hereby granted, and the Tenant will be deemed
to be occupying the Premises as a tenant from month to month at a monthly rent
payable in advance on the first day of each month equal to the sum of:
(a) the Basic Rent payable during the last month of the Term; and
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(b) 1/10th of the Additional Rent, paid pursuant to Subsections
5.1(b) and (c);
and otherwise on the same terms, conditions and provisos as are set forth in
this Lease insofar as they are applicable to a monthly tenancy.
5.14 DEPOSIT
The Tenant will, forthwith after execution of this Lease, pay to the Landlord
the Deposit and the Landlord will apply this amount first against the second
month's Basic Rent due under this Lease, and then retain the balance without
interest to the Tenant, as a security deposit, to be returned to the Tenant
on the termination of this Lease, or to be applied, at any time during the
Term or thereafter, by the Landlord to rectify any damage to the Premises
caused by the Tenant, or, at the Landlord's discretion, against any amounts
owing by the Tenant under this Lease from time to time, and if the Deposit is
so applied, in whole or in part, by the Landlord during the Term, the Tenant
covenants to replace the whole or the portion of the Deposit so applied, with
the Landlord promptly on demand.
Upon termination of this Lease, the Landlord will inspect the Premises and
will deduct from the Deposit the cost of repairing the damage to the Premises
and the amount of the Deposit will not constitute a bar to the Landlord
recovering additional damages from the Tenant for damages to the Premises or
for breach of the covenants contained in this lease and the Landlord will
refund the balance of the Deposit, if any, to the Tenant.
6. CONDUCT OF BUSINESS
6.1 USE OF PREMISES
The Tenant covenants and agrees with the Landlord that the Tenant will:
(a) not use or occupy the whole or any part of the Premises for any
purpose other than the operation of a business and technical
office. The Tenant also covenants and agrees that it will not
allow or permit the Premises or any portion thereof to be used for
operation of a credit bureau or other financial institution;
(b) not, during the Term, vacate all or any part of the Premises;
(c) not erect or place, or suffer to be erected or placed, or maintain
any signs, decoration, lettering or advertising matter of any
nature or kind whatsoever either on the exterior walls of the
Building or in the windows without first obtaining the Landlord's
written approval and consent in each instance;
(d) not make any repairs, openings or additions to any part of the
exterior of the Building, nor place any attachments, decorations,
signs or displays in or on any part of the exterior of the
Building or on the roof, nor make any addition to the Building
without the prior written consent of the Landlord, failing which
the Tenant will be held responsible for all ensuing costs and
damages whether to remove such items or to effect repairs needed
as a result of such acts;
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(e) not carry on, perform or suffer or permit to be carried on,
performed, or suffered on the Premises any business practice or
thing or act or engage in any activity which may be deemed a
nuisance or a menace or which in any way may injure the whole or
any part of the Premises. The Tenant will not use or permit any
part of the Premises to be used in such manner as to cause a
nuisance nor to cause or permit annoying noises or vibrations or
offensive odours. The Tenant agrees that the Landlord will
determine in its own discretion if any such state or condition
exists.
(f) no place or lease, or permitted to be placed or left in, on or on
any part of Land outside of the Building any debris, garbage,
trash or refuse, but will deposit the same in areas and at times
and in a manner specifically designated by the Landlord from time
to time. If any debris, garbage, trash or refuse is of a
perishable nature, then the Tenant must keep these items in a
properly refrigerated area provided at its own cost by the
Tenant. If there are any costs for removal of debris, garbage,
trash or refuse additional to the removal service provided by the
Municipality or if the Municipality charges for such service, then
the Tenant will pay for such costs;
(g) not enter or permit its employees, agents or representatives to
enter onto the roof of the Building for any reason whatsoever
without the prior written consent of the Landlord;
(h) fully equip the Premises with all trade equipment, lighting
fixtures, furniture, operating equipment, furnishings, fixtures,
floor coverings and any other equipment necessary for the proper
operation of the Tenant's business and such installation will be
completed without damage to the structure, heating, ventilating,
sprinklers, plumbing, electrical and other mechanical systems of
the Premises;
(i) keep the Premises in a clean and sanitary condition in accordance
with the laws of the Municipality and in accordance with all
directions, rules and regulations of the health officer, fire
marshal, building inspector or other proper offices of the
Municipality, other agencies having jurisdiction, or the insurers
of the Landlord;
(j) promptly, at its expense, comply with and observe the requirements
of all statutes, bylaws, laws, ordinances, regulations and orders
at any time in force during the Term which are applicable to the
Tenant or the condition, maintenance, use or occupation of the
Premises by the Tenant, including any regulation, order, or
requirements of any fire underwriters association or any similar
body having similar functions and of any liability or fire
insurance company by which the Landlord and Tenant or either of
them may be insured at any time during the Term, whether or not
that statute, bylaw, law, regulation, ordinance or order be of a
kind now existing or within the contemplation of the Landlord or
the Tenant, and in so doing, the Tenant will be required at its
expenses to make any necessary alterations, repairs, additions, or
deletions in, on, or to the whole or any part of the
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Premises and any equipment, machinery or other facilities in, on,
or used in connection with or appurtenant to the whole or any
part of the Premises; and
(k) abide by any and all reasonable rules and regulations which may,
from time to time, be established by the Landlord for the
Premises. The Landlord will communicate any amendments or changes
in such rules and regulations to the Tenant in writing, and after
such communication such changed or amended rules and regulations
will be those in force until further amendment and notice of the
amendment.
6.2 HAZARDOUS MATERIALS
The Tenant covenants and agrees with the Landlord that Tenant will, at its
sole expense:
(a) comply with all Hazardous Materials Laws;
(b) keep the Premises free of Hazardous Materials;
(c) promptly on request of the Landlord, provide a certificate
confirming that to the best of its knowledge the Tenant, or those
for whom it is at law responsible, has not introduced any
Hazardous Materials on, under or about the Premises;
(d) immediately on being made aware, notify the Landlord in writing,
of the existence of any Hazardous Materials Claim or any Hazardous
Materials on the Premises, or any discharges, emissions, or spill
of Hazardous Materials on, under, about or from the Premises; and
(e) promptly provide the Landlord with copies of all notices pursuant
to any Hazardous Materials Law and evidence the Tenant is
responding to such notices in a responsible manner.
The Landlord may at any reasonable time cause an environmental audit or such
tests and investigations of the Premises to determine the existence of any
Hazardous Materials, provided that such tests and investigations are carried out
with minimal interference with the Tenant's business. If the tests confirm the
existence of Hazardous Materials placed by the Tenant or those for whom it is at
law responsible, the costs will be paid by the Tenant to the Landlord on demand
and if not paid on demand will be Additional Rent.
The Tenant will be liable for any and all costs (including all legal costs on a
solicitor and own client basis) directly or indirectly arising out of or
attributable to the presence of Hazardous Materials on, under, about or from the
Premises, which have been brought on the Premises or permitted to be brought on
the Premises by the Tenant or anyone for whom the Tenant is at law responsible.
Notwithstanding anything to the contrary contained in this Lease, the Tenant
must, at its sole expense within 20 days of the expiry of the Term or any
earlier termination of this Lease, remove any and all Hazardous Materials
from the Premises which have been brought on the Premises or permitted to be
brought on the Premises by the Tenant or anyone for whom the Tenant is at law
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responsible, and immediately repair, at the Tenant's expense, all damage to
the Premises caused by such removal. If the Tenant fails to do so, then the
Landlord may cause such removal and repairs to be undertaken and Subsection
7.7 will apply.
6.3 LANDLORD'S RIGHTS
The Tenant acknowledges that all its covenants and obligations set forth in
this Section 6 are covenants and obligations designed for the mutual benefit
and protection of the Premises and the Tenant. If the Tenant breaches any of
such covenants or obligations or fails to observe or perform any of them,
then without prejudice to any other right or remedy which the Landlord may
have under the terms of this Lease, the Landlord may rectify the situation
and collect the expenses for such work from the Tenant in the same manner as
arrears of Rent or may bring action in any court of competent jurisdiction
against the Tenant for a judgment or order directing the Tenant to remedy
such breach and to observe and perform such covenant or obligation.
7. ALTERATIONS AND REPAIRS
7.1 TENANT'S RIGHT TO PAINT AND DECORATE
The Tenant may, at any time and from time to time at its expense, paint and
decorate the interior of the Premises and make such changes, alterations,
additions and improvements in and to the Premises as will in the judgment of
the Tenant better adapt the Premises for the purpose of its business;
provided however that no changes, alterations, additions or improvements to
the structure, any perimeter wall, the heating, ventilating,
air-conditioning, plumbing, electrical, or mechanical equipment, the concrete
floor or the roof will be made without the prior written consent of the
Landlord, and without the use of contractors or other qualified workers
designated or approved by the Landlord in writing. Any changes, alterations,
additions and improvements, whether structural or otherwise, will comply with
all applicable statutes, regulations or bylaws of any municipal, provincial
or other governmental authority. The Tenant will pay to the Landlord the
amount of the increase for any insurance coverage or Taxes to the extent that
such increase is directly attributable to any action by the Tenant under this
Section, and the Tenant covenants that such insurance will not thereby be
made liable to avoidance or cancellation by the insurer by reason of such
changes, alterations, additions or improvements.
7.2 TENANT'S REPAIRS
The Tenant covenants and agrees with the Landlord that the Tenant will
promptly, at all times during the Term, at its sole cost and expense:
(a) repair, maintain and keep the interior of the Premises in good
order and repair, as a careful owner would do;
(b) repair, maintain and keep all equipment and fixtures in the
interior of the Premises in good order and repair and replace them
when necessary, as a careful owner would do, including interior
doors, windows, glass partitions, and electrical equipment and
fixtures within the Premises placed by the Tenant, and keep any
improvements now or hereafter made to the Premises, equipment and
fixtures in good order and repair, as a careful owner would do,
reasonable wear and tear only
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excepted, and the Tenant covenants to perform such maintenance,
to effect such repairs and replacements and to decorate at its
own cost and expense as and when necessary or reasonably required
so to do by the Landlord;
(c) repair any damage caused to the Premises by the Tenant or those
for whom it is at law responsible; and
(d) make whole at its sole cost and expense all damaged glass,
including plate glass, in or on the Premises.
7.3 LANDLORD'S REPAIRS
The Landlord covenants and agrees with the Tenant that the Landlord will
promptly, at all times during the Term:
(a) repair and maintain the exterior of the Premises in good order and
repair;
(b) repair the structural support components of the roof, spouts,
gutters, foundations, subfloor and outer walls of the Building;
and
(c) repair, maintain and if required, replace the heating,
ventilating, air-conditioning, plumbing and electrical equipment
and fixtures within the premises on the Commencement Date of the
Lease.
The costs incurred by the Landlord with respect to the repairs, maintenance
and replacements required to comply with the obligations in Subsections (a)
and/or (b) above will be part of the Operating Costs and paid by the Tenant
as provided in this Lease.
7.4 FULFILLMENT OF DUTY
In doing any maintenance, repairs, replacements or decorations, the Tenant
will use contractors or other workers designated or approved by the Landlord
in writing. If the Tenant fails to comply with the Landlord's request to
effect repairs, replacements or maintenance within the time provided for by
the landlord, then the Landlord may cause such repairs, replacements or
maintenance to be undertaken and the provisions of Sections 7.6 and 7.7 apply.
7.5 STATE OF REPAIR AT END OF TERM
At the end of the Term (or any earlier termination of this Lease):
(a) the Tenant will deliver to the Landlord vacant possession of the
Premises in the condition in which the Tenant is required to
maintain the Premises under this Lease;
(b) the Tenant will, before removing his goods and fixtures from the
Premises, cause any sign erected or placed in or on the Building
or the Premises to be removed or obliterated, at the sole expense
of the Tenant, and in a workmanlike manner to the satisfaction of
the Landlord, acting reasonably; and
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(c) all changes, alterations, additions and improvements made to or
installed on or in the Premises whether made pursuant to this
Section or otherwise and which in any manner are attached in, to,
on or under the floors, walls or ceilings will remain on and be
surrendered to the Landlord with the Premises as a part of the
Premises, without disturbance, molestation or injury and will be
and become the absolute property of the Landlord without any
payment or indemnity by the Landlord to the Tenant.
7.6 LANDLORD'S RIGHT TO EXAMINE
The Landlord and any employee, servant or agent of the Landlord may, at any
reasonable time during normal business hours and at any time during any
emergency, from time to time:
(a) enter and examine the state of maintenance, repair, decoration and
order of the Premises, all equipment and fixtures within the
Premises, and any improvements now or hereafter made to the
Premises;
(b) give notice to the Tenant requiring that the Tenant perform such
maintenance or effect such repairs, replacements or decorations as
may be found necessary from such examination. The failure of the
Landlord to give such notice does not relieve the Tenant from its
obligations under this Lease;
(c) make alterations or repairs as the Landlord deems necessary for
the safety, preservation, proper administration or improvements of
the Premises; and
(d) enter the Premises to remove any article or remedy any condition
which, in the opinion of the Landlord, would be likely to lead to
cancellation of any policy of insurance on the whole or any party
of the Premises, and such entry by the Landlord will not be deemed
to be a re-entry.
7.7 COST TO TENANT OF REPAIRS BY LANDLORD
If the Landlord deems it necessary to undertake any repairs or to do anything
which is required to be undertaken or done by the Tenant under this Lease,
then the Tenant will pay to the Landlord, as Additional Rent on receipt of
notice from the Landlord, all costs of such work as well as a fee for
supervisor or carrying out the Tenant's obligation an amount equal to 10% of
the monies expended or of the cost of repairs or other work carried out by or
under the supervisor of the Landlord, which amount is in addition to the cost
of such work or monies expended.
7.8 REPAIR WORK BY LANDLORD
The Landlord may elect to effect the maintenance and repair work required to
be effected and paid for by the Tenant, and the Landlord, if it so elects,
may enter into contracts for the performance of all or part of the
maintenance and repair work, provided that in such event the Landlord will
give notice to the Tenant of any and all such contracts with details of the
work to be performed thereunder and provided further that the Tenant will on
notice pay to the Landlord the Landlord's costs therefor and the Landlord's
cost will be deemed to be Additional Rent.
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7.9 NO LIENS
The Tenant covenants with the Landlord that it will not permit, do, or cause
anything to be done to the Premises at any time which would allow any lien,
certificate of pending litigation, judgment or certificate of any court or
any mortgage, charge or encumbrance of any nature whatsoever to be imposed or
to remain on the Premises. In the event of the registration of any lien or
other encumbrance by a contractor or sub-contractor of the Tenant, the Tenant
will at its own cost and expense immediately cause the lien or encumbrance to
be discharged. Should the Tenant fail to proceed with due diligence to
discharge any such lien or encumbrance, the Landlord will be at liberty to
pay and discharge any such lien or encumbrance on giving the Tenant seven
business days' written notice of its intention so to do. Any amount so paid
together with any disbursements and costs incurred by the Landlord, any legal
costs incurred by the Landlord (on a solicitor and own client basis), and
together with interest on any such amounts from the date of payment will be
added to the next installment of Basic Rent under the provisions of this
lease which will thereon become due and payable as Basic Rent under this
Lease.
8. DAMAGE, DESTRUCTION OR LANDLORD'S USE
8.1 ABATEMENT OF RENT AND TERMINATION BY LANDLORD
The Tenant covenants and agrees with the Landlord that:
(a) if the whole or any part of the Premises are, at any time during
the Term, destroyed or damaged and cannot, in the opinion of the
Landlord, be repaired or restored within 120 days after the
happening of that destruction or damage and the Premises are
rendered unfit either in whole or in part for the business of the
Tenant, then the Rent reserved by this Lease, or a proportionate
part of that Rent according to the nature and extent of the
destruction or damage sustained, will be suspended and abated
until the Landlord has rebuilt, repaired or made fit the Premises
or the Building for the purpose of the Tenant, provided that the
Landlord will in any such event at its option to be exercised
within 60 days after the occurrence of such damage or destruction
by notice in writing to the Tenant have the right to terminate
this Lease, and on the giving of such notice the Term will
forthwith terminate, and the Tenant after receipt of such notice
will forthwith make payment of the Rent apportioned to the date of
such termination and deliver up possession of the Premises to the
Landlord; provided that such termination does not affect the
obligations of the Tenant to the Landlord arising from obligations
of the Tenant existing prior to the date of such notice of
termination.
(b) subject to Subsection 8.1(a), in the event of damage or
destruction as contemplated by this Section 8.1, the Tenant will,
at its sole expense at the request of the Landlord, repair and
rebuild all of the Building, fixtures, alterations and additions
installed in the Premises by or on behalf of the Tenant and will
replace all furniture and equipment in the Premises; and
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(c) nothing contained in this Section 8.1 obligates the Landlord to
rebuilt the Building or any part of the Premises and if the
Landlord elects to rebuilt, then it may make such changes,
alterations, modifications, adaptations or extensions in, to or of
the original building or such structures as form part of the
Building as it in its unfettered discretion sees fit.
8.2 LANDLORD'S USE
The Landlord may transfer or dispose of portions of the Land to its owners of
abutting property or dedicate or transfer to the Municipality or other
governmental or other authorities, lands for road widening and other
purposes, and when and so often as the Landlord will dispose or transfer or
dedicate any portion of the Land, then the reference to this Lease to "Land"
will mean and refer to the portion of the Land remaining after any such
transfer, disposition or dedication together with any adjacent land which may
be acquired by the landlord on any such transfer, disposition or dedication.
9. INSURANCE
9.1 TENANT TO INSURE
The Tenant covenants and agrees with the Landlord that it will take out, and
keep in force during the Term and during such other time as the Tenant
occupies the whole or any part of the Premises:
(a) insurance on all glass and plate glass in or on the Premises,
whether provided by the Landlord or the Tenant;
(b) broad boiler and machinery insurance on any such equipment in the
Premises;
(c) standard fire insurance with extended coverage or additional
perils supplemental contract on the stock-in-trade, furniture,
fixtures, improvements and all other contents of the Premises to
their full insurable value;
(d) business interruption insurance in such amounts as will reimburse
the Tenant for direct or indirect loss of earnings and for such
risks as would be carried by prudent tenants;
(e) comprehensive general liability insurance, including without
limitation non-owned automobile insurance, against claims for
fire, personal injury, death or property damage or loss on, in or
about the Premises or otherwise howsoever arising out of the
operations of the Tenant or any person conducting business from
the Premises, to the combined limit as may be reasonably required
by the Landlord from time to time but, in any case not less than
Two Million Dollars ($2,000,000.00) in respect to injury or death
to a single person and in respect of any one accident concerning
property damage;
(f) owned automobile insurance with respect to all motor vehicles
owned by the Tenant and operated in its business; and
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(g) such other insurance in such amounts and on such terms as the
Landlord may determine from time to time on consultation with its
insurance advisors
all in amounts and with policies in form satisfactory from time to time to
the Landlord with insurers acceptable to the Landlord. Each such policy will
name the Landlord as an additional insured as its interest may appear. Each
such policy will provide that the insurer will not have any right of
subrogation against the Landlord on account of any loss or damage covered by
such insurance or on account of payments made to discharge claims against or
liabilities of the Landlord or Tenant covered by such insurance. The cost or
premium for each and every such policy will be paid by the Tenant. The
Tenant will obtain from the insurers under such policies undertakings to
notify the Landlord in writing at least 30 days prior to any cancellation of
the policies. The Tenant agrees to provide the Landlord with a certified
copy of each of the insurance policies described in this Lease within 10
business days of obtaining or renewing such policies.
9.2 INCREASE IN OR CANCELLATION OF INSURANCE
The Tenant will not do, permit to be done, or omit to do anything in, on or
about the Premises which causes or has the effect of causing the rate of
insurance on the whole or any part of the Premises to be increased or leading
to the cancellation of such insurance. If the insurance rate is so
increased, then the Tenant will pay to the Landlord as Additional Rent the
amount of such increase. If any insurance policy on the Premises is
cancelled by the insurer by reason of the use and occupation of the whole or
any part of the Premises by the Tenant or by any assignee, subtenant or
licensee of the Tenant, or by anyone permitted by the Tenant to be on the
Premises, the Landlord may at its option terminate this Lease by notice in
writing of such termination and thereon Rent and any other payments for which
the Tenant is liable under this Lease will be apportioned and paid in full to
the date of such notice of termination of this Lease plus an amount equal to
the next ensuing three months' Rent payable hereunder had the Landlord not
terminated this Lease and the Tenant will immediately delivery up vacant
possession of the Premises to the Landlord, and the Landlord may, at its
option and at the sole expense of the Tenant, enter on the Premises and
rectify the situation causing such cancellation or rate increase.
10. ASSIGNMENT AND SUBLETTING
10.1 REQUIREMENT FOR CONSENT
The Tenant will not enter into, consent to or permit any Transfer without the
prior written consent of the Landlord in each instance, but the consent is
subject to the Landlord's rights under Subsection 10.2. The Tenant will pay
to the Landlord its legal fees and expenses incurred in reviewing, revising,
approving and otherwise in connection with any Transfer.
10.2 LANDLORD'S RIGHTS
If the Tenant intends to effect a Transfer, the Tenant must give prior
written notice to the Landlord of such intent specifying the identity of the
proposed transferee, the type of Transfer contemplated, the portion of the
Premises affected by the Transfer and the financial and other terms of the
Transfer and must provide such financial, business or other information
relating to the proposed transferee and its principals as the Landlord
required, together with copies of any
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documents which record the particulars of the proposed Transfer. The Landlord
must, within 30 days after having received such notice and all requested
information, notify the Tenant either that:
(a) the Landlord consents or does not consent to the Transfer in
accordance with the provisions of this Section and if the former,
the Landlord may impose such terms or conditions relating to its
consent as the Landlord may see fit; or
(b) the Landlord elects to cancel this Lease as to the whole or part,
as the case may be, of the Premises affected by the proposed
Transfer; or
(c) the Landlord elects to take over the position of the proposed
Transferee with respect to the Transfer such that the Landlord
becomes the assignee or subtenant, as the case may be, of the
Tenant on the financial terms set out in the notice.
If the Landlord elects to terminate this Lease, it must stipulate in its
notice the termination date, and this date must not be less than 60 days and
not more than 90 days following the giving of the notice of termination. If
the Landlord elects to terminate this Lease, then the Tenant must notify the
Landlord within 10 days after receiving the notice of termination of the
Tenant's intention whether to refrain from the Transfer or to accept
termination of this Lease or the portion of this Lease in respect of which
the Landlord has exercised its rights. If the Tenant fails to deliver such
notice within those 10 days or notifies the Landlord that it accepts the
Landlord's termination, then this Lease will as to the whole or the affected
part of the Premises, as the case may be, be terminated on the date of
termination stipulated by the Landlord in its notice of termination. If the
Tenant notifies the Landlord within those 10 days that it intends to refrain
from the Transfer, then the Landlord's election to terminate this Lease will
become void.
10.3 TENANT CONTINUES LIABLE
Notwithstanding any consent being given by the Landlord and any Transfer
being effected the Tenant will remain bound to the Landlord for the
fulfillment of all of the terms, covenants and agreements contained in this
Lease.
10.4 CHANGE OF CONTROL
If the Tenant is a private corporation or is not a reporting company or
reporting issuer and if by the merger, amalgamation of the Tenant or the sale
or other disposition of its securities the control or the beneficial
ownership of such corporation is changed at any time during the Term, there
shall be deemed to be an assignment of the rights of the Tenant under this
Lease and, accordingly, a breach of Section 10.1, unless the prior written
consent of the Landlord is first obtained.
11. EXCLUSION OF LIABILITY AND INDEMNITY
11.1 EXCLUSION OF LIABILITY
It is agreed between the Landlord and Tenant that the Landlord, or those for
whom it may in law be responsible, will not be liable unless they are
negligent, or responsible in any way for:
18
<PAGE>
(a) damage or injury to any property of the Tenant which is entrusted
to the care or control of the Landlord, its agents, servants or
employees;
(b) any loss of or damage or injury to any property belonging to the
Tenant or to employees of the Tenant or to any other person while
such property is on the Premises whether such property has been
entrusted to employees of the Landlord or not and without limiting
the generality of the foregoing, the Landlord will not be liable
for any damage to any such property caused by steam, water, rain
or snow which may leak into, issue or flow from any part of the
Building or from the water, steam or drainage pipes or plumbing
works of the Building or from any other place or quarter or for
any damage caused by or attributable to the condition or
arrangement of any electric or other wiring or for any damage
caused by anything done or omitted by the Tenant; and
(c) any death or injury arising from or out of any occurrence in, on,
at, or relating to the Building or damage to property of the
Tenant or of others wherever located, whether or not resulting
from the negligence of the Landlord or those for whom it may in
law be responsible, the exercise by the Landlord of any of its
rights under the Lease, or by the Landlord's or suppliers' failure
to provide any services, facilities or utilities required by this
Lease. The exculpation of the Landlord from liability extends to
and includes all damages, direct, indirect, or consequential,
damages for personal discomfort, illness or inconvenience,
interruption of business, loss of income, and any death, injury or
damage to property or other loss resulting from any cause,
including without limitation, fire, explosion, falling plaster,
falling ceiling tiles, falling ceiling fixtures and diffuser
coverings, steam, gas, electricity, water, rain, flood, snow or
leaks from any part of the Building, including pipes, sprinkler,
appliances, plumbing works, roofs, windows or the subsurface of
any floor or ceiling of the Building or from any lands adjoining
the Building.
11.2 INDEMNIFICATION
The Tenant covenants and agrees with the Landlord to indemnify and save
harmless the Landlord and those for whom it is at law responsible, unless the
Landlord and those for whom it is at law responsible are negligent, against
and from any and all claims, including all claims for personal injury or
property damage arising from any act or omission of the Tenant or any
employee, agent, customer, invitee or licensee of the Tenant, and against and
from all costs, counsel fees, expenses and liabilities incurred in or about
any such claim or any action or proceeding brought.
12. LANDLORD'S RIGHTS AND REMEDIES
12.1 DEFAULT
If and whenever any one or more of the following events occur:
(a) the Rent hereby reserved, or any part of the Rent, is not paid on
the day appointed for its payment, whether lawfully demanded or
not;
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(b) in case of breach or nonobservance or nonperformance of any of the
covenants, agreements, provisos, conditions or rules and
regulations on the part of the Tenant to be kept, observed or
performed;
(c) in case the Premises is vacated or remains unoccupied for five
consecutive days;
(d) if, without the written consent of the Landlord, the Premises are
used by any person other than the Tenant, the Tenant's permitted
assigns or permitted sublessees;
(e) if, without the written consent of the Landlord, the Premises are
used for any purpose other than that for which the Premises were
let; or
(f) in case the Term is taken in execution or attachment for any cause
whatever;
then in and every such case, it will be lawful for the Landlord at any time
thereafter to enter into and on the Premises or any part of the Premises in
the name of the whole and the Landlord to have again, repossess and enjoy as
of its former estate, anything in this Lease contained to the contrary
notwithstanding. Whenever the Landlord shall be entitled to re-enter the
Premises, it may, at its option and without limiting its other remedies and
recourses, terminate this Lease, reserving a rights to claim all costs (on a
solicitor and own client basis), losses, damages and expenses arising from
any of the events set out in this Section.
12.2 EXECUTION, RECEIVERSHIP AND BANKRUPTCY
If, during the Term, any one or more of the following events occur:
(a) any of the goods and chattels of the Tenant are at any time seized
in execution or attachment by any creditor of the Tenant;
(b) a receiver or receiver-manage is appointed in respect of any
property of the Tenant;
(c) the Tenant makes any assignment for the benefit of creditors;
(d) the Tenant makes any bulk sale;
(e) the Tenant becomes bankrupt or insolvent or takes the benefit of
any act now or hereafter in force for bankrupt or insolvent
debtors;
(f) the Tenant is a corporation and any order is made for the
winding-up of the Tenant or termination of the corporate
existence of the Tenant;
then in any such case this Lease will, at any time thereafter and at the sole
option of the Landlord, cease and determine and the Term will immediately become
forfeited and void and the then current month's Rent and the next ensuing three
months' Rent will immediately become due and be paid and the Landlord may
immediately claim that Rent together with any arrears then unpaid and any other
amounts owing to the Landlord by the Tenant under this Lease and the
20
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Landlord may, without notice or any form of legal process, forthwith re-enter
on and take possession of the Premises and become the owner of the Premises
and remove the Tenant's effects therefrom, any statute or law to the contrary
notwithstanding, without prejudice to, and under reserve of, all other
rights, remedies and recourses of the Landlord.
12.3 DELIVERY OF POSSESSION
If, pursuant to the provisions of this Lease, this Lease is terminated prior
to the end of the Term, then the Rent and any other payments for which the
Tenant is liable under this Lease will be apportioned and paid in full to the
date of such termination, and the Tenant will immediately deliver up vacant
possession of the Premises to the Landlord; provided that, and
notwithstanding such termination, if at the date of such termination the
actual amount of the Rent or any other payment cannot be exactly ascertained,
the Tenant will pay to the Landlord the amount of the Rent, or other payment
as estimated by the Landlord and forthwith on the exact amount of such sum
being ascertained, the Landlord and the Tenant will make any adjustments, if
required.
12.4 PAYMENT OF LANDLORD'S EXPENSES
If at any time an action is brought for recovery of possession of the
Premises, for the recovery of Rent or any other amount due under this Lease,
or because of a breach by act or omission of any covenant contained in this
Lease on the part of the Tenant, and a breach is established, the Tenant will
pay to the Landlord all expenses incurred by the Landlord in the enforcement
of its rights and remedies under this Lease.
12.5 LANDLORD'S RIGHT TO RE-LET
In any of the cases described in Sections 12.1 and 12.2, the Landlord will
have, in addition to the other rights hereby reserved, the right if it thinks
fit to enter the Premises as the agent of the Tenant, either by force or
otherwise, without being liable to any prosecution therefor and to re-let or
sublet the whole or any part of the Premises as the agent of and at the risk
of the Tenant and to apply the proceeds of that re-letting or subletting on
account of Rent due or in satisfaction of the breach of any covenant or
agreement contained in this Lease, and the Tenant will remain liable for the
deficiency of any Rent, together with the Landlord's reasonable expenses of
retaking and re-letting, including legal fees as between solicitor and own
client, and the Landlord may recover from the Tenant the Rent due for the
remainder of the Term in the event the Landlord has not so re-let, or if the
Landlord has re-let, to recover from the Tenant the difference in rent
payable by the new tenant of the Premises for the balance of the Term and
that required to be paid by the Tenant under this Lease for the balance of
the Term, notwithstanding in either case that the Term will not have ceased
and the Tenant agrees to pay promptly on demand any amount so determined.
12.6 RIGHT OF LANDLORD TO PERFORM TENANT'S OBLIGATIONS
If, at any time and so often as it happens, the Tenant makes default in the
observance or performance of any covenant contained in this Lease on its part
to be observed or performed or fails to make payment of any money undertaken
by it under this Lease to be paid other than as Rent to the Landlord, then
the Landlord may, but is not obligated so to do, without waiving or releasing
the Tenant from its obligations under this Lease, itself observe and perform
the
21
<PAGE>
covenant or covenants in respect of which the Tenant has made default or make
payment of the moneys the Tenant has failed to pay, and the Tenant will
promptly pay all costs and expenses incurred by the Landlord in the
observance or performance of such covenant or covenants including, without
limitation, legal costs as between solicitor and own client.
12.7 MONEY PAID BY LANDLORD
Any money paid by the Landlord as provided in Section 12.4 will, with
interest on that money from the date of the incurring of such costs or
expenses or payments of moneys at a rate equal to 24% per annum, be a charge
on the Premises in favor of the Landlord in priority to the interest of the
Tenant under this Lease and of any person claiming through or under the
Tenant, and all such costs, expenses and moneys and interest on all such
costs, expenses and moneys will be payable forthwith by the Tenant and to the
Landlord and the Tenant covenants to pay them forthwith on demand by the
Landlord and they will be treated as Rent due and payable to the Landlord
under this Lease and the Landlord will have the same rights and remedies and
may take the same steps for their recovery as for the recovery of Rents in
arrears.
12.8 LANDLORD'S RIGHT TO SEIZE
The Tenant waives and renounces the benefit of any present or future law
taking away or limiting the Landlord's rights against the Tenant and
notwithstanding any such law, the Landlord may seize and sell all of the
Tenant's goods and property, whether within the Premises or not, and apply
the proceeds of such sale on Rent and all other amounts outstanding under
this Lease and on the costs of the seizure and sale in the same manner as
might have been done if such law had not been passed. The Tenant further
agrees that if it leaves the Premises, leaving any Rent or other amounts
provided to be paid under this Lease unpaid, the Landlord, in addition to any
remedy otherwise provided by law, may seize and sell the goods and chattels
of the Tenant at any place to which the Tenant or any other person may have
removed them, in the same manner as if such goods and chattels had remained
on the Premises.
12.9 NO WAIVER
No condoning, excusing or overlooking by the Landlord or Tenant of any
default, breach or nonobservance by the Tenant or the Landlord at any time or
times in respect of any covenant, proviso or condition contained in this
Lease will operate as a waiver of the Landlord's or the Tenant's rights under
this Lease in respect of any continuing or subsequent default, breach of
nonobservance, or so as to defeat or affect in any way the rights of the
Landlord or the Tenant in respect of any such continuing or subsequent
default or breach, and no waiver will be inferred from or implied by anything
done or omitted by the Landlord or the Tenant except if there is an express
waiver in writing.
12.10 REMEDIES CUMULATIVE
All rights and remedies of the Landlord in this Lease contained will be
cumulative and not alternative.
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<PAGE>
13. MORTGAGES AND ASSIGNMENT BY LANDLORD
13.1 LANDLORD MAY CHARGE RIGHTS
The rights of the Landlord under this Lease may be mortgaged, charged,
transferred or assigned to a purchaser or to a mortgagee or trustee for bond
holders and in the event of a sale or of default by the Landlord under any
mortgage, trust deed or trust indenture and the purchaser, mortgagee or
trustee, as the case may be, duly entering into possession of the Premises,
the Tenant agrees to attorn to and become the Tenant of such purchaser,
mortgagee or trustee under the terms of this Lease.
13.2 SUBORDINATION
This Lease is subject and subordinate to all mortgages, trust deeds or trust
indentures which may now or at any time hereafter affect in whole or in part the
Premises whether or not any such mortgage, trust deed or trust indenture will
affect only the Premises or will be a blanket mortgage, trust deed or trust
indenture affecting other premises as well. This Lease will also be subject and
subordinate to all renewals, modifications, consolidations, replacements and
extensions of any such mortgage, trust deed or trust indenture. In confirmation
of such subordination and agreement to attorn, the Tenant will execute promptly
on request by the Landlord any certificate, instruments or postponement or
attornment of other instruments which may from time to time be requested to give
effect to the provisions of this Lease. The Tenant hereby irrevocably appoints
the Landlord as the attorney for the Tenant with full power and authority to
execute and deliver such instruments for and in the name of the Tenant.
13.3 STATUS STATEMENT
If, in connection with any sale, assignment, hypothecation or mortgaging of
the Premises or the Land by the Landlord, an offset statement is required
from the Tenant, then the Tenant covenants and agrees with the Landlord to
deliver (within 10 days after request for such a certificate by the Landlord)
a certificate to any proposed mortgagee or purchaser, or to the Landlord,
certifying that this Lease is in full force and effect, that there are no
defenses, offsets or prepayments to this Lease and any other information
reasonably requested by the Landlord.
13.4 REGISTRATION
The Landlord will not be obliged to deliver this Lease in registrable form.
The Tenant covenants and agrees with the Landlord not to register this Lease.
If the Landlord requires this Lease to be registered subject or in priority
to, as the Landlord may direct, any mortgage, trust deed or trust indenture
which may now or anytime hereafter affect in whole or in part the Premises or
the Land and whether or not any such mortgage, trust deed or trust indenture
affecting other premises as well, the Tenant covenants and agrees with the
Landlord that the Tenant will execute promptly on request by the Landlord any
certificate, tripartite agreement or other instrument which may from time to
time be requested to register this Lease. Such registration will be at the
cost and expense of the Landlord.
23
<PAGE>
13.5 ASSIGNMENT BY LANDLORD
In the event of the sale or lease by the Landlord of the whole or a portion
of the Premises or the assignment by the Landlord of this Lease or any
interest of the Landlord under this Lease, and to the extent that the
purchaser, lessee under such lease or assignee has assumed the covenants and
obligations of the Landlord under this Lease, then the Landlord will, without
further written agreement, be freed and relieved of all liability on such
covenants and obligations. The Tenant will, from time to time at the request
of the Landlord, certify or acknowledge to any mortgagee, purchaser, lessee,
or assignee or proposed mortgagee, purchaser, lessee, or assignee, the status
and validity of this Lease and the state of the Landlord's and Tenant's
account under this Lease.
14. GENERAL
14.1 MANAGEMENT OF PROJECT
The Tenant acknowledges that the Landlord may appoint a manager of the
Premises and on notice to the Tenant of any such appointment, such manager
will be the person at the Premises to deal with the Tenant.
14.2 SHOWING PREMISES
The Landlord may, at any time within 90 days before the end of the Term,
enter the Premises and bring others at all reasonable hours for the purpose
of offering the Premises for rent. The Landlord may at any time during the
Term, enter the Premises and bring others at all reasonable hours for the
purpose of offering the Premises for sale.
14.3 FORCE MAJEURE
Whenever and to the extent that the Landlord is unable to fulfil or is
delayed or restricted in the fulfillment of any obligations under this Lease
in respect of the performance of the Landlord's covenants under this Lease by
reason of being unable (with reasonable diligence and apart from any question
of financial ability) to obtain the material, goods, equipment, service,
utility, or labor required to enable it to fulfill that obligation or by
reason of any statute, law or order-in-council or any regulation or order
passed or made pursuant to any statute, law or order-in-council; or any other
cause beyond its control whether of the foregoing character or not, the
Landlord will be relieved from the fulfillment of that obligation and the
Tenant is not entitled to compensation for any inconvenience, nuisance or
discomfort thereby occasioned and there will be no deduction from the Rent by
reason of any of these failures or causes.
14.4 NO OFFER
The Landlord will not be deemed to have made an offer to the Tenant by
furnishing to the Tenant a copy of this Lease with particulars inserted.
Notwithstanding that the first installment of Basic Rent may be received by
the Landlord when this Lease is received by it for signature no contractual
or other rights will exist or be created between the Landlord and Tenant
until such time as all parties to this Lease have executed and delivered this
Lease.
24
<PAGE>
14.5 REPRESENTATIONS BY LANDLORD
There are no representations or warranties of the Landlord as to the
environmental condition of the Premises, the presence or absence of any
Hazardous Materials on the Premises or any Hazardous Materials Claims, and
whether the intended use of the Premises contemplated by the Tenant complies
with zonings and all other laws, ordinances, regulations and requirements of
the Municipality. The Tenant hereby acknowledges that the Landlord has in no
way relieved the Tenant from its obligations under this Lease to indemnify
the Landlord from all manners of action or causes of action, damage, loss,
cost or expenses arising from the Tenant's failure to comply with laws,
ordinances, regulations, requirements, and recommendations of all levels of
government and authorities.
14.6 NO PARTNERSHIP
It is understood and agreed that nothing contained in this Lease nor in any
acts of the parties to this Lease will be deemed to create any relationship
between the parties to this Lease other than the relationship of landlord and
tenant.
14.7 SEVERAL TENANTS
Should the Tenant comprise two or more persons, each of them, and not one for
the other or others, will be jointly and severally bound with the other or
others for the due performance of the obligations of the Tenant under this
Lease. Where required by the context of this Lease the singular will include
the plural, and the masculine gender will include either the feminine or
neuter genders, as the case may be, and vice versa.
14.8 ENUREMENT
Subject to the provisions of this Lease respecting assignment by the Tenant,
this Lease inures to the benefit of and is binding on the Landlord, its
successors and assigns and the Tenant, and the heirs, executors,
administrators and other personal legal representatives, successors and
permitted assigns of the Tenant.
14.9 NOTICE
Any notice, demand, request, consent or objection required or contemplated to
be given or made by any provision of this Lease will be given or made in
writing and either delivered personally, sent by facsimile or sent by
registered mail, postage prepaid, addressed to the Landlord at the address
set out in Subsection 1(b) or addressed to the Tenant at the address set out
in Subsection 1(d) or to such other address in Canada of which either party
may from time to time notify the other in writing. The time of giving or
making such notice, demand, request, consent or objection will be, if
delivered or sent by facsimile, when delivered or faxed, and if mailed, then
on the second business day after the day of the mailing of such notice unless
there is a labor dispute that might affect the mailing of the notice in which
case the notice will be delivered or sent by facsimile rather than mailed.
If in this lease two or more persons are named as Tenant such notice, demand,
request, consent or objection will be sufficiently given or made if and when
it is given to any one of such persons. All payments required to be made by
this Lease will addressed as provided for in this Section unless otherwise
directed by the Landlord.
25
<PAGE>
14.10 TIME OF ESSENCE
Time is of the essence of this Lease.
14.11 HEADINGS
The headings in this Lease have been inserted as a matter of convenience and
for reference only and in no way define, limit or enlarge the scope or
meaning of this Lease or any provisions of this Lease.
14.12 GOVERNING LAW
This Lease will be construed and governed by the laws of British Columbia.
14.13 SEVERABILITY
Should any provision or provisions of this Lease or its conditions be illegal
or not enforceable, it or they will be considered separate and severable from
this Lease, and its remaining provisions and conditions will remain in force
and be binding on the parties to this lease as though the illegal or not
enforceable provision or provisions or conditions had never been included.
14.14 ENTIRE AGREEMENT
The Tenant acknowledges that there have been no representations or warranties
made by the landlord which are not set out in this Lease. The Tenant further
acknowledges that this Lease constitutes the entire agreement between the
Landlord and the Tenant and may not be modified except as explicitly provided
in this Lease or except by subsequent agreement in writing duly signed by the
Landlord and the Tenant.
15. SPECIAL PROVISIONS
15.1 OPTION TO RENEW
The Landlord covenants with the Tenant that if the Tenant duly and regularly
pays the Rent provided for in this Lease and performs all its covenants
contained in this Lease, then the Landlord will, on request of the Tenant in
writing to the Landlord no earlier than 9 months and no later than six months
prior to the expiration of the Term, grant to the Tenant a renewal lease of
the Premises for the further term set out in Subsection 1(k) at a rent to be
agreed on between the parties or, failing agreement within 45 days of the
date the Tenant delivers notice to the Landlord of the exercise of the
option, to be determined by arbitration in accordance with the COMMERCIAL
ARBITRATION ACT (British Columbia) as the greater of:
(a) the then current fair market rent for premises of similar size and
use in the general location of the Premises; and
(b) the Rent paid during the last year of the initial term of this
Lease.
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The renewal lease will contain all the covenants, provisos, conditions and
agreements contained in this present Lease, except for the Rent and this
option to renew.
15.2 LANDLORD'S RIGHT TO TERMINATE
If the Tenant exercises the option to renew in accordance with the provisions
of Section 15.1 the Landlord may at any time during the extended term, by a
written notice of termination, terminate the Lease effective as of the date
which is 1 year after the date the notice of termination is provided to the
Tenant. The notice of termination must confirm that the Landlord intends to
demolish all or a portion of the Building for such demolition. The Tenant
shall during the notice period pay rent and comply with all obligations
hereunder.
15.3 FURNITURE
Prior to the Commencement Date the Landlord will provide the Tenant with an
inventory which lists all furniture which the Landlord will remain on the
Premises for the Tenant's use during the Term. The Tenant agrees to accept
the furniture on an as is where is basis. The Landlord is making no
warranties or representations as to the condition of the furniture or its
suitability for use by the Tenant.
At the end of the Term, if the Tenant is not in default of its obligations
under the Lease the Landlord shall transfer title to the furniture to the
Tenant in consideration of $1.00.
15.4 PARKING
In addition to the parking located on the Premises the Landlord will make
available to the Tenant up to 8 parking stalls on lands adjacent to the
Premises on the following terms and conditions:
(i) the Tenant may on 30 days written notice reduce the number
of parking stalls it wishes to use;
(ii) if after the Tenant has reduced the number of parking
stalls it wishes to use it wishes to retake one or more
spaces it will give notice to the Landlord and subject to
availability the Landlord will allow the Tenant to retake
the parking stalls;
(iii) the Tenant shall pay the market monthly rental rates in
effect from time to time for the parking spaces.
15.5 FIXTURING PERIOD
The Tenant will be permitted access to the Premises prior to the Commencement
Date for the purposes of installation of leasehold improvements and trade
fixtures. The Tenant shall not be required to pay Basic Rent or Additional
Rent for this period but shall be required to perform all other terms and
conditions of this Lease, including placing and maintaining insurance.
27
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the
date first written above.
THOMAS DOWNIE HOLDINGS LTD.
Per:
/s/ Ken Downie
- ------------------------
Authorized Signatory
GLOBAL MEDIA CORPORATION
Per:
/s/ Robert Fuller
- ------------------------
Authorized Signatory
/s/ Jim Porter
- ------------------------
Authorized Signatory
28
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Registration Statement
on Form SB-2, Registration No. 333-84145, 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."
Vancouver, Canada, /s/ Ernst & Young
August 19, 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>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1999
<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>
