SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-KSB
Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal
year ended December 31, 1998
DIRECTRIX, INC.
A Delaware Corporation
IRS Employer Identification No. 13-4015248
SEC File Number: 000-25111
Current Address: Address Commencing Approximately June 15, 1999:
536 Broadway 226 West 26th Street, Suite 12W
New York, New York 10012 New York, New York 10001
212) 941-1434 (212) 741-6511
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01
Directrix, Inc., (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements within the past 90 days.
Directrix is unaware of any delinquent filers pursuant to Item 405 of Regulation
S-B.
Directrix's revenue for its most recent fiscal year: $9,581,000.
Directrix had 2,074,785 shares of Common Stock outstanding at March 15, 1999.
<PAGE>
INTRODUCTION
Directrix, Inc. ("Directrix"), a Delaware corporation, is a full
service provider of all of the technical services necessary to create, support
and deliver network television, video programming and data services -
network-in-a box(R) services. Directrix edits and assembles video/audio
programming, Internet programming and other data into various formats and
creates interstitial and promotional graphics, animation and other material to
support the brand identity of customers' programming. Directrix also provides
automated playback services for video/audio programming and Internet programming
from its master control and digital playback facilities. Directrix can
distribute its customers' programming and data to cable head ends, direct to
consumers and other locales via satellite, the Internet, fiber optic networks,
regionally deployed video file servers and over other delivery modalities as
they are developed and deployed.
FORMATION
Spice Entertainment Companies, Inc. ("Spice") formed Directrix in 1998
as part of the transactions ("Playboy Transaction") relating to Spice's
acquisition by Playboy Enterprises, Inc. ("Playboy"). On the March 15, 1999
closing of the Playboy Transaction (the "Closing Date"), Spice transferred to
Directrix certain assets and agreements that were not part of the Playboy
acquisition including Spice's master control and digital playback facility
("Operations Facility"), service agreements to provide network creation,
playback and other technical services, certain rights to Spice's library of
adult films, $750,000 in cash, certain prepaid assets and accounts receivables
and Spice's option ("EMI Option") to acquire the stock or assets of Emerald
Media, Inc.("EMI").
EMI is a leading provider of adult television programming to the C-Band
direct to home ("DTH") market and operates an adult Internet site. Directrix
currently provides creative, playback and transponder services to EMI and
licenses its adult film library to EMI. Directrix currently has no intent to
exercise the EMI Option.
As part of the Playboy Transaction, Spice acquired 173,784 shares of
Playboy Class B Common Stock which it contributed to Directrix. Directrix plans
to hold the Playboy stock for future financing needs.
MARKET FOR NETWORK-IN-A BOX SERVICES(R)
In North America, television programming is delivered to the viewer
principally via over-the-air broadcast, cable television and satellite delivery
systems. The demand for entertainment content has increased as a result of the
introduction of new broadcast networks, direct broadcast satellite systems, pay
television, increased cable penetration, the growth of home video and the
streaming of video content over the internet. The number of television networks
also continues to increase primarily as a result of the increase in the channel
capacity of cable television and direct broadcast satellite systems due to the
ability to deliver digitally compressed television channels to the home.
Digital compression expands a cable television system's channel
capacity by a factor of 10 to 16 times that achievable in an uncompressed analog
environment. In addition, digital compression has dramatically reduced
transponder costs, the largest cost component of operating a satellite-delivered
television network, since a single transponder can transmit up to 16 digitally
compressed television channels. The new television networks have created a need
for more hours of programming, which should increase demand for network
services, such as those provided by Directrix. Directrix's services support the
delivery of television programming through various channels of distribution,
including cable, fiber, satellite delivery and file server systems and the
Internet.
Directrix is also positioned to nurture emerging networks which begin
distribution by streaming video programming over the Internet. While video
programming streamed over the Internet using telephone line modems is of lower
quality than video programming delivered via broadcast or cable television, with
the advent of broad band high speed modems such as cable modems and digital
subscriber line modems, the video quality of Internet delivered programming will
approach that of video delivered via broadcast, cable or satellite. Internet
delivery is typically the first step towards satellite delivery on digital
platforms - both cable television and direct broadcast satellite digital
platforms. Directrix can handle all steps necessary for the transition to
satellite delivery.
Additional prospective Directrix clients include private networks and
remote learning networks. Directrix can also provide data transmission services
and video/data backhaul services moving video/data information from its origin
to a source of multi-point distribution. The demand for backhaul services will
continue to grow with the increased demand for video and data information.
Spice began construction of the Operations Facility in the second
quarter of 1995 and it went into service in the first quarter of 1997. The
Operations Facility integrates both analog (videotape) and digital (data files)
technologies to meet its customers' needs though Directrix primarily relies on
its digital infrastructure. Digital information is easier to store, easier to
manipulate and provides higher quality transmissions. In addition, videotape can
wear out, in contrast to digitized information. Directrix believes that the
television programming industry is moving toward an entirely digital platform
and that, due to its advanced digital equipment, it is well positioned to
provide efficient and effective playback services.
Because of Directrix's capital investment in the Operations Facility
and other equipment which is described below, Directrix can scale up its
capacity to meet this demand. In addition, Directrix has, over the past few
years, developed an operational team with over eight years of experience in
providing full network operations for seven networks. This team added networks
with minimal lead-time, incremental cost and capital investment.
PLAYBACK SERVICES
Directrix can provide all or a portion of the technical and creative
services necessary to create and distribute a television network over any of the
available delivery methods including cable, DBS, the Internet and regionally
deployed video file servers. The menu of available services includes
post-production, creative and facilities services, network operations,
transponder capacity, dedicated Internet backbone, and engineering services.
Directrix also provides videotape playback and origination services.
Prior to broadcast, program and interstitial material are checked for quality
control and may be pre-compiled into final broadcast form prior to on-air
playback. Control procedures are used to ensure on-air reliability. A variety of
movie and show formatting and time compression services are available to prepare
programming for distribution. Commercial, promotional, billboard, warning, logo
and other integration, as well as source identification encoding, is performed.
Directrix also provides program log and traffic support to programmers and
affiliate relations and station coordination to aid their ordering and billing
services. Directrix accepts daily program schedules, programs, promotions and
advertising, and delivers 24 hours of seamless daily programming to home
satellite subscribers. Directrix uses automated robotics systems for broadcast
playback. Playback systems are both videotape (analog) and video file
server-based (digital), and subtitling and "local avail" (commercial
advertisement insertion) are supported.
Directrix currently provides a full range of playback services for the
four networks operated by EMI. Directrix is also providing playback and uplink
services for the two Spice networks acquired by Playboy and the Spice Hot
network which was acquired by Califa Entertainment Group, Inc. ("Califa").
Because of the scalability of Directrix's playback facility, Directrix can add
new playback customers with little incremental cost.
Post Production and Facilities Services. Directrix operates two large
analog linear edit facilities and a third digital editing bay for non-linear
editing, all of which incorporate software and peripherals which allow for
automated and semi-automated creation of feature -length and short-form videos.
Directrix also maintains two graphic suites used to produce three-dimensional
graphics and animation for print, video and the worldwide web. Systems also
include various codecs (technology used to encode and decode content) for the
conversion of video content among various international standards and the
incorporation of various data into the video signals.
The Federal Communications Commission now requires closed captioning
for most television programming. Directrix can provide this closed captioning
services and has agreed to provide these services for Playboy and Califa.
Directrix utilizes two MPEG-2 encoders for conversion of analog source
materials to a variety of digitized formats. At the same time, Directrix can
generate such material in RealVideo and Microsoft NetShow formats (the most
popular methods of encoding Internet video streams) for transmission via the
Internet. Directrix can also digitize materials in digital-video-disc (DVD)
format and in alternative formats such as AVI, MPEG-1 and QuickTime. Directrix
also maintains both analog and digital tape duplication facilities.
Directrix also maintains duplication facilities for both analog and
digital tape. An average of 110 75-minute features and 120 minutes of
interstitial material is digitized monthly. Directrix utilizes primarily two
MPEG-2 encoders (the industry standard for the digital encoding of programming),
which are capable of taking source material from either analog or digital tape
and creating digitized files for video file servers. At the same time, Directrix
can generate such material in RealVideo and Microsoft NetShow formats (currently
the most popular methods of encoding Internet video streams) for full-motion
video transmission via the Internet. The duplication facilities are equipped to
digitize materials in digital-video-disc format and in alternative formats such
as AVI, MPEG-1 and QuickTime. In addition, Directrix currently provides
one-to-one analog tape dubbing. The analog tape duplication facilities can be
expanded to accommodate mass simultaneous tape duplication in various tape
formats, including Beta SP, DigiBeta, VHS and SVHS.
Directrix offers library services for storage and traffic of broadcast
master tapes. Directrix's high-density fire-resistant tape storage facility
currently holds 15,000 videotapes and can accommodate, in its current
configuration, additional 21,700 videotapes. Videotapes are bar coded and
tracked using Directrix's distributed database which can be customized to meet
its customers' needs.
Directrix offers these services in a package price or ordered on an a
la carte basis. It is expected, based on its prior experience, that a la carte
services will be an important source of revenue for Directrix from customers who
use Directrix to provide basic network operational services.
Network Operations and Engineering. Directrix offers video file server
and videotape playback and network origination services on a 24-hour a day by 7
day a week basis to television networks from its operations facility. Directrix
also offers editing and quality control services for customer supplied
programming, prior to broadcast. Directrix will provide program logs and traffic
support to its customers and their affiliates to interface with their ordering
and billing functions. This data can be transmitted in any medium and/or format
specified by the customer or its affiliate
Regionally Deployed Video File Servers. Using the Operations Facility
as a hub for the distribution of digitized video content, Directrix pioneered
the use of regionally deployed video file servers to deliver video programming
through its participation in near video-on-demand initiatives. Video file
servers are computers which store and distribute compressed digitized
programming. Regionally deployed video file servers allow a distributor to
tailor the programming distributed to the local demographic audience such as a
metropolitan area or, on a smaller scale, a hotel or other commercial
establishment, and provide near-video-on-demand and video-on-demand which cannot
be effected by traditional satellite distribution. Directrix believes it can
leverage the experience of its personnel and management to provide services in
connection with the use of video file servers including digitization of content,
turnkey refreshing of file servers (the ability to replace the video content of
the file server) and remote file server management (maintenance of the
replacement of video, scheduling of the delivery of content and distribution of
content).
TERRESTRIAL CONNECTIVITY, UPLINK, COMPRESSION AND ENCRYPTION SERVICES
Directrix uplinks networks originated from the Operations Facility
through the Northvale, New Jersey uplink facility owned by Atlantic Satellite
Communications, Inc. ("Atlantic"). (Uplinking refers to the transmission of a
television programming or data to a communications satellite.) Directrix
transmits programming and data signals from the Operations Facility over fiber
optic lines to the Northvale facility. Directrix secures these services from
Atlantic and other facilities for its network operations customers.
Alternatively, customers may arrange to have their signal delivered directly to
Atlantic's uplink facility for uplink to Directrix's transponders, affording
customers greater flexibility.
Directrix's customers may also connect to the video
switching/distribution hub operated by Waterfront Communications, an Atlantic
affiliate. Connection to the Waterfront hub would facilitate, for example, the
movement of video files to and from other persons connected to the hub.
Directrix will offer industry-standard encryption and compression
systems as needed for distribution of its customers' networks. Directrix owns
one Digicipher II digital system and three VideoCipher II analog systems, and
leases additional three VideoCipher II systems as a back up. Directrix also
utilizes two fully redundant Scientific Atlanta PowerVu encoder systems. These
systems enable digitally compressed video/audio programming to be added to
transponders carrying analog television signals.
TRANSPONDER SERVICES
Loral SpaceCom Communications, Inc. ("Loral") provides transponder
services to Directrix on one non-pre-emptible and two pre-emptible transponders.
Directrix provides transponder services to EMI for its analog networks.
Directrix is able to add up to two digitally compressed networks to each of its
transponders and pursuant to arrangements with EMI, the transponders leased
directly by EMI. Adding digitally compressed networks to a transponder is
accomplished using Scientific Atlanta's PowerVu digital compression system. Each
of Directrix's two PowerVu systems includes a primary system capable of
digitally compressing two channels and a back-up system for one channel. Other
manufacturers, such as General Instruments, also make equipment which enables
the addition of digitally compressed channels to a transponder carrying an
analog television signal. Directrix continually evaluates new technology to
expand the productive utilization of its transponder capacity.
If sufficient demand for digitally compressed transponder services
exists, Directrix may use an entire transponder's bandwidth for digitally
compressed transponder services. With today's technology, Directrix can acquire
an encoder (the device that compresses the television signals and outputs a
digital data stream to the transponder) capable of compressing up to 12
television channels for approximately $750,000. There may be other uses for
Directrix's transponders including transmission of audio, video or other data.
Directrix plans to constantly monitor the marketplace for transponder services
with a view to putting its transponder capacity to its highest and best use.
INTERNET HOSTING AND CONTENT STREAMING
Directrix will offer 24 hour a day by 7 day a week Internet hosting and
video streaming services. InterVU Inc. ("InterVU") provides Directrix with
dedicated multimedia Internet backbone connectivity deployable across 5,000
simultaneous 56 kilobit streams. This connectivity increases the reliability and
quality of video files streamed over the Internet. A portion of this is Internet
connectivity is used to provide a simultaneous webcast of the EMI networks and
related programming on demand over the Internet.
Directrix currently is capable of hosting a website averaging access by
650,000 subscribers daily and can provide web authoring, web-based database
publishing, electronic commerce, creation of graphics and animation services.
New television networks may begin network distribution using streaming
technology over the Internet (a webcast) before migrating to satellite delivery.
Directrix offers one-stop shopping for these start-up networks.
EXISTING CUSTOMERS
Directrix's customers are currently EMI, Playboy, Califa, Bloomberg,
L.P. ("Bloomberg") and Mobile Satellite. Directrix provides complete network
operational services, including services on three transponders for EMI.
Directrix also provides web hosting and video streaming services to EMI.
Pursuant to agreements with Playboy and Califa, Directrix provides playback
network operations and engineering services for three networks for at least two
years and provides post production and other technical services on a month by
month basis. Directrix also provides compressed transponder services to
Bloomberg and Mobile Satellite.
SALES AND MARKETING
Directrix has positioned itself as one-stop video service company that
can create and distribute television networks and other video content via any
medium. Directrix will rely on the business contacts and experience of its
management to attract customers and market Directrix's business.
By participating in cable industry trade shows and sponsoring
educational forums for the industry, Directrix plans to make its service
capabilities known to the marketplace. There can be no assurances that Directrix
will be successful in marketing some or all of these services.
GOVERNMENTAL REGULATION
Directrix's business is not currently subject to material governmental
regulation. Were Directrix to exercise the EMI Option, it would become a
provider of explicit adult programming distributed in the C-band DTH market and
operate an Internet site providing adult content. Federal and state governments,
along with various advocacy groups, consistently propose and support legislation
aimed at restricting the provision of, access to, and content of adult
entertainment. Directrix could be subjected to such adverse legislation.
CURRENCY RATES AND REGULATIONS
Directrix does not currently have foreign operations. Were it to have
foreign operations, these operations would be subject to the risk of fluctuation
in currency exchange rates and to exchange controls. Directrix cannot predict
the extent to which such controls and fluctuations in currency rates may affect
its operations in the future or its ability to remit dollars abroad.
EMPLOYEES
At March 15, 1999, Directrix had a total of 34 employees. Directrix
believes that its relationship with its employees is satisfactory.
Item 2. Properties.
Directrix currently occupies the 10th floor and a portion of the roof
and the 7th floor at 536 Broadway, New York, New York, space that was leased by
Spice from Schack & Schack Real Estate Co. ("Landlord") prior to the Playboy
Transaction. As provided for in the merger agreement between Spice and Playboy,
a March 8, 1999 letter agreement among Playboy, Spice and Directrix and an
agreement among Spice, Playboy, Directrix and the Landlord, the 10th floor lease
(including use of a portion of the roof) was assigned to Directrix and the 7th
floor lease was assigned to Playboy. In addition, Playboy agreed to provide
Directrix with rent-free use of the 7th floor until June 30, 1999 and agreed to
pay Directrix's rent for the 10th floor and roof until August 31, 1999. Under
the agreement with the Landlord, the 10th floor rent was increased by $3,000 per
month to $13,500 per month commencing March 16, 1999. The Landlord may terminate
the 10th floor lease on 30 days prior written notice but not before August 31,
1999 and Directrix assumed responsibility for restoring the 10th floor and roof
to its former condition. The 10th floor lease expires on May 31, 2003.
Directrix has executed a lease for approximately 3,000 square feet of
office space at 236 West 26th Street, New York, New York for its executive and
sales offices pursuant to a lease commencing April 1, 1999 and expiring on
January 31, 2002. The lease provides for monthly rent ranging from $5,200 per
month to $5,624 per month over the life of the lease Directrix plans to relocate
the Operations Facility to a 22,000 square foot building located in Northvale,
New Jersey which is in close proximity to the Atlantic uplink facility.
Directrix plans to execute an approximately 4 year sublease with the building's
existing tenant and an approximately 6 year lease with the building owner. The
monthly rent will range from $14,427 to $16,230 over the life of the leases,
with eight months free rent following lease inception.
Directrix believes its leased premises are adequate to conduct its
business operations.
Item 3. Legal Proceedings.
Directrix is not currently involved in any legal proceedings. From time
to time, Directrix may become a party to legal actions in the normal course of
its business.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1998.
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters.
Directrix's common stock began trading on the OTC Electronic Bulletin
Board ("OTC") on March 15, 1999 under the symbol "DRCX."
Directrix has never paid cash dividends on its common stock and intends
to retain future earnings to support the growth of its business and does not
anticipate paying any cash dividends in the near future. The payment of any
future cash dividend on common stock will be determined by Directrix's Board of
Directors in light of conditions then existing, including Directrix's earnings,
financial condition, capital requirements and other factors.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
The following discussion of the financial condition and results of
operations of Directrix should be read in conjunction with Directrix's Financial
Statements and notes thereto, and the other financial information included
elsewhere in this report. Directrix's actual results or future events could
differ materially from those discussed in the forward-looking statements
contained in this report. In addition to those discussed elsewhere in this
report, among other factors that could cause the actual resulted to differ
materially are the following: business condition and the general economy,
reliance on a limited number of customers and limited operating history with
absence of history as a stand-alone company.
OVERVIEW
Directrix is a Delaware corporation formed by Spice in contemplation of
the merger of Spice and Playboy (the "Merger"). On March 15, 1999, prior to the
closing of the Merger, Spice contributed to Directrix, among other things, all
of the assets and liabilities associated the Operations Facility, the EMI Option
and the rights to distribute the explicit version of Spice's adult films in the
DTH market and over the Internet. Spice also contributed approximately $0.8
million in cash, accounts receivable and other current assets totaling
approximately $1.7 million and 173,784 shares of Playboy stock valued at
approximately $4.5 million, which were purchased by Spice prior to the closing.
Directrix is using the Operations Facility and its transponder capacity
to provide a complete range of technical and creative services required to
create and distribute a television network over a variety of delivery methods
including cable, direct broadcast satellite system ("DBS") and the Internet.
Directrix offers uplink services through a third party vendor, playback services
through its Operations Facility and transponder services, both analog and
digitally compressed, through its agreement with Loral. Directrix also plans to
offer post-production services, including creation of interstitial and
promotional segments, animation and graphics, quality control, library services
for masters tapes and facilities, network operations and engineering services.
There can be no assurances that Directrix will be successful in marketing some
or all of these services.
Directrix's customers are initially EMI, PEGI, Califa, Bloomberg and
Mobile Satellite. Directrix's ability to achieve and maintain profitability
depends on its ability to retain its existing customers and to attract and
maintain new customers for its services. There can be no assurance that it will
be able to do so. Directrix currently intends to rely on the business contacts
and experience of its management to develop new business. There can be no
assurance that management will be successful in developing new business.
On March 15, 1999, after the contribution from Spice, Directrix had
working capital of approximately $5.8 million. Directrix has also secured a $1.5
million credit facility provided by certain officers and directors of Directrix.
Management believes the transferred working capital, the credit facility and
cash generated by operations will provide sufficient funding to implement
management's plans.
Directrix utilizes satellite transponder services pursuant to a
Transponder Services Agreement (the "Transponder Agreement") dated February 7,
1995 between Spice and AT&T Corp. ("AT&T"). On March 31, 1997, Spice and Loral
SpaceCom Corporation d/b/a Loral Skynet ("Loral"), as successor to AT&T, amended
the Transponder Agreement by changing the expiration date to October 31, 2004,
reducing the term by approximately four years. As a result of this amendment,
the Transponder Agreement was reclassified for accounting purposes (the
"Reclassification") as an operating lease rather than a capital lease commencing
on March 31, 1997. As a result of the Reclassification, Directrix recorded a
one-time gain of approximately $2.3 million in the first quarter of 1997. On
March 15, 1999, the Transponder Agreement was replaced with an agreement with
Loral for services on three transponders, one protected and two pre-emptible,
with monthly payments of $375,000. The new Loral agreement expires on October
31, 2004, with Directrix having an option to extend the agreement through the
useful life of the transponders, which is estimated to be November 30, 2007.
RESULTS OF OPERATIONS
The financial statements of Directrix reflect the results of
operations, financial position and cash flows of the business that were
contributed to Directrix by Spice on March 15, 1999. As a result, the financial
statements of Directrix prior to the closing have been carved out from the
financial statements of Spice using the historical results of operations and
historical basis of the assets and liabilities of such business.
Additionally, the financial statements of Directrix include certain
assets, liabilities, revenues and expenses which were not historically recorded
at the level of, but are primarily associated with, such business. Directrix
believes the assumptions underlying its financial statements to be reasonable.
The financial information included herein, however, may not necessarily
reflect the results of operations, financial position and cash flows of
Directrix in the future or what the results of operations, financial position
and cash flows would have been had Directrix been a separate stand-alone entity
during the periods presented. The financial information included herein does not
reflect the many changes that will now occur in the funding and operations of
Directrix as a result of the transactions involving Spice, Playboy and
Directrix.
Revenues were earned principally from services provided to two
customers, EMI and Spice. Through December 31, 1997 revenues attributable to EMI
were recorded based upon contractual amounts for playback and transponder
services. In 1998, as a result of the ongoing uncertainty surrounding EMI's
ability to pay for all services provided, Directrix started recording revenues
from EMI upon receipt. Revenues attributable to Spice relate to network
operations, post-production and technical services provided internally. These
revenues have been recorded based on either (i) services provided to unrelated
third party customers or (ii) costs associated with an applicable service plus
an appropriate markup based on a reasonable assessment of a market-based charge.
Management believes that the methods used to record revenues are reasonable.
The Emerald Media Receivable. Directrix established a reserve against
the receivable from EMI (the "EMI Receivable") in the fourth quarter of 1996,
the first quarter in which Directrix provided services to EMI, because of the
uncertainty of EMI's ability to meet its obligations to Directrix on a timely
basis. During the year ended December 31, 1997, Directrix adjusted the reserve
on a quarterly basis so that the net realizable value of the EMI Receivable
equaled the exercise price of the Emerald Media Option because Directrix could
exercise the Emerald Media Option and acquire EMI by forgiving the EMI
Receivable.
The aggregate amount of the EMI Receivable at December 31, 1998 was
approximately $4.0 million; Directrix has reserved approximately $3.2 million
against the EMI Receivable.
Directrix carefully monitors EMI's financial position to determine
EMI's ability to pay its current obligations to Directrix and to pay down the
EMI Receivable. EMI instituted a series of operating adjustments during the year
ended December 31, 1998 to improve its results, including changes in the
programming, promotion and branding of its networks and improvements in the call
center which processes orders for the EMI networks. Cash received from EMI for
the year ended December 31, 1998 increased from the cash received from EMI for
the year ended December 31, 1997. Based on discussions with EMI's management,
Directrix believes that these operating improvements will provide EMI with
sufficient liquidity and capital resources to meet EMI's anticipated cash
obligations to Directrix on a going forward basis.
1998 COMPARED TO 1997
Net Loss. Directrix reported a net loss of $4.2 million for the year
ended December 31, 1998 as compared to a net loss of $0.9 million for the year
ended December 31, 1997. The increase in net loss was primarily attributable to
the Reclassification in the first quarter of 1997. Also contributing to the
increase in net loss were the following: (a) losses attributable to unused
transponder capacity totaling $0.6 million, (b) increases in salaries, wages and
benefits totaling $0.5 million and (c) increases in selling, general and
administrative expenses attributable to the expansion of the Operation Facility
and the allocation of general corporate overhead totaling $0.2 million.
Revenues. Directrix reported total revenue of $9.6 million for the year
ended December 31, 1998 as compared to total revenue of $10.7 million for the
year ended December 31, 1997. The decline in total revenue was primarily
attributable to a decrease in revenue associated with the sale of transponder
capacity.
Salaries, Wages And Benefits. Directrix reported salaries, wages and
benefits of $2.7 million for the year ended December 31, 1998 as compared to
$2.2 million for the year ended December 31, 1997. Approximately $0.2 million of
this increase was attributable to the commencement of playback services from the
Operations Facility and expansions in the post-production department. Also
contributing to the increase was the allocation of general corporate overhead
relating to Spice's corporate headquarters and other common support units
totaling $0.2 million. This allocation was based upon direct salaries and
related cost of both Spice and Directrix.
Library Amortization. Directrix reported library amortization for the
year ended December 31, 1998 of approximately $0.4 million, which was
substantially the same for the year ended December 31, 1997.
Satellite, Playback And Uplink Expenses. Directrix reported satellite,
playback and uplink expenses of $6.6 million for the year ended December 31,
1998 as compared to $4.8 million for the year ended December 31, 1997.
Substantially all of the increase was attributable to the Reclassification. In
the year ended December 31, 1997, Directrix treated $1.6 million of transponder
lease payments as principal and interest payments under a capital lease
obligation. Had the Transponder Agreement been classified as an operating lease
for all of 1997 Directrix would have reported additional satellite expense of
$1.6 million and a decrease in depreciation and interest expense of $1.0 million
and $0.9 million, respectively.
Selling, General And Administrative Expenses. Directrix reported
selling, general and administrative expenses of $2.2 million for the year ended
December 31, 1998 as compared to $3.5 million for the year ended December 31,
1997. The decrease was primarily attributable to a decline of $1.5 million in
bad debt expense associated with the EMI Receivable. Offsetting this decline was
an increase of $0.3 million primarily attributable to the expansion of the
operation facility and the allocation of general corporate overhead relating to
Spice's corporate headquarters and other common support units. This allocation
was based upon direct salaries and related cost of both Directrix and Spice.
Depreciation Of Fixed Assets. Directrix reported depreciation of fixed
assets of $1.2 million for the year ended December 31, 1998 as compared to $1.9
million for the year ended December 31, 1997. The decline in depreciation
expense was primarily attributable to the Reclassification.
Interest Expense. Directrix reported interest expense of $0.1 million
for the year ended December 31, 1998 as compared to $1.1 million for the year
ended December 31, 1997. The decline in interest expense was primarily due to
the Reclassification.
LIQUIDITY AND CAPITAL RESOURCES
Spice uses a centralized approach to cash management and the financing
of its operations. As a result, Spice funded all of Directrix's activities. For
the years ended December 31, 1997 and 1998, Spice provided funding of $5.6
million and $3.9 million, respectively, to Directrix. The decrease in funding
provided by Spice was primarily attributable to the payment in 1997 of $1.9
million relating to certain transponder lease payments that had been due in
1996. Also contributing to Directrix's cash requirements in the years ended
December 31, 1997 and 1998 were net losses of $0.9 million and $0.2 million
adjusted for the non-cash gain associated with the Reclassification of $2.9
million and $4.2 million, respectively, investments of $0.5 million and $0.4
million, respectively, in a film library, and investments of $0.8 million and
$0.5 million, respectively, in property and equipment.
On March 15, 1999, after the contribution from Spice, Directrix had
working capital of approximately $5.8 million. Directrix has a $1.5 million
revolving line of credit facility ("Credit Facility"), which was provided by two
officers and one director of Directrix pursuant to a loan commitment dated July
31, 1998. The Credit Facility bears interest at 11% per annum and matures on
March 15, 2001. In consideration of the Lenders providing the Credit Facility,
Directrix will grant the Lenders an aggregate of 45,000 warrants. Directrix
anticipates other sources of liquidity from increased payments from EMI under
its service agreements with Directrix as a result of EMI's modification of its
agreements with one of its major service providers and other reductions in its
cost structure. Directrix also anticipates additional cash from the collection
of revenues from the marketing of network operations, technical and creative
services and sales of its excess transponder capacity.
Directrix also hopes to realize revenues from the marketing of network
operations, technical and creative services and sales of its excess transponder
capacity. Directrix believes it can provide the playback and transponder
services with minimal incremental costs. There can be no assurance that
Directrix will be successful in marketing these services or that, if successful,
it can do so at a profit. Directrix believes that cash generated by operations
for fiscal 1999 will be in excess of $1.0 million. Directrix believes that the
increase in cash generated by operations will result from the following: (i)
improvements in EMI's operations which would enable EMI to pay fees when due for
transponder, playback and other services on a timely basis and (ii) the sale of
playback and transponder services by Directrix to new customers. If Directrix
requires additional cash to fund its operations, the Credit Facility will be
available. Directrix believes that the combination of cash generated by
operations, the Credit Facility, and the working capital contributed by Spice
will be sufficient funding to implement management's plans.
Year 2000 Compliance
Directrix is implementing a Year 2000 program to ensure that
Directrix's computer systems and applications will function properly beyond
1999. Directrix believes that adequate resources have been allocated for this
purpose and expects its Year 2000 date conversion program to be completed on a
timely basis. Directrix does not believe that the cost of implementing its Year
2000 program will have a material effect on Directrix's financial condition or
results of operations. However, there can be no assurance that Directrix will
identify all Year 2000 problems in its computer systems in advance of their
occurrence or that Directrix will be able to successfully remedy any problems
that are discovered. The expenses of Directrix's efforts to address such
problems, or the expenses or liabilities to which Directrix may become subject
as a result of such problems, could have a material adverse effect on
Directrix's results of operations and financial condition. In addition, the
revenue stream and financial ability of existing suppliers, service providers or
customers may be adversely impacted by Year 2000 problems, which could cause
fluctuations in Directrix's revenues and operating profitability.
Directrix has investigated Year 2000 compatibility with its major
customers and service providers. Logix Development Corp., which operates the
call center for EMI's networks, has analyzed its software and believes that its
systems are Year 2000 compliant. Playboy is addressing its Year 2000 issues
through a combination of modifications to existing programs and conversions to
Year 2000 compliant software. Directrix has not been able to adequately assess
Califa's compliance with Year 2000 issues because Califa has only recently been
organized and is in the process of establishing its computer systems and
applications; however, Directrix intends to work with Califa to address any Year
2000 issues that may arise.
Except as described above, Directrix has not developed a contingency
plan for the reasonably likely worst case scenario concerning the Year 2000. If
a Year 2000 problem were to occur that Directrix could not successfully resolve,
it could have a material adverse effect on the results of operations and
financial condition of Directrix.
Item 7. Financial Statements.
See the Financial Statements at pages F-1 through F-15.
Item 8. Changes in and Disagreements with Accountants on Account and Financial
Disclosure.
None
PART III
Item 9. Directors; Executive Officers, Promoters and Control Persons;
Compliance with Exchange Act Section 16(a).
The executive officers and directors of Directrix are as follows:
Name Age Position
J. Roger Faherty 60 Chairman of the Board of Directors and
Chief Executive Officer
Donald J. McDonald 46 President and Director
Richard Kirby 38 Chief Operating Officer, Executive Vice
President and Secretary
John R. Sharpe 34 Chief Financial Officer, Vice President
and Treasurer
Richard M. Cohen 47 Director
Rudy R. Miller 51 Director
Leland H. Nolan 52 Director
J. ROGER FAHERTY has been Chairman of the Board and Chief Executive
Officer of Directrix since its incorporation. From December 1991 to March 15,
1999, Mr. Faherty was the Chairman of the Board and a director of Spice. In 1991
he was elected as the Chief Executive Officer of Spice and became President of
Spice in 1996.
DONALD J. MCDONALD, JR. has been President and a director of Directrix
since its incorporation. Mr. McDonald joined Spice in 1995 and from January
1997 until March 15, 1999, Mr. McDonald was the president of Spice Direct, Inc.,
a wholly-owned Spice subsidiary principally engaged in marketing Spice's
products and services directly to consumers. From 1990 to 1995, Mr. McDonald
was President of Summit Corporate Group, a venture capital fund involved in the
video production and television programming industries.
RICHARD KIRBY has been Chief Operating Officer, Executive Vice
President and Secretary of Directrix since its incorporation. Mr. Kirby was an
executive officer of Spice since 1988 and most recently and until March 15, 1999
was Senior Vice President, Network Operations, and Chief Technology Officer of
Spice. .
JOHN R. SHARPE has been Chief Financial Officer, Vice President and
Treasurer of Directrix since its incorporation. Mr. Sharpe joined Spice in 1995
and in 1997 was appointed its Vice President, Controller and Chief Accounting
Officer, serving in that capacity until March 15, 1999. From 1991 through 1994,
Mr. Sharpe was a Divisional Controller for U.S. Services, Inc., a publicly
traded software development company.
RICHARD M. COHEN has been a director of Directrix since its
incorporation. Since 1996, he has been President of Richard M. Cohen
Consultants, Inc. From 1993 through 1995, Mr. Cohen was President of General
Media, Inc., an adult media company. From 1988 through 1993, Mr. Cohen was
Director of Investment Banking at Furman Selz, Inc.
RUDY R. MILLER has been a director of Directrix since its
incorporation. He has served as Chairman, President and Chief Executive Officer
of Miller Management Corp., a financial consulting firm, since 1972 and of
Miller Capital Corp., a venture capital, financial services and investor
relations firm, since 1993. From July 1996 until March 15, 1999 Mr. Miller was a
Director of Spice. Mr. Miller was also a member of the board of directors of
America West Airlines from 1982 to 1986 and a member of the board of directors
of Jacor Communications Inc., one of the largest radio broadcasting groups in
the United States, from 1979 to 1989. On the Closing Date, Mr. Miller resigned
from the Spice board of directors.
LELAND H. NOLAN has been a director of Directrix since its
incorporation. From 1988 to March 15, 1999 Mr. Nolan was a director of Spice.
From 1988 until December 31, 1995, he held various executive positions with
Spice, most recently as Vice Chairman, International Initiatives. From 1996 to
1998, Mr. Nolan was a consultant to Infoglobal, S.A., a telecommunications,
engineering and consulting firm based in Madrid, Spain. Mr. Nolan is currently
pursuing international opportunities in businesses which provide high speed
Internet access and interactive services.
Directrix's Board of Directors is divided into three classes. Mr. Cohen
serves in the class whose term expires in 1999; Messrs. Miller and Nolan serve
in the class whose term expires in 2000; and Messrs. Faherty and McDonald serve
in the class whose term expires in 2001. Upon the expiration of the term of a
class of directors, directors within that class will be elected for a three-year
term at the annual meeting of stockholders in the year in which their term
expires. Directors will hold office until the expiration of their term and until
that director's successor has been duly elected and qualified.
Executive officers of Directrix are elected by the Board of Directors
on an annual basis and serve until the next annual meeting of the Board of
Directors and until their successors have been duly elected and qualified. There
are no family relationships among any of the executive officers or directors of
Directrix.
CERTAIN PROCEEDINGS
Recently, the National Adjudicatory Council of the National Association
of Securities Dealers, Inc. (the "NASD") (the self-regulatory organization for
broker-dealers) reversed in part and affirmed in part a decision of the NASD
Market Surveillance Committee regarding Mr. Faherty's activities as a corporate
finance consultant to a now defunct brokerage firm, Hibbard Brown & Co. Inc., by
dismissing two of three remaining causes of action against Mr. Faherty and
rejecting findings that he had violated NASD Conduct Rules 2110, 2120 and 2440,
as well as Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. These activities occurred prior to Mr. Faherty's becoming the Chief
Executive Officer and Chairman of Spice in 1991 and were unrelated to Spice. The
decision of the National Adjudicatory Council (the "Decision") did, however,
hold that his activities with the brokerage firm gave rise to aider-and-abettor
liability for such firm's violation of Section 15(c) of the Exchange Act, which
prohibits the purchase or sale of securities by brokers or dealers involving
manipulative, deceptive or fraudulent devices or contrivances, and Rule 15c1-2
promulgated thereunder, which defines such conduct. The Decision affirmed the
imposition on Mr. Faherty of a censure and a bar from association with any
member firm of the NASD, but reduced the fine assessed to $150,000. Mr. Faherty
has appealed the Decision to the Securities and Exchange Commission. As a result
of the appeal, enforcement of the sanctions has been stayed.
Item 10. Executive Compensation.
COMPENSATION AND OPTION/SAR GRANTS DURING MOST RECENT FISCAL YEARS
Directrix did not pay executive officer any compensation nor grant any
executive officer any options or SAR's during 1997 or 1998. The annual salary
for the executive officers is described below under "--Employment Agreements."
The Directrix option plan is described below under "1998 Stock Incentive Plan."
COMPENSATION OF DIRECTORS
Directrix pays $1,000 per meeting, plus expenses and $250 per telephone
conference to non-officer directors serving on its Board of Directors.
.........
EMPLOYMENT AGREEMENTS
On the Closing Date, Directrix entered into an employment agreement
with Mr. Faherty providing for his employment as Chairman of the Board and Chief
Executive Officer of Directrix. The agreement provides for a six-year term; in
each year that the agreement is not terminated, the term is extended for five
years from that anniversary date. The agreement provides for an annual base
salary of $385,875 to be adjusted annually as determined by Directrix. In
addition, pursuant to the agreement, Directrix will reimburse Mr. Faherty for
automobile costs.
On the Closing Date, Directrix entered into employment agreements with
each of Messrs. McDonald, Kirby and Sharpe providing for the employment of Mr.
McDonald as President of Directrix, Mr. Kirby as Executive Vice President of
Directrix and Mr. Sharpe as Vice President and Chief Financial Officer of
Directrix. The employment agreements provide for a term ending on December 31,
2001. The agreements provide for an annual base salary of $195,000, $192,938 and
$127,050 for Messrs. McDonald, Kirby and Sharpe, respectively, to be adjusted
annually as determined by Directrix in its sole discretion. The agreements
provide that in the event that employment is terminated by Directrix without
cause (as defined therein) or by the executive for good reason (as defined
therein), the executive is entitled to receive an amount equal to base salary,
payable in monthly installments through the longer of (i) the applicable
termination date or (ii) twelve months. In the event of the disability or death
of the executive, Directrix will continue to make base salary payments to the
executive or his estate for twelve months following such death or disability. In
addition, the agreements provide that the executive will be entitled to a
severance payment if Directrix terminates the executive's employment within 18
months following a change in control of Directrix.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directrix's Compensation Committee has made recommendations relating to
executive compensation to the Board of Directors. The Compensation Committee
members currently are Messrs. Nolan and Cohen, non-employee Directors of
Directrix.
BENEFIT PLANS
401(K) Plan. Directrix has established a 401(k) retirement savings plan
(the "401(k) Plan"), in which all qualified employees, including executive
officers, are eligible to participate. The 401(k) Plan provides that each
participant may contribute up to 15% of his or her pre-tax salary (up to a
statutorily prescribed annual limit, $10,000 in 1998) to the 401(k) Plan,
although the percentage elected by certain highly compensated participants may
be limited. All amounts contributed to the 401(k) Plan by employee participants
and earnings on these contributions will be fully vested at all times.
Directrix, at the discretion of the Board of Directors, may match employee
contributions. The 401(k) Plan trustees, Messrs. Faherty and Sharpe, will invest
401(k) Plan contributions. The trustees have retained Morgan Stanley Dean Witter
Discover to invest and administer the 401(k) Plan.
1998 STOCK INCENTIVE PLAN.
On July 25, 1998, the Board of Directors adopted the Directrix, Inc.
Stock Incentive Plan (the "Plan"). The Plan is designed to promote the interests
of Directrix and its stockholders by providing Directrix's key employees with
appropriate incentives and rewards to encourage them to continue in the employ
of Directrix and to maximize their performance. The following is a summary of
the material features of the Plan.
General. The Plan provides for the issuance of a total of up to 300,000
authorized and unissued shares or treasury shares of Directrix Common Stock, at
the discretion of the Compensation Committee or another Board committee
appointed by the Board of Directors to administer the Plan.
The Plan specifically provides for the grant of (i) non-qualified stock
options, (ii) incentive stock options ("ISOs"), (iii) limited stock appreciation
rights, (iv) tandem stock appreciation rights, (v) dividend equivalent rights,
(vi) stand-alone stock appreciation rights, (vii) shares of restricted stock,
(viii) shares of phantom stock, (ix) stock bonuses and (x) cash bonuses
(collectively, "Incentive Awards"). The Plan also provides that the Compensation
Committee may grant other types of stock-based awards at the discretion of the
Compensation Committee.
The exercise price per share of each ISO granted under the Plan must be
the fair market value of a share of Common Stock on the date on which such ISO
is granted. An ISO granted to any holder of stock representing more than ten
percent of the total combined voting power of all classes of stock of Directrix
is subject to the following additional limitations: (i) the exercise price per
share of the ISO must be at least 110% of the fair market value of a share of
Common Stock at the time any such ISO is granted and (ii) the ISO cannot be
exercisable after the expiration of five years after the grant date. The
aggregate fair market value of shares of Common Stock for which ISOs are
exercisable (as determined on the grant date) by a participant during any
calendar year under the Plan, or any other plan of Directrix or its
subsidiaries, may not exceed $100,000.
In general, Incentive Awards are not transferable other than by will or
the laws of descent and distribution (except to the extent an agreement
evidencing an Incentive Award permits certain transfers to certain members of a
participant's family or to certain trusts).
Grants Under the Plan. Key employees, including officers of Directrix and
its affiliates, will be eligible to receive grants of Incentive Awards. The
Compensation Committee will determine which key employees receive grants of
Incentive Awards, the type of Incentive Awards granted and the number of shares
subject to each Incentive Award. Subject to the terms of the Plan, the
Compensation Committee also will determine the prices, expiration dates and
other material features of Incentive Awards granted under the Plan. An
individual may be granted Incentive Awards for no more than 20,000 shares shares
during any one year. No Incentive Award may be granted under the Plan after July
25, 2008. The Compensation Committee is evaluating the granting of options to
key executives and other employees.
Administration. The Compensation Committee will administer the Plan and
has the authority to interpret and construe any provision of the Plan and to
adopt such rules and regulations for administering the Plan as it deems
necessary or appropriate. All decisions and determinations of the Compensation
Committee are final and binding on all parties.
The Compensation Committee may, in its absolute discretion, without
amendment to the Plan, (i) accelerate the date on which any option or stock
appreciation right granted under the Plan becomes exercisable or otherwise
adjust any of the terms of such option or stock appreciation right, (ii)
accelerate the date on which any Incentive Award vests, (iii) waive any
condition imposed under the Plan with respect to any Incentive Award or (iv)
otherwise adjust any of the terms of any Incentive Award.
The Board of Directors may, at any time, suspend, discontinue, revise
or amend the Plan. Directrix, however, will obtain stockholder approval for any
amendment (i) that requires stockholder approval under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") (related to the grant of
ISOs), or (ii) to treat some or all of the Incentive Awards as
"performance-based compensation" within the meaning of Code Section 162(m). No
amendment or modification may, without the consent of a participant, reduce the
participant's rights under any previously granted and outstanding Incentive
Award except to the extent that the Board of Directors determines that such
amendment is necessary or appropriate to prevent such Incentive Awards from
constituting "applicable employee remuneration" within the meaning of Code
Section 162(m).
Other Features of the Plan. Incentive Awards granted under the Plan and
shares acquired pursuant thereto will be subject to a number of rights and
restrictions, including provisions relating to a change in control of Directrix
and the termination of employment or service of the grantee.
1998 STOCK INCENTIVE PLAN FOR OUTSIDE DIRECTORS.
On November 6, 1998, the Board of Directors adopted the Directrix, Inc.
Stock Incentive Plan for Outside Directors (the "Directors Plan"). The Directors
Plan is designed to promote the interests of Directrix and its stockholders by
providing Directrix's non-employee directors with appropriate incentives and
rewards to encourage them to take a long-term outlook when formulating Directrix
policy and to encourage such individuals to remain on the Board of Directors.
The following is a summary of the material features of the Directors Plan.
General. The Directors Plan provides for the issuance of a total of up
to 20,000 authorized and unissued or treasury shares of Common Stock, at the
discretion of the Compensation Committee or another Board committee appointed to
administer the Directors Plan. The Directors Plan specifically provides for the
grant of non-qualified stock options and limited stock appreciation rights
(together, "Directors Incentive Awards").
In general, Directors Incentive Awards are not transferable other than
by will or the laws of descent and distribution (except to the extent an
agreement evidencing a Directors Incentive Award permits certain transfers to
certain members of a participant's family or to certain trusts).
Grants Under the Directors Plan. Only non-employee Board members will
be eligible to receive grants of Directors Incentive Awards. There are currently
three non-employee directors of Directrix. Directors Incentive Awards under the
Directors Plan are granted automatically on the last trading day of each fiscal
year of Directrix to each director who is, on such date, eligible to participate
in the Directors Plan. The Directors Incentive Awards will be in the form of
non-qualified stock options to purchase 1,250 shares of Common Stock and may
include limited stock appreciation rights with respect to the same number of
shares. Subject to the terms of the Directors Plan, the Compensation Committee
will determine the expiration dates and other material features of Directors
Incentive Awards granted under the Directors Plan. No Directors Incentive Award
may be granted under the Directors Plan after November 6, 2003.
Administration. The Compensation Committee will administer the
Directors Plan and has the authority to interpret and construe any provision of
the Directors Plan and to adopt such rules and regulations for administering the
Directors Plan as it deems necessary or appropriate. All decisions and
determinations of the Compensation Committee are final and binding on all
parties.
The Compensation Committee may, in its absolute discretion, without
amendment to the Directors Plan, (i) accelerate the date on which any option or
stock appreciation right granted under the Directors Plan becomes exercisable or
otherwise adjust any of the terms of such option or stock appreciation right,
(ii) accelerate the date on which any Directors Incentive Award vests, (iii)
waive any condition imposed under the Directors Plan with respect to any
Directors Incentive Award or (iv) otherwise adjust any of the terms of any
Directors Incentive Award.
The Board of Directors may, at any time, suspend, discontinue, revise
or amend the Directors Plan. Directrix, however, will obtain stockholder
approval for any amendment that Rule 16b-3 Securities Act of 1934 ("Exchange
Act") requires stockholder approval. No amendment or modification may, without
the consent of a participant, reduce the participant's rights under any
previously granted and outstanding Directors Incentive Award except to the
extent that the Board of Directors determines that such amendment is necessary
or appropriate to prevent awards from constituting "applicable employee
remuneration" within the meaning of Code Section 162(m).
Other Features of the Plan. Directors Incentive Awards granted under
the Directors Plan and shares acquired pursuant thereto will be subject to a
number of rights and restrictions, including provisions relating to a change in
control of Directrix and the termination of service of a grantee.
OTHER PLANS
Directrix is currently considering the implementation of cash incentive
plan for executive officers and key employees pursuant to which bonuses will be
granted based upon Directrix's performance.
Filings with Securities and Exchange Commission. Exchange Act Section
16(a) requires that officers, directors and 10% stockholders of Directrix file
reports of their ownership with the Securities and Exchange Commission. No
filings were required in 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 16, 1999, the number and
percentage of outstanding shares of Directrix Common Stock beneficially owned by
(i) each person who, to the knowledge of Directrix, will own beneficially more
than 5% of the outstanding shares of Company Common Stock, (ii) each director
and executive officer of Directrix and (iii) all directors and executive
officers of Directrix as a group.
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Owned(1) Percentage of Shares Outstanding(2)
- ---------------- ---------------------------- ----------------------------------
<S> <C> <C>
J. Roger Faherty (3) (4) 192,365 9.16%
536 Broadway, 7th Floor
New York, New York 10012
Donald J. McDonald, Jr. (4) 17,250 0.83%
536 Broadway, 7th Floor
New York, New York 10012
Richard Kirby 22,125 1.07%
536 Broadway, 7th Floor
New York, New York 10012
John Sharpe 2,225 0.11%
536 Broadway, 7th Floor
New York, New York 10012
Richard M. Cohen 11,250 0.54%
630 Fifth Avenue, Suite 601
New York, New York 10111
Rudy R. Miller 8,750 0.42%
4909 East McDowell Road
Phoenix, Arizona 85008
Leland H. Nolan (4) 138,899 6.66%
17 Thompson Street
New York, New York 10012
Lindemann Capital Advisors LLC (5) 209,752 10.12%
767 Fifth Avenue
New York, New York 10153
All directors and executive officers
as a group 392,864 18.54%(7 persons)
</TABLE>
- -------------------------------
(1) Assumes exercise of all Spice options and warrants held by such persons
immediately prior to the Merger and the distribution of the Directrix
Common Stock issuable upon exercise of such options and warrants as
part of the Merger Consideration.
(2) Assumes exercise of all outstanding Spice options and warrants.
(3) Mr. Faherty's shares do not include 1,657 shares owned by his wife or
1,350 shares owned by his children. Mr. Faherty does not have or share
voting or investment power over the shares owned by his wife or his
children and disclaims beneficial ownership of such shares.
(4) Includes the shares of Common Stock issuable upon exercise of the
Lenders Warrants.
(5) The information concerning beneficial ownership of Spice Common Stock
by Lindemann Capital Advisors, LLC was obtained from a Schedule 13G and
a Form 3 and Form 4 filed with the Commission by such stockholder.
Pursuant to such Form 3 and Form 4, the stockholder reported that the
securities are held in accounts managed by Lindemann Capital Advisors,
LLC. Adam M. Lindemann, as Managing Member of the Lindemann Capital
Advisors, LLC, may be deemed to have a pecuniary interest in all or
portion of such securities.
Item 12. Certain Relationships and Related Transactions.
J. Roger Faherty, Leland H. Nolan and Donald J. McDonald agreed to
provide Directrix a revolving line of credit of up to an aggregate of $1.5
million at the Closing Date (the "Credit Facility") pursuant to a commitment
letter agreement dated July 31, 1998.
Under a Loan and Security Agreement dated March 15, 1999 (the "Loan
Agreement"), Messrs. Faherty, Nolan and McDonald agreed to provide 60.0%, 26.67%
and 13.33%, respectively, of each credit extension under the Credit Facility.
Interest will be payable monthly in arrears at a rate of 11% per annum. Total
borrowings under the Credit Facility have a final maturity date of the second
anniversary of the Closing Date. The Credit Facility is secured by accounts
receivable, equipment, intellectual property, certain intangibles and the
proceeds from the sale of accounts receivable and equipment.
In consideration of agreeing to provide the Credit Facility, Directrix
granted Messrs. Faherty, Nolan and McDonald 27,000, 12,000 and 6,000 warrants to
purchase Company Common Stock (collectively, the "Lenders Warrants"),
respectively. Directrix reserved the right to replace the Credit Facility with
financing from an alternative source. If Directrix replaces the Credit Facility
with alternative financing prior to borrowing any amount under the Credit
Facility, Messrs. Faherty, Nolan and McDonald will receive only half of the
number of Lenders Warrants they would have otherwise received. Each Lenders
Warrant entitle the holder thereof to purchase, at any time until the tenth
anniversary of the Closing Date, one share of Directrix Common Stock at an
exercise price of $.01. In addition, Messrs. Faherty, Nolan and McDonald have
the right to (a) request Directrix to register the Directrix Common Stock
underlying the Lenders Warrants and (b) include the Directrix Common Stock
underlying the Lenders Warrants in certain registration statements filed by
Directrix.
Directrix believes that the terms of the Credit Facility are no less
favorable than those that could be negotiated with an independent third party on
an arm's length basis.
Item 13. Exhibits, List and Reports of Form 8-k.
(a) Exhbits
Exhibit No. Description
----------- ------------
2.1 -- Form of Transfer and Redemption Agreement between
Directrix, Inc. ("Directrix") and Spice
Entertainment Companies, Inc. ("Spice").
Incorporated by reference to Exhibit 2.1 of the
Registration Statement on Form SB-2, Registration
No. 333-664485, effective December 1, 1998 (the
"Form SB-2").
3.1 -- Certificate of Incorporation of Directrix.
Incorporated by Reference to Exhibit 3.1 of the
Form SB-2.
3.2 -- By-Laws of Directrix. Incorporated by reference
to Exhibit 3.2 of the Form SB-2.
4.1 -- Form of certificate representing shares of
Directrix Common Stock. Incorporated by reference
to Exhibit 4.1 of the Form SB-2.
4.2 - Form of Common Stock Purchase Warrant issued to
J. Roger Faherty, Leland H. Nolan and Donald J.
McDonald, Jr. for 27,000, 12,000 and 6,000 shares
respectively.
4.3 - Registration Rights Agreement between Directrix
and J. Roger Faherty, Leland H. Nolan and Donald
J. McDonald, Jr. dated as of March 15, 1999.
10.1 -- Form of Satellite Services Agreement between
Directrix and Playboy Entertainment Group, Inc.
("PEGI"). Incorporated by reference to Exhibit
10.1 of the Form SB-2.
10.2 -- Form of Explicit Rights Agreement between
Directrix and Spice. Incorporated by reference to
Exhibit 10.2 of the Form SB-2.
10.3 -- Form of Owned Rights Agreement between Directrix
and Spice. Incorporated by reference to Exhibit
10.3 of the Form SB-2.
10.4 -- Form of Non-Competition Agreement between
Directrix and Incorporated by reference to Exhibit
10.4 of the Form SB-2.
10.5 -- Form of Satellite Services Agreement between
Directrix and Califa Entertainment Group, Inc.
("Califa"). Incorporated by reference to Exhibit
10.5 of the Form SB-2.
10.6 -- Form of Non-Competition Agreement between
Directrix and Califa. Incorporated by reference
to Exhibit 10.6 of the Form SB-2.
10.7 -- Employment Agreement dated March 15, 1999 between
Directrix and J. Roger Faherty.
10.8 -- Employment Agreement dated March 15, 1999 between
Directrix and Donald J. McDonald.
10.9 -- Employment Agreement dated March 15, 1999 between
Directrix John R. Sharpe.
10.10 -- Employment Agreement dated March 15, 1999 between
Directrix and Richard Kirby.
10.11 -- 1998 Stock Incentive Plan of Directrix
incorporated by reference to Exhibit 10.11 of the
Form SB-2.
10.12 -- 1998 Stock Incentive Plan for Outside Directors of
Directrix. Incorporated by reference to Exhibit
10.12 of the Form SB-2.
10.13 -- Commitment Letter Agreement dated July 20, 1998
among Directrix, J. Roger Faherty, Leland Nolan
and Donald McDonald. Incorporated by reference to
Exhibit 10.14 of the Form SB-2.
10.14 - Loan and Security Agreement dated as of March 15,
1999 between Directrix and J. Roger Faherty,
Leland H. Nolan and Donald J. McDonald, Jr.
27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K.
Directrix did not file any reports on Form 8-K for the fiscal year
ended December 31, 1998.
<PAGE>
SIGNATURES
In accordance with Section 13 and 15(d) of the Securities Exchange Act
of 1934, Directrix, Inc. caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 15, 1999
DIRECTRIX, INC.
By: /s/ J. Roger Faherty
--------------------
J. Roger Faherty
Chairman, Chief Executive
Officer, President and
Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of Directrix, Inc. and in the capacities and on
the dates indicated.
/s/ Donald J. McDonald Director Date: April 15, 1999
- --------------------------- --------------
Donald J. McDonald
/s/ Rudy R. Miller Director Date: April 15, 1999
- -------------------------- --------------
Rudy R. Miller
/s/ Richard Cohen Director Date: April 15, 1999
- --------------------------- --------------
Richard Cohen
/s/ Leland H. Nolan Director Date: April 15, 1999
- --------------------------- --------------
Leland H. Nolan
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
/s/ John R. Sharpe Chief Financial Officer Date: April 15, 1999
- --------------------------- & Principal Accounting --------------
John R. Sharpe Officer
<PAGE>
DIRECTRIX, INC.
For the years ended
December 31, 1997 and 1998
<PAGE>
DIRECTRIX, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants................ F-2
Balance Sheet as of December 31, 1998............................. F-3
Statements of Operations for the years ended December 31, 1998
and 1997 .................................................... F-4
Statement of Stockholder's Equity for the years ended December 31,
1998 and 1997................................................ F-5
Statements of Cash Flows for the years ended December 31, 1998
and 1997..................................................... F-6
Notes to Financial Statements..................................... F-7 -
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Directrix, Inc.
We have audited the accompanying balance sheet of Directrix, Inc. (a
Delaware corporation) as of December 31, 1998, and the related statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1997 and 1998. These financial statements are the responsibility of Directrix's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Directrix, Inc. as
of December 31, 1998, and the results of its operations and cash flows for the
years ended December 31, 1997 and 1998, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
New York, New York
March 15, 1999
<PAGE>
DIRECTRIX, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts of
$1,789,000 $ 755,000
Prepaid expenses and other current assets 650,000
-----------------
Total current assets 1,405,000
Property and equipment, net 2,539,000
Library of movies, net 839,000
Other assets 51,000
------------------
$ 4,834,000
=================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current portion of obligations under capital leases $ 572,000
Accounts payable 73,000
Accrued expenses and other current liabilities 103,000
-----------------
Total current liabilities 748,000
-----------------
Obligations under capital leases, less current portion 36,000
-----------------
Commitments and contingencies
Stockholder's equity
Contributed equity 13,765,000
Accumulated deficit (9,715,000)
-----------------
Total stockholder's equity 4,050,000
-----------------
$ 4,834,000
=================
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
DIRECTRIX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 9,581,000 $ 10,658,000
------------------ -----------------
Operating expenses:
Salaries, wages and benefits 2,688,000 2,198,000
Library amortization 350,000 378,000
Satellite costs 6,579,000 4,834,000
Selling, general and administrative expenses 2,199,000 3,459,000
Depreciation of fixed assets 1,174,000 1,906,000
Writedown of Operations Facility 632,000 -
------------------ -----------------
Total operating expenses 13,622,000 12,775,000
------------------ -----------------
Loss from operations (4,041,000) (2,117,000)
Interest expense 139,000 1,090,000
Gain from transponder lease amendment - (2,348,000)
------------------ -----------------
Net loss $ (4,180,000) $ (859,000)
================== =================
NET LOSS PER COMMON
SHARE BASIC AND DILUTED $ (2.01) $ (0.41)
================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
DIRECTRIX, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Contributed Accumulated
Equity Deficit Total
---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 4,273,000 $ (4,676,000) $ (403,000)
Net loss - (859,000) (859,000)
Net transfers from Spice 5,586,000 - 5,586,000
---------------- ---------------- ----------------
Balance at December 31, 1997 9,859,000 (5,535,000) 4,324,000
Net loss - (4,180,000) (4,180,000)
Net transfers from Spice 3,906,000 - 3,906,000
---------------- ---------------- ----------------
Balance at December 31, 1998 $ 13,765,000 $ (9,715,000) $ 4,050,000
================ ================ ================
The accompanying notes are an integral part of this financial statement.
</TABLE>
<PAGE>
DIRECTRIX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,180,000) $ (859,000)
----------------- ----------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of fixed assets 2,071,000 1,906,000
Gain on transponder lease amendment - (2,348,000)
Amortization of library of movies 350,000 378,000
Provision for bad debts - 1,453,000
Changes in assets and liabilities:
Increase (decrease) in accounts receivable 17,000 (1,949,000)
Increase in prepaid expenses and other current assets (577,000) (52,000)
Increase in other assets - (3,000)
Decrease in accounts payable and accrued expenses (156,000) (1,011,000)
(Decrease) increase in deferred income 109,000 (109,000)
----------------- ----------------
Total adjustments 1,596,000 (1,517,000)
----------------- ----------------
Net cash used in operating activities (2,584,000) (2,376,000)
----------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (476,000) (750,000)
Purchase of rights to movies (380,000) (549,000)
----------------
-----------------
Net cash used in investing activities (856,000) (1,299,000)
----------------- ----------------
Cash flows from financing activities:
Repayment of long-term debt and capital lease obligations (466,000) (1,911,000)
Net transfers from Spice 3,906,000 5,586,000
----------------- ----------------
Net cash provided by financing activities 3,440,000 3,675,000
----------------- ----------------
Net change in cash and cash equivalents - -
Cash and cash equivalents, beginning of the year - -
----------------- -----------------
Cash and cash equivalents, end of the year $ - $ -
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 119,000 $ 2,216,000
================= =================
Income taxes $ - $ -
================= =================
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations $ - $ (52,342,000)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
DIRECTRIX, INC.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION.
BACKGROUND. Directrix, Inc. ("Directrix") is a Delaware corporation
formed by Spice Entertainment Companies, Inc. ("Spice") in contemplation of the
merger ("Merger") of Spice with a wholly-owned subsidiary of Playboy
Enterprises, Inc. ("Playboy"). On March 15, 1999 prior to the closing
("Closing") of the Merger, Spice and Directrix entered into a Transfer and
Redemption Agreement (the "Transfer Agreement") pursuant to which Spice
contributed to Directrix, among other things, all of the assets and liabilities
associated with Spice's master control and digital playback center (the
"Operations Facility"), an option (the "EMI Option") to acquire all of the
assets or capital stock of Emerald Media, Inc. ("EMI") and the rights to
distribute the explicit version of Spice's adult films in the domestic C-Band
direct to home market ("DTH") and the Internet ("Library Rights"). Spice also
contributed approximately $0.8 million in cash, accounts receivable and other
current assets totaling approximately $1.7 million and 173,784 shares of Playboy
stock valued at approximately $4.5 million, which were purchased by Spice prior
to the Closing.
Spice also assigned other agreements and assets to Directrix. (See Note
11.) Pursuant to the Transfer Agreement, Directrix entered into a separate
transponder services agreement with Loral SpaceCom Corporation ("Loral") for
services on three transponders which will replace a portion of Spice's agreement
with Loral. (See Note 7.)
BUSINESS. Management plans to use the Operations Facility and its
transponder capacity to provide a complete range of technical and creative
services required to create and distribute a television network over a variety
of delivery methods including cable, direct broadcast satellite system ("DBS")
and the Internet. Directrix plans to offer uplink services through a third party
vendor, playback services through its Operations Facility and transponder
services, both analog and digitally compressed, through its agreement with
Loral. Directrix also plans to offer post-production services, including
creation of interstitial and promotional segments, animation and graphics,
quality control, library services for masters tapes and facilities, network
operations and engineering services. There can be no assurances that Directrix
will be successful in marketing some or all of these services.
Under the Transfer Agreement, Spice assigned to Directrix its agreements
with EMI. Directrix provides programming, playback and transponder services to
EMI. EMI provides subscriber based and pay-per-view explicit adult programming
distributed in the DTH market, operating four explicit DTH television networks.
Directrix has no operating history on a stand-alone basis. Directrix has
incurred significant losses for the years ended December 31, 1997 and 1998 on
the basis of the presentation described below. Directrix's ability to achieve
and maintain profitability depends on its ability to attract and maintain
customers for its services. Directrix currently intends to rely on the business
contacts and expertise of its management to develop new business.
On March 15, 1999, after the contribution from Spice, Directrix had
working capital of approximately $5.8 million. Directrix has a $1.5 million
revolving line of credit facility ("Credit Facility"), which was established on
July 31, 1998, provided by three directors of Directrix. Management believes the
transferred working capital, Credit Facility and cash generated by operations
will provide sufficient funding to implement management's plans. (See Note 11.)
BASIS OF PRESENTATION.
The financial statements reflect the results of operations, financial
position, changes in stockholder's equity and cash flows that were directly
related to the Operations Facility, to the EMI Option and the Library Rights
that were contributed to Directrix by Spice as if Directrix were a separate
entity for all periods presented. The financial statements have been prepared
using the historical basis in the assets and liabilities and historical results
of operations related to Directrix's business. Changes in stockholder's equity
represent the net losses of Directrix plus net cash transfers from Spice.
The financial statements include allocations of certain Spice corporate
headquarters assets, liabilities, revenues and expenses relating to the business
that Spice transferred to Directrix. In addition, Spice transferred the Library
Rights to Directrix, the value of which has been allocated based on the relative
value of the rights to distribute the explicit versions of the adult films to
the domestic DTH and Internet market to the value of all rights to the adult
films held by Spice prior to the contribution of the Library Rights. Management
believes this method of allocation is reasonable.
Revenues were earned principally from services provided to two customers,
EMI and Spice. (See Note 8.) EMI revenues were recorded based upon contractual
amounts for playback and transponder services. In 1998, as a result of the
ongoing uncertainty surrounding EMI's ability to pay for all services provided,
Directrix started recording revenues from EMI upon receipt. Spice revenues
related to network operations, post-production services and technical services.
These revenues have been recorded based on either (i) services provided to other
non-related customers or (ii) the costs associated with the service plus an
appropriate markup based on a reasonable assessment of a market-based charge.
Management believes that the methods used to record revenues are reasonable.
The liabilities of Directrix include capital lease obligations and the
amounts of debt and related interest expense associated with these liabilities
assumed by Directrix pursuant to the Merger Agreement.
General corporate overhead related to Spice's corporate headquarters and
common support divisions have been allocated to Directrix based on the ratio of
Directrix's direct labor costs and expenses to Spice's direct labor costs and
expenses. Management believes that these allocations are reasonable and are not
materially different from the costs that Directrix would have incurred for these
services if Directrix were a stand-alone entity. Subsequent to the Closing,
Directrix is performing these functions using its own resources or purchased
services and is responsible for the costs and expenses associated with the
management of a public corporation.
The financial information included herein may not necessarily reflect the
results of operations, financial position, changes in stockholder's equity and
cash flows of Directrix in the future or what they would have been had it been a
separate, stand-alone entity during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of accounts
receivable, accounts payable, accrued expenses and capital lease obligations
reflected in the financial statements approximate fair value because of the
short maturity of these items.
CONCENTRATION OF CREDIT RISK. Financial instruments which subject
Directrix to concentrations of risk consist primarily of trade accounts
receivable. Receivables arising from sales to customers are not collateralized
and, as a result, management continuously monitors the financial condition of
its customers to reduce the risk of loss. (See Note 8.)
VALUATION OF LONG-LIVED ASSETS. Directrix continually reviews
long-lived assets and certain identifiable intangibles held and used for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Directrix has determined
that no provision is necessary for the impairment of long-lived assets at
December 31, 1998.
PROPERTY AND EQUIPMENT. Property and equipment, including major capital
improvements, are recorded at cost. The cost of maintenance and repairs is
charged against results of operations as incurred. Depreciation is charged
against results of operations using the straight-line method over the estimated
useful lives of the related assets. Equipment leased under capital leases and
leasehold improvements are amortized over the shorter of the estimated useful
life or the lease term. Sales and retirements of depreciable property and
equipment are recorded by removing the related cost and accumulated depreciation
from the accounts. Gains or losses on sales and retirements of property and
equipment are reflected in results of operations.
REVENUE RECOGNITION. Revenues from the sale of transponder, playback and
other related services are recognized in the period the service is performed. In
1998, as a result of the ongoing uncertainty surrounding EMI's ability to pay
for all services provided, Directrix started recording revenues from EMI upon
receipt.
LIBRARY OF MOVIES. Directrix capitalizes the acquisition costs for the
rights to movie titles purchased or licensed. The acquisition costs are
amortized on a straight-line basis over the shorter of the useful life or the
license period, ranging from one to five years. Amortization of library of
movies was allocated to Directrix using the same ratio used to allocate library
of movies, as described in Note 1.
UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE. Historical earnings per
share have not been presented because they would not be meaningful. Pro forma
net loss per share is calculated after giving effect to the distribution of
Directrix's Common Stock as described in Note 5. Pro forma net loss per share is
calculated in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." Basic earnings per share exclude
dilution and are computed by dividing income attributable to common shareholders
by the weighted-average common shares outstanding for the period. Diluted
earnings per share reflects the weighted-average common shares outstanding plus
the potential dilutive effect of securities or contracts which are convertible
to common shares, such as options and warrants. The warrants described in Notes
5 and 10 were excluded from the calculation of diluted earnings per share
because their effect was anti-dilutive.
INCOME TAXES. Since Directrix was a division of Spice, it did not file
separate income tax returns. Directrix's operations were included in the income
tax returns filed by Spice and its subsidiaries. For purposes of the financial
statements, Directrix was not allocated any income tax provision or benefit
associated with the net losses based on Directrix's past earnings history and
use of NOL carryforwards.
Directrix uses the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes". Under this method,
deferred income taxes, when required, are provided on the basis of the
difference between the financial reporting and income tax bases of assets and
liabilities at the statutory rates enacted for future periods.
COMPREHENSIVE INCOME. In 1998, Directrix adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. An example of an item to be included in
comprehensive income, which is excluded from net income, includes foreign
currency translation adjustment. Directrix did not report any comprehensive
income for the years ended December 31, 1997 and 1998, as such there was no
impact on Directrix's results of operations for the periods presented.
NEW ACCOUNTING PRONOUNCEMENT. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities and is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Directrix does
not expect that the adoption of SFAS No.133 will have any impact on Directrix's
results of operations.
3. PROPERTY AND EQUIPMENT.
Property and equipment at December 31, 1998 consist of the following:
Useful Lives December 31,
in Years 1998
---------------- ----------------
Equipment 5 $6,983,000
Furniture and Fixtures 7 165,000
Leasehold Improvements Life of lease
or shorter 1,124,000
----------------
8,272,000
Less Accumulated Depreciation and
Amortization 5,733,000
----------------
$2,539,000
================
During the fourth quarter of 1998, Directrix enacted a plan to relocate
its Operations Facility, in the third quarter of 1999, to Northvale, New Jersey.
As a result of the decision to relocate, Directrix recorded a non-recurring
charge of $632,000 relating to writedown of leasehold improvements and accrued
rent associated with the Operations Facility.
A portion of the aforementioned equipment having a net book value of $0.6
million is collateral for the equipment loans and capital leases at December 31,
1998.
4. OBLIGATION UNDER CAPITAL LEASES.
Minimum annual rentals under capital leases at December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $627,000
2000 37,000
--------------------
Net minimum lease payments 664,000
Less amount representing interest 56,000
--------------------
Present value of minimum lease obligations 608,000
Current portion of lease obligations 572,000
====================
Long-term portion of lease obligations $36,000
====================
</TABLE>
a. In 1995, Spice entered into a equipment lease agreement
with IBM Credit Corporation ("ICC") which provided financing of $2,078,00
which Directrix used to construct the Operations Facility. The equipment
lease was accounted for as a capital lease. As a result of certain
delays, changes in equipment requirements and other factors, the original
lease agreement was superseded in the fourth quarter of 1996 by a new
lease which requires 36 payments of approximately $37,000, commencing on
February 1, 1997. The lease obligation at December 31, 1998 was $438,000.
On March 15, 1999, Directrix assumed Spice's obligations under the
equipment lease agreement and is operating the Operations Facility.
b. On August 14, 1996, Spice entered into an equipment lease
agreement with Vendor Capital Group ("VCG") for encoding and decoding equipment,
which enabled Directrix to digitally compress Spice's domestic television
networks onto one transponder. The lease was accounted for as a capital lease
with an approximate value of $1.8 million, allocated as follows: approximately
$0.5 million was attributable to encoding equipment and approximately $1.3
million was attributable to 1,300 decoders. The encoding equipment was
contributed to Directrix at Closing and as such the portion of the lease
obligation associated with the encoder was charged to Directrix. The balance of
the lease obligation attributable to the encoder at December 31, 1998 was
$170,000. In February of 1999, Directrix paid $155,000 to satisfy the lease in
full and exercised its right under the lease to purchase the leased equipment .
5. CAPITAL STRUCTURE.
Directrix was incorporated on July 20, 1998 and has authorized capital of
25 million shares of common stock, $.01 par value per share (the "Common
Stock"), and 2 million shares of preferred stock, $.01 par value per share.
Spice was Directrix's sole stockholder prior to the Closing.
On March 15, 1999, in connection with the Merger, Spice transferred
approximately 2,075,000 shares of Common Stock to the Spice stockholders on the
basis of 0.125 of one share of Common Stock in partial exchange for each share
of Spice common stock owned prior to the Merger. Fractional shares were not
issued; any fractional share of Common Stock was rounded up to one whole share.
All Spice employee stock options outstanding with exercise prices below
the closing price of Spice, on the Closing were deemed to be exercised on March
15, 1999. Holders of Spice employee stock options received (in addition to the
other consideration for the Merger less the exercise price) Common Stock on the
basis of 0.125 of one share of Common Stock for each share of Spice common stock
into which the Spice employee stock options were exercised on the Closing.
Spice no longer owns any interest in Directrix. The stockholders of Spice
own all of the capital stock and other ownership interests of Directrix.
6. EMPLOYEE STOCK OPTION PLAN.
Directrix adopted an employee stock option plan covering 300,000 shares
of Common Stock. Directrix's Board of Directors has instructed the Compensation
Committee to evaluate the granting of options of Common Stock to key executives
and other employees of Directrix. Options granted under the plan which are
incentive stock options will have an exercise price per share equal to the
market price on the date of grant; the Board of Directors and/or the
Compensation Committee will set the exercise price of non-incentive stock
options. The Board of Directors and/or the Compensation Committee will also
determine the other terms and conditions of options granted under the plan.
Directrix will be required to disclose in the footnotes of the financial
statements the impact of the compensation expenses associated with options to be
granted on a pro forma basis in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation."
Prior to Closing, certain employees of Directrix participated in Spice's
Employee Stock Option Plans. Spice granted 886,500 options to Company employees
under the various plans during fiscal 1997. Spice accounted for these options in
accordance with APB Opinion No. 25. Accordingly, because the exercise prices of
the options equaled the market price on the date of grant, no compensation
expense was recognized for the options granted. Had compensation expense been
recognized by Spice based upon the fair value of the stock options on the grant
date under the methodology prescribed by SFAS No. 123, and allocated to
Directrix based on its proportionate share of total compensation, Directrix's
net loss for the year ended December 31, 1997 and 1998 would have been increased
by $0.3 million and $0.1 million, respectively. See Note 5 for a discussion of
the exercise of Spice employee stock options outstanding on the Closing.
7. COMMITMENTS AND CONTINGENCIES.
LITIGATION. Spice was, from time to time, a party to litigation arising
in the normal course of its business. Directrix has not assumed any liability
for litigation to which Spice is currently a party. Directrix may be, from time
to time, a party to litigation arising in the normal course of business.
EMPLOYMENT AGREEMENTS. Directrix will enter into employment agreements
with its Chief Executive Officer, President, Chief Operating Officer and Chief
Financial Officer providing for annual base salaries aggregating approximately
$900,000.
LEASES AND SERVICE CONTRACTS. Directrix leases its office facilities,
satellite transponders and uplink, and certain equipment. As of December 31,
1998, the aggregate minimum rental commitments under non-cancelable operating
leases were approximately as follows:
<TABLE>
<CAPTION>
Satellite Transponder
Years Ending Office Facilities and Uplink
December 31, Total and Equipment
----------------------- ------------------ ------------------- ------------------------
<S> <C> <C> <C>
1999 $4,983,000 $45,000 $4,938,000
2000 4,535,000 35,000 4,500,000
2001 4,520,000 20,000 4,500,000
2002 4,505,000 5,000 4,500,000
2003 4,500,000 - 4,500,000
Thereafter 3,750,000 - 3,750,000
================== =================== ========================
Total $26,793,000 $105,000 $26,688,000
================== =================== ========================
</TABLE>
Total expense under operating leases amounted to $6,658,000 and
$5,108,000 for the years ended December 31, 1998 and 1997, respectively.
Effective December 1995, Spice entered into a Skynet Transponder
Services Agreement (the "Transponder Agreement") with AT&T Corp. ("AT&T"). The
Transponder Agreement provides for services on five transponders on the AT&T
satellite Telstar 402R for a monthly payment of $635,000. Two of the
transponders were protected and three were pre-emptible. (Transponder services
on a protected transponder will not be interrupted if a transponder or satellite
fails.) The original term of the Transponder Agreement was for the useful life
of the satellite's geo-stationary orbit, estimated to be twelve years.
On January 11, 1997, as a result of AT&T losing contact with and
declaring Telstar 401 permanently out of service, AT&T pre-empted one of Spice's
pre-emptible transponders and transferred it to another AT&T customer. On March
31, 1997, Spice and Loral (which acquired AT&T's satellite business) amended the
Transponder Agreement and shortened the term by approximately four years. In
consideration of the amendment, Spice granted Loral the right to pre-empt one of
Directrix's transponders after September 1, 1997. As a result of the amendment,
the Transponder Agreement has been classified as an operating lease commencing
on March 31, 1997. As a result of the two events described above, a
non-recurring gain of approximately $2.3 million was realized in 1997.
As a result of the Transponder Agreement being classified as a capital
lease until March 31, 1997, the transponder payments totaling approximately $1.6
million for 1997 were reported as a reduction of capital lease obligations. Had
the Transponder Agreement been classified as an operating lease for all of 1997,
Directrix would have reported additional satellite expenses of approximately
$1.6 million in 1997. In addition, Directrix would have reported a decrease in
depreciation of $1.0 million and a decrease in interest expense of $0.9 million
for the year ended December 31, 1997.
From the pre-emption on January 11, 1997 to the Closing on March 15,
1999 the Loral Agreement provided for service on four transponders, two
protected and two pre-emptible by Loral, with monthly payments of $520,000.
Immediately after the Closing on March 15, 1999, the Transponder Agreement was
replaced with an agreement between Loral and Directrix for services on three
transponders, one protected and two pre-emptible, with monthly payments of
$375,000. The Loral Agreement expires on October 31, 2004; Directrix has an
option to extend the agreement through the useful life of the transponder, which
is estimated to be November 30, 2007.
8. SIGNIFICANT CUSTOMERS.
EMI. On September 1, 1996, pursuant to short-term agreements, Directrix
began providing transponder services bundled with playback, programming and
other related services to EMI. EMI currently owns and operates four premium
television networks featuring explicit version adult movies which are
distributed to the domestic DTH market. EMI also granted Directrix an option to
acquire its stock or business for $755,000 ("EMI Option"). Directrix currently
provides transponder services for three of EMI's networks and playback and other
services for four of EMI's networks from the Operations Facility. The agreements
with EMI were scheduled to expire on December 31, 1998. However, on December 31,
1998, both parties mutually agreed to extend the expiration date of the
agreements to December 31, 1999. Under the terms of the agreement with EMI,
either party may request a one year renewal subject to the other party's right
to require termination at the end of the then current term.
In 1998, as a result of the ongoing uncertainty surrounding EMI's
ability to pay for all services provided, Directrix started recording revenues
from EMI upon receipt. Directrix recognized revenues from EMI of approximately
$4.7 million and $3.7 million for the years ended December 31, 1997 and 1998,
respectively. At December 31, 1997 and 1998, Directrix has a net trade
receivable from EMI of $755,000.
SPICE. Directrix recognized revenue from Spice of approximately $5.4
million and $5.2 million for the years ended December 31, 1997 and 1998,
respectively. Revenues were related to the playback of the Spice networks from
Directrix's Operations Facility commencing in February 1997 as well as the
transmission to and use of Directrix's transponders.
As a result of the merger, Directrix will only provide certain services
previously provided to Spice. These services will be provided under contracts
for a two-year period subsequent to the Closing (See Note 12). Annual revenues
from these contracts are expected to be approximately $0.6 million.
Directrix expects that a significant portion of its future revenues
will continue to be generated by a limited number of customers. The loss of any
of these customers or any substantial reduction in orders by any of these
customers could materially adversely affect Directrix's operating results.
9. RETIREMENT PLAN.
Prior to the Closing, certain of Directrix's employees participated in
Spice's 401(k) retirement plan. Directrix adopted a 401(k) retirement plan which
was substantially the same as the 401(k) plan maintained by Spice prior to the
Merger. The plan allows employee contributions in accordance with Section 401(k)
of the Internal Revenue Code. The plan provides for discretionary matching of
employee contributions by Directrix. Directrix employees who were participants
in the Spice 401(k) retirement plan were granted the option of rolling over
their account balances to Directrix's 401(k) retirement plan.
10. REVOLVING LOAN COMMITMENT.
On July 21, 1998, the Chairman of the Board and Chief Executive
Officer, the President and a Director of Directrix (the "Lenders") agreed to
provide Directrix a revolving credit facility totaling $1.5 million. ("Credit
Facility") to be used for general corporate purposes. The Credit Facility
terminates on March 15, 2001. Advances under the Credit Facility will accrue
interest daily at the rate of 11% per annum and interest will be payable
monthly. In consideration of the Lenders providing the Credit Facility,
Directrix granted the Lenders an aggregate of 45,000 warrants which have an
exercise price of $.01 per share and are exercisable for 10 years. The fair
value of the warrants will be treated as additional interest expense over the
term of the Credit Facility.
11. SEGMENT INFORMATION.
The Company operates in one business segment - as a provider of
technical services necessary to create support and deliver network television
video programming and data services. The Company's revenues are derived from
the sale of these services to network providers in the United States.
12. SUBSEQUENT EVENTS.
TRANSFER AND REDEMPTION AGREEMENT. On March 15, 1999 as a condition to
the Merger, Spice and Directrix entered into a Transfer and Redemption Agreement
and certain related agreements, pursuant to which Spice contributed certain
assets to Directrix in exchange for the assumption of certain related
liabilities and the issuance of Common Stock. In connection with the Merger,
Spice transferred the Common Stock of Directrix to the stockholders of Spice as
part of the consideration for the Merger. The Transfer Agreement, certain
agreements related to or contemplated by the Transfer Agreement, and other
agreements to be entered into in connection with the Merger are summarized
below.
Pursuant to the terms of the Transfer Agreement, immediately prior to
the Merger, Spice contributed certain assets to Directrix, including (a) all of
the equipment and facilities relating to the Operations Facility, (b) the EMI
Option, (c) certain rights to Spice's library of adult films acquired before and
after the Closing to be granted to Directrix under the Explicit Rights
Agreements and the Owned Rights Agreement, (d) approximately $0.8 million in
cash, (e) 173,784 shares of Playboy stock valued at approximately $4.5 million,
and (f) accounts receivable and other current assets, totaling approximately
$1.7 million, Directrix currently has no intent to exercise the EMI Option.
In connection with the contribution, Directrix issued to Spice the
Common Stock and assumed certain liabilities (the "Assumed Liabilities"),
subject to the indemnification obligations of Spice described below. The Assumed
Liabilities include (a) all of the liabilities relating to EMI, (b) all of the
liabilities relating to or arising from the Operations Facility, but only to the
extent they arise after March 15, 1999, and (c) those liabilities and
obligations arising out of the assets being transferred to Directrix. The
Transfer Agreement provides, among other things, that Directrix will indemnify
Spice for the Assumed Liabilities.
On March 15, 1999, Directrix and Spice entered into an Explicit Rights
Agreement under which Spice assigned to Directrix certain broadcast and
transmission rights in and to the films licensed by Spice, excluding films
licensed by Spice's international subsidiaries. Spice will remain responsible
for the payment of license fees. In addition, Directrix and Spice entered into
the Owned Rights Agreement pursuant to which Spice assigned to Directrix certain
broadcast and transmission rights in and to Spice's existing library of owned
adult films.
In connection with the Merger, Playboy and Directrix entered into a
Satellite Services Agreement, pursuant to which Directrix will provide playback,
uplink and compressed transponder services for at least two networks. In
addition, Directrix and Califa Entertainment Group, Inc. entered into a
Satellite Services Agreement, pursuant to which Directrix will provide playback,
uplink and compressed transponder services for one network.
<PAGE>
SIGNATURES
In accordance with Section 13 and 15(d) of the Securities Exchange Act
of 1934, Directrix, Inc. caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: April 15, 1999
DIRECTRIX, INC.
By: /s/ J. Roger Faherty
--------------------
J. Roger Faherty
Chairman, Chief Executive
Officer, President and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of Directrix, Inc. and in the capacities and
on the dates indicated.
/s/ Donald J. McDonald Director Date: April 15, 1999
- --------------------------- --------------
Donald J. McDonald
/s/ Rudy R. Miller Director Date: April 15, 1999
- -------------------------- --------------
Rudy R. Miller
/s/ Richard Cohen Director Date: April 15, 1999
- --------------------------- --------------
Richard Cohen
/s/ Leland H. Nolan Director Date: April 15, 1999
- --------------------------- --------------
Leland H. Nolan
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
/s/ John R. Sharpe Chief Date: April 15, 1999
- --------------------------- Financial --------------
John R. Sharpe Officer &
Accounting
Officer
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR ANY
SHARES ACQUIRED UPON THE EXERCISE OF SUCH WARRANTS HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY OTHER SECURITIES
LAWS, NOR MAY SUCH WARRANTS OR SHARES BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT OR OTHER LAWS. THIS WARRANT AND SUCH SHARES
MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN
THIS WARRANT.
DIRECTRIX, INC.
Common Stock Purchase Warrant
No. X Warrants
NOT EXERCISABLE AFTER THE DATES SPECIFIED HEREIN
THIS WARRANT CERTIFICATE CERTIFIES THAT ("Holder"), or
registered assigns, is the registered holder of the number of warrants (the
"Warrants") set forth above, each of which entitles such holder hereof, subject
to the terms, provisions and conditions set forth herein, to purchase from
Directrix, Inc., a Delaware corporation (the "Company"), prior to 10 years from
the date hereof and upon the occurrence of certain events as provided in Section
1(a) hereof at the principal office of the Company or such other location
designated by the Company in accordance with the terms set forth herein, one
fully paid and nonassessable share of the Common Stock of the Company, par value
$.01 per share ("Common Stock"), upon presentation and surrender of this Warrant
Certificate with the Form of Election to Purchase attached hereto duly executed
and payment in full (in cash or by certified or official bank or bank cashier's
check payable to the order of the Company) of the applicable Purchase Price as
to which the Warrant(s) represented by the Warrant Certificate are exercised,
all subject to the terms, provisions and conditions hereof. The Warrants
represented by this Certificate are being issued in consideration of acting as a
lender to the Company in connection with the Loan and Security Agreement, dated
as of March 15, 1999 (the "Loan Agreement"), by and among the Company, Holder,
Leland Nolan and Donald McDonald.
The rights of the holder of this Warrant Certificate shall be
subject to the following further terms and conditions:
SECTION 1. Exercise of Warrants; Purchase Price.
(a) Subject to the provisions of Section 6(d) hereof, the
registered holder of this Warrant Certificate may exercise the Warrants
evidenced hereby, in whole or in part, at any time prior to 5:00 p.m., New York
City time, on March 14, 2009 (the "Final Expiration Date"), upon surrender of
this Warrant Certificate, with the Form of Election to Purchase attached hereto
duly executed, to the Company at its office maintained pursuant to Section 2(b)
hereof, together with payment of the Purchase Price for each share of Common
Stock as to which the Warrants are exercised. Each warrant not exercised prior
to 5:00 p.m., New York City time, on the Final Expiration Date shall become void
and all rights thereunder shall cease as of such time.
(b) The purchase price for each share of Common Stock
purchased pursuant to the exercise of a Warrant shall be $0.01 (the "Purchase
Price"); provided, however, that the Purchase Price shall be subject to
adjustment from time to time as provided in Section 8 hereof. The aggregate
Purchase Price shall be payable in cash or by certified or official bank or bank
cashier's check payable to the order of the Company, or by any other means
consented to by the Company.
(c) Upon receipt of this Warrant Certificate representing
exercisable Warrants, with the Form of Election to Purchase duly executed,
accompanied by payment of the aggregate Purchase Price for the shares to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of this Warrant Certificate in accordance with Section 6 hereof,
the Company shall thereupon promptly (i) cause to be issued to the holder hereof
the Common Stock certificates for the number of whole shares of Common Stock to
be purchased and (ii) when appropriate, pay to the registered holder hereof, in
lieu of the issuance of fractional shares to which such holder would otherwise
be entitled, an amount in cash in accordance with Section 11 hereof.
(d) If the registered holder of this Warrant Certificate shall
exercise less than all the Warrants evidenced hereby, a new Warrant Certificate
evidencing Warrants equivalent to the Warrants remaining unexercised shall be
issued by the Company to the registered holder of this Warrant Certificate or to
his duly authorized assigns, subject to the provisions of Section 11 hereof.
SECTION 2. Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates.
(a) Subject to the provisions of Section 11 hereof, at or
prior to the Final Expiration Date this Warrant Certificate, with or without
other Warrant Certificates, may be split up, combined or exchanged for another
Warrant Certificate or Warrant Certificates, entitling the registered holder to
purchase a like number of shares of Common Stock as the Warrant Certificate or
Warrant Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to split up, combine or exchange this Warrant
Certificate shall make such request in writing delivered to the Company, and
shall surrender the Warrant Certificate or Warrant Certificates to be split up,
combined or exchanged at the office of the Company maintained for such purpose
as set forth below. Thereupon the Company shall sign and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Company may require payment of a sum sufficient to
cover any transfer tax that may be imposed in connection with any split-up,
combination or exchange of Warrant Certificates.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of a Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrant Certificate if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor to the registered owner in lieu of the Warrant
Certificate so lost, stolen, destroyed or mutilated.
(b) The Company will maintain an office (which may be an
agency maintained at a bank) in the City of New York in the State of New York
where notices, presentations and demands in respect of any Warrants may be made
upon it and where it will maintain the Warrant register upon which transfers and
exchanges of Warrants shall be recorded. Such office shall be maintained at
Directrix, Inc., 536 Broadway, 10th Floor, New York, New York 10012, until such
time as the Company shall notify the holders of the Warrants of any change of
location of such office.
SECTION 3. Subsequent Issue of Warrant Certificates.
Subsequent to their original issuance, no Warrant Certificates shall be issued
except (a) Warrant Certificates issued upon any transfer, combination, split-up
or exchange of Warrants pursuant to the terms, conditions and provisions hereof,
(b) Warrant Certificates issued in replacement of mutilated, destroyed, lost or
stolen Warrant Certificates pursuant to Section 2 hereof, (c) Warrant
Certificates issued pursuant to Section 1(d) hereof upon the partial exercise of
any Warrant Certificate to evidence the unexercised portion of such Warrant
Certificate, (d) Warrant Certificates issued pursuant to Section 8(e) hereof and
(e) Warrant Certificates issued pursuant to Section 14 hereof.
SECTION 4. Cancellation and Destruction of Warrant
Certificates. All Warrant Certificates surrendered for the purpose of exercise,
exchange, substitution, transfer, split-up or combination shall be cancelled by
the Company, and no Warrant Certificates shall be issued in lieu thereof except
as expressly permitted by any of the provisions of this Warrant Certificate. The
Company shall cancel and retire any other Warrant Certificates purchased or
acquired by the Company otherwise than upon the exercise thereof.
SECTION 5. Ownership; Restrictions on Transfer; Registration
of Transfers.
(a) Except as otherwise permitted by this Section 5, each
Warrant Certificate (including each Warrant Certificate issued upon the transfer
of such Warrant Certificate) shall be stamped or otherwise imprinted with
legends in substantially the following form:
"Neither the Warrants represented by this Warrant Certificate
nor any shares acquired upon the exercise of such Warrants
have been registered under the Securities Act of 1933, as
amended or any other securities laws nor may such Warrants or
shares be transferred, sold or otherwise disposed of in the
absence of such registration or an exemption therefrom under
such act or other laws. This Warrant and such shares may be
transferred only in compliance with the conditions specified
in this Warrant."
(b) Except as otherwise permitted by this Section 5, and
subject to the terms of a Registration Rights Agreement of even date herewith by
and among the Company, Holder, Leland Nolan and Donald McDonald, each
certificate for Common Stock (or other securities) issued upon the exercise of
this Warrant, and each certificate issued upon the transfer of any such Common
Stock (or other securities), shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended or any
other securities laws and may not be transferred, sold or
otherwise disposed of in the absence of such registration or
an exemption therefrom under such Act or other laws. Such
shares may be transferred, sold or otherwise disposed of only
in compliance with the conditions specified in the Common
Stock Purchase Warrants issued by Directrix, Inc. A complete
and correct copy of the form of such Warrant is available for
inspection at the principal office of Directrix, Inc. or at
the office or agency maintained by Directrix, Inc. as provided
in such Warrants and will be furnished to the holder of such
shares upon written request and without charge."
(c) Prior to any transfer of any Warrant Certificate that is
not registered under an effective registration statement under the Securities
Act of 1933 (the "Securities Act"), the holder thereof will give written notice
to the Company of such holder's intention to effect such transfer and to comply
in all other respects with this Section 5. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail to enable
counsel to render the opinion referred to below.
If, in the opinion of counsel for the Company, the proposed
transfer may not be legally effected without registration of such Warrants under
the Securities Act, the Company will promptly so notify the holder thereof and
thereafter such holder shall not be entitled to transfer such Warrant until
either (x) receipt by the Company of a further notice from such holder pursuant
to the foregoing provisions of this Section 5 and fulfillment of the provisions
of this Section 5 or (y) such Warrants have been effectively registered under
the Securities Act.
If, in the opinion of counsel for the Company, the proposed
transfer may be effected without registration of such Warrants under the
Securities Act, such holder shall thereupon be entitled to transfer such
securities in accordance with the terms of the notice delivered by such holder
to the Company. Each Warrant Certificate issued upon or in connection with such
transfer shall bear the restrictive legends required by this Section 5, unless
in the opinion of such counsel, such restrictive legends are not required or
advisable.
(d) The restrictions imposed by this Section 5 upon the
transferability of the Warrants or the underlying shares of Common Stock
relating to the registration of securities under the Securities Act set forth in
clauses (b) and (c) of this Section 5 shall terminate as to any particular
Warrants or the underlying shares of Common Stock, (x) when such securities
shall have been effectively registered and sold or distributed under the
Securities Act, (y) when, in the opinion of both counsel for the Company and the
holder (each of whom shall be experienced in securities law matters), any
restrictions cease or are permitted to terminate under applicable securities
law, or (z) when, in the opinion of counsel for the Company (who shall be
experienced in securities law matters), such restrictions are no longer required
in order to insure compliance with the Securities Act or any other applicable
securities law, whichever is earliest. Whenever any such restrictions shall
cease and terminate as to any Warrants or the underlying shares of Common Stock,
the holder thereof shall be entitled to receive from the Company, without
expense (other than applicable transfer taxes, if any), new Warrants or
certificates of like tenor not bearing the applicable legends previously
required by this Section 5.
SECTION 6. Reservation and Availability of Shares of Common
Stock.
(a) The Company will cause to be reserved and kept available
out of its authorized and unissued shares of Common Stock or its authorized and
issued shares of Common Stock held in its treasury, the number of shares of
Common Stock that will be sufficient to permit the exercise in full of all
outstanding Warrants. The transfer agent for the Common Stock, if any, will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Warrant on file with each transfer agent. The Company will furnish
the transfer agent a copy of all notices of adjustments and certificates related
thereto, transmitted to each holder of a Warrant Certificate pursuant to Section
8 hereof.
(b) So long as the Common Stock issuable upon the exercise of
Warrants may be listed on any national securities exchange, the Nasdaq Stock
Market or the over-the-counter market, the Company shall use its best efforts to
cause all shares reserved for such issuance to be listed as expeditiously as
possible on such exchange or market upon official notice of issuance upon such
exercise.
(c) The Company will take all such action as may be necessary
to ensure that all shares of Common Stock delivered upon exercise of Warrants
shall, at the time of delivery of the certificates for such shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares.
(d) The Company will pay when due and payable any and all
federal and state transfer taxes and charges which may be payable in respect of
the initial issuance or delivery of this Warrant Certificate or of the issuance
and delivery of any shares of Common Stock upon the exercise of Warrants, except
as set forth in the immediately following sentence. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer or delivery of this Warrant Certificate to a person other than, or the
issuance or delivery of certificates for Common Stock in a name other than that
of, the registered holder of the Warrant Certificate evidencing Warrants
surrendered for exercise or to issue or deliver any certificates for shares of
Common Stock upon the exercise of any Warrants until any such tax shall have
been paid (any such tax being payable by the holder of such Warrant Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
SECTION 7. Common Stock Record Date. Each person in whose name
any certificate for shares of Common Stock is issued upon the exercise of
Warrants shall for all purposes be deemed to have become the holder of record of
the Common Stock represented thereby on, and such certificate shall be dated,
the close of business on the date upon which the Warrant Certificate evidencing
such Warrants was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Common Stock transfer books of
the Company are closed, such person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the opening of
business on the next succeeding business day on which the Common Stock transfer
books of the Company are open.
SECTION 8. Adjustment of Purchase Price, Number of Shares or
Number of Warrants. The Purchase Price, the number of shares of Common Stock
covered by each Warrant and the number of Warrants outstanding are subject to
adjustment from time to time as provided in this Section 8.
(a) In case the Company shall at any time after the
date hereof, (i) effect a distribution to all holders of its
outstanding Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares of
Common Stock or (iv) issue any securities of the Company in a
reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving
corporation other than a consolidation or merger in respect of
which an adjustment is made pursuant to Section 10 hereof),
the number and kind of securities issuable commencing on the
record date for such distribution or the effective date of
such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of any Warrant
exercised after such time shall be entitled to receive upon
exercise of the Warrant the aggregate number and kind of
securities which, if such Warrant had been exercised
immediately prior to such date and at a time when the Common
Stock transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by
virtue of such distribution, subdivision, combination or
reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur. Notwithstanding
the foregoing, if a warrant is exercised subsequent to the
record date, if any, but prior to the relevant distribution
date or payment date, the Company shall not be required to
make any such payment or distribution pursuant to this
subsection (a) to the holder of such warrant prior to such
payment or distribution date, but shall make such payment or
distribution on such date.
(b) No adjustment in the Purchase Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that
any adjustments which by reason of this Section 8(b) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
(c) In the event that at any time, as a result of an
adjustment made pursuant to Section 8(a) hereof, the holder of
any Warrant thereafter exercised shall become entitled to
receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities
so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with
respect to the shares of Common Stock contained in Section
8(a), and the provisions of Sections 1, 6, 7, 10 and 15 hereof
with respect to the shares of Common Stock shall apply on like
terms to any such other securities.
(d) Upon each adjustment of the number of shares of
Common Stock for which the Warrants are exercisable as
provided in Section 8(a) hereof, the Purchase Price payable
upon exercise of a Warrant shall be adjusted by multiplying
such Purchase Price immediately prior to such adjustment by a
fraction (i) the numerator of which shall be the number of
shares of Common Stock for which a Warrant was exercisable
prior to such adjustment and (ii) the denominator of which
shall be the number of shares of Common Stock for which a
Warrant is exercisable immediately thereafter.
(e) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of
Warrants, in substitution for any adjustment in the number of
shares of Common Stock purchasable upon the exercise of a
Warrant. Each Warrant outstanding after such adjustment of the
number of Warrants shall be exercisable for the same number of
shares of Common Stock for which such Warrant was exercisable
prior to such adjustment. Each Warrant held of record prior to
such adjustment of the number of Warrants shall become that
number of Warrants (calculated to the nearest hundredth)
obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase
Price in effect after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to
adjust the number of Warrants, indicating the record date for
the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on
which the Purchase Price is adjusted or any day thereafter,
but shall be at least ten days later than the date of the
public announcement. Upon each adjustment of the number of
Warrants pursuant to this Section 8(e), the Company shall, as
promptly as practicable, cause to be distributed to holders of
record of Warrant Certificates on such record date Warrant
Certificates evidencing, subject to Section 11, the additional
Warrants to which such holders shall be entitled as a result
of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in
substitution and replacement for the Warrant Certificates held
by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Warrant
Certificates evidencing all the Warrants to which such holders
shall be entitled after such adjustment. Warrant Certificates
so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Warrant
Certificates on the record date specified in the public
announcement.
(f) Irrespective of any adjustment or change in the
Purchase Price or the number of shares of Common Stock
issuable upon the exercise of the Warrants, the Warrant
Certificates may continue to express the Purchase Price per
share and the number of shares which were expressed upon the
initial Warrant Certificates issued hereunder.
(g) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par
value, if any, of the shares of Common Stock issuable upon
exercise of the Warrants, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully
paid and nonassessable shares of such Common Stock at such
adjusted Purchase Price.
(h) Anything in this Section 8 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those
adjustments required by this Section 8, as it in its sole
discretion shall determine to be advisable in order that any
consolidation or subdivision of the Common Stock, issuance
wholly for cash of any Common Stock at less than the current
market price, issuance wholly for cash of Common Stock or
securities which by their terms are convertible into or
exchangeable for Common Stock, dividends on Common Stock
payable in Common Stock or issuance of rights, options or
warrants referred to in this Section 8, hereafter made by the
Company to its common stockholders, shall not be taxable to
them.
SECTION 9. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 8 hereof (other
than situations in which no adjustment is required pursuant to Section 8(b)),
the Company shall promptly cause written notice thereof to be sent to each
holder of a Warrant Certificate in accordance with Section 16 hereof, which
notice shall be accompanied by an officer's certificate setting forth the
Purchase Price as so adjusted, the number of shares of Common Stock issuable
upon the exercise of each Warrant as so adjusted and a brief statement of the
facts accounting for such adjustment. The Company will keep copies of such
certificate at its office maintained pursuant to Section 2(b) hereof and will
cause the same to be available for inspection at such office during normal
business hours by any holder of a Warrant.
SECTION 10. Consolidation, Merger or Sale of Assets. If the
Company shall at any time consolidate with or merge with and into another
corporation or shall sell or transfer to another entity all or substantially all
of the property of the Company, the holder of any Warrant will thereafter have
the right to receive, upon the exercise thereof in accordance with and subject
to the terms of this Warrant, the securities, cash and other property to which
the holder of the number of shares of Common Stock purchasable (at the time of
such consolidation, merger, sale or transfer) upon the exercise of such Warrant
would have been entitled upon such consolidation, merger, sale or transfer, if
any. The Company shall take such steps in connection with such consolidation,
merger, sale or transfer, as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or property (including cash) thereafter deliverable
upon the exercise of the Warrants. The Company, the successor corporation or the
purchasing entity, as the case may be, shall execute and deliver to the Company
an agreement so providing. The provisions of this Section 10 shall similarly
apply to successive mergers or consolidations or sales or other transfers.
SECTION 11. Fractional Warrants and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Warrants or to distribute Warrant Certificates which evidence fractional
Warrants. Subject to Section 11(d) hereof, in lieu of such fractional Warrants,
there shall be paid to each registered holder of a Warrant Certificate with
regard to which a fractional Warrant would otherwise be issuable, an amount in
cash equal to the same fraction of the current market value of a whole Warrant.
For the purposes of this Section 11(a), the current market value of a whole
Warrant shall be the closing price of the Warrant (as determined pursuant to the
second sentence of Section 11(c) hereof) for the Trading Day immediately prior
to the date on which such fractional Warrant would have been otherwise issuable.
If on any such Trading Date the Warrants were not publicly held or listed or
traded in a manner described under the second sentence of Section 11(c) hereof,
the current market value of a whole Warrant shall be the fair value of the
Warrants on such Trading Date as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive.
(b) The Company shall not be required to issue fractions of
shares of Common Stock upon exercise of the Warrants or to distribute
certificates which evidence fractional shares. Subject to Section 11(d) hereof,
in lieu of such fractional shares of Common Stock, there shall be paid to each
registered holder of a Warrant Certificate with regard to which a fractional
share would otherwise be issuable at the time such Warrant Certificate is
exercised as herein provided, an amount in cash equal to the same fraction of
the current market value of a share of Common Stock. For purposes of this
Section 11(b), the current market value of a share of Common Stock shall be the
closing price of a share of Common Stock (as determined pursuant to the second
sentence of Section 11(c)) for the Trading Day immediately prior to the date of
such exercise. If on such Trading Date the Common Stock was not publicly held or
listed or traded in a manner described under the second sentence of Section
11(c) hereof, the current market value of a share of Common Stock shall be the
fair value of a share of Common Stock as determined in good faith by the Board
of Directors of the Company, whose determination shall be conclusive.
(c) For the purpose of any computation required in accordance with this
Section 11, the "current market price per share" of any security, including the
Common Stock (a "Security" for the purpose of this Section 11(c)), on any date
shall be deemed to be the average of the daily closing prices (as such term is
hereinafter defined) per share of such Security for the 20 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current market price per share of
the Security is determined during a period following the announcement by the
issuer of such Security of (i) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (ii) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 consecutive Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current market
price per share shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The "closing price" for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, as reported by the Nasdaq Stock Market, or if not so listed, the
average of the high bid and low asked prices in the over-the-counter market, as
reported in the Wall Street Journal, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Security
selected by the Board of Directors of the Company. If the Security is not
publicly held or so listed or traded, "current market price per share" shall
mean the fair value of the Security as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day. The term "Business Day"
shall mean any day other than a Saturday, a Sunday, or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
(d) If the Company is unable to pay any amounts of cash to
registered holders of Warrant Certificates in respect of fractional Warrants or
fractional shares of Common Stock in accordance with Section 11(a) or (b)
hereof, as the case may be, by reason of the provisions of the Company's then
outstanding debt obligations or otherwise, the Company shall deliver to such
holders an additional whole Warrant or share of Common Stock, as the case may
be, in lieu of such fractional Warrants or shares.
(e) The holder of a Warrant, by the acceptance of the Warrant,
expressly waives his right to receive any fractional Warrant or any fractional
share upon exercise of a Warrant.
SECTION 12. Right of Action; No Entitlement to Vote or
Receive Dividends.
(a) Any registered holder of this Warrant Certificate, without
the consent of the holder of any other Warrant Certificate, may, in his own
behalf and for his own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, his right to exercise the Warrants evidenced by this Warrant
Certificate in the manner provided herein.
(b) Prior to the exercise of the Warrants evidenced hereby and
the date of the certificate representing the shares of Common Stock issuable
upon exercise of such Warrants pursuant to Section 7 hereof, the holder of this
Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company with respect to, or be deemed for any purpose the
holder of, shares for which the Warrants shall be exercisable, including,
without limitation, the right to vote or to receive dividends, or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
SECTION 13. Agreement of Warrant Certificate Holders. Every
holder of this Warrant Certificate, by accepting the same, consents and agrees
with the Company and with every other holder of a Warrant Certificate that (a)
the Warrant Certificates are transferable only on the registry books of the
Company if surrendered at the principal office of the Company maintained
pursuant to Section 2(b) hereof, duly endorsed or accompanied by a proper
instrument of transfer and (b) the Company may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner thereof
and of the Warrants evidenced thereby (notwithstanding any notations of
ownership or writing on the Warrant Certificates) for all purposes whatsoever,
and the Company shall not be affected by any notice to the contrary.
SECTION 14. Issuance of New Warrant Certificates.
Notwithstanding any of the provisions of this Warrant to the contrary, the
Company may, at its option, issue new Warrant Certificates evidencing Warrants
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price per share and the number or kind or
class of shares of stock or other securities or property purchasable under this
Warrant Certificate made in accordance with the provisions of this Warrant
Certificate; provided, that such new Warrant Certificate shall not have terms
inconsistent with the terms of this Warrant Certificate.
SECTION 15. Notice of Proposed Actions. In case the Company
shall propose (a) to pay any stock dividend to the holders of its Common Stock
or to make any other distribution to the holders of its Common Stock (other than
cash dividends paid out of consolidated earnings for the Company's then current
or immediately preceding fiscal year), or (b) to offer to the holders of its
Common Stock rights, warrants or options to subscribe for or to purchase any
additional shares of Common Stock or shares of stock of any class or any other
securities, rights or options, or (c) to effect any reclassification of its
Common Stock (other than a reclassification involving only the subdivision or
combination of outstanding shares of Common Stock), or (d) to effect any
consolidation, merger or sale, transfer or other disposition of all or
substantially all of the property, assets or business of the Company, or (e) to
effect the liquidation, dissolution or winding-up of the Company, then, in each
such case, the Company shall give to the holder of this Warrant, in accordance
with Section 16 hereof, a notice of such proposed action, which shall specify
the record date for the purposes of such stock dividend, or distribution of
rights, warrants or options, or the date on which such reclassification,
consolidation, merger, sale, transfer, disposition, liquidation, dissolution, or
winding-up is to take place and the date of participation therein by the holders
of Common Stock, if any such date is to be fixed, and such notice shall be so
given in the manner provided in Section 16 at least 20 days prior to (i) the
record date for the purposes of any action covered by clause (a) or (b) above or
(ii) the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be earlier.
SECTION 16. Notices. Notices or demands authorized by this
Agreement to be given or made by the holder of this Warrant Certificate to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until the holder hereof is notified, in accordance
with this Section 16, in writing by the Company of another address) as follows:
Directrix, Inc.
536 Broadway, 10th Floor
New York, New York 10012
Attention: Chief Executive Officer
Notices and demands authorized by this Agreement to be given or made by the
Company to the holder of this Warrant Certificate shall be sufficiently given or
made if sent by first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of the Company.
SECTION 17. Supplements and Amendments. Except as provided
in Section 14 hereof, the Company may not amend this Warrant Certificate without
the consent of the holder hereof.
SECTION 18. Governing Law. This Warrant Certificate shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the principles of conflicts of laws.
SECTION 19. Descriptive Headings. Descriptive headings of
the several Sections of this Warrant are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Dated: March 15,1999
DIRECTRIX, INC.
By:________________________________
Name:
Title:
[Seal]
Attest:
- ----------------------------
Secretary
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________ hereby
sells, assigns and transfers unto _____________________________________________
- -------------------------------------------------------------------------------
(Please print name and address of transferee) this Warrant Certificate, together
- -------------------------------------------------------------------------------
with all right, title and interest therein, and does hereby irrevocably
- -------------------------------------------------------------------------------
constitute and appoint ___________________________ Attorney, to transfer the
- -------------------------------------------------------------------------------
within Warrant Certificate on the books of the within-named Company, with
- -------------------------------------------------------------------------------
full power of substitution.
- -------------------------------------------------------------------------------
Date: _____________, ____
--------------------------------
Signature
(Note: The above signature
must correspond with the
name as written upon the
face of this Warrant
Certificate in all
respects, without any
alteration or change
whatsoever.)
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the
Warrants evidenced by the Warrant
Certificate.)
To: DIRECTRIX, INC.
The undersigned hereby irrevocably elects to exercise
___________________ Warrants represented by this Warrant Certificate to purchase
the shares of Common Stock of Directrix, Inc. issuable upon the exercise of such
Warrants and herewith tenders payment for such shares in the amount of $______
to the undersigned, in accordance with the terms of this Warrant Certificate.
The undersigned requests that certificates for such shares of Common Stock be
issued in the name of:
Please insert social security
or other identifying number
- ---------------------------------------------------------------
(Please print name and address)
_______________________________________________________________ and that such
certificates be delivered to ______________ whose address is __________________.
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- ---------------------------------------------------------------
(Please print name and address)
- ---------------------------------------------------------------
<PAGE>
Any cash payments to be made in lieu of fractional shares should be made to
_____________ ____________________________________ whose address is
______________________ _______________________________________________________
and the check representing payment therefor should be delivered to
_____________________________ whose address is
________________________________________________.
Date: _____________, ____
---------------------------------
Signature
(Note: The above signature
must correspond with the
name as written upon the
face of this Warrant
Certificate in all
respects, without any
alteration or change
whatsoever.)
This REGISTRATION RIGHTS AGREEMENT is made and entered into as
of March 15, 1999, by and among DIRECTRIX, INC., a Delaware corporation (the
"Company"), J. ROGER FAHERTY ("Faherty"), LELAND H. NOLAN and DONALD J.McDONALD,
JR. (collectively, the "Holders").
The Holders are the beneficial owner of certain Registrable
Securities (as defined below) issued by the Company. The Company and the Holders
deem it to be in their respective best interests to set forth the rights of the
Holders in connection with public offerings and sales of the Registrable
Securities.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and obligations hereinafter set forth, the Company and the Holders,
intending legally to be bound, hereby agree as follows.
Section 1. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
<PAGE>
"Affiliate" of any person means any other person who either
directly or indirectly is in control of, is controlled by, or is under common
control with such person.
"Business Day" shall mean any Monday, Tuesday, Wednesday,
Thursday or Friday that is not a day on which banking institutions in the City
of New York are authorized by law, regulation or executive order to close.
"Common Stock" shall mean the common stock, par value $0.01
per share, of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Hold-Back Election" shall have the meaning set forth in
Section 5(a) hereof.
"Holder" shall mean any Person that owns Registrable
Securities, including such successors and assigns as acquire Registrable
Securities, directly or indirectly, from such Person. For purposes of this
Agreement, the Company may deem the registered holder of a Registrable Security
as the Holder thereof.
"Person" shall mean an individual, partnership, corporation,
limited liability company, joint venture trust or unincorporated organization, a
government or agency or political subdivision thereof or any other entity.
"Piggyback Registration" shall have the meaning set forth in
Section 4 hereof.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by a prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"Registrable Securities" shall mean the Warrants, the Common
Stock issued to the Holders upon exercise of the Warrants and any other
securities issued or issuable as a result of or in connection with any stock
dividend, stock split or reverse stock split, combination, recapitalization,
reclassification, merger or consolidation, exchange or distribution in respect
of such Common Stock.
"Registration Expenses" shall have the definition set forth in
Section 6 hereof.
"Registration Statement" shall mean any registration statement
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"Restricted Securities" shall have the meaning set forth in
Section 2 hereof.
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"Rule 415" shall mean Rule 415 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"Rule 903" shall mean Rule 903 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"Rule 904" shall mean Rule 904 promulgated under the
Securities Act, as amended from time to time, or any similar successor rule
thereto that may be promulgated by the SEC.
"SEC" or the "Commission" shall mean the Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended (or any similar successor federal statute), and the rules and
regulations thereunder, as the same are in effect from time to time.
"Underwritten Offering" shall mean a registered offering in
which securities of the Company are sold to an underwriter for reoffering to the
public.
"Warrants" shall mean warrants to purchase an aggregate of ___
shares of Common Stock, subject to adjustment as set forth therein.
Section 2. Securities Subject to this Agreement. The
securities entitled to the benefits of this Agreement are the Registrable
Securities but, with respect to any particular Registrable Security, only so
long as such security continues to be a Restricted Security. A Registrable
Security that has ceased to be a Registrable Security cannot thereafter become a
Registrable Security. As used herein, a "Restricted Security" is a Registrable
Security which has not been effectively registered under the Securities Act and
distributed in accordance with an effective Registration Statement and which has
not been distributed by a Holder pursuant to Rule 144, Rule 903 or Rule 904,
unless, in the case of a Registrable Security distributed pursuant to Rule 903
or 904, any applicable restricted period has not expired or the SEC or its staff
has taken the position in a published release, ruling or no-action letter that
securities distributed under Rule 903 or 904 are ineligible for resale in the
United States under Section 4(1) of the Securities Act notwithstanding
expiration of the applicable restricted period.
Section 3. Demand Registration.
(a) Demand. At any time after the Warrants are issued to the
Holders, Faherty, on behalf of all of the Holders, shall have the right to
request in writing, specifying that such request is made pursuant to this
Section 3(a), that the Company effect a registration under the 1933 Act of the
Warrants and the underlying Common Stock and specifying the intended method of
disposition thereof (which may include a continuous or delayed offering). Upon
receipt of such written request, the Company will use its best efforts to
effect, as expeditiously as possible, the registration under the Securities Act
of the Warrants and the underlying Common Stock which the Company has been so
requested to register by the Stockholders (a "Demand Registration"). The Company
shall be obligated to effect only two Demand Registrations pursuant to this
Section 3(a). Upon receipt of any request for registration pursuant to this
Section 3(a), if there are other holders of Common Stock, the Company shall
promptly give written notice of such request to all such other holders. The
Company shall include in the requested registration all securities requested to
be included by such of the other holders as shall make such request by written
notice to the Company delivered within fifteen Business Days after their receipt
of the Company's notice. If the Company shall receive a request for inclusion in
the registration of Registrable Securities of additional holders, it shall
promptly so inform Faherty on behalf of all of the Holders.
(b) Effectiveness of Registration Statement. The Company
agrees to use its best efforts to cause the Registration Statement relating to
any Demand Registration to become effective as promptly as practicable following
the demand therefor and keep thereafter such Registration Statements effective
continuously for the period specified in the next succeeding sentence. The
Company will use its best efforts pursuant to this Section to keep a
Registration Statement continuously effective (except as otherwise permitted
under this Agreement) for a period ending on the earliest of (A) the date which
is 180 days after, or, as to a Shelf Registration Statement, the second
anniversary of, the effective date of such Registration Statement, (B) the date
on which all Registrable Securities covered by such Registration Statement have
been sold and the distribution contemplated thereby has been completed and (C)
the date on which the Holders may sell all of the Registrable Securities covered
by such Registration Statement without restriction pursuant to Rule 144
promulgated under the Securities Act, unless the Registration Statement relates
to an underwritten public offering of not less than 50% of the original number
of shares of Common Stock underlying the Warrants (calculated as if the Warrants
had been exercised on the date hereof).
(c) Inclusion of Other Securities. The Company and any other
holder of the Company's securities who has registration rights may include its
securities in any registration effected pursuant to Section 3; provided,
however, that if the managing underwriter or underwriters of a proposed
Underwritten Offering contemplated thereby advise the holder or holders of
securities to be included in such offering in writing that the total amount or
kind of securities which the Company or any such other holder intends to include
in such proposed public offering is such as would, in the judgment of the
managing underwriter or underwriters, materially adversely affect the success of
the proposed public offering requested by the Holders, then the amount or kind
of securities to be offered for the account of the Company or any such other
holder shall be reduced to the extent necessary to reduce the total amount or
kind of securities to be included in such proposed public offering to the amount
or kind recommended by such managing underwriter or underwriters.
(d) Deferral of Filing. The Company may defer the filing (but
not the preparation) of a Registration Statement required by Section 3(a) until
a date not later than 90 days after the proposed filing date (or, if longer, 120
days after the effective date of the registration statement contemplated by
clause (ii) below) if (i) at the time the Company receives a written request for
a Demand Registration from Faherty, the Company or any of its subsidiaries is
engaged in confidential negotiations or other confidential business activities,
disclosure of which would be required in such Registration Statement (but would
not be required if such Registration Statement were not filed) and the Board of
Directors of the Company determines in good faith that such disclosure would be
materially detrimental to the Company and its stockholders or (ii) prior to
receiving a written request for a Demand Registration from Faherty, the Board of
Directors of the Company had determined to effect a registered underwritten
public offering of the Company's securities for the Company's account and the
Company had taken substantial steps (including, but not limited to, selecting a
managing underwriter for such offering) and is proceeding with reasonable
diligence to effect such offering and the Board of Directors of the Company
determines in good faith that the filing of a Registration Statement pursuant to
Section 3(a), in light of the intended method of distribution, would materially
adversely affect such offering. A deferral of the filing of a Registration
Statement pursuant to this Section 3(d) shall be lifted and the requested
Registration Statement shall be filed forthwith if, in the case of a deferral
pursuant to clause (i) of the preceding sentence, the negotiations or other
activities are disclosed or terminated, or, in the case of a deferral pursuant
to clause (ii) of the preceding sentence, the proposed registration for the
Company's account is abandoned. In order to defer the filing of a Registration
Statement pursuant to this Section 3(d), the Company shall promptly (but in any
event within ten days), upon determining to seek such deferral, deliver to
Faherty, on behalf of all of the Holders, written notice stating that the
Company is deferring such filing pursuant to this Section 3(e) and a general
statement of the reason for such deferral and an approximation of the
anticipated delay. Within twenty days after receiving such notice, Faherty, on
behalf of all of the Holders, may withdraw his request for a Demand Registration
by giving notice to the Company; if withdrawn, such request shall be deemed not
to have been made for purposes of this Agreement. The beginning of any deferral
period shall be at least 360 days after the end of any prior deferral period.
Section 4. Piggyback Registration. If, on or prior to _______,
200_, the Company at any time proposes to file a registration statement with
respect to any class of equity securities, whether for its own account (other
than in connection with a registration statement on Form S-4 or S-8 (or any
successor or substantially similar form), or (A) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable pursuant to
any such plan, or (B) a dividend reinvestment plan) or for the account of a
holder of securities of the Company pursuant to demand registration rights
granted by the Company (a "Requesting Securityholder"), other than for the
registration of securities for sale on a continuous or delayed basis pursuant to
Rule 415, then the Company shall in each case give written notice of such
proposed filing to all Holders of Registrable Securities at least fifteen (15)
days before the anticipated filing date of any such registration statement by
the Company, and such notice shall offer to all Holders the opportunity to have
any or all of the Registrable Securities held by such Holders included in such
registration statement (each, a "Piggyback Registration"). Each Holder of
Registrable Securities desiring to have its Registrable Securities registered
under this Section 4 shall so advise the Company in writing within ten (10) days
after the date of receipt of such notice (which request shall set forth the
amount of Registrable Securities for which registration is requested), and the
Company shall use its best reasonable efforts to include in such Registration
Statement all such Registrable Securities so requested to be included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
any such proposed public offering advises the Company in writing that the total
amount or kind of securities which the Holders of Registrable Securities, the
Company and any other persons or entities intended to be included in such
proposed public offering is sufficiently large to adversely affect the success
of such proposed public offering, then the amount or kind of securities to be
offered for the accounts of Holders of Registrable Securities shall be reduced
pro rata, together with the amount or kind of securities to be offered for the
accounts of any other persons requesting registration of securities pursuant to
rights similar to the rights of Holders under this Section 4, to the extent
necessary to reduce the total amount or kind of securities to be included in
such proposed public offering to the amount or kind recommended by such managing
underwriter or underwriters before the securities offered by the Company or any
Requesting Securityholder are so reduced. Anything to the contrary in this
Agreement notwithstanding, the Company may withdraw or postpone a Registration
Statement referred to herein at any time before it becomes effective or
withdraw, postpone or terminate the offering after it becomes effective without
obligation to the Holder or Holders of the Registrable Securities.
Section 5. Holdback Agreements.
(a) Hold-Back Election. In the case of the registration of any
underwritten primary offering initiated by the Company (other than any
registration by the Company on Form S-4 or Form S-8 (or any successor or
substantially similar form), or of (A) an employee stock option, stock purchase
or compensation plan or of securities issued or issuable pursuant to any such
plan, or (B) a dividend reinvestment plan) or any underwritten secondary
offering initiated at the request of a holder of securities of the Company
pursuant to registration rights granted by the Company, each Holder agrees not
to effect any public sale or distribution of securities of the Company except as
part of such underwritten registration, during the period beginning fifteen (15)
days prior to the closing date of such underwritten offering and during the
period ending on ninety (90) days after such closing date (or such longer period
as may be reasonably requested by the Company or by the managing underwriter or
underwriters).
(b) Limitation on Registration Rights. Anything to the
contrary contained in this Agreement notwithstanding, when in the reasonable
opinion of counsel for the Company (which counsel shall be experienced in
securities law matters), registration of the Registrable Securities is not
required by the Securities Act and other applicable securities laws, in
connection with a proposed sale of such Registrable Securities, the Holder shall
have no rights to request a Demand Registration pursuant to Section 3 or to
request a Piggyback Registration pursuant to Section 4 in connection with such
proposed sale and the Company shall promptly provide to the transfer agent and
the Holder's broker in connection with any sale transaction an opinion to the
effect set forth above.
Section 6. Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications or registrations (or the
obtaining of exemptions therefrom) of the Registrable Securities), printing
expenses (including expenses of printing Prospectuses), messenger and delivery
expenses, internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
fees and disbursements of its counsel and its independent certified public
accountants, securities acts liability insurance (if the Company elects to
obtain such insurance), fees and expenses of any special experts retained by the
Company in connection with any registration hereunder and fees and expenses of
other Persons retained by the Company (all such expenses being referred to as
"Registration Expenses"), shall be borne by the Company); provided, that
Registration Expenses shall not include any fees and expenses of counsel for the
Holders, the expenses of any special audit or accounting review (other than a
review or audit of the Company's year-end financial statements), out-of-pocket
expenses incurred by the Holders and underwriting discounts, commissions or fees
attributable to the sale of the Registrable Securities.
Section 7. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, but without
duplication, each Holder of Registrable Securities, its officers, directors,
employees, partners, principals, equity holders, managed or advised accounts,
advisors and agents, and each Person who controls such Holder (within the
meaning of the Securities Act), against all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation and reasonable legal
fees and expenses) resulting from any untrue statement of a material fact in, or
any omission of a material fact required to be stated in, any Registration
Statement or Prospectus or necessary to make the statements therein (in the case
of a Prospectus in light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by any Holder or any
underwriters expressly for use therein. The Company will also indemnify
underwriters participating in the distribution, their officers, directors,
employees, partners and agents, and each Person who controls such underwriters
(within the meaning of the Securities Act), to the same extent as provided above
with respect to the indemnification of the Holders of Registrable Securities, if
so requested.
(b) Indemnification by Holders of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, each such Holder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any such Registration Statement or Prospectus and agrees
to indemnify and hold harmless, to the full extent permitted by law, but without
duplication, the Company, its officers, directors, shareholders, employees,
advisors and agents, and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue statement of material fact in, or any
omission of a material fact required to be stated in, the Registration Statement
or Prospectus or necessary to make the statements therein (in the case of a
Prospectus in light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information or affidavit so furnished in writing by
such Holder to the Company specifically for inclusion therein. The liability of
each Holder under this Section 7(b) shall be limited to an amount equal to the
proceeds received by such Holder from the sale of any Registrable Securities
covered by such Registration Statement or Prospectus. The Company and the other
persons described above shall be entitled to receive indemnities from
underwriters participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel of such indemnifying party's choice; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such indemnified Person
unless (A) the indemnifying party shall have failed to assume the defense of
such claim and employ counsel reasonably satisfactory to the indemnified party
in a timely manner or (B) in the reasonable judgment of any such Person, based
upon a written opinion of its counsel, a conflict of interest may exist between
such person and the indemnifying party with respect to such claims (in which
case, if the Person notifies the indemnifying party in writing that such Person
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such person). The indemnifying party will not be subject to any
liability for any settlement made without its consent. No indemnified party will
be required to consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of the claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim.
(d) Contribution. If for any reason the indemnification
provided for in Section 7(a) or Section 7(b) is unavailable to an indemnified
party or insufficient to hold it harmless as contemplated by Section 7(a) and
Section 7(b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnifying party and the indemnified party, but also
the relative fault of the indemnifying party and the indemnified party, as well
as any other relevant equitable considerations. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentations.
Section 8. Participation in Underwritten Registrations. No
Person may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell such Person's Registrable Securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. Nothing in this
Section 8 shall be construed to create any additional rights regarding the
registration of Registrable Securities in any Person otherwise than as set forth
herein.
Section 9. Amendments and Waivers. The provisions of this
Agreement, including the provisions of this Section 9, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of a majority of the Registrable Securities (on a Common
Stock equivalent basis) then outstanding. Whenever the consent or approval of
Holders of a specified number of Registrable Securities is required hereunder,
Registrable Securities held by the Company or any of its controlled affiliates
(other than Holders of Registrable Securities if such subsequent Holders are
deemed to be affiliates solely by reason of their holdings of such Registrable
Securities) shall not be counted in determining whether such consent or approval
was given by the Holders of such required number.
Section 10. Rule 144 Reporting. With a view to making
available the benefits of certain rules and regulations of the Commission which
may at any time permit the sale of the Registrable Securities to the public
without registration, during such time as a public market exists for the Common
Stock of the Company, the Company agrees to use its best reasonable efforts to:
(a) Make and keep public information available,
as those terms are understood and defined in Rule 144;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act (so long as it is subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable
Securities, furnish to the Holder forthwith upon written request a
written statement by the Company as to its compliance with the
reporting requirements of Rule 144, and of the Securities Act and the
Exchange Act (so long as it is subject to the reporting requirements of
the Exchange Act), a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents of the Company as
a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such
securities without registration (so long as it is subject to the
reporting requirements of the Exchange Act).
Section 11. Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telecopier, or air-courier guaranteeing overnight
delivery:
(a) If to a Holder of Registrable Securities, at the
most current address given by such Holder to the Company, in accordance
with the provisions of this Section 11, which address initially is,
with respect to the Holders, c/o J. Roger Faherty, Directrix Inc., 536
Broadway, New York, New York 10022.
(b) If to the Company, initially at 536 Broadway,
10th Floor, New York, New York 10012, attention: Chief Executive
Officer; telecopier no. (212) __; and thereafter at such other address
as may be designated from time to time by notice given in accordance
with the provisions of this Section 11, with a copy to Kramer Levin
Naftalis & Frankel LLP, 919 Third Avenue, New York, New York 10022,
attention: Howard Rothman, Esq.
(c) All such notices and other communications shall
be deemed to have been delivered and received (i) in the case of
personal delivery, telecopier or telegram, on the date of such
delivery, (ii) in the case of air courier, on the Business Day after
the date when sent and (iii) in the case of mailing, on the third
Business Day following such mailing.
Section 12. Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto, including without limitation and without the need for an express
assignment to subsequent Holders of the Registrable Securities who cannot freely
transfer their shares in the absence of registration under the Securities Act.
Section 13. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
Section 14. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE PRINCIPLES OF THE CONFLICT OF LAWS THEREOF.
Section 16. Jurisdiction; Forum. Each party hereto consents
and submits to the jurisdiction of any state court sitting in the County of New
York or federal court sitting in the Southern District of the State of New York
in connection with any dispute arising out of or relating to this Agreement.
Each party hereto waives any objection to the laying of venue in such courts and
any claim that any such action has been brought in an inconvenient forum. To the
extent permitted by law, any judgment in respect of a dispute arising out of or
relating to this Agreement may be enforced in any other jurisdiction within or
outside the United States by suit on the judgment, a certified copy of such
judgment being conclusive evidence of the fact and amount of such judgment. Each
party hereto agrees that personal service of process may be effected by any of
the means specified in Section 11, addressed to such party. The foregoing shall
not limit the rights of any party to serve process in any other manner permitted
by law.
Section 17. Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
Section 18. Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
DIRECTRIX, INC.
By:__________________________
Name:
Title:
----------------------------
J. Roger Faherty
----------------------------
Leland H. Nolan
----------------------------
Donald J. McDonald, Jr.
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") effected as of this 15th
day of March, 1999, by and between Directrix, Inc. (the "Company" or
"Employer"), a Delaware corporation, and J. Roger Faherty (the "Executive")
(collectively the Company and the Executive are referred to as the "Parties").
INTRODUCTION
WHEREAS, the Parties desire to enter into an Agreement and to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreement set
forth herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment
1.1 Duties. The Company shall employ the Executive on the
terms and conditions set forth in this Agreement, as Chairman of the Board and
Chief Executive Officer. The Executive accepts such employment with the Company
and shall perform and fulfill such duties as are assigned to him hereunder
consistent with his status as a senior executive of the Company, devoting his
best efforts and all of his professional time and attention, to the performance
and fulfillment of his duties and to the advancement of the best interests of
the Company, subject only to the specific directives of the Board of Directors
of the Company. In addition, and without any additional consideration, the
Executive is and/or may be requested to serve as a director or as an employee
and officer of any or all subsidiaries of the Company. Unless otherwise
indicated by the context, the "Company" shall include the Company and all its
subsidiaries.
1.2 Place of Performance. In connection with his employment by
the Company, the Executive shall be based in the New York, New York metropolitan
area, except for required travel on Company business. The Executive may be
required to relocate on a permanent or temporary basis consistent with business
necessity.
2. Term.
The Executive's employment under this Agreement shall commence as of
February 26, 1999 (the "Commencement Date") and shall continue uninterrupted up
to and including the hour of midnight of December 31, 2004 (the "Term"), unless
otherwise terminated as provided for in Sections 7.1 or 7.3. Unless prior to the
end of any calendar year, notice of non-renewal is given by either party, the
term of this Agreement shall automatically be extended for an additional period
of one year upon completion of each year. Therefore, upon each January 1 of a
year, this Agreement shall be effective for a six-year term unless prior thereto
such notice of non-renewal has been given.
3. Compensation.
3.1 Base Salary. During the Term the Executive shall receive a
minimum annual salary (the "Base Salary") payable in installments at such times
as the Company customarily pays its other senior executive employees (but in any
event no less often than bi-monthly), and calculated as follows:
3.1.1 The Base Salary to be paid to the Executive
during the Term shall be $385,875; and
3.1.2 For each Year beginning after December 31,
1999, the Company shall increase the Base Salary by an amount equal to five
percent (5%) of the prior year's Base Salary. Each such increase shall be
cumulative so that the Base Salary for each succeeding year shall include the
prior year's increase.
3.2 Health Insurance and Other Benefits. During the Term the
Executive shall be provided all employee benefits provided by the Company to its
management and all other Company salaried employees, including without
limitation, all medical insurance and life insurance plans or arrangements and
shall be entitled to participate in all pension, profit sharing, stock option
and any other employee benefit plan or arrangement established and maintained by
the Company for similarly situated employees, all subject, however, to the
Company rules and policies then in effect regarding participation therein.
During the Term, the benefits provided to the Executive, as described in the
preceding sentence, shall not be reduced except in accordance with the general
reduction of such benefits applicable to similarly situated employees generally,
but then only to the extent that such benefits are reduced for such other
similarly situated employees.
3.3 Automobile Allowance. During the Term, the Company shall
pay directly lease payments or purchase installments and parking for one
automobile comparable to the automobile currently used by the Executive and
reimburse Executive for automobile insurance with respect thereto.
3.4 Health Club Membership. During the Term, the Company
shall pay the costs of one health club membership for the Executive in each of
the Executive's two principal places of residence.
3.5 Life Insurance.
3.5.1 Purchase. Provided that the Executive is
insurable at rates that are comparable to those obtainable on other persons of
similar age and position in good health (if the Executive is classified in a
higher risk category he may elect to pay the excess premium cost to obtain the
coverage), during the Term the Company shall procure and maintain life insurance
on the life of the Executive in the face amount of $1,000,000. The Executive
shall be the owner of such life insurance policy and shall have the absolute
right to designate the beneficiaries thereunder. The type of policy (whether
term, whole life, etc., or combination of types) shall be in the sole discretion
of the Company.
3.5.2 Payment of Premiums. The Company shall pay
all premiums for such life insurance.
3.5.3 Medical Examination. The Executive agrees
to submit to all medical examinations, supply all information and execute all
documents required by the insurance company in connection with the issuance of
a policy for such insurance as well as for any key man insurance the Company may
desire to maintain on the Executive's life.
4. Reimbursement of Expenses.
The Executive shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses (including home Internet access) which
the Executive reasonably incurs in connection with the performance of his duties
hereunder, provided that the Executive submits to the Company on proper forms
provided by the Company, such statements and other evidence supporting such
expenses as the Company may require and provided such expenses meet the
Company's policy concerning such matters.
5. Stock Options.
The Executive may be entitled to participate in all Company employee
stock option programs as determined by the Compensation Committee of the
Company's Board of Directors and approved by the Company's shareholders.
6. Vacations.
The Executive shall be entitled to not less than four (4) weeks of paid
vacation in any calendar year (prorated in any Year during which the Executive
is employed hereunder for less than the entire Year). Such vacation shall be
taken at such times as are consistent with the reasonable business needs of the
Company. Any vacation not taken during the year may not be taken by the
Executive in subsequent years except to the extent approved by the Company. Upon
termination of the Executive's employment for any reason, any vacation earned by
the Executive but not taken shall be forfeited.
7. Termination of Employment.
7.1 Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the Executive's death. If the
Executive becomes Totally Disabled (as that term is defined below) for one
hundred eighty (180) days in the aggregate during any consecutive twelve-month
period during the Term, the Company shall have the right to terminate the Term
by giving the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties within thirty
(30) days after receipt of a notice of termination and continues to perform such
duties for four (4) consecutive weeks thereafter, the Term shall continue and
the notice of termination shall be considered null and void and of no effect.
Upon termination of the Term under this Section 7.1, the Company shall have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be: (i) the portion, if
any, that remains unpaid of the Base Salary for periods worked by the Executive
plus the excess of one year's Base Salary over the amount payable to the
Executive under the Company's long-term disability plan during such time
(payable as if the Executive remained an employee of the Company); and (ii) the
amount of any expenses reimbursable in accordance with Section 4 above; and
(iii) any amounts due under any Company benefit, welfare or pension plan.
7.2 "Totally Disabled," as used herein, shall mean a mental or
physical condition which, in the reasonable opinion of an independent medical
doctor selected by the Company in its discretion, renders the Executive unable
or incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement.
7.3 Discharge for Cause. The Company may discharge the
Executive for "Cause" upon written notice (as defined in Section 11.1), and
thereby immediately terminate his employment under this Agreement. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment if the Executive, in the reasonable good faith judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured such breach within ten (10) days after
Company's written notice, including, without limitation, the Executive's failure
to perform his duties hereunder, other than a failure resulting from his illness
or sickness; (ii) willfully fails to carry out a material lawful directive of
the Board of Directors; (iii) embezzles or converts to his own use any funds of
the Company or any client or customer of the Company; (iv) converts to his own
use or destroys any property of the Company having a significant value; (v) is
in material violation of any of the Company policies and/or procedures as
identified in the Company's Employee Manual; or (vi) is habitually drunk or
intoxicated. If the Executive is discharged for Cause, he shall receive only
those amounts earned but not distributed under the relevant plan, program or
practice of the Company. The Company and the Executive acknowledge that if the
Company engages in the Adult Business (as defined in Section 9), such business
could be considered controversial in some localities and could result in civil
or criminal litigation against the Company based upon obscenity and similar
laws. The Parties agree that, notwithstanding the other provisions of this
Section, the naming of the Executive in any such suit, and any conviction of the
Executive or plea bargain, settlement or other disposition of such litigation
relating to the Executive, shall not be considered Cause for the termination of
the Executive's employment, so long as the conduct of the Executive upon which
such claim was based consisted of the Executive carrying out his duties in good
faith and in accordance with directions of management of the Company.
7.4 Termination by Executive. The Executive may terminate
the Term of his employment:
7.4.1 upon failure by the Company to comply with
the material provisions of this Agreement, which failure is not cured within ten
(10) days after written notice (referred to herein as "Good Reason"); or
7.4.2 upon a "Change in Control of the Company"
(as defined in Section 7.6.1 below) upon thirty (30) days' prior written notice
given at any time within eighteen (18) months after a Change in Control; or
7.4.3 for any reason other than Good Reason or
following a Change in Control of the Company, which termination shall be
considered a "Voluntary Termination" by Executive.
7.5 Severance upon Termination. If, during the Term, the
Executive's employment is terminated by the Company without Cause, or the
Executive shall terminate employment for Good Reason prior to a Change in
Control of the Company (the date of termination is referred to as the
"Termination Date"), then the Company shall pay the Executive in lieu of other
damages, an amount (the "Severance Payments") equal to his then current Base
Salary payable in installments at the same time the Company pays salary to its
other senior executive employees payable over two years (the period over which
the Severance Payments are made is referred to as the "Severance Period"). The
Company shall have no liability to make any Severance Payments as provided for
in this paragraph unless (i) the Executive executes a General Release in a form
substantially as set forth in Exhibit A attached hereto and (ii) the Executive
complies with all provisions in Section 8 (Restrictive Covenants). Such amount
shall reduce the amount of any other severance payment that otherwise would have
been payable to the Executive under any other Company plan, program or
arrangement. In addition, the Company shall maintain during the lesser of the
balance of the Term immediately prior to such termination or the Severance
Period all employee benefit plans and programs which the Executive participated
in immediately prior to such termination other than bonus, incentive
compensation and similar plans based on performance, provided the Executive's
participation is permissible under the general terms and provisions of such
plans and applicable law. In the event of a Voluntary Termination, the Executive
shall receive only his earned but unpaid Base Salary as of the date of his
termination.
7.6 Change in Control.
7.6.1 Definitions. For purposes of this Section
7.6, a "Change in Control" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, as in effect on the date of this Agreement, promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
that whether or not required to be reported under such Item 6(e), without
limitation, such a Change in Control shall be deemed to have occurred if (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities; (ii) during any period of two consecutive years,
individuals who, at the beginning of such
period, constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
three-fourths of the directors then still in office who were directors at the
beginning of the period; (iii) the Company's stockholders approve an agreement
to merge or consolidate the Company with another corporation (other than a
corporation 50% or more of which is controlled by, or is under common control
with, the Company); or (iv) any individual who is nominated by the Board of
Directors for election of the Board on any date fails to be so elected as a
direct or indirect result of any proxy fight or contested election for positions
on the Board of Directors; provided, however, that notwithstanding the
foregoing, no Change of Control shall be deemed to have occurred pursuant to
either clause (i) or (ii) above in the event of (and notwithstanding any
resultant change in the membership of the Board) an acquisition by any group
comprised of senior officers of the Company, including the Executive, of 25% or
more of the combined voting power of the Company's then outstanding securities.
7.6.2 Termination Payment. Notwithstanding any
provision of this Agreement, if, within eighteen (18) months following a
Change in Control of the Company, (a) the Executive's employment by the Company
shall be terminated by the Company other than as a result of the Executive
becoming Totally Disabled or for Cause or (b) the Executive terminates the Term
pursuant to Section 7.4.1, then the Executive shall be entitled to the benefits
provided below:
(1) The Company shall pay the Executive
full Base Salary through the Termination Date at the rate in effect at that
time, and shall pay the Executive for any vacation earned but not taken and the
amount, if any, of any bonus for a past Company fiscal year which has not yet
been awarded or paid;
(2) In lieu of any further salary
payments to the Executive for periods subsequent to the Termination Date, the
Company, subject to the limitation described below, shall pay to the Executive
on the 60th day following the Termination Date a lump sum amount equal to four
times the sum of (i) the Base Salary and (ii) cash bonuses and other cash
compensation paid to the Executive during the 12 months preceding the
Termination Date ("Termination Payment"); and
(3) All stock options held by the
Executive shall be fully vested and remain outstanding for their full original
term unless sooner exercised.
7.6.3 Certain Additional Payments by the
Company.
(1) Anything in this Agreement
to the contrary notwithstanding, in the event it shall be determined that any
payment or distribution to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 7.6.3 (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(2) Subject to the provisions
of Section 7.6.3(3), all determinations required to be made under this Section
7.6.3, including whether and when Gross-Up Payment is required and the amount
of such Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by Deloitte & Touche LLP (the "Accounting
Firm"); provided, however, that the Accounting Firm shall not determine that no
Excise Tax is payable by the Executive unless it delivers to the Executive a
written opinion (the "Accounting Opinion") that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. In the event that Deloitte &
Touche LLP has served, at any time during the two years immediately preceding a
Change in Control Date, as accountant or auditor for the individual, entity or
group that is involved in effecting or has any material interest in the Change
in Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations and perform the other functions specified
in this Section 7.6.3
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Within fifteen (15) business days of the receipt of notice from
the Executive that there has been a Payment, or such earlier time as is
requested by the Company, the Accounting Firm shall make all determinations
required under this Section 7.6.3, shall provide to the Company and the
Executive a written report setting forth such determinations, together with
detailed supporting calculations, and, if the Accounting Firm determines that no
Excise Tax is payable, shall deliver the Accounting Opinion to the Executive.
Any Gross-Up Payment, as determined pursuant to this Section 7.6.3, shall be
paid by the Company to the Executive within five (5) days of the receipt of the
Accounting Firm's determination. Subject to the remainder of this Section 7.6.3,
any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that it is ultimately
determined in accordance with the procedures set forth in Section 7.6.3(3) that
the Executive is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
(3) The Executive shall notify
the Company in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but nolater than thirty
(30) days after the Executive actually receives notice in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid; provided, however, that the failure of the
Executive to notify the Company of such claim (or to provide any required
information with respect thereto) shall not affect any rights granted to the
Executive under this Section 7.6.3 except to the extent that the Company is
materially prejudiced in the defense of such claim as a direct result of such
failure. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable
to the Executive;
(iii) cooperate with the Company in good
faith in order effectively to contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7.6.3, the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 7.6.3(3)
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements
of Section 7.6.3(3)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.6.3(3) a determination is made that the Executive
shall not be entitled to any refund with respect to such claim, and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
8. Restrictive Covenants.
8.1 Non-Disclosure of Information. The Executive
shall:
8.1.1 Never, directly or indirectly,
disclose to any person or entity for any reason, or use for his own personal
benefit, any "Confidential Information" as hereinafter defined; and
8.1.2 At all times take all reasonable
precautions necessary to protect from loss or disclosure by Executive or his
subordinates any and all documents or other information containing, referring,
or relating to such Confidential Information. Upon termination of employment
with the Company for any reason, the Executive shall promptly return to the
Company any and all documents or other tangible property containing, referring,
or relating to such Confidential Information, whether prepared by him or others.
8.1.3 Notwithstanding any provision to the
contrary in Section 8, this paragraph shall not apply to information which the
Executive is called upon by legal process (including, without limitation, by
subpoena or discovery requirement) to disclose or any information which has
become part of the public domain or is otherwise publicly disclosed through no
fault or action of the Executive.
8.1.4 For purposes of this Agreement,
"Confidential Information" shall mean any information relating in any way to the
business of the Company disclosed to or known to the Executive as a consequence
of, result of, or through the Executive's employment by the Company which may
consist of, but not be limited to, technical and non-technical information about
the Company's proprietary products, processes, programs, concepts, forms,
business methods, data, any and all financial and accounting data, employees,
marketing, customers, customer lists, and services and information corresponding
thereto acquired by the Executive during the term of the Executive's employment
by the Company. Confidential Information shall not include any of such items
which arc published or are otherwise part of the public domain, or freely
available from trade sources or otherwise.
8.1.5 Upon termination of this Agreement
for any reason, the Executive shall return to a designated officer of the
Company all equipment and/or tangible property then in the Executive's
possession or custody which belongs or relates to the Company, including,
without limitation, copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs, data base, or any other documents or
electronically stored information which constitutes Confidential Information.
8.2 Trade Secrets - Intellectual Property Rights. The
Executive shall provide the Company with any copyrightable work, trade secrets
and other protectable intellectual property developed or produced by the
Executive while in the employ of the Company pursuant to this Agreement
(collectively, "Work Product").
8.2.1 All Work Product shall be considered
works made for hire and shall be the exclusive property of the Company and the
Company shall be considered the author and/or creator of such work for worldwide
copyright purposes and renewals and extensions thereof. The Company may
request, at its own cost and expense, that the Executive assist the Company in
obtaining worldwide patent, copyright and other property rights for the Work
Product.
8.2.2 If the Executive's rights in the
Work Product cannot be assigned to the Company, the Executive waives enforcement
of all such rights against the Company. The Executive further agrees to join in
any action, at the Company's sole cost and expense, to enforce or to procure a
waiver of such rights.
8.2.3 If the rights of the Work Product
cannot be waived or the Work Product is not deemed a "work for hire", the
Executive hereby grants the Company and its assigns a worldwide royalty-free
license to reproduce, distribute, modify, publicly display, sublicense and
assign such rights in all media or distribution technologies now known and
hereinafter developed or devised.
8.2.4 The Executive hereby appoints the
Company as his attorney in fact to execute and file any patent, copyright or
other lawful application with respect to the Work Product.
8.3 Non-Solicitation. During the Term and during the Severance
Period, the Executive will not, directly or indirectly, individually or on
behalf of other persons, solicit, aid or induce (i) any employee of the Company
or any of its affiliates to leave their employment with the Company or its
affiliates to accept employment with or render services to or with any person,
firm, corporation or other entity or assist or aid any other person, firm,
corporation or other entity in identifying or hiring away such employee, (ii)
any customer or vendor of the Company to alter its business relationship with
the Company or to purchase products or services then sold by the Company or its
affiliates from another person, firm, corporation or other entity or assist or
aid any other person or entity in identifying or soliciting any such customer or
vendor or (iii) any other remaining employee of the Company or its affiliates to
leave such employee's employment with the Company or its affiliates.
8.4 Conflict of Interest. The Executive shall exercise good
judgment and maintain high ethical standards in the course of his dealings so as
to preclude the possibility of a conflict between the interest of the Company
and his own personal interest. The Executive, therefore, has an obligation to
avoid any activity, agreement, personal interest, or other relationship or
situation which: (i) conflicts with the Company's best interest; (ii) interferes
with the Executive's responsibility to serve the Company to the best of the
Executive's ability; or (iii) gives the appearance of self dealing.
8.4.1 This policy requires that the
Executive shall not have any relationship, nor engage in any activity that
might impair the independence or judgment in the execution of the Executive's
duties. The Executive shall not have any direct or direct personal financial
interests in suppliers of property, goods or services that would affect his
decisions or actions on the Company's behalf. The Executive shall not accept
gifts, benefits, or unusual hospitality that would be reasonably likely to
influence the Executive in the performance of his duties.
8.4.2 If any possible conflict of interest
situation arises, the Executive is responsible to immediately disclose the
facts to the Board of Directors of the Company so that an evaluation may
determine whether a problem exists and, if so, to eliminate it.
8.5 Injunctive Relief/Legal Remedies. The Parties agree that
the remedy at law for any breach by the Executive of this Agreement and
specifically the provisions of Section 8 ("Restrictive Covenants"), will be
inadequate and that the Company or any of its subsidiaries or other successors
or assigns shall be entitled to injunctive relief without bond. Such injunctive
relief shall not be exclusive, but shall be in addition to any other rights and
remedies Company or any of its subsidiaries or their successors or assigns might
have for such breach.
8.5.1 The Executive acknowledges: (i) that
compliance with the restrictive provisions contained in Section 8 is necessary
to protect the business and goodwill of the Company and its subsidiaries,
and (ii) that a breach of this Agreement will result in irreparable and
continuing damage to the Company, for which monetary damages may not provide
adequate relief. Consequently, the Executive agrees that in the event of a
breach or threatened breach of any of the restrictive covenants described
herein, the Company, at its discretion, shall be entitled to seek both: (i)
a preliminary and/or permanent injunction in order to prevent such damage, or
continuation of such damage, and (ii) monetary damages as determinable. Nothing
herein, however, shall be construed to restrict and/or prohibit the Company
from pursuing any and all other remedies; the Executive acknowledges that all
remedies are cumulative. The Executive specifically acknowledges that the
Executive shall account for and pay over to the Company any profits, monies,
accruals or other benefits derived or received by the Executive as a result of
any transaction constituting a breach of the Restrictive Covenants in Section 8.
8.5.2 If any legal action arises to
enforce the Company's trade secrets, the prevailing party shall be entitled to
recover any and all damages, as well as all costs and expenses, including
reasonable attorney's fees incurred in enforcing or attempting to enforce the
Company's trade secrets.
9. Nature of Company Business.
The Executive acknowledges that the Company, through one or more of its
affiliated companies, is currently involved in providing technical and creative
services to companies which produce and distribute television networks which
feature explicit and cable version adult movies and features and other
programming depicting sexual situations and/or nudity (the "Adult Business"). In
addition, the Executive acknowledges that the Company, through one or more of
its affiliated companies, may become involved in the Adult Business. The
Executive acknowledges that he will likely be exposed, from time to time, to one
or more aspects of the Adult Business during the course of his employment by the
Company. Furthermore, the Executive confirms that he is currently comfortable
working in an environment where some or all aspects of the Adult Business are
present and would be comfortable working for a company engaged in the Adult
Business. If, at any time, the Executive's view on the foregoing changes or the
Executive otherwise become uncomfortable with the nature of the Company's
business, the Executive agrees to promptly inform the Board of Directors of the
Company. The Company will work with the Executive to explore mutually acceptable
means of accommodating the Executive's concerns which, both parties acknowledge,
may result in the termination of the Executive's employment. Termination of the
Executive's employment occasioned by the Executive's desire not to be associated
with the Company as a result of the nature of its business shall be treated as a
Voluntary Termination by the Executive without Good Reason.
10. Arbitration.
10.1 Any and all disputes, controversies and claims arising
out of, or relating to, this Agreement, or with respect to the interpretation of
this Agreement, or the rights or obligations of the Parties and their successors
and permitted assigns, whether by operation of law or otherwise, shall be
settled and determined by arbitration in New York City, New York, pursuant to
the then existing rules of the American Arbitration Association ("AAA"), for
commercial arbitration. Each party shall pay their own legal fees. The losing
party shall pay the fees and costs imposed by the AAA; if neither party clearly
prevails in the arbitration, the parties shall request that the AAA appointed
arbitrator apportion the AAA's fees and costs between the parties.
10.2 The Parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal therefrom.
11. Miscellaneous.
11.1 Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested, or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received (i) when
hand-delivered or after three (3) business days when deposited in the U.S. Mail,
(ii) when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
Directrix, Inc.
536 Broadway, 10th Floor
New York, New York 10012
Facsimile: (212) 941-7846
Attn: Board of Directors
To the Executive:
J. Roger Faherty
1035 Fifth Avenue
New York, New York 10022
The foregoing addresses may be changed at any time by either
party by notice given in the manner herein provided.
11.2 Integration; Modification. This Agreement, the
Indemnification Agreement executed contemporaneously herewith and any Employee
Manual adopted by the Company constitute the entire understanding and agreement
between the Company and the Executive regarding its subject matter, and
supersede all prior negotiations and agreements or interpretations, whether oral
or written. This Agreement may not be modified except by written agreement
signed by the Executive and a duly authorized officer of the Company.
11.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
11.4 Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether conduct or otherwise, in any one (1) or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof with respect to other future breaches.
11.5 Governing Law. This Agreement shall be
governed by the internal laws of the State of New York, except that Section 10
shall be governed by the Federal Arbitration Act, Title 9, U.S. Code.
11.6 Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
11.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
11.8 Due Authorization. The Company represents
that all corporate action required to authorize the execution, delivery and
performance of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officer on the day
and year first above written.
DIRECTRIX, INC.
Date By: ----------------------------------
Donald J. McDonald, Jr., President
EXECUTIVE:
Date --------------------------------------
J. Roger Faherty
<PAGE>
EXHIBIT A
GENERAL RELEASE AND SEPARATION AGREEMENT
1. GENERAL RELEASE. In consideration of the payment of salary through
______, ___ together with accrued vacation pay and __ weeks severance and for
other good and valuable consideration, J. Roger Faherty ("Executive") hereby
forever releases, discharges, acquits and forgives DIRECTRIX, INC., its
officers, directors, stockholders, employees, affiliates, successors and
assignees (collectively, the "Company") from any and all claims, known or
unknown, which Executive or Executive's heirs, successors or assigns have or may
have against the Company and any and all liability which the Company may have to
Executive whether denominated claims, demands, causes of action, obligations,
damages or liabilities arising from any and all bases, however, denominated,
including but not limited to claims of discrimination under the U.S. Age
Discrimination in Employment Act, the U.S. Americans with Disabilities Act of
1990, the U.S. Family and Medical Leave Act of 1993, Title VII of the United
States Civil Rights Act of 1964, 42 U.S.C. Section 1981, the New York Human
Rights Law, including New York Executive Law Section 296, Section 8-107 of the
Administrative Code and Charter of New York City, the Worker Adjustment and
Retraining Notification Act of 1988 or any similar state law or any other
federal, state or local law, or any other law, rule or regulation, or any
workers' compensation or disability claims under any such laws. This release
relates to claims arising from and during Executive's relationship with the
Company or as a result of the termination of such relationship. This release is
for any relief, no matter how denominated, including, but not limited to, wages,
back pay, front pay, compensatory damages or punitive damages. This release
shall not apply to the obligations set forth in this Agreement or any other
claims that may arise after the date on which Executive signs this Agreement.
Notwithstanding any other provision of this Agreement, this release is not
intended to interfere with Executive's right to file a charge with the U.S.
Equal Employment Opportunity Commission (or any state human rights or similar
commission) in connection with any claim Executive believes Executive may have
against the Company. However, by executing this Agreement, Executive hereby
agrees to waive the right to recover in any proceeding Executive may bring
before the U.S. Equal Opportunity Commission (or any state human rights or
similar commission) or in any proceeding brought by the U.S. Equal Employment
Opportunity Commission (or any state human rights or similar commission) on
Executive's behalf.
This release shall be binding upon and inure to the benefit of the
parties, their successors, assigns and personal representatives.
2. NONDISCLOSURE OF PROPRIETARY INFORMATION AND RETURN OF COMPANY
PROPERTY. Executive agrees (i) to promptly surrender and deliver to the Company
all records, materials, equipment, drawings and data of any nature pertaining to
his employment by the Company or any invention or any trade secrets,
confidential information, knowledge, data or other information of the Company
("Confidential Information"), (ii) not to take with him any description
containing or pertaining to any Confidential Information which he may have
produced or obtained during his employment, (iii) not to disclose any
Confidential Information to any third party without the Company's prior written
consent and (iv) to return to the Company all of its property.
3. GOODWILL. The purpose of this Agreement is to arrive at a
mutually agreeable and amicable basis upon which to separate Executive's
employment with the Company the Company. Executive and the Company agree to
refrain from any criticisms of or disparaging comments about each other, except
as may be required by law or judicial process.
4. WAIVER. Executive understands that he may consider whether to agree
to the terms contained herein for a period of 21 days after the date hereof.
Accordingly, Executive may sign and return this Agreement by ______, ___ to
acknowledge his understanding of and agreement with the foregoing. Executive
acknowledges that, prior to signing this Agreement, he was advised by the
Company to consult with an attorney. This Agreement will become effective,
enforceable and irrevocable seven days after the date on which Executive signs
it (the "Effective Date"). During the seven-day period prior to the Effective
Date, Executive may revoke his agreement to accept the terms hereof by
indicating in writing to the Company his intention to revoke. [If Executive
exercises his right to revoke hereunder, Executive shall forfeit his right to
receive the benefits provided under the Employment Agreement and, if such
benefits have already been provided, shall immediately reimburse the Company for
the cost of such benefits.]
Signed this __ day of ______, ____
DIRECTRIX, INC. RELEASOR
- ------------------------ ------------------------
Name:
Title:
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") effected as of this 15th
day of March, 1999, by and between Directrix, Inc. (the "Company" or
"Employer"), a Delaware corporation, and Donald J. McDonald, Jr. (the
"Executive") (collectively the Company and the Executive are referred to as the
"Parties").
INTRODUCTION
WHEREAS, the Parties desire to enter into an Agreement and to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreement set
forth herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment
1.1 Duties. The Company shall employ the Executive on the
terms and conditions set forth in this Agreement, as President. The Executive
accepts such employment with the Company and shall perform and fulfill such
duties as are assigned to him hereunder consistent with his status as a senior
executive of the Company, devoting his best efforts and all of his professional
time and attention, to the performance and fulfillment of his duties and to the
advancement of the best interests of the Company, subject only to the direction,
approval, and control of the Company's Chief Executive Officer, and specific
directives of the Board of Directors of the Company (collectively, "Senior
Management"). In addition, and without any additional consideration, the
Executive is and/or may be requested to serve as a director or as an employee
and officer of any or all subsidiaries of the Company. Unless otherwise
indicated by the context, the "Company" shall include the Company and all its
subsidiaries.
1.2 Place of Performance. In connection with his employment by
the Company, the Executive shall be based in the greater New York City
metropolitan area, except for required travel on Company business. The Executive
may be required to relocate on a permanent or temporary basis consistent with
business necessity in which event the Company agrees to pay Executive's
reasonable relocation expenses.
2. Term.
The Executive's employment under this Agreement shall commence as of ,
1998 (the "Commencement Date") and shall continue uninterrupted up to and
including the hour of midnight of December 31, 2001 (the "Term"), unless
otherwise terminated as provided for in Sections 7.1 or 7.3. The Term shall be
extended for successive one-year periods beginning January 1, 2002 and each
one-year anniversary thereafter on the terms in effect on the date of such
renewal, unless a written notice not to extend is given by either party to the
other at least 90 days prior to the date the Terms otherwise would have expired.
3. Compensation.
3.1 Base Salary. During the Term the Executive shall receive a
minimum annual salary (the "Base Salary") payable in installments at such times
as the Company customarily pays its other senior executive employees (but in any
event no less often than bi-monthly), and calculated as follows:
3.1.1 The Base Salary to be paid to the Executive
during the Term shall be $195,000; and
3.1.2 For each Year beginning after December 31,
1999, the Company shall increase the Base Salary by an amount equal to five
percent (5%) of the prior year's Base Salary. Each such increase shall be
cumulative so that the Base Salary for each succeeding year shall include the
prior year's increase.
3.2 Health Insurance and Other Benefits. During the Term the
Executive shall be provided all employee benefits provided by the Company to its
management and all other Company salaried employees, including without
limitation, all medical insurance and life insurance plans or arrangements and
shall be entitled to participate in all pension, profit sharing, stock option
and any other employee benefit plan or arrangement established and maintained by
the Company for similarly situated employees, all subject, however, to the
Company rules and policies then in effect regarding participation therein.
During the Term, the benefits provided to the Executive, as described in the
preceding sentence, shall not be reduced except in accordance with the general
reduction of such benefits applicable to similarly situated employees generally,
but then only to the extent that such benefits are reduced for such other
similarly situated employees.
3.3 Automobile Allowance. During the Term, the Company
shall pay the Executive the sum of $1,000 per month as reimbursement for the
costs of owning, operating and parking of an automobile.
3.4 Health Club Membership. During the Term, the Company
shall pay the costs of one health club membership in each of the Executive's two
principal places of residence.
4. Reimbursement of Expenses.
The Executive shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses, including high speed home Internet
access, which the Executive reasonably incurs in connection with the performance
of his duties hereunder, provided that the Executive submits to the Company on
proper forms provided by the Company, such statements and other evidence
supporting such expenses as the Company may require and provided such expenses
meet the Company's policy concerning such matters.
5. Stock Options.
The Executive may be entitled to participate in all Company employee
stock option programs as determined by the Compensation Committee of the
Company's Board of Directors and approved by the Company's shareholders.
6. Vacations.
The Executive shall be entitled to not less than three (3) weeks of
paid vacation in any calendar year (prorated in any Year during which the
Executive is employed hereunder for less than the entire Year). Such vacation
shall be taken at such times as are consistent with the reasonable business
needs of the Company. The Executive may not take any vacation not taken during
the year in subsequent years except to the extent approved by the Company. Upon
termination of the Executive's employment for any reason, any vacation earned by
the Executive but not taken shall be forfeited.
7. Termination of Employment.
7.1 Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the Executive's death. If the
Executive becomes Totally Disabled (as that term is defined below) for one
hundred eighty (180) days in the aggregate during any consecutive twelve-month
period during the Term, the Company shall have the right to terminate the Term
by giving the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties within thirty
(30) days after receipt of a notice of termination and continues to perform such
duties for four (4) consecutive weeks thereafter, the Term shall continue and
the notice of termination shall be considered null and void and of no effect.
Upon termination of the Term under this Section 7.1, the Company shall have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be: (i) the portion, if
any, that remains unpaid of the Base Salary for periods worked by the Executive
plus the excess of the Base Salary for the Severance Period over the amount
payable to the Executive under the Company's long-term disability plan during
such time (payable as if the Executive remained an employee of the Company); and
(ii) the amount of any expenses reimbursable in accordance with Section 4 above;
and (iii) any amounts due under any Company benefit, welfare or pension plan.
7.2 "Totally Disabled," as used herein, shall mean a mental or
physical condition which, in the reasonable opinion of an independent medical
doctor selected by the Company in its discretion, renders the Executive unable
or incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement.
7.3 Discharge for Cause. The Company may discharge the
Executive for "Cause" upon written notice (as defined in Section 11.1), and
thereby immediately terminate his employment under this Agreement. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment if the Executive, in the reasonable good faith judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured such breach within ten (10) days after
Company's written notice, including, without limitation, the Executive's failure
to perform his duties hereunder, other than a failure resulting from his illness
or sickness; (ii) willfully fails to carry out a material lawful directive of
the Board of Directors, the Chairman of the Board, and the President of the
Company; (iii) embezzles or converts to his own use any funds of the Company or
any client or customer of the Company; (iv) converts to his own use or destroys
any property of the Company having a significant value; (v) is in material
violation of any of the Company policies and/or procedures as identified in the
Company's Employee Manual; or (vi) is habitually drunk or intoxicated. If the
Executive is discharged for Cause, he shall receive only those amounts earned
but not distributed under the relevant plan, program or practice of the Company.
The Company and the Executive acknowledge that if the Company engages in the
Adult Business (as defined in Section 9), such business could be considered
controversial in some localities and could result in civil or criminal
litigation against the Company based upon obscenity and similar laws. The
Parties agree that, notwithstanding the other provisions of this Section, the
naming of the Executive in any such suit, and any conviction of the Executive or
plea bargain, settlement or other disposition of such litigation relating to the
Executive, shall not be considered Cause for the termination of the Executive's
employment, so long as the conduct of the Executive upon which such claim was
based consisted of the Executive carrying out his duties in good faith and in
accordance with directions of management of the Company.
7.4 Termination by Executive. The Executive may
terminate the Term of his employment:
7.4.1 upon failure by the Company to comply with
the material provisions of this Agreement, which failure is not cured within
ten (10) days after written notice (referred to herein as "Good Reason"); or
7.4.2 upon a "Change in Control of the Company"
(as defined in Section 7.6.1 below) upon thirty (30) days' prior written notice
given at any time within eighteen (18) months after a Change in Control; or
7.4.3 for any reason other than Good Reason or
following a Change in Control of the Company, which termination shall be
considered a "Voluntary Termination" by Executive.
7.5 Severance upon Termination. If, during the Term, the
Executive's employment is terminated by the Company without Cause, or the
Executive shall terminate employment for Good Reason prior to a Change in
Control of the Company (the date of termination is referred to as the
"Termination Date"), then the Company shall pay the Executive in lieu of other
damages, an amount (the "Severance Payments") equal to his then current Base
Salary payable in installments at the same time the Company pays salary to its
other senior executive employees payable over the longer of (i) the balance of
the Term or (ii) one year (the period over which the Severance Payments are made
is referred to as the "Severance Period"). The Company shall have no liability
to make any Severance Payments as provided for in this paragraph unless (i) the
Executive executes a General Release in a form substantially as set forth in
Exhibit A attached hereto and (ii) the Executive complies with all provisions in
Section 8 (Restrictive Covenants). Such amount shall reduce the amount of any
other severance payment that otherwise would have been payable to the Executive
under any other Company plan, program or arrangement. In addition, the Company
shall maintain during the lesser of the balance of the Term immediately prior to
such termination or the Severance Period all employee benefit plans and programs
which the Executive participated in immediately prior to such termination other
than bonus, incentive compensation and similar plans based on performance,
provided the Executive's participation is permissible under the general terms
and provisions of such plans and applicable law. In the event of a Voluntary
Termination, the Executive shall receive only his earned but unpaid Base Salary
as of the date of his termination.
7.6 Change in Control.
7.6.1 Definitions. For purposes of this Section
7.6, a "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A, as in effect on the date of this Agreement, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act");
provided, that whether or not required to be reported under such Item 6(e),
without limitation, such a Change in Control shall be deemed to have
occurred if (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; (ii) during any period of
two consecutive years, individuals who, at the beginning of such period,
constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
three-fourths of the directors then still in office who were directors at the
beginning of the period; (iii) the Company's stockholders approve an agreement
to merge or consolidate the Company with another corporation (other than a
corporation 50% or more of which is controlled by, or is under common control
with, the Company); or (iv) any individual who is nominated by the Board of
Directors for election of the Board on any date fails to be so elected as a
direct or indirect result of any proxy fight or contested election for positions
on the Board of Directors; provided, however, that notwithstanding the
foregoing, no Change of Control shall be deemed to have occurred pursuant to
either clause (i) or (ii) above in the event of (and notwithstanding any
resultant change in the membership of the Board) an acquisition by any group
comprised of senior officers of the Company, including the Executive, of 25% or
more of the combined voting power of the Company's then outstanding securities.
7.6.2 Termination Payment. Notwithstanding any
provision of this Agreement, if, within eighteen (18) months following a
Change in Control of the Company, (a) the Executive's employment by the
Company shall be terminated by the Company other than as a result of the
Executive becoming Totally Disabled or for Cause or (b) the Executive
terminates the Term pursuant to Section 7.4.1, then the Executive shall be
entitled to the benefits provided below:
(1) The Company shall pay the Executive
full Base Salary through the Termination Date at the rate in effect at that
time, and shall pay the Executive for any vacation earned but not taken and the
amount, if any, of any bonus for a past Company fiscal year which has not yet
been awarded or paid;
(2) In lieu of any further salary
payments to the Executive for periods subsequent to the Termination Date,
the Company, subject to the limitation described below, shall pay to the
Executive on the 60th day following the Termination Date a lump sum amount
equal to 2.99 times the sum of (i) the Base Salary and (ii) cash bonuses and
other cash compensation paid to the Executive during the 12 months preceding
the Termination Date ("Termination Payment"); and
(3) All stock options held by the
Executive shall be fully vested and remain outstanding for their full original
term unless sooner exercised.
7.6.3 Certain Additional Payments by the
Company.
(1) Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 7.6.3 (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(2) Subject to the provisions
of Section 7.6.3(3), all determinations required to be made under this Section
7.6.3, including whether and when Gross-Up Payment is required and the amount
of such Gross-Up Payment and the assumptions to be utilized in arriving at
such determination, shall be made by Deloitte & Touche LLP (the "Accounting
Firm"); provided, however, that the Accounting Firm shall not determine that no
Excise Tax is payable by the Executive unless it delivers to the Executive a
written opinion (the "Accounting Opinion") that failure to report the Excise Tax
on the Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. In the event that Deloitte &
Touche LLP has served, at any time during the two years immediately preceding a
Change in Control Date, as accountant or auditor for the individual, entity or
group that is involved in effecting or has any material interest in the Change
in Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations and perform the other functions specified in
this Section 7.6.3 (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Within fifteen (15) business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company, the Accounting Firm shall make all
determinations required under this Section 7.6.3, shall provide to the Company
and the Executive a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Accounting Firm determines
that no Excise Tax is payable, shall deliver the Accounting Opinion to the
Executive. Any Gross-Up Payment, as determined pursuant to this Section
7.6.3, shall be paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. Subject to the remainder of this
Section 7.6.3, any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in Section
7.6.3(3) that the Executive is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(3) The Executive shall notify
the Company in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than
thirty (30) days after the Executive actually receives notice in writing of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid; provided, however, that the
failure of the Executive to notify the Company of such claim (or to provide any
required information with respect thereto) shall not affect any rights granted
to the Executive under this Section 7.6.3 except to the extent that the
Company is materially prejudiced in the defense of such claim as a direct result
of such failure. The Executive shall not pay such claim prior to the expiration
of the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable
to the Executive;
(iii) cooperate with the Company in good
faith in order effectively to contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7.6.3, the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section
7.6.3(3) the Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's complying with the
requirements of Section 7.6.3(3)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7.6.3(3) a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim, and the Company does not notify the Executive in writing of its intent
to contest such denial of refund prior to the expiration of thirty (30) days
after such determination, then such advance shall be forgiven and shall
not be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
8. Restrictive Covenants.
8.1 INTENTIONALLY OMITTED.
8.2 Non-Disclosure of Information. The Executive shall:
8.2.1 Never, directly or indirectly,
disclose to any person or entity for any reason, or use for his own personal
benefit, any "Confidential Information" as hereinafter defined; and
8.2.2 At all times take all reasonable
precautions necessary to protect from loss or disclosure by Executive or his
subordinates any and all documents or other information containing, referring,
or relating to such Confidential Information. Upon termination of employment
with the Company for any reason, the Executive shall promptly return to the
Company any and all documents or other tangible property containing, referring,
or relating to such Confidential Information, whether prepared by him or
others.
8.2.3 Notwithstanding any provision to the
contrary in Section 8, this paragraph shall not apply to information which the
Executive is called upon by legal process (including, without limitation, by
subpoena or discovery requirement) to disclose or any information which has
become part of the public domain or is otherwise publicly disclosed through no
fault or action of the Executive.
8.2.4 For purposes of this Agreement,
"Confidential Information" shall mean any information relating in any way to the
business of the Company disclosed to or known to the Executive as a consequence
of, result of, or through the Executive's employment by the Company which may
consist of, but not be limited to, technical and non-technical information about
the Company's proprietary products, processes, programs, concepts, forms,
business methods, data, any and all financial and accounting data, employees,
marketing, customers, customer lists, and services and information corresponding
thereto acquired by the Executive during the term of the Executive's employment
by the Company. Confidential Information shall not include any of such items
which arc published or are otherwise part of the public domain, or freely
available from trade sources or otherwise.
8.2.5 Upon termination of this Agreement
for any reason, the Executive shall return to a designated officer of the
Company all equipment and/or tangible property then in the Executive's
possession or custody which belongs or relates to the Company, including,
without limitation, copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs, data base, or any other documents or
electronically stored information which constitutes Confidential Information.
8.3 Trade Secrets - Intellectual Property Rights. The
Executive shall provide the Company with any copyrightable work, trade secrets
and other protectable intellectual property developed or produced by the
Executive while in the employ of the Company pursuant to this Agreement
(collectively, "Work Product").
8.3.1 All Work Product shall be
considered works made for hire and shall be the exclusive property of the
Company and the Company shall be considered the author and/or creator of such
work for worldwide copyright purposes and renewals and extensions thereof. The
Company may request, at its own cost and expense, that the Executive assist the
Company in obtaining worldwide patent, copyright and other property rights for
the Work Product.
8.3.2 If the Executive's rights in the
Work Product cannot be assigned to the Company, the Executive waives enforcement
of all such rights against the Company. The Executive further agrees to join in
any action, at the Company's sole cost and expense, to enforce or to procure a
waiver of such rights.
8.3.3 If the rights of the Work Product
cannot be waived or the Work Product is not deemed a "work for hire", the
Executive hereby grants the Company and its assigns a worldwide royalty-free
license to reproduce, distribute, modify, publicly display, sublicense and
assign such rights in all media or distribution technologies now known and
hereinafter developed or devised.
8.3.4 The Executive hereby appoints the
Company as his attorney in fact to execute and file any patent, copyright or
other lawful application with respect to the Work Product.
8.4 Non-Solicitation. During the Term and during the Severance
Period, the Executive will not, directly or indirectly, individually or on
behalf of other persons, solicit, aid or induce (i) any employee of the Company
or any of its affiliates to leave their employment with the Company or its
affiliates to accept employment with or render services to or with any person,
firm, corporation or other entity or assist or aid any other person, firm,
corporation or other entity in identifying or hiring away such employee, (ii)
any customer or vendor of the Company to alter its business relationship with
the Company or to purchase products or services then sold by the Company or its
affiliates from another person, firm, corporation or other entity or assist or
aid any other person or entity in identifying or soliciting any such customer or
vendor or (iii) any other remaining employee of the Company or its affiliates to
leave such employee's employment with the Company or its affiliates.
8.5 Conflict of Interest. The Executive shall exercise good
judgment and maintain high ethical standards in the course of his dealings so as
to preclude the possibility of a conflict between the interest of the Company
and his own personal interest. The Executive, therefore, has an obligation to
avoid any activity, agreement, personal interest, or other relationship or
situation which: (i) conflicts with the Company's best interest; (ii) interferes
with the Executive's responsibility to serve the Company to the best of the
Executive's ability; or (iii) gives the appearance of self dealing.
8.5.1 This policy requires that the
Executive shall not have any relationship, nor engage in any activity that might
impair the independence or judgment in the execution of the Executive's
duties. The Executive shall not have any direct or direct personal financial
interests in suppliers of property, goods or services that would affect his
decisions or actions on the Company's behalf. The Executive shall not accept
gifts, benefits, or unusual hospitality that would be reasonably likely to
influence the Executive in the performance of his duties.
8.5.2 If any possible conflict of interest
situation arises, the Executive is responsible to immediately disclose the facts
to the President or Chief Executive Officer of the Company so that an
evaluation may determine whether a problem exists and, if so, to eliminate it.
8.6 Injunctive Relief/Legal Remedies. The Parties agree that
the remedy at law for any breach by the Executive of this Agreement and
specifically the provisions of Section 8 ("Restrictive Covenants"), will be
inadequate and that the Company or any of its subsidiaries or other successors
or assigns shall be entitled to injunctive relief without bond. Such injunctive
relief shall not be exclusive, but shall be in addition to any other rights and
remedies Company or any of its subsidiaries or their successors or assigns might
have for such breach.
8.6.1 The Executive acknowledges: (i) that
compliance with the restrictive provisions contained in Section 8 is necessary
to protect the business and goodwill of the Company and its subsidiaries, and
(ii) that a breach of this Agreement will result in irreparable and continuing
damage to the Company, for which monetary damages may not provide adequate
relief. Consequently, the Executive agrees that in the event of a breach or
threatened breach of any of the restrictive covenants described herein, the
Company, at its discretion, shall be entitled to seek both: (i) a preliminary
and/or permanent injunction in order to prevent such damage, or continuation of
such damage, and (ii) monetary damages as determinable. Nothing herein, however,
shall be construed to restrict and/or prohibit the Company from pursuing any and
all other remedies; the Executive acknowledges that all remedies are cumulative.
The Executive specifically acknowledges that the Executive shall account for and
pay over to the Company any profits, monies, accruals or other benefits derived
or received by the Executive as a result of any transaction constituting a
breach of the Restrictive Covenants in Section 8.
8.6.2 If any legal action arises to
enforce the Company's trade secrets, the prevailing party shall be entitled to
recover any and all damages, as well as all costs and expenses, including
reasonable attorney's fees incurred in enforcing or attempting to enforce the
Company's trade secrets.
9. Nature of Company Business.
The Executive acknowledges that the Company, through one or more of its
affiliated companies, is currently involved in providing technical and creative
services to companies which produce and distribute television networks which
feature explicit and cable version adult movies and features and other
programming depicting sexual situations and/or nudity (the "Adult Business"). In
addition, the Executive acknowledges that the Company, through one or more of
its affiliated companies, may become involved in the Adult Business. The
Executive acknowledges that he will likely be exposed, from time to time, to one
or more aspects of the Adult Business during the course of his employment by the
Company. Furthermore, the Executive confirms that he is currently comfortable
working in an environment where some or all aspects of the Adult Business are
present and would be comfortable working for a company engaged in the Adult
Business. If, at any time, the Executive's view on the foregoing changes or the
Executive otherwise become uncomfortable with the nature of the Company's
business, the Executive agrees to promptly inform Senior Management. The Company
will work with the Executive to explore mutually acceptable means of
accommodating the Executive's concerns which, both parties acknowledge, may
result in the termination of the Executive's employment. Termination of the
Executive's employment occasioned by the Executive's desire not to be associated
with the Company as a result of the nature of its business shall be treated as a
Voluntary Termination by the Executive without Good Reason.
10. Arbitration.
10.1 Any and all disputes, controversies and claims arising
out of, or relating to, this Agreement, or with respect to the interpretation of
this Agreement, or the rights or obligations of the Parties and their successors
and permitted assigns, whether by operation of law or otherwise, shall be
settled and determined by arbitration in New York City, New York, pursuant to
the then existing rules of the American Arbitration Association ("AAA"), for
commercial arbitration. Each party shall pay their own legal fees. The losing
party shall pay the fees and costs imposed by the AAA; if neither party clearly
prevails in the arbitration, the parties shall request that the AAA appointed
arbitrator apportion the AAA's fees and costs between the parties.
10.2 The Parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal therefrom.
11. Miscellaneous.
11.1 Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested, or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received (i) when
hand-delivered or after three (3) business days when deposited in the U.S. Mail,
(ii) when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
Directrix, Inc.
536 Broadway, 10th Floor
New York, New York 10012
Facsimile: (212) 941-7846
Attn: Chief Executive Officer
To the Executive:
Donald J. McDonald, Jr.
28 Cabot Drive
Wayne, Pa. 19087
Either party may change the foregoing addresses at any time by
notice given in the manner herein provided.
11.2 Integration; Modification. This Agreement, the
Indemnification Agreement executed contemporaneously herewith and any Employee
Manual adopted by the Company constitute the entire understanding and agreement
between the Company and the Executive regarding its subject matter, and
supersede all prior negotiations and agreements or interpretations, whether oral
or written. This Agreement may not be modified except by written agreement
signed by the Executive and a duly authorized officer of the Company.
11.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including their respective heirs,
executors, successors and assigns, except that the Executive may not assign this
Agreement.
11.4 Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether conduct or otherwise, in any one (1) or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof with respect to other future breaches.
11.5 Governing Law. The internal laws of the State of New
York shall govern this Agreement, except that Section 10 shall be governed by
the Federal Arbitration Act, Title 9, U.S. Code.
11.6 Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
11.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
11.8 Due Authorization. The Company represents
that all corporate action required to authorize the execution, delivery and
performance of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officer on the day
and year first above written.
DIRECTRIX, INC.
Date By: --------------------------
J. Roger Faherty, Chairman
EXECUTIVE:
Date
By: -------------------------
Donald J. McDonald, Jr.
<PAGE>
EXHIBIT A
GENERAL RELEASE AND SEPARATION AGREEMENT
1. GENERAL RELEASE. In consideration of the payment of salary through
______, ___ together with accrued vacation pay and __ weeks severance and for
other good and valuable consideration, Donald J. McDonald, Jr. ("Executive")
hereby forever releases, discharges, acquits and forgives DIRECTRIX, INC., its
officers, directors, stockholders, employees, affiliates, successors and
assignees (collectively, the "Company") from any and all claims, known or
unknown, which Executive or Executive's heirs, successors or assigns have or may
have against the Company and any and all liability which the Company may have to
Executive whether denominated claims, demands, causes of action, obligations,
damages or liabilities arising from any and all bases, however, denominated,
including but not limited to claims of discrimination under the U.S. Age
Discrimination in Employment Act, the U.S. Americans with Disabilities Act of
1990, the U.S. Family and Medical Leave Act of 1993, Title VII of the United
States Civil Rights Act of 1964, 42 U.S.C. Section 1981, the New York Human
Rights Law, including New York Executive Law Section 296, Section 8-107 of the
Administrative Code and Charter of New York City, the Worker Adjustment and
Retraining Notification Act of 1988 or any similar state law or any other
federal, state or local law, or any other law, rule or regulation, or any
workers' compensation or disability claims under any such laws. This release
relates to claims arising from and during Executive's relationship with the
Company or as a result of the termination of such relationship. This release is
for any relief, no matter how denominated, including, but not limited to, wages,
back pay, front pay, compensatory damages or punitive damages. This release
shall not apply to the obligations set forth in this Agreement or any other
claims that may arise after the date on which Executive signs this Agreement.
Notwithstanding any other provision of this Agreement, this release is not
intended to interfere with Executive's right to file a charge with the U.S.
Equal Employment Opportunity Commission (or any state human rights or similar
commission) in connection with any claim Executive believes Executive may have
against the Company. However, by executing this Agreement, Executive hereby
agrees to waive the right to recover in any proceeding Executive may bring
before the U.S. Equal Opportunity Commission (or any state human rights or
similar commission) or in any proceeding brought by the U.S. Equal Employment
Opportunity Commission (or any state human rights or similar commission) on
Executive's behalf.
This release shall be binding upon and inure to the benefit of the
parties, their successors, assigns and personal representatives.
2. NONDISCLOSURE OF PROPRIETARY INFORMATION AND RETURN OF COMPANY
PROPERTY. Executive agrees (i) to promptly surrender and deliver to the Company
all records, materials, equipment, drawings and data of any nature pertaining to
his employment by the Company or any invention or any trade secrets,
confidential information, knowledge, data or other information of the Company
("Confidential Information"), (ii) not to take with him any description
containing or pertaining to any Confidential Information which he may have
produced or obtained during his employment, (iii) not to disclose any
Confidential Information to any third party without the Company's prior written
consent and (iv) to return to the Company all of its property.
3. GOODWILL. The purpose of this Agreement is to arrive at a
mutually agreeable and amicable basis upon which to separate Executive's
employment with the Company the Company. Executive and the Company agree to
refrain from any criticisms of or disparaging comments about each other, except
as may be required by law or judicial process.
4. WAIVER. Executive understands that he may consider whether to agree
to the terms contained herein for a period of 21 days after the date hereof.
Accordingly, Executive may sign and return this Agreement by ______, ___ to
acknowledge his understanding of and agreement with the foregoing. Executive
acknowledges that, prior to signing this Agreement, he was advised by the
Company to consult with an attorney. This Agreement will become effective,
enforceable and irrevocable seven days after the date on which Executive signs
it (the "Effective Date"). During the seven-day period prior to the Effective
Date, Executive may revoke his agreement to accept the terms hereof by
indicating in writing to the Company his intention to revoke. [If Executive
exercises his right to revoke hereunder, Executive shall forfeit his right to
receive the benefits provided under the Employment Agreement and, if such
benefits have already been provided, shall immediately reimburse the Company for
the cost of such benefits.]
Signed this __ day of ______, ____
DIRECTRIX, INC. RELEASOR
- ------------------------ ------------------------
Name:
Title:
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") effected as of this 15th
day of March, 1999, by and between Directrix, Inc. (the "Company" or
"Employer"), a Delaware corporation, and John R. Sharpe (the "Executive")
(collectively the Company and the Executive are referred to as the "Parties").
INTRODUCTION
WHEREAS, the Parties desire to enter into an Agreement and to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreement set
forth herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment
1.1 Duties. The Company shall employ the Executive on the
terms and conditions set forth in this Agreement, as Vice President and Chief
Financial Officer. The Executive accepts such employment with the Company and
shall perform and fulfill such duties as are assigned to him hereunder
consistent with his status as a senior executive of the Company, devoting his
best efforts and all of his professional time and attention, to the performance
and fulfillment of his duties and to the advancement of the best interests of
the Company, subject only to the direction, approval, and control of the
Company's President and/or Chief Executive Officer, and specific directives of
the Board of Directors of the Company (collectively, "Senior Management"). In
addition, and without any additional consideration, the Executive is and/or may
be requested to serve as a director or as an employee and officer of any or all
subsidiaries of the Company. Unless otherwise indicated by the context, the
"Company" shall include the Company and all its subsidiaries.
1.2 Place of Performance. In connection with his employment by
the Company, the Executive shall be based in the greater New York City
metropolitan area, except for required travel on Company business. The Executive
may be required to relocate on a permanent or temporary basis consistent with
business necessity in which event the Company agrees to pay Executive's
reasonable relocation expenses.
2. Term.
The Executive's employment under this Agreement shall commence as of
February 26, 1999 (the "Commencement Date") and shall continue uninterrupted up
to and including the hour of midnight of December 31, 2001 (the "Term"), unless
otherwise terminated as provided for in Sections 7.1 or 7.3. The Term shall be
extended for successive one-year periods beginning January 1, 2002 and each
one-year anniversary thereafter on the terms in effect on the date of such
renewal, unless a written notice not to extend is given by either party to the
other at least 90 days prior to the date the Terms otherwise would have expired.
3. Compensation.
3.1 Base Salary. During the Term the Executive shall receive a
minimum annual salary (the "Base Salary") payable in installments at such times
as the Company customarily pays its other senior executive employees (but in any
event no less often than bi-monthly), and calculated as follows:
3.1.1 The Base Salary to be paid to the Executive
during the Term shall be $127,050;
and
3.1.2 For each Year beginning after December 31,
1999, the Company shall increase the Base Salary by an amount equal to five
percent (5%) of the prior year's Base Salary. Each such increase shall be
cumulative so that the Base Salary for each succeeding year shall include the
prior year's increase.
3.2 Health Insurance and Other Benefits. During the Term the
Executive shall be provided all employee benefits provided by the Company to its
management and all other Company salaried employees, including without
limitation, all medical insurance and life insurance plans or arrangements and
shall be entitled to participate in all pension, profit sharing, stock option
and any other employee benefit plan or arrangement established and maintained by
the Company for similarly situated employees, all subject, however, to the
Company rules and policies then in effect regarding participation therein.
During the Term, the benefits provided to the Executive, as described in the
preceding sentence, shall not be reduced except in accordance with the general
reduction of such benefits applicable to similarly situated employees generally,
but then only to the extent that such benefits are reduced for such other
similarly situated employees.
3.3 Automobile Allowance. During the Term, the Company
shall pay the Executive the sum of $850 per month as reimbursement for the costs
of owning, operating and parking of an automobile.
3.4 Health Club Membership. During the Term, the Company
shall pay the costs of one health club membership for the Executive.
4. Reimbursement of Expenses.
The Executive shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses, including high speed home Internet
access which the Executive reasonably incurs in connection with the performance
of his duties hereunder, provided that the Executive submits to the Company on
proper forms provided by the Company, such statements and other evidence
supporting such expenses as the Company may require and provided such expenses
meet the Company's policy concerning such matters.
5. Stock Options.
The Executive may be entitled to participate in all Company employee
stock option programs as determined by the Compensation Committee of the
Company's Board of Directors and approved by the Company's shareholders.
6. Vacations.
The Executive shall be entitled to not less than three (3) weeks of
paid vacation in any calendar year (prorated in any Year during which the
Executive is employed hereunder for less than the entire Year). Such vacation
shall be taken at such times as are consistent with the reasonable business
needs of the Company. The Executive may not take any vacation not taken during
the year in subsequent years except to the extent approved by the Company. Upon
termination of the Executive's employment for any reason, any vacation earned by
the Executive but not taken shall be forfeited.
7. Termination of Employment.
7.1 Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the Executive's death. If the
Executive becomes Totally Disabled (as that term is defined below) for one
hundred eighty (180) days in the aggregate during any consecutive twelve-month
period during the Term, the Company shall have the right to terminate the Term
by giving the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties within thirty
(30) days after receipt of a notice of termination and continues to perform such
duties for four (4) consecutive weeks thereafter, the Term shall continue and
the notice of termination shall be considered null and void and of no effect.
Upon termination of the Term under this Section 7.1, the Company shall have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be: (i) the portion, if
any, that remains unpaid of the Base Salary for periods worked by the Executive
plus the excess of the Base Salary for the Severance Period over the amount
payable to the Executive under the Company's long-term disability plan during
such time (payable as if the Executive remained an employee of the Company); and
(ii) the amount of any expenses reimbursable in accordance with Section 4 above;
and (iii) any amounts due under any Company benefit, welfare or pension plan.
7.2 "Totally Disabled," as used herein, shall mean a mental or
physical condition which, in the reasonable opinion of an independent medical
doctor selected by the Company in its discretion, renders the Executive unable
or incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement.
7.3 Discharge for Cause. The Company may discharge the
Executive for "Cause" upon written notice (as defined in Section 11.1), and
thereby immediately terminate his employment under this Agreement. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment if the Executive, in the reasonable good faith judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured such breach within ten (10) days after
Company's written notice, including, without limitation, the Executive's failure
to perform his duties hereunder, other than a failure resulting from his illness
or sickness; (ii) willfully fails to carry out a material lawful directive of
the Board of Directors, the Chairman of the Board, and the President of the
Company; (iii) embezzles or converts to his own use any funds of the Company or
any client or customer of the Company; (iv) converts to his own use or destroys
any property of the Company having a significant value; (v) is in material
violation of any of the Company policies and/or procedures as identified in the
Company's Employee Manual; or (vi) is habitually drunk or intoxicated. If the
Executive is discharged for Cause, he shall receive only those amounts earned
but not distributed under the relevant plan, program or practice of the Company.
The Company and the Executive acknowledge that if the Company engages in the
Adult Business (as defined in Section 9), such business could be considered
controversial in some localities and could result in civil or criminal
litigation against the Company based upon obscenity and similar laws. The
Parties agree that, notwithstanding the other provisions of this Section, the
naming of the Executive in any such suit, and any conviction of the Executive or
plea bargain, settlement or other disposition of such litigation relating to the
Executive, shall not be considered Cause for the termination of the Executive's
employment, so long as the conduct of the Executive upon which such claim was
based consisted of the Executive carrying out his duties in good faith and in
accordance with directions of management of the Company.
7.4 Termination by Executive. The Executive may
terminate the Term of his employment:
7.4.1 upon failure by the Company to comply with
the material provisions of this Agreement, which failure is not cured within ten
(10) days after written notice (referred to herein as "Good Reason"); or
7.4.2 upon a "Change in Control of the Company"
(as defined in Section 7.6.1 below) upon thirty (30) days' prior written notice
given at any time within eighteen (18) months after a Change in Control; or
7.4.3 for any reason other than Good Reason or
following a Change in Control of the Company, which termination shall be
considered a "Voluntary Termination" by Executive.
7.5 Severance upon Termination. If, during the Term, the
Executive's employment is terminated by the Company without Cause, or the
Executive shall terminate employment for Good Reason prior to a Change in
Control of the Company (the date of termination is referred to as the
"Termination Date"), then the Company shall pay the Executive in lieu of other
damages, an amount (the "Severance Payments") equal to his then current Base
Salary payable in installments at the same time the Company pays salary to its
other senior executive employees payable over the longer of (i) the balance of
the Term or (ii) eight months (the period over which the Severance Payments are
made is referred to as the "Severance Period"). The Company shall have no
liability to make any Severance Payments as provided for in this paragraph
unless (i) the Executive executes a General Release in a form substantially as
set forth in Exhibit A attached hereto and (ii) the Executive complies with all
provisions in Section 8 (Restrictive Covenants). Such amount shall reduce the
amount of any other severance payment that otherwise would have been payable to
the Executive under any other Company plan, program or arrangement. In addition,
the Company shall maintain during the lesser of the balance of the Term
immediately prior to such termination or the Severance Period all employee
benefit plans and programs which the Executive participated in immediately prior
to such termination other than bonus, incentive compensation and similar plans
based on performance, provided the Executive's participation is permissible
under the general terms and provisions of such plans and applicable law. In the
event of a Voluntary Termination, the Executive shall receive only his earned
but unpaid Base Salary as of the date of his termination.
7.6 Change in Control.
.
7.6.1 Definitions. For purposes of this Section
7.6, a "Change in Control" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, as in effect on the date of this Agreement, promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
that whether or not required to be reported under such Item 6(e), without
limitation, such a Change in Control shall be deemed to have occurred if (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years,
individuals who, at the beginning of such period, constitute the Board cease
for any reason to constitute at least a majority thereof unless the election,
or the nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least three-fourths of the directors then
still in office who were directors at the beginning of the period; (iii) the
Company's stockholders approve an agreement to merge or consolidate the Company
with another corporation (other than a corporation 50% or more of which is
controlled by, or is under common control with, the Company); or (iv) any
individual who is nominated by the Board of Directors for election of the Board
on any date fails to be so elected as a direct or indirect result of any proxy
fight or contested election for positions on the Board of Directors; provided,
however, that notwithstanding the foregoing, no Change of Control shall be
deemed to have occurred pursuant to either clause (i) or (ii) above in the
event of (and notwithstanding any resultant change in the membership of the
Board) an acquisition by any group comprised of senior officers of the Company,
including the Executive, of 25% or more of the combined voting power of the
Company's then outstanding securities.
7.6.2 Termination Payment. Notwithstanding any
provision of this Agreement, if, within eighteen (18) months following a Change
in Control of the Company, (a) the Executive's employment by the Company shall
be terminated by the Company other than as a result of the Executive becoming
Totally Disabled or for Cause or (b) the Executive terminates the Term pursuant
to Section 7.4.1, then the Executive shall be entitled to the benefits provided
below:
(1) The Company shall pay the Executive
full Base Salary through the Termination Date at the rate in effect at that
time, and shall pay the Executive for any vacation earned but not taken and the
amount, if any, of any bonus for a past Company fiscal year which has not yet
been awarded or paid;
(2) In lieu of any further salary
payments to the Executive for periods subsequent to the Termination Date, the
Company, subject to the limitation described below, shall pay to the Executive
on the 60th day following the Termination Date a lump sum amount equal to 2.99
times the sum of (i) the Base Salary and (ii) cash bonuses and other cash
compensation paid to the Executive during the 12 months preceding the
Termination Date ("Termination Payment"); and
(3) All stock options held by the
Executive shall be fully vested and remain outstanding for their full original
term unless sooner exercised.
7.6.3 Certain Additional Payments by the
Company.
(1) Anything in this Agreement
to the contrary notwithstanding, in the event it shall be determined that any
payment or distribution to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 7.6.3 (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(2) Subject to the provisions
of Section 7.6.3(3), all determinations required to be made under this Section
7.6.3, including whether and when Gross-Up Payment is required and the amount
of such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Deloitte & Touche LLP (the "Accounting Firm");
provided, however, that the Accounting Firm shall not determine that no Excise
Tax is payable by the Executive unless it delivers to the Executive a written
opinion (the "Accounting Opinion") that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. In the event that Deloitte &
Touche LLP has served, at any time during the two years immediately preceding a
Change in Control Date, as accountant or auditor for the individual, entity or
group that is involved in effecting or has any material interest in the Change
in Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations and perform the other functions specified in
this Section 7.6.3 (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Within fifteen (15) business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company, the Accounting Firm shall make all
determinations required under this Section 7.6.3, shall provide to the Company
and the Executive a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Accounting Firm determines
that no Excise Tax is payable, shall deliver the Accounting Opinion to the
Executive. Any Gross-Up Payment, as determined pursuant to this Section 7.6.3,
shall be paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. Subject to the remainder of this
Section 7.6.3, any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in Section
7.6.3(3) that the Executive is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(3) The Executive shall notify
the Company in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than thirty
(30) days after the Executive actually receives notice in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid; provided, however, that the failure of the
Executive to notify the Company of such claim (or to provide any required
information with respect thereto) shall not affect any rights granted to the
Executive under this Section 7.6.3 except to the extent that the Company is
materially prejudiced in the defense of such claim as a direct result of such
failure. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable
to the Executive;
(iii) cooperate with the Company in good
faith in order effectively to contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7.6.3, the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 7.6.3(3)
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements of
Section 7.6.3(3)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.6.3(3) a determination is made that the Executive
shall not be entitled to any refund with respect to such claim, and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
8. Restrictive Covenants.
8.1 INTENTIONALLY OMMITTED
8.2 Non-Disclosure of Information. The
Executive shall:
8.2.1 Never, directly or indirectly,
disclose to any person or entity for any reason, or use for his own personal
benefit, any "Confidential Information" as hereinafter defined; and
8.2.2 At all times take all reasonable
precautions necessary to protect from loss or disclosure by Executive or his
subordinates any and all documents or other information containing, referring,
or relating to such Confidential Information. Upon termination of employment
with the Company for any reason, the Executive shall promptly return to the
Company any and all documents or other tangible property containing, referring,
or relating to such Confidential Information, whether prepared by him or others.
8.2.3 Notwithstanding any provision to the
contrary in Section 8, this paragraph shall not apply to information which the
Executive is called upon by legal process (including, without limitation, by
subpoena or discovery requirement) to disclose or any information which has
become part of the public domain or is otherwise publicly disclosed through no
fault or action of the Executive.
8.2.4 For purposes of this Agreement,
"Confidential Information" shall mean any information relating in any way to the
business of the Company disclosed to or known to the Executive as a consequence
of, result of, or through the Executive's employment by the Company which may
consist of, but not be limited to, technical and non-technical information about
the Company's proprietary products, processes, programs, concepts, forms,
business methods, data, any and all financial and accounting data, employees,
marketing, customers, customer lists, and services and information corresponding
thereto acquired by the Executive during the term of the Executive's employment
by the Company. Confidential Information shall not include any of such items
which are published or are otherwise part of the public domain, or freely
available from trade sources or otherwise.
8.2.5 Upon termination of this Agreement
for any reason, the Executive shall return to a designated officer of the
Company all equipment and/or tangible property then in the Executive's
possession or custody which belongs or relates to the Company, including,
without limitation, copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs, data base, or any other documents or
electronically stored information which constitutes Confidential Information.
8.3 Trade Secrets - Intellectual Property Rights. The
Executive shall provide the Company with any copyrightable work, trade secrets
and other protectable intellectual property developed or produced by the
Executive while in the employ of the Company pursuant to this Agreement
(collectively, "Work Product").
8.3.1 All Work Product shall be considered
works made for hire and shall be the exclusive property of the Company and the
Company shall be considered the author and/or creator of such work for worldwide
copyright purposes and renewals and extensions thereof. The Company may
request, at its own cost and expense, that the Executive assist the Company in
obtaining worldwide patent, copyright and other property rights for the Work
Product.
8.3.2 If the Executive's rights in the
Work Product cannot be assigned to the Company, the Executive waives enforcement
of all such rights against the Company. The Executive further agrees to join in
any action, at the Company's sole cost and expense, to enforce or to procure a
waiver of such rights.
8.3.3 If the rights of the Work Product
cannot be waived or the Work Product is not deemed a "work for hire", the
Executive hereby grants the Company and its assigns a worldwide royalty-free
license to reproduce, distribute, modify, publicly display, sublicense and
assign such rights in all media or distribution technologies now known and
hereinafter developed or devised.
8.3.4 The Executive hereby appoints the
Company as his attorney in fact to execute and file any patent, copyright or
other lawful application with respect to the Work Product.
8.4 Non-Solicitation. During the Term and during the Severance
Period, the Executive will not, directly or indirectly, individually or on
behalf of other persons, solicit, aid or induce (i) any employee of the Company
or any of its affiliates to leave their employment with the Company or its
affiliates to accept employment with or render services to or with any person,
firm, corporation or other entity or assist or aid any other person, firm,
corporation or other entity in identifying or hiring away such employee, (ii)
any customer or vendor of the Company to alter its business relationship with
the Company or to purchase products or services then sold by the Company or its
affiliates from another person, firm, corporation or other entity or assist or
aid any other person or entity in identifying or soliciting any such customer or
vendor or (iii) any other remaining employee of the Company or its affiliates to
leave such employee's employment with the Company or its affiliates.
8.5 Conflict of Interest. The Executive shall exercise good
judgment and maintain high ethical standards in the course of his dealings so as
to preclude the possibility of a conflict between the interest of the Company
and his own personal interest. The Executive, therefore, has an obligation to
avoid any activity, agreement, personal interest, or other relationship or
situation which: (i) conflicts with the Company's best interest; (ii) interferes
with the Executive's responsibility to serve the Company to the best of the
Executive's ability; or (iii) gives the appearance of self dealing.
8.5.1 This policy requires that the
Executive shall not have any relationship, nor engage in any activity that might
impair the independence or judgment in the execution of the Executive's duties.
The Executive shall not have any direct or direct personal financial interests
in suppliers of property, goods or services that would affect his decisions or
actions on the Company's behalf. The Executive shall not accept gifts,
benefits, or unusual hospitality that would be reasonably likely to influence
the Executive in the performance of his duties.
8.5.2 If any possible conflict of interest
situation arises, the Executive is responsible to immediately disclose the facts
to the President or Chief Executive Officer of the Company so that an evaluation
may determine whether a problem exists and, if so, to eliminate it.
8.6 Injunctive Relief/Legal Remedies. The Parties agree that
the remedy at law for any breach by the Executive of this Agreement and
specifically the provisions of Section 8 ("Restrictive Covenants"), will be
inadequate and that the Company or any of its subsidiaries or other successors
or assigns shall be entitled to injunctive relief without bond. Such injunctive
relief shall not be exclusive, but shall be in addition to any other rights and
remedies Company or any of its subsidiaries or their successors or assigns might
have for such breach.
8.6.1 The Executive acknowledges: (i)
that compliance with the restrictive provisions contained in Section 8 is
necessary to protect the business and goodwill of the Company and its
subsidiaries, and (ii) that a breach of this Agreement will result in
irreparable and continuing damage to the Company, for which monetary damages
may not provide adequate relief. Consequently, the Executive agrees that in the
event of a breach or threatened breach of any of the restrictive covenants
described herein, the Company, at its discretion, shall be entitled to seek
both: (i) a preliminary and/or permanent injunction in order to prevent such
damage, or continuation of such damage, and (ii) monetary damages as
determinable. Nothing herein, however, shall be construed to restrict and/or
prohibit the Company from pursuing any and all other remedies; the Executive
acknowledges that all remedies are cumulative. The Executive
specifically acknowledges that the Executive shall account for and pay over to
the Company any profits, monies, accruals or other benefits derived or received
by the Executive as a result of any transaction constituting a breach of the
Restrictive Covenants in Section 8.
8.6.2 If any legal action arises to
enforce the Company's trade secrets, the prevailing party shall be entitled to
recover any and all damages, as well as all costs and expenses, including
reasonable attorney's fees incurred in enforcing or attempting to enforce the
Company's trade secrets.
9. Nature of Company Business.
The Executive acknowledges that the Company, through one or more of its
affiliated companies, is currently involved in providing technical and creative
services to companies which produce and distribute television networks which
feature explicit and cable version adult movies and features and other
programming depicting sexual situations and/or nudity (the "Adult Business"). In
addition, the Executive acknowledges that the Company, through one or more of
its affiliated companies, may become involved in the Adult Business. The
Executive acknowledges that he will likely be exposed, from time to time, to one
or more aspects of the Adult Business during the course of his employment by the
Company. Furthermore, the Executive confirms that he is currently comfortable
working in an environment where some or all aspects of the Adult Business are
present and would be comfortable working for a company engaged in the Adult
Business. If, at any time, the Executive's view on the foregoing changes or the
Executive otherwise become uncomfortable with the nature of the Company's
business, the Executive agrees to promptly inform Senior Management. The Company
will work with the Executive to explore mutually acceptable means of
accommodating the Executive's concerns which, both parties acknowledge, may
result in the termination of the Executive's employment. Termination of the
Executive's employment occasioned by the Executive's desire not to be associated
with the Company as a result of the nature of its business shall be treated as a
Voluntary Termination by the Executive without Good Reason.
10. Arbitration.
10.1 Any and all disputes, controversies and claims arising
out of, or relating to, this Agreement, or with respect to the interpretation of
this Agreement, or the rights or obligations of the Parties and their successors
and permitted assigns, whether by operation of law or otherwise, shall be
settled and determined by arbitration in New York City, New York, pursuant to
the then existing rules of the American Arbitration Association ("AAA"), for
commercial arbitration. Each party shall pay their own legal fees. The losing
party shall pay the fees and costs imposed by the AAA; if neither party clearly
prevails in the arbitration, the parties shall request that the AAA appointed
arbitrator apportion the AAA's fees and costs between the parties.
10.2 The Parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal therefrom.
11. Miscellaneous.
11.1 Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested, or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received (i) when
hand-delivered or after three (3) business days when deposited in the U.S. Mail,
(ii) when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
Directrix, Inc.
536 Broadway, 10th Floor
New York, New York 10012
Facsimile: (212) 941-7846
Attn: Chief Executive Officer
To the Executive:
John R. Sharpe
19 Western Avenue
Morristown, NJ 07960
Either party may change the foregoing addresses at any time by
notice given in the manner herein provided.
11.2 Integration; Modification. This Agreement, the
Indemnification Agreement executed contemporaneously herewith and any Employee
Manual adopted by the Company constitute the entire understanding and agreement
between the Company and the Executive regarding its subject matter, and
supersede all prior negotiations and agreements or interpretations, whether oral
or written. This Agreement may not be modified except by written agreement
signed by the Executive and a duly authorized officer of the Company.
11.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including their respective heirs,
executors, successors and assigns, except that the Executive may not assign this
Agreement.
11.4 Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether conduct or otherwise, in any one (1) or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof with respect to other future breaches.
11.5 Governing Law. The internal laws of the
State of New York shall govern this Agreement, except that Section 10 shall be
governed by the Federal Arbitration Act, Title 9, U.S. Code.
11.6 Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
11.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
11.8 Due Authorization. The Company represents
that all corporate action required to authorize the execution, delivery and
performance of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officer on the day
and year first above written.
Date By: ----------------------------------
Donald J. McDonald, Jr., President
EXECUTIVE:
Date By: --------------------------------
John R. Sharpe, Vice President
Chief Financial Officer
<PAGE>
EXHIBIT A
GENERAL RELEASE AND SEPARATION AGREEMENT
1. GENERAL RELEASE. In consideration of the payment of salary through
______, ___ together with accrued vacation pay and __ weeks severance and for
other good and valuable consideration, John R. Sharpe ("Executive") hereby
forever releases, discharges, acquits and forgives DIRECTRIX, INC., its
officers, directors, stockholders, employees, affiliates, successors and
assignees (collectively, the "Company") from any and all claims, known or
unknown, which Executive or Executive's heirs, successors or assigns have or may
have against the Company and any and all liability which the Company may have to
Executive whether denominated claims, demands, causes of action, obligations,
damages or liabilities arising from any and all bases, however, denominated,
including but not limited to claims of discrimination under the U.S. Age
Discrimination in Employment Act, the U.S. Americans with Disabilities Act of
1990, the U.S. Family and Medical Leave Act of 1993, Title VII of the United
States Civil Rights Act of 1964, 42 U.S.C. Section 1981, the New York Human
Rights Law, including New York Executive Law Section 296, Section 8-107 of the
Administrative Code and Charter of New York City, the Worker Adjustment and
Retraining Notification Act of 1988 or any similar state law or any other
federal, state or local law, or any other law, rule or regulation, or any
workers' compensation or disability claims under any such laws. This release
relates to claims arising from and during Executive's relationship with the
Company or as a result of the termination of such relationship. This release is
for any relief, no matter how denominated, including, but not limited to, wages,
back pay, front pay, compensatory damages or punitive damages. This release
shall not apply to the obligations set forth in this Agreement or any other
claims that may arise after the date on which Executive signs this Agreement.
Notwithstanding any other provision of this Agreement, this release is not
intended to interfere with Executive's right to file a charge with the U.S.
Equal Employment Opportunity Commission (or any state human rights or similar
commission) in connection with any claim Executive believes Executive may have
against the Company. However, by executing this Agreement, Executive hereby
agrees to waive the right to recover in any proceeding Executive may bring
before the U.S. Equal Opportunity Commission (or any state human rights or
similar commission) or in any proceeding brought by the U.S. Equal Employment
Opportunity Commission (or any state human rights or similar commission) on
Executive's behalf.
This release shall be binding upon and inure to the benefit of the
parties, their successors, assigns and personal representatives.
2. NONDISCLOSURE OF PROPRIETARY INFORMATION AND RETURN OF COMPANY
PROPERTY. Executive agrees (i) to promptly surrender and deliver to the Company
all records, materials, equipment, drawings and data of any nature pertaining to
his employment by the Company or any invention or any trade secrets,
confidential information, knowledge, data or other information of the Company
("Confidential Information"), (ii) not to take with him any description
containing or pertaining to any Confidential Information which he may have
produced or obtained during his employment, (iii) not to disclose any
Confidential Information to any third party without the Company's prior written
consent and (iv) to return to the Company all of its property.
3. GOODWILL. The purpose of this Agreement is to arrive at a
mutually agreeable and amicable basis upon which to separate Executive's
employment with the Company the Company. Executive and the Company agree to
refrain from any criticisms of or disparaging comments about each other, except
as may be required by law or judicial process.
4. WAIVER. Executive understands that he may consider whether to agree
to the terms contained herein for a period of 21 days after the date hereof.
Accordingly, Executive may sign and return this Agreement by ______, ___ to
acknowledge his understanding of and agreement with the foregoing. Executive
acknowledges that, prior to signing this Agreement, he was advised by the
Company to consult with an attorney. This Agreement will become effective,
enforceable and irrevocable seven days after the date on which Executive signs
it (the "Effective Date"). During the seven-day period prior to the Effective
Date, Executive may revoke his agreement to accept the terms hereof by
indicating in writing to the Company his intention to revoke. [If Executive
exercises his right to revoke hereunder, Executive shall forfeit his right to
receive the benefits provided under the Employment Agreement and, if such
benefits have already been provided, shall immediately reimburse the Company for
the cost of such benefits.]
Signed this __ day of ______, ____
DIRECTRIX, INC. RELEASOR
- ------------------------ ------------------------
Name:
Title:
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") effected as of this 15th
day of March, 1999, by and between Directrix, Inc. (the "Company" or
"Employer"), a Delaware corporation, and Rich Kirby (the "Executive")
(collectively the Company and the Executive are referred to as the "Parties").
INTRODUCTION
WHEREAS, the Parties desire to enter into an Agreement and to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreement set
forth herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment
1.1 Duties. The Company shall employ the Executive on the
terms and conditions set forth in this Agreement, as Executive Vice President
and Secretary. The Executive accepts such employment with the Company and shall
perform and fulfill such duties as are assigned to him hereunder consistent with
his status as a senior executive of the Company, devoting his best efforts and
all of his professional time and attention, to the performance and fulfillment
of his duties and to the advancement of the best interests of the Company,
subject only to the direction, approval, and control of the Company's President
and/or Chief Executive Officer, and specific directives of the Board of
Directors of the Company (collectively, "Senior Management"). In addition, and
without any additional consideration, the Executive is and/or may be requested
to serve as a director or as an employee and officer of any or all subsidiaries
of the Company. Unless otherwise indicated by the context, the "Company" shall
include the Company and all its subsidiaries.
1.2 Place of Performance. In connection with his employment by
the Company, the Executive shall be based in the greater New York City
metropolitan area, except for required travel on Company business. The Executive
may be required to relocate on a permanent or temporary basis consistent with
business necessity in which event the Company agrees to pay Executive's
reasonable relocation expenses.
2. Term.
The Executive's employment under this Agreement shall commence as of
February 26, 1999 (the "Commencement Date") and shall continue uninterrupted up
to and including the hour of midnight of December 31, 2001 (the "Term"), unless
otherwise terminated as provided for in Sections 7.1 or 7.3. The Term shall be
extended for successive one-year periods beginning Janaury1, 2002 and each
one-year anniversary thereafter on the terms in effect on the date of such
renewal, unless a written notice not to extend is given by either party to the
other at least 90 days prior to the date the Terms otherwise would have expired.
3. Compensation.
3.1 Base Salary. During the Term the Executive shall receive a
minimum annual salary (the "Base Salary") payable in installments at such times
as the Company customarily pays its other senior executive employees (but in any
event no less often than bi-monthly), and calculated as follows:
3.1.1 The Base Salary to be paid to the Executive
during the Term shall be $192,938; and
3.1.2 For each Year beginning after December 31,
1999, the Company shall increase the Base Salary by an amount equal to five
percent (5%) of the prior year's Base Salary. Each such increase shall be
cumulative so that the Base Salary for each succeeding year shall include the
prior year's increase.
3.2 Health Insurance and Other Benefits. During the Term the
Executive shall be provided all employee benefits provided by the Company to its
management and all other Company salaried employees, including without
limitation, all medical insurance and life insurance plans or arrangements and
shall be entitled to participate in all pension, profit sharing, stock option
and any other employee benefit plan or arrangement established and maintained by
the Company for similarly situated employees, all subject, however, to the
Company rules and policies then in effect regarding participation therein.
During the Term, the benefits provided to the Executive, as described in the
preceding sentence, shall not be reduced except in accordance with the general
reduction of such benefits applicable to similarly situated employees generally,
but then only to the extent that such benefits are reduced for such other
similarly situated employees.
3.3 Automobile Allowance. During the Term, the Company
shall pay the Executive the sum of $850 per month as reimbursement for the costs
of owning, operating and parking of an automobile.
3.4 Health Club Membership. During the Term, the Company
shall pay the costs of one health club membership for the Executive.
4. Reimbursement of Expenses.
The Executive shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses, including high speed home Internet
access, which the Executive reasonably incurs in connection with the performance
of his duties hereunder, provided that the Executive submits to the Company on
proper forms provided by the Company, such statements and other evidence
supporting such expenses as the Company may require and provided such expenses
meet the Company's policy concerning such matters.
5. Stock Options.
The Executive may be entitled to participate in all Company employee
stock option programs as determined by the Compensation Committee of the
Company's Board of Directors and approved by the Company's shareholders.
6. Vacations.
The Executive shall be entitled to not less than three (3) weeks of
paid vacation in any calendar year (prorated in any Year during which the
Executive is employed hereunder for less than the entire Year). Such vacation
shall be taken at such times as are consistent with the reasonable business
needs of the Company. Any vacation not taken during the year may not be taken by
the Executive in subsequent years except to the extent approved by the Company.
Upon termination of the Executive's employment for any reason, any vacation
earned by the Executive but not taken shall be forfeited.
7. Termination of Employment.
7.1 Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the Executive's death. If the
Executive becomes Totally Disabled (as that term is defined below) for one
hundred eighty (180) days in the aggregate during any consecutive twelve-month
period during the Term, the Company shall have the right to terminate the Term
by giving the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties within thirty
(30) days after receipt of a notice of termination and continues to perform such
duties for four (4) consecutive weeks thereafter, the Term shall continue and
the notice of termination shall be considered null and void and of no effect.
Upon termination of the Term under this Section 7.1, the Company shall have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be: (i) the portion, if
any, that remains unpaid of the Base Salary for periods worked by the Executive
plus the excess of the Base Salary for the Severance Period over the amount
payable to the Executive under the Company's long-term disability plan during
such time (payable as if the Executive remained an employee of the Company); and
(ii) the amount of any expenses reimbursable in accordance with Section 4 above;
and (iii) any amounts due under any Company benefit, welfare or pension plan.
7.2 "Totally Disabled," as used herein, shall mean a mental or
physical condition which, in the reasonable opinion of an independent medical
doctor selected by the Company in its discretion, renders the Executive unable
or incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement.
7.3 Discharge for Cause. The Company may discharge the
Executive for "Cause" upon written notice (as defined in Section 11.1), and
thereby immediately terminate his employment under this Agreement. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment if the Executive, in the reasonable good faith judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured such breach within ten (10) days after
Company's written notice, including, without limitation, the Executive's failure
to perform his duties hereunder, other than a failure resulting from his illness
or sickness; (ii) willfully fails to carry out a material lawful directive of
the Board of Directors, the Chairman of the Board, and the President of the
Company; (iii) embezzles or converts to his own use any funds of the Company or
any client or customer of the Company; (iv) converts to his own use or destroys
any property of the Company having a significant value; (v) is in material
violation of any of the Company policies and/or procedures as identified in the
Company's Employee Manual; or (vi) is habitually drunk or intoxicated. If the
Executive is discharged for Cause, he shall receive only those amounts earned
but not distributed under the relevant plan, program or practice of the Company.
The Company and the Executive acknowledge that if the Company engages in the
Adult Business (as defined in Section 9), such business could be considered
controversial in some localities and could result in civil or criminal
litigation against the Company based upon obscenity and similar laws. The
Parties agree that, notwithstanding the other provisions of this Section, the
naming of the Executive in any such suit, and any conviction of the Executive or
plea bargain, settlement or other disposition of such litigation relating to the
Executive, shall not be considered Cause for the termination of the Executive's
employment, so long as the conduct of the Executive upon which such claim was
based consisted of the Executive carrying out his duties in good faith and in
accordance with directions of management of the Company.
7.4 Termination by Executive. The Executive may
terminate the Term of his employment:
7.4.1 upon failure by the Company to comply with
the material provisions of this Agreement, which failure is not cured within
ten (10) days after written notice (referred to herein as "Good Reason"); or
7.4.2 upon a "Change in Control of the Company"
(as defined in Section 7.6.1 below) upon thirty (30) days' prior written notice
given at any time within eighteen (18) months after a Change in Control; or
7.4.3 for any reason other than Good Reason or
following a Change in Control of the Company, which termination shall be
considered a "Voluntary Termination" by Executive.
7.5 Severance upon Termination. If, during the Term, the
Executive's employment is terminated by the Company without Cause, or the
Executive shall terminate employment for Good Reason prior to a Change in
Control of the Company (the date of termination is referred to as the
"Termination Date"), then the Company shall pay the Executive in lieu of other
damages, an amount (the "Severance Payments") equal to his then current Base
Salary payable in installments at the same time the Company pays salary to its
other senior executive employees payable over the longer of (i) the balance of
the Term or (ii) one year (the period over which the Severance Payments are made
is referred to as the "Severance Period"). The Company shall have no liability
to make any Severance Payments as provided for in this paragraph unless (i) the
Executive executes a General Release in a form substantially as set forth in
Exhibit A attached hereto and (ii) the Executive complies with all provisions in
Section 8 (Restrictive Covenants). Such amount shall reduce the amount of any
other severance payment that otherwise would have been payable to the Executive
under any other Company plan, program or arrangement. In addition, the Company
shall maintain during the lesser of the balance of the Term immediately prior to
such termination or the Severance Period all employee benefit plans and programs
which the Executive participated in immediately prior to such termination other
than bonus, incentive compensation and similar plans based on performance,
provided the Executive's participation is permissible under the general terms
and provisions of such plans and applicable law. In the event of a Voluntary
Termination, the Executive shall receive only his earned but unpaid Base Salary
as of the date of his termination.
7.6 Change in Control.
.
7.6.1 Definitions. For purposes of this Section
7.6, a "Change in Control" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A, as in effect on the date of this Agreement, promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided,
that whether or not required to be reported under such Item 6(e), without
limitation, such a Change in Control shall be deemed to have occurred if (i)any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years,
individuals who, at the beginning of such period, constitute the Board cease for
any reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least three-fourths of the directors then still in
office who were directors at the beginning of the period; (iii) the Company's
stockholders approve an agreement to merge or consolidate the Company with
another corporation (other than a corporation 50% or more of which is controlled
by, or is under common control with, the Company); or (iv) any individual who is
nominated by the Board of Directors for election of the Board on any date fails
to be so elected as a direct or indirect result of any proxy fight or contested
election for positions on the Board of Directors; provided, however, that
notwithstanding the foregoing, no Change of Control shall be deemed to have
occurred pursuant to either clause (i) or (ii) above in the event of (and
notwithstanding any resultant change in the membership of the Board) an
acquisition by any group comprised of senior officers of the Company, including
the Executive, of 25% or more of the combined voting powerof the Company's then
outstanding securities.
7.6.2 Termination Payment. Notwithstanding any
provision of this Agreement, if, within eighteen (18) months following a Change
in Control of the Company, (a) the Executive's employment by the Company shall
be terminated by the Company other than as a result of the Executive becoming
Totally Disabled or for Cause or (b) the Executive terminates the Term pursuant
to Section 7.4.1, then the Executive shall be entitled to the benefits provided
below:
(1) The Company shall pay the Executive
full Base Salary through the Termination Date at the rate in effect at that
time, and shall pay the Executive for any vacation earned but not taken and the
amount, if any, of any bonus for a past Company fiscal year which has not yet
been awarded or paid;
(2) In lieu of any further salary
payments to the Executive for periods subsequent to the Termination Date, the
Company, subject to the limitation described below, shall pay to the Executive
on the 60th day following the Termination Date a lump sum amount equal to 2.99
times the sum of (i) the Base Salary and (ii) cash bonuses and other cash
compensation paid to the Executive during the 12 months preceding the
Termination Date ("Termination Payment"); and
(3) All stock options held by the
Executive shall be fully vested and remain outstanding for their full original
term unless sooner exercised.
7.6.3 Certain Additional Payments by the
Company.
(1) Anything in this Agreement
to the contrary notwithstanding, in the event it shall be determined that any
payment or distribution to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 7.6.3 (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(2) Subject to the provisions
of Section 7.6.3(3), all determinations required to be made under this Section
7.6.3, including whether and when Gross-Up Payment is required and the amount
of such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Deloitte & Touche LLP (the "Accounting Firm");
provided, however, that the Accounting Firm shall not determine that no Excise
Tax is payable by the Executive unless it delivers to the Executive a written
opinion (the "Accounting Opinion") that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. In the event that Deloitte &
Touche LLP has served, at any time during the two years immediately preceding a
Change in Control Date, as accountant or auditor for the individual, entity or
group that is involved in effecting or has any material interest in the Change
in Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations and perform the other functions specified in
this Section 7.6.3 (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Within fifteen (15) business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company, the Accounting Firm shall make all
determinations required under this Section 7.6.3, shall provide to the Company
and the Executive a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Accounting Firm determines
that no Excise Tax is payable, shall deliver the Accounting Opinion to the
Executive. Any Gross-Up Payment, as determined pursuant to this Section 7.6.3,
shall be paid by the Company to the Executive within five (5) days of the
receipt of the Accounting Firm's determination. Subject to the remainder of this
Section 7.6.3, any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in Section
7.6.3(3) that the Executive is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(3) The Executive shall notify
the Company in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than thirty
(30) days after the Executive actually receives notice in writing of such claim
and shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid; provided, however, that the failure of the
Executive to notify the Company of such claim (or to provide any required
information with respect thereto) shall not affect any rights granted to the
Executive under this Section 7.6.3 except to the extent that the Company is
materially prejudiced in the defense of such claim as a direct result of such
failure. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney selected by the Company and reasonably acceptable
to the Executive;
(iii) cooperate with the Company in good
faith in order effectively to contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7.6.3, the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 7.6.3(3)
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements of
Section 7.6.3(3)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.6.3(3) a determination is made that the Executive
shall not be entitled to any refund with respect to such claim, and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of thirty (30) days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
8. Restrictive Covenants.
8.1 INTENTIONALLY OMITTED.
8.2 Non-Disclosure of Information. The
Executive shall:
8.2.1 Never, directly or indirectly,
disclose to any person or entity for any reason, or use for his own personal
benefit, any "Confidential Information" as hereinafter defined; and
8.2.2 At all times take all reasonable
precautions necessary to protect from loss or disclosure by Executive or his
subordinates any and all documents or other information containing, referring,
or relating to such Confidential Information. Upon termination of employment
with the Company for any reason, the Executive shall promptly return to the
Company any and all documents or other tangible property containing, referring,
or relating to such Confidential Information, whether prepared by him or others.
8.2.3 Notwithstanding any provision to the
contrary in Section 8, this paragraph shall not apply to information which the
Executive is called upon by legal process (including, without limitation, by
subpoena or discovery requirement) to disclose or any information which has
become part of the public domain or is otherwise publicly disclosed through no
fault or action of the Executive.
8.2.4 For purposes of this Agreement,
"Confidential Information" shall mean any information relating in any way to the
business of the Company disclosed to or known to the Executive as a consequence
of, result of, or through the Executive's employment by the Company which may
consist of, but not be limited to, technical and non-technical information
about the Company's proprietary products, processes, programs, concepts, forms,
business methods, data, any and all financial and accounting data, employees,
marketing, customers, customer lists, and services and information
corresponding thereto acquired by the Executive during the term of the
Executive's employment by the Company. Confidential Information shall not
include any of such items which arc published or are otherwise part of the
public domain, or freely available from trade sources or otherwise.
8.2.5 Upon termination of this Agreement
for any reason, the Executive shall return to a designated officer of the
Company all equipment and/or tangible property then in the Executive's
possession or custody which belongs or relates to the Company, including,
without limitation, copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs, data base, or any other documents or
electronically stored information which constitutes Confidential Information.
8.3 Trade Secrets - Intellectual Property Rights. The
Executive shall provide the Company with any copyrightable work, trade secrets
and other protectable intellectual property developed or produced by the
Executive while in the employ of the Company pursuant to this Agreement
(collectively, "Work Product").
8.3.1 All Work Product shall be considered
works made for hire and shall be the exclusive property of the Company and the
Company shall be considered the author and/or creator of such work for worldwide
copyright purposes and renewals and extensions thereof. The Company may
request, at its own cost and expense, that the Executive assist the Company in
obtaining worldwide patent, copyright and other property rights for the Work
Product.
8.3.2 If the Executive's rights in the
Work Product cannot be assigned to the Company, the Executive waives enforcement
of all such rights against the Company. The Executive further agrees to join in
any action, at the Company's sole cost and expense, to enforce or to procure a
waiver of such rights.
8.3.3 If the rights of the Work Product
cannot be waived or the Work Product is not deemed a "work for hire", the
Executive hereby grants the Company and its assigns a worldwide royalty-free
license to reproduce, distribute, modify, publicly display, sublicense and
assign such rights in all media or distribution technologies now known and
hereinafter developed or devised.
8.3.4 The Executive hereby appoints the
Company as his attorney in fact to execute and file any patent, copyright or
other lawful application with respect to the Work Product.
8.4 Non-Solicitation. During the Term and during the Severance
Period, the Executive will not, directly or indirectly, individually or on
behalf of other persons, solicit, aid or induce (i) any employee of the Company
or any of its affiliates to leave their employment with the Company or its
affiliates to accept employment with or render services to or with any person,
firm, corporation or other entity or assist or aid any other person, firm,
corporation or other entity in identifying or hiring away such employee, (ii)
any customer or vendor of the Company to alter its business relationship with
the Company or to purchase products or services then sold by the Company or its
affiliates from another person, firm, corporation or other entity or assist or
aid any other person or entity in identifying or soliciting any such customer or
vendor or (iii) any other remaining employee of the Company or its affiliates to
leave such employee's employment with the Company or its affiliates.
8.5 Conflict of Interest. The Executive shall exercise good
judgment and maintain high ethical standards in the course of his dealings so as
to preclude the possibility of a conflict between the interest of the Company
and his own personal interest. The Executive, therefore, has an obligation to
avoid any activity, agreement, personal interest, or other relationship or
situation which: (i) conflicts with the Company's best interest; (ii) interferes
with the Executive's responsibility to serve the Company to the best of the
Executive's ability; or (iii) gives the appearance of self dealing.
8.5.1 This policy requires that the
Executive shall not have any relationship, nor engage in any activity that
might impair the independence or judgment in the execution of the Executive's
duties. The Executive shall not have any direct or direct personal financial
interests in suppliers of property, goods or services that would affect his
decisions or actions on the Company's behalf. The Executive shall not accept
gifts, benefits, or unusual hospitality that would be reasonably likely to
influence the Executive in the performance of his duties.
8.5.2 If any possible conflict of interest situation arises,
the Executive is responsible to immediately disclose the facts to the President
or Chief Executive Officer of the Company so that an evaluation may determine
whether a problem exists and, if so, to eliminate it.
8.6 Injunctive Relief/Legal Remedies. The Parties agree that
the remedy at law for any breach by the Executive of this Agreement and
specifically the provisions of Section 8 ("Restrictive Covenants"), will be
inadequate and that the Company or any of its subsidiaries or other successors
or assigns shall be entitled to injunctive relief without bond. Such injunctive
relief shall not be exclusive, but shall be in addition to any other rights and
remedies Company or any of its subsidiaries or their successors or assigns might
have for such breach.
8.6.1 The Executive acknowledges: (i)
that compliance with the restrictive provisions contained in Section 8 is
necessary to protect the business and goodwill of the Company and its
subsidiaries, and (ii) that a breach of this Agreement will result in
irreparable and continuing damage to the Company, for which monetary damages
may not provide adequate relief. Consequently, the Executive agrees that in the
event of a breach or threatened breach of any of the restrictive covenants
described herein, the Company, at its discretion, shall be entitled to see
both: (i) a preliminary and/or permanent injunction in order to prevent such
damage, or continuation of such damage, and (ii) monetary damages as
determinable. Nothing herein, however, shall be construed to restrict and/or
prohibit the Company from pursuing any and all other remedies; the Executive
acknowledges that all remedies are cumulative. The Executive specifically
acknowledges that the Executive shall account for and pay over to the Company
any profits, monies, accruals or other benefits derived or received by the
Executive as a result of any transaction constituting a breach of the
Restrictive Covenants in Section 8.
8.6.2 If any legal action arises to
enforce the Company's trade secrets, the prevailing party shall be entitled to
recover any and all damages, as well as all costs and expenses, including
reasonable attorney's fees incurred in enforcing or attempting to enforce the
Company's trade secrets.
9. Nature of Company Business.
The Executive acknowledges that the Company, through one or more of its
affiliated companies, is currently involved in providing technical and creative
services to companies which produce and distribute television networks which
feature explicit and cable version adult movies and features and other
programming depicting sexual situations and/or nudity (the "Adult Business"). In
addition, the Executive acknowledges that the Company, through one or more of
its affiliated companies, may become involved in the Adult Business. The
Executive acknowledges that he will likely be exposed, from time to time, to one
or more aspects of the Adult Business during the course of his employment by the
Company. Furthermore, the Executive confirms that he is currently comfortable
working in an environment where some or all aspects of the Adult Business are
present and would be comfortable working for a company engaged in the Adult
Business. If, at any time, the Executive's view on the foregoing changes or the
Executive otherwise become uncomfortable with the nature of the Company's
business, the Executive agrees to promptly inform Senior Management. The Company
will work with the Executive to explore mutually acceptable means of
accommodating the Executive's concerns which, both parties acknowledge, may
result in the termination of the Executive's employment. Termination of the
Executive's employment occasioned by the Executive's desire not to be associated
with the Company as a result of the nature of its business shall be treated as a
Voluntary Termination by the Executive without Good Reason.
<PAGE>
10. Arbitration.
10.1 Any and all disputes, controversies and claims arising
out of, or relating to, this Agreement, or with respect to the interpretation of
this Agreement, or the rights or obligations of the Parties and their successors
and permitted assigns, whether by operation of law or otherwise, shall be
settled and determined by arbitration in New York City, New York, pursuant to
the then existing rules of the American Arbitration Association ("AAA"), for
commercial arbitration. Each party shall pay their own legal fees. The losing
party shall pay the fees and costs imposed by the AAA; if neither party clearly
prevails in the arbitration, the parties shall request that the AAA appointed
arbitrator apportion the AAA's fees and costs between the parties.
10.2 The Parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal therefrom.
11. Miscellaneous.
11.1 Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested, or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received (i) when
hand-delivered or after three (3) business days when deposited in the U.S. Mail,
(ii) when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
Directrix, Inc.
536 Broadway, 10th Floor
New York, New York 10012
Facsimile: (212) 941-7846
Attn: Chief Executive Officer
To the Executive:
Rich Kirby
80 Kent Drive
Cortlandt, New York 10566
Either party may change the foregoing addresses at any time by
notice given in the manner herein provided.
11.2 Integration; Modification. This Agreement, the
Indemnification Agreement executed contemporaneously herewith in the form
attached hereto as Exhibit B and the Company's Employee Manual constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter, and supersedes all prior negotiations and
agreements or interpretations, whether oral or written. This Agreement may not
be modified except by written agreement signed by the Executive and a duly
authorized officer of the Company.
11.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including their respective heirs,
executors, successors and assigns, except that the Executive may not assign this
Agreement.
11.4 Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether conduct or otherwise, in any one (1) or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof with respect to other future breaches.
11.5 Governing Law. This Agreement shall be governed by the
internal laws of the State of New York, except that Section 10 shall be governed
by the Federal Arbitration Act, Title 9, U.S. Code.
11.6 Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
11.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
11.8 Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officer on the day
and year first above written.
DIRECTRIX, INC.
Date By: --------------------------
J. Roger Faherty, Chairman
EXECUTIVE:
Date By: -----------------------------
Richard Kirby, Chief Operating
Officer, Executive Vice
President and Secretary
<PAGE>
EXHIBIT A
GENERAL RELEASE AND SEPARATION AGREEMENT
1. GENERAL RELEASE. In consideration of the payment of salary through
______, ___ together with accrued vacation pay and __ weeks severance and for
other good and valuable consideration, Rich Kirby ("Executive") hereby forever
releases, discharges, acquits and forgives DIRECTRIX, INC., its officers,
directors, stockholders, employees, affiliates, successors and assignees
(collectively, the "Company") from any and all claims, known or unknown, which
Executive or Executive's heirs, successors or assigns have or may have against
the Company and any and all liability which the Company may have to Executive
whether denominated claims, demands, causes of action, obligations, damages or
liabilities arising from any and all bases, however, denominated, including but
not limited to claims of discrimination under the U.S. Age Discrimination in
Employment Act, the U.S. Americans with Disabilities Act of 1990, the U.S.
Family and Medical Leave Act of 1993, Title VII of the United States Civil
Rights Act of 1964, 42 U.S.C. Section 1981, the New York Human Rights Law,
including New York Executive Law Section 296, Section 8-107 of the
Administrative Code and Charter of New York City, the Worker Adjustment and
Retraining Notification Act of 1988 or any similar state law or any other
federal, state or local law, or any other law, rule or regulation, or any
workers' compensation or disability claims under any such laws. This release
relates to claims arising from and during Executive's relationship with the
Company or as a result of the termination of such relationship. This release is
for any relief, no matter how denominated, including, but not limited to, wages,
back pay, front pay, compensatory damages or punitive damages. This release
shall not apply to the obligations set forth in this Agreement or any other
claims that may arise after the date on which Executive signs this Agreement.
Notwithstanding any other provision of this Agreement, this release is not
intended to interfere with Executive's right to file a charge with the U.S.
Equal Employment Opportunity Commission (or any state human rights or similar
commission) in connection with any claim Executive believes Executive may have
against the Company. However, by executing this Agreement, Executive hereby
agrees to waive the right to recover in any proceeding Executive may bring
before the U.S. Equal Opportunity Commission (or any state human rights or
similar commission) or in any proceeding brought by the U.S. Equal Employment
Opportunity Commission (or any state human rights or similar commission) on
Executive's behalf.
This release shall be binding upon and inure to the benefit of the
parties, their successors, assigns and personal representatives.
2. NONDISCLOSURE OF PROPRIETARY INFORMATION AND RETURN OF COMPANY
PROPERTY. Executive agrees (i) to promptly surrender and deliver to the Company
all records, materials, equipment, drawings and data of any nature pertaining to
his employment by the Company or any invention or any trade secrets,
confidential information, knowledge, data or other information of the Company
("Confidential Information"), (ii) not to take with him any description
containing or pertaining to any Confidential Information which he may have
produced or obtained during his employment, (iii) not to disclose any
Confidential Information to any third party without the Company's prior written
consent and (iv) to return to the Company all of its property.
3. GOODWILL. The purpose of this Agreement is to arrive at a
mutually agreeable and amicable basis upon which to separate Executive's
employment with the Company the Company. Executive and the Company
agree to refrain from any criticisms of or disparaging comments about each
other, except as may be required by law or judicial process.
4. WAIVER. Executive understands that he may consider whether to agree
to the terms contained herein for a period of 21 days after the date hereof.
Accordingly, Executive may sign and return this Agreement by ______, ___ to
acknowledge his understanding of and agreement with the foregoing. Executive
acknowledges that, prior to signing this Agreement, he was advised by the
Company to consult with an attorney. This Agreement will become effective,
enforceable and irrevocable seven days after the date on which Executive signs
it (the "Effective Date"). During the seven-day period prior to the Effective
Date, Executive may revoke his agreement to accept the terms hereof by
indicating in writing to the Company his intention to revoke. [If Executive
exercises his right to revoke hereunder, Executive shall forfeit his right to
receive the benefits provided under the Employment Agreement and, if such
benefits have already been provided, shall immediately reimburse the Company for
the cost of such benefits.]
Signed this __ day of ______, ____
DIRECTRIX, INC. RELEASOR
- ------------------------ ------------------------
Name:
Title:
LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as of March 15,
1999, between DIRECTRIX, INC., a Delaware corporation (the "Borrower"), and
J. ROGER FAHERTY, LELAND H. NOLAN and DONALD J. MCDONALD, JR.
(collectively, the "Lenders").
RECITALS
WHEREAS, the Borrower desires to borrow from the Lenders an amount of
up to One and One-Half Million United States Dollars (US$1,500,000) (the
"Maximum Amount") in one loan or in installments (such loan and each such
installment, an "Advance") and the Lenders desire to make the Advances to the
Borrower; and
WHEREAS, the parties desire to set forth the terms of their agreement
with respect to the foregoing.
NOW, THEREFORE, in consideration of the Advances made to the Borrower,
the parties hereby agree as follows:
ARTICLE I
TAKEDOWN; REPAYMENT OF THE ADVANCES; GRANT OF SECURITY
SECTION 1.01. Loans. Subject to the terms and conditions hereof, each
Lender severally agrees to make Advances for the loans to the Borrower from time
to time prior to the second anniversary of the date of this Agreement (such date
is referred to as the "Maturity Date") in the manner set forth in Section 1.02
in an aggregate principal amount at any one time outstanding which does not
exceed the amount of such Lender's Commitment Percentage ("Commitment
Percentage"), as set forth on Schedule 1.01, of the Maximum Amount. The Borrower
may prepay such Advances and may reborrow any amounts repaid prior to the
Maturity Date.
SECTION 1.02. The Notes; Repayment of the Advances. The Borrower's
obligation to repay the unpaid principal amount of the Advances shall be
evidenced by the notes in the form of attached Exhibit A (the "Notes"), payable
to the Lenders and their registered assigns, duly executed and delivered by the
Borrower to the Lenders. The Notes shall mature on the Maturity Date and bear
interest and be subject to such other terms and conditions as provided for
herein and in the Notes. Upon receipt of duly executed Notes on March 15, 1999,
or such other date as the parties may agree, the Lenders shall make the first
Advance to the Borrower in the amount requested by Borrower up to the Maximum
Amount in a manner to be mutually agreed upon by the parties. All subsequent
Advances will be made within five business days of the Lenders' receipt of a
request therefor, such request to be signed by the Chairman and Chief Financial
Officer of the Borrower and in amounts of not less than $5,000 or integral
multiples thereof. At no time shall the amount outstanding under this Agreement
exceed the Maximum Amount. The principal amount of the Advances, together with
all accrued and unpaid interest shall be repaid on the Maturity Date. The
Borrower shall make all principal repayments and prepayments among the Lenders
in proportion to their respective Commitment Percentage.
SECTION 1.03. Payment of Interest; Default Rate. Interest shall be
payable on the outstanding unpaid principal amount of the Notes at the rate and
at the times specified in the Notes. The Borrower shall make all interest
payments among the Lenders in proportion to their respective Commitment
Percentage. Any amounts not paid when due shall bear interest at the Default
Rate (as such term is defined in the Notes).
SECTION 1.04. Loan Record. The Lenders shall maintain a loan record in
which they shall record the date and amount of each Advance and payment or
prepayment of principal of the Advances and the interest paid with respect
thereto, which record may be kept by recordations on the Notes. The failure of
any Lender to make an entry in the loan register or any error made in any such
entry shall not in any way affect the Borrower's obligations under this
Agreement, including the Borrower's obligations to repay the principal amount of
the Advances and the interest accrued from the actual date on which the Advances
are made. The Borrower shall not be bound by any entry in the loan register not
made in accordance with the terms hereof.
SECTION 1.05. Prepayments. Any prepayments of Advances shall be
applied first to the payment of interest due hereunder and then to principal.
SECTION 1.06. Place and Manner of Payments. The Borrower shall make all
payments of principal and interest on the Advances to the Lenders in immediately
available funds to such place as the Lenders shall instruct the Borrower in
writing.
SECTION 1.07. Payment Without Setoff. The principal of, interest on and
all expenses and costs related to the Advances (collectively, the "Obligations")
shall be paid without setoff or counterclaim and free and clear of and exempt
from, and without deduction for or on account of, any present or future taxes,
imposts, duties, deduction, withholdings or other charges of whatsoever nature
imposed, levied, collected, withheld or assessed by any government or any
political subdivision or taxing authority thereof.
SECTION 1.08. Advances Scheduled. As security for the prompt and
unconditional payment of any and all Obligations, the Borrower, subject to
Section 3.07, does hereby grant to the Lenders a continuing lien upon and first
security interest in the Collateral (as defined below) and hereby grants,
pledges, assigns and transfers to the Lenders all of the Collateral. For the
purposes of this Agreement "Collateral" shall mean and include all of the
Borrower's assets, including without limitation, all Accounts Receivables,
Inventory, Accounts (as such terms are defined in the New York Uniform
Commercial Code, as amended) and all Machinery, Equipment, Furniture and
Fixtures and Hardware & Software as more specifically listed on attached
Schedule 1.08, which Schedule 1.08 shall be deemed part of this Agreement, and
the Proceeds of the foregoing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that the following statements are
true and correct as of the date hereof and shall be true and correct on the date
each Advance is made:
SECTION 2.01. Good Standing. The Borrower is a company duly
constituted, validly existing and in good standing under the laws of Delaware
and has all requisite power and authority to conduct its business, to own its
properties, and to execute and deliver and to perform all of its obligation
under this Agreement and the Notes.
SECTION 2.02. Authority. The execution, delivery and performance by the
Borrower of this Agreement and the issuance, execution and delivery by the
Borrower of the Notes have been duly authorized by all necessary action of the
Borrower and do not and will not (i) violate any provision of the Borrower's
governing documents or any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower, or (ii) result in a breach or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower is a party or by which the Borrower's
properties may be bound or affected, and the Borrower is not in default under
any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
SECTION 2.03. Ownership of Collateral. The Borrower owns the Collateral
free and clear of any lien, security interest or other charge or encumbrance of
any kind (collectively the "Liens"), except to the extent of any Liens
associated with the equipment lease financing set forth on attached Schedule
2.03 or any liens specifically permitted by the Lenders (collectively,
"Permitted Liens").
SECTION 2.04. Representations Relating to the Collateral. No financing
statement or other filing listing any of the Collateral is on file in any
jurisdiction (other than any financing statement filed on behalf of the Lenders
as secured party or in connection with a Permitted Lien); (b) the chief
executive office of the Borrower is located at the address set forth in Section
5.03 herein; (c) the Borrower has not created and is not aware of any Lien on or
affecting any Collateral other than the Lien created by this Agreement in favor
of the Lenders or the Permitted Liens; and (d) the Borrower did not have or
conduct business under any name or trade name in any jurisdiction during the
past six years other than the name set forth on the signature page of this
Agreement, and the Borrower is entitled to use such name.
SECTION 2.05. Binding Obligations. This Agreement constitutes, and when
executed and delivered to the Lenders by the Borrower the Notes will constitute,
legal, valid and binding obligations of the Borrower that are enforceable
against the Borrower in accordance with their respective terms.
SECTION 2.06. Consents. All authorizations, consents, approvals, and
licenses of, and filing and registrations with, any governmental authority
required under applicable law or regulations for the Borrower to enter into and
perform its obligations under this Agreement and the Notes have been obtained
and are in full force and effect.
ARTICLE III
COVENANTS
So long as the Notes are outstanding, unless the Lenders shall have
waived compliance in writing, the Borrower agrees that:
SECTION 3.01. Financial Statements. The Borrower will deliver to the
Lenders: (a) within 90 days after the end of each fiscal year of the Borrower, a
consolidated balance sheet and consolidated statements of income and surplus
showing the financial condition of the Borrower and its consolidated
subsidiaries or affiliates, if any, as at the close of such year and the results
of operations during such year, all certified by a duly authorized officer of
the Borrower and (b) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of the
Borrower as the Lenders may reasonably request. Furthermore, the Borrower will
deliver to the Lenders within 60 days after the end of each fiscal quarter, a
copy of Borrower's quarterly financial statements, or year-to-date statements,
as the case may be.
SECTION 3.02. Notice of Defaults. The Borrower shall promptly notify
the Lenders of the occurrence of any event of which the Borrower has knowledge
which, alone or with lapse of time or notice or both, would constitute an Event
of Default (as hereinafter defined).
SECTION 3.03. Notice of Proceedings. The Borrower will promptly give
notice in writing to the Lenders of all material litigation, arbitral
proceedings and regulatory proceedings affecting the Borrower or any of its
subsidiaries or affiliates or the property of the Borrower or any of its
subsidiaries or affiliates.
SECTION 3.04. Certain Affirmative Covenants. The Borrower will, and
will cause each of its affiliates to: (i) preserve and maintain its existence
and all of its rights, privileges and franchises necessary or desirable in the
normal conduct of its business, and conduct its business in a regular manner,
(ii) comply with the requirements of all material applicable laws, rules,
regulations and orders of any governmental body or regulatory agency having
jurisdiction, (iii) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
property prior to the date on which penalties attach thereto (unless such
payment is being contested in good faith and by proper proceedings and which is
adequately reserved), (iv) maintain insurance in responsible companies in such
amounts and against such risks as are usually carried by owners of similar
businesses and properties in the same general areas in which the Borrower and
its affiliates operate and (v) keep all of its properties necessary in its
business in good working order and condition, ordinary wear and tear excepted,
without mortgage or lien incurred other than in the ordinary course of business.
SECTION 3.05. Collateral. Unless and until all of the Obligations have
been indefeasibly paid in full and all commitments of the Lenders to extend
credit which, once extended, would give rise to Obligations, have expired or
been terminated, the Borrower shall: (a) keep the Collateral free and clear of
any Lien of any kind, other than the Lien created by this Agreement and
Permitted Liens; (b) promptly pay, when due, all taxes and transportation,
storage, warehousing and other charges and fees affecting or arising out of the
Collateral and defend the Collateral against all claims and demands of all
Persons at any time claiming any interest therein adverse to or the same as that
of the Lenders, unless the Borrower is disputing such claim or demand in good
faith by appropriate proceedings; (c) provide the Lenders with such information
as the Lenders may from time to time reasonably request with respect to the
Collateral and the Borrower's place of business or location of any Collateral;
(d) give the Lenders at least 30 days' prior written notice before changing the
Borrower's name or chief executive office or changing the location or disposing
of any Collateral other than cash and cash equivalents; (e) not sell or
otherwise dispose of any Collateral other than cash and cash equivalents except
on commercially reasonable terms and in the ordinary course of business; (f)
permit the Lenders or their representatives, to have access to, examine and copy
at all reasonable times the Collateral, properties, minute books and other
corporate or partnership records, books of accounts, and financial and other
business records of the Borrower (including, without limitation, all books,
records, ledger cards, computer programs, tapes and computer disks and diskettes
and other property recording, evidencing or relating to any Collateral); and (g)
promptly notify the Lenders upon the occurrence of any Event of Default of which
the Borrower has knowledge.
SECTION 3.06. Preservation and Protection of Security Interest; Power
of Attorney. Subject to Section 3.07, the Borrower will faithfully preserve and
protect the Lien in the Collateral created by this Agreement and will, at its
own cost and expense, cause such Lien to be perfected and continue to be
perfected and to be and remain prior to all other Liens, so long as all or any
part of the Obligations are outstanding and unpaid, and for such purpose the
Borrower will from time to time at the request of the Lenders (i) make notations
of the security interest in certificates of title constituting proceeds of
Collateral, a security interest in which is perfected by such notation, and
deliver the same to the Lenders and (ii) file or record, or cause to be filed or
recorded, such instruments, documents and notices, including, without
limitation, financing statements and continuation statements, as the Lenders may
reasonably deem necessary or advisable from time to time in order to perfect and
continue to perfect the Lien and to maintain their priority over all the Lien.
The Borrower will do all such other acts and things and will execute and deliver
all such other instruments and documents, including further security agreements,
pledges, endorsements, assignments, and notices as the Lenders may reasonably
deem necessary or advisable from time to time in order to perfect and preserve
the priority of the Lien in the Collateral as contemplated by this Agreement.
The Lenders, acting through its authorized agent, are hereby irrevocably
appointed the attorney-in-fact of the Borrower to do, at the Borrower's expense,
all acts and things which the Lenders may reasonably deem necessary or advisable
to preserve, perfect, continue to perfect and/or maintain the priority of the
Lien in the Collateral, including the signing of financing, continuation or
other similar statements and notices on behalf of the Borrower, and which the
Borrower is required to do by the terms of this Agreement. The Borrower hereby
authorizes the Lenders to sign and file financing statements with respect to the
Collateral without the signature of the Borrower. The Borrower shall be liable
for and pay all filing fees for financing statements with respect to the
Collateral.
SECTION 3.07. Additional Lender. If the Borrower agrees to borrow
additional amounts from any other lender (the "Additional Borrowing"), the
Lenders agree to negotiate in good faith concerning the sharing of the
Collateral and to enter into an intercreditor agreement and any related
documents, as necessary, with such other lender on terms mutually acceptable to
such parties and in a manner which will facilitate the execution of the
documents related to the Additional Borrowing.
SECTION 3.08. Financial Covenants. The Lenders and the Borrower agree
to negotiate, in good faith, financial covenants (including net revenues,
earnings before interest, taxes, depreciation and amortization, net worth and
working capital) consistent with an asset-based loan facility of this type and
based on the Borrower's results of operations for its first fiscal year. The
financial covenants shall be included in an amendment to this Agreement which
shall take effect one year after the date hereof.
SECTION 3.09. Borrower Subsidiaries. If the Borrower forms or acquires
any subsidiaries ("Subsidiaries"), at the Lenders' request, the Borrower agrees
to (i) cause the Subsidiaries to guarantee the Obligations and (ii) pledge the
stock of the Subsidiaries to the Lenders.
ARTICLE IV
EVENTS OF DEFAULT
SECTION 4.01. Events of Default. If any of the following events
("Events of Default") shall occur:
(a) The Borrower shall fail to pay any principal of the Notes within
three days of such principal becoming due and payable, or shall fail to pay any
interest thereon within twenty days after such interest becoming due and
payable; or
(b) any representation or warranty made in connection with the
execution and delivery of this Agreement, the Notes or in any document delivered
pursuant hereto shall prove to have been incorrect in any material respect upon
the date when made; or
(c) the Borrower shall fail to perform or observe any term, covenant or
agreement contained in this Agreement and any such failure remains unremedied
for thirty days after written notice thereof shall have been given to the
Borrower by the Lenders; or
(d) the Borrower shall cease to own the Collateral; or
(e) any indebtedness of the Borrower for borrowed money in excess of
[$500,000] is not paid when due, whether by acceleration or otherwise, or is
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required payment), prior to the stated maturity thereof; or
(f) the Borrower shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt,
petition or apply to any tribunal for any receiver or trustee for itself or for
any substantial part of its property, commence any proceeding relating to it
under any reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, or by any act indicate its consent to, approval of, or acquiescence in,
any such proceeding for the appointment of any receiver of, or trustee for, it
or any substantial part of its property and such appointment shall continue
undischarged for a period of thirty days, or a petition in bankruptcy or for
reorganization shall be filed against the Borrower and shall not be dismissed
for a period of thirty days;
then, and in any such event, the Lenders may, in their sole discretion, by
notice to the Borrower, declare the entire unpaid principal amount of the Notes,
all interest accrued and unpaid thereon, and all other amounts payable hereunder
to be forthwith due and payable, whereupon the Notes, all such accrued interest
and all such other amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower.
SECTION 4.02. Effect of Default on the Collateral. After the occurrence
and during the continuance of an Event of Default, the Lenders may, without
notice to or demand (other than any notice required by law, the giving of which
is not waivable), upon the Borrower (all of which are hereby waived by the
Borrower), without releasing the Borrower from any obligation under this
Agreement or any other instruments or agreements with the Lenders and without
waiving any rights the Lenders may have: (i) demand, collect or receive upon all
or any part of the Collateral; (ii) in such manner and to such extent as the
Lenders may deem necessary to protect the Collateral or the interest, rights,
powers or duties of the Lenders, enter into and upon any premises of the
Borrower and take and hold possession of all or any part of the Collateral (the
Borrower hereby waiving and releasing any claim for damages in respect of such
taking) and exclude the Borrower and all other Persons from the Collateral;
(iii) collect any and all income, rents, issues, profits and proceeds from the
Collateral, the same being hereby assigned and transferred to the Lenders and
from time to time apply or accumulate such income, rents, issues, profits and
proceeds in such order and manner as the Lenders in its sole discretion, shall
instruct, it being understood that the collection or receipt of income, rents,
issues, profits or proceeds from the Collateral after declaration of default and
election to cause the Collateral to be sold under the pursuant to the terms of
this Agreement shall not affect or impair any event of default or declaration of
default under any agreement or instrument among the Borrower and the Lenders or
election to cause any Collateral to be sold or any sale proceedings predicated
on the same, but such proceedings may be conducted and sale effected
notwithstanding the collection or receipt of any such income, rents, issues,
profits and proceeds; (iv) take control of any and all of the Accounts,
contractual or other rights that are included in the Collateral and Proceeds
arising from any such Accounts or contractual or other rights, enforce
collection, either in the name of the Lenders or in the name of the Borrower, of
any or all of the Accounts, contractual and other rights that are included in
the Collateral and Proceeds by suit or otherwise, receive, receipt for,
surrender, release or exchange all or any part of such Collateral or compromise,
settle, extend or renew (whether or not longer than the original period) any
indebtedness under such Collateral; (v) sell all or any part of the Collateral
at public or private sale at such place or places and at such time or times and
in such manner and upon such terms, whether for cash or credit, as the Lenders
in their sole discretion may determine; (vi) endorse in the name of the Borrower
any instrument, however received by the Lenders representing Collateral or
Proceeds of any of the Collateral; and (vii) exercise all of the rights and
remedies granted to a secured party under the New York Uniform Commercial Code
and all other rights and remedies given to the Lenders under this Agreement or
any other instrument or agreement otherwise available at law or in equity. The
Lenders shall be under no obligation to make any of the payments or do any of
the acts referred to in this Section 4.02 or elsewhere in this Agreement and any
of the actions referred to in this Section 4.02 or elsewhere in this Agreement
may be taken regardless of whether any notice of default or election to sell has
been given under this Agreement (provided, however, that all notices required by
law, the giving of which may not be waived, shall be given in accordance with
such law) without regard to the adequacy of the security for the Obligations.
SECTION 4.03. Application of Proceeds of Sale The Lenders may apply the
net proceeds of any sale, lease or other disposition of Collateral pursuant to
Section 4.02, after conducting all reasonable costs and expenses of every kind
incurred thereon or incidental to the retaking, holding, preparing for sale,
selling, leasing, or the like of the Collateral or in any way relating to the
rights of the Lenders thereunder, including attorneys' fees and expenses
hereinafter provided for, to the payment, in whole or in part, of one or more of
the Obligations in accordance with the terms of this Agreement. The Borrower
shall remain liable to the Lenders for the payment of any deficiency, with
interest at the Default Rate, as provided in the Notes.
The Borrower agrees that forthwith upon the occurrence of an
Event of Default it will notify the Lenders of the details thereof and the
action which it is taking or proposes to take with regard thereto. If an Event
of Default occurs and shall be continuing and the Lenders, in their sole
discretion, do not declare the Notes, all interest accrued and unpaid thereon,
and all other amounts payable hereunder to be forthwith due and payable, the
terms of this Agreement and the Notes shall continue in full force and effect
subject to the right of the Lenders to declare the Notes, all interest accrued
and unpaid thereon, and all other Obligations to be forthwith due and payable.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. No Waiver, Cumulative Remedies. No failure or delay on
the part of the Lenders or the holder of the Notes in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 5.02. Amendments. No amendment, modification, termination, or
waiver of any provision of this Agreement or the Notes, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Lenders and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances.
SECTION 5.03. Addresses for Notices. All notices, requests, demands and
other communications provided for hereunder shall be in writing and, if to the
Lenders, mailed by certified mail) or delivered to it, by hand or by facsimile,
addressed to them at 536 Broadway, 10th Floor, New York, NY 10012 (fax number
212-941-7846), Attention: J. Roger Faherty and if to the Borrower, mailed (by
certified mail) or delivered to it by hand or by facsimile, addressed to it at
536 Broadway, 10th Floor, New York, NY 10024 (fax number 212-941-7846),
Attention: John H. Sharpe, Chief Financial Officer or as to each party, at such
other address as shall be designated by such party in written notice to the
other party complying as to delivery with the terms of this Section. All
notices, requests, demands and other communication provided for hereunder shall
be effective when received.
SECTION 5.05. Costs. The Borrower agrees to pay all of the Lenders'
legal and other professional fees in connection with this Agreement and the
enforcement thereof and of the Notes.
SECTION 5.06. Binding Effect, Assignment. This Agreement shall become
effective when it shall have been executed by the Borrower and the Lenders and
thereafter shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights or obligation hereunder
or any interest herein without the prior written consent of the Lenders except
that the Borrower may assign all of such rights and obligations, including,
without limitation, the security interest in the Collateral to any successor
corporation following any merger of the Borrower.
SECTION 5.07. Additional Security. If the Lenders at any time hold
security for any Obligations in addition to the Collateral, the Lenders may
enforce the terms of this Agreement or otherwise realize upon the Collateral, at
their option, either before or concurrently with the exercise of remedies as to
such other security or, after a sale is made of such other security, they may
apply the proceeds upon the Obligations without affecting the status of or
waiving any right to exhaust all or any other security, including the
Collateral, and without waiving any breach or default or any right or power
whether exercised under this Agreement, contained in this Agreement, or provided
for in respect of any such other security.
SECTION 5.08. Governing Law and Submission to Jurisdiction. This
Agreement and the Notes shall be deemed to be contracts made under the laws of
the State of New York, and for all purposes shall be governed by, and construed
in accordance with, the laws of said State, and the parties hereto hereby
irrevocably agree to submit to the jurisdiction and venue of the federal and
state courts of said State, and the Borrower authorizes the service of process
on it by registered or certified mail sent to any address authorized in Section
5.03 as an address for the sending of notices.
SECTION 5.09. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 5.10. Headings. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
SECTION 5.11. Execution in Counterparts. This Agreement may be executed
and delivered (including by facsimile) in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same instrument.
SECTION 5.12. WAIVER OF TRIAL BY JURY. EACH OF THE LENDERS AND THE
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY OR AGAINST IT ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT,
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE NOTES, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
DIRECTRIX, INC.
By: ---------------------------------
LENDERS
--------------------------------
J. Roger Faherty
--------------------------------
Leland H. Nolan
-------------------------------
Donald J. McDonald,
<PAGE>
Schedule 1.01
Commitment Percentage
J. Roger Faherty 60.00%
Leland H. Nolan 26.67%
Donald J. McDonald, Jr. 13.33%
<PAGE>
Exhibit A
New York, New York
Dated: , 1999
PROMISSORY NOTE
$900,000
FOR VALUE RECEIVED DIRECTRIX, INC., a company organized under the laws
of Delaware (the "Borrower"), does hereby promise to pay to the order of J.
ROGER FAHERTY (the "Lender") the principal amount of NINE HUNDRED THOUSAND
UNITED STATES DOLLARS ($900,000), or the aggregate principal amount of all
advances (the "Advances") made by the Lenders pursuant to the Loan Agreement
referred to below, whichever is less, at the time and in the manner specified in
the Loan Agreement. All defined terms used herein shall have the meanings
assigned thereto in the Loan Agreement.
The Borrower also promises to pay interest on the unpaid principal
amount of this Note at 11% per annum. The interest rate in effect from time to
time pursuant to this Note shall be referred to herein as the "Applicable Rate".
Interest on the Advances shall accrue and be due and payable on each
monthly anniversary of the date hereof within two days from receipt by the
Borrower from the Lender of a notice specifying the amount of interest then due,
until the entire principal amount of the Note has been repaid in full. All
interest accrued hereunder not previously paid shall be due and payable on the
date that the last payment of the principal amount hereof is paid or payable as
set forth in Section 1.01 of the Loan Agreement. Payments of interest and
principal will be made to the order of the Lender at its Account ______________
maintained at [Bank] in the City of New York.
Any amount of principal or interest hereof which is not paid when due,
whether at stated maturity, by acceleration, or otherwise, shall bear interest
from the date when due until said amount is paid in full, payable on demand, at
a rate per annum equal to 2% above the then Applicable Rate (the "Default
Rate").
Absent manifest error, the records of the Lender and the notice in
respect of interest due, shall be conclusive as to amounts of principal
outstanding and interest due on this Note from time to time.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Loan and Security Agreement dated as of March 15, 1999 among
the Borrower, the Lender, Leland H. Nolan and Donald J. McDonald, Jr. which Loan
Agreement, among other things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain stated events.
This Note shall be governed by the laws of the State of New York.
DIRECTRIX, INC.
By:
Name:
Title:
New York, New York
Dated: , 1999
PROMISSORY NOTE
$400,000
FOR VALUE RECEIVED DIRECTRIX, INC., a company organized under the laws
of Delaware (the "Borrower"), does hereby promise to pay to the order of LELAND
H. NOLAN (the "Lender") the principal amount of FOUR HUNDRED THOUSAND UNITED
STATES DOLLARS ($400,000), or the aggregate principal amount of all advances
(the "Advances") made by the Lenders pursuant to the Loan Agreement referred to
below, whichever is less, at the time and in the manner specified in the Loan
Agreement. All defined terms used herein shall have the meanings assigned
thereto in the Loan Agreement.
The Borrower also promises to pay interest on the unpaid principal
amount of this Note at 11% per annum. The interest rate in effect from time to
time pursuant to this Note shall be referred to herein as the "Applicable Rate".
Interest on the Advances shall accrue and be due and payable on each
monthly anniversary of the date hereof within two days from receipt by the
Borrower from the Lender of a notice specifying the amount of interest then due,
until the entire principal amount of the Note has been repaid in full. All
interest accrued hereunder not previously paid shall be due and payable on the
date that the last payment of the principal amount hereof is paid or payable as
set forth in Section 1.01 of the Loan Agreement. Payments of interest and
principal will be made to the order of the Lender at its Account ______________
maintained at [Bank] in the City of New York.
Any amount of principal or interest hereof which is not paid when due,
whether at stated maturity, by acceleration, or otherwise, shall bear interest
from the date when due until said amount is paid in full, payable on demand, at
a rate per annum equal to 2% above the then Applicable Rate (the "Default
Rate").
Absent manifest error, the records of the Lender and the notice in
respect of interest due, shall be conclusive as to amounts of principal
outstanding and interest due on this Note from time to time.
<PAGE>
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Loan and Security Agreement dated as of March 15, 1999 among
the Borrower, the Lender, J. Roger Faherty and Donald J. McDonald, Jr. which
Loan Agreement, among other things, contains provisions for the acceleration of
the maturity hereof upon the happening of certain stated events.
This Note shall be governed by the laws of the State of New York.
DIRECTRIX, INC.
By:
Name:
Title:
New York, New York
Dated: , 1999
PROMISSORY NOTE
$200,000
FOR VALUE RECEIVED DIRECTRIX, INC., a company organized under the laws
of Delaware (the "Borrower"), does hereby promise to pay to the order of DONALD
J. MCDONALD, JR. (the "Lender") the principal amount of TWO HUNDRED THOUSAND
UNITED STATES DOLLARS ($200,000), or the aggregate principal amount of all
advances (the "Advances") made by the Lenders pursuant to the Loan Agreement
referred to below, whichever is less, at the time and in the manner specified in
the Loan Agreement. All defined terms used herein shall have the meanings
assigned thereto in the Loan Agreement.
The Borrower also promises to pay interest on the unpaid principal
amount of this Note at 11% per annum. The interest rate in effect from time to
time pursuant to this Note shall be referred to herein as the "Applicable Rate".
Interest on the Advances shall accrue and be due and payable on each
monthly anniversary of the date hereof within two days from receipt by the
Borrower from the Lenders of a notice specifying the amount of interest then
due, until the entire principal amount of the Note has been repaid in full. All
interest accrued hereunder not previously paid shall be due and payable on the
date that the last payment of the principal amount hereof is paid or payable as
set forth in Section 1.01 of the Loan Agreement. Payments of interest and
principal will be made to the order of the Lender at its Account ______________
maintained at [Bank] in the City of New York.
Any amount of principal or interest hereof which is not paid when due,
whether at stated maturity, by acceleration, or otherwise, shall bear interest
from the date when due until said amount is paid in full, payable on demand, at
a rate per annum equal to 2% above the then Applicable Rate (the "Default
Rate").
Absent manifest error, the records of the Lender and the notice in
respect of interest due, shall be conclusive as to amounts of principal
outstanding and interest due on this Note from time to time.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Loan and Security Agreement dated as of March 15, 1999 among
the Borrower, the Lender, J. Roger Faherty and Leland H. Nolan which Loan
Agreement, among other things, contains provisions for the acceleration of the
maturity hereof upon the happening of certain stated events.
This Note shall be governed by the laws of the State of New York.
DIRECTRIX, INC.
By:
Name:
Title:
New York, New York
Dated , 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
SUMMARY FINANCIAL DATA SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1998
This schedule contains summary financial information extracted from the Form
10-KSB for the year ended December 31, 1998 of Directrix, Inc.
</LEGEND>
<CIK> 0001067310
<NAME> Directrix, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,544,000
<ALLOWANCES> 1,789,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,405,000
<PP&E> 8,272,000
<DEPRECIATION> 5,733,000
<TOTAL-ASSETS> 4,834,000
<CURRENT-LIABILITIES> 748,000
<BONDS> 608,000
0
0
<COMMON> 0
<OTHER-SE> 4,050,000
<TOTAL-LIABILITY-AND-EQUITY> 4,834,000
<SALES> 0
<TOTAL-REVENUES> 9,581,000
<CGS> 0
<TOTAL-COSTS> 13,622,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,000
<INCOME-PRETAX> (4,180,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,180,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,180,000)
<EPS-PRIMARY> (2.01)
<EPS-DILUTED> (2.01)
</TABLE>
