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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|X| SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
Commission file number 0-25435
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SYMPOSIUM CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-4042921
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
410 Park Avenue, Suite 830, New York, New York 10022
(Address of Principal Executive Offices)
(212) 754-9901
(Issuer's Telephone Number, Including Area Code)
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 for the past 90 days. Yes: |X|
No: |_|
Issuer's revenues for fiscal year ended December 31, 1999 were $0
The aggregate market value of the voting stock (common stock) held
by non-affiliates of the Registrant on April 7, 2000 was approximately
$19,100,000.
Number of shares outstanding of each of the issuer's classes of
common equity as of April 7, 2000: 23,014,345 shares of common stock.
Transitional Small Business Disclosure Format Yes: |_| No: |X|
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Symposium Corporation
Form 10KSB
For the Year Ended December 31, 1999
The statements contained in this Annual Report on Form 10-KSB that are not
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. The
Company intends that all forward-looking statements be subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the Company's views as of the date they are
made with respect to future events and financial performance, but are subject to
many risks and uncertainties, which could cause the actual results of the
Company to differ materially from any future results expressed or implied by
such forward-looking statements. Examples of such risks and uncertainties
include, but are not limited to: obtaining sufficient financing to maintain the
Company's planned operations, including acquisitions of other companies; the
Company's ability to form an online discount buying club; the changing of market
conditions and the other risks detailed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Certain Trends and
Uncertainties" in this Annual Report on Form 10-KSB and elsewhere herein. The
Company does not undertake to update any forward-looking statements.
PART I
ITEM 1. Description of Business
General
The Company was incorporated in Delaware in May 1997 as "Brack Industries,
Inc." and changed its name to "Symposium Telecom Corporation" in June 1998 and
to "Symposium Corporation" in May 1999. The Company commenced business
operations in the quarter ended December 31, 1998. From December 1998 through
June 30, 1999, the Company, through its wholly-owned subsidiary Publishers
Advantage Corporation ("PAC"), had minimal operations and was engaged
principally in telemarketing magazine and periodical subscription renewals to
persons whose subscriptions had recently expired. The Company discontinued the
operations of PAC as of June 30, 1999.
The Company's principal business strategy is to acquire well established
direct marketing companies and then leverage the existing marketing
infrastructure and management techniques of those companies to attain
significant market presence in the new web-based economy. Targeted acquisitions
will have one or more of the following characteristics:
- a history of profitability
- an on-going base of current customers
- reach millions of consumers annually
- direct marketing expertise in such areas as outbound/inbound
telemarketing, mass market print and broadcast advertising and mass
market direct mail campaigns
- the opportunity for significant growth within each company's present
business.
Symposium's strategy is to "piggyback" on the direct marketing skills of
an acquired company and its consumer contacts to recruit members to a web-based
discount buying club being developed by Symposium, to provide E-mail addresses
to third party web sites and/or to sell a variety of targeted web services. By
following this strategy, Symposium believes that it can obtain new web customers
for either Symposium's own use or for third party web retailers at or below the
cost of other recruiting techniques. There can be no assurance, however, that
the Company will be able to identify and acquire companies that meet these
criteria.
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As the first step in the implementation of this strategy, in January 2000,
Symposium completed its acquisition of Direct Sales International LP ("DSI")
(see "DSI Acquisition" below).
DSI Acquisition
On January 28, 2000 Symposium, through its wholly-owned subsidiary Media
Outsourcing, Inc. ("MOS"), acquired substantially all the assets and assumed
certain liabilities of DSI, a magazine subscription agency based in Atlanta,
Georgia which works on behalf of US magazine publishers to generate new magazine
subscriptions.
The purchase price paid by Symposium to acquire the net assets of DSI was
approximately $27.6 million including: (i) $25.0 million in cash paid to the
Seller, (ii) an agreement to loan $1.5 million to AmeriNet, Inc. ("AmeriNet") a
company in which Richard Prochnow, DSI's principal owner, holds a majority
interest and (iii) approximately $1.1 million in closing costs and fees incurred
in connection with the acquisition. See "MD&A--Financial Condition and
Liquidity" for a description of certain financial arrangements between
Symposium, Mr. Prochnow and AmeriNet. A dispute between the parties with regard
to the terms of the asset purchase agreement and whether the purchase was
concluded within the time set forth in the Option Agreement caused the purchase
price to increase from that provided under the Option Agreement described in the
Company's Form 10-QSB dated August 16, 1999. Symposium financed the cash portion
of the purchase price by borrowing $16.0 million under a credit facility
provided by Coast Business Credit, resulting in net proceeds of $15.8 million
net of fees, and by using proceeds totaling approximately $9.2 million from the
issuance of common stock, warrants for the purchase of common stock, convertible
preferred stock and convertible debentures. (See "MD&A--Financial Condition and
Liquidity" for a further description of such financing).
MOS Business
The business acquired by Symposium from DSI has been operated through MOS
since the closing of the DSI Acquisition.
MOS is a clearinghouse which has been granted the "Direct Authority" to
act on behalf of magazine publishers, accepting magazine subscription orders
from independent sales organizations and placing those orders with fulfillment
houses designated by the publishers. MOS has relationships with approximately 35
independently owned and operated telemarketing agencies. Each agency employs
telemarketing representatives ("TSRs") who place outbound telephone calls to
potential customers. The TSR sources the calls from lists purchased by the
telemarketing agency or is provided with lists purchased by MOS. On average, the
TSRs employed by the 35 telemarketing agencies call between 3 million and 4
million potential customers and reach approximately 1 million potential
customers per month, resulting in approximately 15,000 new orders each month
during 1999. The TSR's offer a bundle of four to five magazines having an
average selling price of approximately $600 per bundle for an average
subscription period of between three and four years. The TSR takes the order,
confirms the customer's credit card information, and submits the order to MOS
via modem. Within 24 hours of receiving an order, MOS underwrites the order by
calling the customer to verify all of the information regarding the order,
including the magazine subscription order details and the customer's credit card
information. MOS obtains permission to record each conversation as part of the
underwriting process. Upon completion of the underwriting process, MOS purchases
the acceptable orders from the telemarketing agency and finances the cost of the
magazines to the subscriber over a twelve month period with each monthly payment
automatically debited to the customer's credit card. MOS forwards the order to
the appropriate magazine publisher's fulfillment center for processing and pays
the magazine publisher an agreed upon remittance. In the three years preceding
the DSI acquisition, DSI financed more than $250 million of magazine
subscriptions to over 650,000 magazine buyers.
MOS generates additional revenues through the receipt of commissions for
participation in special promotions by magazine publishers to spur the sale of
subscriptions. Publishers will request that MOS provide names of potential
customers for such special promotions. MOS receives a commission based upon the
additional subscriptions sold to the customer base provided by MOS.
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Additionally, MOS earns a commission from a third party discount buying
club ("Memberworks") each time an MOS recommended customer enrolls in or renews
a membership in Memberworks. In 1999 approximately 20% of all new MOS customers
enrolled in Memberworks, resulting in fees to DSI totaling approximately $2.1
million.
Competition
While there are no limitations on who may sell magazines to the public,
the companies and individuals that sell magazines must forward the subscriptions
to the publisher through a clearinghouse which has been granted authority to do
so by the publisher and must pay a fee to the clearinghouse to clear the order.
Thus, in order for a clearinghouse to serve as a distribution channel for a
magazine, it must have secured authority to do so from the publisher of that
magazine. Publishers determine the clearinghouses to which they will grant such
authority. Establishing such a relationship is difficult due to magazine
publishers' reluctance to grant this authority to new companies. MOS has been
granted authority to clear orders for approximately 250 major U.S. magazine
publications.
Magazines are sold by clearinghouses through their own in-house marketing
and sales organizations or through independent agencies, which then clear the
orders they generate through clearinghouses. The industry leaders in sales of
magazine subscriptions are Publishers Clearinghouse and New Sub Services, Inc.
Regulation
Telemarketing operations are subject to various state and federal
regulations. The Federal Telephone Consumer Protection Act of 1991 limits the
hours during which tele-marketers may call consumers to between 8:00 AM and 9:00
PM, and prohibits the use of automated telephone dialing equipment to call
certain telephone numbers. The Federal Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994, and the Federal Trade Commission ("FTC)
regulations promulgated thereunder, prohibit deceptive, unfair or abusive
practices in telemarketing sales. Both the FTC and state attorney generals have
authority to prevent telemarketing activities that constitute "unfair or
deceptive acts or practices." Additionally, some states have enacted laws and
others are considering enacting laws targeted directly at telemarketing
practices, and there can be no assurance that any such laws, if enacted, will
not adversely affect MOS's current or future operations by adversely affecting
the operations and practices of the telemarketing agencies with which MOS has
relationships. Compliance with regulations promulgated by these agencies is
generally the responsibility of the telemarketing agency and as such the
telemarketing agencies with which MOS has relationships could be subject to a
variety of enforcement actions for any failure to comply with such regulations.
Business Strategy
Symposium intends to focus its efforts on the consumers who have been
contacted by MOS's telemarketing representatives but have not purchased a $600
bundle of magazine subscriptions. Symposium intends to:
o Encourage each consumer who has on-line access to visit Symposium's
planned internet-based Discount Retail Buying Club. Symposium
intends to induce consumers to visit its planned on-line club by
offering special promotions, sweepstakes participation and contests.
o Ask permission to market additional products and services to each
consumer who agrees to give Symposium his or her E-mail address.
Symposium plans to form an Internet-based discount buying club as a joint
venture with a large, existing on-line discount buying club. As envisioned,
Symposium club members would enjoy the benefit of the numerous products and
services available from a third party with whom the Company is currently in
negotiations, as well as the customer service and fulfillment centers operated
by the third party. Symposium would locate potential club members through its
marketing efforts and refer them to the joint venture. Symposium would receive a
percentage of the fees and sales revenues received by the joint venture from
these new members. In addition, Symposium would compile customer profile
information on interests and buying patterns of members and would thus have the
ability to market additional goods and services to those members.
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Symposium's strategy is to leverage the existing customer base and
marketing platform of MOS and other direct marketing businesses that Symposium
may acquire in the future.
Purchase Options Terminated
In February 2000, the Company announced its decision not to exercise its
options to purchase 50.1% of the outstanding common stock of AmeriNet, a company
offering direct debit services to electronic retailers, and all of the
outstanding common stock of Hamilton Telecommunications, Ltd. ("Hamilton"), an
international audiotext service operator. As a result, the Company recorded a
$621,716 charge during the fourth quarter of 1999 representing the write-off of
deferred acquisition costs. The charge, which is presented as the cost of
acquisitions not consummated, principally consists of legal and professional
fees, including $38,000 for the fair value of common stock purchase warrants and
$432,000 for the fair value of 50,000 shares of Common Stock that were issued to
various consultants.
During 1999 the Company made a $500,000 loan to AmeriNet, which bears
interest at 8% per annum. As of December 31, 1999, the entire amount of this
loan was reserved due to its uncertainty of collection. As a prerequisite to
consummating the DSI Acquisition in January 2000, the Company agreed to provide
an additional $1.5 million loan facility to AmeriNet (See "Management's
Discussion and Analysis and Plan of Operation"). The Company has treated its
commitment to provide the additional funding to AmeriNet as an increase in the
purchase price of DSI due to the uncertainty of AmeriNet's ability to repay any
of the loans. Mr. Prochnow, the seller of DSI, owns 50% of the common stock of
AmeriNet and currently has a consulting agreement with Symposium.
Employees
As of December 31, 1999, Symposium had four full-time employees. As of
March 31, 2000, Symposium and MOS had an aggregate of 158 full-time employees
and 35 part-time employees.
ITEM 2. Description of Property
The Company's principal office is in the office of its Chief Executive
Officer, Ronald Altbach, located at 410 Park Avenue, New York, New York. The
Company is engaged in discussions to sublet approximately 3,300 square feet of
space from a current tenant at 410 Park Avenue for a five-year term at an
estimated annual cost of approximately $185,000 per annum. There can be no
assurance that the Company will be successful in these negotiations. MOS'
principal office is located 2550 Heritage Court, Atlanta, Georgia. These
premises are leased from an entity that is partially owned by the seller of DSI.
The lease for this office provides for approximately 16,800 square feet of
space, expires in 2004 and the annual rent is approximately $245,000.
ITEM 3. Legal Proceedings
Symposium is not currently a party to any pending legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
ITEM 5. Market For Common Equity and related Stockholder Matters.
<TABLE>
<CAPTION>
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Fiscal 1999 High Low
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<S> <C> <C>
Second Quarter $8 $7
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Third Quarter $8 $5 9/16
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Fourth Quarter $5 7/8 $1 1/16
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</TABLE>
Symposium's Common Stock has been traded on the OTC Bulletin Board
("OTCBB") since June 28, 1999 under the symbol SYPM. The preceding table sets
forth the high and low bid prices for the Common Stock since the second quarter
of 1999, the initial listing period. Prior to the Company's initial listing on
the OTCBB there was no public market for the Common Stock. The quotations above
reflect prices as quoted on the OTCBB, without retail markup, markdown or
commission, and may not necessarily represent actual transactions. The trading
volume of the Company's Common Stock fluctuates and may be limited during
certain periods. As a result, the liquidity of an investment in the Company's
Common Stock may be adversely affected.
On April 10, 2000 the closing bid price of the Common Stock as quoted on
the OTCBB was $1.75 per share. As of March 31, 2000, Symposium had approximately
346 stockholders of record.
Dividends
The Company has never paid or declared any dividends on its Common Stock
and does not contemplate or anticipate paying any such dividends in the
foreseeable future. The Company currently intends to reinvest earnings, if any,
in the development and expansion of its business. The declaration of dividends
in the future will be at the discretion of the Board of Directors and will
depend upon the earnings, capital requirements and financial position of the
Company, general economic conditions, and other pertinent factors.
Recent Sales of Unregistered Securities.
On October 26, 1999, Symposium issued to Airport Consulting, LTD
("Airport") 150,000 shares of Common Stock for financial public relations and
investor relations services rendered to the Company. These securities were
issued and sold in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering, based on: (i) the fact that
Airport represented that it was an accredited investor and was acquiring the
securities for investment purposes; and (ii) the Company did not engage in any
general advertisement or general solicitation in connection with the issuance of
the securities.
On December 23, 1999, Symposium sold to Kreditbank SA Luxembourgeoise
("Kreditbank") 255,000 shares of Common Stock at a price of $2.00 per share.
These securities were issued and sold in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering, based on: (i)
the fact that Kreditbank represented that it was an accredited investor and was
acquiring the securities for investment purposes; and (ii) the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities.
On December 23, 1999, Symposium sold to Banque Diamantaire Anversoise
(Suisse) SA ("Diamantaire") 89,250 shares of Common Stock at a price of $2.00
per share. These securities were issued and sold in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering, based on:
(i) the fact that Diamantaire represented that it was an accredited investor and
was acquiring the securities for investment purposes; and (ii) the Company did
not engage in any general advertisement or general solicitation in connection
with the issuance of the securities.
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On December 23, 1999, Symposium issued to Northern Management ("Northern")
75,000 shares of Common Stock related to the termination of the option to
purchase Hamilton. These securities were issued and sold in reliance on Section
4(2) of the Securities Act as a transaction not involving any public offering,
based on: (i) the fact that Northern represented that it was an accredited
investor and was acquiring the securities for investment purposes; and (ii) the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.
On December 23, 1999, Symposium issued to Panton Management ("Panton")
75,000 shares of Common Stock related to the termination of the option to
purchase Hamilton. These securities were issued and sold in reliance on Section
4(2) of the Securities Act as a transaction not involving any public offering,
based on: (i) the fact that Panton represented that it was an accredited
investor and was acquiring the securities for investment purposes; and (ii) the
Company did not engage in any general advertisement or general solicitation in
connection with the issuance of the securities.
On December 23, 1999, Symposium issued to Establishment Pour La Placement,
Inc. ("Establishment") 200,000 shares of Common Stock for financial public
relations and investor relations services rendered to the Company. These
securities were issued and sold in reliance on Section 4(2) of the Securities
Act as a transaction not involving any public offering, based on: (i) the fact
that Establishment represented that it was an accredited investor and was
acquiring the securities for investment purposes; and (ii) the Company did not
engage in any general advertisement or general solicitation in connection with
the issuance of the securities.
On December 23, 1999, Symposium issued to Tyman Holdings Inc. ("Tyman")
200,000 shares of Common Stock for financial public relations and investor
relations services rendered to the Company. These securities were issued and
sold in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering, based on: (i) the fact that Tyman represented
that it was an accredited investor and was acquiring the securities for
investment purposes; and (ii) the Company did not engage in any general
advertisement or general solicitation in connection with the issuance of the
securities.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read together with the
consolidated financial statements of Symposium and the accompanying "Notes to
the Consolidated Financial Statements" included elsewhere in this Form 10-KSB.
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of Symposium for the years ended December 31, 1999 and 1998, respectively.
Except for historical information, matters discussed in this "Management's
Discussion and Analysis" are forward-looking statements that involve risks and
uncertainties and are based upon judgments concerning various factors that are
beyond the Company's control. Actual results could differ materially from those
projected in the forward-looking statements.
Introduction
From December 1998 through June 30, 1999, the Company had minimal
operations and was engaged principally in telemarketing magazine and periodical
subscriptions through PAC. The Company discontinued the operations of PAC as of
June 30, 1999.
On January 28, 2000 Symposium, through its wholly-owned subsidiary Media
Outsourcing, Inc. ("MOS"), acquired substantially all the assets and assumed
certain liabilities of DSI, a magazine subscription agency based in Atlanta,
Georgia which works on behalf of US magazine publishers to generate new magazine
subscriptions. The purchase price paid by Symposium to acquire the DSI assets
was approximately $27.6 million including: (i) $25.0 million in cash paid to the
seller (ii) an agreement to loan $1.5 million to AmeriNet, a company in which
Richard Prochnow, DSI's principal owner, holds a majority interest and (iii)
approximately $1.1 million in closing costs and fees incurred in connection with
the acquisition. The purchase price was arrived at through an arms-length
negotiations
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among Symposium, DSI and Mr. Prochnow. A dispute between the parties with regard
to the terms of the Asset Purchase Agreement and whether the purchase was
concluded within the time set forth in the Option Agreement caused the purchase
price to increase from that provided under the Option Agreement described in
Symposium's Form 10-QSB, dated August 16, 1999. Symposium financed the cash
portion of the purchase price by borrowing $16.0 million, resulting in proceeds
of $15.8 million net of fees, through a credit facility provided by Coast
Business Credit and by using proceeds totaling approximately $9.2 million from
the issuance of common stock, warrants for the purchase of Common Stock,
convertible preferred stock and convertible debentures. (See "Financial
Condition and Liquidity" below). The Company will use "Purchase Accounting" in
accordance with Accounting Principles Board Opinion No. 16 "Business
Combinations" to record the DSI Acquisition.
Results of Operations
Salaries and Benefits
The Company incurred costs totaling $594,118 for the year ended December
31, 1999, consisting of personnel costs primarily related to the management of
the Company. There were no such costs incurred in 1998 due to the fact that the
Company had no operations and no employees. As a result of MOS' acquisition of
DSI in January 2000, we expect to record significantly greater salary and
benefits costs in 2000. MOS had approximately 154 full-time and 35 part-time
employees as of March 31, 2000.
Consulting Expenses
Consulting expenses increased $6.4 million, or 4,405.4%, to $6.6 million
in 1999 from $145,838 in 1998. Included in the 1999 consulting expenses are $3.3
million of non-cash charges reflecting the estimated fair value of five-year
warrants to purchase 850,000 shares of Common Stock for $2.00 per share and
three-year warrants to purchase 10,000 shares of Common Stock for $1.00 per
share. The fair value of such warrants was estimated using the Black-Scholes
Option Pricing Formula. Consulting expenses for 1999 also includes $2.7 million
of non-cash charges reflecting the fair value of 870,000 shares of the Company's
Common Stock issued for professional services rendered during the year ended
December 31, 1999. The Company expects to continue to incur significant
consulting expenses during 2000 through the issuance of warrants to purchase
Common Stock and payment in cash for marketing advisory and professional
services.
Bad Debt Expense
In June 1999, the Company extended a $500,000 loan to AmeriNet, which
bears interest at 8% per annum. The bad debt expense of $500,000 reflects the
Company's reserve on the AmeriNet loan due to the uncertainty of collection.
Other Operating Expenses
Other operating expenses increased $1.1 million, or 616.1%, to $1.2
million in 1999 from $173,666 in 1998. Other operating expenses in 1999 consist
primarily of accounting and legal expenses of approximately $462,000, travel and
entertainment expenses of approximately $211,000 and office expenses of
approximately $195,000 (including the expenses associated with the Company's
offices in New York and London). In January 2000, the Company closed its London
office in conjunction with the resignation of its UK based directors. Also
included in other operating expenses is the net loss of $178,511 incurred on the
Company's PAC operation that was closed in June 1999.
Costs of Acquisitions Not Consummated
In February 2000, the Company announced its decision not to exercise its
options to purchase 50.1% of the outstanding common stock of AmeriNet and all of
the outstanding common stock of Hamilton Telecommunications, Ltd ("Hamilton").
As a result, the Company recorded a $621,716 charge during the fourth quarter of
1999 representing the write-off of deferred acquisition costs. This charge,
which is presented as the cost of acquisitions not consummated, consists
principally of professional and consulting fees (including $38,000 representing
the fair value of Common
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Stock purchase warrants and $432,000 representing the fair value of 225,000
shares of Common Stock that were issued to various consultants).
Other Income
During the year ended December 31, 1999, the Company recorded other income
totaling $29,910, representing interest income received from the investment of
the Company's funds held in interest bearing accounts.
Income Taxes
No provision was recorded for federal or state income taxes in 1999 or
1998, as the Company has incurred net operating losses since inception. In
accordance with Statement of Accounting Standards No. 109 "Accounting for Income
Taxes," the Company has provided a full valuation allowance on its deferred tax
assets because of the uncertainty regarding their realization.
Net Loss and Net Loss per Share
The net loss for the year ended December 31, 1999 was $9.5 million, or
$0.80 per share, compared to a net loss of $319,504, or $0.18 per share, for
1998. The net loss in 1999 is the result of the Company incurring costs relating
to (i) building its management team, (ii) fees for professional advisory
services and (iii) the identification, negotiation and termination of
acquisitions not consummated.
Liquidity and Financial Condition
At December 31, 1999, the Company had cash on hand of $316,994. The
Company experienced a loss from operations of approximately $9.5 million for the
year ended December 31, 1999 and has a limited amount of working capital
available to meet the short-term needs of the business. In addition, substantial
funding is still required in order for the Company to pursue its strategy of
acquiring and consolidating direct marketing businesses.
The Company had minimal operations before acquiring Direct Sales
International, LP and management believes that its 1999 loss and shortage of
working capital reflect the fact that the Company was principally focused on
consummating its first acquisition. Management believes the Company's revolving
credit facility provides sufficient financing, and, in addition, the acquisition
of Direct Sales International, LP will enable the Company to generate sufficient
cash flow from operations to meet the working capital needs of the business over
the next year.
Although management is seeking additional sources of financing, there can
be no assurance that the Company will be successful in its efforts to raise
additional capital nor can there be any assurance that the acquisition of Direct
Sales International will improve the Company's operating results.
Agreements with Richard Prochnow
In June 1999, in connection with the DSI acquisition, Symposium issued
2,500,000 shares of its Common Stock to Richard Prochnow at a price of $1.00 per
share. The purchase price of the shares was paid by the issuance of a $2,500,000
principal amount note which bore interest at a rate of 7.75% (the "Prochnow
Note"). The Prochnow Note matured on the earlier of December 31, 2000 or the
closing date of the DSI acquisition. In connection with the closing of the DSI
acquisition, the Prochnow Note was amended: (i) to extend the maturity date to
January 14, 2003 (subject to the requirement that one-third of the proceeds of
any sale by Mr. Prochnow of Symposium Common Stock be used to prepay the Note);
(ii) to forgive all accrued and unpaid interest through January 28, 2000; and
(iii) to provide for the accrual of interest on the unpaid balance of the
Prochnow Note at a rate of 10% per annum, commencing on the date of any payment
default under the Note.
As a result of these amendments of the Prochnow Note, the Company incurred
a charge of $115,243 relating to the forgiveness of accrued interest.
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On January 28, 2000, Symposium entered into a Registration Rights
Agreement with Mr. Prochnow, which provides that Mr. Prochnow may sell up to
600,000 shares of Symposium Common Stock to Symposium at $3.00 per share between
January 15, 2001 and March 15, 2001, and also requires the Company to register
1,000,000 of the 2,500,000 shares within 120 days following January 28, 2000.
On January 28, 2000, MOS entered into a three year Consulting Agreement
with Mr. Prochnow pursuant to which Mr. Prochnow is entitled to receive $50,000
per month plus benefits in consideration for consulting services. Such amount
has been guaranteed by Symposium. Additionally, Mr. Prochnow has entered into a
5 year non-compete agreement with MOS expiring in January 2005.
AmeriNet Commitment
In February, 2000, the Company decided not to exercise its option (the
"Option") to acquire 50.1% of the outstanding stock of AmeriNet, Inc.
("AmeriNet"), but as a prerequisite to consummating the DSI acquisition agreed
to provide a $1.5 million credit facility to AmeriNet in addition to the
$500,000 of loans already advanced during 1999. Mr. Prochnow owns 50% of the
common stock of AmeriNet. The Company is treating its commitment to provide
additional funding to AmeriNet as an increase in the purchase price of DSI due
to the uncertainty of AmeriNet's ability to repay any of the loans.
The credit facility requires that the Company fund AmeriNet $100,000 per
month for the ten months beginning in March, 2000 through December 2000
inclusive, plus a payment of $500,000 by July 28, 2000.
Coast Business Credit- Financing Facility
In connection with the DSI acquisition, MOS and the Company entered into
an agreement with Coast Business Credit ("Coast") to provide a credit facility
(the "Coast Facility") used to fund the DSI Acquisition and working capital
needs of MOS. The Coast Facility is for a term of three years, and provides a
maximum credit line of $20 million subject to certain availability limitations.
As a result of these availability limitations, the amount available for
borrowing under the Coast Facility at the time of the DSI acquisition was $16.0
million, which MOS drew down in its entirety to finance the DSI acquisition.
Interest on outstanding advances under the Coast Facility accrues at an annual
rate equal to the higher of (i) the prime rate plus 200 basis points, calculated
on the basis of the actual number of days elapsed in a 360 day year, and (ii)
9.0%. The Coast Facility requires Symposium and MOS to comply with specified
financial covenants. In connection with the execution and delivery of the Coast
Facility, the Company granted Coast 300,000 five-year options to purchase the
Company's Common Stock at an exercise price of $3.53 per share (110% of the
closing price of the Common Stock on the closing date). Coast extended the
facility to the Company with the condition that the Company raise additional
equity capital of not less than $3 million by February 28, 2000 which was
subsequently extended to March 31, 2000. On March 30, 2000 the Company and Coast
amended the Coast Facility as follows: (i) the covenant requiring the Company to
raise additional cash equity of $3.0 million was eliminated; (ii) the parties
reduced the consolidated net worth (defined as stockholder equity and
subordinated debt) covenant to $9.0 million from $12.0 million at March 31,
2000; and (iii) a new covenant was added requiring that the Company maintain
excess borrowing availability of (a) $750,000 through April 30, 2000, (b) $1.0
million from May 1, 2000 through June 30, (c) $2.0 million thereafter. If the
Company raises additional equity of $3.0 million, this availability requirement
is reduced to $750,000.
Series A Mandatorily Redeemable Convertible Preferred Stock ("Series A
Preferred")
On January 28, 2000, the Company issued 21,500 shares of Series A
Preferred resulting in net proceeds to the Company totaling $2.0 million. The
outstanding shares of Series A Preferred ("Series A Shares") were initially
redeemable at an aggregate redemption price of $2,150,000 (plus accrued
dividends at a rate of 16% per annum). As a result of the Company's failure to
redeem the Series A Preferred on February 27, 2000, the Company was required to
issue to the holders of the outstanding Series A Preferred (the "Series A
Holders") an aggregate of 16,125 shares of Common Stock per day for each day
that the Series A Shares remained outstanding from February 28 through March 28,
2000; and 26,875 shares of Common Stock per day for each day that such Series A
Shares remained outstanding after March 28, 2000.
10
<PAGE> 11
If the Series A Shares were not redeemed by April 12, 2000, the Company
would have been required to issue to the Series A Holders, monthly in advance,
five-year warrants to purchase 215,000 shares of Common Stock per Series A Share
at an exercise price of $.10 per share, for each 30-day period the Series A
Shares remained outstanding from and after April 13, 2000. In addition, on April
13, 2000, the conversion price at which the Series A Shares were convertible
into shares of Common Stock would have decreased from $2.00 to $0.10.
On March 27, 2000, the Series A Holders (i) converted their total holdings
of Series A Shares including accrued and unpaid dividends into an aggregate of
4,414,666 shares of Common Stock (representing a conversion price of $.50 per
share); (ii) the Company agreed to issue to the Series A Holders: (A) warrants
to purchase 1,103,500 shares of Common Stock at an exercise price of $.0.50 per
share and (B) warrants to purchase 1,103,500 shares of Common Stock at an
exercise price of $1.00 per share; and (iii) the Company paid to Capital
Research, Ltd. (the placement agent for the Series A Shares and one of the
Series A Holders) a fee of 220,000 shares of Common Stock.
Series B Mandatorily Redeemable Convertible Preferred Stock ("Series B
Preferred")
On January 28, 2000, the Company issued 15,350 shares of Series B
Preferred resulting in net proceeds to the Company totaling $1.5 million. The
Series B Preferred is initially convertible into 767,500 shares of Common Stock
at a conversion price of $2.00 per share and is entitled to a 10% cumulative
dividend, payable quarterly. In connection with the issuance and sale of the
Series B Preferred, the Company issued to the holders of the Series B Preferred
warrants to purchase 387,750 shares of Common Stock with an exercise price of
$1.50 per share. The Series B Preferred is mandatorily redeemable on July 26,
2000 for an aggregate redemption price of $1,535,000, together with accrued
dividends ($26,495 as of March 31, 2000 and accruing thereafter at a rate of 10%
per annum). The Company is also required to redeem the Series B Preferred out of
the proceeds of any subsequent financing greater than $10 million. If the Series
B Preferred is not redeemed in full on or prior to July 26, 2000, the conversion
price automatically decreases from $2.00 per share to $.50 per share.
Series C Mandatorily Redeemable Convertible Preferred Stock ("Series C
Preferred")
On January 28, 2000, the Company issued 52,892 shares of Series C
Preferred resulting in net proceeds to the Company totaling approximately $5.0
million. The Series C Preferred is initially convertible into shares of Common
Stock at $2.00 per share and is entitled to a 10% cumulative dividend, payable
quarterly. In connection with the issuance and sale of the Series C Preferred,
the Company issued to the holders of the Series C Preferred 1,763,067 shares of
Common Stock. Additionally, the Company reduced the exercise price on 2,000,000
warrants previously issued to a holder of Series C Preferred from $3.50 per
share to $1.00 per share. The Series C Preferred is mandatorily redeemable on
July 26, 2000 at an aggregate redemption price of $5,289,200, together with
accrued dividends ($91,923 as of March 31, 2000). The Company is also required
to redeem the Series C Preferred out of the proceeds of any subsequent financing
greater than $10 million. If the Series C Preferred is not redeemed in full on
or prior to July 26, 2000, the conversion price automatically decreases from
$2.00 per share to $.25 per share and the Company will be required to issue to
the holders of the Series C Preferred, monthly in advance until the Series C
Preferred is redeemed in full, five-year warrants to purchase 370,244 shares of
Common Stock at a exercise price of $.25 per share.
Preferred Stock Accounting
The proceeds received from the issuances of preferred stock with common
stock and/or common stock purchase warrants will be allocated to each component
based on their relative fair values on January 28, 2000 (the date of issuance).
The fair value of the preferred stock is considered to be equal to the aggregate
market value of the equivalent number of common shares into which the preferred
stock is convertible. The fair value of the common stock is based on the closing
market value which was $3.20 on the date of issuance and the fair value of the
common stock purchase warrants was determined using the Black"Scholes option
pricing model.
The difference between carrying value of the preferred stock and its
mandatory redemption price (of $100 per share) will be amortized from the date
of issuance to the mandatory redemption date by increasing the carrying value of
the preferred stock and decreasing retained earnings for the accrual of
preferred dividends. In addition, cumulative
11
<PAGE> 12
dividends payable to the preferred shareholders on the mandatory dates of
redemption will also be accounted for by periodically increasing the carrying
value of the preferred stock and decreasing retained earnings.
All of the preferred shares were issued with a beneficial conversion
feature that has an intrinsic value of $1.20 per share, representing the
difference between the market value of the Company's common stock of $3.20 per
share on the date of issuance and the initial conversion price of $2.00 per
share on such date. Since all of the preferred stock is immediately convertible
into common stock, the intrinsic value of the beneficial conversion feature will
be characterized as a dividend and accounted for by increasing additional
paid-in-capital and decreasing retained earnings on the date of issuance.
Reductions in the conversion price of the preferred stock into common
stock (that will take effect if the Company fails to redeem the preferred stock
on the mandatory date of redemption) are considered contingencies that are not
recognized for accounting purposes on the date of issuance. The difference
between the intrinsic value that would result from a reduction of the conversion
price in the event of a default and the intrinsic value recorded as a dividend
on the date of issuance would be characterized as additional dividend that would
further decrease retained earnings.
As noted above, the Series A shareholders were issued 275,000 shares of
common stock in exchange for extending the mandatory redemption date of the
Series A preferred stock then subsequently agreed to convert their preferred
shares and accumulated dividends into 4,414,666 shares of common stock. The
market value of the Company's common stock on the date of conversion was $2.63.
Accordingly, the Company recorded a contractual dividend of $57,533 payable to
the Series A holders on the date of conversion and additional dividends of
approximately $13.3 million including (i) the fair of the additional common
shares and common stock purchase warrants, (ii) accretion of the difference
between the carrying value and the redemption amount and (iii) the difference in
the amount of intrinsic value of the beneficial conversion feature on the date
of redemption and the date of original issuance.
The following table summarizes (i) the allocation of the proceeds from the
issuances of the preferred stock with common stock and common stock purchase
warrants, (ii) the reduction in retained earnings resulting from the beneficial
conversion feature and (iii) the incremental reduction in retained earnings that
would result from a contractual changes in conversion prices in the event of a
default.
<TABLE>
<CAPTION>
Series A Series B Series C
---------- ---------- ----------
<S> <C> <C> <C>
Mandatory redemption amount $2,150,000 $1,535,000 $5,289,200
---------- ---------- ----------
Allocation of proceeds to:
Preferred stock $1,428,571 $1,173,715 $2,401,352
Common stock 430 1,763
Additional paid-in-capital 1,860,999 1,282,285 4,948,237
Retained Earnings (1,290,000) (921,000) (2,401,352)
---------- ---------- ----------
Gross proceeds $2,000,000 $1,535,000 $4,950,000
---------- ---------- ----------
Additional dividends resulting
from extension and conversion of
Series A preferred stock $13,270,882
----------
Contingent dividends if default
occurs on Series B and C $7,368,000 $60,011,208
---------- -----------
</TABLE>
Acquisition Bridge Financing
Commtel Services Ltd. Note. On January 20, 2000, the Company entered into
a note agreement (the "Commtel Note") with Commtel Services Ltd. ("Commtel") for
a 30-day bridge loan in the principal amount of $300,000. The proceeds of this
loan were used in connection with the financing of the DSI acquisition. The
Commtel
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<PAGE> 13
Note accrued interest of a rate of 10% per annum, with principal and interest
due and payable on February 20, 2000 . In consideration of the loan, the Company
issued 75,000 shares of its Common Stock to Commtel. The Company failed to pay
the Commtel Note at maturity, as a result of which: (i) the annual interest rate
on the Commtel Note increased to 18% on all outstanding principal and accrued
interest, and (ii) the Company was required to issue to Commtel an additional
50,000 shares of Common Stock as of February 21, 2000 and an additional 2,500
shares of Common Stock for each subsequent day until the Commtel Note was paid
or converted (aggregating 77,500 shares on March 21, 2000). On March 21, 2000,
Commtel converted the Commtel Note into approximately 614,048 shares of Common
Stock in satisfaction of all principal and interest due. The proceeds received
from the issuances of the Commtel Note with Common Stock are being allocated to
each component based on their relative fair values on January 20, 2000 (the date
of issuance). The fair value of the Common Stock on January 20, 2000 was $2.31
per share and resulted in discounted carrying value to the Commtel Note of
$200,000 and an increase to stockholders' equity of $100,000.
The difference between carrying value of the Commtel Note and its face
value of $300,000 is being amortized from the date of issuance to its due date
of February 20, 2000 and will be recorded as component of interest expense.
As a result of the conversion of the Commtel Note, during the first
quarter of 2000, the Company will record additional interest expense of
approximately $1.2 million including interest of 10% on the Commtel Note, the
fair market value of additional common shares issued under the penalty provision
of the Commtel Note, and the intrinsic value of the beneficial conversion of the
Commtel Note into 614,048 shares of common stock.
Fontenelle Note. On January 25, 2000, the Company borrowed $500,000 from
Fontenelle LLC, which borrowing was evidenced by a $500,000 principal amount
Convertible Subordinated Note due March 25, 2000 (the "Fontenelle Note").
The proceeds of this loan were used primarily in connection with the
financing of the DSI acquisition. Interest accrued on the Fontenelle Note at an
annual rate of 10% and was due and payable along with the outstanding principal
at maturity. The Fontenelle Note was convertible into shares of Common Stock at
a conversion price of $2.00 per share. The Company paid the Fontenelle Note in
full on March 24, 2000.
D2 Loan. On January 25, 2000, the Company borrowed $300,000 from D2 Co.
LLC, which borrowing is payable on July 26, 2000 (the "D2 Loan"). The proceeds
of the D2 Loan were used primarily in connection with the financing of the DSI
acquisition. Interest accrues on the D2 Loan at an annual rate of 10% and is due
and payable along with the outstanding principal at maturity. The outstanding
principal amount of the D2 Loan is initially convertible into 150,000 shares of
the Company's Common Stock at a conversion price of $2.00 per share. If the
Company does not pay the D2 Loan by July 26, 2000, the conversion price is
reduced to $0.50 per share (representing 600,000 shares of the Company's Common
Stock).
The beneficial conversion feature of the D2 note has an aggregate
intrinsic value of $46,500. The aggregate intrinsic value of the beneficial
conversion feature represents the difference between the market value of the
Company's Common Stock of $2.31 per share on the date of issuance and the
initial conversion price of $2.00 per share on such date. Since the note is
immediately convertible into Common Stock, the intrinsic value of the beneficial
conversion feature will be recorded as additional interest expense on the date
of issuance.
The reduction in the conversion price to $.50 per share that will take
effect if the Company fails to repay the D2 note on its due date is considered a
contingency that is not recognized for accounting purposes on the date of
issuance. The reduction of the conversion price to $.50 per share, if it occurs,
will result in additional interest expense of approximately $1 million based
upon the difference between the intrinsic value of the conversion feature
pursuant to the default provisions of the D2 note and the intrinsic value on the
date of issuance.
13
<PAGE> 14
Certain Trends and Uncertainties
General Economic Conditions
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by a decrease in the availability
of consumer credit. Any material decline in the availability of consumer credit
may result in a decrease in consumer demand to utilize credit cards to purchase
magazine subscriptions, which could adversely affect the demand for the
Company's products and services.
Interest Rates
The Company's profitability may be directly affected by interest rates,
specifically the Prime Rate, which affects the interest paid by MOS under the
Coast Facility. The annual rate of interest payable under the Coast Facility is
calculated at the higher of (i) the Prime Rate plus 200 basis points and (ii)
9.0%. An increase in the Prime Rate would increase the interest paid by MOS
under the Coast Facility, adversely impacting earnings.
Need to Increase Authorized Shares of Common Stock
There are 25,000,000 shares of Common Stock authorized for issuance under
the Company's Amended and Restated Certificate of Incorporation. The Company
currently does not have sufficient authorized but unissued shares of Common
Stock to enable it to issue shares of Common Stock issuable upon exercise or
conversion of all of the Company's outstanding options, warrants or convertible
securities, or to use its Common Stock as a currency to pursue acquisition or
other business opportunities that the Company may consider attractive. The Board
of Directors has approved an amendment to the Amended and Restated Certificate
of Incorporation (the "Amendment"), and is currently in the process of seeking
stockholder approval of such Amendment (by written consent pursuant to Section
228 of the Delaware General Corporation Law), to increase the authorized shares
of Common Stock from 25,000,000 to 75,000,000. While stockholders owning more
than fifty percent of the issued and outstanding shares of Common Stock (the
percentage necessary to approve the Amendment) have indicated their intention to
consent to the Amendment, the requisite consents have not yet been obtained and,
accordingly, there can be no assurance that the Amendment will be approved.
Need for Additional Financing
The Company will require additional debt or equity financing in order to
meet its obligations to redeem shares of mandatorily redeemable preferred stock
and to pay the outstanding principal balances of and accrued interest on a short
term bridge financing which matures during the next several months. The Company
will also require additional financing to pursue its strategy of expanding its
business operations through the development or acquisition of niche direct
marketing businesses. The failure timely to obtain such financing could prevent
the Company from continuing its business strategy or responding to changing
business or economic conditions, could cause the Company to experience
difficulty in withstanding any adverse operating results or competing
effectively and could, therefore, materially adversely affect the Company. The
Company financed its January 2000 acquisition of DSI with the proceeds of
borrowings under the Coast Facility, the proceeds of certain bridge financing
(described in the next sentence) and the proceeds from the issuance and sale of
shares of the Company's Series A, B and C Preferred Stock. The bridge financing
consisted of the Commtel Note; the Fontenelle Note; and the D2 Loan. Commtel
converted the Commtel Note into Common Stock on March 21, 2000 and the Company
paid the Fontenelle Note on March 24, 2000. The D2 Loan matures on July 26, 2000
and remains unpaid.
The holders of the Series A Preferred have converted the outstanding
Series A Preferred at a conversion price of $0.50 per share. See "Financial
Condition and Liquidity - Series A Mandatorily Redeemable Convertible Preferred
Stock" above. The outstanding shares of Series B Preferred Stock (the "Series B
Shares") are mandatorily redeemable on or prior to July 26, 2000 at an aggregate
redemption price of $1,535,000, together with accrued dividends ($26,495 as of
March 31, 2000 and accruing thereafter at a rate of 10% per annum). The
outstanding shares of Series C Preferred (the "Series C Shares") are mandatorily
redeemable on or prior to July 26, 2000 at an aggregate redemption price of
$5,289,200, together with accrued dividends ($91,293 as of March 31, 2000 and
accruing thereafter at a rate of 10% per annum).
14
<PAGE> 15
As described above under "Financial Condition and Liquidity - Series B
Mandatorily Redeemable Convertible Preferred Stock and Series C Mandatorily
Redeemable Convertible Preferred Stock," the Company's failure timely to redeem
the B and C Preferred Stock will trigger certain requirements under their
respective Certificates of Designation and the Company's agreements with the
holders thereof, that the Company issue shares of Common Stock or warrants to
purchase Common Stock to the holders of Preferred Stock, and will result in a
significant reduction of the applicable prices at which such Preferred Stock is
convertible into Common Stock. Such issuances and reductions could result in
significant dilution to the existing holders of Common Stock.
Limited Operating History
The Company's business, as currently conducted, has a limited operating
history, and it is difficult to predict whether the Company's business will be
successful.
Acquisitions
A key component of the Company's strategy is to acquire, on acceptable
terms, companies that complement or enhance the Company's business. The
Company's acquisition strategy may result in increased expenses, difficulties in
integrating acquired companies and diversion of management's attention. There
cannot be any assurance that the Company will be able to identify or
successfully compete for attractive acquisition candidates or to complete
acquisitions at reasonable purchase prices, in a timely manner or at all. In
addition, certain of the Company's competitors have greater financial resources
than the Company and may be able to more effectively complete acquisitions,
which could result in increased prices for acquisition targets and a diminished
number of companies available for acquisition.
Other risks associated with the Company's acquisition growth strategy
include: (i) expenses and difficulties in identifying potential targets and
costs associated with uncompleted acquisitions; (ii) expenses, delays and
difficulties of integrating acquired companies in the Company's existing
organization; (iii) expenses of amortizing acquired companies' intangible
assets; and (iv) issuance of equity securities to pay for acquisitions may be
dilutive to existing stockholders. These risks could have a material adverse
effect on the Company's financial condition, operating results and business.
Managing Growth
The Company's recent growth as a result of the DSI acquisition has
required, and anticipated future growth will require, a substantial amount of
the Company's managerial and operational resources. To manage future growth,
management must continue to improve its operational and financial systems and
expand, train, retain and manage its employee base. There can be no assurance
that the Company will be able to effectively manage its growth. If the Company's
(or its present or any future subsidiaries') systems, procedures or controls are
inadequate to support their operations, the Company's expansion would be
impaired. The Company's inability to manage growth effectively could have a
material adverse effect on its financial condition, operating results and
business.
Volatility of Stock Price
The market price of the Company's Common Stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. Some of these
fluctuations appear to be unrelated or disproportionate to the operating
performance of the company. Future market movements may materially and adversely
affect the market price of the Company's Common Stock.
Ownership of Company is Concentrated
The five largest stockholders of the Company beneficially owned
approximately 52% of the Company's issued and outstanding Common Stock as of
March 31, 2000. As a result, these stockholders possess significant influence
over the Company on business matters, including the election of directors or the
approval of any other action requiring the approval of stockholders. This
concentration of share ownership may: (i) delay or prevent a change of control
of the Company; (ii) impede a merger, consolidation, takeover or other business
combination
15
<PAGE> 16
involving the Company; or (iii) discourage a potential acquiror from making a
tender offer or otherwise attempting to obtain control of the Company.
Shares Eligible for Future Sale Could Cause the Company's Stock Price to
Decline
The market price of the Common Stock could decline as a result of future
sales of substantial amounts of the Company's Common Stock, or the perception
that such sales could occur. Furthermore, certain of the Company's existing
stockholders have the right to require the Company to register their shares, or
shares of Common Stock into which their convertible securities, options,
warrants or convertible debt are convertible, which may facilitate the sale of
these shares in the public market.
On January 28, 2000, Symposium entered into a Registration Rights
Agreement with Richard Prochnow, which also requires the Company to register
1,000,000 of the shares owned by Mr. Prochnow within 120 days following January
28, 2000.
On March 21, 2000 Symposium entered into a Settlement Agreement regarding
the Commtel Note which provides that Symposium issue 816,548 shares of Symposium
Common Stock to Commtel as full performance of Symposium's obligations under the
Commtel Note. The Settlement Agreement grants Commtel piggyback registration
rights with respect to these shares should Symposium effect the registration of
any shares of Common Stock.
In March 1999, the Company issued an aggregate of 100 Units, each Unit
consisting of (i) 25,000 shares of its Common Stock and (ii) 25,000 warrants
(the "Warrants"), each warrant representing the right to purchase one share of
Common Stock at an exercise price of $3.50 per share expiring on December 31,
2001 (the "Units Offering"). In connection with this offering, the Company
agreed to register, as promptly as practicable following June 16, 1999 (the date
the Company's Common Stock was registered under Section 12 of the Securities
Exchange Act of 1934, as amended) the Common Stock included the Units and all
Common Stock issuable upon exercise of the Warrant component of the Units.
In connection with the issuance of the Series A, B and C Mandatory
Returnable Convertible Preferred Stock of the Company, the Company has agreed to
register, upon demand, (i) the Common Stock issued, or issuable, upon conversion
of the Series A, B and C Convertible Preferred Stock (collectively, the
"Preferred Stock") (ii) the Common Stock issued, or issuable, upon exercise of
warrants of the Company issued to the holders of Series B Convertible Preferred
Stock and (iii) 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 the Common Stock referred to above. The
Company has also agreed to unlimited "piggy back rights" with respect to such
shares.
Credit Facility Covenants
In connection with the financing of the DSI acquisition, MOS and the
Company entered into the Coast Facility. The Company has guaranteed MOS'
obligations under the Coast Facility. Under the terms of the agreement with
Coast, the Company is required, among other things, to maintain a consolidated
net worth of not less than $9.0 million (defined as stockholders' equity and
subordinated debt) and excess borrowing availability of (a) $750,000 through
April 30, 2000, (b) $1.0 million from May 1 through June 30, 2000 and (c) $2.0
million thereafter. If the Company raises additional equity of $3.0 million, the
excess availability requirement is reduced to $750,000. If the Company cannot
satisfy these covenants, or other covenants under the Coast Facility, it will be
required to seek a waiver or amendment from Coast. Although Coast has agreed to
waivers and amendments in the past, there can be no assurance that Coast will do
so in the future. If MOS and the Company are in default of their obligations to
Coast, Coast would be entitled to accelerate the maturity of outstanding
indebtedness under the Coast Facility ($15,257,095 is outstanding as of March
30, 2000) and to enforce its security interest in the Company's assets.
16
<PAGE> 17
Preferred Stock; Possible Anti-Takeover Effect
The Company's Certificate of Incorporation, as amended, authorizes the
board of directors (the "Board of Directors") to issue up to 10,000,000 shares
of preferred stock, par value $.001 per share. The preferred stock may be issued
in one or more series, the terms of which may be determined at the time of
issuance by the Board of Directors, without further action by stockholders, and
may include, among other things, voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights, and sinking fund provisions. After giving
effect to the conversion of the series A preferred into common stock, there are
two series of preferred stock currently outstanding which have a liquidation
preference. In addition, specific rights granted to future holders of preferred
stock could be used to restrict the Company's ability to merge with, or sell its
assets to a third party. The ability of the Board of Directors to issue
preferred stock could discourage, delay, or prevent a takeover of the Company,
hereby preserving control of the Company by the current stockholders.
Dependence on Key Personnel
The Company's and MOS' success depends to a significant extent upon a
number of key employees and management. The loss of the services of key
employees could adversely affect our business, operating results or financial
condition.
Year 2000
The Year 2000 issue is one where computer systems recognize the
designation "00" as 1900 instead of 2000, potentially resulting in system
failure or miscalculations. In recognition of this Year 2000 issue, commencing
in the second quarter of 1999, MOS initiated a review of its information
technology systems, on which we are dependent for the conduct of our business
operations, as well as the computer hardware and software products, components
and other equipment supplied to us by third parties in order to determine the
adequacy of those systems in light of our future business requirements. We
completed our review in the fourth quarter of 1999.
As a result of our review, we determined that our internal financial
software systems are adequate for our future business needs, including Year 2000
compliance, and do not need to be replaced. The cost of our Year 2000 efforts
was immaterial. To date, we have not experienced any material Year 2000
compliance problems relating to our internal financial software systems or our
other information technology systems, computer hardware, software products and
components or other equipment.
We have not assessed the Year 2000 readiness of any third parties with
whom we have relationships. Due to our uncertainty of the Year 2000 readiness of
these third parties, we cannot determine whether the failure by one or more of
these parties to be Year 2000 compliant will materially impact our business,
financial condition or results of operations. Through March 31, 2000, we have
not experienced any material Year 2000 compliance failures by any third parties.
If we or the third parties with which we have relationships were to fail
to meet Year 2000 requirements, we would likely encounter disruptions to our
business that could have a material adverse effect on our business, financial
position or results of operations. We could be materially and adversely impacted
by widespread economic or financial market disruption or by Year 2000 computer
system failures of third parties with which we have relationships.
17
<PAGE> 18
ITEM 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants 19
Financial Statements
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statement of Stockholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24-41
18
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Symposium Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Symposium
Corporation and Subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform 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 consolidated financial position of Symposium
Corporation and Subsidiary as of December 31, 1998 and 1999 and the consolidated
results of their operations and their consolidated cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
/s/ GRANT THORNTON LLP
New York, New York
March 31, 2000
19
<PAGE> 20
Symposium Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1999 Unaudited
Consolidated
Pro Forma
ASSETS 1998 1999 (Note C)
------------ ------------ ------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 276,243 $ 337,615 $ 337,615
Trade accounts receivable, net of collection and
cancellation reserve of $18,493,203 28,401,999
Prepaid insurance 19,916 555,920
Deferred expenses 1,472,040
------------ ------------ ------------
Total current assets 276,243 357,531 30,767,574
------------ ------------ ------------
Equipment (at cost, less accumulated depreciation) 3,583 34,208 287,918
Organizational costs 25,110
Deferred acquisition costs 514,317
Deferred financing costs 150,000 1,106,000
Goodwill and other intangible assets 5,775,824
Other assets 39,315
------------ ------------ ------------
$ 344,251 $ 1,056,056 $ 37,937,316
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities
Cash overdraft $ 2,235,950
Revolving credit facility 16,000,000
Acquisition bridge notes and loan 300,000
Trade accounts payable $ 69,233 $ 69,093 4,021,318
Accrued closing costs 2,000,000
Accrued professional fees 454,280 494,280
Other current liabilities 238,921
Deferred revenue 3,004,164
------------ ------------ ------------
Total current liabilities 69,233 523,373 28,294,633
------------ ------------ ------------
Commitments and contingencies
Mandatorily redeemable preferred stock, par value $.001 per share; authorized,
10,000,000 shares; no shares issued and outstanding in 1998 and 1999; 89,742
outstanding on a pro forma basis 3,548,305
Stockholders' equity
Common stock, par value $.001 per share; authorized, 25,000,000 shares;
7,370,464 shares and 14,043,214 shares issued and outstanding at December
31, 1999 and 1998, respectively; 21,962,495 outstanding on a pro forma basis 7,370 14,043 21,962
Additional paid-in capital 587,152 12,848,277 37,530,105
Note receivable - common stock (2,500,000) (2,500,000)
Accumulated deficit (319,504) (9,829,637) (28,957,689)
------------ ------------ ------------
275,018 532,683 6,094,378
------------ ------------ ------------
$ 344,251 $ 1,056,056 $ 37,937,316
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 21
Symposium Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1999 Unaudited
Consolidated
Pro Forma
1998 1999 (Note C)
------------ ------------ ------------
<S> <C> <C> <C>
Revenues, net $ 85,356,097
Direct costs and expenses 73,980,868
------------
Gross profit 11,375,229
------------
Expenses
Salaries and benefits $ 594,118 2,348,459
Consulting expenses $ 145,838 6,577,827 6,977,827
Bad debt expense 500,000 500,000
Other operating expenses 173,666 1,246,382 3,276,445
Amortization of goodwill and other intangible assets 577,582
Costs of acquisitions not consummated 621,716 621,716
------------ ------------ ------------
Total expenses 319,504 9,540,043 14,302,029
------------ ------------ ------------
Loss from operations (319,504) (9,540,043) (2,926,800)
Other income (expense)
Interest expense (2,082,357)
Other income -- 29,910 468,478
------------ ------------ ------------
NET LOSS (319,504) (9,510,133) (4,540,679)
Preferred stock dividends -- (3,612,431)
------------ ------------ ------------
Net loss to common stockholders $ (319,504) $ (9,510,133) $ (8,153,110)
============ ============ ============
Basic and diluted loss per share $ (0.18) $ (.80) $ (0.41)
============ ============ ============
Weighted-average shares of common stock outstanding -
basic and diluted 1,729,428 11,852,273 19,771,554
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 22
Symposium Corporation and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Common stock
-------------------------
Number Additional
of paid-in Note Accumulated
shares Amount capital receivable deficit Total
----------- ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998
Sales of common stock 7,361,264 $ 7,361 $ 430,977 $ 438,338
Common stock issued for consulting
services 9,200 9 175 184
Stock options and warrants issued
for services 73,000 73,000
Contributed service - officers 83,000 83,000
Net loss for the year ended
December 31, 1998 $ (319,504) (319,504)
----------- ----------- ----------- ------------ -----------
Balance at December 31, 1998 7,370,464 7,370 587,152 (319,504) 275,018
Sales of common stock 5,429,250 5,429 5,475,589 $ (2,500,000) 2,981,018
Issuances of common stock from
exercise of previously issued
warrants 28,500 29 28,451 28,480
Stock warrants issued for consulting
services 3,525,550 3,525,550
Common stock issued for consulting
services 1,215,000 1,215 3,231,535 3,232,750
Net loss for the year ended
December 31, 1999 (9,510,133) (9,510,133)
----------- ----------- ----------- ------------ ------------ -----------
Balance at December 31, 1999 14,043,214 $ 14,043 $12,848,277 $ (2,500,000) $ (9,829,637) $ 532,683
=========== =========== =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE> 23
Symposium Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (319,504) $(9,510,133)
Adjustments to reconcile results of operations to
net cash effect of operating activities
Value of common stock and common stock purchase
warrants issued for services 73,000 6,486,300
Contributed services - officers 83,000
Depreciation 124 5,124
Bad debt expense 500,000
Write-off of organization costs 25,110
Changes in assets and liabilities
Prepaid insurance (19,916)
Other assets (39,315) 39,315
Accounts payable and other accrued expenses 69,233 454,140
----------- -----------
Net cash used in operating activities (133,462) (2,020,060)
----------- -----------
Cash flows from investing activities
Purchase of equipment (3,707) (35,749)
Organization costs (24,926)
Loans made to AmeriNet (500,000)
Deferred acquisition costs (242,317)
----------- -----------
Net cash used in investing activities (28,633) (778,066)
----------- -----------
Cash flows from financing activities
Sales of common stock 3,009,498
Deferred financing costs 438,338 (150,000)
----------- -----------
Net cash provided by financing activities 438,338 2,859,498
----------- -----------
Net increase in cash and cash equivalents 276,243 61,372
Cash and cash equivalents at beginning of year -- 276,243
----------- -----------
Cash and cash equivalents at end of year $ 276,243 $ 337,615
=========== ===========
</TABLE>
Supplemental disclosures of noncash activities:
During the year ended December 31, 1999, 2,500,000 shares of common stock
were issued at $1.00 per share in exchange for a note receivable.
The Company issued common stock purchase warrants with a fair value of
$152,000 in exchange for services rendered in connection with acquiring
Direct Sales International in January 2000.
The accompanying notes are an integral part of these statements.
23
<PAGE> 24
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1999
NOTE A - Organization
Symposium Corporation ("Symposium" or the "Company") was incorporated in
Delaware on May 9, 1997 under the name of Brack Industries Inc. and, after
amending its certificate of incorporation, changed its name to Symposium
Corporation in December 1998. The Company was inactive until December
1998. The Company's principal business strategy is to identify, acquire,
and consolidate direct marketing businesses. In November 1999, the Company
formed Media Outsourcing, Inc. ("MOS") formerly known as Direct Sales
International, Inc., a wholly-owned subsidiary, for the purpose of
acquiring the assets of Direct Sales International, LP. The Company
completed this acquisition in January 2000 (see Note C). From December
1998 through June 1999, the Company, through its wholly-owned subsidiary
Publishers Advantage Corporation ("PAC"), had minimal operations and was
principally engaged in telemarketing in the United States for magazine and
periodical subscription renewals to persons whose subscriptions had
recently expired. The Company discontinued the operations of PAC as of
June 30, 1999 (see Note O).
NOTE B - Liquidity and Financial Results
The Company experienced a loss from operations of approximately $9.5
million for the year ended December 31, 1999 and has a limited amount of
working capital available to meet the short-term needs of the business. In
addition, substantial funding is still required in order for the Company
to pursue its strategy of acquiring and consolidating direct marketing
businesses.
The Company had minimal operations before acquiring Direct Sales
International, LP and management believes that its 1999 loss and shortage
of working capital reflect the fact that the Company was principally
focused on consummating its first acquisition. Management believes the
Company's revolving credit facility, as described in Note C, provides
sufficient financing, and, in addition, the acquisition of Direct Sales
International, LP (see Note C) will enable the Company to generate
sufficient cash flow from operations to meet the working capital needs of
the business over the next year.
Although management is seeking additional sources of financing, there can
be no assurance that the Company will be successful in its efforts to
raise additional capital nor can there be any assurance that the
acquisition of Direct Sales International, LP will improve the Company's
operating results.
24
<PAGE> 25
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C - Subsequent Events
Acquisition of Direct Sales International, LP ("DSI Acquisition")
On January 28, 2000, the Company, through its wholly-owned subsidiary MOS,
acquired substantially all of the assets and assumed certain liabilities
of Direct Sales International, LP ("DSI"), a Georgia limited partnership,
for approximately $27.6 million, including closing costs of approximately
$1.1 million and an agreement to provide approximately $1.5 million of
funding to AmeriNet, Inc. ("AmeriNet"). The transaction will be accounted
for as a purchase business combination.
AmeriNet is 50% owned by the seller of DSI (the "Seller") and the
agreement to provide $1.5 million of funding to AmeriNet arose in
connection with Symposium choosing not to exercise an option to purchase
50.1% of AmeriNet's outstanding common stock as more fully described in
Note E.
The acquisition was financed by borrowing $16 million ($15.8 million of
proceeds, net of fees) under a revolving credit facility entered into
contemporaneous with consummating the acquisition and the remainder was
funded with proceeds received from sales of common stock and common stock
purchase warrants, Series A, B and C mandatorily redeemable convertible
preferred stock and the acquisition bridge loans described below.
Concurrent with the acquisition, the Company also entered into a
three-year consulting agreement with the seller of DSI for $600,000 per
annum plus benefits and a five-year non-compete agreement expiring in
January 2005.
25
<PAGE> 26
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
Unaudited Consolidated Pro Forma Financial Information
The unaudited consolidated pro forma balance sheet gives effect, as of
December 31, 1999, to (i) the acquisition of the assets and business of
DSI, (ii) the revolving credit facility, (iii) the issuances of the Series
A, B and C mandatorily redeemable convertible preferred stock, (iv) the
acquisition bridge financings and (v) the conversion of the Series A
preferred and Commtel acquisition bridge note into common stock. The
unaudited consolidated pro forma statement of operations gives effect to
the recurring impact on each of the events described plus the additional
compensation expense that the Company would incur pursuant to the
consulting agreement entered into with the seller of DSI as if each had
occurred on January 1, 1999.
The unaudited consolidated pro forma statement of operations does not
include the following non-recurring charges resulting from the events
described above: (i) additional interest expense associated with the
beneficial conversion feature of the D-2 loan; (ii) any interest expense
associated with the Commtel acquisition note, since it is deemed to have
been converted into common stock on January 1, 1999; (iii) net loss to
common shareholders, which are immediately convertible into Series B and
C, does not include any dividends associated with the issuance or
conversion of the Series A preferred stock, since those shares are deemed
to have been converted into common stock on January 1, 1999, nor does it
include additional dividends associated with the beneficial conversion
features of the preferred stock. The weighted-average number of shares
used to determine pro forma loss per share gives effect to common stock
issued in connection with the Commtel note and sale of Series A preferred
stock and the conversion of those instruments into Symposium common stock
as if those shares were issued on January 1, 1999, but does not give
effect to common stock equivalents associated with acquisition bridge
financings and preferred stock since their effect would be antidilutive.
The unaudited consolidated pro forma financial statements do not purport
to represent what the Company's financial position or results of
operations would actually have been had any of the events described above
on such dates occurred nor do they purport to project the Company's
financial position or results of operations for any future date. The
actual financial information and results of operations may differ
significantly from that presented in the accompanying pro forma financial
information.
26
<PAGE> 27
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
The following table provides an analysis of the purchase price of the DSI
acquisition. The excess of the purchase price over the book value of the
net assets acquired has been allocated to goodwill and other intangible
assets based upon a preliminary analysis of the net assets acquired and
certain assumptions that the Company believes are reasonable. The actual
allocation of purchase price may differ significantly from the pro form
amounts included herein.
<TABLE>
<CAPTION>
<S> <C>
Cash consideration paid to the seller $25,000,000
Commitment to fund Amerinet, Inc. 1,500,000
Estimated transaction expenses 1,014,317
-----------
Total purchase cost 27,514,317
Estimated fair value 21,738,493
----------
Purchase price in excess of estimated fair value
of net assets acquired $ 5,775,824
===========
Allocation of purchase price in excess of book value
of net assets acquired to goodwill and other
intangible assets $ 5,775,824
===========
</TABLE>
Note Receivable for Common Stock
In June 1999, the Company issued 2.5 million shares of its common stock to
the seller of DSI for $1.00 per share in exchange for a note receivable
with interest at 7.75% per annum. In January 2000, the note was amended,
at which time the seller paid $2,500 of the principal and the due date for
the remaining balance was extended to January 2003 (except that if the
holder sells any portion of the stock, a portion of the proceeds from such
sale must be applied toward repaying the note). In addition, the
requirement to pay interest was rescinded. The stock note receivable is
presented in the stockholders' equity section of the balance sheet. The
seller has pledged 1.9 million shares as collateral for the note.
The Company entered into a Registration Rights Agreement with the seller
that requires the Company to register 1.0 million of the 2.5 million
shares by May 27, 2000 and provides the seller with the right to sell up
to 600,000 shares back to the Company for $3.00 per share from January
2001 through March 2001.
27
<PAGE> 28
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
Revolving Credit Facility
On January 28, 2000, the Company and its newly acquired subsidiary entered
into a three-year revolving credit facility, as amended, with a bank
providing for borrowings of up to $20 million subject to certain
availability limitations stipulated in the agreement. All borrowings under
this facility are repayable with interest at the prime rate plus 2% per
annum but not less than 9%. The Company is also required to maintain
certain minimum earnings ratios and levels of net worth as defined in the
agreement and MOS is restricted from making distributions to Symposium in
excess of $1.8 million annually plus any amounts necessary for tax
obligations attributable to its operations. All of the Company's assets
are pledged as collateral for this obligation.
The Company incurred fees and expenses in connection with this facility of
approximately $1.1 million (see Note H), which will be amortized over
three years.
Mandatorily Redeemable Preferred Stock
Series A Mandatorily Redeemable Convertible Preferred Stock ("Series
A Preferred")
On January 28, 2000, in a private placement, the Company sold 21,500
units, each unit consisting of one share of Series A mandatorily
redeemable convertible preferred with a face value of $100 each and
20 shares of the Company's common stock for gross proceeds of $2.0
million. The Series A Preferred is initially convertible into
1,075,000 shares of common stock at a conversion ratio of $2.00 per
share and carries a 16% per annum cumulative dividend.
The Series A Preferred was originally issued with a mandatory
redemption date of March 28, 2000 and the right for the holders to
receive 50% of the first $500,000 of any new financings until
redeemed in full and 16,125 shares of common stock per day for each
day the Series A Preferred shares are outstanding from day 31 to day
60 from the issuance date. At day 61, the number of shares issued
daily would have increased to 26,875 per day until the Series A
Preferred is fully redeemed.
28
<PAGE> 29
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
On March 21, 2000, the holders of the Series A preferred extended
the due date for the redemption of their shares to April 12, 2000 in
exchange for 275,000 shares for the Company's common stock; then, on
March 27, 2000, they agreed to convert their shares into 4,414,666
shares of common stock at a conversion ratio of $.50 per share based
on the Series A aggregate redemption price of $2,207,333, including
$2,150,000 representing the face value of the shares and accrued
dividends of $57,333. In addition, Series A holders were also issued
2,207,000 five-year common stock purchase warrants, including
1,103,500 with an exercise price of $.50 per share and 1,103,500
with an exercise price of $1.00 per share plus a fee of 220,000
shares of common stock.
As a result of the extension and conversion, the former Series A
holders now own 5,339,666 shares of the Company's common stock, plus
warrants to purchase 2,207,000 additional shares of the Company's
common stock as of March 27, 2000.
Series B Mandatorily Redeemable Convertible Preferred Stock ("Series
B Preferred")
On January 28, 2000, in a private placement, the Company sold 15,350
units, each unit consisting of one share of Series B mandatorily
redeemable convertible preferred stock with a face value of $100
each and warrants to purchase 25 shares of the Company's common
stock for gross proceeds of $1.5 million. The Series B Preferred is
initially convertible into 767,500 shares of common stock at a
conversion ratio of $2.00 per share and carries a 10% cumulative
dividend, payable quarterly. The common stock purchase warrants are
exercisable for three years from their date of issuance at an
exercise price of $1.50 per share.
The Series B Preferred is mandatorily redeemable on the earlier of
July 26, 2000 or upon the consummation of an additional financing
transaction resulting in gross proceeds of at least $10 million. If
the Company does not redeem the shares by July 26, 2000, the
conversion ratio is reduced to $.50 per share (representing
3,070,000 shares of the Company's common stock).
Series C Mandatorily Redeemable Convertible Preferred Stock ("Series
C Preferred")
On January 28, 2000, in a private placement, the Company sold 52,892
units, each unit consisting of one share of Series C mandatorily
redeemable convertible preferred stock with a face value of $100
each and 33.33 shares of the Company's common stock for
approximately $5 million. Additionally, the Company reduced the
exercise price on 2 million warrants previously issued to a Series C
holder from $3.50 per share to $1.00 per share. The Series B
Preferred is initially convertible into 2,644,600 shares of common
stock at a conversion ratio of $2.00 per share and carries a 10%
cumulative dividend, payable quarterly.
29
<PAGE> 30
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
The Series C Preferred is also mandatorily redeemable on the earlier
of July 26, 2000 or upon the consummation of a financing transaction
resulting in gross proceeds of at least $10.0 million. If the
Company does not redeem the shares by July 26, 2000, the conversion
ratio is reduced to $.25 per share (representing 21,156,800 shares
of the Company's common stock) and the Company must issue 370,244
five-year common stock purchase warrants with an exercise price of
$.25 per share each month until the shares are fully redeemed.
Preferred Stock Accounting
The proceeds received from the issuances of preferred stock with
common stock and/or common stock purchase warrants will be allocated
to each component based on their relative fair values on January 28,
2000 (the date of issuance). The fair value of the preferred stock
is considered to be equal to the aggregate market value of the
equivalent number of common shares into which the preferred is
convertible. The fair value of the common stock is based on the
closing market value, which was $3.20 on the date of issuance and
the fair value of the common stock purchase warrants was determined
using the Black-Scholes option pricing model.
The difference between the carrying value of the preferred stock and
its mandatory redemption price (of $100 per share) will be amortized
from the date of issuance to the mandatory redemption date by
increasing the carrying value of the preferred stock and decreasing
retained earnings for the accrual of preferred dividends. In
addition, cumulative dividends payable to the preferred shareholders
on the mandatory dates of redemption will also be accounted for by
periodically increasing the carrying value of the preferred stock
and decreasing retained earnings.
All of the preferred shares were issued with a beneficial conversion
feature that has an intrinsic value of $1.20 per share, representing
the difference between the market value of the Company's common
stock of $3.20 per share and the initial conversion price of $2.00
per share on the date of issuance. Since all of the preferred shares
are immediately convertible into common stock, the intrinsic value
of the beneficial conversion feature will be characterized as a
preferred dividend and accounted for by increasing additional
paid-in capital and decreasing retained earnings on the date of
issuance.
Reductions in the conversion price of the preferred stock into
common stock (that would take effect if the Company fails to redeem
the preferred stock on the mandatory date of redemption) are
considered contingencies that are not recognized for accounting
purposes on the date of issuance. The difference between the
intrinsic value that would result from a reduction of the conversion
price in the event of a default and the intrinsic value recorded as
a dividend on the date of issuance would be characterized as
additional dividends that would further decrease retained earnings.
30
<PAGE> 31
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
As noted above, the Series A shareholders were issued 275,000 shares of
common stock in exchange for extending the due date of the Series A
preferred then subsequently agreed to convert their preferred shares and
accumulated dividends into 4,414,666 shares of common stock. The market
value of the Company's common stock on the date of conversion was $2.63.
Accordingly, the Company recorded, upon conversion, a contractual dividend
of $57,533 payable to the Series A holders on the date of conversion and
additional dividends of approximately $13.3 million including (i) the fair
value of the additional common shares and common stock purchase warrants,
(ii) accretion of the difference between the carrying value and the
redemption amount, and (iii) the difference in the amount of intrinsic
value of the beneficial conversion feature on the date of redemption and
the date of original issuance.
The following table summarizes (i) the allocation of the proceeds from the
issuances of the preferred stock with common stock and common stock
purchase warrants, (ii) the preferred stock dividends and reduction in
retained earnings resulting from the beneficial conversion feature and
(iii) the incremental preferred stock dividends and reduction in retained
earnings that would result from contractual changes in conversion prices
in the event of a default:
<TABLE>
<CAPTION>
Series A Series B Series C
----------- ---------- ------------
<S> <C> <C> <C>
Mandatory redemption amount $ 2,150,000 $1,535,000 $ 5,289,200
=========== ========== ============
Allocation of proceeds to:
Preferred stock $ 1,428,571 $1,173,715 $ 2,401,352
Common stock 430 1,763
Additional paid-in capital 1,860,999 1,282,285 4,948,237
Retained earnings (1,290,000) (921,000) (2,401,352)
----------- ---------- ------------
Gross proceeds $ 2,000,000 $1,535,000 $ 4,950,000
=========== ========== ============
Additional dividends resulting from extension and
conversion of Series A preferred stock $13,270,882
===========
Contingent dividends if default occurs on Series B
and C $7,368,000 $60,011,208
========== ============
</TABLE>
31
<PAGE> 32
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
Acquisition Bridge Loans
Commtel Services LTD Note
On January 20, 2000, the Company entered into a note agreement with
Commtel Services, Ltd. (the "Commtel Note") for a 30-day bridge loan
in the principal amount of $300,000 that was due, with interest at
10% per annum, on February 20, 2000. The proceeds of the loan were
used to acquire DSI. The Company issued 75,000 shares of its common
stock to Commtel as consideration for the loan.
The proceeds received from the issuances of the note with common
stock are being allocated to each component based on their relative
fair values on January 20, 2000 (the date of issuance). The fair
value of the common stock on January 20, 2000 was $2.31 and resulted
in discounted carrying value to the note of $200,000 and an increase
to stockholders' equity of $100,000.
The difference between the carrying value of the note and its face
value of $300,000 is being amortized from the date of issuance to
its due date of February 20, 2000 and will be recorded as a
component of interest expense.
The Company defaulted on its obligation to repay the note on its due
date and, as a result, the interest rate increased to 18% per annum
and the Company was required to immediately issue 50,000 additional
shares of its common stock to Commtel.
On March 21, 2000, Commtel agreed to convert the note into 614,048
shares of common stock (representing a $.50 per share conversion
ratio) in settlement of the $300,000 principal balance plus accrued
interest of approximately $7,000. In addition, the Company was also
required to issue an additional 77,500 shares of its common stock to
Commtel pursuant to the default provisions of the note under which
Commtel is entitled to 2,500 additional shares of the Company's
common for each day the note remained in default. As a result of the
above, Commtel now owns an aggregate of 816,548 shares of the
Company's common stock.
As a result of the conversion, the Company recorded additional
interest expense of approximately $1.2 million, including (i)
contractual interest of 10%; (ii) the fair market value of
additional common shares issued in exchange for the holders
agreement to convert; (iii) the additional shares issued under the
penalty provision; (iv) and the intrinsic value of the beneficial
conversion of the note into 614,048 shares of common stock.
32
<PAGE> 33
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE C (continued)
Fontenelle Subordinated Bridge Note
On January 25, 2000, the Company entered into a Subordinated Bridge
Note agreement with Fontenelle LLC (the "Fontenelle Note") in the
principal amount of $500,000, due with accrued interest at 10% per
annum on March 25, 2000. The proceeds of the loan were used to
acquire DSI. The loan was repaid with interest of approximately
$8,000 on March 24, 2000.
D2 Loan
January 25, 2000, the Company entered into a Convertible
Subordinated Bridge Loan in the amount of $300,000 with D2 Partners
(the "D2 Loan"). The proceeds of this loan were used to acquire DSI.
The D2 Loan is repayable with interest at 10% per annum on July 26,
2000. The D2 Loan is initially convertible into 150,000 shares of
the Company's common stock at a conversion ratio of $2.00 per share.
If the Company does not redeem the note by July 26, 2000, the
conversion ratio is reduced to $0.50 per share (representing 600,000
shares of the Company's common stock).
The beneficial conversion feature of the note has an aggregate
intrinsic value of $46,500. The aggregate intrinsic value of the
beneficial conversion represents the difference between the market
value of the Company's common stock of $2.31 per share and the
initial conversion price of $2.00 per share on the date of issuance.
Since the note is immediately convertible into common stock, the
intrinsic value of the beneficial conversion feature will be
recorded as additional interest expense on the date of issuance.
The reduction in the conversion price to $.50 per share (that would
take effect if the Company fails to repay the note on its due date)
is considered a contingency that is not recognized for accounting
purposes on the date of issuance. The reduction of the conversion
price to $.50 per share would result in additional interest expense
$1 million based upon the difference between the intrinsic value of
the conversion feature pursuant to the default provisions of the
note and the intrinsic value on the date of issuance.
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries.
33
<PAGE> 34
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE D (continued)
Reclassifications
Certain amounts in the statements have been reclassified to conform to the
1999 presentation.
Use of Estimates in the Preparation of Financial Statements
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
the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be considered cash equivalents.
Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation expense is computed using the straight-line
method over the estimated useful lives of the assets which are five years.
Deferred Financing Costs
The deferred financing costs are amortized on a straight-line basis over
the term of the related credit facility (see Note C), which is three
years.
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Under APB
No. 25, when the exercise price of the Company's employee stock option is
equal to or greater than the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
34
<PAGE> 35
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE D (continued)
Net Loss Per Share
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." In accordance
with SFAS No. 128, basic and diluted net loss per share has been computed
using the weighted-average number of shares of common stock outstanding
during the period. Potentially dilutive securities have been excluded from
the computation, as their effect is antidilutive. If the Company had
reported net income, diluted earnings per share would have included the
shares used in the computation of net loss per share plus common
equivalent shares related to 600,000 and 2,803,000 outstanding options and
warrants for the years ended December 31, 1999 and 1998, respectively.
NOTE E - Costs of Acquisitions not Consummated
In February 2000, the Company announced its decision not to exercise its
options to purchase 50.1% of the outstanding common stock of AmeriNet and
all of the outstanding common stock of Hamilton Telecommunications, Ltd.
("Hamilton"). As a result, the Company recorded a $621,716 charge during
the fourth quarter of 1999 representing the write-off of previously
deferred acquisition costs. The charge, which is presented as the cost of
acquisitions not consummated, principally consists of legal and
professional fees, including $38,000 for the fair value of common stock
purchase warrants and $432,000 for 225,000 shares of common stock that
were issued to various consultants. In connection with the AmeriNet
agreement, the Company made a $500,000 loan to AmeriNet, which bears
interest at 8%. At December 31, 1999, the entire amount of the note is
reserved due to its uncertainty of collection.
NOTE F - Deferred Acquisition Costs
Deferred acquisition costs of $514,317 principally represent legal and
consulting fees incurred in connection with the Company's acquisition of
the assets and business of DSI and include $272,000 for the fair value of
warrants issued to consultants in exchange for services. These costs will
be added to the acquisition purchase price in determining the total cost
to be allocated to the net assets acquired.
35
<PAGE> 36
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE G - Income Taxes
Significant components of the Company's deferred tax assets are as
follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Net operating losses $ 45,000 $ 2,365,000
Organization and start-up costs 82,000 72,000
Common stock purchase warrants issued for services 1,356,000
Bad debt reserve 1,000 200,000
Other 7,000
----------- -----------
128,000 4,000,000
Valuation allowance (128,000) (4,000,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
At December 31, 1999, the Company had Federal and State net operating loss
carryforwards of approximately $5.9 million that will be available to
offset future taxable income, if any, through December 2019. The
utilization of the net operating losses may be subject to a substantial
limitation due to the "change of ownership" provisions under Section 382
of the Internal Revenue Code and similar State provisions. Such limitation
may result in the expiration of the net operating losses before their
utilization. A 100% valuation allowance has been established to reserve
for the deferred tax assets arising from the net operating losses and
other temporary differences since there is no assurance that their benefit
will be realized in the future.
At December 31, 1999, the Company had Federal and State net operating loss
carryforwards of approximately $5.9 million that will be available to
offset future taxable income, if any, through December 2019. The
utilization of the net operating losses may be subject to a substantial
limitation due to the "change of ownership" provisions under Section 382
of the Internal Revenue Code and similar State provisions. Such limitation
may result in the expiration of the net operating losses before their
utilization. A 100% valuation allowance has been established to reserve
for the deferred tax assets arising from the net operating losses and
other temporary differences since there is no assurance that their benefit
will be realized in the future.
36
<PAGE> 37
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE H - Related Party Transactions
The Company paid $266,000 to a consulting firm owned by one of its
Directors for services rendered in connection with obtaining the revolving
credit facility described in Note C, including $85,000 in cash through
December 31, 1999, a $125,000 success fee and 30,000 common stock purchase
warrants with a fair value of approximately $56,000 upon closing the
agreement in January 2000.
NOTE I - Commitments and Contingencies
Employment Agreements
The Company has employment agreements with its three executive officers
providing for aggregate annual compensation amounting to approximately
$750,000 per annum plus bonuses (as defined in the agreements) and
severance pay of up to $1 million for termination under certain
circumstances.
NOTE J - Stock Options
In December 1998, the Board of Directors approved the adoption of a stock
plan (the "Plan"). The Plan provides for the grant of options to purchase
up to 1,000,000 shares of the Company's common stock. In September 1999,
the plan was amended to increase the number of shares of common stock
available for issuance under the plan from 1,000,000 to 2,500,000 shares.
These options may be granted to selected eligible directors, officers,
employees and consultants of the Company. Options granted under the Plan
may either be "incentive stock options" within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or options
which do not qualify as "incentive stock options." The exercise price of
an incentive stock option may not be less than the fair market value of a
share of common stock at the date of grant. There is no limitation on the
exercise price of options that are not incentive stock options. No
participant may receive options representing more than 50% of the
aggregate number of shares of common stock that may be issued pursuant to
all options under the Plan. Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation"
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The financial accounting standards of SFAS
No. 123 permit companies to either continue accounting for stock-based
compensation under previous rules or adopt SFAS No. 123 and reflect fair
value of stock options and other forms of stock-based compensation in the
results of operations and additional expense. The disclosure requirements
of SFAS No. 123 require companies which elect not to record the fair value
in the statement of operations to provide pro forma disclosures of net
income and earnings per share in the notes to the financial statements as
if the fair value of the stock-based compensation had been recorded.
37
<PAGE> 38
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE J (continued)
The Company follows Accounting Principles Board Opinion No. 25 and its
related interpretations in accounting for its stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the
statement of operations for employee stock options; however, the Company
did recognize approximately $73,000 and $3.3 million of consulting expense
for options which were granted in 1998 and 1999, to directors and
consultants.
The following table summarizes the stock option activity for the years
ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
--------------------- ---------------------
Weighted- Weighted-
average average
exercise exercise
Options price Options price
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding - beginning of the year 150,000 $1.00
Granted 150,000 $1.00 450,000 3.01
Canceled (118,000) 1.00
------- --------
Outstanding - end of the year 150,000 $1.00 482,000 2.87
======= ========
Options exercisable 200,000 2.35
======= ========
</TABLE>
The following table summarizes additional information about outstanding
and exercisable stock options at December 31, 1999.
<TABLE>
<CAPTION>
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise Number exercise
prices outstanding life price exercisable price
-------------- ----------- -------------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
$1.00 307,000 2.5 years $1.00 150,000 $1.00
5.88 75,000 2.0 years 5.88 -
6.38 100,000 3.1 years 6.38 50,000 6.38
</TABLE>
38
<PAGE> 39
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1999
NOTE J (continued)
The Company applies APB No. 25 in accounting for options issued to
employees under the plan and, accordingly, recognizes compensation expense
for the difference, if any, between the fair value of the underlying
common stock and the exercise price of the option at the grant date. All
options issued to date under the plan have exercise prices equal to the
fair market value of the stock at the date of grant. Had compensation cost
for the options issued under the plan been determined based upon the fair
value at the grant date, consistent with the method described by SFAS No.
123, pro forma net loss and net loss per share for the years ended
December 31, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Earnings
As reported $(319,504) $(9,510,133)
Pro forma (323,071) (9,697,124)
Net loss per share
As reported $(0.18) $(.80)
Pro forma (.19) (.82)
</TABLE>
The weighted-average fair market value of the options issued during 1998
and 1999 was $.31 and $.75, respectively. These values were calculated
using the Black-Scholes option-pricing model based on the following
assumptions in 1998 and 1999: an expected life of four years, a risk-free
interest rate of 6% and a volatility factor of approximately 35%.
NOTE K - Equipment
Equipment at cost less accumulated depreciation is summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
------ -------
<S> <C> <C>
Equipment $3,707 $39,457
Accumulated depreciation (124) (5,249)
------ -------
$3,583 $34,208
====== =======
</TABLE>
39
<PAGE> 40
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE L - Fair Value of Financial Instruments
Because of the short-term nature of these instruments, the carrying
amounts of cash and trade payables are considered to approximate fair
market value. The fair value of the stock note receivable approximates
fair value based upon the fact that there has not been any significant
change in interest rates since the note was issued.
NOTE M - Concentrations
The Company maintains its cash balances at one financial institution.
Deposits are insured by the Federal Deposit Insurance Corporation on
aggregate balances up to $100,000. The uninsured balance approximated
$334,000 representing the Company's funds invested in money market
accounts at December 31, 1999. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit
risk.
NOTE N - Stockholders' Equity
Common Stock
At December 31, 1999, the Company is authorized to issue 25,000,000 shares
of common stock, $.001 par value and 10,000,000 shares of preferred stock,
$.001 par value. A summary of the Company's common stock issuances for the
years ended December 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Issues for:
Cash 7,361,264 $ 438,338 2,957,750 $3,009,498
Note receivable 2,500,000 2,500,000
Non-cash (principally consulting
services) 9,200 184 1,215,000 3,232,750
---------- ---------- ---------- ----------
7,370,464 $ 438,522 6,672,750 $8,742,248
========== ========== ========== ==========
</TABLE>
The 1999 shares sold for cash include 28,500 shares issued pursuant to the
exercise of common stock purchase warrants.
40
<PAGE> 41
Symposium Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1999
NOTE N (continued)
In 2000, the Company issued 8,971,131 additional shares of its common
stock including 8,402,531 shares issued in connection with the acquisition
bridge and preferred stock financings and conversion of notes and
preferred stock into common stock as described in Note C. Accordingly,
23,014,345 shares of common stock are outstanding after giving effect to
the events described in Note C. In addition, the Company has reserved
2,500,000 shares of common stock for issuance under the stock option plan
described in Note K. Accordingly, the Company is in the process of
effecting an amendment to its Certificate of Incorporation to increase the
number of authorized common shares to 75,000,000.
NOTE O - Other matters
Publishers Advantage Corporation
In June 1999, the Company discontinued the operations of its minimally
active subsidiary, Publishers Advantage Corporation, whose results of
operations were insignificant to the 1999 financial statements.
Co-Employment Arrangement
The Company has entered into a co-employment arrangement with a
Professional Employment Organization ("PEO") principally providing for the
outsourcing of certain human resources functions and the administration of
payroll and employee benefit programs. Under this arrangement, the Company
and the PEO jointly employ the Company's personnel; however, the Company
still controls, among other things, the employees' duties and establishes
its own policies with respect to hiring, terminations, and promotion and
compensation.
41
<PAGE> 42
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
42
<PAGE> 43
Part III
The information, and accompanying exhibits called for by Item 9 "Directors
and Executive Officers of the Registrant," Item 10 "Executive Compensation,"
Item 11 "Security Ownership of Certain Beneficial Owners and Management," and
Item 12 "Certain Relationships and Related Transactions" is incorporated herein
by reference to the Company's definitive proxy statement for its 2000 Annual
Meeting of Shareholders which definitive proxy statement is expected to be filed
with the Commission no later than 120 days after the end of the fiscal year to
which this Report relates.
ITEM 13. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
2.1 Asset Purchase Agreement made and entered into as of January
28, 2000, by and among Direct Sales International, Inc.,
Symposium Corporation and Richard Prochnow, incorporated by
reference to Registrant's Current Report on from Form 8-K,
filed with the Securities & Exchange Commission, February 14,
2000.
2.2 Option Agreement dated June 9, 1999 by and among Symposium
Corporation, Direct Sales International L.P. and Richard
Prochnow, incorporated herein by reference to Exhibit 2.2 to
the Registrant's Quarterly Report on Form 10-QSB for the
period ended June 30, 1999.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, incorporated by reference to the Registrant's Form
10-12G, filed with the Securities and Exchange Commission on
February 24, 1999.
3.2 Certificate of Designation of Series A Convertible Preferred
Stock, par value $.001, filed with the Secretary of State of
Delaware on January 28, 2000.*
3.3 Certificate of Designation of Series B Convertible Preferred
Stock, par value $.001 filed with the Secretary of State of
Delaware on January 28, 2000.*
3.4 Certificate of Designation of Series C Convertible Preferred
Stock, par value $.001 filed with the Secretary of State of
Delaware on January 28, 2000.*
3.5 By-Laws of the Registrant, incorporated by reference to the
Registrant's Form 10-12G, filed with the Securities &
Exchange Commission on February 24, 1999.
10.1 Coast Credit Loan and Security Agreement, between Coast
Business Credit, a division of Southern Pacific Bank
("Coast") and Direct Sales International, Inc., dated as of
January 28, 2000.*
10.2 Amendment to Coast Credit Loan and Security Agreement,
between Coast Business Credit, a division of Southern Pacific
Bank ("Coast") and Direct Sales International, Inc., dated as
of January 28, 2000.*
10.3(a) Amendment to Loan Documents between Court Business Credit, a
division of Southern Pacific Bank and Media Outsourcing,
Inc., dated as of March __, 2000.*
43
<PAGE> 44
10.3(b) Second Amendment to Coast Credit Loan and Security Agreement,
between Coast Business Credit, a division of Southern Pacific
Bank ("Coast") and Direct Sales International, Inc., dated as
of March 6, 2000.*
10.4 Amendment to Coast Credit Loan and Security Agreement,
between Coast Business Credit, a division of Southern Pacific
Bank ("Coast") and Direct Sales International, Inc., dated as
of March 30, 2000.*
10.5 Continuing Guaranty executed by Symposium Corporation as
Guarantor, in favor of Coast Business Credit, with respect to
the indebtedness of Direct Sales International, Inc., dated
as of January 28, 2000.*
21 List of subsidiaries of Symposium*
27.1 Financial Data Schedule*
99.1 Registration Rights Agreement made and entered into as of
January 28, 2000 by and between Symposium Corporation and
Richard Prochnow, incorporated by reference to Registrant's
Current Report on Form 8-K, filed with the Securities &
Exchange Commission February 14, 2000.
99.2 Amended Non-Negotiable Secured Promissory Note made by
Richard Prochnow payable to the order of Symposium
Corporation, dated January 28, 2000, incorporated by
reference to Registrant's Current Report on Form 8-K, filed
with the Securities & Exchange Commission on February 14,
2000.
99.3 Consulting Agreement between Symposium Corporation, Direct
Sales International, Inc. and Richard Prochnow, incorporated
by reference to Registrant's Current Report on Form 8-K,
filed with the Securities & Exchange Commission on February
14, 2000.0.
99.4 Loan Agreement made and entered into as of January 28, 2000,
between Symposium Corporation and AmeriNet, incorporated by
reference to Registrant's Current Report on Form 8-K, filed
with the Securities & Exchange Commission, on February 14,
2000.
99.5 Share Purchase and Sale Agreement, by and between Symposium
Telecom Corporation and Hamilton Telecommunications Limited,
dated December 14, 1998, as amended, incorporated by reference
to registrant's Form 10-12G, dated June 1, 1999.
99.6 Option Agreement by and between Symposium Telecom Corporation,
Robert Green, Marilyn Shein, Fabrice Thomas, Shropshire Fine
Investment Limited and Automated Communications Limited, dated
December 14, 1998, as amended, incorporated by reference to
Registrant's Form 10-12G, filed with the Securities Exchange
Commission on February 24, 1999
- -----------------
* Filed herewith.
44
<PAGE> 45
(b) Reports on Form 8-K
On February 14, 2000 the Registrant filed a Current Report on Form 8-K reporting
the DSI acquisition.
45
<PAGE> 46
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 11, 2000 By:
/s/ Ronald Altbach
------------------
Ronald Altbach
Chairman, Director and Chief Executive Officer
/s/ Tim S. Ledwick
------------------
Tim S. Ledwick
Chief Financial Officer
/s/ Richard Cohen
-----------------
Richard Cohen
Director
/s/ Richard Kaufman
-------------------
Richard Kaufman
Director
46
<PAGE> 1
EX-3.2
Certificate of Designation
CERTIFICATE OF DESIGNATION
for
SERIES A CONVERTIBLE PREFERRED STOCK
of
SYMPOSIUM CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
SYMPOSIUM CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that
pursuant to the authority conferred on the board of directors of the Corporation
(the "Board of Directors") by the Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") of the
Corporation and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors adopted the following resolution
establishing a series of 25,000 shares of preferred stock of the Corporation
designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors by the Certificate of Incorporation, a series of preferred
stock, par value $.001 per share, of the Corporation is hereby established
and created, and that the designation and number of shares thereof and the
voting and other powers, preferences and relative participating, optional
or other special rights of, the shares of such series and the
qualifications, limitations and restrictions thereof are as follows:
Series A Convertible Preferred Stock
1. Designation and Amount and Definitions. (a) There shall be a
series of Preferred Stock designated as "Series A Convertible Preferred Stock"
and the number of shares constituting such series shall be 25,000. Such number
of shares may be increased or decreased by the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series A
Preferred Stock to fewer than the number of shares then issued and outstanding.
Such series is referred to herein as the "Series A Preferred Stock."
Notwithstanding any other provision in this Certificate of Designation of the
Series A Preferred Stock (the "Certificate of Designation") to the contrary,
such Series A Preferred Stock shall rank senior to the Series B Convertible
Preferred Stock, par value $.001 per share (the "Series B Preferred Stock") and
the Series C Convertible Preferred Stock, par value $.001 per share (the "Series
C Preferred Stock") as to dividends and with respect to the distribution of
assets upon liquidation, dissolution or winding up.
(b) As used in this Certificate of Designation, except as otherwise
provided in Subsection 4(c), the following terms shall have the following
meanings:
(i) "Closing Sale Price" for any security for each trading day
shall be the reported per share closing sale price of such security
regular way on the Stock Market on such trading day, or, if there
were no transactions on such trading day, the average of the
reported closing bid and asked prices, regular way, of such security
on the relevant Stock Market on such trading day.
(ii) "Fair Market Value" of any asset (including any
security) means the fair market value thereof determined in good
faith by the Board of Directors of the Corporation.
(iii) "Junior Stock" shall mean the Common Stock, and any
shares of preferred stock of any series or class of the Corporation,
whether presently outstanding or hereafter issued, which are junior
to the shares of Series A Preferred Stock with respect to (i) the
distribution of assets on
-1-
<PAGE> 2
any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, (ii) dividends or (iii) voting;
(iv) "Market Price" shall mean the average Closing Sale Price
for twenty (20) consecutive trading days, ending with the trading
day prior to the date as of which the Market Price is being
determined (with appropriate adjustments for subdivisions or
combinations of shares effected during such period), provided that
if the prices referred to in the definition of Closing Sale Price
with respect to any security cannot be determined on any trading
day, the Closing Sale Price for such trading day will be deemed to
equal Fair Market Value of such security on such trading day.
(v) "Registered Holders" shall mean, at any time, the holders
of record of the Series A Preferred Stock.
(vi) "Stated Value" shall mean $100.00 per share of Series A
Preferred Stock (subject to appropriate adjustment for any stock
split, combination, reclassification or reorganization of the Series
A Preferred Stock).
(vii) The "Stock Market" shall mean, with respect to any
security, the principal national securities exchange on which such
security is listed or admitted to trading or, if such security is
not listed or admitted to trading on any national securities
exchange, shall mean The Nasdaq National Market System ("NNM") or
The Nasdaq SmallCap Market ("SCM" and, together with NNM, "Nasdaq")
or, if such security is not quoted on Nasdaq, shall mean the OTC
Bulletin Board or, if such security is not quoted on the OTC
Bulletin Board, shall mean the over-the-counter market as furnished
by any NASD member firm selected from time to time by the
Corporation for that purpose.
(viii) A "trading day" shall mean a day on which the relevant
Stock Market is open for the transaction of business.
2. Dividends and Distributions. (a) The holders, as of the Mandatory
Redemption Date (as hereinafter defined), of the Series A Preferred Stock shall
be entitled to receive dividends on their respective shares of Series A
Preferred Stock at the rate of 16% per annum (computed on the basis of a 360-day
year of twelve 30 day months) of the Stated Value of the Series A Preferred
Stock, payable in cash on the Mandatory Redemption Date; provided that, to the
extent the declaration or payment of such dividend is prohibited by applicable
law, such dividend need not be paid but shall nevertheless accrue and shall be
paid promptly when applicable law permits. Such dividends shall accrue from the
date of issuance.
(b) All dividends or distributions declared upon the Series A
Preferred Stock shall be declared pro rata per share.
(c) Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
(d) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Stock which may be in arrears.
(e) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series A
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series A Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series A Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series A Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series A Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series A Preferred Stock and on such other stock bear to each other.
2
<PAGE> 3
(f) So long as any shares of the Series A Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series A Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series A Preferred Stock shall have been paid or set apart for payment.
3. Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively referred to as a "Liquidation
Event"), after payment or provision for payment of debts and other liabilities
of the Corporation, the holders of the Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of any Junior Stock of the Corporation, an
amount equal to the sum of the Stated Value and any dividends owed to the
holders of Series A Preferred Stock as a result of the occurrence of the
Mandatory Redemption Date; provided, however, in the case of a Merger
Transaction, such payment may be made in cash, property (valued as provided in
Subsection 3(b)) and/or securities (valued as provided in Subsection 3(b)) of
the entity surviving such Merger Transaction. In the case of property or in the
event that any such securities are subject to an investment letter or other
similar restriction on transferability, the value of such property or securities
shall be determined in good faith by the Board of Directors of the Corporation.
If upon any Liquidation Event, whether voluntary or involuntary, the assets to
be distributed to the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series A Preferred Stock
on the basis of the number of shares of Series A Preferred Stock held.
Notwithstanding item (iii) of the first sentence of this Subsection 3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the Corporation is not the surviving entity but the stockholders of the
Corporation immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own amongst
themselves such interest in substantially the same proportions as prior to such
transaction, shall not be considered a Liquidation Event provided that the
surviving corporation shall make appropriate provisions to ensure that the terms
of this Certificate of Designation survive any such transaction. All shares of
Series A Preferred Stock shall rank as to payment upon the occurrence of any
Liquidation Event senior to the Junior Stock and, unless the terms of such
series shall provide otherwise, senior to all other series of the Corporation's
preferred stock.
(b) Any securities or other property to be delivered to the holders
of the Series A Preferred Stock pursuant to Subsection 3(a) hereof shall be
valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on a Stock Market, the per share
value shall be deemed to be the Market Price of such
securities as of the third day prior to the date of valuation.
(B) If not actively traded on a Stock Market, the value
shall be the Fair Market Value of such securities.
(ii) For securities for which there is an active public market
but which are subject to an investment letter or other restrictions
on free marketability, the value shall be the Fair Market Value
thereof, determined by discounting appropriately the per share
Market Price thereof.
(iii) For all other securities, the value shall be the Fair
Market Value thereof.
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4. Conversion.
(a) Right of Conversion. The shares of Series A Preferred Stock
shall be convertible at any time, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in Subsection
4(b), into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The initial conversion price
per share of Common Stock (the "Conversion Price"), shall be $2.00 and shall be
subject to adjustment as provided herein. The rate at which each share of Series
A Preferred Stock is convertible at any time into Common Stock (the "Conversion
Rate") shall be determined by dividing the then existing Conversion Price
(determined in accordance with this Section 4) into the Stated Value; provided,
however, that if the Corporation shall fail to redeem all of the outstanding
Series A Preferred Stock by the Mandatory Redemption Date (as hereinafter
defined), as provided for under Section 5 hereof, the Conversion Price shall
thereafter be the Initial Per Share Exercise Price (as defined in the form of
Warrant attached hereto as Exhibit A).
(b) Conversion Procedures. Any holder of shares of Series A
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series A
Preferred Stock at the office of the transfer agent for the Series A Preferred
Stock, which certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series A Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates evidencing shares of
Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be the
Corporation) to make a notation of the date that a notice of conversion is
received, which date of receipt shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series A Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series A Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, subject to
Subsection 4(e). Subject to the following provisions of this paragraph, such
conversion shall be deemed to have been made as of the date of such surrender of
the shares of Series A Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock deliverable upon conversion of such
Series A Preferred Stock shall be treated for all purposes as the record holder
or holders of such Common Stock on such date; provided, however, that the
Corporation shall not be required to convert any shares of Series A Preferred
Stock while the stock transfer books of the Corporation are closed for any
purpose, but the surrender of Series A Preferred Stock for conversion during any
period while such books are so closed shall become effective for conversion
immediately upon the reopening of such books as if the surrender had been made
on the date of such reopening, and the conversion shall be at the conversion
rate in effect on such date. No adjustments in respect of any accrued dividends
on shares surrendered for conversion or any dividend on the Common Stock issued
upon conversion shall be made upon the conversion of any shares of Series A
Preferred Stock.
The Corporation shall at all times, reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock.
All notices of conversion shall be irrevocable; provided, however,
that if the Corporation has sent notice of an event pursuant to Subsection 4(g)
hereof, a holder of Series A Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series A Preferred
Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Protection Against Dilution.
(i) If the Corporation shall (x) pay a dividend or other
distribution, in Common Stock, on the Common Stock, (y) subdivide the
outstanding Common Stock into a greater number of shares or (z) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Conversion Price in effect immediately prior thereto shall be adjusted so
that the Registered Holder of any shares of Series A Preferred Stock
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<PAGE> 5
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock that such Registered Holder would have owned or have been
entitled to receive upon the happening of such event had such Series A Preferred
Stock been converted immediately prior to the relevant record date or, if there
is no such record date, the effective date of such event. An adjustment made
pursuant to this Paragraph 4(c)(i) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution or shall become effective immediately after the
effective date of such subdivision or combination, as the case may be.
(ii) In the event of any capital reorganization or
reclassification, or any consolidation or merger to which the Corporation is a
party other than a merger or consolidation in which the Corporation is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Corporation as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Corporation), the holders of Series A Preferred Stock
shall have the right thereafter to receive upon conversion the kind and amount
of securities, cash or other property which the holders would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had the holders converted immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 4
with respect to the rights and interests thereafter of the holders of Series A
Preferred Stock to the end that the provisions set forth in this Section 4 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of Series A Preferred Stock. The above provisions of
this Paragraph 4(c)(ii) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
thereafter deliverable on the exercise of Series A Preferred Stock shall be
responsible for all of the agreements and obligations of the Corporation
hereunder. A sale of all or substantially all of the assets of the Corporation
for a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(d) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least $0.01
per share of Common Stock; provided, however, that any adjustments which by
reason of this Subsection 4(d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 4 shall be made to the nearest cent or to the nearest 1/100th
of a share, as the case may be.
(e) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Series A Preferred Stock. If more than one certificate evidencing shares of
Series A Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of such aggregate number of shares
of Series A Preferred Stock, the Corporation may elect, in its sole discretion,
independently for each holder, whether such number of shares of Common Stock
will be rounded to the nearest whole share or whether such holder will be given
cash, in lieu of any fractional share, in an amount equal to the same fraction
of the Market Price of the Common Stock as of the close of business on the day
of conversion.
(f) Reservation of Shares; Transfer Taxes, Etc. The
Corporation shall at all times reserve and keep available, out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series A Preferred Stock from time to time outstanding. The
Corporation shall use its best efforts from time to time, in accordance with the
laws of the State of Delaware to increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized, unissued and
unreserved Common Stock shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series A Preferred Stock.
The Corporation shall pay any and all issue or other taxes
(excluding any income taxes) that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of the Series A Preferred
Stock. The Corporation shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue or delivery of
Common Stock (or other securities or assets) in a name other than that in which
the shares of Series A Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the
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<PAGE> 6
person requesting such issue has paid to the Corporation the amount of such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid or need not be paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution) on the Common Stock; or
(ii) the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no
par value to par value); or
(iv) of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the
Corporation shall be required, or of the sale or transfer of all or
substantially all of the assets of the Corporation or of any
compulsory share exchange whereby the Common Stock is converted into
other securities, cash or other property; or
(v) of any Liquidation Event;
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange or
Liquidation Event is expected to become effective, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such exchange or Liquidation Event and the consideration, including securities
or other property, to be received by such holders upon such exchange; provided,
however, that no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to
time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall mail
to the Registered Holders a notice of the increase at least 15 days before the
date the increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be advisable
in order to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding anything to the contrary herein, in no case shall
the Conversion Price be adjusted to an amount less than $.001 per share, the
current par value of the Common Stock into which the Series A Preferred Stock is
convertible.
(i) Ambiguities/Errors. The Board of Directors of the Corporation
shall have the power to resolve any ambiguity or correct any error in the
provisions relating to the convertibility of the Series A Preferred Stock, and
its actions in so doing shall be final and conclusive.
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<PAGE> 7
5. Redemption. (a) (i) At any time, the Corporation may redeem (an
"Optional Redemption") the Series A Preferred Stock in whole or in part, by
paying the Redemption Price (as defined below). No later than 60 days following
their issuance, the Corporation shall redeem the Series A Preferred Stock in
whole, by paying, to the holders of the shares of Series A Preferred Stock, the
Redemption Price (such date, the "Mandatory Redemption Date").
(ii) Within 20 days following the closing of any transaction
occurring after the issuance of the Series A Preferred Stock whereby the
Corporation, as a result of the issuance of debt or equity securities, receives
net proceeds, other than proceeds received as a result of the sale of Series B
Preferred Stock and Series C Preferred Stock, the Corporation shall apply 50% of
net proceeds up to total net proceeds of $500,000 and 100% of any additional net
proceeds (together, the "Net Proceeds") to redeem such number of Series A
Preferred Stock as may be purchased with the Net Proceeds, by paying, to the
holders of the shares of Series A Preferred Stock, the Redemption Price. Such
payment hereunder shall be made ratably among the holders of the Series A
Preferred stock.
The "Redemption Price" shall mean the sum of the Stated Value and
any dividends owed to the holders of Series A Preferred Stock.
(b) No greater than 60 nor fewer than 10 days prior to the date of
any Optional Redemption, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series A Preferred Stock to be redeemed,
addressed to such holders at their last addresses as shown on the stock transfer
books of the Corporation. Each such notice shall specify the date fixed for
redemption, the place or places for surrender of shares of Series A Preferred
Stock and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series A Preferred Stock receives such
notice; and failure properly to give such notice by mail, or any defect in such
notice, to the holders of the shares to be redeemed shall not affect the
validity of the proceedings for the redemption of any other shares of Series A
Preferred Stock. On or after the date fixed for redemption (the "Take-Out Date")
as stated in such notice, each holder of shares called to be redeemed shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice of redemption. After the mailing of such notice, but
before the Take-Out Date as stated therein, all rights whatsoever with respect
to the shares so called for redemption (except the right of the holders to
convert such shares pursuant to Section 4 and to have such shares redeemed upon
surrender of their certificates therefor, pursuant to this Section 5) shall
terminate. On or after the Take-Out Date, notwithstanding that the certificates
evidencing any shares properly called for redemption shall not have been
surrendered, such shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for redemption (except the right
of the holders to have such shares redeemed upon surrender of their certificates
therefor, pursuant to this Section 5) shall terminate.
6. Outstanding Shares. For purposes of this Certificate of
Designation, a share of Series A Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date of redemption, all shares of Series A
Preferred Stock redeemed pursuant to Section 5 and (ii) from the date of
registration of transfer, all shares of Series A Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation.
7. Warrants. If on or before 60 days after the issuance of the
Series A Preferred Stock the Corporation has not redeemed all outstanding shares
of Series A Preferred Stock as provided for under Section 5(a)(i) hereof, then
the Corporation shall issue to the holders of outstanding Series A Preferred
Stock warrants to purchase 10 shares of Common Stock (appropriately adjusted for
stock splits, combinations and the like) per share of outstanding Series A
Preferred Stock (rounded to the nearest whole share) for each 30-day period
commencing on the day after the Mandatory Redemption Date provided that such
share of Series A Preferred Stock remains outstanding, beginning on the first
day of such 30-day period. Such warrants shall be in substantially the form
attached hereto as Exhibit A.
8. Status of Acquired Shares. Shares of Series A Preferred Stock
received upon conversion or redemption pursuant to Section 4 or Section 5 or
otherwise acquired by the Corporation will be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
class, and may thereafter be issued.
9. Preemptive Rights. The Series A Preferred Stock is not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
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<PAGE> 8
10. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes as
shall be necessary to render the provision in question effective and valid under
applicable law.
[Signature page follows]
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<PAGE> 9
IN WITNESS WHEREOF, Tim S. Ledwick, an authorized officer of the
Corporation, acting for and on behalf of the Corporation, has hereunto
subscribed his name this ____ day of January, 2000.
SYMPOSIUM CORPORATION
By: /s/ Tim S. Ledwick
--------------------------------
Name: Tim S. Ledwick
Title: Chief Financial Officer
9
<PAGE> 1
EX-3.3
Certificate of Designation
CERTIFICATE OF DESIGNATION
for
SERIES B CONVERTIBLE PREFERRED STOCK
of
SYMPOSIUM CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
SYMPOSIUM CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that
pursuant to the authority conferred on the board of directors of the Corporation
(the "Board of Directors") by the Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") of the
Corporation and in accordance with Section 151 of General Corporation Law of
Delaware, the Board of Directors adopted the following resolution establishing a
series of 25,000 shares of preferred stock of the Corporation designated as
"Series B Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors by the Certificate of Incorporation, a series of preferred
stock, par value $.001 per share, of the Corporation is hereby established
and created, and that the designation and number of shares thereof and the
voting and other powers, preferences and relative participating, optional
or other special rights of, the shares of such Series B and the
qualifications, limitations and restrictions thereof are as follows:
Series B Convertible Preferred Stock
1. Designation and Amount and Definitions. (a) There shall be a
series of Preferred Stock designated as "Series B Convertible Preferred Stock"
and the number of shares constituting such series shall be 25,000. Such number
of shares may be increased or decreased by the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series B
Preferred Stock to fewer than the number of shares then issued and outstanding.
Such series is referred to herein as the "Series B Preferred Stock."
Notwithstanding any other provision in this Certificate of Designation of the
Series B Preferred Stock (the "Certificate of Designation") to the contrary,
such Series B Preferred Stock shall rank pari passu with the Series C
Convertible Preferred Stock, par value $.001 per share (the "Series C Preferred
Stock") and junior to the Series A Convertible Preferred Stock, par value $.001
per share (the "Series A Preferred Stock") with respect to dividends and the
distribution of assets upon liquidation, dissolution or winding up.
(b) As used in this Certificate of Designation, except as otherwise
provided in Subsection 4(c), the following terms shall have the following
meanings:
(i) "Closing Sale Price" for any security for each trading day
shall be the reported per share closing sale price of such security
regular way on the Stock Market on such trading day, or, if there
were no transactions on such trading day, the average of the
reported closing bid and asked prices, regular way, of such security
on the relevant Stock Market on such trading day.
(ii) The "Dividend Record Date" shall mean March 1, 2000, and
15 days prior to the Mandatory Redemption Date.
(iii) "Fair Market Value" of any asset (including any
security) means the fair market value thereof determined in good
faith by the Board of Directors of the Corporation.
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<PAGE> 2
(iv) "Junior Stock" shall mean the Common Stock, and any
shares of preferred stock of any series or class of the Corporation,
whether presently outstanding or hereafter issued, which are junior
to the shares of Series B Preferred Stock with respect to (i) the
distribution of assets on any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (ii) dividends or
(iii) voting; provided, however, that Junior Stock shall not include
the Series C Preferred Stock.
(v) "Market Price" shall mean the average Closing Sale Price
for twenty (20) consecutive trading days, ending with the trading
day prior to the date as of which the Market Price is being
determined (with appropriate adjustments for subdivisions or
combinations of shares effected during such period), provided that
if the prices referred to in the definition of Closing Sale Price
with respect to any security cannot be determined on any trading
day, the Closing Sale Price for such trading day will be deemed to
equal Fair Market Value of such security on such trading day.
(vi) "Registered Holders" shall mean, at any time, the holders
of record of the Series B Preferred Stock.
(vii) "Stated Value" shall mean $100.00 per share of Series B
Preferred Stock (subject to appropriate adjustment for any stock
split, combination, reclassification or reorganization of the Series
B Preferred Stock).
(viii) The "Stock Market" shall mean, with respect to any
security, the principal national securities exchange on which such
security is listed or admitted to trading or, if such security is
not listed or admitted to trading on any national securities
exchange, shall mean The Nasdaq National Market System ("NNM") or
The Nasdaq SmallCap Market ("SCM" and, together with NNM, "Nasdaq")
or, if such security is not quoted on Nasdaq, shall mean the OTC
Bulletin Board or, if such security is not quoted on the OTC
Bulletin Board, shall mean the over-the-counter market as furnished
by any NASD member firm selected from time to time by the
Corporation for that purpose.
(ix) A "trading day" shall mean a day on which the relevant
Stock Market is open for the transaction of business.
2. Dividends and Distributions. (a) The holders, as of the Dividend
Record Date, of the Series B Preferred Stock shall be entitled to receive
quarterly dividends on their respective shares of Series B Preferred Stock
(aggregating, for this purpose, all shares of Series B Preferred Stock held of
record or, to the Corporation's knowledge, beneficially by such holder),
payable, at the option of the Corporation, in cash or shares of Common Stock, at
the rate of 10% per annum (computed on the basis of a 360-day year of twelve 30
day months) of the Stated Value of the Series B Preferred Stock, payable
quarterly in arrears; provided that, to the extent the declaration or payment of
such dividend is prohibited by applicable law, such dividend need not be paid
but shall nevertheless accrue and shall be paid promptly when applicable law
permits. Such dividends shall accrue from the date of issuance of such share and
shall be paid on April 1, 2000 and the Mandatory Redemption Date (each a
"Dividend Payment Date"). Such dividends shall be paid, at the election of the
Corporation, either in cash or duly authorized, fully paid and non assessable
shares of Common Stock. In calculating the number of shares of Common Stock to
be paid with respect to each dividend, the Common Stock shall be valued at its
Market Price as of the relevant Dividend Payment Date. Notwithstanding the
foregoing, the Corporation shall not be required to issue fractional shares; the
Corporation may elect, in its sole discretion, independently for each holder,
whether such number of shares (on an aggregated basis) will be rounded to the
nearest whole share or whether such holder will be given cash in lieu of any
fractional shares.
(b) All dividends or distributions declared upon the Series B
Preferred Stock shall be declared pro rata per share.
(c) Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
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<PAGE> 3
(d) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B Preferred
Stock which may be in arrears (it being understood that this provision does not
alter the Corporation's obligations under Section 2(a).
(e) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series B
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series B Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series B Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series B Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series B Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series B Preferred Stock and on such other stock bear to each other.
(f) So long as any shares of the Series B Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series B Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series B Preferred Stock shall have been paid or set apart for payment.
3. Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively referred to as a "Liquidation
Event"), after payment or provision for payment of debts and other liabilities
of the Corporation, the holders of the Series B Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of any Junior Stock of the Corporation, an
amount equal to the sum of the Stated Value and any dividends owed to the
holders of Series B Preferred Stock; provided, however, in the case of a Merger
Transaction, such payment may be made in cash, property (valued as provided in
Subsection 3(b)) and/or securities (valued as provided in Subsection 3(b)) of
the entity surviving such Merger Transaction. In the case of property or in the
event that any such securities are subject to an investment letter or other
similar restriction on transferability, the value of such property or securities
shall be determined in good faith by the Board of Directors of the Corporation.
If upon any Liquidation Event, whether voluntary or involuntary, the assets to
be distributed to the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series B Preferred Stock
on the basis of the number of shares of Series B Preferred Stock held.
Notwithstanding item (iii) of the first sentence of this Subsection 3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the Corporation is not the surviving entity but the stockholders of the
Corporation immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own amongst
themselves such interest in substantially the same proportions as prior to such
transaction, shall not be considered a Liquidation Event provided that the
surviving corporation shall make appropriate provisions to ensure that the terms
of this Certificate of Designation survive any such transaction. All shares of
Series B Preferred Stock shall rank as to payment upon the occurrence of any
Liquidation Event senior to the Junior Stock, junior to the Series A Preferred
Stock and, unless the terms of such series shall provide otherwise, senior to
all other series of the Corporation's preferred stock.
(b) Any securities or other property to be delivered to the holders
of the Series B Preferred Stock pursuant to Subsection 3(a) hereof shall be
valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
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(A) If actively traded on a Stock Market, the per share
value shall be deemed to be the Market Price of such
securities as of the third day prior to the date of valuation.
(B) If not actively traded on a Stock Market, the value
shall be the Fair Market Value of such securities.
(ii) For securities for which there is an active public market
but which are subject to an investment letter or other restrictions
on free marketability, the value shall be the Fair Market Value
thereof, determined by discounting appropriately the per share
Market Price thereof.
(iii) For all other securities, the value shall be the Fair
Market Value thereof.
4. Conversion.
(a) Right of Conversion. The shares of Series B Preferred Stock
shall be convertible at any time, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in Subsection
4(b), into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The initial conversion price
per share of Common Stock (the "Conversion Price"), shall be $2.00 and shall be
subject to adjustment as provided herein. The rate at which each share of Series
B Preferred Stock is convertible at any time into Common Stock (the "Conversion
Rate") shall be determined by dividing the then existing Conversion Price
(determined in accordance with this Section 4) into the Stated Value; provided,
however, that if the Corporation shall fail to redeem all of the outstanding
Series B Preferred Stock by the Mandatory Redemption Date, the Conversion Price
shall thereafter be $0.50 (subject to appropriate adjustments for stock splits,
combinations and the like occurring after the initial date of issuance of the
shares of Series B Preferred Stock).
(b) Conversion Procedures. Any holder of shares of Series B
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series B
Preferred Stock at the office of the transfer agent for the Series B Preferred
Stock, which certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series B Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates evidencing shares of
Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be the
Corporation) to make a notation of the date that a notice of conversion is
received, which date of receipt shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series B Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, subject to
Subsection 4(e). Subject to the following provisions of this paragraph, such
conversion shall be deemed to have been made as of the date of such surrender of
the shares of Series B Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock deliverable upon conversion of such
Series B Preferred Stock shall be treated for all purposes as the record holder
or holders of such Common Stock on such date; provided, however, that the
Corporation shall not be required to convert any shares of Series B Preferred
Stock while the stock transfer books of the Corporation are closed for any
purpose, but the surrender of Series B Preferred Stock for conversion during any
period while such books are so closed shall become effective for conversion
immediately upon the reopening of such books as if the surrender had been made
on the date of such reopening, and the conversion shall be at the conversion
rate in effect on such date. No adjustments in respect of any accrued dividends
on shares surrendered for conversion or any dividend on the Common Stock issued
upon conversion shall be made upon the conversion of any shares of Series B
Preferred Stock.
The Corporation shall at all times, reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock.
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All notices of conversion shall be irrevocable; provided, however,
that if the Corporation has sent notice of an event pursuant to Subsection 4(g)
hereof, a holder of Series B Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series B Preferred
Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Protection Against Dilution.
(i) If the Corporation shall (x) pay a dividend or other
distribution, in Common Stock, on the Common Stock, (y) subdivide the
outstanding Common Stock into a greater number of shares or (z) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Conversion Price in effect immediately prior thereto shall be adjusted so
that the Registered Holder of any shares of Series B Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock that such Registered Holder would have owned or have been entitled
to receive upon the happening of such event had such Series B Preferred Stock
been converted immediately prior to the relevant record date or, if there is no
such record date, the effective date of such event. An adjustment made pursuant
to this Paragraph 4(c)(i) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution or shall become effective immediately after the effective date of
such subdivision or combination, as the case may be.
(ii) In the event of any capital reorganization or
reclassification, or any consolidation or merger to which the Corporation is a
party other than a merger or consolidation in which the Corporation is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Corporation as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Corporation), the holders of Series B Preferred Stock
shall have the right thereafter to receive upon conversion the kind and amount
of securities, cash or other property which the holders would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had the holders converted immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 4
with respect to the rights and interests thereafter of the holders of Series B
Preferred Stock to the end that the provisions set forth in this Section 4 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of Series B Preferred Stock. The above provisions of
this Subsection 4(c)(ii) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
thereafter deliverable on the exercise of Series B Preferred Stock shall be
responsible for all of the agreements and obligations of the Corporation
hereunder. A sale of all or substantially all of the assets of the Corporation
for a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(d) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least $0.01 per
share of Common Stock; provided, however, that any adjustments which by reason
of this Subsection 4(d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(e) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series B
Preferred Stock. If more than one certificate evidencing shares of Series B
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of such aggregate number of shares
of Series B Preferred Stock, the Corporation may elect, in its sole discretion,
independently for each holder, whether such number of shares of Common Stock
will be rounded to the nearest whole share or whether such holder will be given
cash, in lieu of any fractional share, in an amount equal to the same fraction
of the Market Price of the Common Stock as of the close of business on the day
of conversion.
(f) Reservation of Shares; Transfer Taxes, Etc. The Corporation
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
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conversion of the Series B Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series B Preferred Stock from time to time outstanding. The
Corporation shall use its best efforts from time to time, in accordance with the
laws of the State of Delaware to increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized, unissued and
unreserved Common Stock shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series B Preferred Stock.
The Corporation shall pay any and all issue or other taxes
(excluding any income taxes) that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of the Series B Preferred
Stock. The Corporation shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue or delivery of
Common Stock (or other securities or assets) in a name other than that in which
the shares of Series B Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid or need not be
paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution) on the Common Stock; or
(ii) the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no
par value to par value); or
(iv) of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the
Corporation shall be required, or of the sale or transfer of all or
substantially all of the assets of the Corporation or of any
compulsory share exchange whereby the Common Stock is converted into
other securities, cash or other property; or
(v) of any Liquidation Event;
then the Corporation shall cause to be filed with the transfer agent for the
Series B Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange or
Liquidation Event is expected to become effective, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such exchange or Liquidation Event and the consideration, including securities
or other property, to be received by such holders upon such exchange; provided,
however, that no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to
time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall mail
to the Registered Holders a notice of the increase at least 15 days before the
date the increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be
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advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding anything to the contrary herein, in no case shall
the Conversion Price be adjusted to an amount less than $.001 per share, the
current par value of the Common Stock into which the Series B Preferred Stock is
convertible.
(i) Ambiguities/Errors. The Board of Directors of the Corporation
shall have the power to resolve any ambiguity or correct any error in the
provisions relating to the convertibility of the Series B Preferred Stock, and
its actions in so doing shall be final and conclusive.
5. Redemption. (a) At any time, the Corporation may redeem (an
"Optional Redemption") the Series B Preferred Stock in whole or in part by
paying the Redemption Price (as defined below). No later than the earlier of (i)
180 days after the issuance of the Series B Preferred Stock and (ii) 20 days
following the closing of any transaction, occurring after the issuance of the
Series B Preferred Stock, whereby the Corporation, as a result of the issuance
of debt or equity securities, receives net proceeds in excess of $10,000,000
(the earlier such date, the "Mandatory Redemption Date"), the Corporation shall
redeem the Series B Preferred Stock in whole, by paying, to the holders of the
shares of Series B Preferred Stock, the Redemption Price. The "Redemption Price"
shall mean the sum of the Stated Value and any dividends owed to the holders of
Series B Preferred Stock.
(b) No greater than 60 nor fewer than 10 days prior to the date of
any Optional Redemption, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B Preferred Stock to be redeemed,
addressed to such holders at their last addresses as shown on the stock transfer
books of the Corporation. Each such notice shall specify the date fixed for
redemption, the place or places for surrender of shares of Series B Preferred
Stock and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B Preferred Stock receives such
notice; and failure properly to give such notice by mail, or any defect in such
notice, to the holders of the shares to be redeemed shall not affect the
validity of the proceedings for the redemption of any other shares of Series B
Preferred Stock. On or after the date fixed for redemption (the "Take-Out Date")
as stated in such notice, each holder of shares called to be redeemed shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice of redemption. After the mailing of such notice, but
before the Take-Out Date as stated therein, all rights whatsoever with respect
to the shares so called for redemption (except the right of the holders to
convert such shares pursuant to Section 4 and to have such shares redeemed upon
surrender of their certificates therefor, pursuant to this Section 5) shall
terminate. On or after the Take-Out Date, notwithstanding that the certificates
evidencing any shares properly called for redemption shall not have been
surrendered, such shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for redemption (except the right
of the holders to have such shares redeemed upon surrender of their certificates
therefor, pursuant to this Section 5) shall terminate.
6. Outstanding Shares. For purposes of this Certificate of
Designation, a share of Series B Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date of redemption, all shares of Series B
Preferred Stock redeemed pursuant to Section 5 and (ii) from the date of
registration of transfer, all shares of Series B Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation.
7. Status of Acquired Shares. Shares of Series B Preferred Stock
received upon conversion or redemption pursuant to Section 4 or Section 5 or
otherwise acquired by the Corporation will be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
class, and may thereafter be issued.
8. Preemptive Rights. The Series B Preferred Stock is not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
9. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity,
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without invalidating or otherwise adversely affecting the remaining provisions
hereof. If a court of competent jurisdiction should determine that a provision
hereof would be valid or enforceable if a period of time were extended or
shortened or a particular percentage were increased or decreased, then such
court may make such changes as shall be necessary to render the provision in
question effective and valid under applicable law.
[Signature page follows]
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<PAGE> 9
IN WITNESS WHEREOF, Tim S. Ledwick, an authorized officer of the
Corporation, acting for and on behalf of the Corporation, has hereunto
subscribed his name this ____ day of January, 2000.
SYMPOSIUM CORPORATION
By: /s/ Tim S. Ledwick
--------------------------------
Name: Tim S. Ledwick
Title: Chief Financial Officer
9
<PAGE> 1
EX-3.4
Certificate of Designation
CERTIFICATE OF DESIGNATION
for
SERIES C CONVERTIBLE PREFERRED STOCK
of
SYMPOSIUM CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
SYMPOSIUM CORPORATION, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that
pursuant to the authority conferred on the board of directors of the Corporation
(the "Board of Directors") by the Amended and Restated Certificate of
Incorporation, as amended (the "Certificate of Incorporation") of the
Corporation and in accordance with Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors adopted the following resolution
establishing a series of 50,000 shares of preferred stock of the Corporation
designated as "Series C Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors by the Certificate of Incorporation, a series of preferred
stock, par value $.001 per share, of the Corporation is hereby established
and created, and that the designation and number of shares thereof and the
voting and other powers, preferences and relative participating, optional
or other special rights of, the shares of such series and the
qualifications, limitations and restrictions thereof are as follows:
Series C Convertible Preferred Stock
1. Designation and Amount and Definitions. (a) There shall be a
series of Preferred Stock designated as "Series C Convertible Preferred Stock"
and the number of shares constituting such series shall be 50,000. Such number
of shares may be increased or decreased by the Board of Directors; provided,
however, that no decrease shall reduce the number of shares of Series C
Preferred Stock to fewer than the number of shares then issued and outstanding.
Such series is referred to herein as the "Series C Preferred Stock."
Notwithstanding any other provision in this Certificate of Designation of the
Series C Preferred Stock (the "Certificate of Designation") to the contrary,
such Series C Preferred Stock shall rank pari passu with the Series B
Convertible Preferred Stock, par value $.001 per share (the "Series B Preferred
Stock") and junior to the Series A Convertible Preferred Stock, par value $.001,
(the "Series A Preferred Stock") with respect to dividends and the distribution
of assets upon liquidation, dissolution or winding up.
(b) As used in this Certificate of Designation, except as otherwise
provided in Subsection 4(c), the following terms shall have the following
meanings:
(i) "Closing Sale Price" for any security for each trading day
shall be the reported per share closing sale price of such security
regular way on the Stock Market on such trading day, or, if there
were no transactions on such trading day, the average of the
reported closing bid and asked prices, regular way, of such security
on the relevant Stock Market on such trading day.
(ii) The "Dividend Record Date" shall mean March 15, 2000 and
15 days prior to the Mandatory Redemption Date.
(iii) "Fair Market Value" of any asset (including any
security) means the fair market value thereof determined in good
faith by the Board of Directors of the Corporation.
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<PAGE> 2
(iv) "Junior Stock" shall mean the Common Stock, and any
shares of preferred stock of any series or class of the Corporation,
whether presently outstanding or hereafter issued, which are junior
to the shares of Series C Preferred Stock with respect to (i) the
distribution of assets on any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (ii) dividends or
(iii) voting; provided, however, that Junior Stock shall not include
the Series B Preferred Stock.
(v) "Market Price" shall mean the average Closing Sale Price
for twenty (20) consecutive trading days, ending with the trading
day prior to the date as of which the Market Price is being
determined (with appropriate adjustments for subdivisions or
combinations of shares effected during such period), provided that
if the prices referred to in the definition of Closing Sale Price
with respect to any security cannot be determined on any trading
day, the Closing Sale Price for such trading day will be deemed to
equal Fair Market Value of such security on such trading day.
(vi) "Registered Holders" shall mean, at any time, the holders
of record of the Series C Preferred Stock.
(vii) "Stated Value" shall mean $100.00 per share of Series C
Preferred Stock (subject to appropriate adjustment for any stock
split, combination, reclassification or reorganization of the Series
C Preferred Stock).
(viii) The "Stock Market" shall mean, with respect to any
security, the principal national securities exchange on which such
security is listed or admitted to trading or, if such security is
not listed or admitted to trading on any national securities
exchange, shall mean The Nasdaq National Market System ("NNM") or
The Nasdaq SmallCap Market ("SCM" and, together with NNM, "Nasdaq")
or, if such security is not quoted on Nasdaq, shall mean the OTC
Bulletin Board or, if such security is not quoted on the OTC
Bulletin Board, shall mean the over-the-counter market as furnished
by any NASD member firm selected from time to time by the
Corporation for that purpose.
(ix) A "trading day" shall mean a day on which the relevant
Stock Market is open for the transaction of business.
2. Dividends and Distributions. (a) The holders, as of the Dividend
Record Date of the Series C Preferred Stock shall be entitled to receive
quarterly dividends on their respective shares of Series C Preferred Stock
(aggregating, for this purpose, all shares of Series C Preferred Stock held of
record or, to the Corporation's knowledge, beneficially by such holder),
payable, at the option of the Corporation, in cash or shares of Common Stock, at
the rate of 10% per annum (computed on the basis of a 360-day year of twelve 30
day months) of the Stated Value of the Series C Preferred Stock, payable
quarterly in arrears; provided that, to the extent the declaration or payment of
such dividend is prohibited by applicable law, such dividend need not be paid
but shall nevertheless accrue and shall be paid promptly when applicable law
permits. Such dividends shall accrue from the date of issuance of such share and
shall be paid on April 1, 2000 and the Mandatory Redemption Date (each a
"Dividend Payment Date"). Such dividends shall be paid, at the election of the
Corporation, either in cash or duly authorized, fully paid and non assessable
shares of Common Stock. In calculating the number of shares of Common Stock to
be paid with respect to each dividend, the Common Stock shall be valued at its
Market Price as of the relevant Dividend Payment Date. Notwithstanding the
foregoing, the Corporation shall not be required to issue fractional shares; the
Corporation may elect, in its sole discretion, independently for each holder,
whether such number of shares (on an aggregated basis) will be rounded to the
nearest whole share or whether such holder will be given cash in lieu of any
fractional shares.
(b) All dividends or distributions declared upon the Series C
Preferred Stock shall be declared pro rata per share.
(c) Any reference to "distribution" contained in this Section 2
shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
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(d) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series C Preferred
Stock which may be in arrears.
(e) So long as any shares of the Series C Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series C
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series C Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series C Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series C Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series C Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series C Preferred Stock and on such other stock bear to each other.
(f) So long as any shares of the Series C Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series C Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series C Preferred Stock shall have been paid or set apart for payment.
3. Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively referred to as a "Liquidation
Event"), after payment or provision for payment of debts and other liabilities
of the Corporation, the holders of the Series C Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of any Junior Stock of the Corporation, an
amount equal to the sum of the Stated Value and any dividends owed to the
holders of Series C Preferred Stock; provided, however, in the case of a Merger
Transaction, such payment may be made in cash, property (valued as provided in
Subsection 3(b)) and/or securities (valued as provided in Subsection 3(b)) of
the entity surviving such Merger Transaction. In the case of property or in the
event that any such securities are subject to an investment letter or other
similar restriction on transferability, the value of such property or securities
shall be determined in good faith by the Board of Directors of the Corporation.
If upon any Liquidation Event, whether voluntary or involuntary, the assets to
be distributed to the holders of the Series C Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series C Preferred Stock
on the basis of the number of shares of Series C Preferred Stock held.
Notwithstanding item (iii) of the first sentence of this Subsection 3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the Corporation is not the surviving entity but the stockholders of the
Corporation immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own amongst
themselves such interest in substantially the same proportions as prior to such
transaction, shall not be considered a Liquidation Event provided that the
surviving corporation shall make appropriate provisions to ensure that the terms
of this Certificate of Designation survive any such transaction. All shares of
Series C Preferred Stock shall rank as to payment upon the occurrence of any
Liquidation Event senior to the Junior Stock, junior to the Series A Preferred
Stock and, unless the terms of such series shall provide otherwise, senior to
all other series of the Corporation's preferred stock.
(b) Any securities or other property to be delivered to the holders
of the Series C Preferred Stock pursuant to Subsection 3(a) hereof shall be
valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
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<PAGE> 4
(A) If actively traded on a Stock Market, the per share
value shall be deemed to be the Market Price of such
securities as of the third day prior to the date of valuation.
(B) If not actively traded on a Stock Market, the value
shall be the Fair Market Value of such securities.
(ii) For securities for which there is an active public market
but which are subject to an investment letter or other restrictions
on free marketability, the value shall be the Fair Market Value
thereof, determined by discounting appropriately the per share
Market Price thereof.
(iii) For all other securities, the value shall be the Fair
Market Value thereof.
4. Conversion.
(a) Right of Conversion. The shares of Series C Preferred Stock
shall be convertible at any time, in whole or in part, at the option of the
holder thereof and upon notice to the Corporation as set forth in Subsection
4(b), into fully paid and nonassessable shares of Common Stock and such other
securities and property as hereinafter provided. The initial conversion price
per share of Common Stock (the "Conversion Price"), shall be $2.00 and shall be
subject to adjustment as provided herein. The rate at which each share of Series
C Preferred Stock is convertible at any time into Common Stock (the "Conversion
Rate") shall be determined by dividing the then existing Conversion Price
(determined in accordance with this Section 4) into the Stated Value; provided,
however, that if the Corporation shall fail to redeem all of the outstanding
Series C Preferred Stock by the Mandatory Redemption Date (as hereinafter
defined), as provided for under Section 5 hereof, the Conversion Price shall
thereafter be the Initial Per Share Exercise Price (as defined in the form of
Warrant attached hereto as Exhibit A).
(b) Conversion Procedures. Any holder of shares of Series C
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series C
Preferred Stock at the office of the transfer agent for the Series C Preferred
Stock, which certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series C Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates evidencing shares of
Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be the
Corporation) to make a notation of the date that a notice of conversion is
received, which date of receipt shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series C Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series C Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, subject to
Subsection 4(e). Subject to the following provisions of this paragraph, such
conversion shall be deemed to have been made as of the date of such surrender of
the shares of Series C Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock deliverable upon conversion of such
Series C Preferred Stock shall be treated for all purposes as the record holder
or holders of such Common Stock on such date; provided, however, that the
Corporation shall not be required to convert any shares of Series C Preferred
Stock while the stock transfer books of the Corporation are closed for any
purpose, but the surrender of Series C Preferred Stock for conversion during any
period while such books are so closed shall become effective for conversion
immediately upon the reopening of such books as if the surrender had been made
on the date of such reopening, and the conversion shall be at the conversion
rate in effect on such date. No adjustments in respect of any accrued dividends
on shares surrendered for conversion or any dividend on the Common Stock issued
upon conversion shall be made upon the conversion of any shares of Series C
Preferred Stock.
The Corporation shall at all times, reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series C Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Preferred Stock.
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<PAGE> 5
All notices of conversion shall be irrevocable; provided, however,
that if the Corporation has sent notice of an event pursuant to Subsection 4(g)
hereof, a holder of Series C Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series C Preferred
Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Protection Against Dilution.
(i) If the Corporation shall (x) pay a dividend or other
distribution, in Common Stock, on the Common Stock, (y) subdivide the
outstanding Common Stock into a greater number of shares or (z) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Conversion Price in effect immediately prior thereto shall be adjusted so
that the Registered Holder of any shares of Series C Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock that such Registered Holder would have owned or have been entitled
to receive upon the happening of such event had such Series C Preferred Stock
been converted immediately prior to the relevant record date or, if there is no
such record date, the effective date of such event. An adjustment made pursuant
to this Paragraph 4(c)(i) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution or shall become effective immediately after the effective date of
such subdivision or combination, as the case may be.
(ii) In the event of any capital reorganization or
reclassification, or any consolidation or merger to which the Corporation is a
party other than a merger or consolidation in which the Corporation is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Corporation as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Corporation), the holders of Series C Preferred Stock
shall have the right thereafter to receive upon conversion the kind and amount
of securities, cash or other property which the holders would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had the holders converted immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 4
with respect to the rights and interests thereafter of the holders of Series C
Preferred Stock to the end that the provisions set forth in this Section 4 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of Series C Preferred Stock. The above provisions of
this Paragraph 4(c)(ii) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
thereafter deliverable on the exercise of Series C Preferred Stock shall be
responsible for all of the agreements and obligations of the Corporation
hereunder. A sale of all or substantially all of the assets of the Corporation
for a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(d) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least $0.01 per
share of Common Stock; provided, however, that any adjustments which by reason
of this Subsection 4(d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(e) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series C
Preferred Stock. If more than one certificate evidencing shares of Series C
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series C Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of such aggregate number of shares
of Series C Preferred Stock, the Corporation may elect, in its sole discretion,
independently for each holder, whether such number of shares of Common Stock
will be rounded to the nearest whole share or whether such holder will be given
cash, in lieu of any fractional share, in an amount equal to the same fraction
of the Market Price of the Common Stock as of the close of business on the day
of conversion.
(f) Reservation of Shares; Transfer Taxes, Etc. The Corporation
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
5
<PAGE> 6
conversion of the Series C Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series C Preferred Stock from time to time outstanding. The
Corporation shall use its best efforts from time to time, in accordance with the
laws of the State of Delaware to increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized, unissued and
unreserved Common Stock shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series C Preferred Stock.
The Corporation shall pay any and all issue or other taxes
(excluding any income taxes) that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of the Series C Preferred
Stock. The Corporation shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue or delivery of
Common Stock (or other securities or assets) in a name other than that in which
the shares of Series C Preferred Stock so converted were registered, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid or need not be
paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution) on the Common Stock; or
(ii) the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no
par value to par value); or
(iv) of any consolidation or merger to which the Corporation
is a party and for which approval of any stockholders of the
Corporation shall be required, or of the sale or transfer of all or
substantially all of the assets of the Corporation or of any
compulsory share exchange whereby the Common Stock is converted into
other securities, cash or other property; or
(v) of any Liquidation Event;
then the Corporation shall cause to be filed with the transfer agent for the
Series C Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange or
Liquidation Event is expected to become effective, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such exchange or Liquidation Event and the consideration, including securities
or other property, to be received by such holders upon such exchange; provided,
however, that no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to
time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall mail
to the Registered Holders a notice of the increase at least 15 days before the
date the increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be
6
<PAGE> 7
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding anything to the contrary herein, in no case shall
the Conversion Price be adjusted to an amount less than $.001 per share, the
current par value of the Common Stock into which the Series C Preferred Stock is
convertible.
(i) Ambiguities/Errors. The Board of Directors of the Corporation
shall have the power to resolve any ambiguity or correct any error in the
provisions relating to the convertibility of the Series C Preferred Stock, and
its actions in so doing shall be final and conclusive.
5. Redemption. (a) At any time, the Corporation may redeem (an
"Optional Redemption") the Series C Preferred Stock in whole or in part, by
paying the Redemption Price (as defined below). No later than the earlier of 180
days after the issuance of the Series C Preferred Stock and (ii) 20 days
following the closing of any transaction, occurring after the issuance of the
Series C Preferred Stock, whereby the Corporation, as a result of the issuance
of debt or equity securities, receives net proceeds in excess of $10,000,000
(the earlier such date, the "Mandatory Redemption Date"), the Corporation shall
redeem the Series C Preferred Stock in whole, by paying, to the holders of the
shares of Series C Preferred Stock, the Redemption Price. The "Redemption Price"
shall mean the sum of the Stated Value and any dividends owed to the holders of
Series C Preferred Stock.
(b) No greater than 60 nor fewer than 10 days prior to the date of
any Optional Redemption, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series C Preferred Stock to be redeemed,
addressed to such holders at their last addresses as shown on the stock transfer
books of the Corporation. Each such notice shall specify the date fixed for
redemption, the place or places for surrender of shares of Series C Preferred
Stock and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series C Preferred Stock receives such
notice; and failure properly to give such notice by mail, or any defect in such
notice, to the holders of the shares to be redeemed shall not affect the
validity of the proceedings for the redemption of any other shares of Series C
Preferred Stock. On or after the date fixed for redemption (the "Take-Out Date")
as stated in such notice, each holder of shares called to be redeemed shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice of redemption. After the mailing of such notice, but
before the Take-Out Date as stated therein, all rights whatsoever with respect
to the shares so called for redemption (except the right of the holders to
convert such shares pursuant to Section 4 and to have such shares redeemed upon
surrender of their certificates therefor, pursuant to this Section 5) shall
terminate. On or after the Take-Out Date, notwithstanding that the certificates
evidencing any shares properly called for redemption shall not have been
surrendered, such shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for redemption (except the right
of the holders to have such shares redeemed upon surrender of their certificates
therefor, pursuant to this Section 5) shall terminate.
6. Outstanding Shares. For purposes of this Certificate of
Designation, a share of Series C Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date of redemption, all shares of Series C
Preferred Stock redeemed pursuant to Section 5 and (ii) from the date of
registration of transfer, all shares of Series C Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation.
7. Springing Warrants. If on or before 180 days after the issuance
of the Series C Preferred Stock the Corporation has not redeemed all outstanding
shares of Series C Preferred Stock as provided for under Section 5 hereof, then
the Corporation shall issue to the holders of outstanding Series C Preferred
Stock warrants to purchase 7 shares of Common Stock (appropriately adjusted for
stock splits, combinations and the like) per share of outstanding Preferred
Stock (rounded to the nearest whole share) for each 30-day period commencing on
the day after the Mandatory Redemption Date provided that such share of Series C
Preferred Stock remains outstanding, beginning on the first day of such 30-day
period. Such warrants shall be in substantially the form attached hereto as
Exhibit A.
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<PAGE> 8
8. Status of Acquired Shares. Shares of Series C Preferred Stock
received upon conversion or redemption pursuant to Section 4 or Section 5 or
otherwise acquired by the Corporation will be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
class, and may thereafter be issued.
9. Preemptive Rights. The Series C Preferred Stock is not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
10. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes as
shall be necessary to render the provision in question effective and valid under
applicable law.
[Signature page follows]
8
<PAGE> 9
IN WITNESS WHEREOF, Tim S. Ledwick, an authorized officer of the
Corporation, acting for and on behalf of the Corporation, has hereunto
subscribed his name this ____ day of January, 2000.
SYMPOSIUM CORPORATION
By: /s/ Tim S. Ledwick
---------------------------------
Name: Tim S. Ledwick
Title: Chief Financial Officer
9
<PAGE> 1
EX-10.1
Loan and Security Agreement
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
DIRECT SALES INTERNATIONAL, INC.
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
Dated as of January 28, 2000
- --------------------------------------------------------------------------------
1
<PAGE> 2
Table of Contents
Page
1. DEFINITIONS.............................................................1
2. CREDIT FACILITIES.......................................................4
2.1 Loans............................................................4
3. INTEREST AND FEES.......................................................5
3.1 Interest.........................................................5
3.2 Fees.............................................................5
4. SECURITY INTEREST.......................................................5
5. CONDITIONS PRECEDENT....................................................5
5.1 Status of Accounts at Closing....................................5
5.2 Minimum Availability.............................................5
5.3 Landlord Waiver..................................................5
5.4 Intentionally Deleted............................................5
5.5 Executed Agreement...............................................5
5.6 Opinion of Borrower's Counsel....................................5
5.7 Priority of Coast's Liens........................................5
5.8 Insurance........................................................5
5.9 Borrower's Existence.............................................5
5.10 Organizational Documents.........................................6
5.11 Taxes............................................................6
5.12 Due Diligence....................................................6
5.13 Year 2000 Problem Assessment Certificate.........................6
5.14 Other Documents and Agreements...................................6
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER...............6
6.1 Existence and Authority..........................................6
6.2 Name; Trade Names and Styles.....................................6
6.3 Place of Business; Location of Collateral........................6
6.4 Title to Collateral; Permitted Liens.............................7
6.5 Maintenance of Collateral........................................7
6.6 Books and Records................................................7
6.7 Financial Condition, Statements and Reports......................7
6.8 Tax Returns and Payments; Pension Contributions..................7
6.9 Compliance with Law..............................................7
6.10 Litigation.......................................................8
6.11 Use of Proceeds..................................................8
6.12 Year 2000 Compliance.............................................8
7. RECEIVABLES.............................................................8
7.1 Representations Relating to Receivables..........................8
7.2 Representations Relating to Documents and Legal Compliance.......8
7.3 Schedules and Documents relating to Receivables..................8
7.4 Collection of Receivables........................................8
7.5 Remittance of Proceeds...........................................9
7.6 Disputes.........................................................9
7.7 Intentionally Deleted............................................9
7.8 Verification.....................................................9
7.9 No Liability.....................................................9
i
<PAGE> 3
Table of Contents
(contiued)
Page
8. ADDITIONAL DUTIES OF THE BORROWER.......................................9
8.1 Financial and Other Covenants....................................9
8.2 Insurance........................................................9
8.3 Reports.........................................................10
8.4 Access to Collateral, Books and Records.........................10
8.5 Negative Covenants..............................................10
8.6 Litigation Cooperation..........................................11
8.7 Further Assurances..............................................11
9. TERM...................................................................11
9.1 Maturity Date...................................................11
9.2 Early Termination...............................................11
9.3 Payment of Obligations..........................................11
10. EVENTS OF DEFAULT AND REMEDIES.........................................11
10.1 Events of Default...............................................11
10.2 Remedies........................................................13
10.3 Standards for Determining Commercial Reasonableness.............14
10.4 Power of Attorney...............................................14
10.5 Application of Proceeds.........................................15
10.6 Remedies Cumulative.............................................15
11. GENERAL PROVISIONS.....................................................16
11.1 Interest Computation............................................16
11.2 Application of Payments.........................................16
11.3 Charges to Accounts.............................................16
11.4 Monthly Accountings.............................................16
11.5 Notices.........................................................16
11.6 Severability....................................................16
11.7 Integration.....................................................16
11.8 Waivers.........................................................16
11.9 No Liability for Ordinary Negligence............................17
11.10 Amendment.......................................................17
11.11 Time of Essence.................................................17
11.12 Attorneys Fees, Costs and Charges...............................17
11.13 Benefit of Agreement............................................17
11.14 Publicity.......................................................18
11.15 Paragraph Headings; Construction................................18
11.16 Governing Law; Jurisdiction; Venue..............................18
11.17 Mutual Waiver of Jury Trial.....................................18
ii
<PAGE> 4
Coast
Loan and Security Agreement
Borrower: Direct Sales International, Inc.
Address: 2550 Heritage Court, Suite 106
Atlanta, Georgia
Date: January 28, 2000
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1400, Los Angeles,
California 90025, and the borrower(s) named above (jointly and severally, the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 1 below.
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable or General Intangible.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Audit" means to inspect, audit and copy Borrower's books and records and
the Collateral.
"Borrower" has the meaning set forth in the introduction to this
Agreement.
"Borrower's Address" has the meaning set forth in the introduction to this
Agreement.
"Business Day" means a day on which Coast is open for business, but shall
not include any Saturday, Sunday or any other day upon which banking
institutions in the State of California are required or authorized by law to be
closed.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower or any guarantor of the Obligations) becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, as a result of any single transaction, of
more than twenty-five percent (25%) of the total voting power of all classes of
stock or other ownership interests then outstanding of any Borrower or any
guarantor of the Obligations normally entitled to vote in the election of
directors or analogous governing body.
"Closing Date" date of the initial funding under this Agreement.
"Coast" has the meaning set forth in the introduction to this Agreement.
1
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Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
"Credit Limit" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105(e) of the
Code.
"Dollars or $" means United States dollars.
"Early Termination Fee" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"EBITDA" means, in any period, Borrower's consolidated net income for such
period of Borrower determined in accordance with GAAP (other than extraordinary
or non-recurring items including, without limitation, gain on sale of assets,
income relating to foreign exchange, swap or other derivative transactions and
changes in GAAP), plus the following items , to the extent deducted from the
revenues of Borrower in the calculation of net income or loss (i) depreciation,
(ii) amortization of intangibles and any other non-cash items (iii) cash
interest expense (excluding any interest paid in kind) and (iv) tax expense.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choices in action, causes of action, corporate or other business
records, Deposit Accounts, investment property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might
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Coast Business Credit Loan and Security Agreement
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be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"Investment Property" has the meaning set forth in Section 9115 of the
Code as in effect as of the date hereof.
"Loan Documents" means this Agreement, the agreements and documents listed
on Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any subsidiary of Borrower or any guarantor of any of the
Obligations, (ii) the ability of Borrower or any guarantor of any of the
Obligations to perform its obligations under this Agreement (including, without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or enforceability of this Agreement or any other agreement or document entered
into by any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"Maturity Date" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2 of the
Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of the
Schedule.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment), absolute or contingent, due or to
become due, including, without limitation, all interest, charges, expenses,
fees, attorneys' fees (including attorneys' fees and expenses incurred in
bankruptcy), expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and Coast.
"Permitted Liens" means the following:
(a) purchase money security interests in specific items of
Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or
other nonconsensual liens arising in the ordinary course of business and
securing obligations which (i) are not delinquent or (ii) which do not exceed
$25,000 in the aggregate;
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(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, general partnership,
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the prime rates published in the Wall Street
Journal on the first business day of the applicable month, as the base rate on
corporate loans at large U.S. money center commercial banks.
"Receivable Loans" means the Loans described in Section 2(a) of the
Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is renewed
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"Renewal Fee" means the fee that Borrower must pay Coast upon renewal of
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
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"Tangible Net Worth" means consolidated shareholder's equity plus
subordinated debt otherwise permitted hereunder, less, goodwill, patents,
trademarks, copyrights, franchises, formulas, leasehold interests, leasehold
improvements, non-compete agreements, engineering plans, deferred tax benefits,
organization costs, prepaid items and any other assets of Borrower that would be
treated as intangible assets on Borrower's balance sheet prepared in accordance
with GAAP.
"Term Loan" means the Loans described in Section 2(c) of the Schedule.
"Year 2000 Problem" means the risk that computer systems, software and
applications used by a Person may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
"Other Terms" All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 Loans. Coast will make loans to Borrower (the "Loans"), in amounts and
in percentages to be determined by Coast in its good faith discretion, up to the
Credit Limit, provided no Default or Event of Default has occurred and is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible Receivables or Eligible Inventory without declaring a
Default or an Event of Default if it determines that there has occurred a
Material Adverse Effect.
3. INTEREST AND FEES.
3.1 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time, Borrower shall pay Coast Minimum Monthly Interest during the
term of this Agreement with respect to the Receivable Loans and the Inventory
Loans in the amount set forth on the Schedule.
3.2 Fees. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast. All fees shall
be deemed fully earned on the Closing Date and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property of Borrower in which Coast may now
or in the future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral")
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
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Coast Business Credit Loan and Security Agreement
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5.1 Status of Accounts at Closing. No accounts payable shall be due and
unpaid ninety (90) days past its due date except for such accounts payable being
contested in good faith in appropriate proceedings and for which adequate
reserves have been provided.
5.2 Minimum Availability. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 Landlord Waiver. Coast shall have received duly executed landlord
waivers and access agreements in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and, when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
leased locations where Borrower maintains any inventory or equipment.
5.4 Intentionally Deleted.
5.5 Executed Agreement. Coast shall have received this Agreement duly
executed and in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.6 Opinion of Borrower's Counsel. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.7 Priority of Coast's Liens. Coast shall have received the results of
"of record" searches satisfactory to Coast in its sole and absolute discretion,
reflecting its Uniform Commercial Code filings against Borrower indicating that
Coast has a perfected, first priority lien in and upon all of the Collateral,
subject only to Permitted Liens.
5.8 Insurance. Coast shall have received copies of the insurance binders
or certificates evidencing Borrower's compliance with Section 8.2 hereof,
including lender's loss payee endorsements.
5.9 Borrower's Existence. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
5.10 Organizational Documents. Coast shall have received copies of
Borrower's Bylaws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.11 Taxes. Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service regulations,
in form and substance satisfactory to Coast in its sole and absolute discretion.
5.12 Due Diligence. Coast shall have completed its due diligence with
respect to Borrower.
5.13 Year 2000 Problem Assessment Certificate. Coast shall have received a
certificate from the relevant officer of Borrower to the effect that, as the
result of a comprehensive assessment undertaken by Borrower of computer systems,
software and applications and after due inquiry made to Borrower's material
suppliers, vendors and customers, Borrower knows of no facts would cause
Borrower to reasonably believe that the Year 2000 Problem will cause a Material
Adverse Effect.
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5.14 Other Documents and Agreements. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will be true on each date that Coast makes a
Loan, and that Borrower will at all times comply with all of the following
covenants:
6.1 Existence and Authority. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name.
6.3 Place of Business; Location of Collateral. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
6.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral is now or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture, unless prior to any of the Collateral
becoming a fixture, Coast shall have received a landlord waiver executed by any
landlord of any real property upon which the Collateral will become a fixture,
in form and substance satisfactory to Coast. Borrower is not and will not become
a lessee under any real property lease pursuant to which the lessor may obtain
any rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its best efforts to cause such third party to execute
and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease of real property where any of the Collateral now or
in the future may be located.
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6.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition, and Borrower will not knowingly use the Collateral for
any unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral of which Borrower has become aware.
6.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.
6.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
6.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all material foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation G of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
6.12 Year 2000 Compliance. As the result of a comprehensive review and
assessment undertaken by Borrower of Borrower's computer systems, software and
applications and after due inquiry made of Borrower's material suppliers,
vendors and customers, Borrower represents and warrants that the Year 2000
problem will not result in a Material Adverse Effect.
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7. RECEIVABLES.
7.1 Representations Relating to Receivables. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
7.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations in all
material respects. All signatures and endorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
7.3 Schedules and Documents relating to Receivables. Borrower shall
deliver to Coast via facsimile, unless otherwise directed by Coast, at such
locations and at such intervals as Coast may request, transaction reports and
loan requests, schedules of Receivables, if applicable, and schedules of
collections, all on Coast's standard forms; provided, however, that Borrower's
failure to execute and deliver the same shall not affect or limit Coast's
security interest and other rights in all of Borrower's Receivables, nor shall
Coast's failure to advance or lend against a specific Receivable affect or limit
Coast's security interest and other rights therein. Loan requests received after
10:30 A.M. Los Angeles, California time, will not be considered by Coast until
the next Business Day. Together with each such schedule, if requested by Coast
at that time or later and only to the extent applicable, Borrower shall furnish
Coast with copies (or, at Coast's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Coast an aged accounts receivable trial balance in such form and at
such intervals as Coast shall request. In addition, Borrower shall deliver to
Coast the originals, if any, of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, upon receipt thereof and in the same form as received, with all
necessary endorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.
7.4 Collection of Receivables. Borrower shall have the right to collect
all Receivables, unless and until an Event of Default has occurred. Borrower
shall hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables.
7.5 Remittance of Proceeds. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
7.6 Disputes. Borrower shall deliver to Coast on a weekly basis the Start
Monthly History report, which shall be delivered by Tuesday of each week for the
preceding week. Borrower shall not forgive (completely or partially), compromise
or settle any Receivable for less than payment in full, or agree to do any of
the foregoing, except that Borrower may do so, provided that: (a) Borrower does
so in good faith, in a commercially reasonable
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manner, in the ordinary course of business, and in arm's length transactions,
which are reported to Coast on the regular reports provided to Coast; (b) no
Default or Event of Default has occurred and is continuing; and (c) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Coast may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Coast considers advisable
in its reasonable credit judgment and, in all cases, Coast shall credit
Borrower's Loan account with only the net amounts received by Coast in payment
of any Receivables.
7.7 Intentionally Deleted.
7.8 Verification. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
7.9 No Liability. Coast shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own gross negligence or willful misconduct.
8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
8.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lender's loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than the amount set forth in Section 8 of the
Schedule, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Coast copies of all reports made to insurance companies.
8.3 Reports. Borrower, at its expense, shall provide Coast with the
written reports set forth in Section 8 of the Schedule, and such other written
reports with respect to Borrower (including budgets, sales projections,
operating plans and other financial documentation), as Coast shall from time to
time reasonably specify.
8.4 Access to Collateral, Books and Records. At reasonable times but not
less frequently than quarterly and provided that a Default or an Event of
Default has not occurred and is continuing, not more frequently than monthly,
and on one (1) Business Day's notice, Coast, or its agents, shall have the right
to perform Audits. Coast shall take reasonable steps to keep confidential all
confidential information obtained in any Audit, but Coast shall have the right
to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The Audits shall
be at Borrower's expense and the charge for the Audits shall be Seven Hundred
Fifty Dollars ($750) per person per day (or such higher amount as shall
represent Coast's then current standard charge for the same), plus reasonable
out-of-pocket expenses. Borrower will not enter into any
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agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address,
without first notifying Coast of the same and obtaining the written agreement
from such accounting firm, service bureau or other third party to give Coast the
same rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement. Borrower shall also take all necessary
steps to assure that this material accounting and software, systems and
applications, and those of its accounting firm, service bureau or any other
third party vendor or supplier, will on a timely basis, adequately and
completely address the Year 2000 Problem in all material aspects.
8.5 Negative Covenants. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another entity, except (i) in a
transaction in which the owners of the Borrower hold at least fifty percent
(50%) of the ownership interest in the surviving entity immediately after such
merger or consolidation, and the Borrower is the surviving entity, or (ii) if
all outstanding Obligations are paid and this Agreement is terminated as a
result;
(b) acquire any assets, except (i) in the ordinary course of
business, or (ii) in a transaction or a series of transactions not involving the
payment of an aggregate amount in excess of the amount set forth in Section 8 of
the Schedule;
(c) enter into any other transaction not otherwise permitted by this
Section 8.5 outside the ordinary course of business;
(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business; provided
that nothing herein shall be deemed to prevent Borrower from using any advances
made by Coast hereunder to operate Borrower's business;
(e) Intentionally Deleted;
(f) Intentionally Deleted;
(g) make any loans of any money or other assets, except (i) advances
to customers or suppliers in the ordinary course of business, (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business, and (iii) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(h) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(j) except as permitted pursuant to the Schedule, pay or declare any
dividends or distributions on the ownership interests in Borrower (except for
dividends or distributions payable solely in stock form of ownership interests
in Borrower);
(k) make any change in Borrower's capital structure which would have
a Material Adverse Effect; or
(l) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are
only permitted if no Default or Event of Default is continuing or would occur as
a result of such transaction.
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8.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 Further Assurances. Borrower agrees, at its expense, on request by
Coast, to execute all documents prepared by Coast and take all actions, as
Coast, may reasonably deem necessary or useful in order to perfect and maintain
Coast's perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
9. TERM.
9.1 Maturity Date. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than one hundred twenty (120) days prior to the Maturity Date or
the next Renewal Date, that such party elects to terminate this Agreement
effective on the Maturity Date or such next Renewal Date. If this Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount shown in Section 3 of the Schedule. The Renewal Fee shall be due and
payable on the Renewal Date and thereafter shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.
9.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written notice of termination is given to Coast; or (b) by Coast at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 9.2, Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
9.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Coast immediate written notice thereof:
(a) Any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall have been untrue or misleading when made
and results in a Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
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(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 7.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five (5) Business Days after the
date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is (i) not
timely controverted, or (ii) not cured by the dismissal thereof within
forty-five (45) days after the date commenced; or
(l) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) Except as permitted under Section 8.5(a), Borrower or any
guarantor of the Obligations shall suffer or experience any Change of Control
without Coast's prior written consent, which consent shall be in the discretion
of Coast in the exercise of its reasonable business judgment; or
(p) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any
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transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or
(q) there shall be any Material Adverse Effect.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 Remedies. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as Coast deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should Coast seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge. Coast is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Coast's
benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in
its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if
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permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability Borrower
may have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and
obligations incurred by Coast (including attorneys' fees and expenses incurred
in connection with bankruptcy) with respect to the foregoing shall be due from
the Borrower to Coast on demand. Coast may charge the same to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Receivable Loans. Without limiting any of Coast's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional three
percent per annum.
10.3 Standards for Determining Commercial Reasonableness. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least five (5) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least five (5) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m.
Los Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same.
Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 Power of Attorney. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in
its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of
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Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim
that relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books
or records belonging to, or relating to, Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including reasonable
attorneys' fees and expenses incurred pursuant to bankruptcy) with respect to
the foregoing shall be added to and become part of the Obligations, and shall be
payable on demand. Coast may charge the foregoing to Borrower's loan account and
the foregoing shall thereafter bear interest at the same rate applicable to the
Receivable Loans. In no event shall Coast's rights under the foregoing power of
attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties of
Borrower. Borrower shall pay, indemnify, defend, and hold Coast and each of its
officers, directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified
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Person hereunder with respect to any Indemnified Liability that a court of
competent jurisdiction finally determines to have resulted from the gross
negligence or willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment of the
Obligations.
10.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and reasonable attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
11. GENERAL PROVISIONS.
11.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds (one (1) Business Day for credit
card deposits), and, for purposes of the foregoing, any such funds received
after 10:30 AM Los Angeles, California time, on any day shall be deemed received
on the next Business Day. Coast shall be entitled to charge Borrower's account
for such three (3) Business Days (one (1) Business Day for credit card deposits)
of "clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule
on all checks, wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days (one (1) Business Day for credit card
deposits) of "clearance" or "float" actually occur, and shall be deemed to be
the equivalent of charging three (3) Business Days (one (1) Business Day for
credit card deposits) of interest on such collections. This across-the-board
three (3) Business Day clearance or float charge (one (1) Business Day for
credit card deposits) on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
Coast shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Coast in its sole
discretion, and Coast may charge Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.
11.2 Application of Payments. Subject to Section 7.5 hereof, all payments
with respect to the Obligations may be applied, and in Coast's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Coast
shall determine in its sole discretion.
11.3 Charges to Accounts. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 Monthly Accountings. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.
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11.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
11.8 Waivers. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 No Liability for Ordinary Negligence. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 Attorneys Fees, Costs and Charges. Borrower shall reimburse Coast
for all attorneys' fees (including reasonable attorneys' fees and expenses
incurred pursuant to bankruptcy) and all filing, recording, search, title
insurance, appraisal, audit, and other costs incurred by Coast, pursuant to, or
in connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
(including reasonable attorneys' fees and expenses incurred pursuant to
bankruptcy) Coast incurs in order to do the following: prepare and negotiate
this Agreement and the documents relating to this Agreement; obtain legal advice
in connection with this Agreement or Borrower; enforce, or seek to enforce, any
of its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim,
18
<PAGE> 22
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and
inspect any of the Collateral or any of Borrower's books and records; protect,
obtain possession of, lease, dispose of, or otherwise enforce Coast's security
interest in, the Collateral; and otherwise represent Coast in any litigation
relating to Borrower. If either Coast or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees
(including reasonable attorneys' fees and expenses incurred pursuant to
bankruptcy), including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. Borrower shall also pay Coast's standard charges for returned
checks and for wire transfers, in effect from time to time. All attorneys' fees,
costs and charges (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and other fees, costs and charges to which Coast may be entitled
pursuant to this Agreement may be charged by Coast to Borrower's loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.
11.13 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that, except as permitted by Section 8.5(a), Borrower may not assign or
transfer any of its rights under this Agreement without the prior written
consent of Coast, and any prohibited assignment shall be void. No consent by
Coast to any assignment shall release Borrower from its liability for the
Obligations. Coast may assign its rights and delegate its duties hereunder
without the consent of Borrower. Coast reserves the right to syndicate all or a
portion of the transaction created herein or sell, assign, transfer, negotiate,
or grant participations in all or any part of, or any interest in Coast's rights
and benefits hereunder, provided that in any such participation Coast shall
continue to be the lead lender. In connection with any such syndication,
assignment or participation, Coast may disclose all documents and information
which Coast now or hereafter may disclose all documents and information which
Coast now or hereafter may have relating to Borrower or Borrower's business. To
the extent that Coast assigns its rights and obligations hereunder to at third
Person, Coast thereafter shall be released from such assigned obligations to
Borrower, except for claims, if any, against Coast accruing prior to the date of
the assignment.
11.14 Publicity. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
11.15 Paragraph Headings; Construction. Paragraph headings are only used
in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
11.16 Governing Law; Jurisdiction; Venue This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 Mutual Waiver of Jury Trial BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS,
19
<PAGE> 23
Coast Business Credit Loan and Security Agreement
- --------------------------------------------------------------------------------
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
DIRECT SALES INTERNATIONAL, INC.
By /s/ Ronald Altbach
--------------------------------
President or Vice President
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By Robert Peters
------------------------------
Title
------------------------------
20
<PAGE> 24
- --------------------------------------------------------------------------------
Coast
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
Borrower: Direct Sales International, Inc.
Address: 2550 Heritage Court, Suite 106
Atlanta, Georgia
Date: January __, 2000
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, and the
above-borrower of even date.
================================================================================
SECTION 2. CREDIT FACILITIES
Section 2.1 - Credit Limit: Loans in a total amount at any time
outstanding to Borrower and to the
Subsidiaries not to exceed the lesser of a
total of Twenty Million Dollars ($20,000,000)
at any one time outstanding (the "Maximum
Dollar Amount"), or the sum of the following:
21
<PAGE> 25
Advances up to four (4) times monthly
recurring collections measured on a trailing
six month moving average not to exceed the
lesser of:
(a) 80% of the net accounts
receivables of Borrower (gross accounts
receivable acceptable to Coast less allowances
for doubtful accounts); or
(b) 50% of the business enterprise
value of Borrower as determined by Coast in
its discretion.
If total accounts receivable dilution should
exceed 55% as determined by Coast through a
quarterly audit, such event shall constitute
an Event of Default. In addition to the
limitations set forth above, in no event shall
Coast's unpaid Loans to Borrower exceed four
times trailing twelve month EBITDA, measured
monthly, prior to payment of management fees
to Symposium Corporation not to exceed
$150,000 per month.
================================================================================
SECTION 3 - INTEREST AND FEES
Section 3.1 - Interest Rate: A rate equal to the Prime Rate plus 2% per
annum, calculated on the basis of a 360-day
year for the actual number of days elapsed.
The interest rate applicable to all Loans
shall be adjusted monthly effective as of the
first day of each month, and the interest to
be charged for each month shall be based on
the highest Prime Rate in effect during said
month, but in no event shall the rate of
interest charged on any Loans in any month be
less than 9% per annum.
Section 3.1 - Minimum Monthly Interest based on an amount equal to fifty
Interest: percent (50%) of the Maximum Dollar Amount
based on daily borrowings.
Section 3.2 - Loan Fee: $200,000 payable concurrently herewith plus
one quarter of one (0.25) percent of the
Maximum Dollar Amount payable on each
anniversary of this Agreement All Loan Fees
shall be deemed earned on the Closing Date and
shall not be refundable for any reason
Section 3.2 - Facility Fee: $5,000 per month payable on the Closing Date
(prorated for any partial month at the
beginning of the term of this Agreement) and
continuing on the first day of each month
thereafter.
Section 9.1 - Renewal Fee: One half of one (0.50) percent % of the
Maximum Dollar Amount beginning in year four
of this Agreement.
Section 9.2 - Early An amount equal to three percent (3%) of the
Termination Fee: Maximum Dollar Amount (as defined in the
Schedule), if termination occurs on or before
the first anniversary of the effective date of
this Agreement; two percent (2%) of the
Maximum Dollar Amount, if termination occurs
after the first anniversary and on or before
the second anniversary of the effective date
of this Agreement; and one percent (1%) of the
Maximum Dollar Amount, if termination occurs
after the second anniversary date of this
Agreement, except as permitted in Section 9.1.
22
<PAGE> 26
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
Section 5.2 - Minimum $500,000 at funding
Availability:
Section 5.14 - Other 1. Continuing Guaranty of Symposium
Documents and Corporation;
Agreements: 2. UCC-1 financing statements, fixture filings
and termination statements;
3. Security Agreements (including those
covering copyrights, patents and
trademarks).
4. Validity and Support Agreements from Ronald
Altbach and Tim Ledwick; and
5. Such additional documents and instruments
as Coast may require.
Section 5.15 - Other 1. All collections through a blocked account
Conditions: or lock box in form reasonably acceptable
to Coast.
2. No accounts payable shall be over 90 days
old from invoice date.
3. All applicable taxes shall be current.
4. Coast shall have a first priority perfected
security interest in all assets of
Borrower, real and personal, (except for
Permitted Liens) including, without
limitation, in all trademarks, copyrights
and patents.
5. Borrower shall have raised cash equity of
not less than $7,000,000, and shall have
raised an additional $5,000,000 of cash
equity on or before December 31, 1999.
Borrower shall provide to Coast documents
indicating that there exists sufficient
commitments to raise the additional
$5,000,000 by such date, including a list
of investors with their respective amounts
of commitment, all satisfactory to Coast in
its reasonable discretion. The failure of
Borrower to obtain the additional cash
equity by December 31, 1999 shall be an
Event of Default.
6. Symposium shall have contributed to
Borrower not less than $6,000,000 in cash
equity.
7. Coast shall have reviewed and not
disapproved in its discretion each of the
following: Kane Reece & Associates business
valuation; all documents related to the
purchase of the assets of Direct Sales
International ("DSI"); all contracts
between Borrower and publishers and
telemarketing agents; background checks
with key officers of Borrower; Dun and
Bradstreet report and state and local
searches; and private placement memorandum
used to raise Symposium Corporation's
equity.
8. Concurrent consummation of the asset
purchase of DSI by Borrower.
================================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.2 - Prior Names of None
Borrower:
Section 6.2 - Prior Trade Names None
of Borrower:
Section 6.2 - Existing Trade Media Outsourcing
Names of
Borrower:
23
<PAGE> 27
Section 6.3 - Other Locations
and Addresses:
Section 6.10 - Material Adverse None
Litigation:
Section 6.10 - Future Claims Borrower will promptly inform Coast in writing
and Litigation: of any claim, proceeding, litigation or
investigation in the future threatened or
instituted by or against Borrower involving
any single claim of Fifty Thousand Dollars
($50,000) or more, or involving One Hundred
Thousand Dollars ($100,000) or more in the
aggregate.
24
<PAGE> 28
================================================================================
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
[text continued on next page]
Section 8.1 - Other 1. All applicable taxes shall be currently
Provisions paid at all times
and Covenants:
2. Borrower's accounting system as acquired
from Direct Sales International, LP shall
be replaced by a new accounting system, as
represented to Coast, as created or
initiated by Borrower, which shall be in
operation within 120 days from the Closing
Date. The new accounting system shall run
parallel to the accounting system acquired
by Borrower for a minimum of 90 days after
the new accounting system is operational.
3. Measured on the Closing Date and on a
quarterly basis thereafter, Borrower shall
have a Tangible Net Worth of not less than
$4,750,000 increasing by 80% of Borrower's
after tax net income.
4. Notwithstanding anything to the contrary
herein, so long as no Event of Default has
occurred and is continuing, Borrower may
advance or loan to Symposium Corporation up
to $150,000 per month in the aggregate
including management fees. Borrower may
additionally advance to Symposium
Corporation any amounts necessary to pay
for the tax obligations of Symposium
Corporation attributable solely to the
income of Borrower.
5. Measured quarterly, Borrower's ratio of
EBITDA minus maintenance capital
expenditures divided by payments to Coast
of principal and interest shall not be less
than 1.40:1.
6. It shall constitute an Event of Default if
Symposium Corporation does not have a
consolidated net worth (defined as
shareholder equity plus subordinated debt)
of not less than $12,000,000.
7. Without limiting the covenants in this
Agreement including, without limitation,
those set forth in Section 8.5, Coast shall
have a right of first refusal to finance
all acquisitions by Symposium Corporation,
to the extent that such acquisitions are
financed by borrowing of funds. Coast shall
promptly reply to a written notification by
Borrower outlining the terms of any such
proposed financing.
8. Borrower shall notify Coast in writing
within five (5) Business Days if Borrower
becomes aware of any investigation or claim
of any violation or potential violation by
Borrower of any laws relating to
telemarketing.
9. If at any time either Ronald Altbach or Tim
Ledwick ceases to be an employee of
Borrower, Borrower shall require an officer
of equal or greater position to execute a
Validity and Support Agreement in the form
executed by Ronald Altbach. Borrower's
failure to do so within 30 days shall
constitute an Event of Default.
10. Any violation of the terms of that certain
letter dated January 13, 1999 from Rupert
Galliers-Pratt to Symposium Corporation, a
copy of which has been delivered to Coast
as of the date hereof, shall constitute an
Event of Default.
25
<PAGE> 29
11. Borrower has represented to Coast and
continues to represent that Richard
Prochnow shall not be an officer, director,
or employee or otherwise involved in the
daily operations of Symposium Corporation
or Borrower, provided that Richard Prochnow
may be a consultant from time to time of
Symposium Corporation or Borrower.
Section 8.2 - Insurance: Subject to the limitations set forth in
Section 8.2 of the Agreement, Coast shall
release to Borrower insurance proceeds with
respect to Equipment totaling less than Fifty
Thousand Dollars ($50,000).
Section 8.3 - Reporting: Borrower shall provide Coast with the
following:
1. Weekly collection reports.
2. Monthly verification of publisher
remittances.
3. Monthly Receivable agings, aged by invoice
date and by customer in alphabetical order,
within five (5) days after the end of each
month together with a monthly deferred
revenue listing to be sorted by customer in
alphabetical order.
4. Monthly accounts payable agings, aged by
invoice date, and outstanding or held check
registers within five (5) days after the
end of each month.
5. Monthly internally prepared financial
statements, as soon as available, and in
any event within thirty (30) days after the
end of each month.
6. Quarterly internally prepared financial
statements, as soon as available, and in
any event within forty-five (45) days after
the end of each fiscal quarter of Borrower.
7. Quarterly customer lists, including
customer name, address, and phone number.
8. Annual financial statements, as soon as
available, and in any event within ninety
(90) days following the end of Borrower's
fiscal year, containing the unqualified
opinion of, and certified by, an
independent certified public accountant
acceptable to Coast.
Section 8.5 Negative Fifty Thousand Dollars ($50,000)
Covenants
(Acquired Assets):
================================================================================
SECTION 9 - TERM
Section 9.1 - Maturity Date: The last Business Day of the month three (3)
years from the Closing Date, subject to
automatic renewal as provided in Section 9.1
of the Agreement, and early termination as
provided in Section 9.2 of the Agreement.
26
<PAGE> 1
EX-10.2
Amendment to Loan and Security Agreement
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of this 28th day of January, 2000, between Coast Business Credit(R), a
division of Southern Pacific Bank ("Coast") and Direct Sales International, Inc.
("Borrower") is made in reference to the following facts:
A. Borrower previously entered into a Loan and Security Agreement
with Coast dated as of January 28, 2000 (the "Loan Agreement"). Unless otherwise
defined, all capitalized terms used herein shall have the meanings given them in
the Loan Agreement.
B. Borrower and Lender wish to amend the Loan Agreement on the terms
and subject to the conditions set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing recitals and the
terms and conditions hereof, the parties do hereby agree as follows, effective
as of the date set forth above:
1. Facility Fee. The Facility Fee in Section 3 of the Schedule to
the Loan Agreement is hereby increased to $10,000 per month for the first four
months from the Closing Date. The Facility Fee shall thereafter decrease to
$5,000 per month. The Facility Fee shall otherwise be payable in the same manner
specified in Section 3 of the Schedule to the Loan Agreement.
2. Conditions Precedent. Paragraphs 5 and 6 under Section 5.15 of
the Schedule to the Loan Agreement are deleted in their entirety and replaced
with the following:
"5. Symposium Corporation shall have contributed to Borrower not less
than $9,000,000 in cash equity by the Closing Date.
6. Borrower shall have raised an additional $3,000,000 of cash equity
on or before February 29, 2000. Prior to Coast's initial advance
hereunder, Borrower shall provide to Coast documents indicating that
there exists sufficient commitments to raise the additional
$3,000,000 by such date, including a list of investors with their
respective amounts of commitment, all satisfactory to Coast in its
reasonable discretion. The failure of Borrower to obtain the
additional cash equity by February 29, 2000 shall constitute an
Event of Default."
3. Tangible Net Worth Waiver. Coast hereby waives until March 31,
2000 Borrower's compliance with the Tangible Net Worth covenant in Paragraph 3
of Section 8.1 of the Schedule to the Loan Agreement. The foregoing waiver is a
one-time waiver only and shall apply only to the matter specifically set forth
in this Paragraph 3. Without limiting the generality of the foregoing, this
waiver shall not apply to any future failure by Borrower to comply with any
provision of the Loan Agreement at any time. In consideration of this waiver,
Borrower shall pay to Coast a fee of $25,000, which shall be deemed fully earned
and payable upon execution of this Amendment, and shall be in addition to all
other fees and charges payable by Borrower.
4. Opening Balance Sheet. Coast shall have received by March 31,
2000 a final opening balance sheet for Borrower and its subsidiaries prepared by
a major international accounting firm. Failure to provide such balance sheet
shall be an Event of Default. Upon receipt of the balance sheet, Coast will
reset the Tangible Net Worth covenant in Paragraph 3 of Section 8.1 of the
Schedule to the Loan Agreement (as Coast shall reasonably determine), which
covenant will increase by 80% of after-tax net income, less dividends paid to
the extent permitted in the Loan Agreement, measured on a quarterly basis.
5. Other Provisions and Covenants. Paragraph 6 under Section 8.1 of
the Schedule to the Loan Agreement is deleted in its entirety and replaced with
the following:
<PAGE> 2
"Measured on a quarterly basis beginning February 29, 2000, it shall
constitute an Event of Default if Symposium Corporation does not have a
consolidated net worth (defined as shareholder equity plus subordinated
debt) of not less than $12,000,000."
6. Monthly Audit. At Coast's option, Coast shall conduct an audit of
Borrower every thirty (30) days until the accounting system referred to in
Paragraph 2 of Section 8.1 of the Schedule to the Loan Agreement is operational.
Audits will then be conducted as otherwise permitted in the Loan Agreement.
7. Loans to Borrower's Subsidiaries. Coast understands that Borrower
will use a portion of its cash to support the overhead and working capital of
Borrower's three subsidiaries. Coast will reasonably consider a proposal by
Borrower after the date hereof to permit such downstreaming of cash within
certain specified dollar limits per month as an exception to Section 8.5 of the
Loan Agreement. Such exception however shall not be effective until evidence by
a separate agreement signed by the parties hereto.
8. Documents. Borrower shall deliver to Coast on or before the
Closing Date (unless otherwise noted) the following additional documents:
a. within thirty (30) days from the Closing Date and each month end
thereafter, a list of accounts payable for Borrower and its
subsidiaries in form reasonably satisfactory to Coast;
b. by May 15, 2000, a financial statement audited or reviewed by a CPA
for the quarter ending March 31, 2000;
c. guaranties executed by each subsidiary in favor of Coast;
d. executed security agreements between each of the subsidiaries and
Borrower, each of which shall contain an assignment of Borrower's
rights to Coast;
e. notes payable to Borrower executed by each subsidiary, each of which
shall contain an assignment by Borrower to Coast;
f. security agreements executed by each subsidiary in favor of Coast;
and
g. corporate or company resolutions, UCC-1 Financing Statements, and
any other documents as Coast shall reasonably request in connection
with the foregoing.
Borrower's failure to deliver any of the foregoing documents by the times
specified shall constitute an Event of Default.
9. Financials. By way of clarification, Borrower confirms and agrees
that the annual certified financial statements of Borrower required in Section
8.3 of the Schedule to the Loan Agreement are financial statements of Borrower
that have not been consolidated with Symposium Corporation (or any successor
thereto).
10. Reaffirmation. Except as modified by the terms herein, the Loan
Agreement and the other Loan Documents remain in full force and effect. If there
is any conflict between the terms and provisions of this Amendment and the terms
and provisions of the Loan Agreement or documents related thereto, the terms and
provisions of this Amendment shall govern.
11. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Amendment may be
executed by facsimile signatures.
12. Governing Law. This Amendment shall be governed by and construed
according to the laws of the State of California.
2
<PAGE> 3
13. Attorneys' Fees; Costs; Jury Trial Waiver. Borrower agrees to
pay, on demand, all attorneys' fees and costs incurred in connection with the
negotiation, documentation and execution of this Amendment. If any legal action
or proceeding shall be commenced at any time by any party to this Amendment in
connection with its interpretation or enforcement, the prevailing party or
parties in such action or proceeding shall be entitled to reimbursement of its
reasonable attorneys' fees and costs in connection therewith, in addition to all
other relief to which the prevailing party or parties may be entitled. Each of
Coast and Borrower hereby waives its right to a jury trial in any such action or
proceeding.
COAST BUSINESS CREDIT, a division of
Southern Pacific Bank
By: Robert Peters
_________________________________________
Its:
________________________________________
DIRECT SALES INTERNATIONAL, INC.
By: /s/ Ronald Altbach
_________________________________________
Its: CEO
________________________________________
The undersigned Guarantor hereby acknowledges and consents to the
foregoing Amendment and confirms and agrees that its Guaranty executed in favor
of Coast shall remain in full force and effect in accordance with its terms.
SYMPOSIUM CORPORATION
By: /s/ Ronald Altbach
_________________________________________
Its: CEO
________________________________________
3
<PAGE> 1
EX-10.3(a)
Amendment to Loan Documents
AMENDMENT TO LOAN DOCUMENTS
This Amendment to Loan Documents (this "Amendment") is entered into
this ___ day of March, 2000, between Media Outsourcing, Inc., a Delaware
corporation, formerly known as Direct Sales International, Inc. ("Borrower"),
and Coast Business Credit, a division of Southern Pacific Bank ("Lender"), with
respect to the following:
A. Borrower and Lender have previously entered into that certain
Loan and Security Agreement dated as of January 28, 2000 (as amended from time
to time, the "Loan Agreement"), and executed and/or delivered other agreements,
documents and instruments in connection therewith (collectively with the Loan
Agreement, the "Loan Documents").
B. Effective February 14, 2000, Borrower has merged with Media
Outsourcing, LLC, a Delaware limited liability company, and DSI Communications,
LLC, a Delaware limited liability company, with Borrower as the surviving entity
and the new name "Media Outsourcing, Inc."
NOW, THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings given them in the Loan Agreement.
2. Corporate Name Change. Each of the Loan Documents is hereby
amended to delete the words "Direct Sales International, Inc." wherever they
appear and to substitute therefor the words "Media Outsourcing, Inc."
3. Actions By Borrower. Borrower represents and warrants to Lender
that Borrower has taken all steps necessary or appropriate, in its state of
incorporation and in each state in which Borrower is qualified to do business,
to change its name from "Direct Sales International, Inc." to "Media
Outsourcing, Inc." Borrower further represents and warrants that it has the full
right to use the name "Media Outsourcing, Inc." without infringing on the rights
of any Person.
4. Further Assurances. Concurrently herewith, Borrower shall execute
and deliver to Lender any amendments to financing statements and fixture filings
and such further agreements, instruments and documents as are reasonably
requested by Lender to carry out the intent and purposes of this Amendment.
5. Reaffirmation. Except as amended by the terms herein, the Loan
Documents remain in full force and effect in accordance with their terms.
6. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7. Governing Law. This Amendment shall be governed by and construed
according to the laws of the State of California.
1
<PAGE> 2
8. Attorneys' Fees; Costs. Borrower agrees to pay, on demand, all
attorneys' fees and costs incurred in connection with the negotiation,
documentation and execution of this Amendment. If any legal action or proceeding
shall be commenced at any time by any party to this Amendment in connection with
its interpretation or enforcement, the prevailing party or parties in such
action or proceeding shall be entitled to reimbursement of its reasonable
attorneys' fees and costs in connection therewith, in addition to all other
relief to which the prevailing party or parties may be entitled.
Media Outsourcing, Inc., f/k/a Direct Sales
International, Inc.
By: /s/ Tim Ledwick
_________________________________________
Title: Secretary
______________________________________
Coast Business Credit, a division of
Southern Pacific Bank
By: /s/ Lawrence Placik
_________________________________________
Title: Vice President
______________________________________
2
<PAGE> 1
EX-10.3(b)
Second Amendment to Loan and Security Agreement
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of this ___ day of March, 2000, between Coast Business
Credit(R), a division of Southern Pacific Bank ("Coast") and Direct Sales
International, Inc. ("Borrower") is made in reference to the following facts:
C. Borrower previously entered into a Loan and Security Agreement
with Coast dated as of January 28, 2000 (as amended, the "Loan Agreement").
Unless otherwise defined, all capitalized terms used herein shall have the
meanings given them in the Loan Agreement.
D. Borrower and Lender wish to amend the Loan Agreement on the terms
and subject to the conditions set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing recitals and the
terms and conditions hereof, the parties do hereby agree as follows, effective
as of the date set forth above:
14. Conditions Precedent. Paragraph 6 under Section 5.15 of the
Schedule to the Loan Agreement is deleted in its entirety and replaced with the
following:
"6. Borrower shall have raised an additional $3,000,000 of cash equity
on or before March 31, 2000. Prior to Coast's initial advance
hereunder, Borrower shall provide to Coast documents indicating that
there exists sufficient commitments to raise the additional
$3,000,000 by such date, including a list of investors with their
respective amounts of commitment, all satisfactory to Coast in its
reasonable discretion. The failure of Borrower to obtain the
additional cash equity by March 31, 2000 shall constitute an Event
of Default."
15. Other Provisions and Covenants. Paragraph 6 under Section 8.1 of
the Schedule to the Loan Agreement is deleted in its entirety and replaced with
the following:
"Measured on a quarterly basis beginning March 31, 2000, it shall
constitute an Event of Default if Symposium Corporation does not have a
consolidated net worth (defined as shareholder equity plus subordinated
debt) of not less than $12,000,000."
16. Amendment Fee. In consideration of this Amendment and the
financial accommodations made available to Borrower from Coast, Borrower shall
pay to Coast on the date hereof an amendment fee of $40,000. This amendment fee
shall be deemed fully earned upon execution of this Amendment and shall be in
addition to all other fees and charges payable by Borrower to Coast.
17. Reaffirmation. Except as modified by the terms herein, the Loan
Agreement and the other Loan Documents remain in full force and effect. If there
is any conflict between the terms and provisions of this Amendment and the terms
and provisions of the Loan Agreement or documents related thereto, the terms and
provisions of this Amendment shall govern.
18. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Amendment may be
executed by facsimile signatures.
19. Governing Law. This Amendment shall be governed by the laws of
the State of California.
20. Attorneys' Fees; Costs; Jury Trial Waiver. Borrower agrees to
pay, on demand, all attorneys' fees and costs incurred in connection with the
negotiation, documentation and execution of this
1
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Amendment. If any legal action or proceeding shall be commenced at any time by
any party to this Amendment in connection with its interpretation or
enforcement, the prevailing party or parties in such action or proceeding shall
be entitled to reimbursement of its reasonable attorneys' fees and costs in
connection therewith, in addition to all other relief to which the prevailing
party or parties may be entitled. Each of Coast and Borrower hereby waives its
right to a jury trial in any such action or proceeding.
COAST BUSINESS CREDIT, a division of
Southern Pacific Bank
By: Robert Peters
_________________________________________
Its:
________________________________________
DIRECT SALES INTERNATIONAL, INC.
By: /s/ Ronald Altbach
_________________________________________
Its: CEO
________________________________________
The undersigned Guarantor hereby acknowledges and consents to the
foregoing Amendment and confirms and agrees that its Guaranty executed in favor
of Coast shall remain in full force and effect in accordance with its terms.
SYMPOSIUM CORPORATION
By: /s/ Ronald Altbach
_________________________________________
Its: CEO
________________________________________
2
<PAGE> 1
EX-10.4
Amendment to Loan and Security Agreement
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of
this 30 day of March, 2000, between Coast Business Credit(R), a division of
Southern Pacific Bank ("Coast") and Media Outsourcing, Inc., formerly known as
Direct Sales International, Inc. ("Borrower"), is made in reference to the
following facts:
A. Borrower previously entered into a Loan and Security Agreement with
Coast dated as of January 28, 2000 as amended (the "Loan Agreement"). Unless
otherwise defined, all capitalized terms used herein shall have the meanings
given them in the Loan Agreement.
B. Borrower and Lender wish to amend the Loan Agreement on the terms and
subject to the conditions set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing recitals and the terms
and conditions hereof, the parties do hereby agree as follows, effective as of
the date set forth above:
1. Conditions Precedent. Paragraph 6 under Section 5.15 of the Schedule to
the Loan Agreement, otherwise requiring Borrower to receive additional cash
equity of $3,000,000 by March 31, 2000, is deleted in its entirety.
2. Consolidated Net Worth. Paragraph 6 under Section 8.1 of the Schedule
to the Loan Agreement is deleted in its entirety and replaced with the
following:
"Measured on a quarterly basis beginning March 31, 2000, it shall
constitute an Event of Default if Symposium Corporation does not have a
consolidated net worth (defined as shareholder equity plus subordinated debt) of
not less than $9,000,000."
3. Excess Availability. The following is added as a new Paragraph 12 under
Section 8.1 of the Schedule to the Loan Agreement:
"Borrower shall maintain at all times minimum excess borrowing
availability of not less than the following amounts for the following respective
periods: (a) $750,000 from April 1, 2000 through April 30, 2000; (b) $1,000,000
from May 1, 2000 through June 30, 2000; and (c) $2,000,000 thereafter; provided
that if Borrower raises additional cash equity of $3,000,000 and no Event of
Default has occurred or is continuing, then the foregoing minimum excess
availability requirement shall be reduced to $750,000. If Borrower fails at any
time to maintain the required minimum excess borrowing availability, Borrower
shall have 45 days from the date of the breach to cure the deficiency, provided
that the foregoing 45 day cure period shall only be available for one such
breach every 30 days. Borrower's failure to cure any such breach within the 45
day cure period or the occurrence of a breach where no cure period is applicable
shall, in either case, constitute an Event of Default."
4. Opening Balance Sheet. Coast hereby extends the time for receipt of the
opening balance sheet for Borrower and its subsidiaries from March 31, 2000 to
April 12, 2000.
5. Amendment Fee. In consideration of this Amendment, Borrower shall pay
to Coast on the date hereof an amendment fee of $150,000. This amendment fee
shall be deemed fully earned upon execution of this Amendment and shall be in
addition to all other fees and charges payable by Borrower to Coast.
6. Reaffirmation. Except as modified by the terms herein, the Loan
Agreement and the other Loan Documents remain in full force and effect. If there
is any conflict between the terms and provisions of this Amendment and the terms
and provisions of the Loan Agreement or documents related thereto, the terms and
provisions of this Amendment shall govern.
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<PAGE> 2
7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Amendment may be
executed by facsimile signatures.
8. Governing Law. This Amendment shall be governed by the laws of the
State of California.
9. Attorneys' Fees; Costs; Jury Trial Waiver. Borrower agrees to pay, on
demand, all attorneys' fees and costs incurred in connection with the
negotiation, documentation and execution of this Amendment. If any legal action
or proceeding shall be commenced at any time by any party to this Amendment in
connection with its interpretation or enforcement, the prevailing party or
parties in such action or proceeding shall be entitled to reimbursement of its
reasonable attorneys' fees and costs in connection therewith, in addition to all
other relief to which the prevailing party or parties may be entitled. Each of
Coast and Borrower hereby waives its right to a jury trial in any such action or
proceeding.
COAST BUSINESS CREDIT, a division of Southern Pacific Bank
By:_______________________________________
Its:______________________________________
MEDIA OUTSOURCING, INC., formerly known as Direct Sales International, Inc.
By:_______________________________________
Its:______________________________________
Each of the undersigned Guarantors hereby acknowledges and consents to the
foregoing Amendment and confirms and agrees that its Guaranty executed in favor
of Coast shall remain in full force and effect in accordance with its terms.
SYMPOSIUM CORPORATION
By:_______________________________________
Its:______________________________________
MEDIA OUTSOURCING, LLC
By:_______________________________________
Its:______________________________________
DSI COMMUNICATIONS, LLC
By:_______________________________________
Its:______________________________________
NATIONAL READERS SERVICE, INC.
By:_______________________________________
2
<PAGE> 3
Its:______________________________________
__________________________________________
Ronald Altbach
3
<PAGE> 1
EX-10.5
Continuing Guaranty
Coast
Continuing Guaranty
Borrower: Direct Sales International, Inc.
Guarantor: Symposium Corporation
Date: January 28, 2000
This Continuing Guaranty is executed by the above-named guarantor
(the "Guarantor"), as of the above date, in favor of COAST BUSINESS CREDIT(R), a
division of Southern Pacific Bank ("Coast"), a California corporation, with
offices at 12121 Wilshire Boulevard, Suite 1400, Los Angeles, California 90025,
with respect to the Indebtedness of the above-named borrower (the "Borrower").
1. Continuing Guaranty. Guarantor hereby unconditionally guarantees and promises
to pay on demand to Coast, at the address indicated above, or at such other
address as Coast may direct, in lawful money of the United States, and to
perform for the benefit of Coast, all Indebtedness of Borrower now or hereafter
owing to or held by Coast. As used herein, the term "Indebtedness" is used in
its most comprehensive sense and shall mean and include without limitation: (a)
any and all debts, duties, obligations, liabilities, representations, warranties
and guaranties of Borrower or any one or more of them to Coast, heretofore, now,
or hereafter made, incurred, or created, however arising, whether voluntary or
involuntary, due or not due, absolute or contingent, liquidated or unliquidated,
certain or uncertain, determined or undetermined, monetary or non-monetary,
written or oral, and whether Borrower may be liable individually or jointly with
others, and regardless of whether recovery thereon may be or hereafter become
barred by any statute of limitations, discharged or uncollectible in any
bankruptcy, insolvency or other proceeding, or otherwise unenforceable; and (b)
any and all amendments, modifications, renewals and extensions of any or all of
the foregoing, including without limitation amendments, modifications, renewals
and extensions which are evidenced by any new or additional instrument, document
or agreement; and (c) any and all reasonable attorneys' fees, court costs, and
collection charges incurred in endeavoring to collect or enforce any of the
foregoing against Borrower, Guarantor, or any other person liable thereon
(whether or not suit be brought) and any other expenses of, for or incidental to
collection thereof. As used herein, the term "Borrower" shall include any
successor to the business and assets of Borrower, and shall also include
Borrower in its capacity as a debtor or debtor in possession under the federal
Bankruptcy Code, and any trustee, custodian or receiver for Borrower or any of
its assets, should Borrower hereafter become the subject of any bankruptcy or
insolvency proceeding, voluntary or involuntary; and all indebtedness,
liabilities and obligations incurred by any such person shall be included in the
Indebtedness guaranteed hereby. This Guaranty is given in consideration for
credit and other financial accommodations which may, from time to time, be given
by Coast to Borrower in Coast's sole discretion, but Guarantor acknowledges and
agrees that acceptance by Coast of this Guaranty shall not constitute a
commitment of any kind by Coast to extend such credit or other financial
accommodation to Borrower or to permit Borrower to incur Indebtedness to Coast.
All sums due under this Guaranty shall bear interest from the date due until the
date paid at the highest rate charged with respect to any of the Indebtedness.
2. Waivers. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between Coast and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require Coast to
institute suit against, or to exhaust its
<PAGE> 2
rights and remedies against, Borrower or any other person, or to proceed against
any property of any kind which secures all or any part of the Indebtedness, or
to exercise any right of offset or other right with respect to any reserves,
credits or deposit accounts held by or maintained with Coast or any indebtedness
of Coast to Borrower, or to exercise any other right or power, or pursue any
other remedy Coast may have; (c) any defense arising by reason of any disability
or other defense of Borrower or any other guarantor or any endorser, co-maker or
other person, or by reason of the cessation from any cause whatsoever of any
liability of Borrower or any other guarantor or any endorser, co-maker or other
person, with respect to all or any part of the Indebtedness, or by reason of any
act or omission of Coast or others which directly or indirectly results in the
discharge or release of Borrower or any other guarantor or any other person or
any Indebtedness or any security therefor, whether by operation of law or
otherwise; (d) any defense arising by reason of any failure of Coast to obtain,
perfect, maintain or keep in force any security interest in, or lien or
encumbrance upon, any property of Borrower or any other person; (e) any defense
based upon any failure of Coast to give Guarantor notice of any sale or other
disposition of any property securing any or all of the Indebtedness, or any
defects in any such notice that may be given, or any failure of Coast to comply
with any provision of applicable law in enforcing any security interest in or
lien upon any property securing any or all of the Indebtedness including, but
not limited to, any failure by Coast to dispose of any property securing any or
all of the Indebtedness in a commercially reasonable manner; (f) any defense
based upon or arising out of any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, liquidation or dissolution proceeding
commenced by or against Borrower or any other guarantor or any endorser,
co-maker or other person, including without limitation any discharge of, or bar
against collecting, any of the Indebtedness (including without limitation any
interest thereon), in or as a result of any such proceeding; and (g) the benefit
of any and all statutes of limitation with respect to any action based upon,
arising out of or related to this Guaranty. Until all of the Indebtedness has
been paid, performed, and discharged in full, nothing shall discharge or satisfy
the liability of Guarantor hereunder except the full performance and payment of
all of the Indebtedness. If any claim is ever made upon Coast for repayment or
recovery of any amount or amounts received by Coast in payment of or on account
of any of the Indebtedness, because of any claim that any such payment
constituted a preferential transfer or fraudulent conveyance, or for any other
reason whatsoever, and Coast repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over Coast or any of its property, or by reason of any settlement
or compromise of any such claim effected by Coast with any such claimant
(including without limitation the Borrower), then and in any such event,
Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to Coast under this Guaranty for
the amount so repaid or recovered, to the same extent as if such amount had
never originally been received by Coast, and the provisions of this sentence
shall survive, and continue in effect, notwithstanding any revocation or release
of this Guaranty. Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither Coast, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Coast
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Guarantor or any other party
through the ordinary negligence of Coast, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Coast.
3. Consents. Guarantor hereby consents and agrees that, without notice to or by
Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor hereunder, Coast may, from time to time before or after
revocation of this Guaranty, do any one or more of the following in Coast's sole
and absolute discretion: (a) accelerate, accept partial payments of, compromise
or settle, renew, extend the time for the payment, discharge, or performance of,
refuse to enforce, and release all or any parties to, any or all of the
Indebtedness; (b) grant any other indulgence to Borrower or any other person in
respect of any or all of the Indebtedness or any other matter; (c) accept,
release, waive, surrender, enforce, exchange, modify, impair, or extend the time
for the performance, discharge, or payment of, any and all property of any kind
securing any or all of the Indebtedness or any guaranty of any or all of the
Indebtedness, or on which Coast at any time may have a lien, or refuse to
enforce its rights or make any compromise or settlement or agreement therefor in
respect of any or all of such property; (d) substitute or add, or take any
action or omit to take any action which results in the release of, any one or
more endorsers or guarantors of all or any part of the Indebtedness, including,
without limitation one or more parties to this
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<PAGE> 3
Guaranty, regardless of any destruction or impairment of any right of
contribution or other right of Guarantor; (e) amend, alter or change in any
respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from the
disposition of any collateral or security, to any indebtedness whatsoever owing
from such person or secured by such collateral or security, in such manner and
order as Coast determines in its sole discretion, and regardless of whether such
indebtedness is part of the Indebtedness, is secured, or is due and payable; (g)
apply any sums received from Guarantor or from the disposition of any collateral
or security securing the obligations of Guarantor, to any of the Indebtedness in
such manner and order as Coast determines in its sole discretion, regardless of
whether or not such Indebtedness is secured or is due and payable. Guarantor
consents and agrees that Coast shall be under no obligation to marshal any
assets in favor of Guarantor, or against or in payment of any or all of the
Indebtedness. Guarantor further consents and agrees that Coast shall have no
duties or responsibilities whatsoever with respect to any property securing any
or all of the Indebtedness. Without limiting the generality of the foregoing,
Coast shall have no obligation to monitor, verify, audit, examine, or obtain or
maintain any insurance with respect to, any property securing any or all of the
Indebtedness.
4. Account Stated. Coast's books and records showing the account between it and
the Borrower shall be admissible in evidence in any action or proceeding as
prima facie proof of the items therein set forth. Coast's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between Coast and the Borrower, unless Coast receives a written statement of the
Borrower's exceptions within 30 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of such
monthly statements from the Borrower, if the Guarantor desires such copies.
5. Exercise of Rights and Remedies; Foreclosure of Trust Deeds. Guarantor
consents and agrees that, without notice to or by Guarantor and without
affecting or impairing in any way the obligations or liability of Guarantor
hereunder, Coast may, from time to time, before or after revocation of this
Guaranty, exercise any right or remedy it may have with respect to any or all of
the Indebtedness or any property securing any or all of the Indebtedness or any
guaranty thereof, including without limitation judicial foreclosure, nonjudicial
foreclosure, exercise of a power of sale, and taking a deed, assignment or
transfer in lieu of foreclosure as to any such property, and Guarantor expressly
waives any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor's rights, including
without limitation, any destruction of Guarantor's right of subrogation against
Borrower and any destruction of Guarantor's right of contribution or other right
against any other guarantor of any or all of the Indebtedness or against any
other person, whether by operation of Sections 580a, 580d or 726 of the
California Code of Civil Procedure, or any comparable provisions of the laws of
any other jurisdiction, or any other statutes or rules of law now or hereafter
in effect, or otherwise. Without limiting the generality of the foregoing: (a)
Guarantor waives all rights and defenses arising out of an election of remedies
by Coast, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any of the Indebtedness, has destroyed
the guarantor's rights of subrogation and reimbursement against the principal by
the operation of Section 580d of the Code of Civil Procedure or otherwise; (b)
Guarantor further waives all rights and defenses arising out of an election of
remedies by Coast, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any of the Indebtedness, has destroyed
the guarantor's rights of subrogation, reimbursement and contribution against
any other guarantor of the guaranteed obligation, by the operation of Section
580d of the Code of Civil Procedure or otherwise; (c) Guarantor understands that
if Coast forecloses any present or future trust deed, which secures any or all
of the Indebtedness or which secures any other guaranty of any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor may, as a result, have a
complete defense to liability under this Guaranty, based on the legal doctrine
of estoppel and Sections 580a, 580d or 726 of the California Code of Civil
Procedure, and Guarantor hereby expressly waives all such defenses; (d)
Guarantor understands and agrees that, in the event Coast in its sole discretion
forecloses any trust deed now or hereafter securing any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor will remain liable to Coast
for any deficiency, even though Guarantor will lose his right of subrogation
against the Borrower, and even though Guarantor will be unable to recover from
the Borrower the amount of the deficiency for
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<PAGE> 4
which Guarantor is liable, and even though Guarantor may have retained his right
of subrogation against Borrower if Coast had foreclosed said trust deed by
judicial foreclosure as opposed to nonjudicial foreclosure, and even though
absent the waivers set forth herein Guarantor may have had a complete defense to
any liability for any deficiency hereunder; (e) Guarantor understands and agrees
that, in the event Coast in its sole discretion forecloses any trust deed now or
hereafter securing any other guaranty of any or all of the Indebtedness, by
nonjudicial foreclosure, Guarantor will remain liable to Coast for any
deficiency, even though Guarantor will lose his right of subrogation or
contribution against the other guarantor, and even though Guarantor will be
unable to recover from the other guarantor any part of the deficiency for which
Guarantor is liable, and even though Guarantor may have retained his right of
subrogation or contribution against the other guarantor if Coast had foreclosed
said trust deed by judicial foreclosure as opposed to nonjudicial foreclosure,
and even though absent the waivers set forth herein Guarantor may have had a
complete defense to any liability for any deficiency hereunder.
6. Acceleration. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of Coast, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) any warranty, representation, statement,
report, or certificate made or delivered to Coast by Borrower or Guarantor, or
any of their respective officers, partners, employees, or agents, is incorrect,
false, untrue, or misleading when given in any material respect; or (b) Borrower
or Guarantor shall fail to pay or perform when due (including any applicable
grace period, if any) all or any part of the Indebtedness; or (c) Guarantor
shall fail to pay or perform when due (including any applicable grace period, if
any) any indebtedness or obligation of Guarantor to Coast or to any parent,
subsidiary or corporate affiliate of Coast, whether under this Guaranty or any
other instrument, document, or agreement heretofore or hereafter entered into;
or (d) any event shall occur which may or does result in the acceleration of the
maturity of any indebtedness of Borrower or Guarantor to others (regardless of
any requirement of notice, opportunity to cure or other condition prior to the
exercise of any right of acceleration); or (e) Borrower or Guarantor shall fail
promptly to perform or comply with any term or condition of any agreement with
any third party which does or may result in a material adverse effect on the
business of Borrower or Guarantor; or (f) there shall be made or exist any levy,
assessment, attachment, seizure, lien, or encumbrance for any cause or reason
whatsoever upon all or any part of the property of Borrower or Guarantor (unless
discharged by payment, release or bond not more than ten days after such event
has occurred); or (g) there shall occur the dissolution, termination of
existence, insolvency, or business failure of Borrower or Guarantor, or the
appointment of a receiver, trustee or custodian for Borrower or Guarantor or all
or any part of the property of either of them, or the assignment for the benefit
of creditors by Borrower or Guarantor, or the commencement of any proceeding by
or against Borrower or Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or hereafter in effect; or (h) Borrower or
Guarantor shall be deceased or declared incompetent by any court or a guardian
or conservator shall be appointed for either of them or for the property of
either of them; or (i) Guarantor or Borrower shall generally not pay their
respective debts as they become due or shall enter into any agreement (whether
written or oral), or offer to enter into any such agreement, with all or a
significant number of its creditors regarding any moratorium or other indulgence
with respect to its debts or the participation of such creditors or their
representatives in the supervision, management, or control of the business of
either of them; or (j) Borrower or Guarantor shall conceal, remove or permit to
be concealed or removed any part of its property, with intent to hinder, delay
or defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law, or shall make any transfer of its property to or for the benefit of any
creditor at a time when other creditors similarly situated have not been paid;
or (k) the board of directors or shareholders of Borrower or Guarantor shall
adopt any resolution or plan for its dissolution or the liquidation of all or
substantially all of its assets; or (l) Guarantor shall revoke this Guaranty or
contest or deny liability under this Guaranty. All of the foregoing are
hereinafter referred to as "Events of Default".
7. Right to Attachment Remedy. Guarantor agrees that, notwithstanding the
existence of any property securing any or all of the Indebtedness, Coast shall
have all of the rights of an unsecured creditor of Guarantor, including without
limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that Coast, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Coast therefrom may be less than the indebtedness
of the Guarantor under this Guaranty, Coast shall have all the rights of an
unsecured creditor against Guarantor, including without limitation the right of
Coast, prior to the disposition of said property, to obtain a temporary
protective order and writ of attachment against Guarantor. Guarantor waives the
benefit of Section 483.010(b) of the California Code of Civil Procedure and of
any and all other statutes and rules of law now or hereafter in effect requiring
Coast to first resort to or exhaust all such collateral before seeking or
obtaining any attachment remedy against Guarantor. Coast shall have no liability
to Guarantor as a result thereof, whether or not the actual deficiency realized
by Coast is less than the anticipated deficiency on the basis of which Coast
obtains a temporary protective order or writ of attachment.
8. Indemnity. Guarantor hereby agrees to indemnify Coast and hold Coast harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including without
limitation attorneys' fees), of every nature, character and description, which
Coast may sustain or incur based upon or
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<PAGE> 5
arising out of any of the Indebtedness, any actual or alleged failure to collect
and pay over any withholding or other tax relating to Borrower or its employees,
any relationship or agreement between Coast and Borrower, any actual or alleged
failure of Coast to comply with any writ of attachment or other legal process
relating to Borrower or any of its property, or any other matter, cause or thing
whatsoever occurred, done, omitted or suffered to be done by Coast relating in
any way to Borrower or the Indebtedness (except any such amounts sustained or
incurred as the result of the gross negligence or willful misconduct of Coast or
any of its directors, officers, employees, agents, attorneys, or any other
person affiliated with or representing Coast). Notwithstanding any provision in
this Guaranty to the contrary, the indemnity agreement set forth in this Section
shall survive any termination or revocation of this Guaranty and shall for all
purposes continue in full force and effect.
9. Subordination. Any and all rights of Guarantor under any and all debts,
liabilities and obligations owing from Borrower to Guarantor, including any
security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred and subsequent to any cure period, Borrower and any
assignee, trustee in bankruptcy, receiver, or any other person having custody or
control over any or all of Borrower's property are hereby authorized and
directed to pay to Coast the entire unpaid balance of the Indebtedness before
making any payments whatsoever to Guarantor, whether as a creditor, shareholder,
or otherwise; and insofar as may be necessary for that purpose, except for any
permitted payments to Guarantor by Borrower and any permitted advances to
Guarantor by Borrower pursuant to that certain Loan and Security Agreement of
even date herewith between Coast and Borrower, Guarantor hereby assigns and
transfers to Coast all rights to any and all debts, liabilities and obligations
owing from Borrower to Guarantor, including any security for and guaranties of
any such obligations, whether now existing or hereafter arising, including
without limitation any payments, dividends or distributions out of the business
or assets of Borrower. Any amounts received by Guarantor in violation of the
foregoing provisions shall be received and held as trustee for the benefit of
Coast and shall forthwith be paid over to Coast to be applied to the
Indebtedness in such order and sequence as Coast shall in its sole discretion
determine, without limiting or affecting any other right or remedy which Coast
may have hereunder or otherwise and without otherwise affecting the liability of
Guarantor hereunder. Guarantor hereby expressly waives any right to set-off or
assert any counterclaim against Borrower.
10. Revocation. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to Coast at its address above by registered first-class U.S. mail,
postage prepaid, return receipt requested, and only as to new loans made by
Coast to Borrower more than 90 days after actual receipt of such written notice
by Coast. No termination or revocation of this Guaranty shall be effective until
90 days following the date of actual receipt of said written notice of
revocation by Coast. Notwithstanding such written notice of revocation or any
other act of Guarantor or any other event or circumstance, Guarantor agrees that
this Guaranty and all consents, waivers and other provisions hereof shall
continue in full force and effect as to any and all Indebtedness which is
outstanding on or before the 90th day following actual receipt of said written
notice of revocation by Coast, and all extensions, renewals and modifications of
said Indebtedness (including without limitation amendments, extensions, renewals
and modifications which are evidenced by new or additional instruments,
documents or agreements executed before or after expiration of said 90-day
period), and all interest thereon, accruing before or after expiration of said
90-day period, and all attorneys' fees, court costs and collection charges,
incurred before or after expiration of said 90-day period, in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor or any other
person liable thereon (whether or not suit be brought) and any other expenses
of, for or incidental to collection thereof.
11. Independent Liability. Guarantor hereby agrees that one or more successive
or concurrent actions may be brought hereon against Guarantor, in the same
action in which Borrower may be sued or in separate actions, as often as deemed
advisable by Coast. The liability of Guarantor hereunder is exclusive and
independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by Coast or set forth in this Guaranty); or (b)
any direction as to the application of payment by Borrower or by any other
party; or (c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any
-5-
<PAGE> 6
other agreement); or (d) any payment on or reduction of any such other guaranty
or undertaking; or (e) any revocation, amendment, modification or release of any
such other guaranty or undertaking; or (f) any dissolution or termination of, or
increase, decrease, or change in membership of any Guarantor which is a
partnership. Guarantor hereby expressly represents that it was not induced to
give this Guaranty by the fact that there are or may be other guarantors either
under this Guaranty or otherwise, and Guarantor agrees that any release of any
one or more of such other guarantors shall not release Guarantor from its
obligations hereunder either in full or to any lesser extent.
12. Financial Condition of Borrower. Guarantor is fully aware of the financial
condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon its own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of Coast with respect thereto. Guarantor
represents and warrants that it is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting Coast to
furnish to him any information now or hereafter in Coast's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require Coast to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of Coast, Borrower, or any other person, or any other
matter, fact, or occurrence.
13. Reports and Financial Statements of Guarantor. Guarantor shall, at its sole
cost and expense, at any time and from time to time, prepare or cause to be
prepared, and provide to Coast upon Coast's reasonable request (i) such
financial statements and reports concerning Guarantor for such periods of time
as Coast may designate, provided that audited financial statements may not be
required more often that annually; (ii) any other information concerning
Guarantor's business, financial condition or affairs as Coast may request, and
(iii) copies of any and all foreign, federal, state and local tax returns and
reports of or relating to Guarantor as Coast may from time to time request.
Guarantor hereby intentionally and knowingly waives any and all rights and
privileges it may have not to divulge or deliver said tax returns, reports and
other information which are requested by Coast hereunder or in any litigation in
which Coast may be involved relating directly or indirectly to Borrower or to
Guarantor. Guarantor further agrees immediately to give written notice to Coast
of any adverse change in Guarantor's financial condition and of any condition or
event which constitutes an Event of Default under this Guaranty. All reports and
information furnished to Coast hereunder shall be complete, accurate and correct
in all respects. Whenever requested, Guarantor shall further deliver to Coast a
certificate signed by Guarantor warranting and representing that all reports,
financial statements and other documents and information delivered or caused to
be delivered to Coast under this Guaranty, are complete, correct and thoroughly
and accurately present the financial condition of Guarantor, and that there
exists on the date of delivery of said certificate to Coast no condition or
event which constitutes an Event of Default under this Guaranty.
14. Representations and Warranties. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit, because Borrower is an affiliate of Guarantor, (ii) this Guaranty has
been duly and validly authorized, executed and delivered and constitutes the
valid and binding obligation of Guarantor, enforceable in accordance with its
terms, and (iii) the execution and delivery of this Guaranty does not violate or
constitute a default under (with or without the giving of notice, the passage of
time, or both) any order, judgment, decree, instrument or agreement to which
Guarantor is a party or by which it or its assets are affected or bound.
15. Costs. Whether or not suit be instituted, Guarantor agrees to reimburse
Coast on demand for all reasonable attorneys' fees and all other reasonable
costs and expenses incurred by Coast in enforcing this Guaranty, or arising out
of or relating in any way to this Guaranty, or in enforcing any of the
Indebtedness against Borrower or Guarantor, or in connection with any property
of any kind securing all or any part of the Indebtedness. Without limiting the
generality of the foregoing, and in addition thereto, Guarantor shall reimburse
Coast on demand for all reasonable attorneys' fees and costs Coast incurs in any
way relating to Guarantor, Borrower or the Indebtedness, in order to: obtain
legal advice; enforce or seek to enforce any of its rights; commence, intervene
in, respond to, or defend any action or proceeding; file, prosecute or defend
any claim or cause of action in any action or proceeding (including without
limitation any probate claim, bankruptcy claim, third-party claim, secured
creditor
-6-
<PAGE> 7
claim, reclamation complaint, and complaint for relief from any stay under the
Bankruptcy Code or otherwise); protect, obtain possession of, sell, lease,
dispose of or otherwise enforce any security interest in or lien on any property
of any kind securing any or all of the Indebtedness; or represent Coast in any
litigation with respect to Borrower's or Guarantor's affairs. In the event
either Coast or Guarantor files any lawsuit against the other predicated on a
breach of this Guaranty, the prevailing party in such action shall be entitled
to recover its attorneys' fees and costs of suit from the non-prevailing party.
16. Notices. Any notice which a party shall be required or shall desire to give
to the other hereunder (except for notice of revocation, which shall be governed
by Section 10 of this Guaranty) shall be given by personal delivery or by
telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Coast at its address set forth in the heading of
this Guaranty and to Guarantor at its address set forth below the signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. Coast and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Coast immediate written
notice of any change in its address.
17. Claims. Guarantor agrees that any claim or cause of action by Guarantor
against Coast, or any of Coast's directors, officers, employees, agents,
accountants or attorneys, based upon, arising from, or relating to this
Guaranty, or any other present or future agreement between Coast and Guarantor
or between Coast and Borrower, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Coast, or by Coast's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Guarantor by the commencement of
an action or proceeding in a court of competent jurisdiction within Los Angeles
County, California. This provision shall survive any termination of this
Guaranty or any other agreement.
18. Construction; Severability. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such persons and their obligations hereunder shall be joint
and several. Without limiting the generality of the foregoing, if more than one
person has executed this Guaranty, this Guaranty shall in all respects be
interpreted as though each person signing this Guaranty had signed a separate
Guaranty, and references herein to "other guarantors" or words of similar effect
shall include without limitation other persons signing this Guaranty. As used in
this Guaranty, the term "property" is used in its most comprehensive sense and
shall mean all property of every kind and nature whatsoever, including without
limitation real property, personal property, mixed property, tangible property
and intangible property. Words used herein in the masculine gender shall include
the neuter and feminine gender, words used herein in the neuter gender shall
include the masculine and feminine, words used herein in the singular shall
include the plural and words used in the plural shall include the singular,
wherever the context so reasonably requires. If any provision of this Guaranty
or the application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
19. General Provisions. Coast shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to Coast, and against Borrower to
the full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of Coast's right to proceed in any other form of action or proceeding or
against any other party. The failure of Coast to enforce any of the provisions
of this Guaranty at any time or for any period of time shall not be construed to
be a waiver of any such provision or the right thereafter to enforce the same.
All remedies hereunder shall be cumulative and shall be in addition to all
rights, powers and remedies given to Coast by law or under any other instrument
or agreement. Time is of the essence in the performance by Guarantor of each and
every obligation under this Guaranty. If Borrower is a corporation, partnership
or other entity, Guarantor hereby agrees that Coast shall have no obligation to
inquire into the power or authority of Borrower or any of its officers,
directors, partners, or agents acting or purporting to act on its behalf, and
any Indebtedness made or created in reliance upon the professed exercise of any
such power or authority shall be included in the Indebtedness guaranteed hereby.
This Guaranty is the entire and only agreement between Guarantor and Coast with
respect to the guaranty of the Indebtedness of Borrower by Guarantor, and all
representations, warranties, agreements, or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superseded hereby.
No course of dealings between the parties, no usage of the trade, and no parol
or extrinsic evidence of any nature shall be used or be relevant to supplement
or explain or modify any term or provision of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty. The terms and provisions
hereof may not be waived, altered, modified, or amended except in a writing
-7-
<PAGE> 8
executed by Guarantor and a duly authorized officer of Coast. All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by Coast and its successors and assigns and shall be binding upon
Guarantor and its executors, administrators, representatives, successors and
assigns. Section headings are used herein for convenience only. Guarantor
acknowledges that the same may not describe completely the subject matter of the
applicable Section, and the same shall not be used in any manner to construe,
limit, define or interpret any term or provision hereof.
20. Governing Law; Venue and Jurisdiction. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce Coast to accept
this Guaranty, and as a material part of the consideration therefor, Guarantor
(i) agrees that all actions or proceedings relating directly or indirectly
hereto shall, at the option of Coast, be litigated in courts located within Los
Angeles County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of process in any such action or proceeding by
personal delivery or any other method permitted by law; and (iii) waives any and
all rights Guarantor may have to transfer or change the venue of any such action
or proceeding.
21. Mutual Waiver of Right to Jury Trial. COAST AND GUARANTOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY SUPPLEMENT
OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN COAST AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF COAST OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
COAST OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
23. Receipt of Copy. Guarantor acknowledges receipt of a copy of this Guaranty.
BY: SYMPOSIUM CORPORATION
By: /s/ Ronald Altbach
___________________________________
(Please sign here)
Ronald Altbach
___________________________________
(Please print or type name here)
Its: CEO, Secretary
___________________________________
(Please print title here)
Address for notices to Guarantor:
410 Park Avenue 18th Floor
_______________________________________
New York, NY 10022
_______________________________________
-8-
<PAGE> 9
STATE OF NEW YORK )
---------------------
) ss.
COUNTY OF NEW YORK )
---------------------
On January 14, 2000, before me, Dawn Gallucci, Notary Public,
personally appeared Ronald Altbach, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/ Dawn Gallucci
----------------------------------
(Seal)
Dawn Gallucci
Notary Public, State of New York
No. 01GA44938542
Qualified in Richmond County
Certificate Filed in New York County
Commission Expires July 25, 2000
<PAGE> 1
EX-21
List of Subsidiaries
Ex. 21 List of Subsidiaries
Media Outsourcing, Inc., a Delaware Corporation
(f/k/a Direct Sales International, Inc.)
Publishers Advantage Corporation, a Delaware Corporation (inactive)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
condensed consolidated financial statements of Symposium Corporation as of and
for the year ended December 31, 1999 included in this report on Form 10-KSB and
is qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 337,615
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 357,531
<PP&E> 39,456
<DEPRECIATION> (5,248)
<TOTAL-ASSETS> 1,056,056
<CURRENT-LIABILITIES> 523,373
<BONDS> 0
14,043
0
<COMMON> 0
<OTHER-SE> 518,640
<TOTAL-LIABILITY-AND-EQUITY> 1,056,056
<SALES> 0
<TOTAL-REVENUES> 29,910
<CGS> 0
<TOTAL-COSTS> (9,540,043)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,510,133)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,510,133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,510,133)
<EPS-BASIC> (.80)
<EPS-DILUTED> (.80)
</TABLE>
