<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENESIS MEDIA GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7311 95-4710370
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
------------------------
13063 VENTURA BOULEVARD
STUDIO CITY, CALIFORNIA 91604-2238
(818) 464-7270
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------------
RAMY EL-BATRAWI
13063 VENTURA BOULEVARD
STUDIO CITY, CALIFORNIA 91604-2238
(818) 464-7270
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code,of Agent For Service)
------------------------
COPIES TO:
THEODORE R. MALONEY ASHER M. LEIDS
NIDA & MALONEY, P.C. DONAHUE, MESEREAU & LEIDS LLP
800 Anacapa Street 1900 Avenue of the Stars, Suite 2700
Santa Barbara, California 93101 Los Angeles, California 90067
(805) 568-1151 (310) 277-1441
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value............. 2,300,000(1) $11.00 $25,300,000 $7,034
</TABLE>
(1) Includes an aggregate of 300,000 shares that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
, 1998
[LOGO]
[LOGO]
GENESIS MEDIA GROUP, INC.
2,000,000 SHARES OF COMMON STOCK
Genesis Media Group, Inc. is an integrated marketing and business solution
provider utilizing conventional, emerging and interactive multimedia
technologies. The 2,000,000 shares of Common Stock, par value $.001 per share
offered hereby are initially being offered in the United States and
internationally by the underwriters named herein. All of the shares of Common
Stock offered hereby are being sold by the company.
This is our initial public offering and no public market currently exists
for our Common Stock. We currently estimate that the initial public offering
price of the Common Stock will be between $ and $ per share.
We will apply to have the Common Stock listed on the Nasdaq National Market
System under the symbol GMGI.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
- - Price to the Public................................................................... $ $
- - Underwriting Discounts and Commissions................................................ $ $
- - Proceeds to the Company............................................................... $ $
</TABLE>
- ------------------------
The table does not include a three percent (3%) non-accountable expense
allowance payable to the underwriters.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MILLENIUM FINANCIAL GROUP, INC.
<PAGE>
Genesis Media, Genesis Intermedia, the Genesis Media Group logo and the
Genesis Intermedia logo are trademarks of Genesis Media Group, Inc. Other
trademarks referenced herein are trademarks of their respective legal owners.
THE UNDERWRITERS OF THIS INITIAL PUBLIC OFFERING MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT LEVELS ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING SUMMARY IS NOT COMPLETE AND YOU SHOULD REFER TO THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS: (1)
ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $10 PER SHARE OF COMMON STOCK; (2)
REFLECTS A 38,834.95-FOR-ONE STOCK SPLIT, EFFECTIVE ON OCTOBER 27, 1998 (THE
"STOCK SPLIT"); (3) ASSUMES THE REINCORPORATION OF THE COMPANY IN DELAWARE TO BE
EFFECTED PRIOR TO THE OFFERING; (4) ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED; AND (5) ASSUMES THAT NO OTHER
OUTSTANDING OPTIONS OR WARRANTS ARE EXERCISED.
UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" AND "GENESIS
MEDIA" REFER TO GENESIS MEDIA GROUP, INC. AND ITS SOLE SUBSIDIARY, GENESIS
INTERMEDIA, INC.
THE COMPANY
GENERAL
Genesis Media is an integrated marketing and business solutions provider
utilizing conventional, emerging and interactive multimedia technologies. While
the Company has historically utilized conventional media to fulfill its clients'
marketing needs, and will continue to do so, it has focused more recently on
providing innovative multimedia solutions delivered through a variety of
platforms, including the Internet, interactive kiosks, CD-ROM and DVD-ROM/RAM,
to businesses seeking to conduct electronic commerce ("eCommerce").
Additionally, the Company provides ongoing technical and back-office support
services designed to maintain and enhance its clients' marketing efforts. The
Company believes that many businesses which rely on conventional marketing
platforms, such as television, radio and print, will require integrated
multimedia solutions to effectively adapt their marketing and growth strategies
to the emerging eCommerce market and the Internet. The Company also believes
that the interactive nature of its integrated multimedia marketing and business
solutions will enable the Company's clients to successfully participate in the
emerging eCommerce market and will appeal to their customers. The services
offered by the Company include:
- market analysis;
- an assessment of a client's business requirements;
- the development and deployment of an appropriate marketing strategy;
- ongoing solution maintenance;
- back-office support; and
- media placement.
These services are available to the Company's clients separately, on an
as-needed basis, or together, on a fully integrated basis.
The Company has three additional revenue generating capabilities: (1)
proprietary products, such as the audio and video products based on the book
authored by John M. Gray, Ph.D "Men Are From Mars, Women Are From Venus;" (2)
public access communication networks, such as interactive kiosks, which expose
retail shoppers to eCommerce and integrate the physical shopping experience with
interactive options; and (3) audio and visual streaming and download technology,
which provides the structure for direct application on the Internet of
interactive multimedia technologies, such as music, movies, and combined audio
and visual special effects.
3
<PAGE>
By using its technical expertise, vision and creativity, the Company will
leverage its integrated marketing and interactive multimedia technologies to
provide further market exposure and distribution channels for its clients'
business solutions.
Genesis Media was incorporated in Florida on October 28, 1993 and was
reincorporated in Delaware on , 1998
STRATEGY
The Company's goal is to be recognized as a leading integrated marketing and
business solutions provider utilizing conventional and interactive multimedia
technologies. The Company's strategy is to:
- effectively utilize and leverage its conventional and multimedia
capabilities and its media access;
- develop and market innovative consumer products;
- expand its capabilities through strategic acquisitions;
- focus on higher profit margin segments of the marketing and advertising
business; and
- engineer the most efficient business model for the conduct of its targeted
multi-media business.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total Common Stock offered.......... 2,000,000 shares
Outstanding Common Stock (1)
Before offering................. 4,060,000 shares
After offering.................. 6,060,000 shares
Use of Proceeds..................... The net proceeds to be received by the Company from
the offerings are estimated to be approximately
$17,300,000. The Company intends to use approximately
$500,000 of such proceeds for the repayment of
outstanding debt and to distribute approximately $2
million to existing stockholders for the purpose of
paying income taxes on S corporation ownership
earnings. The Company intends to use the balance of
the proceeds for expansion of operations,
acquisitions and for general corporate purposes
including using $2 million of the proceeds over 18
months to develop and deploy interactive multimedia
kiosks in regional shopping malls across the United
States and other entertainment centers. See "Use of
Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Proposed Nasdaq symbol:............. GMGI
</TABLE>
- ------------------------
(1) The number of shares of Common Stock outstanding excludes an aggregate of
450,000 shares reserved for issuance upon the exercise of outstanding
options granted under the Genesis Media Group, Inc. 1998 Stock Incentive
Program, all at an exercise price of $8.50 per share. See "Shares Eligible
for Future Sale."
RISK FACTORS
Prior to making an investment in the Common Stock offered hereby,
prospective purchasers of the Common Stock should take into account the specific
risks set forth under "Risk Factors" as well as the other information set forth
in this Prospectus.
5
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997
----------- --------- SIX MONTHS ENDED
JUNE 30,
1994 1995 ----------------------------
------------- ------------- 1997 1998
(UNAUDITED) (UNAUDITED) ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total net revenue..................... 332 8,665 14,342 18,164 7,846 8,027
Income (loss) from operations......... (149) 111 386 2,435 383 773
Net income (loss)..................... $ (151) $ 93 $ 386 $ 2,367 $ 378 $ 726
Basic earnings (loss) per share....... $ (0.04) $ 0.02 $ 0.10 $ 0.61 $ 0.10 $ 0.18
Diluted earnings (loss) per share..... $ (0.04) $ 0.02 $ 0.10 $ 0.61 $ 0.10 $ 0.18
Shares used in computing earnings
(loss) per share (1)................ 3,883 3,883 3,883 3,884 3,883 4,000
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1997
--------- AS OF JUNE 30, 1998
----------------------------
1994 1995 1996 ACTUAL PRO FORMA(2)
--------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)..... $ 58 $ (53) $ 334 $ 3,037 $ 3,192 $ 3,233
Current assets................ 176 390 708 5,523 6,243 6,453
Total assets.................. 226 409 726 6,714 7,603 8,573
Current liabilities........... 118 443 374 2,486 3,051 3,221
Long-term debt................ 237 -- -- 609 582 782
Stockholders' equity (4)...... (129) (34) 352 3,619 3,970 4,570
<CAPTION>
AS ADJUSTED(3)
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)..... $ 18,533
Current assets................ 21,253
Total assets.................. 23,373
Current liabilities........... 2,721
Long-term debt................ 782
Stockholders' equity (4)...... 19,870
</TABLE>
- --------------------------
(1) The basis for the determination of stock used in computing net earnings
(loss) per share is described in Note 1 to the Financial Statements.
(2) Adjusted to give effect to the acquisition of certain assets of Vision
Digital Communications, Inc. The Company purchased current assets, equipment
and intangible assets of $210,000, $750,000 and $10,000, respectively, in
exchange for 60,000 shares of the Company's Common Stock valued at $600,000
plus the assumption of short-term obligations and long-term debt of $170,000
and $200,000, respectively. The Company has also agreed to issue to the
seller options to purchase up to an additional 50,000 shares of Common Stock
if the acquired division meets certain targeted levels of total revenue over
a three-year period. If granted, the exercise price of such options will be
the fair market value of the Common Stock on the date of issuance and such
options will expire at the end of such three-year period.
(3) Adjusted to give effect to (a) the item discussed in Note (2) above; and (b)
the sale of 2,000,000 shares of Common Stock offered by the Company in this
offering at an assumed initial public offering price of $10.00 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and the application of the
estimated net proceeds therefrom, including the use of $500,000 to repay
amounts owed under two notes payable agreements and a $2,000,000
distribution of undistributed S corporation earnings to be used to pay
federal and state income taxes on the Company's income that was passed
through to the individual stockholders. See "Use of Proceeds" and
"Capitalization."
(4) The Company is currently taxed as an S corporation whereby the Company's
taxable income is passed through to its individual stockholders who are
responsible for paying federal and state income taxes on their portion of
the Company's taxable income. Shortly before the closing of the initial
public offering, the Company will terminate its status as an S corporation
and will be subject to federal and additional state income taxes thereafter.
See Note 8 to the Financial Statements.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FORM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS SHOULD
CONSIDER CAREFULLY THE FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION
SET FORTH IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; EXPANSION INTO NEW MARKETS
The Company has only a limited operating history on which to base an
evaluation of its business and prospects. Virtually all of the Company's
revenues to date have been derived from conventional media solutions, including
the placement of print advertisements, the development and production of
infomercials and the delivery of telemarketing services. In 1998, the Company
commenced expansion of its media offerings into interactive multimedia
technologies, including the Internet, interactive kiosks, CD-ROM and DVD-ROM/RAM
to businesses seeking to conduct electronic commerce. The Company expects that
conventional media solutions will continue to account for a significant
percentage of its revenues in the foreseeable future. As a result, if there is a
decline in demand for traditional media solutions as a result of technological
changes, competition or otherwise, then the Company's business, operating
results and financial condition will be materially adversely affected. The
market for such solutions may not continue to grow and the Company may not
continue to be successful in marketing them. In addition, the Company's
expansion into interactive multimedia technologies has been accomplished through
recent acquisitions of assets and personnel. The Company may not be able to
integrate such acquisitions successfully.
The Company and its prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early stage
of development, particularly companies in new and rapidly evolving markets such
as the eCommerce market. Such risks for the Company include, but are not limited
to, an evolving business model and the management of both internal and
acquisition-based growth. To address these risks, the Company must continue to
develop the strength and quality of its operations, maximize the value delivered
to clients, respond to competitive developments and continue to attract, retain
and motivate qualified employees. The Company may not be successful in meeting
these challenges and addressing such risks. If the Company fails to do so, then
the Company's business, results of operations and financial condition will be
materially adversely affected.
COMPETITION; LOW BARRIERS TO ENTRY; CONFLICTS
The market for fully integrated multimedia business solutions is relatively
new, intensely competitive and subject to rapid technological change. The
Company expects competition to persist, intensify and increase in the future.
The Company's current competitors can be divided into several groups:
advertising and media agencies, such as Foote, Cone & Belding, Young & Roubicam,
Inc. and Ogilvy & Mather; direct marketing companies, such as National Media
Corporation and Guthy-Renker Corporation; Internet integrators and Web content
presence providers, such as iXL Holding, Inc., Organic Online, Inc., Poppe
Tyson, Proxicom, Inc., audiohighway.com and US Web, Inc.; large information
technology consulting service providers, such as Andersen Consulting, Cambridge
Technology Partners and Electronic Data Systems Corporation; and Internet and
online service providers, such as America Online Incorporated, NETCOM On-Line
Communications Services Inc. and UUNet Technologies, Inc. Although only a few of
these competitors have to date offered a full range of integrated marketing and
business solutions to companies, several have announced their intention to do
so. Furthermore, most of the Company's current and potential competitors have
longer operating histories, larger installed customer bases, longer
relationships with clients and significantly greater financial, technical,
marketing and public relations resources than the Company. These competitors
could decide at any time to increase their resource commitments to the Company's
market. In addition, the market for eCommerce generally and intranet, extranet
and web site development is relatively new and
7
<PAGE>
subject to continuing definition, and, as a result, may better position the
Company's competitors to compete in this market as it matures. Competition of
this type could materially adversely affect the Company's business, results of
operations and financial condition.
There are relatively low barriers to entry into the integrated multimedia
business solutions market. The Company relies heavily on the skill of its
personnel and the quality of its client service, and has no patented technology
that would preclude or inhibit competitors from entering its market. The Company
expects that it will face additional competition from new entrants into the
market in the future. Principal competitive factors include a company's creative
reputation, knowledge of media, financial controls, geographical coverage and
diversity, relationships with clients, technological capability and quality and
breadth of services. If existing or future competitors develop or offer services
that provide significant performance, price, creative or other advantages over
those offered by the Company, then the Company's business, results of operations
and financial condition would be materially adversely affected.
In many cases, a conflicts policy or an industry practice prohibits one
media company from serving all aspects of a client's marketing needs or from
performing similar services for competing products or companies. The Company's
ability to compete in various segments of the marketing and communications
business may also be limited by various self-regulatory or governmental
restrictions. The Company's ability to acquire new clients or additional
assignments from existing clients may be limited by such policies, practices or
regulations.
DEPENDENCE ON KEY PERSONNEL; RECRUITMENT AND RETENTION OF SOLUTIONS
PROFESSIONALS
The Company's ability to maintain its competitive position is dependent on
the services of its senior management, including Ramy El-Batrawi and Sam
Hassabo. The Company has a $4 million key-man life insurance policy covering Mr.
El-Batrawi, $900,000 of which is allocated to payment of the mortgage on the
Company's headquarters. However, the loss of the services of one or more members
of senior management could have a material adverse effect on the Company.
Additionally, the Company's success depends in part on its ability to
identify, hire, train and retain consulting professionals who can provide the
technological expertise, marketing experience, and creative skills required by
clients. There is currently a shortage of such personnel, and this shortage is
likely to continue for the foreseeable future. The Company competes intensely
for qualified personnel with other companies, and there can be no assurance that
the Company will be able to attract, assimilate or retain highly qualified
technical, marketing and managerial personnel in the future. Employees generally
are not subject to contracts of employment and are, therefore, typically able to
move within the industry with relative ease. If Genesis Media were unable to
continue to attract and retain additional key personnel, or if it were unable to
retain and motivate its existing key personnel, then its business, results of
operations and financial condition would be materially adversely affected.
CONCENTRATION OF REVENUES FROM A LIMITED NUMBER OF PRODUCTS AND CLIENTS
A relatively small number of clients contribute significantly to the
Company's revenues. In 1997, the two largest products, "Men are From Mars, Women
are From Venus" and "Trade Your Way to Riches," constituted approximately 89% of
the Company's revenues. The "Trade Your Way to Riches" line of products
constituted approximately 45% of the Company's revenue. Because the Company
intends to continue to rely on products such as these, it is possible that the
Company's dependence on revenues from a limited number of products will continue
in the future. Any of the Company's clients may discontinue utilizing Genesis
Media and its services at any time in the future. If there is a significant
reduction in product sales or in a large client's marketing expenditures or the
loss of one or more of the Company's largest products or clients, and this is
not replaced by new products or client accounts or an increase in business from
existing clients, then there would be a material adverse effect on the Company's
business, results of operations and financial condition.
8
<PAGE>
Even if the Company is able to introduce new products, such new products may
not be successful. The Company's future results of operations depend on its
ability to spread its revenue (sales) stream over a larger number of products in
a given period and to more effectively exploit the full revenue potential of
each product it introduces through all levels of consumer marketing, whether
directly or through third parties.
CLIENT TURNOVER; DEVELOPMENT OF NEW PRODUCTS AND CLIENTS
The general success of a marketing organization like Genesis Media and its
ability to maintain and increase revenues depends on its continuing ability to
develop, attract and retain new products and clients. The Company's largest
clients may move their marketing assignments from company to company, or may
divide their assignments among two or more companies, with relative ease. As is
typical in the marketing industry, the Company has lost or resigned client
accounts. Although the Company has been able to replace such client and revenue
losses with new clients and assignments, it may not do so successfully in the
future. The Company's marketing operations are dependent on its continuing
ability to develop or obtain rights to new products to supplement or replace
existing products as they mature through their product life cycles. The
Company's future results of operations will also be dependent upon its ability
to proactively manage its products through their life cycles. The Company's two
most successful products in fiscal 1997 accounted for approximately 89% of the
Company's total net revenues for such period. If Genesis Media fails to maintain
existing products and clients or develop or attract new products or clients,
then this could have a material adverse effect on Genesis Media's business,
results of operations and financial condition.
UNCERTAIN ACCEPTANCE OF THE INTERNET AS AN ADVERTISING MEDIUM
The market for Internet advertising has recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants, although Internet advertising continues to be dominated by the larger
web sites. Non-advertising marketing solutions utilizing the Internet as a base
have also only recently been developed. As is typical in the case of a new and
rapidly evolving industry, demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty. The Company's
ability to generate advertising revenue will depend on, among other factors: (1)
the continued development of the Internet as an advertising medium; (2) pricing
of marketing and advertising services by other Internet participants; (3) the
ability of the Company to develop marketing solutions that use the Internet and
that appeal to both the Company's clients and their customers; (4) the Company's
ability to achieve and demonstrate user demographic characteristics that are
attractive to clients; (5) the development and expansion of the Company's
marketing and advertising sales forces; and (6) the establishment and
maintenance of desirable marketing and advertising sales agency relationships.
Most potential clients and their marketing advisors and advertising agencies
have only limited experience with the Internet as a marketing or advertising
medium and have not historically devoted a significant portion of their
marketing or advertising expenditures to Internet solutions. Companies and their
marketing or advertising agencies may not be persuaded to allocate or continue
to allocate portions of their budgets to Internet solutions or, if they are so
persuaded, they may not find such marketing to be effective for promoting their
products and services relative to conventional print and broadcast media. No
standards have yet been widely accepted for the measurement of the effectiveness
of Internet-based marketing or advertising, and there can be no assurance that
such standards will develop sufficiently to enable the Internet to become a
significant marketing or advertising medium. Acceptance of the Internet for
eCommerce will also depend, to a large extent, on the level of use of the
Internet by consumers. If widespread commercial use of the Internet does not
develop, or if the Internet does not develop as an effective and measurable
medium for marketing and advertising, then the Company's business, results of
operations and financial condition would be materially adversely affected.
9
<PAGE>
Moreover, the Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, lack of
development of complementary products, such as high-speed modems and high-speed
communication lines, implementation of competing technology, delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, governmental regulation, or other
reasons. The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and volume of traffic. The
Internet infrastructure may not continue to be able to support the demands
placed on it by this continued growth. Moreover, critical issues concerning the
use of Internet solutions (including security, reliability, cost, ease of
deployment and administration and quality of service) remain unresolved and may
affect the growth of the use of such technologies to solve business problems. If
critical issues concerning the viability of the Internet as a commercial
marketplace are not resolved or if the necessary infrastructure is not
developed, then the Company's business, results of operations and financial
condition will be materially adversely affected.
UNCERTAIN ADOPTION OF INTEGRATED MULTIMEDIA SOLUTIONS; DEPENDENCE ON CLIENT
OUTSOURCING
The Company's existing client base is largely composed of companies that
have primarily or exclusively used conventional marketing and advertising media.
The Company's success will be dependent on the willingness of these clients and
other companies to use existing and yet to be developed multimedia solutions
offered by the Company. Companies utilizing traditional media solutions may
elect not to adopt multimedia solutions to improve their business processes or
to enter into the eCommerce market.
Even if companies adopt multimedia solutions, businesses may elect not to
outsource the design, development and maintenance of their intranets, extranets,
web sites and other multimedia solutions to integrated multimedia solutions
providers. Companies may decide to assign the design, development and
implementation of multimedia solutions to their internal information technology
divisions, which have ready access to the information and technology required to
prepare proposals for such solutions. If independent providers of multimedia
solutions prove to be unreliable, ineffective or too expensive, or if software
companies develop tools that are sufficiently user-friendly and cost-effective,
then enterprises may choose to design, develop or maintain all or part of their
intranets, extranets, web sites and other multimedia solutions in-house. If the
market for the Company's solutions does not continue to develop or develops more
slowly than expected, or if the Company's solutions do not achieve market
acceptance, then the Company's business, results of operations and financial
condition will be materially adversely affected.
MANAGEMENT OF GROWTH; RISKS RELATED TO ACQUISITIONS
A key component of the Company's growth strategy is the acquisition of other
professional service firms that meet the Company's criteria for strategic fit,
geographic presence, revenues, profitability, growth potential and operating
strategy. The successful implementation of this strategy depends on the
Company's ability to identify suitable acquisition candidates, acquire such
companies on acceptable terms and integrate their operations successfully with
those of the Company. As of October 26, 1998, the Company had acquired
substantially all of the assets of one company and entered into a letter of
intent to acquire the assets of another company in bankruptcy proceedings. The
Company may not be able to continue to identify additional suitable acquisition
candidates or the Company may not be able to acquire such candidates on
acceptable terms. Moreover, in pursuing acquisition opportunities the Company
may compete with other companies with similar growth strategies, certain of
which competitors may be larger and have greater financial and other resources
than the Company. Competition for these acquisition targets likely could also
result in increased prices of acquisition targets and a diminished pool of
companies available for acquisition.
Acquisitions also involve a number of other risks, including adverse effects
on the Company's reported operating results from increases in goodwill
amortization, the risks of acquiring undisclosed or undesired liabilities,
acquired in-process
10
<PAGE>
technology, stock compensation expense and increased compensation expense
resulting from newly hired employees, the diversion of management attention,
potential disputes with the sellers of one or more acquired entities and the
possible failure to retain key acquired personnel. Client satisfaction or
performance problems with an acquired firm could also have a material adverse
impact on the reputation of the Company as a whole, and any acquired entity or
assets could significantly under-perform relative to the Company's expectations.
The Company's ability to meet these challenges over the long term has not been
established.
To the extent the Company chooses to use cash consideration for acquisitions
in the future, the Company may be required to obtain financing. Such financing
may not be available on favorable terms, if at all. As the Company issues stock
to complete future acquisitions, existing stockholders will experience further
ownership dilution.
The Company's future growth may place a significant strain on the Company's
managerial, operational, financial and other resources. The Company's success
will depend upon its ability to manage its growth effectively. This will require
that the Company continue to implement and improve its operational,
administrative and financial and accounting systems and controls and continue to
expand, train and manage its employee base. The Company's systems, procedures
and controls may not be adequate to support the Company's operations and the
Company's management may not be able to achieve the rapid execution necessary to
exploit the market for the Company's business model. If the Company is unable to
manage internal or acquisition-based growth effectively, the Company's business,
results of operations and financial condition will be materially adversely
affected.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of the Company's limited operating history, rapid growth and
transition from conventional marketing media to delivery of new multimedia
solutions, and because of the emerging nature of the markets in which it
competes, the Company's historical financial data are of limited value in
planning future operating expenses. The Company's expense levels will be based
in part on its expectations concerning future revenues. The Company's revenues
are derived primarily from media and product sales, which are difficult to
forecast accurately, particularly because the Company has only recently entered
interactive multimedia markets. The Company may be unable to adjust spending in
a timely manner to compensate for any unexpected shortfall in revenues.
Accordingly, a significant shortfall in demand for the Company's services could
have an immediate and material adverse effect on the Company's business, results
of operations and financial condition. Further, business development and
marketing expenses may increase significantly as the Company expands its
operations. To the extent that such expenses precede or are not rapidly followed
by increased revenues, the Company's business, results of operations and
financial condition may be materially adversely affected.
The Company's quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside the
Company's control. These factors include: the level of demand for the Company's
products or services; the level of demand for conventional media and Internet;
intranet and extranet development and marketing; the Company's success in
finding and acquiring suitable acquisition candidates; the Company's ability to
attract and retain personnel with the necessary strategic, technical and
creative skills required to service clients effectively; the cost of media time;
the amount and timing of expenditures by clients on the development of
integrated business solutions; client budgetary cycles; the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations; the introduction of new products or services by the Company or its
competitors; pricing changes in the industry; technical difficulties with
respect to the use of the Internet; economic conditions specific to Internet
technology usage; government regulation and legal developments regarding the use
of the Internet; and general economic conditions. As a strategic response to
changes in the competitive environment, the Company may from time to time make
certain pricing, service, technology or marketing decisions or business or
technology acquisitions that could have a material adverse effect on
11
<PAGE>
the Company's quarterly results. The Company may also experience seasonality in
its business in the future, resulting in diminished revenues to the Company as a
consequence of decreased demand for marketing and business solutions during
certain periods of the year. Due to all of these factors, in some future quarter
the Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's Common
Stock will likely be materially and adversely affected.
CYCLICAL INDUSTRY
The marketing industry is subject to downturns in general economic
conditions and changes in client business and marketing budgets. The Company's
business, financial condition and results of operations may be materially
adversely affected by a downturn in general economic conditions in one or more
markets or by changes in client business and marketing budgets.
UNCERTAIN STRENGTH OF GENESIS MEDIA BRAND
The Company believes that Genesis Media brand recognition among businesses
conducting eCommerce is an important aspect of its efforts to attract clients.
The importance of brand recognition will increase due to the increasing number
of companies purporting to offer integrated multimedia business solutions to
companies, including companies solely conducting eCommerce. Promoting and
positioning the Genesis Media brand will depend largely on the success of the
Company's marketing efforts and the Company's ability to provide high-quality,
reliable and cost-effective marketing and business solution strategy consulting,
analysis and design, technology development, implementation and integration,
audience development and maintenance services. This will be particularly
dependent on the Company's ability to develop Internet and eCommerce solutions.
If clients do not perceive the Company's services as meeting their needs, or if
the Company fails to market those services effectively, then the Company will be
unsuccessful in maintaining and strengthening its brand. Furthermore, to promote
the Genesis Media brand in response to competitive pressures, the Company may
need to increase its marketing budget or to otherwise increase its financial
commitment to creating and maintaining brand loyalty among clients. If the
Company fails to promote and maintain its brands, or incurs excessive expenses
in an attempt to promote and maintain its brands, then the Company's business,
results of operations and financial condition will be materially adversely
affected.
RAPID TECHNOLOGICAL CHANGE
The market for integrated multimedia marketing and business solutions is
characterized by rapid technological change, changes in user and client
requirements and preferences, frequent new product and service introductions and
evolving industry standards and practices. One or more of these could render the
Company's existing services and methodologies obsolete. The Company's success
will depend in part on its ability to keep pace with technological developments
and emerging industry standards and to respond to its clients' requirements by
enhancing its current products and services and developing and introducing new
products and services. If Genesis Media fails to anticipate or respond rapidly
to advances in technology and to adapt the Company's future products and
services appropriately, then its business, results of operations and financial
condition could be materially adversely affected.
NATURE OF THE MARKETING INDUSTRY
The worldwide marketing industry is characterized by extreme competition for
products, customers and media access. The Company's future in this industry will
depend in part on its access to, and efficient management of, media time; the
introduction of successful products and the full exploitation of such products
through not only direct marketing but also traditional retail marketing and
other channels of distribution; its ability to enhance its product lines and
support product marketing and sales with efficient order fulfillment and
customer services; and its ability to successfully integrate the entities or
businesses the Company has or may acquire into an efficient enterprise. The
future revenues of the business will depend substantially on the Company's
ability to: (1) create and maintain an effective, integrated organization that
develops, introduces and markets products that address changing consumer needs
on a timely basis; (2) establish and maintain effective delivery platforms for
its products; and
12
<PAGE>
(3) develop new and expand established geographic markets. The Company may not
be able to achieve these goals. While the Company maintains an internal product
development group responsible for seeking out new products from third parties,
there can be no assurance that present and potential third-party product
providers will choose to market products through the Company in the future. If
Genesis Media experiences any significant delays or reductions in product
introductions in future periods, then the Company's business, results of
operations and financial condition could be materially adversely affected.
UNPREDICTABLE PRODUCT LIFE; INVENTORY MANAGEMENT AND PRODUCT RETURNS
Product sales and results of operations for a given period depend upon,
among other things, a positive customer response to the Company's direct
marketing efforts, the Company's effective management of product inventory and
each product's life cycle. The Company's marketing operations are dependent on
its continuing ability to develop or obtain rights to new products to supplement
or replace existing products as they mature through their product life cycles.
The Company's future results of operations will also be dependent upon its
ability to proactively manage its products through their life cycles. The
Company's two most successful products in fiscal 1997 accounted for
approximately 89% of the Company's total net revenues for such period. Customer
response to direct marketing depends on many variables, including the appeal of
the products being marketed, the effectiveness of the marketing script or
infomercials, the availability of competing products and the timing and
frequency of phone contacts and air-time. One or more of the Company's new
products may not receive market acceptance.
It is possible that, during a product's life, unanticipated obsolescence of
such product may occur or problems may arise regarding regulatory, intellectual
property, product liability or other issues which may affect the continued
viability of the product for sale. The Company may still hold a sizable
inventory position in such product. Although the Company attempts to develop
products with extended product lives, the Company's products will have a limited
market life. It is, therefore, extremely important that the Company rapidly
realize the potential of each successful product.
Historically, most products generate their most significant domestic revenue
in their introductory year. A product that has produced significant sales may
not continue to produce significant, or any, sales in the future. As a result,
the Company is dependent on its ability to adapt to market conditions and
competition as well as other factors which affect the life cycles of its
products and its ability to continue to identify and successfully market new
products. If newly introduced products fail or there are significant delays or
failures in the introduction of new products, then this would adversely impact
the Company's results of operations in terms of both lost opportunity cost and
actual loss of dollars invested.
Even when market acceptance for the Company's new products occurs, the
Company's results of operations may be adversely impacted by returns of such
products, either pursuant to the Company's product satisfaction guaranties or
otherwise. If returns are higher than expected, then the Company's business,
results of operations and financial condition would be materially adversely
affected.
DEPENDENCE ON THIRD-PARTY MANUFACTURERS AND SERVICE PROVIDERS
The Company has historically been dependent on third-party sources, both
foreign and domestic, to manufacture all of its own products that it markets and
to provide certain telemarketing services. The Company also relies on third
parties for physical fulfillment of its and its client's product orders. If the
Company is unable, either temporarily or permanently, to obtain a timely supply
of product to fulfill sales orders for one of its own products or to satisfy
orders for such products, then this would have a material adverse effect on the
Company's results of operations. Moreover, because the time from this initial
approval of a product by the Company's product development personnel to the
first sale of such product is relatively short, the Company's ability to cause
its manufacturing sources to meet its production and order fulfillment deadlines
at reasonable costs and produce a high-quality product
13
<PAGE>
or render quality service is important to its business. The Company may not be
able to successfully manage this process in such a way to maximize its sales of
its products. In addition, the Company retains title to its products while at
such fulfillment centers. Although the Company maintains business interruption
insurance and other insurance for its business, the termination of or adverse
change in the Company's relationship with any such fulfillment center or the
partial or total loss to any of these facilities or the Company's inventories
stored there may have a material adverse effect upon the Company's business,
results of operations and financial condition.
DEPENDENCE ON MEDIA ACCESS; EFFECTIVE MANAGEMENT OF MEDIA TIME
The Company has historically been dependent on having access to media time
to televise its infomercials on cable networks, network affiliates and local
stations. The Company's future results of operations will also depend upon the
Company's ability to manage its media time. The Company typically takes
advantage of spot purchases, but intends to consider long-term purchases when
prudent. This media management function must also include a meaningful
coordination between available marketing and available media time. The Company
may not be able to purchase or renew media time on a desired basis or at
favorable price levels. The Company purchases a significant amount of its media
time from cable television and satellite networks. These cable television and
satellite networks assemble programming for transmission to multiple and local
cable system operators. These cable system operators may not be required to
carry all of the network's programming. The Company currently does not pay and
is not paid for the "privilege" of being broadcast by these operators. It is
possible that, if demand for air time grows, these operators will begin to
charge the Company to continue broadcasting the Company's infomercials or limit
the amount of time available for broadcast. Recently, larger multiple system
operators have elected to change their operations by selling "dark" time (i.e.,
the hours during which a station does not broadcast its own programming).
Significant increases in the cost of media time or significant decreases in the
Company's access to media time, domestically or internationally, including, but
not limited to, any failure to renew or extend existing agreements, could have a
material adverse effect on its results of operations. Even if the Company
secures media access, it may not be able to sell such time for the Company's
products or sell it to third parties on favorable terms, if at all. The
Company's programming may also not attract viewers and its products may not be
accepted by consumers as anticipated by the Company. In addition, periodically,
due to world events, media access and the number of persons viewing the
Company's marketing messages in one or more markets may be substantially
diminished. In such circumstances, the Company's results of operations for such
periods may be adversely affected.
Whenever the Company makes advance purchases and commitments to purchase
media time, if the Company does not manage such media time effectively, then
such failure could have a material adverse effect on the Company's results of
operations. If the Company is unable to utilize all of the media time it has
acquired, it attempts to arrange to sell a portion of its media time to others.
However, the Company may not be able to use all of its media time or sell it to
others and, if the Company enters into long-term media contracts, the Company
may not be able to successfully negotiate extensions on terms favorable to the
Company. If the Company is unable to extend one or more of such contracts on
reasonable terms as they expire, then the Company's business, results of
operations and financial condition would be materially adversely affected.
14
<PAGE>
DEPENDENCE ON INTELLECTUAL PROPERTY
The Company's success will depend in part on its ability to protect its
proprietary rights and to operate without infringing on the proprietary rights
of third parties. The Company intends to rely upon unpatented trade secrets and
know-how and on the expertise of its employees. Although the Company believes
that it has taken appropriate steps to protect its unpatented proprietary
rights, including requiring that its employees and third parties who are granted
access to its proprietary technology enter into confidentiality agreements with
the Company, there can be no assurance that these measures will be sufficient to
protect its rights against third parties. Likewise, others may independently
develop or otherwise acquire unpatented technologies or products similar or
superior to those of the Company.
The Company may in the future be required to defend its intellectual
property rights against infringement, duplication, discovery and
misappropriation by third parties or to defend itself against third-party claims
of infringement. Likewise, disputes may arise in the future with respect to
ownership of technology developed by employees who were previously employed by
other companies. Any such litigation or disputes could result in substantial
costs to, and a diversion of effort by, the Company. An adverse determination
could subject the Company to significant liabilities to third parties, require
the Company to seek licenses from or pay royalties to third parties or require
the Company to develop appropriate alternative technology. Licenses may not be
available on acceptable terms, or at all, and the Company may not be able to
develop alternate technology at an acceptable price, if at all. Any of these
events could have a material adverse effect on the Company's business, results
of operations and financial condition.
LIMITED EXPERIENCE OF MANAGING UNDERWRITER
The managing underwriter has had limited experience in acting as an
underwriter in public offerings of securities. This may adversely affect the
proposed public offering of the Common Stock and the subsequent development of a
trading market, if any, for the Company's Common Stock.
CONTROL BY PRINCIPAL STOCKHOLDER
Substantially all of the Company's Common Stock is owned by Ramy El-Batrawi.
Upon consummation of the offering, Mr. El-Batrawi will own 64.08% of the
outstanding shares of Common Stock. As a result, Mr. El-Batrawi will be able to
exercise control over any matters requiring the vote of stockholders, including
the election of Directors. This could delay or prevent a change in control of
the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING.
The Company currently anticipates that its available cash resources and
credit facilities, combined with the net proceeds to the Company from this
offering, will be sufficient to meet its presently anticipated working capital
and capital expenditure requirements through 1999. However, the Company may need
to raise additional funds in order to support more rapid expansion, develop new
and enhanced services and products, respond to competitive pressures, acquire
complementary businesses or technologies or take advantage of unanticipated
opportunities, in which event additional cash might be required earlier. The
Company's future liquidity and capital requirements will depend upon numerous
factors, including the success of the Company's existing and new product and
service offerings and competing technological and market developments. The
Company may be required to raise additional funds through public or private
financing, strategic relationships or other arrangements. Such additional
funding, if needed, may not be available on terms acceptable to the Company, or
at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing may involve restrictive covenants, which may
limit the Company's operating flexibility with respect to certain business
matters. Strategic arrangements, if necessary to raise additional funds, may
require the Company to relinquish its rights to certain of its intellectual
property. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the stockholders of the Company will be
reduced, stockholders may experience additional dilution in net book value per
share, and such equity securities may have rights, preferences or privileges
senior to those of the holders
15
<PAGE>
of the Company's Common Stock. If adequate funds are not available on acceptable
terms, the Company may be unable to develop or enhance its services and
products, take advantage of future opportunities or respond to competitive
pressures, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Due to the increasing popularity and use of the Internet, it is likely that
a number of laws and regulations may be adopted at the local, state, national or
international levels with respect to the Internet covering issues such as user
privacy, freedom of expression, pricing of products and services, taxation,
advertising, intellectual property rights, information security or the
convergence of traditional communications services with Internet communications.
Congress has already held hearings on whether to regulate providers of services
and transactions in the eCommerce market. The adoption of such laws and
regulations could curtail the growth of the Internet and negatively affect
client demand for Internet solutions that facilitate eCommerce. In addition, the
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies. Legal and regulatory changes to such laws intended to address
these issues may reduce demand for the Company's services, increase the cost of
doing business, or in some other manner have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company may also be subject to regulation by the Commodity Futures
Trading Commission (the "CFTC"), which regulates commodities trading. The CFTC
has initiated an investigation of the Company as a result of its role in the
production and marketing of the infomercial titled "Success and You" based on
Jake Bernstein's "Trade Your Way to Riches" product.
THIRD-PARTY LIABILITY
The Company from time to time may be, or may be joined as, a defendant in
litigation brought against its clients by third parties, including, without
limitation, claims brought by such clients' competitors, regulatory bodies or
consumers, alleging that advertising claims made with respect to such client's
products or services are false, deceptive or misleading, that such clients'
products are defective or injurious or that marketing and communications
materials created for such clients infringe on the proprietary rights of third
parties. If, in such circumstances, Genesis Media is not insured under the terms
of the insurance policies with its insurers or is not indemnified under the
terms of its agreements with such clients (or such indemnification is
unavailable) with respect to such claims, then the damages, costs, expenses or
attorneys' fees arising from any such claims could have an adverse effect on
Genesis's, business, results of operations and financial condition. In addition,
the Company's contracts with clients sometimes require it to indemnify clients
for claims brought by competitors or others claiming that advertisements or
other communications infringe on intellectual property rights. Although Genesis
Media maintains business insurance it believes is adequate for its operations,
adequate insurance coverage in the future, or the insurance held by the Company
may not be sufficient if a significant adverse claim is made. The Company does
not maintain insurance designed specifically for advertising agency liability.
POTENTIAL LIABILITY TO CLIENTS
Many of the Company's consulting engagements involve the development,
implementation and maintenance of applications that are critical to the
operations of its clients' businesses. The Company's failure or inability to
meet a client's expectations in the performance of its services could injure the
Company's business reputation or result in a claim for substantial damages
against the Company, regardless of the Company's responsibility for such
failure. The Company attempts to contractually limit its damages arising from
negligent acts, errors, mistakes or omissions in rendering integrated multimedia
solutions; however, there can be no assurance that these contractual protections
will be enforceable in all
16
<PAGE>
instances or would otherwise protect the Company from liability for damages. The
successful assertion of one or more large claims against the Company that are
uninsured, exceed available insurance coverage or result in changes to the
Company's insurance policies, including premium increases or the imposition of a
large deductible or co-insurance requirements, could adversely affect the
Company's business, results of operations and financial condition.
YEAR 2000 RISK
The Company has completed a comprehensive review of its computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). The Company is also
continuing to monitor its computer systems and monitoring the adequacy of the
processes and progress of third-party vendors of systems that may be affected by
the Year 2000 issue. Genesis Media is dependent on third-party computer systems
and applications, particularly with respect to such critical tasks as
accounting, billing and buying, planning and paying for media, as well as on its
own computer systems. While the Company believes its procedures are designed to
be successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, its efforts, or those
of third parties with whom Genesis Media interacts, may not be satisfactorily
completed in a timely fashion. Failure to satisfactorily address the Year 2000
issue could have a material adverse effect on the Company's business, results of
operations and financial condition.
NO DIVIDENDS
The Company has no current intention following its conversion to C
corporation status to declare or pay dividends on its Common Stock, other than
the approximately $2 million distribution out of the proceeds of this offering
to its existing stockholders for the purpose of paying income taxes on
undistributed S corporation earnings. The Company currently anticipates that it
will retain any future earnings for use in its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock is substantially in
excess of the net tangible book value per share. As a result, purchasers of
Common Stock in this offering will experience immediate and substantial dilution
of $6.72 per share. There are also a number of outstanding stock options to
purchase the Company's Common Stock with exercise prices below the initial
public offering price. To the extent such options are exercised, there will be
further dilution. Additionally, the Company may issue additional shares, stock
options and stock bonuses to the stockholders and employees of the companies it
acquires in the future pursuant to its acquisition program, resulting in further
substantial ownership dilution to investors participating in this offering.
BENEFIT TO EXISTING STOCKHOLDERS
This offering is expected to create a public market for the Common Stock.
The establishment of this public market and the substantial unrealized gain to
such stockholders will benefit existing stockholders of the Company. In
addition, the existing stockholders will receive a $2 million dividend related
to undistributed S corporation earnings.
ABSENCE OF PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and an active trading market for the Common Stock may not develop or will
continue if it develops. The initial public offering price of the Common Stock
will be determined by negotiations between the Company and the underwriters'
representative and may not be indicative of the market price of the Common Stock
following the offering. The market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including
the liquidity of the market for the Common Stock, differences between the
Company's actual financial or operating results and those expected by investors
and analysts, changes in analysts' recommendations or projections, marketing and
communications budgets of clients,
17
<PAGE>
new statutes or regulations or changes in interpretations of existing statutes
and regulations affecting the Company's business, changes in general economic or
market conditions and broad market fluctuations.
POSSIBLE ADVERSE IMPACT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offering
or the perception that such sales could occur could adversely affect the market
price of the Common Stock and could impair the Company's ability to raise
capital through the equity markets. Following this offering, the Company will
have 6,060,000 shares of Common Stock outstanding (6,360,000 if the
underwriters' over-allotment option is exercised in full). Of these, the
2,000,000 shares offered in this offering will be freely transferable without
restriction or further registration under the Securities Act unless held by
"affiliates" of the Company. The remaining 4,060,000 outstanding shares of
Common Stock will be "restricted securities" within the meaning of Rule 144
under the Securities Act and subject to transfer restrictions. The directors,
executive officers and certain other stockholders of the Company holding
4,000,000 outstanding shares of Common Stock and options to purchase 450,000
shares of Common Stock, have agreed pursuant to Lock-Up Agreements that, for a
period of one-year from the date of this Prospectus, they will not, without the
prior written consent of the underwriters' representative, offer, sell, contract
to sell, or otherwise dispose of, any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for Common Stock, or grant any
options or warrants to purchase Common Stock, except in certain circumstances.
The underwriters' representative has informed the Company that it has no current
intention to release shares from the Lock-Up Agreements prior to expiration of
the one-year term of such agreements. Any request for release would be evaluated
by the underwriters' representative, and the decision whether or not to permit
early release of stock would be made dependent upon the facts and circumstances
existing at the time of the request. Beginning upon expiration of the Lock-Up
Agreements, such shares will be eligible for sale pursuant to Rule 144 or Rule
701 under the Securities Act subject to the provisions of such rules and
continued vesting. The remaining 60,000 restricted securities will be eligible
for resale pursuant to Rule 144 in October 1999, subject to the volume, manner
of sale and notice restrictions of Rule 144.
POSSIBLE ANTI-TAKEOVER EFFECTS.
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock of the Company and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The preferred
stock could be issued with voting, liquidation, dividend and other rights
superior to those of the Common Stock. Immediately following this offering, no
shares of preferred stock of the Company will be outstanding, and the Company
has no present intention to issue any shares of preferred stock. However, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in
the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, which may
depress the market value of the Common Stock.
ELIMINATION OF CUMULATIVE VOTING
Section 2115 of the California Corporations Code requires that the Company
have cumulative voting in the election of directors. Upon the first annual
meeting of stockholders at which the Company has 800 or more holders of its
Common Stock, the cumulative voting rights of stockholders granted under
California law will cease. The termination of this right will have the effect of
making it more difficult for minority stockholders to obtain representation on
the Board of Directors.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to Genesis Media from this offering, assuming an initial
public offering price of $10 per share (after deducting applicable underwriting
discounts and commissions, the non-accountable expense allowance and estimated
offering expenses payable by the Company), are estimated to be approximately
$17.3 million. The Company intends to use approximately $500,000 of such
proceeds for the repayment of debt under the Company's credit facilities. As of
June 30, 1998, there was an aggregate of $525,150 outstanding under the
Company's credit facilitates, which bore interest at the lender's "prime rate"
plus 2.90% per annum. The Company also intends to distribute approximately $2
million to existing stockholders for the purpose of paying income taxes on
undistributed S corporation earnings. The Company intends to use the balance of
the proceeds for expansion of operations, acquisitions and for general corporate
purposes, including using $2 million of the proceeds over 18 months to develop
and deploy interactive multimedia kiosks in regional shopping malls across the
United States and other entertainment centers. Pursuant to its letter of intent
with AniMagic Corporation, the Company will be required to pay $150,000 to
acquire certain assets of AniMagic. Except for such acquisition, the Company has
not identified any other specific acquisition targets and has not determined the
amount of net proceeds to be applied to each intended use.
DIVIDEND POLICY
The Company has no current intention following its conversion to C
corporation status to declare or pay dividends on its Common Stock, other than
the approximately $2 million distribution out of the proceeds of the offering to
its existing stockholders for the purpose of paying income taxes on
undistributed S corporation earnings. The Company currently anticipates that it
will retain any future earnings for use in its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Any
determination to pay dividends in the future will be at the discretion of the
Company's Board and will depend upon, among other factors, the Company's results
of operations, financial condition, capital requirements and contractual
restrictions pursuant to the Company's credit facilities.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (1) as of June 30, 1998;
(2) on a pro forma basis to give effect to the acquisition of certain assets of
Vision Digital Communications, Inc.; and (3) on a pro forma basis as adjusted to
give effect to the receipt of net proceeds from the sale of 2,000,000 shares of
Common Stock offered hereby after deducting underwriting discounts and
commissions and estimated offering expenses:
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------------ ------------ --------------
<S> <C> <C> <C>
Long term debt.................................... $ 581,849 $ 781,849 $ 781,849
------------ ------------ --------------
Stockholders' equity
Common stock, $.001 par value 25,000,000 shares
authorized 4,000,000, 4,060,000 and 6,060,000,
respectively, shares issued and outstanding... 4,000 4,060 6,060
Additional paid-in capital........................ 920,582 1,520,522 19,863,811
Retained earnings(3).............................. 3,045,289 3,045,289 --
------------ ------------ --------------
Total stockholders' equity(4)................... 3,969,871 4,569,871 19,869,871
------------ ------------ --------------
Total capitalization............................ $ 4,551,720 5,351,720 20,651,720
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
- ------------------------
(1) Adjusted to give effect to the acquisition of certain assets of Vision
Digital Communications, Inc. The Company purchased current assets, equipment
and intangible assets of $210,000, $750,000 and $10,000, respectively, in
exchange for 60,000 shares of the Company's Common Stock valued at $600,000
plus the assumption of short-term obligations and long-term debt of $170,000
and $200,000, respectively. The Company has also agreed to issue to the
seller options to purchase up to an additional 50,000 shares of Common Stock
if the acquired division meets certain targeted levels of total revenue over
a three-year period. If granted, the exercise price of such options will be
the fair market value of the Common Stock on the date of issuance and such
options will expire at the end of such three-year period.
(2) Adjusted to give effect to (a) the item discussed in Note (1) above and (b)
the sale of 2,000,000 shares of Common Stock offered by the Company in this
offering at an assumed initial public offering price of $10.00 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and the application of the
estimated net proceeds therefrom, including the use of $500,000 to repay
amounts owed under two notes payable agreements and a $2,000,000
distribution of undistributed S corporation earnings to be used to pay
federal and state income taxes on the Company's income that was passed
through to the individual stockholders. See "Use of Proceeds."
(3) In accordance with Staff Accounting Bulletin Topic 4B, any undistributed
earnings remaining in the S corporation at the time the S corporation
election is revoked are treated as additional paid-in capital by the
stockholders of the S corporation.
(4) The Company is currently taxed as an S corporation whereby the Company's
taxable income is passed through to its individual stockholders who are
responsible for paying federal and state income taxes on their portion of
the Company's taxable income. Shortly before the closing of the initial
public offering, the Company will terminate its status as an S corporation
and will be subject to federal and additional state income taxes thereafter.
See Note 8 to the Financial Statements.
20
<PAGE>
DILUTION
On a pro forma basis at June 30, 1998, there were 4,060,000 shares of our
Common Stock outstanding, having a net tangible book value per share of $1.12.
Net tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding.
After giving effect to the sale of the 2,000,000 shares of the Company's
Common Stock under this offering at an assumed price of $10.00 per share and the
application of the net proceeds therefrom, there would be a total of 6,060,000
shares of the Company's Common Stock outstanding with a net tangible book value
of $3.28 per share. This would represent an immediate increase in net tangible
book value of $2.16 per share to existing stockholders and an immediate dilution
of $6.72 per share to new investors. Dilution is determined by subtracting net
tangible book value per share after the offering (after taking into account the
$2,000,000 distribution of undistributed S corporation earnings) from the amount
paid by new investors per share of Common Stock. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share...................... $ 10.00
Net tangible book value per share as of June 30, 1998...... $ 1.12
Increase attributable to new investors..................... 2.16
---------
Pro forma net tangible book value per share after this
offering................................................... 3.28
---------
Dilution per share to new investors.......................... $ 6.72
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1998 the
difference between the existing stockholders and the new investors with respect
to the number of shares of Common Stock purchased in this offering, the total
consideration paid and the average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 4,060,000 67.00% $ 1,524,582 7.08% $ 0.38
New investors............... 2,000,000 33.00% 20,000,000 92.92% $ 10.00
---------- --------- ------------- ---------
Total..................... 6,060,000 100.00% $ 21,524,582 100.00%
</TABLE>
The preceding table assumes no exercise of any stock options outstanding as
of October 20, 1998. As of October 20, 1998, there were options outstanding to
purchase a total of 450,000 shares of Common Stock, all with exercise prices of
$8.50 per share. If all options outstanding as of October 20, 1998 had been
exercised as of such date, the dilution per share to new investors in the
offering would be $6.36. On October 1, 1998, the Company adopted the Genesis
Media Group, Inc. 1998 Stock Incentive Program pursuant to which 800,000 shares
of Common Stock were reserved for issuance thereunder. To the extent that
options are granted and subsequently exercised or shares are issued under the
Program, new investors may experience further dilution.
21
<PAGE>
SELECTED FINANCIAL DATA
Genesis Media is providing the following selected financial data to aid
investors in their analysis of this potential investment. This information was
derived from (1) our 1997 and 1996 historical financial statements and (2) our
internally prepared unaudited financial statements for the years ended December
31, 1995 and 1994, and the six-month periods ended June 30, 1998 and 1997. Our
financial statements as of December 31, 1997 and 1996 with the notes thereto and
the related reports of Singer Lewak Greenbaum & Goldstein LLP, independent
certified public accountants, together with our internally prepared unaudited
financial statements for the six-month periods ended June 30, 1998 and 1997 are
included elsewhere in the Prospectus. Our unaudited financial statements, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of our financial position and
results of operations for the unaudited interim periods. The selected financial
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" at page 24 and
our financial statements and related notes thereto included elsewhere in the
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1997
--------- --------- SIX MONTHS
ENDED
JUNE 30,
1994 1995 -------------
------------- ------------- 1997
(UNAUDITED) (UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenue
Media sales--affiliate.............................. $ -- $ -- $ -- $ 7,412 $ 3,718
Product sales....................................... 149 8,268 13,152 8,252 3,104
Commissions and royalties........................... 183 325 79 2,480 1,024
Other............................................... -- 72 1,111 20 --
------ ------ --------- --------- ------
Total net revenue................................. 332 8,665 14,342 18,164 7,846
Operating costs and expenses
Media purchases..................................... -- -- -- 6,445 3,233
Direct costs........................................ 53 1,264 1,842 713 357
Selling, general and administrative................. 428 7,290 12,114 8,571 3,873
------ ------ --------- --------- ------
Total operating costs and expenses................ 481 8,554 13,956 15,729 7,463
------ ------ --------- --------- ------
Income (loss) from operations......................... (149) 111 386 2,435 383
Interest expense...................................... 2 18 -- 33 --
------ ------ --------- --------- ------
Income before taxes................................... (151) 93 386 2,402 383
Income taxes.......................................... -- -- -- 35 5
------ ------ --------- --------- ------
Net income (loss)..................................... $ (151) $ 93 $ 386 $ 2,367 $ 378
------ ------ --------- --------- ------
------ ------ --------- --------- ------
Basic earnings (loss) per share....................... $ (0.04) $ 0.02 $ 0.10 $ 0.61 $ 0.10
------ ------ --------- --------- ------
------ ------ --------- --------- ------
Diluted earnings (loss) per share..................... $ (0.04) $ 0.02 $ 0.10 $ 0.61 $ 0.10
------ ------ --------- --------- ------
------ ------ --------- --------- ------
Weighted average shares outstanding................... 3,883 3,883 3,883 3,884 3,883
------ ------ --------- --------- ------
------ ------ --------- --------- ------
<CAPTION>
1998
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue
Media sales--affiliate.............................. $ 2,805
Product sales....................................... 3,094
Commissions and royalties........................... 2,115
Other............................................... 13
------
Total net revenue................................. 8,027
Operating costs and expenses
Media purchases..................................... 2,377
Direct costs........................................ 249
Selling, general and administrative................. 4,628
------
Total operating costs and expenses................ 7,254
------
Income (loss) from operations......................... 773
Interest expense...................................... 37
------
Income before taxes................................... 736
Income taxes.......................................... 10
------
Net income (loss)..................................... $ 726
------
------
Basic earnings (loss) per share....................... $ 0.18
------
------
Diluted earnings (loss) per share..................... $ 0.18
------
------
Weighted average shares outstanding................... 4,000
------
------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1997
--------- AS OF JUNE 30, 1998
------------------------------
1994 1995 1996 ACTUAL PRO FORMA(1)
------------- --------------- --------------- ------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit).............. $ 58 $ (53) $ 334 $ 3,037 $ 3,192 $ 3,232
Current assets......................... 176 390 708 5,523 6,243 6,453
Total assets........................... 226 409 726 6,714 7,603 8,573
Current liabilities.................... 118 443 374 2,486 3,051 3,221
Long-term debt......................... 237 -- -- 609 582 782
Stockholders' equity (deficit)......... (129) (34) 352 3,619 3,970 4,570
<CAPTION>
PRO FORMA
AS ADJUSTED(2)
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit).............. $ 18,532
Current assets......................... 21,253
Total assets........................... 23,373
Current liabilities.................... 2,721
Long-term debt......................... 782
Stockholders' equity (deficit)......... 19,870
</TABLE>
- ------------------------------
(1) Adjusted to give effect to the acquisition of certain assets of Vision
Digital Communications, Inc. The Company purchased current assets, equipment
and intangible assets of $210,000, $750,000 and $10,000, respectively, in
exchange for 60,000 shares of the Company's common stock valued at $600,000
plus the assumption of short-term obligations and long-term debt of $170,000
and $200,000, respectively. The Company has also agreed to issue to the
seller options to purchase up to an additional 50,000 shares of Common Stock
if the acquired division meets certain targeted levels of total revenue over
a three-year period. If granted, the exercise price of such options will be
the fair market value of the Common Stock on the date of issuance and such
options will expire at the end of such three-year period.
(2) Adjusted to give effect to (a) the item discussed in Note (1) above; and (b)
the sale of 2,000,000 shares of Common Stock offered by the Company in the
offering at an assumed initial public offering price of $10.00 per share,
after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and the application of the
estimated net proceeds therefrom, including the use of $500,000 to repay
amounts owed under two notes payable agreements and a $2,000,000
distribution of undistributed S corporation earnings to be used to pay
federal and state income taxes on the Company's income that was passed
through to the individual stockholders. See "Use of Proceeds" and
"Capitalization."
(3) The Company is currently taxed as an S corporation whereby the Company's
taxable income is passed through to its individual stockholders who are
responsible for paying federal and state income taxes on their portion of
the Company's taxable income. Shortly before the closing of the initial
public offering, the Company will terminate its status as an S corporation
and will be subject to federal and additional state income taxes thereafter.
See Note 8 to the Financial Statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THE PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" BEGINNING AT PAGE 7.
OVERVIEW
We are an integrated marketing and business solutions provider that utilizes
conventional, emerging and interactive multimedia technologies. Incorporated on
October 28, 1993, we did not commence substantial operations until 1994. From
inception until June 1997, we devoted substantially all our resources to selling
products we owned or had purchased rights to sell through conventional marketing
methods. We sold these products to the general public through the use of
infomercials, radio advertisements, print media and retail outlets. A
substantial portion of our product revenue has come from our "Men Are From Mars,
Women Are From Venus" product series authored by John Gray, Ph.D. Prior to June
1997, we contracted with an unrelated third party to administer our product
sales, including buy media time, manage inventory levels and contract order
fulfillment. For these services, we paid the third party an administrative fee
and a share of the profits generated from the product sales.
In June 1997, we brought the operations of our product sales in-house, which
resulted in the hiring of additional personnel and buying an office building.
This allowed us to better manage the profitability of our product sales and also
gave us the resources to expand our products and services. Since moving into our
corporate office building in July 1997, we have increased the number of products
we sell, established outbound telemarketing services to sell our products, as
well as products of other companies, and established a media sales department
that sells media time to other companies as well as buys media time for our own
products at a 10-15% discount. We were also able to focus our advertising on
markets that yielded higher responses, which significantly reduced advertising
costs.
During the later part of 1997, after creating a strong infrastructure, we
began contracting with other companies to sell their products via our outbound
telemarketing capabilities. We are given a database of customer names and
telephone numbers from the contracting company and receive a sales commission
ranging from 35% to 70%. To date, a significant portion of the commission
revenue generated from selling other companies' products has come from selling
products based on Jake Bernstein's "Trade Your Way to Riches" program. A company
owned by our majority stockholder owns the rights to this program.
In addition, we keep a database of customers who have purchased our products
and then sell additional related products to these customers through our
outbound telemarketing capabilities. We have also been able to generate revenue
from the sale of customer names in our database to unrelated third parties.
In July 1998, we formed our Genesis Intermedia, Inc. subsidiary and hired
key personnel experienced in creating interactive multimedia business solutions
for companies. This subsidiary uses existing non-proprietary technologies,
proprietary interactive multimedia technologies and its expertise in marketing
to develop and deploy creative multimedia solutions tailored to each of its
client's marketing needs. Genesis Intermedia uses a variety of interactive
delivery platforms including intranets, extranets, web sites, interactive
publicly accessible kiosks, CD-ROM and DVD-ROM/RAM. We design such solutions to
provide targeted consumers with an innovative introduction to our client's
products or services. Such solutions are intended to attract and hold the
attention of our client's target audience while conforming to or strengthening
our client's brand image. Each multimedia solution enables our client to improve
its business processes and to promote and sell its products or services to large
target markets more efficiently
23
<PAGE>
and effectively than is possible through conventional media. To date, revenue
generated by the Genesis Intermedia subsidiary has not been significant.
We recently completed the acquisition of certain assets of Vision Digital
Communications, Inc., a company that places interactive kiosks in shopping
malls. In addition, we have signed a letter of intent to acquire AniMagic
Corporation, an interactive technology company. AniMagic is currently in
bankruptcy and the ultimate acquisition is dependent upon bankruptcy court
approval, which we anticipate receiving by the end of 1998. We will continue to
evaluate acquisition opportunities that will enable us to expand our core
multimedia marketing capabilities and the geographic scope of our operations. We
plan to acquire well-regarded niche companies or leaders in specific marketing
and communications disciplines. We will also review joint venture and strategic
alliance candidates.
Genesis Media has four primary revenue generating sources:
1. INTEGRATED MARKETING AND BUSINESS SOLUTIONS. We will expand the types of
business and marketing solutions offered to our clients. We have
historically utilized conventional media to fulfill our clients' marketing
needs. More recently, we have focused on providing innovative multimedia
solutions to our clients who conduct business through eCommerce such as the
Internet, interactive kiosks, CD-ROM and DVD-ROM/RAM.
2. PROPRIETARY PRODUCTS. We will continue to expand the products we sell
through infomercials, radio, print media and retail outlets. We also plan to
expand our outbound telemarketing capabilities to sell our products and
products of other companies.
3. PUBLIC ACCESS COMMUNICATIONS NETWORKS. We plan to place interactive kiosks
in regional shopping malls throughout the United States and other
entertainment centers. These kiosks will enable merchants to communicate
directly with their customers, to learn more about their customers and to
deliver consistent marketing messages in a variety of locations. In
addition, these kiosks will expose retail shoppers to eCommerce and
integrate the physical shopping experience with interactive options. We will
earn revenue from the sale of advertising space and a percentage of the
merchandise sales made through the kiosks. We expect these kiosks to
generate significant revenue in the future.
4. AUDIO AND VISUAL STREAMING AND DOWNLOAD TECHNOLOGY. We have technology that
provides the structure for direct application on the Internet of interactive
multimedia technologies, such as music, movies and combined audio and visual
special effects. We will sell advertising space and will also receive
transactional fees from customers downloading the various products offered
by us. To date, we have not generated any such revenue from this streaming
and downloading technology.
24
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 VS. SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF NET
REVENUE
--------------------
1997 1998
--------- ---------
SIX MONTHS ENDED JUNE
30,
------------------------
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUE
Media sales--affiliate............................................... $ 3,718 $ 2,805 47.4% 34.9%
Product sales........................................................ 3,104 3,094 39.6% 38.5%
Commissions and royalties............................................ 1,024 2,115 13.0% 26.4%
Other................................................................ -- 13 0.0% 0.2%
----------- ----------- --------- ---------
Total net revenue.................................................. 7,846 8,027 100.0% 100.0%
OPERATING COSTS AND EXPENSES
Media purchases...................................................... 3,233 2,377 41.2% 29.6%
Direct costs......................................................... 357 249 4.5% 3.1%
Selling, general and administrative.................................. 3,873 4,628 49.4% 57.7%
----------- ----------- --------- ---------
Total operating costs and expenses................................. 7,463 7,254 95.1% 90.4%
----------- ----------- --------- ---------
INCOME FROM OPERATIONS 383 773 4.9% 9.6%
Interest expense....................................................... -- 37 0.0% 0.5%
----------- ----------- --------- ---------
Income before taxes.................................................... 383 736 4.9% 9.1%
Income taxes........................................................... 5 10 0.1% 0.1%
----------- ----------- --------- ---------
Net Income............................................................. $ 378 $ 726 4.8% 9.0%
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
Revenues for the six months ended June 30, 1998 increased by $181,000 or
2.3% from $7,846,000 for the six months ended June 30, 1997 to $8,027,000 for
the same period in 1998. The increase in revenue was due to the following:
- Commissions and royalties increased $1,091,000 principally from
commissions received from the sale of mentoring services for a company
owned by our majority stockholder; and
- Media sales to a company owed by our majority stockholder decreased
$913,000 as a result of this company purchasing less media time and
focusing more on outbound telemarketing sales.
Media purchases for the six months ended June 30, 1998 decreased by $856,000
or 26.5% from $3,233,000 for the six months ended June 30, 1997 to $2,377,000
for the same period in 1998. The decrease was due to less media time sold to a
company owned by our majority stockholder. We sold media at a mark-up of
approximately 15%, the standard industry mark-up, for both periods.
Direct costs for the six months ended June 30, 1998 decreased by $108,000 or
30.3% from $357,000 for the six months ended June 30, 1997 to $249,000 for the
same period in 1998. The decrease was due to direct costs being approximately 8%
of product sales for the six months ended June 30, 1998 compared to 11% for the
same period in 1997. Prior to June 1997, we contracted the marketing, promotion,
media purchases and administration of our products with an unrelated third
party. Beginning in June 1997, we brought these functions in-house and we were
able to reduce direct costs, among other things, by better management of
inventory, reducing the cost of the third-party fulfillment houses, and taking
advantage of quantity purchases.
Selling, general and administrative expenses for the six months ended June
30, 1998 increased by $755,000 or 19.5% from $3,873,000 for the six months ended
June 30, 1997 to $4,628,000 for the same
25
<PAGE>
period in 1998. The increase was due principally to an increase in payroll and
travel and entertainment of $986,000 and $56,000 respectively, offset by a
decrease of $315,000 in advertising. As a result of bringing the operation of
the product sales in-house, payroll costs increased significantly, not only to
staff the operations previously administered by the third party, but also to
staff our expanding operations. Travel and entertainment increased as a result
of our personnel attending more trade shows. In June 1997, we began purchasing
media and other advertising for third parties, which allowed us to purchase
media for our own products at a 10-15% discount. In addition, in 1998 after
evaluating the expected future benefit of our capitalized direct-response
advertising costs, we extended the amortization period from seven to 12 months
for all costs capitalized in 1998. This change resulted in a reduction of
advertising expense of approximately $300,000 for the six months ended June 30,
1998.
Interest expense for the six months ended June 30, 1998 increased by $37,000
from $0 for the six months ended June 30, 1997 to $37,000 for the same period in
1998. The increase in interest expense was due to the issuance of two notes
payable for the purchase of an automobile and the corporate office building.
Income taxes for the six months ended June 30, 1998 increased by $5,000 or
100% from $5,000 for the six months ended June 30, 1997 to $10,000 for the same
period in 1998. We are an S corporation resulting in the income being reported
on the personal income tax returns of our stockholders. The income tax expense
represents a state franchise tax charged to S corporations in the State of
California.
Net income for the six months ended June 30, 1998 increased by $348,000 or
92.1% from $378,000 for the six months ended June 30, 1997 to $726,000 for the
same period in 1998. The increase in net income was principally due to the
increased revenue, increased margins on the sale of media and the reduction in
amortization expense.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER PERCENTAGE OF NET
31, REVENUE
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUE
Media sales--affiliate................................................... $ -- $ 7,412 0.0% 40.8%
Product sales............................................................ 13,152 8,252 91.7% 45.4%
Commissions and royalties................................................ 79 2,480 0.6% 13.7%
Other.................................................................... 1,111 20 7.7% 0.1%
--------- --------- --------- ---------
Total net revenue...................................................... 14,342 18,164 100.0% 100.0%
OPERATING COSTS AND EXPENSES
Media purchases.......................................................... -- 6,445 0.0% 35.5%
Direct costs............................................................. 1,842 713 12.8% 3.9%
Selling, general and administrative...................................... 12,114 8,571 84.5% 47.2%
--------- --------- --------- ---------
Total operating costs and expenses..................................... 13,956 15,729 97.3% 86.6%
--------- --------- --------- ---------
INCOME FROM OPERATIONS..................................................... 386 2,435 2.7% 13.4%
Interest expense........................................................... -- 33 0.0% 0.2%
--------- --------- --------- ---------
Income before taxes........................................................ 386 2,402 2.7% 13.2%
Income taxes............................................................... -- 35 0.0% 0.2%
--------- --------- --------- ---------
Net Income................................................................. $ 386 $ 2,367 2.7% 13.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
26
<PAGE>
Revenues for the year ended December 31, 1997 increased by $3,822,000 or
26.7% from $14,342,000 for the year ended December 31, 1996 to $18,164,000 for
the same period in 1997. The increase in revenue was due to the following:
- Media sales increased by $7,412,000 as a result of our beginning to resell
media purchased at a standardized industry mark-up to a company owned by
our majority stockholder. There were no such media sales for the year
ended December 31, 1996;
- Commissions and royalties increased $2,401,000 principally from increased
commissions received from the sale of mentoring services for a company
owned by our majority stockholder totaling $742,000 and the sales of
customer names to an unrelated third party totaling $689,000;
- Product sales decreased by $4,900,000 or 37% due to the expansion of our
operations, including outbound telemarketing for and the sale of media to
third parties. The expansion of our operations caused us to focus more on
providing business solutions for other companies; and
- Other revenue decreased by $1,091,000 due to the discontinuance of joint
venture agreements that resulted in $1,111,000 of revenue for the year
ended December 31, 1996.
Media purchases for the year ended December 31, 1997 increased by $6,445,000
from $0 for the year ended December 31, 1996 to $6,445,000 for the same period
in 1997. The increase was due to our beginning to sell media time to a company
owned by our majority stockholder in 1997. We sold media at a mark-up of
approximately 15%, the standard industry mark-up, for the year ended December
31, 1997.
Direct costs for the year ended December 31, 1997 decreased by $1,129,000 or
61.3% from $1,842,000 for the year ended December 31, 1996 to $713,000 for the
same period in 1997. The decrease was due to product sales decreasing by
approximately 37% as discussed above. Direct costs as a percentage of product
sales was approximately 14% for the year ended December 31, 1996 compared to
approximately 9% for the same period in 1997. Prior to June 1997, we contracted
the marketing, promotion, media purchases and administration of our product
sales with an unrelated third party. Beginning in June 1997, we brought these
functions in-house and we were able to reduce direct costs, among other things,
by better management of inventory, reducing the cost of the third-party
fulfillment houses and taking advantage of quantity purchases.
Selling, general and administrative expenses for the year ended December 31,
1997 decreased by $3,543,000 or 29.3% from $12,114,000 for the year ended
December 31, 1996 to $8,571,000 for the same period in 1997. The decrease was
due principally to a decrease in advertising costs of $3,283,000. In June 1997,
we began purchasing media and other advertising for third parties, which allowed
us to purchase media for our own products at a 10-15% discount. In addition, we
were better able to focus our media purchases on those markets and time slots
that yielded the maximum benefit. As a result of being able to purchase media at
a discount and purchasing media only in those markets that produce maximum
results, we were able to significantly reduce advertising costs.
Interest expense for the year ended December 31, 1997 increased by $33,000
from $0 for the year ended December 31, 1996 to $33,000 for the same period in
1997. The increase in interest expense was due to the issuance of two notes
payable in the third quarter of 1997 for the purchase of an automobile and our
corporate office building.
Income taxes for the year ended December 31, 1997 increased by $35,000 from
$0 for the year ended December 31, 1996 to $35,000 for the same period in 1997.
We are an S corporation resulting in the income being reported on the personal
income tax returns of our stockholders. The income tax expense represents a
state franchise tax charged to S corporations in the State of California. We did
not have any operations in the State of California in 1996, and accordingly, we
were not subject to this franchise tax.
Net income for the year ended December 31, 1997 increased by $1,981,000 or
513.2% from $386,000 for the year ended December 31, 1996 to $2,367,000 for the
same period in 1997. The increase in net
27
<PAGE>
income was principally due to the increased revenue, increased margins on the
sale of our products and a decrease in advertising expense.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations initially from cash generated from
operations. More recently, we have financed operations through the sale of
Common Stock, a long-term mortgage and a line of credit. In July 1997, we
purchased an office building in Studio City, California with cash and a Small
Business Administration loan in the amount of $583,000. This loan is being
repaid with monthly payments of $5,823 over 25 years. In December 1997, we sold
116,504 shares of Common Stock to Dr. Gray for $900,000. In January 1998 and
April 1998, we obtained two short-term loans from an unrelated third party for
$300,000 and $200,000, respectively. These loans bear interest at the rate of 8%
per annum and are due on January 30, 1999. In addition, in June 1997, we
obtained a $750,000 line of credit from a major financial institution that is
collateralized by substantially all the Company's assets, except our office
building, and the loan is guaranteed by our majority stockholder. As of June 30,
1998, we had $224,850 available to borrow under our line of credit agreement. In
August 1998, we obtained a working capital loan in the amount of $300,000
collateralized by a second trust deed on our land and office building.
During the six months ended June 30, 1998 and the year ended December 31,
1997, we spent $154,950 and $1,210,846, respectively, on capital expenditures
and used $341,506 and $310,168, respectively, in operations. In addition to
capital expenditures, we spent a significant amount of capital on the purchase
of media. The purchase of media time is capital intensive because media time,
unavailable on an as-needed basis, must be purchased in advance. We believe that
media sales will become more profitable when we have more capital available to
purchase larger blocks of time.
We expect to use a portion of the proceeds from this offering to expand our
product lines, expand our telemarketing division, make strategic acquisitions,
and repay certain short-term obligations, as well as for working capital and
general corporate purposes. We anticipate spending $2 million over the next 18
months to develop and deploy interactive multimedia kiosks in regional shopping
malls across the United States and in other entertainment centers.
We believe that the net proceeds of this offering, together with available
funds, existing credit facilities and the cash flow expected to be generated
from operations, will be adequate to satisfy our current and planned operations
through the end of 1999.
SEASONALITY
Our revenues generally reflect the media buying patterns of advertisers and
are concentrated in the second and fourth quarters of the year.
YEAR 2000 COMPLIANCE
We have completed a comprehensive review of our computer systems to identify
all software applications that could be affected by the inability of many
existing computer systems to process time-sensitive data accurately beyond the
year 1999 (referred to as the "Year 2000" issue). We are also continuing to
monitor our computer systems and monitoring the adequacy of the processes and
progress of third-party vendors of systems that may be affected by the Year 2000
issue. Genesis Media is dependent on third-party computer systems and
applications, particularly with respect to such critical tasks as accounting,
billing and buying, planning and paying for media, as well as on our own
computer systems. While we believe our procedures are designed to be successful,
because of the complexity of the Year 2000 issue and the interdependence of
organizations using computer systems, our efforts, or those of third parties
with whom we interact, may not be satisfactorily completed in a timely fashion.
If we fail to satisfactorily address the Year 2000 issue, then our business,
results of operations and financial condition could be materially adversely
affected.
28
<PAGE>
The costs of Genesis Media's Year 2000 project have not been determined but
are not expected to have a material adverse effect on us. However, we may
experience cost overruns or delays in the future, which could have a material
adverse effect on our business, results of operations and financial condition.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for financial statements issued
for fiscal years beginning after December 15, 1997. Management believes that
SFAS No. 130 will not have a material effect on our financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on our financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement is not
applicable to us.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities and is
effective for fiscal years beginning after June 15, 1999. Management believes
that SFAS No. 133 will not have an effect on our financial statements.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage--Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement is not
applicable to us.
29
<PAGE>
BUSINESS
GENERAL
Genesis Media is an integrated marketing and business solutions provider
utilizing conventional and interactive multimedia technologies. While the
Company has historically utilized conventional media to fulfill its clients'
marketing needs, and will continue to do so, it has focused more recently on
providing innovative multimedia solutions delivered through a variety of
platforms, including the Internet, interactive kiosks, CD-ROM and DVD-ROM/RAM,
to businesses seeking to conduct eCommerce. Additionally, the Company provides
ongoing technical and back-office support services designed to maintain and
enhance its clients' marketing efforts. The Company believes that many
businesses which rely on conventional marketing platforms, such as television,
radio and print, will require integrated multimedia solutions to effectively
adapt their marketing and growth strategies to the emerging eCommerce market and
the Internet. The Company also believes that the interactive nature of its
integrated multimedia marketing and business solutions will enable the Company's
clients to successfully participate in the emerging eCommerce market and will
appeal to their customers. The services offered by the Company include: market
analysis; an assessment of a client's business requirements; the development and
deployment of an appropriate marketing strategy; ongoing solution maintenance;
back-office support; and media placement. These services are available to the
Company's clients separately, on an as-needed basis, or together, on a fully
integrated basis.
The Company has three additional revenue generating capabilities:
- proprietary products, such as the audio and video products based on the
book authored by John M. Gray, Ph.D "Men Are From Mars, Women Are From
Venus";
- public access communication networks, such as interactive kiosks, which
expose retail shoppers to eCommerce and integrate the physical shopping
experience with interactive options; and
- audio and visual streaming and download technology, which provides the
structure for direct application on the Internet of interactive multimedia
technologies, such as music, movies and combined audio and visual special
effects.
By using its technical expertise, vision and creativity, the Company will
leverage its integrated marketing and interactive multimedia technologies to
provide further market exposure and distribution channels for its clients'
business solutions.
THE DEVELOPMENT OF THE INTEGRATED MARKETING AND BUSINESS SOLUTIONS INDUSTRY
Marketing solutions for business have evolved significantly over recent
years as new marketing channels and technologies have been developed.
Traditionally, marketing consultants worked to provide businesses with market
research and analysis, while independent advertising agencies created
advertising campaigns targeted to specific groups of consumers identified by
such market research and analysis. Businesses often relied on another vendor to
purchase desirable media time or space on its behalf. Advertising campaigns were
typically delivered to the public through conventional media, such as
television, radio and print advertisements. Additional parties provided
back-office support, such as inventory control systems, accounting services and
order processing, to a business seeking to add functionality to its marketing
effort. According to Advertising Age, advertising expenditures in the United
States grew significantly faster than the economy in 1994, 1995 and 1996. Total
expenditures reached $175.2 billion in 1996, a gain of more than $12 billion
over 1995.
In the 1980s and 1990s telemarketing services, infomercials and home
shopping networks emerged as additional marketing channels. These channels are
also known as direct response marketing, because they enable businesses to
deliver a marketing message to targeted consumers and to elicit an immediate
consumer response.
In recent years, the use of the Internet by businesses and consumers has
grown at a rapid rate. According to PC Magazine, the number of users of Internet
technology is estimated to double every 100
30
<PAGE>
days. International Data Corporation estimates that the amount of commerce
conducted over the Internet will reach more than $400 billion by the year 2002,
reflecting a compound annual growth rate of 103%.
COMPANY BACKGROUND
Genesis Media was founded on October 27, 1993. The Company initially
produced infomercials and performed telemarketing services for its own products.
In 1994, for example, the Company acquired a proprietary interest in the "Men
are From Mars, Women are From Venus" audio series based on a book authored by
John M. Gray, Ph.D. The Company subsequently created a companion video series
and marketed these products through infomercials and in retail outlets. The
Company also developed and telemarketed continuing education and training
products based on Dr. Gray's book and assisted Dr. Gray in scheduling personal
promotional appearances.
In 1995 and 1996, the Company expanded the product offerings and marketing
relating to Dr. Gray. In 1996, the Company also produced an infomercial and
ancillary products relating to Jake Bernstein's "Trade Your Way to Riches"
program for a joint venture between Genesis Media and Positive Response
Television Inc. The joint venture was succeeded by a newly-founded corporation,
Trade Your Way to Riches, Inc. Subsequently, the Company purchased media time
and performed telemarketing for this entity, which is owned by the Company's
majority stockholder. The Company outsourced certain administrative functions,
including buying media time, managing inventory levels and contracting order
fulfillment, to third parties until 1997.
In 1997, the Company purchased an office building and hired additional
personnel, which enabled it to perform these functions in-house. Additionally,
the Company strengthened its infrastructure, which enabled it to perform many
types of marketing functions, including telemarketing services for products
owned by other companies. In late 1997, the Company added another product line
around the Larry Williams "Secrets to Stock Investing" program and started
performing telemarketing services for Ted Thomas' "Personal Fortune" real estate
investment program. In 1998, the Company added a product line around the "Money
Mystery" audio/video program and commercial telemarketing services for
additional third-party products such as the mentoring program for Optionetics
and obtained the exclusive rights to distribute the "Hawaiian Tropic" swimwear
line.
In 1998, the Company also formed its Genesis Intermedia subsidiary and hired
personnel experienced in multimedia technologies in order to target consumers
using new media (such as the Internet, interactive kiosks, eCommerce,
audio/video download and CD-ROM technologies) to position itself to deliver
integrated marketing and business solutions to its clients.
MARKET OPPORTUNITY
The expansion of the market for conventional media solutions, the growing
demand for innovative multimedia solutions delivered through a variety of
interactive electronic platforms, such as the Internet, and the complexity of
the global, digitized economy pose a significant challenge for many traditional
marketing companies. Genesis Media believes this challenge represents an
opportunity for companies prepared to offer integrated marketing and business
solutions.
INCREASED DEMAND FOR INTEGRATED MULTIMEDIA SOLUTIONS. The globalization of
the economy, advances in technology and the growth of the Internet as a popular
medium for eCommerce, entertainment and education have fostered the development
of new marketing approaches and delivery platforms. Consequently, businesses
demand integrated marketing and business solutions that will enable them to
effectively exploit these new media to compete in a diverse global economy and
improve their strategic market positions and business processes.
CONTINUED EMPHASIS ON TARGETED MARKETING. The demand for targeted marketing
strategies has continued through the development of new marketing channels. The
Company believes businesses will demand that their marketing strategies take
advantage of the emerging eCommerce market conducted through the Internet and
other media to target their marketing and advertising. Multimedia solutions that
31
<PAGE>
enable a business to deliver customized messages to customers in an interactive
format and to instantaneously evaluate the success of their promotional
activities address that demand.
The Company believes that the demand for integrated multimedia solutions and
targeted marketing strategies represent compelling opportunities to expand its
own operations. The Company believes that, to be successful, a marketing and
business solutions provider must be capable of developing and deploying
innovative multimedia solutions using the Internet and other interactive
platforms, as well as conventional media solutions. A marketing and business
solutions provider must also provide the back-office and support services
necessary to ensure the success of its clients' marketing and distribution
efforts.
THE GENESIS SOLUTION
The Company believes it is positioned to address the growing demand for
integrated multimedia marketing and business solutions by providing a uniquely
integrated marketing strategy of conventional media and newly developed
multimedia technology. The services to deliver this strategy include:
- initial market and client assessment;
- the development and deployment of marketing strategies (which may involve
interactive multimedia solutions, conventional media solutions, or both);
- ongoing solutions support;
- back-office support; and
- media placement. Clients may select any combination of these services to
create the specific marketing solution that meets their strategic
requirements.
INITIAL ASSESSMENT
The Company works closely with each client to thoroughly assess the client's
strategic marketing position, business requirements and existing systems
capabilities to determine which marketing strategies and business solutions will
most effectively assist that client to meet its goals. The Company utilizes
comprehensive market research compiled by independent consultants to learn the
demographics of the client's customers and to determine what approach will meet
the client's marketing needs. For example, clients in the entertainment industry
may find that a traditional board game offered to Internet users in an
interactive format for a fee revitalizes the life and popularity of the game and
generates a new revenue stream for the company that owns it. A client in the
retail industry, such as a major department store, may find that an interactive
kiosk in a central mall location that links consumers to the physical store in
the mall, as well as to an electronic catalogue on the Internet, facilitates
consumer access to the products and services offered by the department store and
increases average revenue per consumer. Other clients may find that a
conventional media solution, such as the distribution of a printed catalogue to
the general public, achieves their marketing objectives.
THE DEVELOPMENT AND DEPLOYMENT OF AN INTERACTIVE MULTIMEDIA SOLUTION
The Company's Genesis Intermedia subsidiary uses existing non-proprietary
technologies, proprietary interactive multimedia technologies (including
authoring and conversion tools, artistic templates and remote content updating
tools) and its expertise in marketing to develop and deploy creative multimedia
solutions that are tailored to each client's marketing needs. The Company's
graphic designers and business strategists work together to create engaging user
interfaces using a variety of interactive delivery platforms, including the
Internet, intranets, extranets, interactive publicly accessible kiosks, CD-ROM
and DVD-ROM/RAM. The Company generally designs such solutions to provide an
innovative introduction to the clients' products and services to targeted
customers and to satisfy the linguistic and cultural requirements of the markets
in which such products and services are offered. Such solutions are intended to
attract and hold the attention of the client's target audience while conforming
to and strengthening the client's brand image, which adds value to the client's
products and services. Multimedia solutions selected in consultation
32
<PAGE>
with the client enable a client to improve its business processes and to promote
and sell its products or services to large target markets more efficiently and
effectively than is possible using solely conventional media solutions.
The unique characteristics of the Company enable it to successfully provide
multimedia solutions to its clients. These characteristics include: an
infrastructure that provides strong marketing and branding consultation services
to the Company's client base; core competency in the development of system
applications, systems integration, data communications and back-office support;
expertise in the development of proprietary multimedia technology; and a
management team focused on providing creative and functional solutions to its
clients' marketing and business needs.
For example, Hallmark Entertainment, a producer of films, situation comedies
and cable programming, recently hired the Company to develop an interactive
multimedia format for the delivery of its trade show presentations to film
distributors and representatives of television networks. The Company determined
that distributors base the price point for such products on the amount of
advertising revenue such products are likely to generate. Thus, the Company
developed an interactive kiosk with a high-resolution touchscreen and a link to
the Internet, where the Nielsen ratings are available in real-time, and assisted
Hallmark in producing a sophisticated, interactive trade show presentation. This
format also provided Hallmark with the flexibility it needed to edit and revise
its presentation during the trade show.
THE DEVELOPMENT AND DEPLOYMENT OF CONVENTIONAL MEDIA SOLUTIONS
In addition to its ability to provide interactive multimedia marketing and
business solutions, the Company continues to provide solutions through
conventional media. These conventional media solutions include the following:
- radio, television and print advertising;
- business-to-consumer and business-to-business outbound telemarketing
services, which consist primarily of direct sales activities initiated by
the Company on behalf of its clients; and
- inbound telemarketing services, which typically involve responding to
customer inquiries and electronic order processing.
RADIO, TELEVISION AND PRINT ADVERTISING. Radio, television and print
advertisements convey marketing information to a large number of consumers and
position a product within a broad market context. When the client's marketing
strategy calls for coverage to the public at large, the Company will develop and
implement marketing solutions utilizing these traditional media.
TELEMARKETING SERVICES. Business-to-consumer and business-to-business
outbound telemarketing services involve the use of client-generated,
electronically transmitted lists of customers selected to match the demographic
profile of the targeted customer for the offered product or service. The Company
specializes in marketing products at price points which typically range from
$100 to $5,000, with an average of approximately $2,000. Mentoring programs,
such as Ted Thomas' "Personal Fortune" real estate investment program and Jake
Bernstein's "Trade Your Way to Riches" program, are examples of the types of
products the Company has promoted using outbound telemarketing.
The Company recently acquired improved computer and telecommunications
technology to supplement its telemarketing business and to enable it to expand
this segment of its business. This technology assists telemarketers to more
accurately identify and contact potential customers, and provides telemarketing
sales representatives with more complete on-line guidance and support. The
Company's computerized call management systems use predictive dialers to: (a)
automatically dial telephone numbers; (b) determine if a live connection is
made; and (c) present connected calls to a telephone sales representative who
has been specifically trained for the client's sales program. The Company's
ability to train and to retain its sales personnel is critical to its success
and differentiates the Company from many of its competitors. Sales personnel are
compensated by salary, commissions and bonuses based on individual
33
<PAGE>
performance and overall profitability. As of October 1, 1998, there were a total
of 40 full-time and 16 part-time sales personnel employed in this division.
Inbound telemarketing services typically include: (a) the electronic receipt
and processing of all sales information; (b) the communication of necessary
sales information to the Company's contracted order fulfillment center; and (c)
the administration of customer order and service inquiries.
The Company continues to produce infomercials and to perform teleservices
for its own products. The Company also performs these services for products
owned by third parties. The Company typically retains a percentage of total
sales revenue for such services. The pricing for certain inbound teleservices
may vary, depending upon several factors, including the time spent, the number
of calls received by Company personnel and sales-based performance fees. The
Company will also work on a fee-for-service basis.
Approximately 90% of the Company's total revenues from telemarketing in 1997
were generated from the "Trade Your Way to Riches" product line. See "Certain
Transactions." The Company did not generate more than 10% of its telemarketing
revenues in 1997 from any other client. The Company does not expect to generate
more than 50% of its telemarketing revenues in 1998 from any individual client.
ONGOING SOLUTIONS SUPPORT
The Company provides ongoing support services to its clients. These include
content maintenance, sales support administration, customer support and
technical support. Additionally, the Company's systems and software engineers
have the expertise to provide intranet, extranet and web site hosting with
enhanced bandwidth, faster search capability, advanced audio/video streaming and
secured transaction technology. These systems facilitate post-implementation
systems management and secure eCommerce. In delivering these solutions, the
Company utilizes hardware manufactured by independent third parties and off-the-
shelf and proprietary software.
BACK-OFFICE SUPPORT CAPABILITIES
The Company offers back-office support, such as inventory control systems,
accounting services and order processing and fulfillment capabilities, to
improve the business processes of the Company's clients, enhance each marketing
effort and maximize each client's return on its marketing and business solutions
investment.
MEDIA PLACEMENT
The Company's media planning, buying and placement services are conducted
through a team of media purchasers and sellers for clients seeking traditional
media solutions and for those seeking integrated multimedia business solutions.
The Company typically purchases media time or space, holds it in inventory for a
relatively short period of time and then resells it to clients. As a result of
the Company's years of successful media purchasing and sales, the Company has
access to desirable media time slots, and has consequently been able to place
such time with its clients at prices that are favorable to the Company.
The placement of media time is a capital intensive segment of the Company's
business because media time, unavailable on an as-needed basis, must be
purchased in advance and stored in the Company's inventory. The Company believes
that media sales will become more profitable when the Company has more capital
available to purchase larger blocks of time. In fiscal 1997, the Company sold
approximately $7.4 million of media time to an affiliate. See "Certain
Transactions."
INDEPENDENT REVENUE STREAMS
In addition to revenue from the Company's integrated multimedia marketing
and business solutions, the Company's developed solutions provide independent
sources for revenue streams. These sources include the Company's offerings of
proprietary products and media placement, as well as revenue streams from new
technologies, including public access networks and audio/visual streaming and
download technology.
34
<PAGE>
PUBLIC ACCESS NETWORKS. Genesis Media, through its recent acquisition of
certain assets of Vision Digital Communications, Inc., utilizes proprietary
multimedia technologies to create engaging, interactive user interfaces that are
delivered through electronic platforms known as kiosks. These kiosks are
presently located in three regional shopping malls in the United States. The
Company intends to expand the deployment of these kiosks to other malls
throughout the United States and to deploy kiosks in entertainment centers and
other public environments in the future. The kiosks enable merchants to
communicate directly with their customers, to learn more about their customers
and to deliver consistent marketing messages in a variety of locations. The
Company believes that the kiosks also increase merchant visibility, facilitate
product sales and enhance customer service.
AUDIO/VISUAL STREAMING AND DOWNLOAD TECHNOLOGY. The Company has the
technological capability and expertise to enable its clients to access disparate
audio and visual segments from the Internet. A customer may select audio or
visual programming and can either listen to or view in real time "streaming"
audio or video or download and store the audio or visual programming in digital
form so it can be retrieved and utilized at any time or location the user
determines. This technology will enhance existing applications as well. The
Company believes that this technology has the potential to become a popular
source of entertainment and information to Internet users and a valuable
marketing tool for businesses conducting eCommerce.
STRATEGY
The Company's goal is to be recognized as a leading integrated marketing and
business solutions provider utilizing conventional and interactive multimedia
technologies. The Company's strategy is to:
- effectively utilize and leverage its conventional and multimedia
capabilities and its media access;
- develop and market innovative consumer products;
- expand its capabilities through strategic acquisitions;
- focus on higher profit margin segments of the marketing and advertising
business; and
- engineer the most efficient business model for the conduct of its targeted
multi-media business.
LEVERAGING CONVENTIONAL AND MULTIMEDIA CAPABILITIES AND MEDIA ACCESS. The
Company is positioned to become a leader in delivering integrated marketing and
business solutions. The Company is currently able to:
- concurrently market a given product or service through both conventional
and existing and emerging interactive multimedia technologies;
- make approximately 1,000,000 direct marketing calls per month, with direct
customer contacts of as many as 60,000 per month utilizing existing
computerized call management systems and predictive dialers;
- deliver infomercial or other television product programming/advertising to
over 100 million households in the United States utilizing its media
access and order fulfillment operations;
- develop new product marketing opportunities that are particularly suited
to new and newly emerging interactive multimedia channels; and
- develop creative methods of marketing such products through conventional
marketing channels.
The Company intends to continue to explore new ways to effectively utilize
and leverage this cross-discipline capability and its media access by:
- taking advantage of the product/brand awareness created by its various
methods of distribution (i.e., direct marketing, retail, Internet and
interactive multimedia) and leveraging it to other disciplines;
- continuing to offer its cross-discipline capability and media access to
other product and service distributors; and
35
<PAGE>
- entering into alliances with or acquiring companies and developing or
acquiring technologies that provide expanded multi-media marketing
capabilities.
Additionally, the Company intends to more aggressively utilize its assets such
as its customer lists in order to realize their true value.
CONTINUING TO DEVELOP AND MARKET INNOVATIVE PRODUCTS. The Company
continually seeks out innovative consumer products which it can market and
distribute profitably. The Company's in-house product development and marketing
department researches, develops and analyzes products and product ideas. The
development of relationships with third parties and the active solicitation of
new clients seeking multi-disciplinary marketing opportunities augment the
activities of the product development and marketing department.
GROWTH BY STRATEGIC ACQUISITIONS. The Company regularly evaluates
acquisition opportunities that will enable it to expand its core multimedia
marketing capabilities and the geographic scope of its operations. To this end,
the Company intends to acquire well-regarded niche companies or leaders in
specific marketing and communications disciplines. The Company also reviews
joint venture and strategic alliance candidates. The Company will focus on
acquiring relatively well-established, revenue producing, eCommerce businesses
which will complement the Company's existing capabilities. Key personnel who
possess technical expertise will be given incentives to remain with the Company
on a long-term basis. The Company has made one acquisition to date and entered
into a letter of intent relating to another acquisition. See "--Acquisitions"
below. The Company has not entered into any strategic alliances to date.
ACQUISITIONS
In October 1998, the Company acquired substantially all of the assets of
Vision Digital Communications, Inc., a company that uses proprietary multimedia
technologies to create engaging, interactive user interfaces that are delivered
through electronic platforms known as kiosks. The consideration for such assets
was 60,000 shares of Common Stock valued at $600,000 plus the assumption of
short-term obligations and long-term debt of $170,000 and $200,000,
respectively. The Company has also agreed to issue to the seller options to
purchase up to an additional 50,000 shares of Common Stock if the acquired
division meets certain targeted levels of total revenue over a three-year
period. If granted, the exercise price of such options will be the fair market
value of the Common Stock on the date of issuance, and such options will all
expire at the end of such three-year period. In connection with the acquisition,
the Company entered into three-year employment agreements with two of the
executive officers of the seller. Pursuant to such employment agreements, the
employees will be eligible to receive options covering up to an additional
150,000 shares (75,000 each) upon the achievement of three kiosk deployment
goals. The Company has also agreed to make a $40,000 interest-free loan to each
of such employees. Up to $30,000 of each such loan is subject to forgiveness
upon the achievement of the same three kiosk deployment goals.
In October 1998, the Company also signed a letter of intent to acquire
certain assets of AniMagic Corporation, an interactive multimedia company, for
total consideration of $150,000. The consummation of the acquisition is subject
to bankruptcy court approval.
COMPETITION
The Company's competitors can be divided into several groups, including
advertising and media agencies, Internet integrators and web presence providers,
large information technology consulting service providers and Internet and
online service providers. Each of these companies compete directly with
particular segments of the Company's business. However, to the best of the
Company's knowledge, none of them claim to provide the sort of integrated
multimedia solutions offered by the Company. The Company believes that it is
uniquely positioned to expand its operations into the eCommerce market because
it already offers conventional media and multimedia solutions, as well as
back-office support, to its clients. See "Risk Factors--Competition."
36
<PAGE>
INTELLECTUAL PROPERTY
The Company regards its trademarks, trade secrets and similar intellectual
property as critical to its success and relies on a combination of copyright and
trademark laws, trade secret protection, confidentiality and non-disclosure
agreements and contractual provisions with its employees and with third parties
to establish and protect is proprietary rights. These steps may not be adequate,
and the Company may not be able to secure trademark registrations for all of its
marks in the United States or other countries. Third parties may also infringe
upon or misappropriate the Company's copyrights, trademarks, service marks and
similar proprietary rights. The Company has filed trademark claims for "Genesis
Intermedia" and "Show Super Star Interactive Video Presentation Systems." The
Company intends to pursue the registration of its trademarks based upon
anticipated use internationally. The Company may not be able to secure adequate
protection for these trademarks in foreign countries. In addition, owners of
other registered trademarks or servicemarks could bring potential trademark or
trademark infringement claims. The Company does not have any registered
copyrights or patents covering any of its proprietary technology.
There is no assurance that any particular aspect of the Company's technology
will not be found to infringe the rights of other companies. Other companies may
hold or obtain patents or copyrights on inventions or software or may otherwise
claim proprietary rights to technology useful or necessary to the Company's
business. The Company can not predict the extent to which the Company may be
required to seek licenses under such proprietary rights of third parties. While
it may be necessary or desirable in the future to obtain licenses relating to
one or more of its proposed products or relating to current or future
technologies, the Company may not be able to do so on commercially reasonable
terms, if at all.
The measures taken by the Company may not adequately protect the
confidentiality of the Company's proprietary information and others may
independently develop products or technology that are equivalent or superior to
those of the Company. Moreover, the Company may also be subject to litigation to
defend against claims of infringement of the rights of others or to determine
the scope and validity of the intellectual property rights of others. If
competitors of the Company prepare and file applications in the United States
that claim trademarks used or registered by the Company, the Company may oppose
those applications and be required to participate in proceedings before the
United States Patent and Trademark Office to determine priority of rights to the
trademark, which could result in substantial costs to the Company. Similarly,
actions could be brought by third parties claiming that the Company's products
or technology infringe patents or copyrights owned by others. An adverse outcome
could require the Company to license disputed rights from third parties or to
cease using such trademark or infringing product or technology. Any litigation
regarding the Company's proprietary rights could be costly and divert
management's attention, result in the loss of certain of the Company's
proprietary rights, require the Company to seek licenses from third parties and
prevent the Company from selling its products and services, any one of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, the Company anticipates in the
future licensing its content from third parties. As a result, its exposure to
copyright infringement actions may increase because the Company must rely upon
such third parties for information as to the origin and ownership of such
licensed content. The Company intends to obtain representations as to the origin
and ownership of such licensed content and to indemnification to cover any
breach of any such representations. However, there can be no assurance that such
representations will be accurate or that such indemnification will adequately
protect the Company.
REGULATION
Advertising is regulated by the government, by private organizations,
including self-regulatory bodies and trade associations, and by consumer groups.
For example:
- The Federal Trade Commission administers the Federal Trade Commission Act
(the "FTCA"), which regulates a range of practices involving false,
misleading and unfair advertising, and the
37
<PAGE>
Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994
(the "TCFAPA"), which specifically prohibits deceptive, unfair or abusive
practices in telemarketing sales;
- The Federal Communications Commission administers the Federal Telephone
Consumer Protection Act of 1991 (the "TCPA");
- The Federal Food and Drug Administration and other federal agencies have
regulatory authority in the advertising business;
- Individual states and countries other than the United States often enact
rules and regulations similar to the FTCA which prohibit unfair or
deceptive advertising practices;
- The National Advertising Division and the National Advertising Review
Board review allegations that a particular company has violated state or
federal rules and regulations pertaining to advertising;
- Trade associations in various industries publish advertising guidelines
for their members; and
- Consumer groups advocate increased regulation in advertising.
THE FTCA. The FTC may seek cease and desist orders, impose monetary
penalties, or pursue other remedies in the event that an advertising company
violates the FTCA rules or regulations pertaining to false, misleading and
unfair advertising. The Company believes that it is in compliance with the FTCA
and the regulations promulgated thereunder.
THE TCPA. The TCPA imposes restrictions on unsolicited automated telephone
calls to residential telephone subscribers. Under the TCPA it is unlawful to
initiate telephone solicitations to residential telephone subscribers before
8:00 a.m. or after 9:00 p.m., local time at the subscriber's location, or to use
automated telephone dialing systems or artificial or prerecorded voices to call
certain subscribers. Additionally, the TCPA requires teleservice firms to
develop a written policy which (a) clearly delineates the types of calls that
such firms are prohibited from making under the TCPA, (b) lists specific
individuals or groups of individuals that such firms are prohibited from
contacting under the TCPA and (c) prohibits its personnel from making such
calls. The Company's call management system has been partially disabled,
preventing personnel from initiating telephone calls during restricted hours or
to individuals listed on the Company's "do not call" list. The Company also
educates its personnel with respect to the restrictions and prohibitions set
forth under the TCPA.
THE TCFAPA. A variety of deceptive, unfair or abusive practices in
telemarketing sales have been prohibited under the TCFAPA. Generally, these
rules prohibit misrepresentations of the cost, quantity, terms, restrictions,
performance or characteristics of products or services offered by telephone
solicitation or of refund, cancellation or exchange policies. The regulations
also regulate the use of prize promotions in telemarketing to prevent deception
and require that a telemarketer identify promptly and clearly the seller on
whose behalf the telemarketer is calling, the purpose of the call, the nature of
the goods or services offered and, if applicable, that no purchase or payment is
necessary to win a prize. The regulations also require that telemarketers
maintain records on various aspects of their business. The Company believes that
it is in compliance with the TCFAPA and the regulations promulgated pursuant to
the TCFAPA.
Violation of the rules and regulations applicable to telemarketing practices
may result in injunctions against certain operations, in monetary penalties or
disgorgement of profits; moreover, such violations may give rise to private
actions for damages.
THE COMMUNICATION DECENCY ACT OF 1996. The Communications Decency Act of
1996 (the "CDA") was enacted in 1996. Although those sections of the CDA that,
among other things, proposed to impose criminal penalties on anyone distributing
"indecent" material to minors over the Internet were held to be unconstitutional
by the U.S. Supreme Court, there is no assurance that similar laws will not be
proposed and adopted. Although the Company does not currently distribute the
types of materials that the CDA
38
<PAGE>
may have deemed illegal, the nature of such similar legislation and the manner
in which it may be interpreted and enforced cannot be fully determined, and
legislation similar to the CDA could subject the Company to potential liability,
which in turn could have an adverse effect on the Company's business, result of
operations and financial condition. Such laws could also damage the growth of
the Internet generally and decrease the demand for the Company's products and
services, which could adversely affect the Company's business, results of
operations and financial condition.
STATE REGULATION. Most states have enacted statutes similar to the FTCA
prohibiting unfair or deceptive acts and practices. A number of states have
enacted legislation and other states are considering enacting legislation to
regulate telemarketing. For example, telephone sales in certain states are not
final until a written contract is delivered to and signed by the buyer, and such
a contract may often be canceled within three business days. At least one state
also prohibits telemarketers from requiring credit card payment, and several
other states require certain telemarketers to obtain licenses, post bonds or
submit sales scripts to the state's attorney general.
REGULATION. Advertising is subject to regulation in countries other than
the United States in which Genesis Media may choose to do business. The Company
will need to review such regulations before conducting business in any such
market.
SELF-REGULATORY BODIES; TRADE ASSOCIATIONS; AND CONSUMER
GROUPS. Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board. These are
private organizations that review and process allegations that a company has
violated state or federal rules or regulations pertaining to advertising.
Additionally, the national television networks and various other media have
adopted extensive regulations with respect to advertising that is acceptable for
broadcast or publication; trade associations in certain industries publish
advertising guidelines for their members; and various consumer groups have been
and continue to be powerful advocates of increased regulation of advertising.
INDUSTRY REGULATION. Certain of the industries served by the Company are
also subject to government regulation. Company employees who complete the sale
of insurance products are required, for example, to be licensed by various state
insurance commissions and to participate in regular continuing education
programs. The Company provides such continuing education to its employees and
believes that it has, in all material respects, complied with this and other
relevant industry regulations. The Company may also be subject to regulation by
the Commodity Futures Trading Commission (the "CFTC"), which regulates
commodities trading. The CFTC has initiated an investigation of the Company as a
result of its role in the production and marketing of the infomercial titled
"Success and You" based on Jake Bernstein's "Trade Your Way to Riches" product.
See "--Legal Proceedings" below.
REGULATORY COMPLIANCE. The Company has developed internal review procedures
to help ensure that its work product is accurate and fairly discloses the nature
of the products marketed and sold by the Company. The Company believes that it
is in compliance with federal, state and local laws and regulations pertaining
to advertising and the pre-clearance procedures of the broadcast media.
EMPLOYEES
As of October 1, 1998, the Company had 70 full-time employees and 16
part-time employees, including 56 telemarketers, two systems engineers and two
graphic designers. None of these employees are covered by collective bargaining
agreements and management believes that the Company's relations with its
employees are good.
PROPERTIES
The Company owns its headquarters office building at 13063 Ventura
Boulevard, Studio City, California 91604-2238. The building consists of 6,300
square feet and is entirely occupied by the Company.
39
<PAGE>
All of the Company's administrative, telemarketing and media time operations are
conducted at its headquarters. The Company leases production facilities for the
production of direct marketing programming on an as-needed basis from third
parties on commercially available terms. The Company's Genesis Intermedia
subsidiary occupies approximately 2,500 square feet located at 3151 Airway
Avenue, Building T-3, Costa Mesa, California 92626. The term of the lease for
such space expires on August 1, 2000.
The Company's planned capital expenditures for 1998 include expenditures for
expansion of the Company's telemarketing division, which will likely include
lease or acquisition of additional space for telephone service representatives
and supporting infrastructure. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
LEGAL PROCEEDINGS
The CFTC has initiated an investigation of the Company as a result of its
role in the production and marketing of the infomercial titled "Success and
You." The infomercial "Success and You" involves the marketing of videos which
provide instruction regarding trading strategies. Although the CFTC has
articulated its belief that Genesis Media by virtue of its involvement in the
production and marketing of the infomercial may be required to be registered in
some capacity to continue to engage in the referenced activities, the Company
believes the CFTC's analysis and conclusions are incorrect and are based on
incomplete information. Accordingly, the Company disputes any requirement that
the Company will be required to register, as the Company is not engaging in any
activities which it believes would require registration. As a result, the
Company has been advised by counsel to the Company that the initiation of a CFTC
enforcement action against the Company requiring registration or seeking the
imposition of sanctions is unwarranted. To date, no complaint or enforcement
action has been asserted against the Company, its officers, directors or
employees. If it is determined in the investigation or any resulting proceeding
that registration is required, the Company intends promptly to effect any
required registration. Although the Company is not presently party to any
material litigation, the Company may also be involved from time to time in
various other claims and legal actions incident to its operations, either as
plaintiff or defendant.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the directors, executive
officers and other key employees of the Company as of October 20, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Ramy El-Batrawi........................... 37 Chairman of the Board and Chief Executive
Officer
Douglas E. Jacobson....................... 52 Director, Chief Financial Officer
Sam I. Hassabo............................ 54 Director, President and Chief Executive
Officer, Genesis Intermedia, Inc.
Craig T. Dinkel........................... 40 Chief Operating Officer
Blair LaCorte............................. 35 Director
KEY EMPLOYEES
Sam Elkholy............................... 41 Vice President, Technology
Robert Kline.............................. 53 Vice President, Business Development
</TABLE>
RAMY EL-BATRAWI. Mr. El-Batrawi is the principal stockholder and Chief
Executive Officer of Genesis Media. He has been a Director and Chairman of the
Board of the Company since its inception in October 1993. Mr. El-Batrawi's prior
experience has included international business marketing where he facilitated
and negotiated significant transactions between global industrial companies and
world governments. Firms with which he has been involved include Lockheed
Corporation, Carnival Cruise Lines Inc., Lonrho, Inc., McDonalds Corporation and
Eastern Airlines. Additionally, he is the sole shareholder, President and
Chairman of the Board of Directors of several other companies, including
International Futures Brokerage Company, Mars and Venus Counseling Centers,
Inc., Genesis Aviation, Inc., Jet Vacations Holding Corporation, Jet Vacations,
Inc., Jet Vacations International, Inc., Genesis Aviation II, Inc., Genesis
Diversified Investments, Inc., Sentient, Inc. and Trade Your Way to Riches, Inc.
DOUGLAS E. JACOBSON. Mr. Jacobson has been a Director of the Company since
October 1998. Mr. Jacobson has been a certified public accountant for over 25
years and is a graduate of the College of William and Mary in Virginia. His
experience includes working for local public accounting firms and Coopers &
Lybrand where he audited privately held and SEC-registered public corporations.
He was responsible for supervising the financial audit staff of a major retail
drug chain, Eckerd Drugs in Clearwater, Florida for three years. Subsequent to
that position, he managed the internal audit functions for a highly diversified,
closely held family conglomerate, Lykes Bros. Inc., for four years. In that
position he was responsible for nationwide audits and reporting directly to the
Chairman. From 1983 to 1997, as a sole practitioner certified public accountant,
he performed accounting, audit and tax services for key family members and other
clients, including Genesis Media Group, Inc. As the Company's Chief Financial
Officer, Mr. Jacobson's responsibilities include overseeing and preparing the
financial analysis of Genesis Media's financial growth and reporting.
SAM I. HASSABO. Mr. Hassabo joined Genesis Intermedia, Inc. in July 1998
bringing with him 25 years experience in sales and marketing nationwide and
internationally, mostly in the multimedia, computer hardware and software
industries. He has been a Director of the Company since October 1998. Prior to
joining the Company, Mr. Hassabo was the President of Advanced Media, Inc., a
position he held since 1996. Since 1992, Mr. Hassabo has served as President of
International Solutions Group, an enterprise software and hardware solutions
consulting firm. Prior to 1992, he worked for Software Products International,
Talaris Systems, Inc., Integrated Software Systems Corp., Computer Sciences
41
<PAGE>
Corporation and General Electric Information Services Company. From 1972 to
1975, Mr. Hassabo served as an Audit Team Leader and Management Consultant for
Touche Ross & Company. Mr. Hassabo received a Bachelor of Science degree in
Commercial Engineering in 1968 from the University of Brussels and a Masters in
Business Administration degree in 1976 from the University of Ottawa.
CRAIG T. DINKEL. Mr. Dinkel joined Genesis Media as its Chief Operating
Officer in October 1998. Prior to joining the Company, Mr. Dinkel served as
Chief Operating Officer of Trade Your Way to Riches, Inc., a company owned by
the Company's majority stockholder. Mr. Dinkel's responsibility is to manage and
oversee the day-to-day operations of Genesis Media Group, including the
management of the Company's core group of inbound and outbound telemarketers.
His principal responsibilities include effectuating the Company's marketing
plans, business development, customer service and fulfillment, and management of
information systems. From April 1996 to April 1997, he was the Manager of
Special Projects reporting directly to Michael Levy, President and Chief
Executive Officer of Positive Response Television, a subsidiary of National
Media Corporation. He managed that company's profit center and was responsible
for the delivery of customized, call center services to inbound and outbound
clients. Prior to April 1996, Mr. Dinkel acted as a licensed futures trader. He
received his undergraduate degree from California State University Northridge
and is currently seeking a masters degree from the Peter Drucker School of
Executive Management in Claremont, California.
BLAIR LACORTE. Mr. LaCorte has been a Director of the Company since October
1998. Mr. LaCorte is an Entrepreneur in Residence at Internet Capital Group.
Prior to joining Internet Capital Group in 1998, Mr. LaCorte was the founder and
President of the Internet Technology Group at Cadis, Inc. Cadis, Inc. developed
and marketed parametric search technology used to enable electronic commerce
applications and offered a complete enterprise commodity and supplier management
software. Cadis, Inc. was sold to Aspect Development, Inc. in November 1997.
Prior to Cadis, Inc., Mr. LaCorte held several executive management roles at
Autodesk, maker of Autocad. Mr. LaCorte was the founder and General Manager of
the data publishing division, a stand-alone unit, that grew to become the
world's largest provider of catalogs with two-dimensional CAD graphics on the
web. This unit was later sold to Thomas Publishing. Mr. LaCorte was also
Director of Worldwide Product Marketing where he developed and released three
new products. Prior to that, Mr. LaCorte served as Manager of Worldwide
Strategic and Market Planning for Sun Microsystems and was a Senior Consultant
for Gemini Consulting. Mr. LaCorte graduated from the University of Maine with a
degree in Business Administration and graduated with honors from General
Electric's Financial Management Program and received a Masters of Business
Administration degree in strategy and marketing from the Tuck School at
Dartmouth College.
SAM ELKHOLY. Mr. Elkholy has been the Vice President, Technology of Genesis
Media since September 1998. Mr. Elkholy has been a pioneer in the development of
multimedia and Internet solutions. Before joining the Company, he served as
President and Chief Executive Officer of AniMagic Corporation, a position he
held since 1993. AniMagic filed for protection under Chapter 11 of the United
States Bankruptcy Code in 1998. Mr. Elkholy also served as MIS Director for
Technicolor, Inc., PepsiCo Inc., Republic Pictures and the MCA/Universal prior
to joining AniMagic in 1993. Under his leadership, AniMagic completed projects
for Apple Computer, Inc., Microsoft Corporation, The Walt Disney Company, Epson
America, Inc., McDonnell Douglas Corporation, Sprint Corporation, Warner Records
and TRW, Inc. Mr. Elkholy was recognized as one of the Top 100 Multimedia
Producers in America in 1995 by Multimedia Producer Magazine. In 1997, Epson
America, Inc. selected AniMagic to develop an Internet eCommerce website.
ROBERT KLINE. Dr. Kline has been the Vice President, Business Development
of Genesis Media since September 1998. Prior to joining the Company, Dr. Kline
served as the Vice President/Business Development of AniMagic Corporation.
AniMagic filed for protection under Chapter 11 of the United States Bankruptcy
Code in 1998. Dr. Kline has over 30 years of experience in the implementation of
networked, interactive multimedia systems. He has developed high-performance
product/service teams for various
42
<PAGE>
corporations, including Exxon Corporation, International Business Machines
Corporation, GTE Corporation, Mitsui, Hughes Electronics Corporation, Chevron
Corporation, FMC, Halliburton Company, Harris, Caterpillar, Inc./Solar Turbines,
Minnesota Mining & Manufacturing Company, Xerox Corporation, AT&T and for United
States government agencies, including the United States Air Force and the
Departments of Commerce, Defense, Energy and Justice. Dr. Kline has worked
extensively in Korea, Japan, India, Russia, Europe and the Middle East. From
1967 to 1971, Dr. Kline was a teacher of English and from 1971 to 1987 Dr. Kline
was a university professor of English Literature at the University of Texas. He
serves on the IEEE Medical Technology Policy Committee.
BOARD OF DIRECTORS
The Board of Directors is currently composed of four members. Within 90 days
of the completion of this offering, the Company anticipates expanding the Board
of Directors to five members and appointing a second outside director who will
serve on the compensation committee and the audit committee with Mr. LaCorte.
Prior to this offering, the Company has not had a compensation committee or an
audit committee. Each director holds office until the next annual meeting of the
stockholders or until his or her successor is duly elected and qualified.
Prior to this offering, directors of the Company have not received
compensation for their services in such capacity. The Company anticipates that,
following this offering, directors who are employees of the Company will not be
paid any fees or additional compensation (other than expense reimbursement) for
service as members of the Board of Directors or any committee thereof. The
Company will enter into arrangements with respect to fees and other compensation
(including expense reimbursement) for directors who are not employees of the
Company at the time they are selected to serve on the Board. In addition,
directors who are not employees of the Company may annually receive automatic
grants of non-qualified stock options under the Company's 1998 Stock Incentive
Program. See "--Employee Compensation Programs--1998 Stock Incentive Program"
below. The Company maintains directors' and officers' liability insurance and
its Bylaws provide for indemnification of directors and officers to the fullest
extent permitted by Delaware law. The Company has entered into indemnification
agreements with all of its directors. In addition, the Certificate of
Incorporation limits the personal liability of directors of the Company to the
Company or its stockholders for breaches of the directors' fiduciary duties to
the fullest extent currently permitted by Delaware law. See "Description of
Capital Stock--Certain Provisions of Delaware Law."
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, the Company had no compensation
committee or other committee of the Board of Directors performing similar
functions. Decisions concerning compensation of executive officers were made
during such year by the Board of Directors. No interlocking relationship exists
between the Company's Board of Directors and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
43
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
other most highly compensated executive officers of the Company (collectively,
the "Named Officers") whose aggregate cash compensation exceeded $100,000 for
services rendered in all capacities to the Company during the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
-----------------------
---------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS/SARS(#)
- -------------------------------------------- ---------- ---------- -----------------------
<S> <C> <C> <C>
Ramy El-Batrawi, Chairman of the Board and
Chief Executive Officer................... $ 250,000 $ -- --
Sam I. Hassabo, President and Chief
Executive Officer, Genesis Intermedia,
Inc.(2)................................... $ 115,000 $ -- -- (3)
</TABLE>
- ------------------------
(1) No executive officer named in the table above received perquisites or other
personal benefits, securities or property in an amount in excess of the
lesser of $50,000 or 10% of such officer's cash compensation, nor did all
Named Officers together receive such other compensation in excess of the
lesser of $50,000 times the number of such Named Officers or 10% of such
officers' aggregate cash compensation. See, however, "Certain Transactions"
for a discussion of certain transactions between the Company and Mr.
El-Batrawi and his affiliates.
(2) Mr. Hassabo was not an employee of the Company during 1997 and is included
in the table based upon projected compensation.
(3) Does not include options to acquire 200,000 shares of Common Stock, which
were granted in October 1998 and vest September 30, 2000.
No stock appreciation rights or stock options were granted to any of the
Named Officers during the year ended December 31, 1997. No such rights or
options were held by the Named Officers at December 31, 1997.
EMPLOYEE COMPENSATION PROGRAMS
1998 STOCK INCENTIVE PROGRAM
In October 1998, the Board of Directors adopted and the stockholders
approved the Genesis Media Group, Inc. 1998 Stock Incentive Program (the "1998
Stock Program"). Under the 1998 Stock Program, the Board of Directors, or its
designated administrators, has the flexibility to determine the type and amount
of awards to be granted to eligible participants.
PURPOSE, STRUCTURE, AWARDS AND ELIGIBILITY. The 1998 Stock Program is
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's Common Stock by individuals employed or retained
by the Company who will be responsible for the future growth of the enterprise.
The 1998 Stock Program is designed to help attract and retain superior personnel
for positions of substantial responsibility with the Company (including advisory
relationships where appropriate), and to provide individuals with an additional
incentive to contribute to the Company's success.
The 1998 Stock Program is composed of seven parts and the program
administrators may make the following types of awards under the 1998 Stock
Program: (1) incentive stock options under the Incentive Stock Option Plan; (2)
nonqualified stock options under the Nonqualified Stock Option Plan; (3)
restricted shares under the Restricted Shares Plan; (4) rights to purchase stock
under the Employee Stock Purchase Plan; (5) stock appreciation rights under the
Stock Appreciation Rights Plan; (6) grants of options under the Non-Employee
Director Stock Option Plan; and (7) certain other stock rights under the
44
<PAGE>
Stock Rights Plan, which may include the issuance of units representing the
equivalent of shares of Common Stock, payments of compensation in the form of
shares of Common Stock and rights to receive cash or shares of Common Stock
based on the value of dividends paid with respect to a share of Common Stock.
Officers, key employees, employee directors, consultants and other independent
contractors or agents of the Company or its subsidiaries who are responsible for
or contribute to the management, growth or profitability of the Company's
business will be eligible for selection by the program administrators to
participate in the 1998 Stock Program, provided, however, that incentive stock
options may be granted under the Incentive Stock Option Plan only to a person
who is an employee of the Company or its subsidiaries.
SHARES SUBJECT TO 1998 STOCK PROGRAM. The Company authorized and reserved
for issuance an aggregate of 800,000 shares of its Common Stock under the 1998
Stock Program. The aggregate number of shares of Common Stock which may be
granted through awards under the 1998 Stock Program, other than stock payments
and the purchase of stock under the Employee Stock Purchase Plan, to any
employee in any calendar year may not exceed three percent of the
then-outstanding shares of Common Stock. The shares of Common Stock issuable
under the 1998 Stock Program may be authorized but unissued shares, shares
issued and reacquired by the Company or shares purchased by the Company on the
open market. If any of the awards granted under the 1998 Stock Program expire,
terminate or are forfeited for any reason before they have been exercised,
vested or issued in full, the unused shares subject to those expired, terminated
or forfeited awards will again be available for purposes of the 1998 Stock
Program.
EFFECTIVE DATE AND DURATION. All of the plans other than the Incentive
Stock Option Plan and the Employee Stock Purchase Plan, became effective upon
their adoption by the Board of Directors of the Company. The Incentive Stock
Option Plan and the Employee Stock Purchase Plan became effective upon their
adoption by the Board of Directors of the Company and approval of the 1998 Stock
Program by a majority of the stockholders of the Company. The 1998 Stock Program
will continue in effect until September 30, 2008 unless sooner terminated under
the general provisions of the 1998 Stock Program.
ADMINISTRATION. The 1998 Stock Program will be administered by the Board of
Directors or by a committee appointed by the Board, consisting of not less than
two directors of the Company who are "non-employee directors" (within the
meaning of SEC Rule 16b-3 promulgated pursuant to the Securities Exchange Act of
1934, as amended), so long as non-employee director administration is required
under Rule 16b-3, and who are "outside directors" (as defined in Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code")), so long as
outside directors are required by the Code. Subject to the foregoing
limitations, as applicable, the Board of Directors may from time to time remove
members from the committee, fill all vacancies on the committee, however caused,
and may select one of the members of the committee as its chairman. The program
administrators may hold meetings at such times and places as they may determine,
will keep minutes of their meetings, and may adopt, amend and revoke rules and
procedures in accordance with the terms of the 1998 Stock Program.
STOCK OPTION GRANTS
On October 20, 1998, the Company had stock options outstanding with respect
to 450,000 shares of Common Stock, all with exercise prices of $8.50 per share.
Of such options, 250,000 vest March 31, 1999 and 200,000 will vest September 30,
2000, two years after the date of grant.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Messrs. El Batrawi and Hassabo have employment agreements with the Company.
In September 1998, the Company entered into an employment agreement with Mr.
El Batrawi which continues until September 30, 2003, unless terminated earlier
by the Company, either for cause, death or certain other circumstances. Pursuant
to the terms of the Employment Agreement, Mr. El Batrawi is to be
45
<PAGE>
paid an annual salary of $250,000. Mr. El Batrawi is eligible to receive bonuses
at the discretion of the Board of Directors.
In October 1998, the Company entered into an employment agreement with Mr.
Hassabo. Such employment agreement is terminable at will. Pursuant to such
employment agreement, Mr. Hassabo is to be paid an annual salary of $115,000.
Mr. Hassabo is eligible to receive bonuses at the discretion of the Board of
Directors.
CERTAIN TRANSACTIONS
The Company believes that the transactions set forth below were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans to and
advances from affiliates, and contracts with affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested directors, and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
TRANSACTIONS WITH THE MAJORITY STOCKHOLDER
During the six months ended June 30, 1998, Mr. El-Batrawi received a
distribution of $375,000 from S corporation earnings accrued through December
31, 1997. From the net proceeds of this offering the Company expects to make an
additional distribution to the Company's S corporation stockholders in the
amount of $2,000,000 to pay federal and state income taxes.
From time to time, Mr. El-Batrawi lends money to the Company. These advances
are generally repaid at the stockholder's request. These advances are
non-interest bearing and have no scheduled repayment terms. At June 30, 1998,
the amount owed to Mr. El-Batrawi was $101,628.
In June 1997, the Company obtained a $750,000 line of credit from a
financial institution. The line of credit is collateralized by substantially all
of the Company's assets, except its corporate office building, and is personally
guaranteed by Mr. El-Batrawi.
From time to time, the Company has advanced money to business associates of
Mr. El-Batrawi. Mr. El-Batrawi has guaranteed repayment of such advances and is
obligated to repay the advances in the event of non-payment by the borrower.
Advances to business associates of Mr. El-Batrawi at June 30, 1998 were $32,272.
TRANSACTIONS WITH AFFILIATES
From time to time, the Company advances money to companies that are
wholly-owned by Mr. El-Batrawi or to companies in which Mr. El-Batrawi has an
ownership interest and exercises significant control. These advances to
affiliates are generally repaid upon the Company's request, are non-interest
bearing and have no scheduled repayment terms. Mr. El-Batrawi has guaranteed
repayment of such advances and is responsible for repayment of these advances in
the event of non-payment by the borrower. At June 30, 1998, advances to
affiliates are as follows: Mentoring Institute, Inc.--$30,500; Mars and Venus
Counseling Centers, Inc.--$88,008; International Futures Brokerage
Company--$32,000; and Jet Vacations, Inc.--$106,405.
The Company was also engaged in the following transactions with Trade Your
Way to Riches, Inc., ("TYWR") a company that is wholly-owned by Mr. El-Batrawi.
During the six months ended June 30, 1998 and the year ended December 31, 1997,
the Company sold media time to TYWR for $2,804,499 and $7,412,038, respectively.
In addition, during the six months ended June 30, 1998 and the year ended
December 31, 1997, the Company earned commissions from the sale of TYWR products
that amounted to $1,429,429 and $742,315, respectively. Amounts due to the
Company at June 30, 1998 and December 31,
46
<PAGE>
1997, related to the sales of media to TYWR and commissions earned were
$3,509,978 and $2,383,663, respectively.
During the year ended December 31, 1997, the Company reimbursed Genesis
Aviation, Inc., a company owned by Mr. El-Batrawi, $8,995 for travel expenses
related to the use of one of its airplanes.
TRANSACTIONS WITH JOHN M. GRAY, PH.D.
On December 31, 1997, the Company sold 116,504 shares of its Common Stock to
Dr. Gray for $900,000.
Royalties paid to Dr. Gray for the six months ended June 30, 1998 and the
years ended December 31, 1997 and 1996 were $52,050, $50,101 and $423,207,
respectively.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 27, 1998 and as adjusted
to reflect the sale of Common Stock offered hereby, by (1) each person who is
known by the Company to own beneficially five percent or more of the Company's
Common Stock prior to this offering, (2) each of the Company's directors and
Named Officers and (3) all current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE PRIOR PERCENTAGE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) TO THE OFFERING THE OFFERING(1)(2)
- ------------------------------------ -------------------- ----------------- -------------------
<S> <C> <C> <C>
Ramy El-Batrawi..................... 3,883,496 95.65% 64.08%
Sam I. Hassabo...................... 0 * *
Douglas E. Jacobsen................. 0 * *
Blair LaCorte....................... 0 * *
All directors and executive officers
as a group (five persons)......... 3,883,496 95.65% 64.08%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or become exercisable within 60 days following the
date of this Prospectus are deemed outstanding. Such shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership
of any other person. Unless otherwise indicated in the footnotes to this
table, the persons and entities named in the table have sole voting and sole
investment power with respect to the shares set forth opposite such
stockholder's name.
(2) Assumes no exercise of the underwriters' over-allotment option.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, par value $.001 per
share, and 5,000,000 shares of Preferred Stock, par value $.001 per share. As of
October 20, 1998, there were 4,060,000 shares of Common Stock outstanding held
by three stockholders and no shares of Preferred Stock were outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for the
election of directors and on all other matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive, when and
if declared by the Board of Directors, out of funds legally available therefor,
any dividends on a pro rata basis. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock offered by the Company in this offering will, when
issued, be fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares of
stock constituting any series or the designation of such series, without further
vote or action by the Company's stockholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company and may adversely affect the voting and other rights of the holders
of Common Stock. At present, the Company has no plan to issue any shares of
Preferred Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
The Company estimates that following the completion of this offering it will
have approximately 18,940,000 shares of authorized but unissued Common Stock
(including an aggregate of 800,000 shares reserved for issuance upon the
exercise of options under the 1998 Stock Program) and 5,000,000 shares of
authorized but unissued Preferred Stock. If the underwriters' over-allotment
option is exercised in full, the Company will have approximately 18,640,000
shares of authorized but unissued Common Stock. Delaware law does not require
stockholder approval for the issuance of authorized shares. However, the listing
requirements of the Nasdaq Stock Market, Inc., which apply so long as the Common
Stock remains included on such market, require prior stockholder approval of
certain issuances, including issuances of shares bearing voting power equal to
or exceeding 20% of the pre-issuance outstanding voting power or pre-issuance
outstanding number of shares of Common Stock. These additional shares could be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. The Company
currently does not have any plans to issue additional shares of Common Stock or
Preferred Stock, other than in connection with employee compensation plans. See
"Management--Executive Compensation." One of the effects of the existence of
unissued and unreserved Common Stock and Preferred Stock may be to enable the
Board of the Company to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of the opportunity to sell their shares of
Common Stock at prices higher than prevailing market prices.
48
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U.S. Stock Transfer
Corporation, Glendale, California.
CERTAIN PROVISIONS OF DELAWARE LAW
The terms of Section 203 of the DGCL apply to the Company. With certain
exceptions, Section 203 generally prohibits an "interested stockholder" from
engaging in a broad range of "business combination" transactions, including
mergers, consolidations and sales of 10% or more of a corporation's assets, with
a Delaware corporation for three years following the date on which such person
became an interested stockholder unless (i) the transaction that results in the
person's becoming an interested stockholder or the business combination is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (ii) upon consummation of the transaction which
results in the stockholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by certain employee stock plans, or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors and by
holders of at least two-thirds of the corporation's outstanding voting stock,
excluding shares owned by the interested stockholder, at a meeting of
stockholders. Under Section 203, an "interested stockholder" is generally
defined as any person (and the affiliates and associates of any such person),
other than the corporation and any direct or indirect majority-owned subsidiary,
that is (a) the owner of 15% or more of the outstanding voting stock of the
corporation or (b) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder. The
restrictions contained in Section 203 do not apply to a corporation that so
provides in an amendment to its certificate of incorporation or by-laws passed
by a majority of its outstanding voting shares, but such stockholder action
generally does not become effective for 12 months following its adoption and
would not apply to persons who were already interested stockholders at the time
of the amendment. The Company's Charter and Company's By-Laws do not exclude the
Company from the restrictions imposed under Section 203, but the Company's
Charter provides that in no case shall Mr. El-Batrawi or any person who is a
transferee of Mr. El-Batrawi, regardless of the total percentage of the
Company's Common Stock or other voting stock owned by Mr. El-Batrawi or such
persons, be deemed an interested stockholder for any purpose under Section 203
whatsoever.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors, because the
stockholder approval requirement would be avoided if the Board of Directors
approves either the business combination or the transaction which results in the
stockholder becoming an interested stockholder. Such provisions also may have
the effect of preventing changes in the Board of Directors. It is further
possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock and a
significant public market for the Common Stock may not develop or be sustained
after the offering. Sales of substantial amounts of Common Stock in the public
market following the offering could adversely affect the market price of the
Common Stock and could impair the Company's future ability to raise capital
through the sale of its equity securities.
49
<PAGE>
Upon the closing of the offering, the Company will have outstanding
6,060,000 shares of Common Stock (6,360,000 if the underwriters' over-allotment
option is exercised in full). Of these shares, the 2,000,000 shares offered
hereby will be freely tradable, without restriction under the Securities Act of
1933, as amended (the "Securities Act") unless held by "affiliates" of the
Company. The remaining 4,060,000 shares will be "restricted" securities, within
the meaning of Rule 144 under the Securities Act, and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated),
including any affiliate of the Company, who has beneficially owned restricted
securities for at least one year (including the holding period of any prior
owner except an affiliate of the Company) would be entitled to sell within any
three-month period, a number of shares that does not exceed the greater of: (1)
one percent of the number of shares of Common Stock then outstanding
(approximately 6,060,000 shares immediately after the offering); or (2) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale and notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the three months preceding a sale, and who has beneficially
owned restricted securities for at least two years (including the holding period
of any prior owner except an affiliate of the Company), is entitled to sell such
shares without complying with the volume limitations or the manner of sale,
public information or notice requirements of Rule 144. Sales of shares by
affiliates of the Company will continue to be subject to such volume limitations
and the manner of sale, notice and public information requirements.
The directors, executive officers and certain other stockholders of the
Company holding 4,000,000 outstanding shares of Common Stock and options to
purchase 450,000 shares of Common Stock, have agreed pursuant to Lock-Up
Agreements that, for a period of one-year from the date of this Prospectus, they
will not, without the prior written consent of the underwriters' representative,
offer, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for
Common Stock, or grant any options or warrants to purchase Common Stock, except
in certain circumstances. The underwriters' representative has informed the
Company that it has no current intention to release shares from the Lock-Up
Agreements prior to expiration of the one-year term of such agreements. Any
request for release would be evaluated by the underwriters' representative, and
the decision whether or not to permit early release of stock would be made,
dependent upon the facts and circumstances existing at the time of the request.
Beginning upon expiration of the Lock-Up Agreements, such shares will be
eligible for sale pursuant to Rule 144 or Rule 701 under the Securities Act
subject to the provisions of such rules and continued vesting. The remaining
60,000 restricted securities will be eligible for resale pursuant to Rule 144 in
October 1999, subject to the volume limitations and the manner of sale and
notice restrictions of Rule 144. In addition, the Company may file a
registration statement on Form S-8 under the Securities Act to register the
shares of Common Stock issuable upon the exercise of options and the sale by
certain employees of shares of Common Stock issuable upon the exercise of
currently outstanding options (which sales will be subject to the Lock-Up
Agreements described above). The Company intends to file a registration
statement on Form S-8 under the Securities Act within 90 days after the date of
consummation of the offering. See "Underwriting."
CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is not a U.S. person (a
"non-U.S. holder"). For purposes of this Section a "U.S. person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject
50
<PAGE>
to United States federal income taxation regardless of its source or a trust if
(1) a U.S. court is able to exercise primary supervision over the trust's
administration and (2) one or more U.S. persons have the authority to control
all of the trust's substantial decisions, and the term "United States" means the
U.S. of America (including the States and the District of Columbia). The
discussion does not consider specific facts and circumstances that may be
relevant to a particular non-U.S. holder's tax position. Accordingly, each
non-U.S. holder is urged to consult its own tax advisor with respect to the U.S.
tax consequences of the ownership and disposition of Common Stock, as well as
any tax consequences that may arise under the laws of any state, municipality,
foreign country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or at a
lower rate under an applicable income tax treaty that provides for a reduced
rate of withholding. However, if the dividends are effectively connected with
the conduct by the holder of a trade or business within the United States, then
the dividends will be exempt from the withholding tax described above and
instead will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of Common Stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the Common Stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on Common Stock to a non-U.S. holder address outside the
United States, except that with regard to payments made after December 31, 1998,
a non-U.S. Holder will be entitled to such an exemption only if it provides a
Form W-8 (or satisfies certain documentary evidence requirements for
establishing that it is a non-U.S. person) or otherwise establishes an
exemption. As a general matter, information reporting and backup withholding
also will not apply to a payment of the proceeds of a sale of Common Stock
effected outside the United States by a foreign office of a foreign broker.
However, information reporting requirements (but not backup withholding) will
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a broker if the broker (1) is a U.S.
person, (2) derives 50 percent or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or (3) is a
"controlled foreign corporation" as to the United States, or (4) with respect to
payments made after December 31, 1998, is a foreign partnership that, at any
time during its taxable year is 50 percent or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a United States
trade or business, unless the broker has documentary evidence in its records
that the holder is a non-U.S. holder and certain conditions are met, or the
holder otherwise establishes an exemption. Payment by a United States office of
a broker of the proceeds of a sale of Common Stock will be subject to both
backup withholding and information reporting unless the holder certifies its
non-United States status under penalties of perjury or otherwise establishes an
exemption.
51
<PAGE>
UNDERWRITING
The underwriters named below, for whom Millennium Financial Group, Inc. is
acting as representative, have severally agreed, subject to the terms and
conditions of the Underwriting Agreement to purchase from the Company and the
Company has agreed to sell to the underwriters on a firm commitment basis, the
number of shares of Common Stock set forth opposite their names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Millennium Financial Group, Inc............................................
-----------------
Total.................................................................. 2,000,000
-----------------
-----------------
</TABLE>
The underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares of Common Stock are purchased. The
Underwriting Agreement provides that the obligations of the several underwriters
are subject to conditions precedent specified therein.
COMMISSIONS, DISCOUNTS AND COMPENSATION
The Company has been advised by the representative that the underwriters
propose initially to offer the shares of Common Stock to the public at the
initial public offering price, set forth on the cover page of this Prospectus
and to certain dealers at such price less concessions not in excess of $ per
share of Common Stock. After the commencement of this offering, the public
offering price, concession and reallowance may be changed by the Representative.
The representative has informed the Company that it does not expect sales to
discretionary accounts by the underwriters to exceed five percent of the shares
of Common Stock offered hereby.
The Company has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the underwriters may be required to make. The Company has also
agreed to pay to the representative a non-accountable expense allowance equal to
three percent of the gross proceeds derived from the sale of the shares of
Common Stock underwritten, of which $35,000 has been paid to date.
The Company has granted to the underwriters an over-allotment option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase up to 300,000 shares of Common Stock at the initial public offering
price per share of Common Stock offered hereby, less underwriting discounts and
the non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the shares
of Common Stock offered hereby. To the extent such option is exercised in whole
or in part, each underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.
In connection with this offering, the Company has agreed to sell to the
representative, for nominal consideration, warrants to purchase from the Company
up to 200,000 shares of Common Stock. The representative's warrants are
initially exercisable at a price of 120% of the initial public offering price
per share of Common Stock. The representative's warrants are restricted from
sale, transfer, assignment or hypothecation for a period of 12 months from the
date hereof, except to the officers of the representative and may be exercised
for a period of four years, commencing one year from the date of this
Prospectus. The representative's warrants provide for adjustment in the number
of shares of Common Stock issuable
52
<PAGE>
upon the exercise thereof and in the exercise price of the representative's
warrants as a result of certain events, including subdivisions and combinations
of the Common Stock. The representative's warrants grant to the holders thereof
certain demand and "piggyback" rights of registration for the securities
issuable upon exercise thereof and also provide for cashless exercise.
NO SALES OF SIMILAR SECURITIES; OFFERING LIMITATIONS
All officers, directors and existing stockholders of the Company, and all
holders of any outstanding options, warrants or other securities convertible,
exercisable or exchangeable for or convertible into shares of Common Stock have
agreed not to, directly or indirectly, issue, offer, agree or offer to sell,
sell, transfer, assign, encumber, grant an option for the purchase or sale of,
pledge, hypothecate or otherwise dispose of any beneficial interest in such
securities until the expiration of 12 months following the date of this
Prospectus. An appropriate legend shall be marked on the face of certificates
representing all such securities.
The Company has agreed not to, directly or indirectly, without the prior
written consent of Millennium Financial Group, Inc., issue, sell, agree or offer
to sell, grant an option for the purchase or sale of, or otherwise transfer or
dispose of any of its securities for a period of 12 months following the date of
this Prospectus, except (x) pursuant to the exercise of the representative's
warrants or the Company's 1998 Stock Incentive Program or (y) debt under certain
circumstances in connection with bona fide business acquisitions and/or
expansions consistent with the Company's business plans as generally described
in this Prospectus.
BOARD REPRESENTATION RIGHT
The Company has agreed for a period of five years after the date hereof, if
requested by Millennium Financial Group, Inc., to use its best efforts to
nominate for election to the Company's Board of Directors one person designated
by Millennium Financial Group, Inc. In the event Millennium Financial Group,
Inc. elects not to exercise such right, Millennium Financial Group, Inc. may
designate a person to receive all notices of meetings of the Company's Board of
Directors and all other correspondence and communications sent by the Company to
its Board of Directors and to attend all such meetings of the Company's Board of
Directors. The Company has agreed to reimburse designees of Millennium Financial
Group, Inc. for its out-of-pocket expenses incurred in connection with their
attendance of meetings of the Company's Board of Directors.
NASDAQ QUOTATION; DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the shares of
Common Stock. The Company will submit an application to include the Common Stock
on the Nasdaq National Market system. If approved for inclusion in Nasdaq,
trading of the Common Stock is expected to begin within 30 days of the issuance
of the Common Stock. In order to meet all of the requirements for inclusion of
the Common Stock on Nasdaq, the underwriters have agreed to sell the Common
Stock to a minimum of 400 beneficial holders.We can not give any assurance about
the liquidity of the trading market for the Common Stock.
The initial public offering price of the shares of Common Stock will be
determined by negotiation between the Company and the representative and will
not necessarily bear any relationship to the Company's asset value, net worth,
or other established criteria of value. The factors to be considered in such
negotiations, in addition to prevailing market conditions, are expected to
include the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors are deemed relevant.
53
<PAGE>
PRICE STABILIZATION AND SHORT POSITIONS
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase shares of Common Stock for the purpose of stabilizing their
respective market prices. The underwriters also may create a short position for
the account of the underwriters by selling more shares of Common Stock in
connection with this offering than they are committed to purchase from the
Company, and in such case may purchase shares of Common Stock in the open market
following completion of this offering to cover all or a portion of such short
position. The underwriters may also cover all or a portion of such short
position by exercising the over-allotment option referred to above. In addition,
the representative, on behalf of the underwriters, may impose "penalty bids"
under contractual arrangements with the underwriters whereby it may reclaim from
an underwriter (or dealer participating in this offering) for the account of
other underwriters, the selling concession with respect to shares of Common
Stock that are distributed in this offering but subsequently purchased for the
account of the underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
shares of Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above. Reference is made to the copies of such agreements which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part for a more complete description thereof. See "Additional Information."
PENALTY BIDS
The representative also may impose a penalty bid on certain underwriters and
selling group members. This means that, if the representative purchases Common
Stock in the open market to reduce the underwriters' short position or to
stabilize the price of the Common Stock, it may reclaim the amount of the
selling concession from the underwriters and selling group members who sold the
Common Stock as part of this offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Nida & Maloney, a Professional Corporation, Santa
Barbara, California. Certain legal matters in connection with the offering will
be passed upon for the underwriters by Donahue, Messereau & Leids, LLP, Los
Angeles, California. The information contained in the sections of the Prospectus
captioned "Risk Factors--Government Regulation and Legal Uncertainties,"
"Business--Industry Regulation" and "Business--Legal Proceedings" is set forth
herein in reliance upon the opinion of Henderson & Lyman, Chicago, Illinois.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1997 and
for each of the two years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of Singer Lewak
Greenbaum & Goldstein LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
54
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the SEC a Registration Statement on Form SB-2 (of
which this Prospectus forms a part) covering the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain items of which are
omitted as permitted by the rules and regulations of the SEC. Statements made in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, we refer you to the copy of such
contract or other document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference.
Following the offering, the Company will become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith will be required to file reports and other information with
the SEC. The Registration Statement (including exhibits), as well as such
reports and other information, when so filed, can be inspected without charge
and copied, at prescribed rates, at the public reference facilities maintained
by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
regional offices of the SEC at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates or at the SEC's web site at http://www.sec.gov. Such reports
and other information may also be inspected at the offices of the Nasdaq Stock
Market, Inc., 1735 K Street N.W., Washington, D.C. 20006-1500, once the Common
Stock has been approved for quotation.
The Company will furnish its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited consolidated financial statements prepared in
accordance with generally accepted accounting principles. The financial
statements included in the annual reports will be examined and reported upon,
with an opinion expressed, by the Company's independent auditors.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Balance Sheets as of December 31, 1997 and June 30, 1998................................................... F-3
Statements of Operations for the years ended December 31, 1996 and 1997, and the six months ended June 30,
1997 and 1998............................................................................................ F-4
Statement of Stockholders' Equity.......................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1996 and 1997 and the six months ended June 30,
1997 and 1998............................................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Genesis Media Group, Inc.
We have audited the accompanying balance sheet of Genesis Media Group, Inc. as
of December 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genesis Media Group, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 23, 1998, except for Note 7
as to which the date is
October 27, 1998
F-2
<PAGE>
GENESIS MEDIA GROUP, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
JUNE 30, ------------
1998
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................................... $ 101,721 $ 280,289
Accounts receivable--trade, net of allowance for doubtful accounts of $75,000 and
$75,000.......................................................................... 1,151,555 1,041,113
Accounts receivable--affiliates.................................................... 3,509,978 2,383,663
Inventory.......................................................................... 336,786 275,579
Prepaid advertising................................................................ 432,032 1,059,423
Deposits and other prepaid assets.................................................. 453,332 355,835
Due from related parties........................................................... 258,001 126,752
------------ ------------
Total current assets............................................................. 6,243,405 5,522,654
PROPERTY AND EQUIPMENT, net 1,302,591 1,191,554
DEFERRED OFFERING COSTS 56,503 --
------------ ------------
TOTAL ASSETS................................................................... $ 7,602,499 $6,714,208
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable................................................... $ 553,856 $ 52,734
Line of Credit..................................................................... 525,150 --
Accounts payable................................................................... 1,180,358 1,800,506
Other accrued liabilities.......................................................... 408,471 141,709
Income taxes payable............................................................... 45,000 35,000
Deferred revenue................................................................... 267,500 267,500
Due to related parties............................................................. 70,444 188,380
------------ ------------
Total current liabilities........................................................ 3,050,779 2,485,829
NOTES PAYABLE, net of current portion................................................ 581,849 609,545
------------ ------------
Total liabilities.............................................................. 3,632,628 3,095,374
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
25,000,000 shares authorized.....................................................
4,000,000 shares issued and outstanding.......................................... 4,000 4,000
Additional paid-in capital......................................................... 920,582 920,582
Retained earnings.................................................................. 3,045,289 2,694,252
------------ ------------
Total stockholders' equity....................................................... 3,969,871 3,618,834
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $ 7,602,499 $6,714,208
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GENESIS MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996
SIX MONTHS ENDED JUNE 30, ------------- -------------
--------------------------
1998 1997
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE
Media sales--affiliate............................... $ 2,804,499 $ 3,717,869 $ 7,412,038 $ --
Product sales........................................ 3,093,994 3,103,880 8,251,628 13,152,158
Commissions and royalties............................ 2,114,545 1,024,459 2,480,178 78,855
Other................................................ 13,482 -- 20,322 1,110,707
------------ ------------ ------------- -------------
Total net revenue.................................. 8,026,520 7,846,208 18,164,166 14,341,720
------------ ------------ ------------- -------------
OPERATING COSTS AND EXPENSES
Media purchases...................................... 2,377,240 3,232,930 6,445,250 --
Direct costs......................................... 249,258 356,516 713,311 1,841,704
Selling, general, and administrative expenses........ 4,627,322 3,873,318 8,570,739 12,113,838
------------ ------------ ------------- -------------
Total operating costs and expenses................. 7,253,820 7,462,764 15,729,300 13,955,542
------------ ------------ ------------- -------------
INCOME FROM OPERATIONS................................. 772,700 383,444 2,434,866 386,178
INTEREST EXPENSE....................................... 36,663 -- 33,247 45
------------ ------------ ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES............... 736,037 383,444 2,401,619 386,133
PROVISION FOR INCOME TAXES............................. 10,000 5,500 35,000 --
------------ ------------ ------------- -------------
NET INCOME............................................. $ 726,037 $ 377,944 $ 2,366,619 $ 386,133
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
BASIC EARNINGS PER COMMON SHARE........................ $ 0.18 $ 0.10 $ 0.61 $ 0.10
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
DILUTED EARNINGS PER COMMON SHARE...................... $ 0.18 $ 0.10 $ 0.61 $ 0.10
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING............. 4,000,000 3,883,495 3,883,814 3,883,495
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
UNAUDITED PRO FORMA INFORMATION (NOTE 8):
INCOME BEFORE PROVISION FOR INCOME TAXES............... $ 736,037 $ 383,444 $ 2,401,619 $ 386,133
Salary expense to stockholder........................ 125,000 125,000 250,000 250,000
Income taxes assuming Sub-Chapter S corporation
election had not been made......................... 244,000 103,000 861,000 54,000
------------ ------------ ------------- -------------
NET INCOME............................................. $ 367,037 $ 155,444 $ 1,290,619 $ 82,133
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
PRO FORMA BASIC EARNINGS PER COMMON SHARE.............. $ 0.09 $ 0.04 $ 0.33 $ 0.02
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
PRO FORMA DILUTED EARNINGS PER COMMON SHARE............ $ 0.09 $ 0.04 $ 0.33 $ 0.02
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING............. 4,000,0000 3,883,495 3,883,814 3,883,495
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GENESIS MEDIA GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995......................... 3,883,496 $ 3,883 $ 20,699 $ (58,500) $ (33,918)
NET INCOME......................................... 386,133 386,133
---------- --------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1996......................... 3,883,496 3,883 20,699 327,633 352,215
SALE OF COMMON STOCK TO RELATED PARTY.............. 116,504 117 899,883 900,000
NET INCOME......................................... 2,366,619 2,366,619
---------- --------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1997......................... 4,000,000 4,000 920,582 2,694,252 3,618,834
DISTRIBUTION TO STOCKHOLDER (unaudited)............ (375,000) (375,000)
NET INCOME (unaudited)............................. 726,037 726,037
---------- --------- ---------- ------------ ------------
BALANCE, JUNE 30, 1998 (unaudited)................. 4,000,000 $ 4,000 $ 920,582 $ 3,045,289 $ 3,969,871
---------- --------- ---------- ------------ ------------
---------- --------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GENESIS MEDIA GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
SIX MONTHS ENDED JUNE ----------- ----------
30,
------------------------
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 726,037 $ 377,944 $ 2,366,619 $ 386,133
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation............................................. 43,913 1,377 37,619 8,198
(Increase) decrease in
Accounts receivable--trade................................. (110,442) (380,915) (789,629) (62,417)
Accounts receivable--affiliates............................ (1,126,315) 25,037 (2,358,626) (25,037)
Inventory.................................................. (61,207) (174,818) (142,258) (6,812)
Prepaid advertising........................................ 627,391 (586,285) (1,059,423) --
Deposits and other prepaid assets.......................... (97,497) (23,040) (342,158) (1,264)
Increase (decrease) in
Accounts payable........................................... (620,148) 7,775 1,654,203 119,996
Other accrued liabilities.................................. 266,762 (94,873) 20,985 (177,206)
Income taxes............................................... 10,000 5,500 35,000 --
Deferred revenue........................................... -- -- 267,500 --
----------- ----------- ----------- ----------
Net cash provided by (used in)
operating activities....................................... (341,506) (842,298) (310,168) 241,591
----------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment......................... (154,950) (16,377) (1,210,846) (7,365)
----------- ----------- ----------- ----------
Net cash used in investing activities...................... (154,950) (16,377) (1,210,846) (7,365)
----------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from related parties.......................... (249,185) 990,460 10,946 (68,276)
Net proceeds from line of credit........................... 525,150 -- -- --
Distribution to stockholder................................ (375,000) -- -- --
Proceeds from sale of common stock to related party........ -- -- 900,000 --
Proceeds from notes payable................................ 500,000 -- 676,596 --
Payment of offering costs.................................. (56,503) -- -- --
Payments on notes payable.................................. (26,574) -- (14,317) --
----------- ----------- ----------- ----------
Net cash provided by financing activities.................... 317,888 990,460 1,573,225 (68,276)
----------- ----------- ----------- ----------
Increase (decrease) in cash and cash equivalents during
period..................................................... (178,568) 131,785 52,211 165,950
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD......................................... 280,289 228,078 228,078 62,128
----------- ----------- ----------- ----------
END OF PERIOD............................................... $ 101,721 $ 359,863 $ 280,289 $ 228,078
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID.............................................. $ 36,663 $ -- $ 33,247 $ 45
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
INCOME TAXES PAID........................................... $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Genesis Media Group, Inc. (the "Company") was incorporated in the State of
Florida on October 28, 1993. The Company is an integrated marketing and business
solutions provider utilizing conventional, emerging and interactive multimedia
technologies. The Company has devoted substantially all its resources to selling
products it owned or had purchased to rights to sell through conventional
marketing methods. The Company sold these products to the general public through
the use of infomercials, radio advertisements, print media and retail outlets. A
substantial portion of the Company's product revenue has come from its "Men Are
From Mars, Women Are From Venus" product series authored by John Gray, Ph.D.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable, and other accrued liabilities, the carrying amounts approximate fair
value due to their short maturities. The amounts shown for debt also approximate
fair value because current interest rates offered to the Company for debt of
similar maturities are substantially the same.
ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures 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.
STOCK OPTIONS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," establishes and encourages the use of the fair
value based method of accounting for stock-based compensation arrangements under
which compensation cost is determined using the fair value of stock-based
compensation determined as of the date of grant and is recognized over the
periods in which the related services are rendered. The statement also permits
companies to elect to continue using the current implicit value accounting
method specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation. The Company has elected to use the implicit value based method and
has disclosed the pro forma effect of using the fair value based method to
account for its stock-based compensation.
CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three months or
less to be cash equivalents.
F-7
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consists principally of products purchased for resale and are
stated at the lower of cost (determined by the first-in, first-out method) or
market.
PRODUCTION COSTS
Costs related to the production of the Company's direct response televised
advertising programs are capitalized and amortized over the estimated useful
life of the production, generally from 12 to 24 months. The estimated useful
life of each production is regularly evaluated and adjusted as sales response
becomes available. All production costs had been fully amortized at December 31,
1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided on a
straight-line basis over estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
7 to 39
Building and improvements..................................... years
Vehicles...................................................... 5 years
Furniture and equipment....................................... 7 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized. Gains and losses on
disposals are included in the results of operations.
REVENUE RECOGNITION
Product sales are recognized when the product is shipped. Generally, it is
the Company's policy to refund unconditionally the total price of merchandise
returned within 30 days of the customer's receipt of the merchandise. The
Company provides an allowance, based upon experience, for returned merchandise.
Revenue from media sales is recognized when the media time is aired. Commissions
and royalties are recognized when earned.
INCOME TAXES
The Company has elected to be taxed as an S corporation; accordingly, the
stockholders are liable for federal and state income taxes on their respective
shares of the Company's taxable income. In addition, there is a minimal
franchise tax on the Company's taxable income for state purposes.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement takes place,
except for direct-response advertising, which is capitalized as prepaid
advertising and amortized using an accelerated method over its expected period
of future benefit, not to exceed twelve months. The Company is able to identify
to which advertisement a customer is responding by using a separate toll free
number for each ad. On a monthly basis, similar types of direct response
advertising costs are accumulated in pools and amortized over the expected
period of future benefit. The Company regularly evaluates the amortization
F-8
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
period and the recoverability of capitalized direct-response advertising costs
based on recent historical experience.
Direct response advertising consists principally of television airtime
purchased to broadcast the Company's infomercials and print media. At December
31, 1997, $1,059,423 of advertising was reported as an asset which consisted of
amounts paid for advertisements not taken place of $342,949 and the unamortized
portion of the capitalized direct response advertising of $716,474, net of
accumulated amortization of $3,637,118. The Company incurred $5,296,069 and
$8,580,386 in advertising expense for the years ended December 31, 1997 and
1996, respectively. At June 30, 1998, $432,032 of advertising was reported as an
asset which consisted the unamortized portion of the capitalized direct response
advertising, net of accumulated amortization of $1,136,966. The Company incurred
$2,171,541 and $2,486,654 in advertising expense for the six months ended June
30, 1998 and 1997, respectively.
CONCENTRATION OF CREDIT RISK
The Company places its cash with high-credit, quality financial
institutions. At times, such amounts may be in excess of the Federal Deposit
Insurance Corporation limit. As of December 31, 1997 and June 30, 1998, the
uninsured portions of the balances held at these financial institutions
aggregated to $361,125 and $0, respectively. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash and cash equivalents.
EARNINGS PER SHARE
The Company reports earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing income
available to common stockholders by the weighted average number of common shares
available. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
RISKS AND UNCERTAINTIES
The Company operates in an industry that is highly competitive. The
Company's principal competitors are marketing and communication companies that
operate in the United States. In order to maintain its current sales levels, the
Company must continue to maintain existing client relationships, and attract new
clients by demonstrating its creative reputation, knowledge of media and high
quality service.
The majority of the Company's revenue has come from selling media time to a
related party and from product sales from one group of products. The Company
must continue to develop new sources of revenue and obtain new products to sell
because the majority of products generate their most significant revenue in
their introductory year.
The Company also relies on third party fulfillment facilities to store
inventory, process orders and ship products. The termination of or adverse
change in the Company's relationship with such fulfillment facilities or the
partial or total loss of any of these facilities or the Companies inventories
stored there may have a material adverse effect upon the Company's business.
F-9
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OFFERING COSTS
Amounts paid for costs associated with an anticipated initial public
offering ("IPO") are capitalized and will be recorded as a reduction to
additional paid in capital upon the completion of the IPO. In the event that the
IPO is not successful, the deferred offering costs will be charged to expense.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires companies to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
financial statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS No. 130 will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management believes that SFAS
No. 131 will not have an effect on the Company's financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This statement is not
applicable to the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities and is
effective for fiscal years beginning after June 15, 1999. Management believes
that SFAS No. 133 will not have an effect on the Company's financial statements.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.
F-10
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1998 and December 31, 1997 consisted of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
JUNE 30, 1998 -----------------
-------------
(UNAUDITED)
<S> <C> <C>
Land........................................................ $ 87,750 $ 87,750
Building and improvements................................... 848,664 791,329
Vehicles.................................................... 113,269 113,269
Furniture and equipment..................................... 343,289 245,886
------------- -----------------
1,392,972 1,238,234
Less accumulated depreciation............................... 90,381 46,680
------------- -----------------
TOTAL..................................................... $ 1,302,591 $ 1,191,554
------------- -----------------
------------- -----------------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996, and for
the six months ended June 30, 1998 and 1997 was $37,619, $8,198, $43,913, and
$1,377, respectively.
NOTE 3--NOTES PAYABLE
Notes payable at June 30, 1998 and December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
JUNE 30, 1998 -----------------
-------------
(UNAUDITED)
<S> <C> <C>
Notes payable--bank is collateralized by an automobile. The
note bears interest at 11.5%. Monthly principal and
interest payments are $4,405 with any unpaid principal and
interest due on September 4, 1998......................... $ 56,436 $ 79,279
Notes payable--bank is collateralized by a 1st Trust Deed on
the land and building located in Studio City, California
and is guaranteed by the Company's majority stockholder.
The note bears interest at prime (8.5% at June 30, 1998
and December 31, 1997) plus 2.75%. Monthly principal and
interest payments are $5,823 with any unpaid principal and
interest due on July 1, 2002.............................. 579,269 583,000
Notes payable to an unrelated third party. The notes are
unsecured, bear interest at 8% and are due on January 30,
1999...................................................... 500,000 --
------------- --------
$ 1,135,705 $ 662,279
Current portion............................................. 553,856 52,734
------------- --------
LONG-TERM PORTION......................................... $ 581,849 $ 609,545
-------------
------------- --------
--------
</TABLE>
F-11
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 3--NOTES PAYABLE (CONTINUED)
The following is a schedule by years of future maturities of notes payable:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 52,734
1999.............................................................................. 37,936
2000.............................................................................. 5,870
2001.............................................................................. 6,565
2002.............................................................................. 7,343
Thereafter...................................................................... 551,831
----------
Total......................................................................... $ 662,279
----------
----------
</TABLE>
NOTE 4--LINE OF CREDIT
In June 1998, the Company obtained a $750,000 line of credit from a
financial institution. The line of credit becomes due on June 30, 1999 and is
renewable for an additional year at the option of the Company. The line of
credit bears interest at prime plus 2.90%, is collateralized by substantially
all of the Company's assets, except real estate, and is guaranteed by the
Company's majority stockholder.
NOTE 5--RELATED PARTY TRANSACTIONS
DUE TO RELATED PARTIES
Due to related parties are principally amounts advanced to the Company by
its majority stockholder. The advances are non-interest bearing with no
repayments terms. The amount outstanding is subordinate to all other debts of
the Company.
DUE FROM RELATED PARTIES
From time to time, the Company lends funds to companies that are owned by
the Company's majority stockholder. The amounts receivable from these companies
are non-interest bearing with no repayment terms.
MEDIA SALES AND ACCOUNTS RECEIVABLE--AFFILIATE
The Company purchases media airtime and resells it to other companies. For
the years ended December 31, 1997 and 1996, and the six months ended June 30,
1998 and 1997, media sold to a company owned by the Company's majority
stockholder amounted to $7,412,038, $0, $2,804,499 and $3,717,869, respectively.
The amount due from this affiliated company, principally related to media
purchases and commissions earned by selling this affiliated company's products,
was $3,509,978 and $2,383,663 at June 30, 1998 and December 31, 1997,
respectively.
COMMISSION REVENUE
For the years ended December 31, 1997 and 1996 and the six months ended June
30, 1998 and 1997, the Company earned $742,315, $0, $1,429,429 and $0,
respectively, in commission from selling products for companies owned by the
Company's majority stockholder.
F-12
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 5--RELATED PARTY TRANSACTIONS (CONTINUED)
TRANSACTIONS WITH DR. GRAY
On December 31, 1997, the Company sold 116,504 shares of its Common Stock to
Dr. John Gray for $900,000. Royalties paid to Dr. Gray for the years ended
December 31, 1997 and 1996, and for the six months ended June 30, 1998 and 1997
was $50,101, $423,207, $52,050 and $50,101, respectively.
NOTE 6--COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company has entered into various
agreements whereby it is obligated to pay royalties on products it sells. The
royalties vary by agreement and are based on percentages of net revenue
generally not to exceed 25% or a percentage of the net profits of the venture
generally not to exceed 50%. Royalty expense for the years ended December 31,
1997 and 1996, and for the six months ended June 30, 1998 and 1997 was $50,101,
$423,207, $52,050 and $50,101, respectively.
The Commodity Futures Trading Commission (the "CFTC") has initiated an
investigation of the Company as a result of its role in the production and
marketing of the informercial titled "Success and You." The infomercial "Success
and You" involves the marketing of videos which provide instruction regarding
trading strategies. Although the CFTC has articulated its belief that the
Company by virtue of its involvement in the production and marketing of the
infomercial may be required to be registered in some capacity to continue to
engage in the referenced activities, the Company believes the CFTC's analysis
and conclusions are incorrect and are based on incomplete information.
Accordingly, the Company disputes any requirement that the Company will be
required to register, as the Company is not engaging in any activities which it
believes would require registration. As a result, the Company has been advised
by counsel to the Company that the initiation of a CFTC enforcement action
against the Company requiring registration or seeking the imposition of
sanctions is unwarranted. To date, no complaint or enforcement action has been
asserted against the Company, its officers, directors or employees. If it is
determined in the investigation or any resulting proceeding that registration is
required, the Company intends promptly to effect any required registration.
Although the Company is not presently party to any material litigation, the
Company may also be involved from time to time in various other claims and legal
actions incident to its operations, either as plaintiff or defendant.
NOTE 7--SUBSEQUENT EVENTS
On October 27, 1998, the Company effected a 38,834.95-for-1 stock split of
its common stock, increased the number of authorized shares to 25,000,000 and
changed the par value of its common stock to $0.001. All share and per share
data have been retroactively restated to reflect this stock split, change is the
authorized shares and par value. In addition, the Company authorized 5,000,000
shares of $0.001 par value Preferred Stock. No Preferred Shares are issued or
outstanding.
In July 1998, the Company formed a wholly-owned subsidiary, Genesis
Intermedia, Inc. To date, this subsidiary has not generated significant revenue.
In August 1998, the Company obtained a working capital loan in the amount of
$300,000 secured by a Second Deed of Trust on the Company's land and building
and is guaranteed by the Company's majority stockholder. The loan bears interest
at the rate of prime plus 2.75% and requires monthly principal and interest
payments of $5,217 with any unpaid principal and interest due on September 1,
2005.
F-13
<PAGE>
GENESIS MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
NOTE 7--SUBSEQUENT EVENTS (CONTINUED)
On October 1, 1998, the Board of Directors adopted and the stockholders
approved the Genesis Media Group, Inc. 1998 Stock Incentive Program (the
"Program"). The Company has authorized and reserved for issuance an aggregate of
800,000 shares of its common stock under the Program. On October 1, 1998, the
Company issued 450,000 options under the Program with a weighted average
exercise price of $8.50.
On October 20, 1998, the Company acquired certain of the assets of Vision
Digital Communications, Inc., a company that places interactive kiosks in
shopping malls. The Company purchased current assets, equipment and intangible
assets of $210,000, $750,000 and $10,000, respectively, in exchange for 60,000
shares of the Company's Common Stock valued at $600,000 plus the assumption of
short-term obligations and long-term debt of $170,000 and $200,000,
respectively. The Company has also agreed to issue to the seller options to
purchase up to an additional 50,000 shares of Common Stock if the acquired
division meets certain targeted levels of total revenue over a three-year
period. If granted, the exercise price of such options will be the fair market
value of the Common Stock on the date of issuance and such options will expire
at the end of such three-year period.
On October 26, 1998, the Company has signed a letter of intent to acquire
AniMagic Corporation, an interactive multimedia company that produces CD-ROMs
for the edutainment industry. AniMagic is currently in bankruptcy and the
ultimate acquisition is dependent upon bankruptcy court approval.
NOTE 8--PRO FORMA INFORMATION (UNAUDITED)
Shortly before the closing of the IPO, the Company will terminate its status
as an S corporation and will be subject to federal and additional state income
taxes thereafter.
The Company's president and majority stockholder had not drawn a salary from
the Company, but had received compensation in the form of distributions.
Concurrent with the Company's IPO and the termination of its S corporation
status election, the Company's president will be paid an annual salary of
$250,000.
For informational purposes, the accompanying statements of operations
include the unaudited pro forma adjustment for the president's annual salary and
for income taxes which would have been recorded if the Company had been an S
corporation, based on the tax law in effect during the respective periods.
F-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
The Company............................................................... 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 23
Business.................................................................. 30
Management................................................................ 41
Certain Transactions...................................................... 46
Principal Stockholders.................................................... 47
Description of Capital Stock.............................................. 48
Underwriting.............................................................. 52
Legal Matters............................................................. 54
Experts................................................................... 54
Available Information..................................................... 55
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,000,0000 SHARES
[LOGO]
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MILLENNIUM FINANCIAL GROUP, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the Common Stock being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee.......................................................... $ 7,034
NASD Filing Fee........................................................... $ 3,294
Nasdaq Stock Market Listing Fees.......................................... $ 7,000
Printing and Engraving Expenses........................................... $ 125,000
Blue Sky Fees and Expenses................................................ $ 5,000
Legal Fees and Expenses................................................... $ 150,000
Accounting Fees and Expenses.............................................. $ 75,000
Transfer Agent Fees and Expenses.......................................... $ 10,000
Directors and Officers' Insurance......................................... $ 50,000
Miscellaneous............................................................. $ 67,672
---------
Total................................................................. $ 500,000
</TABLE>
- --------------------------
* All amounts are estimated except for the Registration Fee, the NASD Filing
Fee and the Nasdaq Stock Market Listing Fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Registrant's Certificate of Incorporation provides
substantially as follows:
Section A. Elimination of Certain Liability of Directors. A director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
Section B. Indemnification and Insurance.
(a) Right to indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended but, in the case of any such amendment, to the fullest
extent permitted by law, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, amounts
paid or to be paid in settlement, and excise taxes or penalties arising under
the Employee Retirement Income Security Act of 1974) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b)
hereof, the Company shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof)
II-1
<PAGE>
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Company the expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the General Corporation Law of the State of Delaware requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Company may, by action of the Board of Directors, provide
indemnification to employees and agents of the Company with the same scope and
effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Company within thirty days after a written
claim has been received by the Company, the claimant may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Company) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Company to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
The 1998 Stock Incentive Program (the "Program") provides that no Program
Administrator, as that term is defined in the 1998 Stock Program, or any officer
or employee of the Registrant or an affiliate acting at the direction or on
behalf of the Program Administrator shall be personally liable for any action or
determination taken or made in good faith with respect to the Program, and
shall, to the extent permitted by law, be fully indemnified and protected by the
Registrant with respect to any such action or determination.
The Registrant also carries liability insurance covering officers and
directors.
Pursuant to the proposed form of Underwriting Agreement, the underwriters
have agreed to indemnify the directors and officers of the Registrant in certain
circumstances.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1997, the Registrant issued 116,504 shares (giving effect to the
subsequent stock split) of Common Stock to Dr. John M. Gray in consideration of
$900,000. Such sale of securities was deemed to be exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof. In
October 1998, the Registrant issued 60,000 shares of Common Stock to Vision
Digital Communications, Inc., in partial consideration of the acquisition of
substantially all of the assets of such Company. Each recipient of such
securities in both transactions represented in such transaction such recipient's
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates issued in such transaction.
In October 1998, the Registrant granted options to purchase 450,000 shares
of Common Stock to three employees under the Program. Such securities were
offered and sold in reliance upon the exemption from registration under Rule 701
promulgated under the Securities Act relating to certain sales by an issuer to
its employees under certain compensatory plans.
ITEM 16. EXHIBITS.
(a) Exhibits
See Exhibit Index at page II-6.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) (1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery each to
purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, California, on October 28, 1998.
<TABLE>
<S> <C> <C>
GENESIS MEDIA GROUP, INC.
By: /s/ RAMY EL-BATRAWI
-----------------------------------------
Ramy El-Batrawi
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned officers and directors of Genesis Media Group, Inc., do
hereby constitute and appoint Ramy El-Batrawi and Douglas E. Jacobson, and each
of them, our true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons (which persons
constitute a majority of the Board of Directors) in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ RAMY EL-BATRAWI Chief Executive Officer
- ------------------------------ (Principal Executive October 28, 1998
Ramy El-Batrawi Officer)
Director, Chief Financial
/s/ DOUGLAS E. JACOBSON Officer (Principal
- ------------------------------ Financial and Accounting October 28, 1998
Douglas E. Jacobson Officer)
/s/ SAM I. HASSABO Director, President and
- ------------------------------ Chief Executive Officer, October 28, 1998
Sam I. Hassabo Genesis Intermedia, Inc.
/s/ BLAIR LACORTE
- ------------------------------ Director October 28, 1998
Blair LaCorte
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED (F)
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement................................................................ F
2.1 Form of Agreement and Plan of Merger between Genesis Media Group, Inc., a Florida corporation
("Genesis Florida") and Genesis Media Group, Inc., a Delaware corporation ("Genesis
Delaware").................................................................................. F
2.2 Asset Purchase Agreement between the Registrant and Vision Digital Communications, Inc. dated
as of October 20, 1998...................................................................... F
2.3 Letter Agreement between the Registrant and AniMagic Corporation dated October 26, 1998....... F
3.1 Articles of Incorporation of Genesis Florida filed with the Florida Secretary of State on
October 28, 1993............................................................................ F
3.2 Articles of Amendment of Genesis Florida filed on October 27, 1998............................ F
3.3 Certificate of Incorporation of Genesis Delaware filed with the Delaware Secretary of State on
October 26, 1998............................................................................ F
3.4 Bylaws of Genesis Florida..................................................................... F
3.5 Bylaws of Genesis Delaware.................................................................... F
4.1 Specimen Stock Certificate.................................................................... F
5.1 Opinion of Nida & Maloney, a Professional Corporation......................................... *
10.1 Genesis Media Group, Inc. 1998 Stock Incentive Program........................................ F
10.2 Form of Indemnification Agreement with Directors and Executive Officers....................... F
10.3 Form of Representative's Warrant.............................................................. F
10.4 Form of Lock-Up Agreement..................................................................... F
10.5 Employment Agreement between the Registrant and Rami El-Batrawi............................... F
10.6 Employment Agreement between the Registrant and Sam I. Hassabo................................ F
10.7 Deed of Trust (dated July 24, 1997)........................................................... F
10.8 Note U.S. Small Business Administration (dated July 24, 1997)................................. F
10.9 Promissory Note (dated January 1, 1998)....................................................... F
10.10 Promissory Note (dated April 23, 1998)........................................................ F
10.11 Note U.S. Small Business Administration (dated August 20, 1998)............................... F
10.12 Commercial Security Agreement (dated August 20, 1998)......................................... F
10.13 Lease Agreement (dated July 24, 1998)......................................................... F
10.14 WCMA Note, Loan and Security Agreement between the Registrant and Merrill Lynch Business
Financial Services, Inc.,................................................................... F
21.1 Subsidiaries of the Registrant................................................................ F
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP............................................. F
23.2 Consent of Nida & Maloney, a Professional Corporation (included in Exhibit 5.1)............... *
23.3 Consent of Henderson & Lyman.................................................................. F
24.1 Power of Attorney (included on page II-5)..................................................... F
24.2 Authorizing Resolutions....................................................................... F
27.1 Financial Data Schedule....................................................................... F
</TABLE>
- ------------------------
* To be filed by amendment.
II-5
<PAGE>
EXHIBIT 1.1
[Form of Underwriting Agreement - Subject to Additional Review]
______________ SHARES OF COMMON STOCK
GENESIS MEDIA GROUP, INC.
UNDERWRITING AGREEMENT
New York, New York
_______________, 1998
MILLENNIUM FINANCIAL GROUP, INC.
As Representative of the
Several Underwriters listed on Schedule A hereto
235 West 56th Street, Suite 37E
New York, New York 10019
Ladies and Gentlemen:
Genesis Media Group, Inc., a Delaware corporation (the "Company"), confirms
its agreement with Millennium Financial Group, Inc. ("Millennium"), and each of
the underwriters named in Schedule A hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 11), for Millennium is acting as representative (in such
capacity, Millennium shall hereinafter sometimes be referred to as "you" or the
"Representative"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of the respective numbers of
shares of the Company's common stock, $0.001 par value per share ("Common
Stock") set forth in Schedule A hereto. The aggregate 2,000,000 shares of Common
Stock are hereinafter referred to as the "Firm Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, up to an additional 300,000 Shares of Common Stock for the purpose of
covering over-allotments, if any. Such 300,000 Shares of Common Stock are
hereinafter referred to as the "Option Securities." The Company also proposes to
issue and sell to the Representative warrants (the "Representatives' Warrants")
pursuant to the Representatives' Warrant Agreement (the "Representatives'
Warrant Agreement") for the purchase of an additional 200,000 Shares of Common
Stock.
1
<PAGE>
The Shares of Common Stock issuable upon exercise of the Representatives'
Warrants are hereinafter referred to as the "Representatives' Securities." The
Firm Securities, the Option Securities, the Representatives' Warrants and the
Representatives' Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form SB-2 (No. 333-______), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Securities, the Option Securities and the Representatives'
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations (the "Regulations") of the Commission under the Act. The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters and will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
having been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement",
and the form of prospectus in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
2
<PAGE>
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter expressly for use
in the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries has been duly organized and
is validly existing as a corporation in good standing under the laws of the
state of its incorporation. Except as set forth in the Prospectus, each of the
Company and each subsidiary of the Company does not own an interest in any
corporation, partnership, trust, joint venture or other business entity. Each of
the Company and each subsidiary of the Company is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing. Each of the Company and each
subsidiary of the Company has all requisite power and authority (corporate and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including,
3
<PAGE>
without limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as described
in the Prospectus; each of the Company and each subsidiary of the Company is and
has been doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all applicable
federal, state, local and foreign laws, rules and regulations; and each of the
Company and each subsidiary of the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of each of the Company and each
subsidiary of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on each of the Company and each subsidiary of the Company's business
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading in light of
the circumstances under which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein. Each of the Company and each subsidiary of the
Company is not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Representatives'
Warrant Agreement and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company conform or, when issued and
paid for, will conform, in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of each of the Company and each subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable and the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of each of the Company and each subsidiary
of the Company or similar contractual rights granted by each of the Company and
each subsidiary of the Company. All of the issued and outstanding shares of
capital stock of Genesis Intermedia and each other subsidiary of the Company (if
any) are owned by the Company free and clear of any security interest, mortgage,
pledge, lien, encumbrance or claim; and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights
4
<PAGE>
to convert any obligations into shares of capital stock or ownership interests
in Genesis Intermedia and each other subsidiary of the Company (if any) are
outstanding. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action required
to be taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the Securities will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof of the Securities to be sold by the Company hereunder, the Underwriters
or the Representatives, as the case may be, will acquire good and marketable
title to such Securities free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved and such
financial statements as are audited have been examined by Singer, Lewak,
Greenbaum & Goldstein L.L.P., who are independent certified public accountants
within the meaning of the Act and the Rules and Regulations, as indicated in
their reports filed therewith. There has been no adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or in the earnings, position, prospects, value, operation, properties, business,
or results of operations of the Company, whether or not arising in the ordinary
course of business, since the date of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information (including,
without limitation, any pro forma financial information) set forth in the
Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein, and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus; and, in the case of pro forma financial information,
if any, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are
5
<PAGE>
appropriate to give effect to the transactions and circumstances referred to
therein. The amounts shown as accrued for current and deferred income and other
taxes in such financial statements are sufficient for the payment of all accrued
and unpaid federal, state, local and foreign income taxes, interest, penalties,
assessments or deficiencies applicable to each of the Company and each
subsidiary of the Company, whether disputed or not, for the applicable period
then ended and periods prior thereto; adequate allowance for doubtful accounts
has been provided for unindemnified losses due to the operations of each of the
Company and each subsidiary of the Company; and the statements of income do not
contain any items of special or nonrecurring income not earned in the ordinary
course of business, except as specified in the notes thereto.
(g) Each of the Company and each subsidiary of the Company (i) has paid
all federal, state, local, and foreign taxes for which it is liable, including,
but not limited to, withholding taxes and amounts payable under Chapters 21
through 24 of the Internal Revenue Code of 1986, as amended (the "Code"), or has
established adequate reserves for such taxes, (ii) has furnished all information
returns it is required to furnish pursuant to the Code, (iii) has established
adequate reserves for such taxes which are not due and payable, and (iv) does
not have any tax deficiency or claims outstanding, proposed or assessed against
it, other than as described in the Registration Statement.
(h) No transfer tax, stamp, duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company and the purchase by the
Representatives of the Representatives' Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(i) Each of the Company and each subsidiary of the Company maintains
insurance policies, including, but not limited to, general liability,
malpractice and property insurance, which insures each of the Company, each
subsidiary of the Company and their respective employees, against such losses
and risks generally insured against by comparable businesses. Each of the
Company and each subsidiary of the Company (A) has not failed to give notice or
present any insurance claim with respect to any matter, including but not
limited to each of the Company and each subsidiary of the Company's business,
property or employees, under any insurance policy or surety bond in a due and
timely manner, (B) does not have any disputes or claims against any underwriter
of such insurance policies or surety bonds or has failed to pay any premiums due
and payable thereunder, or (C) has failed to comply with all conditions
contained in such
6
<PAGE>
insurance policies and surety bonds. There are no facts or circumstances under
any such insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of each of the Company and each
subsidiary of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, each of the
Company and each subsidiary of the Company which (i) questions the validity of
the capital stock of each of the Company and each subsidiary of the Company,
this Agreement, or the Representatives' Warrant Agreement, or of any action
taken or to be taken by each of the Company and each subsidiary of the Company
pursuant to or in connection with this Agreement or the Representatives' Warrant
Agreement, (ii) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all material respects), or (iii) might
materially and adversely affect the condition, financial or otherwise, or the
earnings, position, prospects, stockholders' equity, value, operation,
properties, business or results of operations of each of the Company and each
subsidiary of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement and the
Representatives' Warrant Agreement and to consummate the transactions provided
for in this Agreement and the Representatives' Warrant Agreement; and this
Agreement and the Representatives' Warrant Agreement have each been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representatives' Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and neither of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representatives'
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, nor the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of each of the Company and
each subsidiary of the Company pursuant to the terms of (i) the certificate of
incorporation or by-laws of each of the Company and each subsidiary of the
Company, (ii) any license, contract, collective bargaining agreement,
7
<PAGE>
indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which each of the Company and each subsidiary of the Company is a party or by
which each of the Company and each subsidiary of the Company is or may be bound
or to which its or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to each of the Company and each subsidiary of the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over each of the Company and each subsidiary of the Company or any
of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, governmental agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representatives' Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representatives' Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which each of the Company and each subsidiary of the
Company is a party or by which it or they may be bound or to which its or their
respective assets, properties or business may be subject have been duly and
validly authorized, executed and delivered by each of the Company and each
subsidiary of the Company and constitute the legal, valid and binding agreements
of each of the Company and each subsidiary of the Company, as the case may be,
enforceable against it in accordance with its terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
and fairly present the information required to be shown with respect thereto by
Form SB-2, and there are no contracts or other documents which are required by
the Act to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required, and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
8
<PAGE>
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, each of the Company and each
subsidiary of the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, (ii) entered
into any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in respect of
its capital stock of any class, and there has not been any change in the capital
stock, or any change in the debt (long or short term) or liabilities or material
adverse change in or affecting the general affairs, management, financial
operations, stockholders' equity or results of operations of each of the Company
and each subsidiary of the Company.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which each of the Company and each subsidiary of the Company is a
party or by which each of the Company and each subsidiary of the Company may be
bound or to which the property or assets (tangible or intangible) of each of the
Company and each subsidiary of the Company is subject or affected.
(p) Each of the Company and each subsidiary of the Company has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
each of the Company and each subsidiary of the Company by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against each of the Company and each subsidiary of
the Company pending before the National Labor Relations Board or any lockout,
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving each of the Company and each subsidiary of the Company, or
any predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of each of the Company and each subsidiary of
the Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by each of the Company and each subsidiary of the
Company. No grievance or arbitration proceeding is pending under any expired or
existing collective bargaining agreements of each of the Company and each
subsidiary of the
9
<PAGE>
Company. No labor dispute with the employees of each of the Company and each
subsidiary of the Company exists, or, is imminent.
(q) Neither the Company nor any subsidiary of the Company maintains,
sponsors or contributes to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan," or a "multi employer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). Neither the Company nor any subsidiary of the Company maintains
or contributes, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject each of
the Company and each subsidiary of the Company to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is in
compliance with all reporting, disclosure and other requirements of the Code and
ERISA as they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA Plan which
is intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. Each of the Company and each
subsidiary of the Company has never completely or partially withdrawn from a
"multi employer plan."
(r) Neither the Company, nor any subsidiary of the Company, nor any of
their respective employees, directors, stockholders, partners, or affiliates
(within the meaning of the Rules and Regulations) of any of the foregoing has
taken or will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held or
contemplated to be owned or held by each of the Company and each subsidiary of
the Company, are in dispute so far as known by each of the Company and each
subsidiary of the Company or are in any conflict with the right of any other
person or entity. Each of the Company and each subsidiary of the Company (i)
owns or has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise
10
<PAGE>
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payment by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any patent, trademark, service mark, trade name, copyright, know-how, technology
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
(t) Each of the Company and each subsidiary of the Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(u) Singer, Lewak, Greenbaum & Goldstein, L.L.P., whose report is filed
with the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(v) The Company has caused to be duly executed legally binding and
enforceable agreements pursuant to which each of the Company's officers,
directors and all holders of the Common Stock of the Company or securities
exchangeable or exercisable for or convertible into shares of Common Stock, has
agreed not to, directly or indirectly, issue, offer, offer to sell, sell, grant
any option for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than twelve (12) months following the
effective date of the Registration Statement without the prior written consent
of Millennium. During the twelve (12) month period commencing on the effective
date of the Registration Statement, the Company shall not, without the prior
written consent of Millennium, sell, contract or offer to sell, issue, transfer,
assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any options, rights or warrants with respect to any
shares of Common Stock. The Company will cause the Transfer Agent (as
hereinafter defined) to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(w) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other
11
<PAGE>
arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(x) The Common Stock has been approved for quotation on the National
Market System of the National Association of Securities Dealers, Inc.
("Nasdaq/NMS").
(y) None of the Company nor any subsidiary of the Company, nor any of
their respective officers, employees, agents nor any other person acting on
behalf of the Company nor any subsidiary of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of each of the Company and any
subsidiary of the Company (or assist each of the Company and any subsidiary of
the Company in connection with any actual or proposed transaction) which (a)
might subject each of the Company and any subsidiary of the Company, or any
other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign), (b) if not given in
the past, might have had a material adverse effect on the assets, business or
operations of each of the Company and any subsidiary of the Company, or (c) if
not continued in the future, might adversely affect the assets, business,
condition, financial or otherwise, earnings, position, properties, value,
operations or prospects of each of the Company and any subsidiary of the
Company. Each of the Company and each subsidiary of the Company's internal
accounting controls are sufficient to cause each of the Company and each
subsidiary of the Company to comply with the Foreign Corrupt Practices Act of
1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director,
stockholder or partner of each of the Company and each subsidiary of the
Company, or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by each of the Company
and each subsidiary of the Company, or (B) purchases from or sells or furnishes
to each of the Company and each subsidiary of the Company any goods or services,
or (ii) a beneficiary interest in any contract or agreement to which each of the
Company and/or each subsidiary of the Company is a party or by which it may be
bound or affected. Except as set
12
<PAGE>
forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among each
of the Company and/or each subsidiary of the Company, and any officer, director,
or 5% or greater security holder of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(aa) Any certificate signed by any officer of the Company or of any
subsidiary of the Company, and delivered to the Underwriters or to Underwriters'
Counsel (as defined herein) shall be deemed a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(ab) The minute books of each of the Company and each subsidiary of the
Company have been made available to the Underwriters and contain a complete
summary of all meetings and actions of the directors (including committees
thereof) and stockholders of each of the Company and each subsidiary of the
Company, since the time of its incorporation, and reflect all transactions
referred to in such minutes accurately in all material respects.
(ac) Except and to the extent described in the Prospectus, no holders of
any securities of each of the Company and each subsidiary of the Company or of
any options, warrants or other convertible or exchangeable securities of each of
the Company and each subsidiary of the Company have the right to include any
securities issued by each of the Company and each subsidiary of the Company in
the Registration Statement or any registration statement to be filed by the
Company or to require each of the Company and each subsidiary of the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of each of the Company and
each subsidiary of the Company.
(ad) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with Ramy El-Batrawi in the
form filed as Exhibit ____ to the Registration Statement and (ii) purchased term
key person insurance on the life of Ramy El-Batrawi in the amount of four (4)
million dollars which policy names the Company as the sole beneficiary thereof
except to the extent of $900,000 for which the beneficiary is the holder of the
deed of trust on the company headquarters and who is unaffiliated with the
Company.
(ae) The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
13
<PAGE>
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(af) Each of the Company and each subsidiary of the Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparations of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorizations; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(ag) The Company has entered into the Asset Purchase Agreement with
Vision Digital Communications, Inc., ____ and ____ (the "Asset Purchase
Agreement"), set forth as Exhibit ____ to the Registration Statement, pursuant
to which the Company will acquire in a separate Acquisition substantially all of
the assets of Vision Digital Communications, Inc. ("Vision"). The Asset Purchase
Agreement is in full force and effect, has been duly and validly authorized,
executed and delivered by the parties thereto, and is valid and binding on the
parties thereto in accordance with its terms and none of the parties thereto is
in default in any respect thereunder. A complete and correct copy of the Asset
Purchase Agreement (including exhibits and schedules) has been delivered to the
Representatives and no changes therein will be made subsequent hereto and prior
to the Closing Date.
(ah) The representations and warranties made in the Asset Purchase
Agreement by the Company and Vision and/or _________________ are true and
correct in all material respects, except for such changes permitted or
contemplated by such Asset Purchase Agreement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$_______ [92% of the public offering price] per share of Common Stock, that
number of Firm Securities set forth in Schedule A opposite the name of such
Underwriter, subject to such adjustment as the Representatives in their
discretion shall make to eliminate any sales or purchases of fractional shares,
plus any additional number of Firm Securities which such Underwriter may become
14
<PAGE>
obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms
andconditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 300,000 Shares of Common Stock at a price of $______ [92% of the
public offering price] per share of Common Stock. The option granted hereby will
expire forty-five (45) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than three (3) full business days after the exercise of said option,
nor in any event prior to the Closing Date, as hereinafter defined, unless
otherwise agreed upon by the Representative and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Securities shall be made at the offices of Millennium at 235 West 56th
Street, Suite 37E, New York, New York 10019, or at such other place as shall be
agreed upon by the Representative and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on __________, 1998 or at such
other time and date as shall be agreed upon by the Representative and the
Company, but not less than three (3) nor more than five (5) full business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of
Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in the
notice from the Representative to the Company. Delivery of the certificates for
the Firm Securities and the Option Securities, if any, shall be made to the
Underwriters against payment by the Underwriters, severally and not jointly, of
the purchase price for the Firm Securities and the Option
15
<PAGE>
Securities, if any, to the order of the Company for the Firm Securities and the
Option Securities, if any, by New York Clearing House funds. In the event such
option is exercised, each of the Underwriters, acting severally and not jointly,
shall purchase that proportion of the total number of Option Securities then
being purchased which the number of Firm Securities set forth in Schedule A
hereto opposite the name of such Underwriter bears to the total number of Firm
Securities, subject in each case to such adjustments as the Representative in
its sole and absolute discretion shall make to eliminate any sales or purchases
of fractional shares. Certificates for the Firm Securities and the Option
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two (2) business days
prior to the Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Securities and the Option Securities, if any,
shall be made available to the Representative at such office or such other place
as the Representative may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative Representatives' Warrants at a purchase price of $100, which
Representatives' Warrants shall entitle the holders thereof to purchase an
aggregate of 200,000 shares of Common Stock. The Representatives' Warrants shall
be exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at a price equaling one hundred
twenty percent (120%) of the initial public offering price of the shares of
Common Stock. The Representatives' Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [___] to the
Registration Statement. Payment for the Representatives' Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares of Common Stock. As soon after the
Registration Statement becomes effective as the Representative deems advisable,
the Underwriters shall make a public offering of the shares of Common Stock
(other than to residents of or in any jurisdiction in which qualification of the
shares of Common Stock is required and has not become effective) at the price
and upon the other terms set forth in the Prospectus. The Representative may
from time to time increase or decrease the public offering price after
distribution of the shares of Common Stock has been completed to such extent as
the Representative, in its sole and absolute discretion deems advisable. The
Underwriters may enter into one or more agreements as the Underwriters, in each
of their sole discretion, deem advisable with one or more broker-dealers who
shall act as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company
16
<PAGE>
covenants and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the shares of Common Stock by the
Underwriters of which the Representative shall not previously have been advised
and furnished with a copy, or to which the Representative shall have objected or
which is not in compliance with the Act, the Exchange Act or the Rules and
Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representative notice of its intention
17
<PAGE>
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or Donahue, Mesereau & Leids ("Underwriters' Counsel") shall
object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Representatives promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act,
18
<PAGE>
each such amendment or supplement to be satisfactory to Underwriters' Counsel,
and the Company will furnish to the Underwriters copies of such amendment or
supplement as soon as available and in such quantities as the Underwriters may
request.
(g) As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Representatives, an
earnings statement which will be in the detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least twelve (12) consecutive months after the
effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
certified public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
19
<PAGE>
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company;
and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Representative may reasonably request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent") and,
if necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representatives may request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twelve (12) months from the effective date of the Registration
Statement, each of the Company's officers, directors and all holders of the
Common Stock of the Company or securities exchangeable or exercisable for or
convertible into shares of Common Stock agrees that it or he or she will not,
directly or indirectly, issue, offer to sell, sell, grant an option for the sale
or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or
dispose of any shares of Common Stock or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or subscribe
for any shares of Common Stock (either pursuant to Rule 144 of the Rules and
Regulations or otherwise) or dispose
20
<PAGE>
of any beneficial interest therein without the prior consent of Millennium
(collectively, the "Lock-up Agreements"). During the twelve (12) month period
commencing on the effective date of the Registration Statement, the Company
shall not, without the prior written consent of the Millennium, sell, contract
or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any options,
rights or warrants with respect to any shares of Common Stock. On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate legends on the certificates representing the
securities subject to the Lock-up Agreements and to place appropriate stop
transfer orders on the Company's ledgers. The Company further covenants that it
will not file a registration statement with the Commission during the twelve
(12) month period commencing on the effective date of the Registration Statement
without the prior written consent of Millennium.
(l) None of each of the Company or any subsidiary of the Company, nor
any of their respective officers, directors, stockholders, nor any of their
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to, or which might in the future reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to each of the dates hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in their letters to be
furnished pursuant to Sections 6(n) and 6(o) hereof.
21
<PAGE>
(p) The Company shall cause the Common Stock to be listed on Nasdaq/NMS
and, for a period of seven (7) years from the date hereof, use its best efforts
to maintain the Nasdaq/NMS listing of the Common Stock to the extent
outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Representative's reasonable request
and the Company's sole expense, (i) daily consolidated transfer sheets relating
to the Common Stock (ii) the list of holders of all of the Company's securities
and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's
securities prepared by counsel to the Company.
(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
(s) The Company hereby agrees that, except as set forth above in Section
4(k) and the 800,000 shares reserved for future issuance under the Company's
1998 Stock Option Plan ("Stock Option Plan"), it will not, for a period of
twelve (12) months from the effective date of the Registration Statement, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or similar arrangement, permitting (i) the
grant, issue, sale or entry into any agreement to grant, issue or sell any
option, warrant or other contract right (x) at an exercise price that is less
than the greater of the public offering price of the Common Stock set forth
herein and the fair market value on the date of grant or sale or (y) to any of
its executive officers or directors or to any holder of 5% or more of the Common
Stock; (ii) the maximum number of shares of Common Stock or other securities of
the Company purchasable at any time pursuant to options or warrants issued by
the Company to exceed such 800,000 shares reserved for future issuance under the
Company's Stock Option Plan; (iii) the payment for such securities with any form
of consideration other than cash; or (iv) the existence of stock appreciation
rights, phantom options or similar arrangements. Furthermore, the Company agrees
that for a period of twelve (12) months from the effective date of the
Registration Statement, the Company will not amend any material employment
agreement or option agreement or other agreement providing compensation to any
officer, director or other principal stockholder, without the prior written
consent of Millennium.
22
<PAGE>
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representative's Securities,
each of the Company and each subsidiary of the Company will not take any action
or actions which may prevent or disqualify the Company's use of Form S-1 (or
other appropriate form) for the registration under the Act of the
Representative's Securities.
(v) For a period of five (5) years after the effective date of the
Registration Statement, the Company agrees to use its best efforts to cause the
appointment or election, as the case may be, of a person designated by
Millennium to the Board of Directors of the Company ("the Board"). In addition,
the Company agrees that, to the extent no designee of Millennium is then a
member of the Board, Millennium shall have the right to designate one (1) person
to attend all meetings of the Board. The Company shall send to such person all
notices and other correspondence and communications sent by the Company to
members of the Board. Such designee(s) of Millennium shall be reimbursed for all
out-of-pocket expenses incurred in connection with their attendance of meetings
of the Board.
(w) Each of the Company, Vision Digital and ______________ will: (i) use
its/his best efforts to satisfy all conditions to consummation of the Vision
Digital Acquisition as set forth in the Asset Purchase Agreement with respect
thereto; (ii) use its/his best efforts to cause each other party to such Asset
Purchase Agreement to satisfy all conditions to the consummation of the Vision
Digital Acquisition; and (iii) promptly notify the Representative of the
occurrence of any event which may result in the non-consummation of the Vision
Digital Acquisition on the First Closing Date.
(x) The Company covenants that it will consummate the Acquisition
Transaction at the Closing Date upon notice that the Firm Securities have been
paid for and delivered in accordance with the terms set forth in Section 2 of
this Agreement.
(y) The Company grants to the Representative a five (5) year right of
first refusal (a) to underwrite or place any public or private sale of equity or
debt securities of the Company, or any subsidiary or successor of the Company,
offered for sale by the Company or any of its subsidiaries, successors or
stockholders and
23
<PAGE>
(b) to purchase for the Representative's account or to sell for the account of
the Company's officers, directors and 10% or greater stockholders any securities
owned by such persons that such persons desire to sell, whether privately,
pursuant to a registered offering, pursuant to Rule 144 promulgated pursuant to
the Act or otherwise. Such right must be exercised by the Representative within
ten (10) business days after it receives written notice from the Company or such
persons, as applicable, of a proposed sale, which notice shall specify the terms
of such proposed sale in reasonable detail. If the Representative declines to
exercise the right granted hereunder but subsequent thereto the terms of such
proposed sale change, the Company or such persons, as applicable, shall again
provide written notice to the Representative of the new terms and the
Representative shall again have ten (10) business days after it receives such
written notice to exercise the right granted herein.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on the Closing Date, and each
Option Closing Date, if any, all expenses and fees (other than fees of
Underwriters' Counsel, except as provided in (iv) below) incident to the
performance of the obligations of the Company under this Agreement, the
Representatives' Warrant Agreement and the Asset Purchase Agreement, including,
without limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Representative's
Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreements, and related documents, including the cost of all copies thereof and
of the Preliminary Prospectuses and of the Prospectus and any amendments thereof
or supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the Securities including, but not
limited to, (x) the purchase by the Underwriters of the Firm Securities and the
Option Securities and the purchase by the Representative of the Representatives'
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representatives' Warrant Agreement, and
(z) resale of the Firm Securities and the Option Securities by the Underwriters
in connection with the distribution contemplated hereby, (iv) the qualification
of the Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum", the "Supplemental Blue Sky
24
<PAGE>
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith, (v) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show", information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including but not limited to the
fees of any independent counsel, expert or consultant retained, (vii) fees and
expenses of the Transfer Agent and registrar and all issue and transfer taxes,
if any, (viii) applications for assignment of a rating of the Securities by
qualified rating agencies, (ix) the fees payable to the Commission and the NASD,
and (x) the fees and expenses incurred in connection with the quotation of the
Securities on the Nasdaq/NMS and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 6 (except Sections 6(c), 6(j) and 6(n)) or
Section 12, the Company shall reimburse and indemnify the Underwriters for all
of their actual out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters and all Blue Sky counsel fees
(excluding filing fees) and disbursements (less amounts previously paid pursuant
to Section 5(c) hereof).
(c) he Company further agrees that, in addition to the expenses payable
pursuant to subSection (a) of this Section 5, it will pay to the Representative
on the Closing Date by certified or bank cashier's check or, at the election of
the Representative, by deduction from the proceeds of the offering of the Firm
Securities, a non-accountable expense allowance equal to 3% of the gross
proceeds received by the Company from the sale of the Firm Securities, $35,000
of which has been paid to date. In the event the Representative elects to
exercise the over allotment option described in Section 2(b) hereof, the Company
further agrees to pay to the Representative on each Option Closing Date, by
certified or bank cashier's check, or at the Representative's election, by
deduction from the proceeds of the Option Securities purchased on such Option
Closing Date, a non-accountable expense allowance equal to 3% of the gross
proceeds received by the Company from the sale of such Option Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof;
25
<PAGE>
and the performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of its covenants and obligations hereunder and to the
following further conditions:
(a) The Registration Statement shall have become effective not later
than 9:30 a.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Common Stock, the price
of the Convertible Preferred Stock and any price-related information previously
omitted from the effective Registration Statement pursuant to such Rule 430A
shall have been transmitted to the Commission for filing pursuant to Rule 424(b)
of the Rules and Regulations within the prescribed time period and, prior to the
Closing Date, the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to each of the Closing Date and each Option Closing
Date, if any, the Representative shall have received from Underwriters' Counsel,
such opinion or opinions with respect to the organization of each of the
Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Representative may reasonably
request and Underwriters' Counsel shall have received such papers and
information as they reasonably request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
26
<PAGE>
favorable opinion of Nida & Maloney, P.C., counsel to the Company, dated
the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
i. the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction, (B) is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership
or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite
corporate power and authority, and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is
and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises
and permits and all federal, state and local laws, rules and
regulations; and, the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially adversely
affect the business, operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company. The
disclosures in the Registration Statement concerning the effects of
federal, state and local laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all
material respects and do not omit to state a fact required to be
stated therein or necessary to make the statements contained therein
not misleading in light of the circumstances in which they were made;
ii. except as described in the Prospectus, the
27
<PAGE>
Company does not own beneficially or of record, directly or
indirectly, an interest in any other corporation, partnership, joint
venture, trust or other business entity;
iii. the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "CAPITALIZATION", and the Company is not a
party to or bound by any instrument, agreement or other arrangement
providing for it to issue, sell, transfer, purchase or redeem any
capital stock, rights, warrants, options or other securities, except
for this Agreement and the Representatives' Warrant Agreement and as
described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform in all material respects to
all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of
any security of the Company or any similar rights granted by the
Company. The Securities to be sold by the Company hereunder and under
the Representatives' Warrant Agreement are not and will not be subject
to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in
accordance with the terms hereof, will be validly issued, fully paid
and non-assessable and conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the
Securities are in due and proper form. The Representatives' Warrants
constitute valid and binding obligations of the Company to issue and
sell, upon exercise thereof and payment
28
<PAGE>
therefor, the number and type of securities of the Company called
for thereby. Upon the issuance and delivery pursuant to this
Agreement of the Firm Securities and the Option Securities and the
Representatives' Warrants to be sold by the Company, the
Underwriters and the Representative, respectively, will acquire
good and marketable title to the Firm Securities and the Option
Securities and the Representatives' Warrants free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security
interest, or other restriction or equity of any kind whatsoever. No
transfer tax is payable by or on behalf of the Underwriters in
connection with (A) the issuance by the Company of the Securities,
(B) the purchase by the Underwriters of the Firm Securities and the
Option Securities from the Company, and the purchase by the
Representative of the Representatives' Warrants from the Company
(C) the consummation by the Company of any of its obligations under
this Agreement or the Representatives' Warrant Agreement, or (D)
resales of the Firm Securities and the Option Securities in
connection with the distribution contemplated hereby.
iv. the Registration Statement is effective under the Act, and,
if applicable, filing of all pricing information has been timely made
in the appropriate form under Rule 430A, and no stop order suspending
the use of the Preliminary Prospectus, the Registration Statement or
Prospectus or any part of any thereof or suspending the effectiveness
of the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or, to the best of
such counsel's knowledge, threatened or contemplated under the Act;
v. each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
29
<PAGE>
vi. (A) there are no agreements, contracts or other documents
required by the Act to be described in the Registration Statement and
the Prospectus and filed exhibits to the Registration Statement other
than those described in the Registration Statement (or required to be
filed under the Exchange Act if upon such filing they would be
incorporated, in whole or in part, by reference therein) and the
Prospectus and filed as exhibits thereto, and the exhibits which have
been filed are correct copies of the documents of which they purport
to be copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of contracts
and other documents to which the Company is a party or by which it is
bound, including any document to which the Company is a party or by
which it is bound, incorporated by reference into the Prospectus and
any supplement or amendment thereto, are accurate and fairly represent
the information required to be shown by Form SB-2; (C) there is not
pending or threatened against the Company any action, arbitration,
suit, proceeding, inquiry, investigation, litigation, governmental or
other proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of the
Company which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in
all respects), (y) questions the validity of the capital stock of the
Company or this Agreement or the Representatives' Warrant Agreement,
or of any action taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; (D) no statute or regulation or
legal or governmental proceeding required to be described in the
Prospectus is not described as required; and (E) there is no action,
suit or proceeding pending, or threatened, against or affecting the
Company before any court or arbitrator or
30
<PAGE>
governmental body, agency or official (or any basis thereof known
to such counsel) in which there is a reasonable possibility of a
decision which may result in a material adverse change in the
condition, financial or otherwise, or the earnings, position,
prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company, which could
adversely affect the present or prospective ability of the Company
to perform its obligations under this Agreement or the
Representatives' Warrant Agreement or which in any manner draws
into question the validity or enforceability of this Agreement or
the Representatives' Warrant Agreement;
vii. the Company has full legal right, power and authority to
enter into each of this Agreement and the Representatives' Warrant
Agreement, and to consummate the transactions provided for therein;
and each of this Agreement and the Representatives' Warrant Agreement
has been duly authorized, executed and delivered by the Company. Each
of this Agreement and the Representatives' Warrant Agreement, assuming
due authorization, execution and delivery by each other party thereto
constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms (except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or
delivery of this Agreement and the Representatives' Warrant Agreement,
its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result
31
<PAGE>
in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction
or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of,
(A) the certificate of incorporation or by-laws of the Company, (B)
any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company is a party or by which
it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness,
or (C) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective activities
or properties.
viii. no consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body
(other than such as may be required under Blue Sky laws, as to which
no opinion need be rendered) is required in connection with the
issuance of the Firm Securities and the Option Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the
Representatives' Warrants, the performance of this Agreement and the
Representatives' Warrant Agreement, and the transactions contemplated
hereby and thereby;
ix. the properties and business of the Company conform in all
material respects to the description thereof contained in the
Registration Statement and the Prospectus; and the Company has good
and marketable title to, or valid and enforceable leasehold estates
in, all items of real and personal property stated in the Prospectus
to be owned or leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
32
<PAGE>
other restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not yet due
and payable;
x. the Company is not in breach of, or in default under, any
termor provision of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, deed of
trust, lease, voting trust agreement, stockholders' agreement,
partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money,
or any other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which the properties or
assets (tangible or intangible) of the Company is subject or affected;
and the Company is not in violation of any term or provision of its
Certificate of Incorporation or By-Laws or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation;
xi. the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions, are correct in all material
respects;
xii. the Securities have been accepted for inclusion on
Nasdaq/NMS;
xiii. the persons listed under the caption "PRINCIPAL
STOCKHOLDERS" in the Prospectus are the respective "beneficial owners"
(as such phrase is defined in regulation 13d-3 under the Exchange Act)
of the securities set forth opposite their respective names thereunder
as and to the extent set forth therein;
xiv. none of the Company nor any of its officers, stockholders,
employees or agents, nor any other
33
<PAGE>
prson acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a
customer or supplier, or official or employee of any governmental
agency or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or
foreign) or other person who is or may be in a position to help or
hinder the business of the Company (or assist it in connection with
any actual or proposed transaction) which (A) might subject the
Company to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (B) if not given in the
past, might have had an adverse effect on the assets, business or
operations of the Company, as reflected in any of the financial
statements contained in the Registration Statement, or (C) if not
continued in the future, might adversely affect the assets,
business, operations or prospects of the Company;
xv. no person, corporation, trust, partnership, association or
other entity has the right to include and/or register any securities
of the Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any security
in such registration statement;
xvi. except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in
the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or financial consulting arrangements or
any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriters' compensation, as
determined by the NASD;
xvii. assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in
34
<PAGE>
accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except
as rights to indemnity or contribution may be limited by applicable
law);
xviii. except as described in the Prospectus, the Company does
not (A) maintain, sponsor or contribute to any ERISA Plans, (B)
maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and (C) has never
completely or partially withdrawn from a "multi employer plan";
xix. the minute books of the Company have been made available to
the Underwriters and contain a complete summary of all meetings and
actions of the directors and stockholders of the Company since the
time of its incorporation and reflect all transactions referred to in
such minutes accurately in all material respects;
xx. except as set forth in the Prospectus, no officer, director
or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (A) an interest in any person or
entity which (x) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the
Company, or (y) purchases from or sells or furnishes to the Company
any goods or services, or (B) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under "CERTAIN
TRANSACTIONS," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
35
<PAGE>
understandings or transactions, between or among the Company, and any
officer, director, or 5% or greater security holder of the Company, or
any affiliate or associate of any such person or entity;
xxi. to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding, domestic or foreign, pending or
threatened (or circumstances that may give rise to the same) involving
the Company's production, use, testing, manufacturing or marketing of
any products or services, which (i) questions the authority of the
Company to produce, use, test, manufacture or market any products or
services as described in the Prospectus, (ii) questions the
completeness or accuracy of data generated by any trials, tests or
studies being conducted by or on behalf of the Company, (iii) is
required to be disclosed in the Prospectus which is not so disclosed,
or (iv) might materially and adversely affect the condition, financial
or otherwise, or the earnings, prospects, value, operations or
business of the Company.
xxii. none of the Company nor any of its affiliates shall be
subject to the requirements of or shall be deemed an "Investment
Company," pursuant to and as defined under, respectively, the
Investment Company Act of 1940, as amended.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company, and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
36
<PAGE>
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative,
Underwriters' Counsel and they are each justified in relying thereon. Any
opinion of counsel for the Company shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable
state accord.
(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Nida & Maloney, P.C., counsel to the Company,
dated on such Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel confirming as of such Option
Closing Date the statements made by Nida & Maloney, P.C. in its opinions
delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option Closing Date,
if any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
37
<PAGE>
(g) Prior to each of the Closing Date and each Option Closing Date, if any,
(i) there shall have been no material adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of each of the Company and each subsidiary of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which such condition is set forth in the Registration Statement and Prospectus;
(ii) there shall have been no transaction, not in the ordinary course of
business, entered into by each of the Company or each subsidiary of the Company,
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and Prospectus which is materially adverse
to the Company; (iii) the Company shall not be in material default under any
provision of any instrument relating to any outstanding indebtedness; (iv)
neither the Company nor any subsidiary of the Company shall have issued any
securities (other than the Securities) or declared or paid any dividend or made
any distribution in respect of its capital stock of any class and there has not
been any change in the capital stock or any material change in the debt (long or
short term) or liabilities or obligations of each of the Company or each
subsidiary of the Company (contingent or otherwise); (v) no material amount of
the assets of each of the Company or each subsidiary of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have
been pending or threatened (or circumstances giving rise to same) against each
of the Company or each subsidiary of the Company, or affecting any of its
respective properties or businesses before or by any court or federal, state or
foreign commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, earnings, position, value, properties, results of operations,
prospects or financial condition or income of each of the Company and each
subsidiary of the Company; and (vii) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(h) At each of the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, the Prospectus, the Stock Purchase Agreement and this
Agreement, and that:
i. The representations and warranties of the
38
<PAGE>
Company in this Agreement are true and correct, as if made on and
as of the Closing Date or the Option Closing Date, as the case may
be, and the Company has complied with all agreements and covenants
and satisfied all conditions contained in this Agreement on its
part to be performed or satisfied at or prior to such Closing Date
or Option Closing Date, as the case may be;
ii. No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, are contemplated or
threatened under the Act;
iii. The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and neither the Preliminary
Prospectus or any supplement thereto included any untrue statement of
a material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) neither
the Company nor any subsidiary of the Company has incurred up to and
including the Closing Date or the Option Closing Date, as the case may
be, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) neither the
Company nor any subsidiary of the Company has paid or declared any
dividends or other distributions on its capital stock; (c) neither the
Company nor any subsidiary of the Company
39
<PAGE>
has entered into any material transactions not in the ordinary
course of business; (d) there has not been any change in the
capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term borrowings in
the ordinary course of business) of each of the Company or any
subsidiary of the Company; (e) neither the Company nor any
subsidiary of the Company has sustained any material loss or damage
to its properties or assets, whether or not insured; (f) there is
no litigation which is pending or threatened (or circumstances
giving rise to same) against each of the Company or any subsidiary
of the Company or any affiliated party which is required to be set
forth in an amended or supplemented Prospectus which has not been
set forth; and (g) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been
set forth.
References to the Registration Statement and the Prospectus in this subsection
(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriters will have received clearance from
the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from Singer Lewak Greenbaum Goldstein
LLP:
i. confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the applicable Rules and Regulations;
ii. stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with
the applicable accounting
40
<PAGE>
requirements of the Act and the Rules and Regulations thereunder
and that the Representatives may rely upon the opinion of Singer
Lewak Greenbaum & Goldstein LLP with respect to the financial
statements and supporting schedules included in the Registration
Statement;
iii. stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes
of the stockholders and board of directors and the various committees
of the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to believe
that (A) the unaudited financial statements and supporting schedules
of the Company included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of
the audited financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five
(5) days prior to the effective date of the Registration Statement,
there has been any change in the capital stock or long-term debt of
the Company, or any decrease in the stockholders' equity or net
current assets or net assets of the Company as compared with amounts
shown in the June 30, 1998 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during
the period from June 30, 1998 to a specified date not more than five
(5) days prior to the effective date of the Registration Statement,
there was any decrease in net revenues, net earnings or increase in
net earnings per common share of the Company or any of its
Subsidiaries, in each case as compared with the corresponding period
beginning June 30, 1997, other than as set forth in or
41
<PAGE>
contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
iv. setting forth, at a date not later than five (5) days prior
to the date of the Registration Statement, the amount of liabilities
of the Company and each subsidiary of the Company taken as a whole
(including a break-down of commercial paper and notes payable to
banks);
v. stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in
the Prospectus to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting
records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the
results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute
an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
vi. statements as to such other matters incident to the
transaction contemplated hereby as the Representative may reasonably
request.
(k) At the Closing Date and each Option Closing Date, if any, the
underwriters shall have received from Singer Lewak Greenbaum & Goldstein LLP a
letter, dated as of the Closing Date or the Option Closing Date, as the case may
be, to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (j) of this Section, except that the specified date
referred to shall be a date not more than five (5) days prior to the Closing
Date or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further effect
that they have carried out procedures as specified in clause (v) of subsection
(i) of this Section with respect to certain amounts, percentages and financial
information as specified by the Representatives and deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
42
<PAGE>
(l) On each of the Closing Date and each Option Closing Date, if any, there
shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in anyjurisdiction
designated by the Representatives pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the Closing Date, the Company shall have executed and
delivered to the Representative (i) the Representatives' Warrant Agreement
substantially in the form filed as Exhibit ____ to the Registration Statement,
in final form and substance satisfactory to Millennium, and (ii) the
Representatives' Warrants in such denominations and to such designees as shall
have been provided to the Company by Millennium.
(o) On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for quotation on Nasdaq/NMS, subject to
official notice of issuance.
(p) On or before the Closing Date, there shall have been delivered to the
Representatives all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
(q) The Asset Purchase Agreement shall be in full force and effect and none
of the parties thereto shall be in default thereunder. The Representative shall
have received assurances reasonably satisfactory to it that all documents
required to be filed in the respective states in order to effectuate the
consummation of the Acquisition shall have been approved for filing by the
appropriate authorities in each state and that all of such Acquisition documents
shall be filed substantially concurrently with the consummation of the
transactions pursuant to this Agreement.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Representative may terminate this Agreement or,
if the Representative so elect, they may waive any such conditions which have
not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
43
<PAGE>
(a) The Company agrees to indemnify, defend and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, the Nasdaq/NMS or any
other securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company and or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this subsection (a) shall be in addition to any liability which the Company may
have at common law or otherwise.
The foregoing indemnity with respect to any untrue statement contained in
or omission from a Preliminary Prospectus shall not inure to the benefit of any
44
<PAGE>
Underwriter (or any person controlling such Underwriter) from whom the person
asserting any such loss, liability, claim, damage or expense purchased any of
the Securities which are the subject thereof if (1) the Company shall sustain
the burden of proving that such asserting person did not receive a copy of the
Prospectus (or the Prospectus as amended or supplemented) at or prior to the
written confirmation of the sale of such Securities to such person and the
untrue statement contained in or omitted from such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented); and
(2) the Company shall have complied with its covenant pursuant to Section 4(f)
of this Agreement.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify, defend and hold harmless the Company and its directors, officers who
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Underwriters but only with respect
to statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to any
Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Firm Securities and the Option Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any claim, action, suit, investigation, inquiry,
proceeding or litigation, such indemnified party shall, if a claim in respect
thereof is to be made against one or more indemnifying parties under this
Section 7, notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the
45
<PAGE>
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party or parties shall have the right to
employ its or their own counsel in any such case but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties
unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense thereof at
the expense of the indemnifying party, (ii) the indemnifying parties shall
not have employed counsel reasonably satisfactory to such indemnified party
to have charge of the defense thereof within a reasonable time after notice
of commencement thereof, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of
the indemnifying parties (in which case the indemnifying parties shall not
have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one claim, action,
suit, investigation, inquiry, proceeding or litigation or separate but
similar or related claims, actions, suits, investigations, inquiries,
proceedings or litigation in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim, action, suit, investigation, inquiry, proceeding or
litigation effected without its written consent; provided, however, that such
consent was not unreasonably withheld. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle,
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit, investigation, inquiry, proceeding
or litigation in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim, action, suit, investigation, inquiry,
proceeding or litigation), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit, investigation, inquiry,
proceeding or litigation and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes claim for indemnification pursuant to this
Section 7, but it is judicially determined (by the entry of a final judgment or
decree
46
<PAGE>
by a court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect
thereof) (A) in such proportion as is appropriate to reflect the relative
benefits received by each of the contributing parties, on the one hand, and
the party to be indemnified on the other hand, from the offering of the Firm
Securities and the Option Securities or (B) if the allocation provided by
clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of each of the contributing parties, on
the one hand, and the party to be indemnified on the other hand in connection
with the statements or omissions that resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. In any case where the Company is the contributing party and
the Underwriters are the indemnified party, the relative benefits received by
the Company on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Firm Securities and the Option Securities (before deducting
expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to
the Firm Securities and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 7, each person, if any, who controls the Company or
the Underwriter within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company and or the
Underwriter, as the case may be, subject in each case to this subsection (d).
Any party entitled to contribution will, promptly after receipt of
47
<PAGE>
notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another
party or parties under this subsection (d), notify such party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have hereunder or otherwise than
under this subsection (d), or to the extent that such party or parties were
not adversely affected by such omission. The contribution agreement set forth
above shall be in addition to any liabilities which any indemnifying party
may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of each of the Company and each subsidiary of the
Company submitted pursuant hereto, shall be deemed to be representations,
warranties and agreements at the Closing Date and the Option Closing Date, as
the case may be, and such representations, warranties and agreements of each of
the Company and each subsidiary of the Company and the indemnity agreements
contained in Section 7 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter,
each of the Company and each subsidiary of the Company, any controlling person
of any Underwriter or each of the Company and each subsidiary of the Company,
and shall survive termination of this Agreement or the issuance and delivery of
the Securities to the Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Representative, in sole and absolute discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the Representative shall
have the right to terminate this Agreement, (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Representative's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial
48
<PAGE>
markets shall have occurred; or (iii) if trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Commission or
any governmental authority having jurisdiction over such matters; or (iv) if
trading of any of the securities of the Company shall have been suspended, or
any of the securities of the Company shall have been delisted, on any
exchange or in any over-the-counter market; (v) if the United States shall
have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities or a national
emergency shall have been declared in the United States; or (vi) if a banking
moratorium has been declared by a state or federal authority; or (vii) if a
moratorium in foreign exchange trading has been declared; or (viii) if either
the Company or any subsidiary of the Company shall have sustained a loss
material or substantial to either the Company or any subsidiary of the
Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act which, whether or not such loss shall have
been insured, will, in the Representative's opinion, make it inadvisable to
proceed with the offering, sale and/or delivery of the Securities; or (ix) if
there shall have been such a material adverse change in the conditions or
prospects of either the Company or any subsidiary of the Company, or such
material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, that, in each case, in the
Representative's judgment, would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities or (x) if Ramy El-Batrami
shall no longer serve either the Company or any subsidiary of the Company in
his present capacity.
(b) If this Agreement is terminated by the Representative in accordance
with the provisions of Section 10(a) the Company shall promptly reimburse and
indemnify the Representative for all of its actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters and all
Blue Sky counsel fees (excluding filing fees) and disbursements (less amounts
previously paid pursuant to Section 5(c) above). In addition, the Company shall
remain liable for all Blue Sky counsel fees and disbursements, expenses and
filing fees. Notwithstanding any contrary provision contained in this Agreement,
if this Agreement shall not be carried out within the time specified herein, or
any extension thereof granted to the Representative, by reason of any failure on
the part of either the Company or any subsidiary of the Company to perform any
undertaking or satisfy any condition of this Agreement by it to be performed or
satisfied (including, without limitation, pursuant to Section 6 (except if this
Agreement is terminated pursuant to Sections 6(c), 6(l) or 6(q)) or Section 12)
then, the Company shall promptly reimburse and indemnify the Representative for
all of his actual out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel
49
<PAGE>
fees and disbursements, expenses and filing fees. Notwithstanding any
contrary provision contained in this Agreement, any election hereunder or any
termination of this Agreement (including, without limitation, pursuant to
Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination
of this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase the Securities which it or they are obligated to purchase
on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein
set forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriters (or, if such default shall
occur with respect to any Option Securities to be purchased on an Option
Closing Date, the Underwriters may at the Representative's option, by notice
from the Representative to the Company, terminate the Underwriters'
obligation to purchase Option Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any defaulting
underwriter from liability in respect of any default by such Underwriter
under this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. Default by the Company. If the Company shall fail at the Closing Date
50
<PAGE>
or at any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Representative's option, by notice from the Representative to the
Company, terminate the Underwriters' obligation to purchase Option Securities
from the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 5, Section 7 and Section 10
hereof. No action taken pursuant to this Section 12 shall relieve the Company
from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to
have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, Millennium Financial Group, Inc., 235 West 56th Street, Suite
37E, New York, New York 10019, Attention: Michael Roy Fugler, Managing
Director, with a copy to Donahue, Mesereau & Leids, LLP, 1900 Avenue of the
Stars, Suite 2700, Los Angeles, California 90067, Attention: Asher M. Leids,
Esq. Notices to the Company shall be directed to the Company at 13063 Ventura
Boulevard, Studio City, California 91604, Attention: Ramy El-Batrami,
Chairman of the Board and Chief Executive Officer with a copy to: Nida &
Maloney, P.C., 800 Anacapa Street, Santa Barbara, California 93101,
Attention: Theodore R. Maloney, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the Representatives'
Warrant Agreement constitute the entire agreement of the parties
51
<PAGE>
hereto and supersede all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
not be amended except in a writing, signed by the Representative and the
Company.
52
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
GENESIS MEDIA GROUP, INC.
By:
-----------------------------------------
Mr. Rami El-Batrami
Chairman of the Board and
Chief Executive Officer
Confirmed and accepted as of
the date first above written.
MILLENNIUM FINANCIAL GROUP, INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
---------------------------------------
Name:
Title:
53
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock
Name of Underwriters to be Purchased
- ---------------------------------- ---------------
<S> <C>
Millennium Financial Group, Inc.
Total................................. 2,000,000
---------
---------
</TABLE>
54
<PAGE>
Exhibit 2.1
FORM OF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "MERGER AGREEMENT"), dated as
of _______ __, 1998, is entered into by and between Genesis Media Group, Inc., a
Florida corporation ("GMG-FLORIDA"), and Genesis Media Group, Inc., a Delaware
corporation ("GMG-DELAWARE").
RECITALS
1. GMG-Florida is a corporation duly organized and existing under the
laws of the State of Florida.
2. GMG-Delaware is a corporation duly organized and existing under the
laws of the State of Delaware.
3. On the date of this Merger Agreement, GMG-Florida's authorized
capital consists of 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock, par value $.001 per share (the "GMG-FLORIDA COMMON STOCK"), of
which 4,060,000 shares are issued and outstanding; and 5,000,000 shares of
Preferred Stock, par value $.001 per share (the "GMG-FLORIDA PREFERRED
STOCK"), of which none are issued and outstanding.
4. On the date of this Merger Agreement, GMG-Delaware's authorized
capital consists of 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock, par value $.001 per share (the "GMG-DELAWARE COMMON STOCK"), of
which one share is issued and outstanding; and 5,000,000 shares of Preferred
Stock, par value $.001 per share (the "GMG-DELAWARE PREFERRED STOCK"), of
which none are issued and outstanding.
5. The respective Boards of Directors of GMG-Florida and GMG-Delaware
have determined that it is advisable and in the best interests of each such
corporation that GMG-Florida merge with and into GMG-Delaware upon the terms
and subject to the conditions of this Merger Agreement for the purpose of
effecting the reincorporation of GMG-Florida in the State of Delaware (the
"MERGER").
6. The respective Boards of Directors of GMG-Florida and GMG-Delaware
have, by resolutions duly adopted, approved this Merger Agreement. The
holders of a majority of the shares of GMG-Florida Common Stock outstanding
and all of the shares of GMG-Florida Common Stock outstanding have adopted
and approved this Merger Agreement, and GMG-Florida has adopted and approved
this Merger Agreement as the sole stockholder of GMG-Delaware.
7. The parties intend by this Merger Agreement to effect a
"reorganization" under Section 368 of the Internal Revenue Code of 1986, as
amended.
TERMS AND PROVISIONS OF REINCORPORATION
In consideration of the foregoing Recitals and of the following terms
and provisions, and subject to the following conditions, it is agreed:
1. MERGER. The effective time of the Merger (the "EFFECTIVE TIME")
shall occur at the latest of (a) the time and date that shareholders of
GMG-Florida approve this Merger Agreement and the Merger, (b) the time and
date that a certificate of merger is duly filed with the Secretary of State of
<PAGE>
Delaware with respect to the Merger, or (c) the time and date that the
certificate of merger is duly filed with the Florida Department of State with
respect to the Merger. As of the Effective Time, GMG-Florida shall be merged
with and into GMG-Delaware, GMG-Delaware shall be the surviving corporation of
the Merger (hereinafter sometimes referred to as the "SURVIVING CORPORATION"),
and the separate corporate existence of GMG-Florida shall cease.
2. GOVERNING DOCUMENTS.
a. The Certificate of Incorporation of GMG-Delaware, as it may be
amended or restated subject to applicable law, and as in effect immediately
prior to the Effective Time, shall constitute the Certificate of
Incorporation of the Surviving Corporation without further change or
amendment until thereafter amended in accordance with the provisions thereof
and applicable law.
b. The Bylaws of GMG-Delaware as in effect immediately prior to
the Effective Time shall constitute the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof and applicable law.
3. OFFICERS AND DIRECTORS. The persons who are officers and
directors of GMG-Florida immediately prior to the Effective Time shall, after
the Effective Time, be the officers and directors of the Surviving Corporation,
without change until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws and
applicable law. The directors of GMG-Florida are as follows: Ramy El-Batrawi,
Douglas E. Jacobson, Sam I. Hassabo and Blair La Corte.
4. NAME. The name of the Surviving Corporation shall continue to be
Genesis Media Group, Inc.
5. SUCCESSION. At the Effective Time, the separate corporate
existence of GMG-Florida shall cease, and the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public or private
nature and be subject to all the restrictions, disabilities and duties of
GMG-Florida; and all property, real, personal and mixed, and all debts due to
GMG-Florida on whatever account, as well as for share subscriptions and all
other things in action, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of GMG-Florida, and the title to any real estate vested
by deed or otherwise shall not revert or be in any way impaired by reason of the
Merger; but all rights of creditors and liens upon any property of GMG-Florida
shall be preserved unimpaired, and all debts, liabilities and duties of
GMG-Florida shall thenceforth attach to the Surviving Corporation and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it; PROVIDED, HOWEVER, that such liens upon
property of GMG-Florida will be limited to the property affected thereby
immediately prior to the Merger. All corporate acts, plans, policies,
agreements, arrangements, approvals and authorizations of GMG-Florida, its
shareholders, Board of Directors and committees thereof, officers and agents
which were valid and effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans, policies, agreements, arrangements,
approvals and authorizations of the Surviving Corporation and shall be as
effective and binding thereon as the same were with respect to GMG-Florida.
6. FURTHER ASSURANCES. From time to time, as and when required or
requested by the Surviving Corporation or by its successors and assigns, there
shall be executed and delivered on behalf of GMG-Florida such deeds, assignments
and other instruments, and there shall be taken or caused to be taken by it all
such further and other action, as shall be appropriate or necessary in order to
vest,
2
<PAGE>
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of GMG-Florida and
otherwise to carry out the purposes of this Merger Agreement, and the
officers and directors of the Surviving Corporation are fully authorized in
the name and on behalf of GMG-Florida or otherwise, to take any and all such
action and to execute and deliver any and all such deeds, assignments and
other instruments.
7. CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
a. Each share of GMG-Florida Common Stock outstanding immediately
prior to the Effective Time shall be converted into, and shall become, one
fully paid and nonassessable share of GMG-Delaware Common Stock.
b. The one share of GMG-Delaware Common Stock issued and
outstanding in the name of GMG-Florida shall be cancelled and retired, and no
payment shall be made with respect thereto, and such share shall resume the
status of an authorized and unissued share of GMG-Delaware Common Stock.
8. STOCK CERTIFICATES. At and after the Effective Time, any
outstanding certificates which immediately prior to the Effective Time
represented shares of GMG-Florida Common Stock shall be deemed for all
purposes to evidence ownership of, and to represent shares of, GMG-Delaware
Common Stock, into which such shares of GMG-Florida formerly represented by
such certificates have been converted as herein provided. The registered
owner on the books and records of GMG-Florida or its transfer agent of any
such outstanding stock whether certificated or not shall have and be entitled
to exercise any voting or other rights with respect to and to receive any
dividends and other distributions upon the shares of GMG-Delaware Common
Stock evidenced by such outstanding shares as above provided.
9. OPTIONS; STOCK GRANTS. Each right in or to, or option to purchase,
shares of GMG-Florida Common Stock , which are outstanding immediately prior
to the Effective Time (collectively, the "OPTIONS"), and any shares of
GMG-Florida Common Stock granted under the Genesis Media Group, Inc. 1998
Stock Incentive Program (the "STOCK PROGRAM") which, as of the Effective
Time, have not yet vested (the "UNVESTED SHARES"), shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and/or become a right in or to, or an option to purchase at the same
option price per share, as the case may be, the same number of shares of
GMG-Delaware Common Stock, upon the same terms and subject to the same
conditions as set forth in their respective option agreements or in the Stock
Program as in effect at the Effective Time. A number of shares of
GMG-Delaware Common Stock shall be reserved for purposes of the option
agreements that is equal to the number of shares of GMG-Florida Common Stock
that could have been purchased pursuant to the Options (assuming all Options
were exercised) as of the Effective Time. A number of shares of GMG-Delaware
Common Stock shall be reserved for purposes of the Stock Program that is
equal to the number of Unvested Shares as of the Effective Time. As of the
Effective Time, the Surviving Corporation hereby assumes each of the option
agreements and the Stock Program and all obligations of GMG-Florida
thereunder including the outstanding rights or options or portions thereof
granted pursuant to the option agreements or the Stock Program.
10. OTHER EMPLOYEE BENEFIT PLANS. As of the Effective Time, the
Surviving Corporation hereby assumes all obligations of GMG-Florida under any
and all employee benefit plans in effect as of the Effective Time or with
respect to which employee rights or accrued benefits are outstanding as of the
Effective Time.
3
<PAGE>
11. CONDITION. The consummation of the Merger and related transactions
are subject to satisfaction of the following conditions prior to the
Effective Time:
a. All necessary action shall have been taken to authorize the
execution, delivery and performance of the Merger Agreement by GMG-Florida
and GMG-Delaware.
b. All regulatory approvals necessary or desirable in connection
with the consummation of the Merger and the transaction contemplated thereby
shall have been obtained.
c. No suit, action, proceeding or other litigation shall have
been commenced or threatened to be commenced which, in the opinion of
GMG-Florida or GMG-Delaware would pose a material restriction on or impair
consummation of the Merger, performance of this Merger Agreement or the
conduct of the business of GMG-Delaware after the Effective Time, or create a
risk of subjecting GMG-Florida or GMG-Delaware, or their respective
shareholders, officers or directors, to material damages, costs, liability or
other relief in connection with the Merger or this Merger Agreement.
12. ACCOUNTING MATTERS. GMG-Delaware agrees that upon the Effective
Time, the assets, liabilities, reserves and accounts of GMG-Florida and
GMG-Delaware shall be taken up or continued on the books of GMG-Delaware in the
amounts at which such assets, liabilities, reserves and accounts shall have been
carried on the books of GMG-Florida and GMG-Delaware immediately prior to the
Effective Time, subject to such adjustments, and such elimination of
intercompany items, as may be appropriate to give effect to the Merger.
13. GOVERNING LAW. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
contracts entered into and to be performed wholly within the State of Delaware,
except to the extent that the laws of the State of Florida are mandatorily
applicable to the Merger.
14. AMENDMENT. Subject to applicable law and subject to the rights of
GMG-Florida's shareholders further to approve any amendment which would have
a material adverse effect on such shareholders, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto
at any time prior to the Effective Time with respect to any of the terms
contained herein.
15. DEFERRAL OR ABANDONMENT. At any time prior to the Effective Time,
this Merger Agreement may be terminated and the Merger may be abandoned or
the time of consummation of the Merger may be deferred for a reasonable time
by the Board of Directors of either GMG-Florida or GMG-Delaware, or both,
notwithstanding approval of this Merger Agreement by the shareholders of
GMG-Florida or the shareholders of GMG-Delaware, or both, if circumstances
arise which, in the opinion of the Board of Directors of GMG-Florida or
GMG-Delaware, make the Merger inadvisable or such deferral of the time of
consummation advisable.
16. COUNTERPARTS. This Merger Agreement may be executed in any number
of counterparts each of which when taken alone shall constitute an original
instrument and when taken together shall constitute one and the same
Agreement.
17. ASSURANCE. GMG-Florida and GMG-Delaware agree to execute any and
all documents, and to perform such other acts, which may be necessary or
expedient to further the purposes of this Merger Agreement.
4
<PAGE>
IN WITNESS WHEREOF, GMG-Florida and GMG-Delaware have caused this Merger
Agreement to be signed by their respective duly authorized officers and
delivered this ____ day of October , 1998.
GENESIS MEDIA GROUP, INC.,
a Florida corporation
By:
-----------------------------
Name: Ramy El-Batrawi
Title: Chairman of the Board and
President
ATTEST:
By:
-----------------------------
Name: Douglas E. Jacobson
Title: Chief Financial Officer
GENESIS MEDIA GRUP, INC.,
a Delaware corporation
By:
-----------------------------
Name: Ramy El-Batrawi
Title: Chairman of the Board
and President
ATTEST:
By:
----------------------------
Name: Douglas E. Jacobson
Title: Treasurer
5
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered
into as of October 26, 1998, by and among Vision Digital Communications, Inc., a
California corporation ("Seller"), Christopher Million and Michael F. Costa
(together, the "Shareholders"), and Genesis Media Group, Inc., a Delaware
corporation ("Buyer").
RECITALS
A. Seller is the owner of certain communications system kiosk and video
networks (the "Centerline System"), which Seller installs, operates and
maintains at various shopping centers (the "Business").
B. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, the assets of the Seller, and Buyer is willing to assume certain
obligations related to the Business, pursuant to the terms and subject to the
conditions set forth herein.
AGREEMENT
In consideration of the above Recitals and the representations,
warranties and covenants contained herein, the adequacy of which is hereby
acknowledged, Seller and Buyer mutually agree as follows:
Article I.
Definitions
1.1. Defined Terms. As used herein, the terms below shall have the
following meanings:
"Action" shall mean any action, claim, suit, arbitration,
inquiry, subpoena, discovery request, proceeding or investigation by or before
any court or grand jury, any governmental or other regulatory or administrative
agency or commission or any arbitration tribunal related to, arising out of, or
resulting from (i) the operation of the Business, (ii) the Assets, (iii) the
Assumed Contracts or (iv) the Assumed Liabilities.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person and any member, general partner, director, officer or employee
of such Person. For purposes of this definition of Affiliate, "control" shall
mean the power of one or more Persons to direct the affairs of the Person
controlled by reason of ownership of voting stock, contract or otherwise.
"Assets" shall mean all of the assets and rights of any kind,
whether tangible or intangible, owned by Seller or in which Seller has any
interest as of the Closing Date constituting, used in or required for the
operation of the Business, including, without limitation, the Membership
Interest, all cash and accounts receivable, any Contract Rights, any Recovery
Rights, the Inventory, the Personal Property, the Intangibles, the Books and
Records, the Intellectual Property and, to the extent transferable, the Permits.
"Assumed Contracts" shall mean those Contracts listed on
Schedule 1.1(a) related primarily or exclusively to the Business or the Assets
to which Seller or any of its Affiliates is a party and for which Buyer shall be
responsible after the Effective Time.
"Assumed Liabilities" shall mean the liabilities listed on
Schedule 1.1(b).
<PAGE>
"Books and Records" shall mean all records (or true and
complete copies thereof), including computerized books and records, owned by
Seller that relate primarily or exclusively to or are reasonably necessary for
the continued operation of the Business following the Closing, including
engineering information, sales and promotional literature, manuals and data,
lists of customers and suppliers, all such books and records relating to the
purchase of materials, supplies and services for the Business, and any files
relating to any Action in respect of any Assumed Liability.
"Code" shall mean the Internal Revenue Service Code, as
amended, and the rules and regulations thereunder.
"Common Stock" shall mean the Common Stock, per value of $.001
per share, of Buyer.
"Contract Rights" shall mean all of Seller's rights under
sales orders in process, utility and lease deposits, prepaid items and expenses
and rights under Assumed Contracts and other Contracts, including all insurance
policies and all proceeds thereof.
"Contracts" shall mean any and all contracts, insurance
policies, agreements, arrangements, leases, mortgages, bonds, notes and other
instruments and obligations, whether or not in writing.
"Damages" shall mean any and all costs, losses, damages,
diminution in value, liabilities, demands, claims, suits, actions, judgments,
causes of action, assessments or expenses, including interest, penalties, fines
and attorneys' fees incident thereto, incurred in connection with any Claim, and
any and all expenses incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any Claim whatsoever, and any and
all amounts paid in settlement of any Claim or litigation.
"Employee Proprietary Agreements" shall mean the Buyer's
standard form of Employee Proprietary Information and Inventions Agreements,
executed by Buyer and each of the individuals designated by Buyer.
"Employment Agreements" shall mean the Employment Agreements
in the form of Exhibits A and B hereto, executed by Buyer and each of the
Employees set forth therein.
"Encumbrance" shall mean any claim, mortgage, lien, pledge,
option, charge, easement, security interest, right-of-way, encumbrance or other
right of third parties.
"Excluded Liabilities" shall mean all of the debts, contracts,
agreements, commitments, obligations and other liabilities of Seller or the
Business, other than the Assumed Liabilities, of any nature whatsoever, whether
known or unknown, accrued or not accrued, fixed or contingent, including any
liability of Seller for income, transfer, sales, use and other Taxes arising in
connection with the consummation of the transactions contemplated hereby.
"Exclusive Negotiation Period" shall mean the period
commencing on the date of this Agreement and extending until the earlier to
occur of (i) termination of this Agreement in accordance with its terms or (ii)
the Effective Time.
"GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), or in such other statements by such entity as may be in general use
by significant segments of the U.S. accounting profession, which are applicable
to the facts and circumstances on the date of determination.
"Intangibles" shall mean all goodwill associated with the
Business or the Assets.
"Intellectual Property" shall mean all copyrights, copyright
registrations, proprietary processes, trade secrets, license rights,
specifications, technical manuals and data, drawings, inventions, designs,
patents, patent applications, Tradename, trademarks, service marks, product
information and data, know-how and development work-in-progress, customer lists,
software, business and marketing plans and other intellectual or intangible
property embodied in or pertaining to the Business, whether pending, applied for
or issued, whether filed in the United States, or in other countries, together
with all associated goodwill; all things authored, discovered, developed, made,
perfected, improved, designed, engineered, acquired, produced, conceived or
first reduced to practice by Seller or any of its employees or agents that are
embodied in, derived from or relate to the Business, in any stage of
development, including, without limitation, modifications, enhancements,
designs, concepts, techniques, methods, ideas, flow charts, coding sheets, notes
and all other information relating to the Business; any and all design and code
documentation, methodologies, processes, trade secrets, copyrights, design
information, product information, technology, formulae, routines, engineering
specifications, technical manuals and data, drawings, inventions, know-how,
techniques, engineering work papers, and notes, development work-in-process, and
other proprietary information and materials of any kind relating to, used in, or
derived from the Assets; all computer software programs, data and associated
licenses, in each of the foregoing cases, used in connection with or
constituting a part of the Business.
"Inventory" shall mean all raw materials, work-in-process,
finished goods, supplies and other inventories of the Business.
"Legal Requirements" shall mean any and all applicable (i)
international, foreign, federal, state and local laws, ordinances and
regulations and (ii) judgments, orders, writs, injunctions and decrees.
<PAGE>
"Membership Interest" shall mean the entire Membership
Interest in Vision Digital Communications, LLC owned by Seller.
"Permits" shall mean all permits, authorizations, consents
and approvals of any governmental entity or authority affecting or relating in
any way to the Business.
"Person" shall mean any person or entity, whether an
individual, trustee, corporation, general partnership, limited partnership,
trust, unincorporated organization, limited liability company, business
association, firm, joint venture, governmental agency or authority or otherwise.
"Personal Property" shall mean all tangible personal property
and leases of and other interests in tangible personal property used in
connection with the Business.
"Recovery Rights" shall mean all of Seller's rights, claims,
credits, causes of action or rights of set-off against third parties relating to
the Assets, including, without limitation, unliquidated rights under warranties.
"Representative" shall mean, with respect to any Person, any
officer, director, principal, attorney, employee or other agent of such Person.
"Seller Disclosure Schedule" shall mean a schedule executed
and delivered by Seller to Buyer, and approved by Buyer, prior to the date
hereof, which sets forth the exceptions to the representations and warranties
contained in Article IV hereof and certain other information called for by
Article IV hereof and other provisions of this Agreement. The Seller Disclosure
Schedule shall cross-reference to the particular Section within this Agreement
to which the description relates and shall state any proposed exception with
reasonable particularity.
"Tax" shall mean any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
1.2. Other Defined Terms; Accounting Determinations.
(a) For purposes of this Agreement, (i) "including" shall mean
"including, but not limited to," "including, without limitation," and other
phrases of similar import and (ii) "hereof;" "herein," and "hereunder," and
words of similar import, refer to this Agreement as a whole (including the
Exhibits and Schedules to this Agreement) and not to any particular Section or
Article hereof.
(b) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
Buyer hereunder shall be prepared, and all financial calculations required to be
made hereunder shall be made, in accordance with GAAP, consistently applied.
Article II.
Purchase and Sale of Assets
2.1. Transfer of Assets. Pursuant to the terms and subject to the
conditions of this Agreement, in exchange for the consideration set forth in
Section 2.2 below, at the Closing, Seller agrees to sell, convey, transfer,
assign and deliver to Buyer, and Buyer agrees to purchase from Seller, the
Assets, and Buyer agrees to assume, without limitation, all obligations of
Seller under or with respect to the Assumed Liabilities.
2.2. Purchase Price. In consideration of the transfer of the Assets,
Buyer shall take the following actions:
(a) Buyer shall issue to Seller 60,000 restricted shares of
the Buyer's Common Stock;
(b) Buyer shall issue to Seller an option or options to
purchase a total of up to 50,000 shares of Buyer's Common Stock, in accordance
with Section 2.5 below; and
(c) Buyer shall assume the Assumed Liabilities.
Subsections (a)-(c) above shall be collectively referred to herein as
the "Purchase Price".
2.3. Certain Expenses.
(a) Except as otherwise set forth herein, Buyer shall not pay
or be liable for any of the following fees, expenses, taxes or liabilities
incurred by Seller, all of which shall be borne and timely paid or cause to be
paid by Seller:
(i) the fees and expenses, if any, of any person
retained by Seller for brokerage, financial advisory or investment banking
services or services as a finder rendered to Seller in connection with the
proposed sale of the Assets, including, without limitation, the transactions
contemplated by this Agreement;
(ii) the fees and expenses of legal counsel, auditors
and accountants retained or employed by Seller for services rendered to Seller
in connection with the proposed sale of the Assets, including, without
limitation, the transactions contemplated by this Agreement; and
<PAGE>
(iii) any income, capital gains or other tax incurred
by Seller as a result of the
consummation of the transactions contemplated hereby.
(b) Except as otherwise set forth herein, Seller shall not pay
or be liable for any of the following fees, expenses, taxes or liabilities
incurred by Buyer, all of which shall be borne and timely paid or cause to be
paid by Buyer:
(i) the fees and expenses, if any, of any person
retained by Buyer for brokerage, financial advisory or investment banking
services or services as a finder rendered to Buyer in connection with the
proposed purchase of the Assets, including without limitation, the transactions
contemplated by this Agreement; and
(ii) the fees and expenses of legal counsel, auditors
and accountants retained or employed by Buyer for services rendered to Buyer in
connection with the proposed purchase of the Assets, including, without
limitation, the transactions contemplated by this Agreement.
(c) The documentary, stamp, sales, use or transfer taxes or
other similar charges, taxes or expenses arising in connection with the sale of
the Assets to Buyer shall be borne by Seller.
2.4. Share Subscription. At the Closing, Buyer shall issue to Seller
60,000 restricted shares of Common Stock.
2.5 Performance Option. The Company will issue options (the "Options")
to purchase additional shares of Common Stock at a rate of 10,000 shares for
each $1,000,000 in total revenue generated by the Buyer from the Business after
the Closing Date, up to a maximum of 50,000 shares. The Options will be granted
within 30 days of the end of any fiscal quarter in which such total revenues
have met or exceeded $1,000,000 or an integral multiple thereof. The exercise
price of the Options shall be the fair market value of the Common Stock on the
date of grant. All such Options shall expire at 5:00 p.m. Pacific Time on the
third anniversary of the Closing Date .
Article III.
Closing
3.1. Signing and Closing. The parties hereto shall execute and deliver
this Agreement and the exhibits hereto on October 26, 1998 (the "Closing Date")
in the principal executive offices of the Buyer, unless the parties hereto
otherwise agree to a subsequent date of signing. The execution and delivery of
documents, together with the satisfaction or waiver of the conditions to Closing
as set forth in Articles VII and VIII, shall constitute the "Closing" of the
Transaction contemplated herein. Results of operations of the portion of the
Business comprised of the Assets, subject to the Assumed Liabilities, through
the accounting period at 11:59 p.m. (Pacific time) on the day of the Closing
(whether or not a business day) shall be included in the consolidated results of
operations of Seller; and, after such time, operations for such portion of the
Business shall be conducted and the results thereof shall be for the account of
Buyer.
3.2. Deliveries at Closing. At the Closing the following items shall be
delivered by the parties:
(a) By Buyer. Buyer shall deliver to Seller:
(i) share certificates evidencing an aggregate amount
of 60,000 restricted shares of Common Stock;
(ii) executed counterparts of the Exhibits A, B and
C; and
(iii) such other documents and instruments as are
reasonably necessary to consummate the transactions contemplated hereby.
(b) By Seller. Seller shall deliver to Buyer:
(i) executed counterparts of Exhibits A, B and C; and
(ii) such other documents and instruments as are
reasonably necessary to consummate the transactions
contemplated hereby and by the Employment Agreements.
The Books and Records shall be deemed delivered by Seller at
the Closing.
3.3. Consents to Assignment. Anything in this Agreement to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract, license, sales order, purchase order or any claim or right or any
benefit arising thereunder or resulting therefrom if an attempted assignment
thereof, without the consent of a third party thereto, would constitute a breach
thereof or in any way affect the respective rights of Buyer or Seller
thereunder. If such consent is not obtained, or if an attempted assignment
thereof would be ineffective or would affect the rights thereunder so that Buyer
would not receive all such rights, Seller will cooperate with Buyer, in all
reasonable respects, to provide to Buyer the benefits under any such claim,
Contract, license, sales order or purchase order, including, without limitation,
enforcement for the benefit of Buyer of any and all rights of Seller against a
third party thereto arising out of the breach or cancellation by such third
party or otherwise; and any transfer or assignment to Buyer of any property or
property rights or any Contract or agreement which shall require the consent or
approval of any third party shall be made subject to such consent or approval
being obtained.
3.4. Further Assurances; Post-Closing Cooperation. At any time or from
time to time after the Closing, at Buyer's request and without further
consideration, Seller shall execute and deliver to Buyer such other instruments
of sale, transfer, conveyance, assignment and confirmation, provide such
materials and information and take such other actions as Buyer may reasonably
deem necessary or desirable in order more effectively to transfer, convey and
assign to Buyer, and to confirm Buyer's title to, all of the Assets, and, to the
full extent permitted by law, to put Buyer in actual possession and operating
control of the Business and the Assets and to assist Buyer in exercising all
rights with respect thereto, and otherwise to cause Seller to fulfill its
obligations under this Agreement.
<PAGE>
Article IV.
Representations and Warranties of Seller and Shareholders
Seller and the Shareholders, jointly and severally, represent and
warrant to Buyer that:
4.1. Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of California and has full
corporate power and authority to own, lease and operate its properties and to
carry on and conduct its business, including the Business, as it is now being
conducted.
4.2. Authorization. Seller has all necessary corporate power and
authority and has taken all corporate action necessary to enter into this
Agreement and the Exhibits hereto to which it is a party, to consummate the
transactions contemplated hereby and thereby, and to perform its obligations
hereunder and thereunder. This Agreement has been duly executed and delivered by
Seller and is a valid and binding obligation, enforceable against it in
accordance with its respective terms subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and limitations
imposed by equitable principles, whether considered in a proceeding at law or in
equity and the discretion of the court before which any proceeding therefor may
be brought.
4.3. Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted without the intervention of
any person or entity acting on behalf of Seller in such a manner as to give rise
to any valid claim against Buyer for any broker's or finder's commission, fee or
similar compensation.
4.4. Litigation, Proceedings and Applicable Law. There are no Actions,
suits, investigations or proceedings, at law or in equity or before or by any
governmental authority or instrumentality or before any arbitrator of any kind,
pending or, to Seller's knowledge, threatened (a) against Seller which, if
determined adversely against Seller, would adversely affect the Assets or the
Business or (b) seeking to delay or enjoin the consummation of the transactions
contemplated hereby. There are no outstanding orders, decrees or stipulations
issued by any federal, state, local, international or foreign, judicial or
administrative authority in any proceeding to which Seller is or was a party
relating to the Assets or the Business.
4.5. No Conflict or Violation. Neither the execution and delivery of
this Agreement nor any of the Exhibits hereto nor the consummation of the
transactions contemplated hereby or thereby will result in (i) a violation of or
a conflict with any provision of the charter documents of Seller, (ii) a
material breach or termination of, or a default under, any term or provision of
any Assumed Contract or an event which, with notice, lapse of time, or both,
would result in any such material breach, termination or default, or (iii) a
material violation by Seller of any Legal Requirement or an event which with
notice, lapse of time or both, would result in such a material violation.
4.6. Consents and Approvals. No consent, waiver, approval or
authorization of or by, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained by
Seller in connection with the execution, delivery and performance of this
Agreement or Exhibit C hereto and the consummation of the transactions
contemplated hereby or thereby.
4.7. Intellectual Property.
(a) Seller owns, or is licensed or otherwise entitled to
exercise pursuant to the terms of a license or other similar agreement, all
rights to all Intellectual Property used in the Business as currently conducted
or in connection with products to be used in the Business currently under
development without any conflict or infringement of the rights of others. In
addition, Seller has taken reasonable and practicable steps (including, without
limitation, entering into confidentiality and non-disclosure agreements with all
officers and employees of and consultants to Seller) to maintain the secrecy and
confidentiality of and its proprietary rights in, all Intellectual Property.
(b) Seller is the absolute owner or a nonexclusive or
exclusive licensee of, with all necessary right, title and interest in and to
(free and clear of any liens, encumbrances or security interests) all non-public
domain Intellectual Property and has rights to the use, sale, license or
disposal thereof in connection with the services or products in respect of which
the Intellectual Property are being used or proposed to be used in the Business
in connection with products currently under development.
(c) No claims with respect to the Intellectual Property have
been asserted to Seller, or, to Seller's knowledge, are threatened by any
person, and Seller knows of no claims (i) to the effect that Seller in the
conduct of the Business infringes any copyright, patent, trade secret, or other
intellectual property right of any third party or violates any license or
agreement with any third party, (ii) contesting the right of Seller to use,
sell, license or dispose of any Intellectual Property, or (iii) challenging the
ownership, validity or effectiveness of any of the Intellectual Property.
(d) All trademarks, service marks, and other company, product
or service identifiers held by Seller and used in the Business are valid and
subsisting.
(e) To Seller's knowledge, there has not been and there is not
now any unauthorized use, infringement or misappropriation of any of the
Intellectual Property by any third party; Seller has not been sued or, to
Seller's knowledge, charged as a defendant in any claim, suit, action or
proceeding that involves a claim of infringement of any patents, trademarks,
service marks, copyrights or other intellectual property rights. Seller does not
have any infringement liability due to its conduct of the Business with respect
to any patent, trademark, service mark, copyright or other intellectual property
right of another.
<PAGE>
(f) No Intellectual Property is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting in any material
manner the licensing thereof by Seller. Seller has not entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, except in the ordinary course of business. Seller has
not entered into any agreement granting any third party the right to bring
infringement actions with respect to, or otherwise to enforce rights with
respect to, any Intellectual Property. Seller has the exclusive right to file,
prosecute and maintain all applications and registrations with respect to the
Intellectual Property developed or owned by Seller.
4.8. Absence of Certain Changes. Since January 1, 1998, Seller has
conducted the Business in the ordinary course consistent with its past practice.
Without limiting the foregoing, during such period, Seller:
(a) has not created, incurred or assumed any obligation which
in any material way affects the Business, the Assets or Buyer's ability to
conduct the Business following the Closing in substantially the same manner and
condition as conducted by Seller on the date of this Agreement;
(b) has not changed in any manner the compensation of, or
agreed to provide additional benefits to, or entered into any employment
agreement with, any employee, or terminated or amended any plan for the benefit
of employees;
(c) has maintained insurance coverage in amounts adequate to
cover the reasonably anticipated risks of the Business;
(d) has not entered into any agreements or commitments
relating to the Business, except on commercially reasonable terms in the
ordinary course of business;
(e) has complied in all material respects with all laws and
regulations applicable to the Business;
(f) has not entered into any agreement with any third party
for the distribution of any of the Assets;
(g) has not commenced a lawsuit related to or involving the
Assets;
(h) has operated the Business in the ordinary course so as to
use reasonable efforts to preserve the Business intact, and to preserve for
Buyer the goodwill of the Business's suppliers, customers and others having
business relations with it;
(i) has not permitted, incurred or suffered any change in the
condition (financial or otherwise), assets, liabilities, reserves, earnings,
business or prospects of the Business, except for changes which have not,
individually or in the aggregate, been materially adverse to the Business, and
has not borrowed any funds, under existing credit lines or otherwise, except as
reasonably necessary for the ordinary operation of the Business in a manner
keeping with historical practices;
(j) has not issued any equity securities or options, warrants,
rights or convertible securities;
(k) has not paid any dividends, redeemed any securities, or
otherwise caused assets of Seller to be distributed to any of its shareholders;
or
(l) made any agreement to do any of the foregoing.
4.9. Assets Generally.
(a) The Assets include all properties, tangible and
intangible, and only such properties, used by Seller in operating the Business
and necessary for Buyer to operate the Business after the Effective Time in a
manner substantially equivalent to the manner in which Seller has operated the
Business prior to and through the Effective Time. No licenses or other consents
from, or payments to, any other Person are or will be necessary for Buyer to
operate the Business and use the Assets in substantially the manner in which
Seller has operated the same.
(b) Seller holds good and marketable title, license to or
leasehold interest in all of the Assets and has the complete and unrestricted
power and the unqualified right to sell, assign and deliver the Assets to Buyer.
Upon consummation of the transactions contemplated by this Agreement, Buyer will
acquire good and marketable title, license or leasehold interest to the Assets
free and clear of any Encumbrances and there exists no restriction on the use or
transfer of the Assets, except as may be assumed hereunder by Buyer as an
Assumed Liability. No Person other than Seller has any right or interest in the
Assets, including the right to grant interests in the Assets to third parties,
except for Assets licensed or leased from third parties which are set forth in
the Seller Disclosure Schedule and identified as such.
(c) Except as provided in this Agreement, no restrictions will
exist on Buyer's right to sell, resell, license or sublicense any of the Assets
or engage in the Business, nor will any such restrictions be imposed on Buyer as
a consequence of the transactions contemplated by this Agreement or by any
agreement referenced in this Agreement.
(d) All of the Assets are in good operating condition and
repair, normal wear and tear excepted, as required for their use in the Business
as presently conducted, and conform to all applicable laws, and no notice of any
violation of any law relating to any of the Assets or Assumed Liabilities has
been received by Seller.
<PAGE>
4.10. Existing Agreements and Business.
(a) Each Assumed Contract (i) is valid and binding on Seller,
(ii) is in full force and effect, (iii) has not been breached by Seller or, to
Seller's knowledge, any other party thereto in any material manner. To Seller's
knowledge, no party to any such Assumed Contract intends to cancel, withdraw,
modify or amend such Assumed Contract.
(b) Seller has not granted any third party the right to supply
any products or services of the Business to any other third party. No agreement
for supply of the products or services by Seller obligates Seller to provide any
change in specification of such products or services or to provide new products
or services. No agreement pursuant to which Seller has licensed the use of any
products included as an Asset to any third party obligates Seller to provide any
change in specification in the performance of such products or to provide new
products or services.
(c) After the Closing, Buyer will not be prevented by any act
of Seller from changing prices charged to existing or future customers of any
products or services.
4.11. Warranties and Indemnities. No warranty or indemnity has been
given by Seller which is not listed on the Seller Disclosure Schedule. Seller is
in compliance with all warranties.
4.12. Licenses and Permits. Seller holds all consents, approvals,
registrations, certifications, authorizations, permits and licenses of, and has
made all filings with, or notifications to, all governmental entities pursuant
to applicable requirements of all federal, state, local and foreign laws,
ordinances, governmental rules or regulations applicable to the Business,
including, but not limited to, all such laws, ordinances, governmental rules or
regulations relating to registration of the products of the Business and
certification of the facilities of the Business. Seller is in compliance with
all federal, state, local and foreign laws, ordinances, governmental rules and
regulations relating to the products manufactured by the Business or otherwise
related to the Business, and Seller has no reason to believe that any consents,
approvals, authorizations, registrations, certifications, permits, filings or
notifications that it has received or made to operate the Business are invalid
or have been or are being suspended, canceled, revoked or questioned. There is
no investigation or inquiry to which Seller is a party or, to Seller's
knowledge, pending or threatened, relating to the Business and its compliance
with applicable foreign, state, local or foreign laws, ordinances, governmental
rules or regulations. Each such consent, approval, registration, certification,
authorization, permit or license is transferable and shall be transferred to
Buyer in accordance with the terms of this Agreement.
4.13. Taxes. All Taxes relating to the Business or the Assets have been
or will be paid by Seller with respect to all periods (or portions thereof)
prior to and including the date of Closing. Seller and any other person required
to file returns or reports of Taxes relating to the Business or the Assets has
duly and timely filed all returns and reports of Taxes relating to the Business
or the Assets required to be filed, and all such returns and reports are true,
correct and complete. Seller has complied with all record keeping and tax
reporting obligations relating to income and employment taxes due with respect
to compensation paid to employees of the Business, including withholding of all
taxes required to be withheld. Seller has not been delinquent in the payment of
any Taxes relating to the Business or the Assets and there are no pending or
threatened proceedings against Seller with respect to such Taxes.
4.14. Compliance with Law. The operation of the Business has been
conducted in all material respects in accordance with all applicable laws,
regulations and other requirements of governmental entities having jurisdiction
over the same.
4.15. Products. Each of the products and services produced, sold or
provided by Seller in connection with the Business is, and at all times has
been, in compliance in all material respects with all applicable federal, state,
local and, to Seller's knowledge, foreign laws and regulations and is, and at
all relevant times has been, fit for the ordinary purposes for which it is
intended to be used and conforms in all material respects to any promises or
affirmations of fact made in connection with the sale of such product or
service. There is no design defect with respect to any of such products, and
each of such products contains adequate warnings, presented in a reasonably
prominent manner, in accordance with applicable laws and current industry
practice with respect to its contents and use.
4.16. Product Liability. There are no claims, actions, suits,
inquiries, proceedings or investigations pending by or against Seller, or
threatened by or against relating to any products of the Business and containing
allegations that such products are defective or were improperly designed or
manufactured or improperly labeled or otherwise improperly described for use.
4.17. Full Disclosure. Seller is not aware of any facts pertaining to
the Business or the Assets which affect the Business or the Assets in a
materially adverse manner or which will in the future affect the Business or the
Assets in a materially adverse manner. Neither this Agreement nor any other
agreement, exhibit, schedule or officer's certificate being entered into or
delivered pursuant to this Agreement contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements continued in such document not misleading.
4.18. Insurance. Seller has maintained and now maintains (i) insurance
on all the Assets and the Business of a type customarily insured, covering
title, property damage and loss of income from fire or other casualty, and (ii)
adequate insurance protection against all liabilities, claims, and risks against
which it is customary to insure. Seller is not in default with respect to
payment of premiums on any such policy. No claim is pending under any such
policy.
<PAGE>
4.19. Representations Regarding Securities. The Shares and the Options
to be received by Seller and the Common Stock issuable upon exercise of the
Options (the "Securities") will be acquired for investment for Seller's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Seller has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, Seller further represents that Seller does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities.
4.20. Investment Experience. The Seller is an investor in securities of
start up companies and acknowledges that it is able to fend for itself, can bear
the economic risk of the investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities. Seller also represents it has not
been organized for the purpose of acquiring the Securities.
4.21. Accredited Seller. Seller is an "accredited Seller" within the
meaning of Securities and Exchange Commission (the "SEC") Rule 501 of Regulation
D, as presently in effect, unless the Company has been informed in writing to
the contrary.
4.22. Restricted Securities. Seller understands that the Shares and the
Options (and the Common Stock issuable upon exercise of the Options) it is
acquiring are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances. In this connection, Seller represents that it is familiar with
SEC Rule 144, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
4.23. Legends. It is understood that the certificate evidencing the
Shares and the Options (and the Common Stock issuable upon exercise of the
Options) may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH ACT".
(b) Any legend required by the laws of the State of
California, including any legend required by the California
Department of Corporations.
Article V.
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller as follows:
5.1. Organization of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Florida.
5.2. Authorization. Buyer has all necessary corporate power and
authority and has taken all corporate action necessary to enter into this
Agreement, to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. This Agreement has been duly
executed and delivered by Buyer and is a valid and binding obligation,
enforceable against it in accordance with its terms subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium, and other similar
laws relating to or affecting the rights of creditors generally and limitations
imposed by equitable principles, whether considered in a proceeding at law or in
equity and the discretion of the court before which any proceeding therefor may
be brought.
5.3. Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted without the intervention of
any person or entity acting on behalf of Buyer in such a manner as to give rise
to any valid claim against Seller for any broker's or finder's commission, fee
or similar compensation.
5.4. No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation of or a conflict with any provision of the Articles of
Incorporation or Bylaws of Buyer or (ii) a violation by Buyer of any Legal
Requirement or an event which with notice, lapse of time or both, would result
in such a violation.
5.5. Valid Issuance of Shares, and Options and Common Stock. The Shares
and Options that are being purchased by Seller hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Common Stock issuable upon exercise of the Options
purchased under this Agreement has been duly and validly reserved for issuance
and, upon issuance in accordance with the options, will be duly and validly
issued, fully paid, and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement and under applicable state
and federal securities laws.
<PAGE>
Article VI.
Certain Covenants
6.1. Covenants of Both Parties. Buyer, on the one hand, and Seller, on
the other hand, each covenant to the other that:
(a) Notice. Each party shall give prompt written notice to
each other party to this Agreement if an event occurs which makes it reasonably
likely that a condition to the Closing set forth in Article VII or Article VIII
will not be satisfied as of the Closing; provided, however, that the giving of
any such notice shall not excuse such party's performance hereunder.
(b) Reasonable Best Efforts. The parties shall negotiate in
good faith and shall use their reasonable best efforts to fulfill all conditions
to Closing set forth in this Agreement in order to consummate the transactions
contemplated hereby by the Closing.
(c) Further Assurances. Both before and after the Closing,
each party will cooperate in good faith with the other and will take all
appropriate action and execute any documents, instruments or conveyances of any
kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder. From and after the Closing, Seller will
promptly refer all inquiries with respect to the ownership of the Assets to
Buyer and execute such documents as Buyer may reasonably request from time to
time to evidence transfer of the Assets to Buyer, and Buyer will execute such
documents as Seller may reasonably request from time to time to evidence
assumption of the Assumed Liabilities.
6.2. Seller's Covenants. Seller covenants to Buyer that:
(a) Access by Buyer. Seller shall allow Buyer and its
Representatives, at Buyer's own expense during regular business hours to inspect
the Assets and to inspect the Books and Records, including information with
respect to current costs, prices, financial information and promotional and
marketing information and such other matters as Buyer may reasonably request in
order to conduct its due diligence examination. All such information shall be
provided to Buyer in such form as such information may presently exist or be
readily available and, except as specifically provided in Article IV to the
contrary, without representation or warranty as to the accuracy or completeness
thereof.
(b) Management and Employee Cooperation. Upon Buyer's request,
Seller shall cause, at Seller's expense, the members of Seller's to cooperate
fully with Buyer in transitioning the Business from Seller to Buyer from the
Closing until the Transition Date. For purposes hereof, the Transition Date
shall be 120 days after the Closing.
(c) Conduct of Business. Except as contemplated by this
Agreement and the nature of the transaction contemplated hereby, without the
prior written consent of Buyer, Seller shall operate the Business in the
ordinary course in a manner consistent with the manner in which it is operating
on the date hereof. Specifically, and without intending to limit the foregoing
in any manner, Seller shall not take any action or suffer or pursuit any
circumstances that would result in a breach of Section 4.9 hereof.
(d) Consents. As soon as practicable following the date
hereof, Seller shall commence all reasonable action required hereunder to obtain
all applicable Permits, consents, approvals and agreements of, and to give all
notices and make all filings with, any third parties and governmental
authorities as may be necessary to authorize, approve or permit the full and
complete sale, conveyance, assignment or transfer of the Assets and the
Business. Buyer shall cooperate in good faith with Seller's efforts as provided
in Section 6.1(c).
(e) Cooperation and Assistance with Customers of the Business.
If requested by Buyer, Seller shall agree to take reasonable cooperative steps
to enable those customers of Seller who are customers of the Business to become
customers of Buyer in its operation of the Business following the Closing.
6.3. Buyer's Covenants. Buyer covenants to Seller that:
(a) Customer Support. As of and following the Closing, Buyer
shall be responsible for providing, and shall provide, customer and technical
support as is usual and customary in the industry and in accordance with all
terms of sale to each customer of the Business, whether the customer exists as
of the Closing or becomes a customer after the Closing.
6.4. Employment Matters.
(a) Employees. Effective as of the Closing, Messrs. Costa and
Miglino (the "Employees") will enter into Exhibits A and B, respectively, with
the Buyer. Buyer will offer compensation packages to the Employees which are
consistent with the Employees' current compensation, including annual salaries
of $84,000 and discretionary bonuses. Additionally, the Employees will be
entitled to participate in Buyer's 1998 Stock Incentive Program.
(b) Obligations. Except as set forth in this Section 6.4(b),
Seller shall pay all amounts due or accrued or that would otherwise have become
due to the Employees with respect to their employment by Seller prior to the
Closing , including accrued vacation time, any bonuses or commissions, and any
amounts payable under any pension plan of Seller, and Buyer shall not assume any
of Seller's employee benefit plans or policies or any obligation or liability
thereunder.
Article VII.
Conditions to Seller's Obligations
The obligations of Seller to consummate the transactions provided for
hereby are subject to the satisfaction of or waiver by Seller, on or prior to
the Closing, of each of the following conditions:
7.1. Representations, Warranties and Covenants. All representations and
warranties of Buyer contained in this Agreement are and as of the Effective Time
shall be true and correct in all material respects, and Buyer shall have
performed in all material respects all agreements and covenants required hereby
to be performed by it prior to or at the Closing.
7.2. No Governmental Proceedings or Litigation. No suit, action or
other legal or administrative proceeding by any governmental authority or any
other party or entity shall have been instituted and remain unresolved which
questions the validity or legality of the transactions contemplated hereby.
7.3. Corporate Documents. Seller shall have received from Buyer
resolutions adopted by the board of directors of Buyer approving this Agreement
and the Employment Agreements and the transactions contemplated hereby and
thereby, certified as true and correct by its corporate director.
7.4. Employment Agreements. Exhibits A and B shall have been duly and
validly executed and delivered by the parties hereto and such agreements shall
remain in full force and effect.
<PAGE>
Article VIII.
Conditions to Buyer's Obligations
The obligations of Buyer to consummate the transactions provided for
hereby are subject to the satisfaction of or waiver by Buyer, on or prior to the
Closing, of each of the following conditions:
8.1. Representations, Warranties and Covenants. All representations and
warranties of Seller contained in this Agreement are and at and as of the
Effective Time shall be true and correct in all material respects, and Seller
shall have performed in all material respects all agreements and covenants
required hereby to be performed by it prior to or at the Closing.
8.2. Consents. All consents, waivers, approvals and authorizations of
or by, and declarations, filings and registrations with, governmental or
regulatory authorities and other parties or entities, including Seller's
existing License to install, operate and maintain the Centerlink Systems at
certain shopping centers owned by OTR, an Ohio general partnership, shall have
been obtained or made.
8.3. No Governmental Proceedings or Litigation. No suit, action or
other legal or administrative proceeding by any governmental authority or any
other party or entity shall have been instituted and remain unresolved which
questions the validity or legality of the transaction contemplated hereby and
which could reasonably be expected to materially and adversely affect the right
or ability of Buyer to own, operate or possess the Assets after the Effective
Time.
8.4. Corporate Documents. Buyer shall have received from Seller
resolutions adopted by its board of directors approving this Agreement and the
transactions contemplated hereby and certified as true and correct by its
corporate secretary or assistant secretary.
8.5. Exhibits. Each of the Exhibits hereto shall have been duly and
validly executed and delivered by the parties hereto and such agreements shall
remain in full force and effect.
Article IX.
Actions by Parties After the Closing
9.1. Books and Records. From and after the Closing, each party agrees
that it will cooperate with and make available to the other party and its
Representatives, subject to Section 10.11, during normal business hours upon
prior written request specifying the need therefor, all Books and Records,
information and employees (without substantial disruption of employment)
relating to the Assets retained and remaining in existence after the Closing
which are reasonably necessary or useful in connection with any tax inquiry,
audit, investigation or dispute, any litigation or investigation or any other
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including attorneys' fees, but excluding reimbursement for salaries and
employee benefits) reasonably incurred in connection with providing such Books
and Records, information or employees.
9.2. Indemnification.
(a) By Seller. From and after the Closing and subject to the
limitations set forth in Section 9.2(e), Seller shall indemnify, save and hold
harmless Buyer and its Affiliates, and its respective Representatives, from and
against any and all Damages caused by, arising out of, asserted against
resulting from or incurred or suffered by Buyer or any of its Affiliates or
Representatives in connection with (i) any misrepresentation or breach of any
representation or warranty by Seller in or pursuant to this Agreement, (ii) the
non-fulfillment of any covenant or agreement made by Seller in or pursuant to
this Agreement, and (iii) the Excluded Liabilities.
(b) By Buyer. From and after the Closing and subject to the
limitations set forth in Section 9.2(e)(iii), Buyer shall indemnify and save and
hold harmless Seller and its Affiliates, and their respective Representatives,
from and against any and all Damages caused by, arising out of, asserted
against, resulting from or incurred or suffered by Seller or any of its
Affiliates or Representatives in connection with (i) any misrepresentation or
breach of any representation or warranty by Buyer in this Agreement or any
Employment Agreement, (ii) the non-fulfillment of any covenant or agreement made
by Buyer in or pursuant to this Agreement or any Employment Agreement, (iii) any
of the Assumed Liabilities and (iv) the ownership of the Assets from and after
the Effective Time to the extent such Damages arise out of transactions, events
or inaction of Buyer occurring on or after the Effective Time.
(c) Limitation as to Indemnified Parties' Own Negligence. The
respective obligations of the Indemnifying Parties under paragraphs (a) and (b)
above to provide indemnification shall be terminated, modified or abated as
appropriate if the underlying claim giving rise to Damages for which such
indemnification is provided hereunder (i) would not have arisen but for a
voluntary act which (A) is carried out by the Indemnified Party after Closing
otherwise than in the ordinary course of business or (B) is carried out at the
request of, or with the approval, concurrence or assistance of the Indemnified
Party or (ii) is based, in whole or in part, on the negligence or willful
misconduct of the party seeking indemnification. For purposes of this Section
9.2(c), "voluntary" shall mean an act other than any act which is required to be
taken by law or which, if taken, would constitute prudent business practice.
<PAGE>
(d) Notice of and Defense of Third Party Claims.
(i) For the purpose of this Article IX, the term
"Indemnifying Party" when used in connection with a particular Claim shall mean
the party having an indemnification obligation pursuant to this Article IX, and
the term "Indemnified Party" when used in connection with a particular Claim
shall mean the persons having the right to be indemnified pursuant to this
Article IX. Each party agrees that as promptly as practical under the
circumstances after it becomes aware of facts or circumstances giving rise to a
claim by it for indemnification pursuant to this Article IX (a "Claim"),
including the filing of any lawsuit or enforcement action by any third party (a
"Third Party Claim"), such party will provide notice thereof in writing (a
"Claim Notice") to the Indemnifying Party with respect to such Claim specifying
in reasonable detail the nature and specific basis to the extent then known by
the Indemnified Party for such Claim and to the extent feasible the estimated
amount of Damages attributable thereto; provided, however, that the failure of
any Indemnified Party to give timely notice shall not affect its rights to
indemnification hereunder except to the extent that the Indemnifying Party
demonstrates Damage, including inability to assert rights, defenses or
counterclaims, caused by such failure.
(ii) With respect to Third Party Claims, after such
notice the Indemnifying Party shall be entitled, if it so elects, to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing to the effect that the
Indemnifying Party will indemnify the Indemnified Party from and against the
Damages caused by the Third Party Claim and (B) the Indemnifying Party conducts
the defense of the Third Party Claim actively and diligently. The Indemnified
Party shall cooperate in all reasonable respects with the Indemnifying Party and
such attorneys in the investigation, trial and defense of any lawsuit or action
with respect to any such Third Party Claim and any appeal arising therefrom,
including the filing in the Indemnified Party's name of appropriate cross claims
and counterclaims. The Indemnified Party may, at its own cost, participate in
any investigation, trial and defense of such Third Party Claim controlled by the
Indemnifying Party and any appeal arising therefrom. If the Indemnified Party
joins in any such Third Party Claim, the Indemnifying Party shall have full
authority to determine all action to be taken with respect thereto; provided,
however, that the Indemnifying Party will not (y) consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim or
(z) be liable for any settlement of any such Third Party Claim without, in each
instance, the Indemnified Party's express written consent, which shall not be
unreasonably withheld. At any time after the commencement of defense of any such
Third Party Claim, the Indemnifying Party may request the Indemnified Party to
agree in writing to the abandonment of such contest or to the payment or
compromise by the Indemnifying Party of any such Third Party Claim, whereupon
such action shall be taken unless the Indemnified Party determines that the
contest should be continued and so notifies the Indemnifying Party in writing
within fifteen (15) days of such request from the Indemnifying Party. If the
Indemnified Party determines that the contest should be continued, the
Indemnifying Party shall be liable hereunder only to the extent of the lesser of
(y) the amount which the other party(ies) to the contested Third Party Claim had
agreed to accept in payment or compromise as of the time the Indemnifying Party
made its request therefor to the Indemnified Party or (z) such amount for which
the Indemnifying Party may be liable with respect to such Third Party Claim by
reason of the provisions hereof.
(iii) If the Indemnifying Party shall object to any
Claim pursuant to this Agreement, the Indemnifying Party shall give written
notice of such objection to the Indemnified Party within 20 days after the date
of the Claim Notice is given to the Indemnifying Party (the "Notice Date"). If
the Indemnifying Party does not give notice of an objection within 20 days after
the Notice Date, or shall have agreed within such 20 day period that such Claim
should be paid, the Indemnifying Party shall, promptly cause to be transferred
to the Indemnified Party an amount equal to that set forth in the Notice of (or
such lesser amount agreed in writing by the Indemnified Party and the
Indemnifying Party).
(iv) In case the Indemnifying Party shall object in
writing to any claim or claims by the Indemnified Party, the Indemnifying Party
and the Indemnified Party shall attempt in good faith for thirty (30) days
thereafter to agree upon the rights of the respective parties with respect to
each of such claims. If the Indemnifying Party and the Indemnified Party should
so agree, a memorandum setting forth such agreement shall be prepared and signed
by both parties and the Indemnifying Party shall pay to the Indemnified Party
such agreed upon amount. If no such agreement can be reached after good faith
negotiation, either the Indemnified Party or the Indemnifying Party may, by
written notice to the other, demand arbitration of the matter unless the amount
of the damage or loss is at issue in pending litigation with a third party, in
which event, arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by the dispute resolution procedures set forth in Section 9.3 hereof.
(v) Payments by an Indemnified Party of amounts for
which such Indemnified Party is indemnified hereunder shall not be a condition
precedent to recovery. Seller's obligation to indemnify Buyer, and Buyer's
obligation to indemnify Seller, shall not limit any other rights, including,
without limitation, rights of contribution, which either party may have under
statute or common law.
(e) Limitation on Representations and Warranties. The
representations and warranties of Seller contained in Article IV and the
representations and warranties of Buyer contained in Article V shall survive the
Closing and terminate five (5) years after the Closing. No action can be brought
with respect to any breach of any representation or warranty on the part of
either party under this Agreement, including under the provisions of Section
9.2(a)(i) and 9.2(b)(i), unless a Claim Notice specifying the breach of the
representation and warranty forming the basis of such Claim has been delivered
to the party alleged to have breached such representation and warranty prior to
the termination date, if any, of such representation and warranty described
above.
<PAGE>
(f) No Personal Liability. No individual Representative of any
party shall be personally liable for any Damages under the provisions of this
Section 9.2 or any other provision of this Agreement; provided, however, nothing
herein shall relieve any party of any liability to make any payment expressly
required to be made by such party pursuant to this Agreement.
(h) Tax Effect of Payments. The amount of any payments
required to be made under this Article IX shall be reduced by the amount of any
tax or insurance benefit actually received by (including by refund or by
reduction of or offset against taxes otherwise payable) the recipient by reason
of the payment or incurrence by such recipient of the item for which the
indemnity is being sought. Each party shall notify the other of such receipt of
any such tax or insurance benefits.
9.3. Arbitration. Any and all disputes arising out of or in connection
with the negotiation, execution, or interpretation of this Agreement shall be
finally settled by arbitration in accordance with the rules of the American
Arbitration Association. The arbitration will be held in Los Angeles,
California, on consecutive business days. The award rendered shall be final and
binding upon the parties. Judgment on any award may be entered in any court
having jurisdiction over the parties or their assets. The costs of the
arbitration shall be shared equally by the parties. Each party will pay their
own attorneys' fees and costs.
9.4 Right of Offset. Buyer shall have the right to offset against any
amounts owed by Buyer to Seller or the Shareholders, the amount of any liability
that the Seller or the Shareholders may have to Purchaser under this Section 9
or otherwise.
9.5 Pledge of Shares. As security for the indemnification obligations
of Seller and the Shareholders under this Agreement, but without limitation of
Seller's or the Shareholders' obligations under this Agreement, the Seller shall
pledge the Shares to Buyer in accordance with Exhibit C hereto. From time to
time, Buyer may apply and/or retain all or any part of the Shares (in such
manner as Buyer shall determine) in order to pay, or to provide for the payment
of, any liability of Seller or the Shareholders arising under the indemnities
contained in this Agreement. Buyer will release and deliver the Shares (to the
extent they have not been used to satisfy any of the Seller's or the
Shareholders' indemnification obligations hereunder or under any Operative
Agreement) to Seller on the date which is twelve (12) months after the Closing
Date. Nothing in this Section 9.5 will be construed as limiting the liability of
Seller or the Shareholders under this Agreement or any Exhibit hereto, nor will
the Shares be considered as liquidated damages for any breach under this
Agreement.
Article X.
Miscellaneous
10.1. Termination. This Agreement and the transactions contemplated
hereby may be terminated or abandoned at any time:
(a) by the mutual written agreement of Buyer and Seller;
(b) by any party if a final nonappealable judgment has been
entered against such party or any of its Affiliates restraining, prohibiting, or
declaring illegal the consummation of this Agreement or the transactions
contemplated hereby or which imposes or awards damages which would have a
material adverse effect on the economic benefits contemplated hereby;
(c) by Buyer if there is:
(i) a material breach of any representation or
warranty set forth in Article IV or any covenant or agreement to be complied
with or performed by Seller pursuant to the terms of this Agreement, Buyer has
notified Seller of the material breach, and the material breach has continued
without cure for a period of fifteen (15) days after the notice of the material
breach;
(ii) the failure of a condition set forth in Article
VIII to be satisfied (and such condition is not waived in writing by Buyer) on
the Closing (unless the failure results primarily from Buyer itself breaching
any representation, warranty, or covenant contained in this Agreement);
(d) by Seller if there is:
(i) a material breach of any representation or
warranty set forth in Article V or any covenant or agreement to be complied with
or performed by Buyer pursuant to the terms of this Agreement, Seller has
notified Buyer of the material breach, and the material breach has continued
without cure for a period of fifteen (15) days after the notice of the material
breach; or
(ii) the failure of a condition set forth in Article
VII to be satisfied (and such condition is not waived in writing by Seller) on
or prior to the Closing (unless the failure results primarily from Seller itself
breaching any representation, warranty, or covenant contained in this
Agreement).
Notwithstanding the above, a party shall not be allowed to exercise any right of
termination pursuant to this Section 10.1 if the event giving rise to the
termination right shall be due to the failure of such party seeking to terminate
this Agreement to perform or observe in any material respect any of the
covenants or agreements set forth to be performed observed by such party. If
this Agreement is terminated as permitted under this Section 10.1, such
termination shall be without liability of or to any party to this Agreement, or
any Representative or such party; provided, however, if such termination shall
result from the willful failure of any party to fulfill a condition to the
performance of any other party or from a material and willful breach by any
party of this Agreement, then such party shall be fully liable for any and all
damages sustained or incurred by the other party or parties in connection with
such failure or breach.
<PAGE>
10.2. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Buyer without the prior written consent
of Seller or by Seller without the prior written consent of Buyer provided,
however, that Buyer shall have the right to assign its rights under this
Agreement, including the right to acquire the Assets and the Business, to any of
its Affiliates; provided, further, however, that any such assignment shall not
relieve in any manner whatsoever Buyer of any of its obligations hereunder.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, and
no other person shall have any right, benefit or obligation hereunder.
10.3. Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by either party to the other
shall be in writing and delivered by telecopy or other facsimile (with receipt
acknowledged), delivered personally or mailed by certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the
date such receipt is acknowledged or refused), as follows:
If to Seller, addressed to:
Vision Digital Communications, Inc.
3404 Via Oporto, Suite 203
Newport Beach, CA 92663
Attn: Christopher Miglino
If to Buyer, addressed to:
Genesis Media Group, Inc.
13063 Ventura Blvd.
Studio City, CA 91604-2238
Attn: Ramy El-Batrawi
Fax : (818) 464-7278
With a copy to:
Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
Attn: Theodore R. Maloney, Esq.
Fax: (805) 568-1955
or to such other place and with such other copies as either party may designate
as to itself by written notice to the other.
10.4. Choice of Law. This agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
California, without regard to the conflicts of laws provisions there.
10.5. Entire Agreement; Amendments and Waivers. This Agreement,
together with all exhibits and schedules hereto, constitute the entire agreement
among the parties pertaining to the subject matter hereof and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
10.6. Expenses. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
10.7. Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
then to the maximum extent permitted by law, such provision or provisions shall
be judicially reformed consistent with the parties' intentions so as to be
valid, legal and enforceable to the maximum extent possible and such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
10.8. Titles. The titles, captions or headings of the Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
10.9. Confidential Information.
(a) Each party will use the other's Proprietary Information (as defined
below) solely in furtherance of the parties' mutual objectives under this
Agreement and not for any other purpose, and such information will be kept
confidential by the receiving party and will not be disclosed to any other
person or entity, provided that the receiving party may disclose such
information to its employees, but only on a "need-to-know" basis. Without
limiting the foregoing, the receiving party will, at a minimum, protect the
disclosing party's Proprietary Information in the same manner as it would
protect similar information of its own. A receiving party will not use a
disclosing party's Proprietary Information in any way detrimental to the
disclosing party. A receiving party will be responsible for any breach of this
Agreement by it or its employees.
(b) For purposes of this Agreement, "Proprietary Information" means
this Agreement and its terms, including the Purchase Price, and any information
which a disclosing party has disclosed or may disclose to a receiving party
relating to the disclosing party's business, including, without limitation,
know-how, formulas, processes, ideas, inventions (whether or not patentable),
schematics and other technical, business, financial, customer and product
development plans, but excluding information which (a) is already in the
receiving party's possession, but only if such information is not subject to
another confidentiality obligation to the disclosing party, (b) becomes
generally available to the public other than as a result of disclosure by the
receiving party or its employees, or (c) becomes available to the receiving
party on a non-confidential basis from a source other than the disclosing party,
but only if such source is not subject to a confidentiality obligation to the
disclosing party with respect thereto.
(c) Promptly upon termination of this Agreement, a party will return to
the other party all of its Proprietary Information, without retaining any copies
or extracts thereof, and will destroy all notes relating thereto; provided,
however, that each party may retain a legal archive copy that is segregated from
engineering files of the party and is used only to monitor compliance with this
Agreement.
10.11. Sale of Assets Only. This Agreement constitutes a sale of
certain assets of Seller only and is not a sale of any stock in any entity
comprising Seller.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers thereunto
duly authorized, in multiple originals, all as of the day and year first above
written.
GENESIS MEDIA GROUP, INC., VISION DIGITAL COMMUNICATIONS, corporation organized
under the laws INC., a corporation organized under the of Delaware laws of
California
By: By:
--------------------- -------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into as of this ____ day of
October, 1998, between Genesis Media Group, Inc. (the "Company") and Michael F.
Costa (the "Executive").
WHEREAS, the Company desires to employ the Executive and to
enter into an agreement embodying the terms of such employment (the "Agreement")
and the Executive desires to accept such employment and to enter into the
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company and the Executive (individually a "Party" and together the "Parties")
agree as follows:
1. Definitions.
(a) "Affiliate" shall mean any corporation, partnership or
other entity in which the Company owns, directly or indirectly, an equity
interest of 50% or more or which owns, directly or indirectly, an equity
interest of 50% in the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean any material act of dishonesty; any
disclosure of confidential information; gross negligence or misconduct;
unjustifiable neglect of duties; insubordination; commission of any illegal act;
drug, alcohol or other substance abuse; or any act or omission which has a
material adverse on the Company's reputation or business.
(d) "Confidential Information" shall mean all nonpublic
information respecting the Company's business including, but not limited to, its
products, research and development, processes, customer lists, marketing plans
and strategies. Confidential information does not include information that is,
or becomes, available to the public unless such availability occurs through an
unauthorized act on the part of the Executive.
(e) "Disability" shall mean the Executive's inability to
render, for 180 days during any 365 day period, full and effective services
hereunder by reason of permanent physical or mental disability, whether
resulting from illness, accident or otherwise.
(f) "Salary" shall mean the salary provided for in Section 3
of this Agreement or any adjusted salary granted to the Executive by the Board.
EXHIBIT A
(g) "Salary Continuation Period" shall mean the period after
the termination of the Executive's employment pursuant to the terms of this
Agreement during which the Executive is entitled to continued payment of the
Salary.
(h) "Term of this Agreement" shall mean that period of time
specified in Section 2(b).
(i) "Term of Employment" shall mean the period of the
Executive's employment by the Company.
2. Term of Agreement, Position and Duties.
(a) The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) The term of this Agreement shall commence as of October
__, 1998 and shall terminate upon the first to occur if (i) the termination of
this Agreement as provided herein or (ii) October __, 2001. In the event that
the Executive's Term of Employment continues beyond the Term of this Agreement,
such continued employment shall be at will and no provision or condition of this
Agreement shall govern such extended period of employment except as specifically
noted herein.
(c) During the Term of this Agreement, the Executive shall be
employed as Vice President of the Company. During the time as he serves in this
position, the Executive shall serve under the direction of and report directly
to the President and Chief Executive Officer of Genesis Intermedia, Inc., a
wholly-owned subsidiary of the Company. During the Term of Employment, the
Executive agrees to devote his full time and attention to carrying out his
duties and responsibilities hereunder and shall use his best efforts, skills and
abilities to further the interests of the Company. During the Term of
Employment, the Executive may not serve on the board of directors of any other
business entities without the express written permission of the Board and
subject to such limitations as may be imposed by the Board in granting such
permission.
3. Salary.
During the Term of this Agreement, the Executive shall be paid
a salary by the Company at an annual rate of Eighty-Four Thousand Dollars
($84,000) payable in accordance with the Company's standard payroll practices.
Such salary shall be reviewed at least annually for adjustment. Any adjustment
shall be determined by the Board, in its sole discretion.
<PAGE>
EXHIBIT A
4. Annual Bonus.
During the Term of Employment, the Board may grant the
Executive an annual bonus. The amount of such annual bonus, if any, shall be
determined by the Board, in its sole discretion.
5. Employee Benefit Programs.
During the Term of this Agreement, the Executive shall be
eligible to participate in employee benefit plans and programs available, from
time to time, to all senior executives of the Company. Specifically, the
Executive shall be entitled to the current annual vacation entitlement as set by
the Board, but not less than 10 business days of vacation for each employment
year with the Company. The Executive shall be entitled to a pro rata share of an
annual accrual for fractional years of employment with the Company.
6. Options. The Company desires to provide the Executive with
an incentive to contribute to the success of the Company. The Executive will,
therefore, receive an option (the "Option") to purchase up to 75,000 shares of
the common stock of the Company (the "Common Stock") upon the achievement of the
performance goals described herein. The Option shall become exercisable in three
(3) separate installments, the Executive having the right hereunder to purchase
from the Company up to the following number of shares of Common Stock, on and
after the following dates, subject to the following conditions, in a cumulative
fashion:
(a) up to twenty-five thousand (25,000) shares of Common Stock at a
price of Eleven Dollars ($11.00) per share, if the Executive successfully
installs a communications system kiosk and video network known as the
"CenterlinQ System" in five (5) additional shopping centers on or before July 1,
1999;
(b) an additional twenty-five thousand (25,000) shares of Common Stock
at a price of Thirteen Dollars ($13.00) per share, if the Executive successfully
installs the CenterlinQ System in an additional ten (10) shopping centers on or
before July 1, 2000; and
(c) an additional twenty-five thousand (25,000) shares of Common Stock
at a price of Fifteen Dollars ($15.00) per share, if the Executive successfully
installs the CenterlinQ System in an additional twenty (20) shopping centers on
or before January 1, 2002.
The Executive may exercise the Option with respect to all or any part
of the number of shares then exercisable by giving the Secretary of the Company
written notice of intent to exercise. The notice of exercise shall specify the
number of shares which shall be exercised and the date of exercise thereof. Full
payment by the Executive of the option price for the shares purchased shall be
made on or before the exercise date specified in the notice of exercise.
<PAGE>
EXHIBIT A
The Option and all rights hereunder with respect thereto to the extent
such rights shall not have been exercised , shall terminate and become null and
void after January 30, 2002. In addition, in the event that the Executive ceases
to be employed by the Company for any reason, the Option, to the extent not
previously exercised, shall terminate and become null and void immediately.
7. Loan. The Executive shall receive a loan from the Company in the
principal amount of Forty Thousand Dollars ($40,000) on January 1, 1999,
according to the terms of a promissory note attached hereto as Exhibit A.
8. Termination of Employment.
(a) Termination Due to Death. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time of the
Executive's death, through the end of the month in which his
death occurs; and
(ii) any other rights and benefits
available under employee benefit programs of the
Company in which the Executive was a participant at
the time of his death, determined in accordance with
the applicable terms and provisions of such programs.
(b) Termination Due to Disability. The Company may terminate
the Executive's employment due to the Disability of the Executive. In the event
of such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the
Executive's Disability is deemed to have commenced, through the date on
which he is terminated due to Disability; and
(ii) any other rights and benefits available under
employee benefit programs of the Company in which the Executive was a
participant at the time of his Termination Due to Disability,
determined in accordance with the applicable terms and provisions of
such programs.
(c) Termination for Cause. The Executive's employment may be
terminated immediately by the Company for Cause. In the event the Executive's
employment is terminated for Cause during the Term of this Agreement, the
Executive shall be entitled to:
<PAGE>
EXHIBIT A
(i) Salary at the rate in effect at the time of the
Termination for Cause, through the date on which such Termination for
Cause occurs; and
(ii) any other rights and benefits available under
employee benefit programs of the Company in which the Executive was a
participant at the time of the Termination for Cause, determined in
accordance with the applicable terms and provisions of such programs.
(d) Termination Without Cause. The Executive's employment
under this Agreement may be terminated without Cause, as provided in this
subsection. "Termination Without Cause" shall mean a termination of the
Executive's employment by the Company during the Term of this Agreement other
than due to death, due to Disability or for Cause.
In the event there is a Termination Without Cause of the
Executive's employment, the Executive shall be entitled to:
(i) Salary at the rate in effect immediately prior to
the Termination Without Cause, for a period which shall end upon the
earlier of (x) the end of the twelfth (12th) month following such
termination of employment or (y) the Executive's reemployment in a
position comparable to that which he held with the Company immediately
prior to the termination of his employment ("Comparable Reemployment"),
provided, however, any Salary due the Executive under this subsection
shall be off-set by any compensation earned by the Executive in respect
of reemployment other than Comparable Reemployment during the Salary
Continuation Period; and
(ii) any other rights and benefits available under
employee benefit programs of the Company in which the Executive was a
participant at the time of his Termination Without Cause, determined in
accordance with the applicable terms and provisions of such programs;
provided, however, that if at any time during the Salary Continuation Period,
the Company becomes aware of any action on the part of the Executive that would
constitute grounds for termination of the Executive's employment by the Company
for Cause, the Company shall be under no obligation to make any payments or
provide any rights or other benefits due under this Agreement.
Any payments received by the Executive under this Agreement
that are attributable to the termination of the Executive's employment shall be
in full and complete satisfaction of any and all claims the Executive may have
against the Company which are, in any way, related to the employment
relationship between the Executive and the Company.
9. Indemnification.
<PAGE>
EXHIBIT A
(a) The Company agrees that if the Executive is made a party
or is threatened to be made a party to any action, suit or proceeding by reason
of the fact that he is or was a director or officer of the Company (a
"Proceeding"), he shall be indemnified by the Company to the fullest extent
authorized by Delaware law, consistent with the Company's certificate of
incorporation (or charter) and by-laws, against expenses, liabilities and losses
reasonably incurred or suffered by the Executive in connection therewith;
provided, however:
(i) written notice of such Proceeding is given
promptly to the Company by the Executive;
(ii) the Company is permitted to participate in and
assume the defense of such Proceeding; and
(iii) such liability results from the final judgment
of a court of competent jurisdiction or, as a result of a
settlement entered into with the prior written consent of the
Company or is required (x) by such court as a bond, payment
into escrow or similar payment, or (y) otherwise to forestall
imminent attachment or similar process against any of the
Executive's assets, and,
provided further that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in subsection (a)
above, the Company shall be under no obligation to indemnify the Executive with
respect to any act or acts of the Executive:
(i) in a knowing violation of any written agreement
between the Executive and the Company;
(ii) for which a court, having jurisdiction in the
matter, determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the
matter, determines to have been knowingly and fraudulently
committed by the Executive or which is the result of willful
misconduct by the Executive.
<PAGE>
EXHIBIT A
10. Covenant Not to Compete or Engage in Certain Other Acts.
(a) During the Term of Employment, and for a period equal to
the greater of (x) 24 months following the end of the Term of Employment or (y)
the Salary Continuation Period, the Executive shall not, except while employed
by the Company, in the business of and for the benefit of the Company, directly
or indirectly, engage in any business whether as an employee, consultant,
partner, principal, agent, representative or stockholder or in any other
corporate or representative capacity, if it involves:
(i) manufacturing, purchasing, marketing or selling
any item or service that is manufactured, purchased, marketed or sold
by the Company or any of its Affiliates in the State of California;
(ii) rendering services or advice pertaining to the
manufacturing, purchasing, marketing or selling of any item or service
manufactured, purchased, marketed or sold by the Company or any
Affiliate to, or on behalf of, any person, firm or corporation in the
State of California; or
(iii) engaging, in, or rendering services or advice
pertaining to any other line of business that the Company, or any
Affiliate, was actively conducting or actively considering during the
Term of Employment with the Company, in competition with the Company,
or any Affiliate, in the State of California in the same aspect of such
line of business as the Company or any such Affiliate.
(b) The Executive agrees that for the Term of Employment and
for the period described in subsection (a) above, except when acting on behalf
of the Company or an Affiliate, he shall not:
(i) assist any other entity to enter into any line of
business that the Company, or any Affiliate, was actively conducting or
was actively considering during the Term of Employment in the State of
California;
(ii) take any action to divert any business from the
Company, or from any Affiliate, or any business which was under active
consideration by the Company, or by any Affiliate, during the Term of
Employment; or
(iii) induce customers, suppliers, agents, franchisees or
other persons under contract or franchise or otherwise doing business
with the Company, to terminate, reduce or alter business with or from
the Company or any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the
<PAGE>
EXHIBIT A
Parties that the restrictions on the Executive's future employment imposed by
this Section be reasonable in both duration and geographic scope. If for any
reason any court of competent jurisdiction shall find the provisions of this
Section unreasonable in duration or geographic scope, the Parties hereby agree
that the prohibitions contained herein shall be effective to the fullest extent
allowed under applicable law in such jurisdiction. It is further agreed that any
limitations on the restrictions such court shall impose shall apply only with
respect to the operations of such restrictions in the particular jurisdiction in
which such adjudication is made.
The Executive understands that the provisions of this Section
may limit his ability to earn a livelihood in a business similar to the business
of the Company, but nevertheless believes that he shall receive sufficient
remuneration and other benefits hereunder to justify the restrictions contained
in such provisions which, given his education, skills and abilities, he does not
believe would prevent him from earning a living.
(c) The Executive agrees that for the Term of Employment and
for the period described in subsection (a) above, except when acting on behalf
of the Company or any Affiliate, he shall not induce any person in the
employment of the Company or any Affiliate to (i) terminate such employment,
(ii) accept employment with anyone other than the Company or any Affiliate or
(iii) interfere with the business of the Company or any Affiliate in any
material manner.
(d) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement.
11. Inventions.
(a) The Executive shall, during the Term of Employment,
disclose to the Company, immediately after the same is made, discovered or
devised, any improvement, process, development, discovery or invention
(including works of authorship, trade secrets, technology, computer programs,
formulas, compositions, ideas, designs, techniques and data, whether or not
patentable or otherwise capable of being protected and whether or not related to
technical or commercial matters) which he may make, discover or devise (alone or
in conjunction with others) either:
(i) in the course of his normal duties (or of duties
specifically assigned to him);
(ii) as a result of knowledge gained during his employment; or
(iii) as a result of the use by the Executive of materials,
equipment or facilities of the Company.
<PAGE>
EXHIBIT A
Subject to subsections (b) and (c) below, all such items shall become the
absolute property of the Company without further payment and the Executive shall
satisfy his obligation in this regard by presenting the same to the Company. The
Executive hereby assigns any and all rights in such items to the Company. The
Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process,
development, discovery or invention which is not covered by subsection (a)
above, the Executive shall (before exploiting or disclosing the same or
otherwise committing himself to a third party) discuss any such item with the
Company to ascertain whether or not it would be in the best interest of the
Company for the Company to take an assignment or license thereof.
(c) The Executive agrees that all inventions which the
Executive makes, conceives, reduces to practice or develops (in whole or in
part, either alone or jointly with others) during his employment shall be the
sole property of the Company to the maximum extent permitted by Section 2870 of
the California Labor Code, a copy of which is attached hereto as Exhibit B, and
hereby assigns such inventions, and all rights therein, to the Company. No
assignment in this Agreement shall extend to inventions, the assignment of which
is prohibited by Labor Code section 2870. The Company shall be the sole owner of
all rights in connection therewith.
(d) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement, including, without limitation,
his obligation to do all acts and other things that the Company may reasonably
require for obtaining any patent or other protection in respect of any
improvement, process, development, discovery, or invention, and his obligation
to disclose to the Company, immediately after the same is made, discovered or
devised, any improvement, discovery or invention as provided in subsection (a)
above.
12. Covenants to Protect Confidential Information.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
<PAGE>
EXHIBIT A
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement.
13. Remedy for Violation of Noncompetition, Confidential Information or
Inventions Provisions.
(a) The Executive acknowledges that the Company has no
adequate remedy at law and would be irreparably harmed if the Executive breaches
or threatens to breach the provisions of Section 8, 9 or 10 above, and,
therefore, agrees that the Company shall be entitled to injunctive relief to
prevent any breach or threatened breach of any of those sections, and to
specific performance of the terms of each of such sections in addition to any
other legal or equitable remedy it may have. The Executive further agrees that
he shall not, in any equity proceeding involving him relating to the enforcement
of Section 8, 9, or 10 above, raise the defense that the Company has an adequate
remedy at law. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have or
any other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event
shall the Company be obligated to provide payments or benefits pursuant to this
Section if, and to the extent, such payments or benefits would be nondeductible
for Federal income tax purposes as a result of the application of Section 280G
of the Internal Revenue Code of 1986. Any determination to be made with respect
to this clause shall be made by the Company's regular independent certified
accountants.
14. Binding Arbitration.
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
<PAGE>
EXHIBIT A
15. Withholding.
Anything in this Agreement to the contrary notwithstanding,
all payments required to be made by the Company hereunder to the Executive shall
be subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
16. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
17. Representation.
The Executive represents and warrants that the performance of
the Executive's duties under this Agreement will not violate any agreement
between the Executive and any other person, firm, partnership, corporation or
organization.
18. Mutual Intent.
The language used in this Agreement is the language chosen by
the Parties to express their mutual intent. The Parties agree that in the event
that any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
19. Entire Agreement.
This Agreement contains the entire agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended or waived unless
such amendment or waiver is agreed to in writing, signed by a duly authorized
officer of the
<PAGE>
EXHIBIT A
Company. No waiver by the Company of any breach by the other Party of any
condition or provision of this Agreement to be performed by such other Party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time.
21. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
23. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of California without
reference to principles of conflict of laws. The Parties agree to submit
exclusively to the jurisdiction of the courts of the State of California with
respect to any controversy, dispute or claim arising out of this Agreement.
24. Notices.
Any notice given to either Party shall be in writing and shall
be deemed to have been given when delivered (whether by telecopy or otherwise)
or two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
Genesis Media Group, Inc.
13063 Ventura Boulevard
Studio City, California 91604-2238
Attn: Ramy El-Batrawi
<PAGE>
EXHIBIT A
With a copy to:
Nida & Maloney
800 Anacapa Street
Santa Barbara, California 93110
Attn: Theodore R. Maloney, Esq.
If to the Executive:
Michael F. Costa
=================
-----------------
25. Headings.
The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
26. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
GENESIS MEDIA GROUP, INC.
By:
--------------------------
MICHAEL F. COSTA
<PAGE>
EXHIBIT A
PROMISSORY NOTE
-------------------------------------------
US$40,000.00 _____________, California
October __, 1998
1. Principal.
FOR VALUE RECEIVED, MICHAEL F. COSTA (the "Obligor"), hereby
promises to pay to the order of GENESIS MEDIA GROUP, INC. (the "Lender"), the
principal sum of FOURTY THOUSAND AND NO ONE HUNDREDTHS UNITED STATES DOLLARS
(US$40,000.00) in a sinlge payment on the earlier of January 1, 2002 or the date
on which the Obligor ceases to be employed by the Lender for any reason (the
"Maturity Date").
The principal sum of this Promissory Note (the "Note") shall
be due and payable in full on the Maturity Date.
2. Interest.
This Note shall be interest free and may, therefore, cause the
Obligor to incur tax liability. The Obligor acknowledges that he has been
advised to consult with an independent tax advisor in connection with the
execution of this Note.
3. Reduction of Principal.
The principal sum due under this Note shall be reduced in a cumulative
fashion in the event that the Obligor achieves certain performance goals in
connection with his employment with the Lender, according to the following
schedule:
<PAGE>
(a) the principal shall be reduced by Ten Tousand Dollars ($10,000) on
July 1, 1999 in the event that the Obligor has successfully installed a
communications system kiosk and video network known as the "CenterlinQ System"
in five shopping centers on or before that date;
(b) the principal shall be reduced by an additional Ten Tousand Dollars
($10,000) on July 1, 2000 in the event that the Obligor has successfully
installed the CenterlinQ System in an additional ten shopping centers on or
before that date; and
(c) the principal shall be reduced by an additional Ten Thousand
Dollars ($10,000) on January 1, 2002 in the event that the Obligor has
successfully installed the CenterlinQ System in an additional twenty shopping
centers on or before that date.
The Obligor may incur tax liability to the extent that the Lender
forgives any amount due and owing under this Note. The Obligor acknowledges that
he has been advised to consult with an independent tax advisor in connection
with the execution of this Note.
4. Manner of Payment.
The payment of the principal sum of this Note or so much
thereof as shall remain outstanding is to be made in immediately available
United States funds without any deduction whatsoever, including, but not limited
to, any deduction for any setoff or counterclaim. This payment shall be made to
the Lender at the following address: 13063 Ventura Boulevard, Studio City,
California 91604-2238.
5. Events of Default.
An "Event of Default" shall be deemed to occur in the event
that:
(a) the Obligor fails to pay the principal sum of
this Note or so much thereof as shall remain outstanding on
the Maturity Date and the Obligor fails to cure such default
within ten (10) days of receiving written notice from the
Lender;
(b) the Obligor fails to comply with the material
terms of this Note and the Obligor fails to cure such default
within thirty (30) days of receiving written notice of such
default from the Lender;
<PAGE>
EXHIBIT A
(c) the Obligor asserts in any pleading filed with a
court of competent jurisdiction that this Note is invalid or
unenforceable, or a court of competent jurisdiction enters a
final judgment holding this Note to be invalid or
unenforceable and such judgment remains unstayed and in effect
for a period of sixty (60) days; or
(d) the Obligor declares bankruptcy or is rendered
insolvent.
6. Remedies; Late Charge.
If an Event of Default shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or otherwise) then the Lenders
may, after providing written notice to the Obligor and upon the expiration of
any applicable cure period, declare the Note to be, and the same shall forthwith
become, due and payable, together with accrued interest thereon that shall be
deemed matured, without presentment, demand, protest or other requirements of
any kind, all of which are hereby expressly waived by the Obligor.
If any payment due on this Note, including the payment of
principal due on the Maturity Date or upon any acceleration of this Note
pursuant to Section 5 and accrued interest thereon, is not paid within ten (10)
days after the date on which such payment is due, the Obligor shall pay to the
Lender, in addition to the delinquent payment and without any requirement of
notice or demand by the Lender, a late payment charge equal to three percent
(3%) of such delinquent amount. The Obligor expressly agrees that the foregoing
late payment charge provision is reasonable under the circumstances existing on
the date of this Note, that it would be extremely difficult to fix the Lender's
actual damages arising out of any failure to pay such outstanding indebtedness,
and that the foregoing late payment charge shall be presumed to be the actual
amount of such damages incurred by the Lender.
7. Assignment.
The Obligor may not assign its rights or obligations hereunder
without the prior written consent of the Lender. Subject to compliance with
applicable securities law, the Lender may assign all or any portion of this Note
after providing written notice of such assignment to the Obligor.
8. Amendment.
The Obligor and the Lender may agree in writing to waive or
amend any provisions contained herein or in any other document delivered in
connection herewith, including without limitation, provisions concerning the
amount of principal due under the Note, the Maturity Date of the Note and events
constituting default in the payment of principal on the Note.
<PAGE>
EXHIBIT B
9. Severability.
Every provision of this Note is intended to be severable. In
the event any term or provision hereof is declared by a court of competent
jurisdiction, to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
10. Notice. Except for any notice required under applicable law to be
given in another manner:
(a) any notice to the Obligor shall be addressed to the
Obligor at the following address:
Michael F. Costa
=================
or to such other address as the Obligor may designate by notice to the Lender;
and
(b) any notice to the Lender shall be addressed to the Lender
as follows:
13063 Ventura Boulevard
Studio City, California 91604-2238
Attn: Ramy El-Batrawi
or to such address as the Lender may designate by notice to the Obligor.
11. Headings.
Headings at the beginning of each numbered paragraph of this
Note are intended solely for convenience and are not to be deemed or construed
to be a part of this Note.
12. Governing Law.
This Note is governed by and shall be construed in accordance
with the laws of the State of California.
13. Costs; Attorney's Fees. The Obligor shall pay on demand all costs
of collection and reasonable attorney's fees incurred or paid by the Lender in
enforcing the terms hereof or in protecting the Lender's interest hereunder.
IN WITNESS WHEREOF, the Obligor has executed this Note as of the date
first written above. The Obligor:
-----------------------------------
MICHAEL F. COSTA
<PAGE>
EXHIBIT A
EXHIBIT B
Section 2870. Application of provision providing that employee shall
assign or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) result from any work performed by the employee for his
employer.
(b) To the extent that a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>
EXHIBIT C
EXHIBIT B
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into as of this ____ day of
October, 1998, between Genesis Media Group, Inc. (the "Company") and Christopher
Miglino (the "Executive").
WHEREAS, the Company desires to employ the Executive and to
enter into an agreement embodying the terms of such employment (the "Agreement")
and the Executive desires to accept such employment and to enter into the
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
Company and the Executive (individually a "Party" and together the "Parties")
agree as follows:
1. Definitions.
(a) "Affiliate" shall mean any corporation, partnership or
other entity in which the Company owns, directly or indirectly, an equity
interest of 50% or more or which owns, directly or indirectly, an equity
interest of 50% in the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean any material act of dishonesty; any
disclosure of confidential information; gross negligence or misconduct;
unjustifiable neglect of duties; insubordination; commission of any illegal act;
drug, alcohol or other substance abuse; or any act or omission which has a
material adverse on the Company's reputation or business.
(d) "Confidential Information" shall mean all nonpublic
information respecting the Company's business including, but not limited to, its
products, research and development, processes, customer lists, marketing plans
and strategies. Confidential information does not include information that is,
or becomes, available to the public unless such availability occurs through an
unauthorized act on the part of the Executive.
(e) "Disability" shall mean the Executive's inability to
render, for 180 days during any 365 day period, full and effective services
hereunder by reason of permanent physical or mental disability, whether
resulting from illness, accident or otherwise.
(f) "Salary" shall mean the salary provided for in Section 3
of this Agreement or any adjusted salary granted to the Executive by the Board.
<PAGE>
EXHIBIT C
(g) "Salary Continuation Period" shall mean the period after
the termination of the Executive's employment pursuant to the terms of this
Agreement during which the Executive is entitled to continued payment of the
Salary.
(h) "Term of this Agreement" shall mean that period of time
specified in Section 2(b).
(i) "Term of Employment" shall mean the period of the
Executive's employment by the Company.
2. Term of Agreement, Position and Duties.
(a) The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) The term of this Agreement shall commence as of October
__, 1998 and shall terminate upon the first to occur if (i) the termination of
this Agreement as provided herein or (ii) October __, 2001. In the event that
the Executive's Term of Employment continues beyond the Term of this Agreement,
such continued employment shall be at will and no provision or condition of this
Agreement shall govern such extended period of employment except as specifically
noted herein.
(c) During the Term of this Agreement, the Executive shall be
employed as Vice President of the Company. During the time as he serves in this
position, the Executive shall serve under the direction of and report directly
to the President and Chief Executive Officer of Genesis Intermedia, Inc., a
wholly-owned subsidiary of the Company. During the Term of Employment, the
Executive agrees to devote his full time and attention to carrying out his
duties and responsibilities hereunder and shall use his best efforts, skills and
abilities to further the interests of the Company. During the Term of
Employment, the Executive may not serve on the board of directors of any other
business entities without the express written permission of the Board and
subject to such limitations as may be imposed by the Board in granting such
permission.
3. Salary.
During the Term of this Agreement, the Executive shall be paid
a salary by the Company at an annual rate of Eighty-Four Thousand Dollars
($84,000) payable in accordance with the Company's standard payroll practices.
Such salary shall be reviewed at least annually for adjustment. Any adjustment
shall be determined by the Board, in its sole discretion.
<PAGE>
4. Annual Bonus.
During the Term of Employment, the Board may grant the
Executive an annual bonus. The amount of such annual bonus, if any, shall be
determined by the Board, in its sole discretion.
5. Employee Benefit Programs.
During the Term of this Agreement, the Executive shall be
eligible to participate in employee benefit plans and programs available, from
time to time, to all senior executives of the Company. Specifically, the
Executive shall be entitled to the current annual vacation entitlement as set by
the Board, but not less than 10 business days of vacation for each employment
year with the Company. The Executive shall be entitled to a pro rata share of an
annual accrual for fractional years of employment with the Company.
6. Options. The Company desires to provide the Executive with
an incentive to contribute to the success of the Company. The Executive will,
therefore, receive an option (the "Option") to purchase up to 75,000 shares of
the common stock of the Company (the "Common Stock") upon the achievement of the
performance goals described herein. The Option shall become exercisable in three
(3) separate installments, the Executive having the right hereunder to purchase
from the Company up to the following number of shares of Common Stock, on and
after the following dates, subject to the following conditions, in a cumulative
fashion:
(a) up to twenty-five thousand (25,000) shares of Common Stock at a
price of Eleven Dollars ($11.00) per share, if the Executive successfully
installs a communications system kiosk and video network known as the
"CenterlinQ System" in five (5) additional shopping centers on or before July 1,
1999;
(b) an additional twenty-five thousand (25,000) shares of Common Stock
at a price of Thirteen Dollars ($13.00) per share, if the Executive successfully
installs the CenterlinQ System in an additional ten (10) shopping centers on or
before July 1, 2000; and
(c) an additional twenty-five thousand (25,000) shares of Common Stock
at a price of Fifteen Dollars ($15.00) per share, if the Executive successfully
installs the CenterlinQ System in an additional twenty (20) shopping centers on
or before January 1, 2002.
The Executive may exercise the Option with respect to all or any part
of the number of shares then exercisable by giving the Secretary of the Company
written notice of intent to exercise. The notice of exercise shall specify the
number of shares which shall be exercised and the date of exercise thereof. Full
payment by the Executive of the option price for the shares purchased shall be
made on or before the exercise date specified in the notice of exercise.
<PAGE>
EXHIBIT C
The Option and all rights hereunder with respect thereto to the extent
such rights shall not have been exercised , shall terminate and become null and
void after January 30, 2002. In addition, in the event that the Executive ceases
to be employed by the Company for any reason, the Option, to the extent not
previously exercised, shall terminate and become null and void immediately.
7. Loan. The Executive shall receive a loan from the Company in the
principal amount of Forty Thousand Dollars ($40,000) on January 1, 1999,
according to the terms of a promissory note attached hereto as Exhibit A.
8. Termination of Employment.
(a) Termination Due to Death. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time
of the Executive's death, through the end of the
month in which his death occurs; and
(ii) any other rights and benefits available
under employee benefit programs of the Company in
which the Executive was a participant at the time of
his death, determined in accordance with the
applicable terms and provisions of such programs.
(b) Termination Due to Disability. The Company may terminate
the Executive's employment due to the Disability of the Executive. In the event
of such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the
Executive's Disability is deemed to have commenced, through the date on
which he is terminated due to Disability; and
(ii) any other rights and benefits available under
employee benefit programs of the Company in which the Executive was a
participant at the time of his Termination Due to Disability,
determined in accordance with the applicable terms and provisions of
such programs.
(c) Termination for Cause. The Executive's employment may be
terminated immediately by the Company for Cause. In the event the Executive's
employment is terminated for Cause during the Term of this Agreement, the
Executive shall be entitled to:
<PAGE>
EXHIBIT C
(i) Salary at the rate in effect at the time of the
Termination for Cause, through the date on which such Termination for
Cause occurs; and
(ii) any other rights and benefits available under
employee benefit programs of the Company in which the Executive was a
participant at the time of the Termination for Cause, determined in
accordance with the applicable terms and provisions of such programs.
(d) Termination Without Cause. The Executive's employment
under this Agreement may be terminated without Cause, as provided in this
subsection. "Termination Without Cause" shall mean a termination of the
Executive's employment by the Company during the Term of this Agreement other
than due to death, due to Disability or for Cause.
In the event there is a Termination Without Cause of the
Executive's employment, the Executive shall be entitled to:
(i) Salary at the rate in effect immediately prior to
the Termination Without Cause, for a period which shall end upon the
earlier of (x) the end of the twelfth (12th) month following such
termination of employment or (y) the Executive's reemployment in a
position comparable to that which he held with the Company immediately
prior to the termination of his employment ("Comparable Reemployment"),
provided, however, any Salary due the Executive under this subsection
shall be off-set by any compensation earned by the Executive in respect
of reemployment other than Comparable Reemployment during the Salary
Continuation Period; and
(ii) any other rights and benefits available under
employee benefit programs of the Company in which the Executive was a
participant at the time of his Termination Without Cause, determined in
accordance with the applicable terms and provisions of such programs;
provided, however, that if at any time during the Salary Continuation Period,
the Company becomes aware of any action on the part of the Executive that would
constitute grounds for termination of the Executive's employment by the Company
for Cause, the Company shall be under no obligation to make any payments or
provide any rights or other benefits due under this Agreement.
Any payments received by the Executive under this Agreement
that are attributable to the termination of the Executive's employment shall be
in full and complete satisfaction of any and all claims the Executive may have
against the Company which are, in any way, related to the employment
relationship between the Executive and the Company.
9. Indemnification.
<PAGE>
(a) The Company agrees that if the Executive is made a party
or is threatened to be made a party to any action, suit or proceeding by reason
of the fact that he is or was a director or officer of the Company (a
"Proceeding"), he shall be indemnified by the Company to the fullest extent
authorized by Delaware law, consistent with the Company's certificate of
incorporation (or charter) and by-laws, against expenses, liabilities and losses
reasonably incurred or suffered by the Executive in connection therewith;
provided, however:
(i) written notice of such Proceeding is given
promptly to the Company by the Executive;
(ii) the Company is permitted to participate in and
assume the defense of such Proceeding; and
(iii) such liability results from the final judgment
of a court of competent jurisdiction or, as a result of a
settlement entered into with the prior written consent of the
Company or is required (x) by such court as a bond, payment
into escrow or similar payment, or (y) otherwise to forestall
imminent attachment or similar process against any of the
Executive's assets, and,
provided further that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in subsection (a)
above, the Company shall be under no obligation to indemnify the Executive with
respect to any act or acts of the Executive:
(i) in a knowing violation of any written agreement
between the Executive and the Company;
(ii) for which a court, having jurisdiction in the
matter, determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the
matter, determines to have been knowingly and fraudulently
committed by the Executive or which is the result of willful
misconduct by the Executive.
<PAGE>
10. Covenant Not to Compete or Engage in Certain Other Acts.
(a) During the Term of Employment, and for a period equal to
the greater of (x) 24 months following the end of the Term of Employment or (y)
the Salary Continuation Period, the Executive shall not, except while employed
by the Company, in the business of and for the benefit of the Company, directly
or indirectly, engage in any business whether as an employee, consultant,
partner, principal, agent, representative or stockholder or in any other
corporate or representative capacity, if it involves:
(i) manufacturing, purchasing, marketing or selling
any item or service that is manufactured, purchased, marketed or sold
by the Company or any of its Affiliates in the State of California;
(ii) rendering services or advice pertaining to the
manufacturing, purchasing, marketing or selling of any item or service
manufactured, purchased, marketed or sold by the Company or any
Affiliate to, or on behalf of, any person, firm or corporation in the
State of California; or
(iii) engaging, in, or rendering services or advice
pertaining to any other line of business that the Company, or any
Affiliate, was actively conducting or actively considering during the
Term of Employment with the Company, in competition with the Company,
or any Affiliate, in the State of California in the same aspect of such
line of business as the Company or any such Affiliate.
(b) The Executive agrees that for the Term of Employment and
for the period described in subsection (a) above, except when acting on behalf
of the Company or an Affiliate, he shall not:
(i) assist any other entity to enter into any line of
business that the Company, or any Affiliate, was actively conducting or
was actively considering during the Term of Employment in the State of
California;
(ii) take any action to divert any business from the
Company, or from any Affiliate, or any business which was under active
consideration by the Company, or by any Affiliate, during the Term of
Employment; or
(iii) induce customers, suppliers, agents, franchisees or
other persons under contract or franchise or otherwise doing business
with the Company, to terminate, reduce or alter business with or from
the Company or any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the Parties
that the restrictions on the Executive's future employment imposed by this
Section be reasonable in both duration and geographic scope. If for any reason
any court of competent jurisdiction shall find the provisions of this Section
unreasonable in duration or geographic scope, the Parties hereby agree that the
prohibitions contained herein shall be effective to the fullest extent allowed
under applicable law in such jurisdiction. It is further agreed that any
limitations on the restrictions such court shall impose shall apply only with
respect to the operations of such restrictions in the particular jurisdiction in
which such adjudication is made.
The Executive understands that the provisions of this Section
may limit his ability to earn a livelihood in a business similar to the business
of the Company, but nevertheless believes that he shall receive sufficient
remuneration and other benefits hereunder to justify the restrictions contained
in such provisions which, given his education, skills and abilities, he does not
believe would prevent him from earning a living.
(c) The Executive agrees that for the Term of Employment and
for the period described in subsection (a) above, except when acting on behalf
of the Company or any Affiliate, he shall not induce any person in the
employment of the Company or any Affiliate to (i) terminate such employment,
(ii) accept employment with anyone other than the Company or any Affiliate or
(iii) interfere with the business of the Company or any Affiliate in any
material manner.
(d) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement.
11. Inventions.
(a) The Executive shall, during the Term of Employment,
disclose to the Company, immediately after the same is made, discovered or
devised, any improvement, process, development, discovery or invention
(including works of authorship, trade secrets, technology, computer programs,
formulas, compositions, ideas, designs, techniques and data, whether or not
patentable or otherwise capable of being protected and whether or not related to
technical or commercial matters) which he may make, discover or devise (alone or
in conjunction with others) either:
(i) in the course of his normal duties (or of duties
specifically assigned to him);
(ii) as a result of knowledge gained during his
employment; or
(iii) as a result of the use by the Executive of
materials, equipment or facilities of the Company.
<PAGE>
Subject to subsections (b) and (c) below, all such items shall become the
absolute property of the Company without further payment and the Executive shall
satisfy his obligation in this regard by presenting the same to the Company. The
Executive hereby assigns any and all rights in such items to the Company. The
Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process,
development, discovery or invention which is not covered by subsection (a)
above, the Executive shall (before exploiting or disclosing the same or
otherwise committing himself to a third party) discuss any such item with the
Company to ascertain whether or not it would be in the best interest of the
Company for the Company to take an assignment or license thereof.
(c) The Executive agrees that all inventions which the
Executive makes, conceives, reduces to practice or develops (in whole or in
part, either alone or jointly with others) during his employment shall be the
sole property of the Company to the maximum extent permitted by Section 2870 of
the California Labor Code, a copy of which is attached hereto as Exhibit B, and
hereby assigns such inventions, and all rights therein, to the Company. No
assignment in this Agreement shall extend to inventions, the assignment of which
is prohibited by Labor Code section 2870. The Company shall be the sole owner of
all rights in connection therewith.
(d) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement, including, without limitation,
his obligation to do all acts and other things that the Company may reasonably
require for obtaining any patent or other protection in respect of any
improvement, process, development, discovery, or invention, and his obligation
to disclose to the Company, immediately after the same is made, discovered or
devised, any improvement, discovery or invention as provided in subsection (a)
above.
12. Covenants to Protect Confidential Information.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
<PAGE>
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement.
13. Remedy for Violation of Noncompetition, Confidential Information or
Inventions Provisions.
(a) The Executive acknowledges that the Company has no
adequate remedy at law and would be irreparably harmed if the Executive breaches
or threatens to breach the provisions of Section 8, 9 or 10 above, and,
therefore, agrees that the Company shall be entitled to injunctive relief to
prevent any breach or threatened breach of any of those sections, and to
specific performance of the terms of each of such sections in addition to any
other legal or equitable remedy it may have. The Executive further agrees that
he shall not, in any equity proceeding involving him relating to the enforcement
of Section 8, 9, or 10 above, raise the defense that the Company has an adequate
remedy at law. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have or
any other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section
shall survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event
shall the Company be obligated to provide payments or benefits pursuant to this
Section if, and to the extent, such payments or benefits would be nondeductible
for Federal income tax purposes as a result of the application of Section 280G
of the Internal Revenue Code of 1986. Any determination to be made with respect
to this clause shall be made by the Company's regular independent certified
accountants.
14. Binding Arbitration.
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration administered
by the American Arbitration Association under its Commercial Arbitration Rules
and judgment on the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
<PAGE>
15. Withholding.
Anything in this Agreement to the contrary notwithstanding,
all payments required to be made by the Company hereunder to the Executive shall
be subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
16. Assignability; Binding Nature.
This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
17. Representation.
The Executive represents and warrants that the performance of
the Executive's duties under this Agreement will not violate any agreement
between the Executive and any other person, firm, partnership, corporation or
organization.
18. Mutual Intent.
The language used in this Agreement is the language chosen by
the Parties to express their mutual intent. The Parties agree that in the event
that any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
19. Entire Agreement.
This Agreement contains the entire agreement between the
Parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the Parties with respect thereto.
20. Amendment or Waiver.
No provision in this Agreement may be amended or waived unless
such amendment or waiver is agreed to in writing, signed by a duly authorized
officer of the Company. No waiver by the Company of any breach by the other
Party of any condition or provision of this Agreement to be performed by such
other Party shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time.
21. Severability.
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
22. Survivorship.
The respective rights and obligations of the Parties hereunder
shall survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
23. Governing Law/Jurisdiction.
This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of California without
reference to principles of conflict of laws. The Parties agree to submit
exclusively to the jurisdiction of the courts of the State of California with
respect to any controversy, dispute or claim arising out of this Agreement.
24. Notices.
Any notice given to either Party shall be in writing and shall
be deemed to have been given when delivered (whether by telecopy or otherwise)
or two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
Genesis Media Group, Inc.
13063 Ventura Boulevard
Studio City, California 91604-2238
Attn: Ramy El-Batrawi
<PAGE>
With a copy to:
Nida & Maloney
800 Anacapa Street
Santa Barbara, California 93110
Attn: Theodore R. Maloney, Esq.
If to the Executive:
Christopher Miglino
-----------------
-----------------
25. Headings.
The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
26. Counterparts.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
GENESIS MEDIA GROUP, INC.
By:
- -------------------
CHRISTOPHER MIGLINO
<PAGE>
EXHIBIT B
EXHIBIT B
EXHIBIT A
PROMISSORY NOTE
-------------------------------------------
US$40,000.00 _____________, California
October __, 1998
1. Principal.
FOR VALUE RECEIVED, CHRISTOPHER MIGLINO (the "Obligor"),
hereby promises to pay to the order of GENESIS MEDIA GROUP, INC. (the "Lender"),
the principal sum of FOURTY THOUSAND AND NO ONE HUNDREDTHS UNITED STATES DOLLARS
(US$40,000.00) in a sinlge payment on the earlier of January 1, 2002 or the date
on which the Obligor ceases to be employed by the Lender for any reason (the
"Maturity Date").
The principal sum of this Promissory Note (the "Note") shall
be due and payable in full on the Maturity Date.
2. Interest.
This Note shall be interest free and may, therefore, cause the
Obligor to incur tax liability. The Obligor acknowledges that he has been
advised to consult with an independent tax advisor in connection with the
execution of this Note.
3. Reduction of Principal.
The principal sum due under this Note shall be reduced in a cumulative
fashion in the event that the Obligor achieves certain performance goals in
connection with his employment with the Lender, according to the following
schedule:
(a) the principal shall be reduced by Ten Tousand Dollars ($10,000) on
July 1, 1999 in the event that the Obligor has successfully installed a
communications system kiosk and video network known as the "CenterlinQ System"
in five shopping centers on or before that date;
(b) the principal shall be reduced by an additional Ten Tousand Dollars
($10,000) on July 1, 2000 in the event that the Obligor has successfully
installed the CenterlinQ System in an additional ten shopping centers on or
before that date; and
(c) the principal shall be reduced by an additional Ten Thousand
Dollars ($10,000) on January 1, 2002 in the event that the Obligor has
successfully installed the CenterlinQ System in an additional twenty shopping
centers on or before that date.
The Obligor may incur tax liability to the extent that the Lender
forgives any amount due and owing under this Note. The Obligor acknowledges that
he has been advised to consult with an independent tax advisor in connection
with the execution of this Note.
4. Manner of Payment.
The payment of the principal sum of this Note or so much
thereof as shall remain outstanding is to be made in immediately available
United States funds without any deduction whatsoever, including, but not limited
to, any deduction for any setoff or counterclaim. This payment shall be made to
the Lender at the following address: 13063 Ventura Boulevard, Studio City,
California 91604-2238.
<PAGE>
5. Events of Default.
An "Event of Default" shall be deemed to occur in the event
that:
(a) the Obligor fails to pay the principal sum of
this Note or so much thereof as shall remain outstanding on
the Maturity Date and the Obligor fails to cure such default
within ten (10) days of receiving written notice from the
Lender;
(b) the Obligor fails to comply with the material
terms of this Note and the Obligor fails to cure such default
within thirty (30) days of receiving written notice of such
default from the Lender;
(c) the Obligor asserts in any pleading filed with a
court of competent jurisdiction that this Note is invalid or
unenforceable, or a court of competent jurisdiction enters a
final judgment holding this Note to be invalid or
unenforceable and such judgment remains unstayed and in effect
for a period of sixty (60) days; or
(d) the Obligor declares bankruptcy or is rendered
insolvent.
6. Remedies; Late Charge.
If an Event of Default shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or otherwise) then the Lenders
may, after providing written notice to the Obligor and upon the expiration of
any applicable cure period, declare the Note to be, and the same shall forthwith
become, due and payable, together with accrued interest thereon that shall be
deemed matured, without presentment, demand, protest or other requirements of
any kind, all of which are hereby expressly waived by the Obligor.
If any payment due on this Note, including the payment of
principal due on the Maturity Date or upon any acceleration of this Note
pursuant to Section 5 and accrued interest thereon, is not paid within ten (10)
days after the date on which such payment is due, the Obligor shall pay to the
Lender, in addition to the delinquent payment and without any requirement of
notice or demand by the Lender, a late payment charge equal to three percent
(3%) of such delinquent amount. The Obligor expressly agrees that the foregoing
late payment charge provision is reasonable under the circumstances existing on
the date of this Note, that it would be extremely difficult to fix the Lender's
actual damages arising out of any failure to pay such outstanding indebtedness,
and that the foregoing late payment charge shall be presumed to be the actual
amount of such damages incurred by the Lender.
7. Assignment.
The Obligor may not assign its rights or obligations hereunder
without the prior written consent of the Lender. Subject to compliance with
applicable securities law, the Lender may assign all or any portion of this Note
after providing written notice of such assignment to the Obligor.
8. Amendment.
The Obligor and the Lender may agree in writing to waive or
amend any provisions contained herein or in any other document delivered in
connection herewith, including without limitation, provisions concerning the
amount of principal due under the Note, the Maturity Date of the Note and events
constituting default in the payment of principal on the Note.
<PAGE>
9. Severability.
Every provision of this Note is intended to be severable. In
the event any term or provision hereof is declared by a court of competent
jurisdiction, to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
10. Notice. Except for any notice required under applicable law to be
given in another manner:
(a) any notice to the Obligor shall be addressed to the
Obligor at the following address:
<PAGE>
EXHIBIT B
Christopher Miglino
or to such other address as the Obligor may designate by notice to the Lender;
and
(b) any notice to the Lender shall be addressed to the Lender
as follows:
13063 Ventura Boulevard
Studio City, California 91604-2238
Attn: Ramy El-Batrawi
or to such address as the Lender may designate by notice to the Obligor.
11. Headings.
Headings at the beginning of each numbered paragraph of this
Note are intended solely for convenience and are not to be deemed or construed
to be a part of this Note.
12. Governing Law.
This Note is governed by and shall be construed in accordance
with the laws of the State of California.
13. Costs; Attorney's Fees. The Obligor shall pay on demand all costs
of collection and reasonable attorney's fees incurred or paid by the Lender in
enforcing the terms hereof or in protecting the Lender's interest hereunder.
IN WITNESS WHEREOF, the Obligor has executed this Note as of the date
first written above. The Obligor:
-----------------------------------
CHRISTOPHER MIGLINO
<PAGE>
EXHIBIT B
Section 2870. Application of provision providing that employee shall
assign or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) result from any work performed by the employee for his
employer.
(b) To the extent that a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>
EXHIBIT C
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made
as of October 26, 1998 by and between VISION DIGITAL COMMUNICATIONS, INC., a
California corporation ("Seller"), and GENESIS MEDIA GROUP, INC., a Florida
corporation ("Purchaser").
R E C I T A L S
WHEREAS, Seller and Purchaser have entered into the Asset
Purchase Agreement dated as of October 26, 1998 (the "Asset Purchase
Agreement");
WHEREAS, in connection with the consummation of the Asset
Purchase Agreement, Seller will receive 60,000 restricted shares of Common Stock
of Purchaser (such shares being referred to herein as the "Shares"); and
WHEREAS, pursuant to the Asset Purchase Agreement Seller
hereby agrees to pledge the Shares as security for its indemnification
obligations under the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows
<PAGE>
Section 1. Definitions and Interpretation
Section 1.01. Certain Defined Terms. Capitalized terms used herein
without definition shall have the meanings set forth in the Asset Purchase
Agreement. In addition, the following terms shall have the following meanings
under this Agreement:
"Collateral" shall have the meaning assigned to that term in
Section 2.01.
"Collateral Account" shall have the meaning assigned to that
term in Section 3.01.
"Obligations" shall mean collectively:
(i) All obligations, covenants, agreements, and
liabilities of Seller to Purchaser, in connection with the Asset Purchase
Agreement;
<PAGE>
(ii) Any and all other indebtedness of Seller to Purchaser
now or hereafter owing, whether direct or indirect, primary or secondary, fixed
or contingent, joint or several, regardless of how evidenced or arising;
(iii) All obligations of Seller under this Agreement; and
(iv) Any extensions or renewals of all such obligations
described in clauses (i) through (iii) above, whether or not any extension
agreements or renewal instruments are executed.
"Pledged Stock" shall have the meaning assigned to that term
in Section 2.01(A).
"Stock Collateral" shall have the meaning assigned to that
term in Section 2.01(A).
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the State of California from time to time or, by reason of
mandatory application, any other applicable jurisdiction.
Section 1.02. Interpretation. In this Agreement, unless otherwise
indicated, the singular includes the plural and plural the singular; words
importing any gender include the others; references to statutes or regulations
are to be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" include printing, typing, lithography and other means of
reproducing words in a tangible visible form; the words "including," "includes"
and "include" shall be deemed to be followed by the words "without limitation";
references to articles, sections (or subdivisions of sections), exhibits,
annexes or schedules are to this Agreement; references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments,
extensions and other modifications to such instruments; and references to
persons and entities include their respective permitted successors and assigns.
Section 2. Collateral
Section 2.01. Grant. As security for the full and prompt payment and
faithful performance of the Obligations, Seller hereby absolutely and
unconditionally PLEDGES, HYPOTHECATES, TRANSFERS, ASSIGNS, SETS OVER AND
DELIVERS to Purchaser, for the benefit of Purchaser and grants to Purchaser, for
the same benefit, a continuing security interest in all of the Seller's right,
title and interest in and to the following property, whether now owned or
hereafter acquired by Seller and whether now existing or hereafter coming into
existence (collectively, the "Collateral"):
(A) (i) all of the Shares represented by the certificates
therefor and all other shares of capital stock of whatever class of the
Purchaser, now owned or hereafter acquired by Seller, together with, in each
case, the certificates representing the same (collectively, the "Pledged
Stock");
(ii) all shares, securities, monies or property
representing a dividend on, or a distribution or return of capital in respect of
any of the Pledged Stock, resulting from a split-up, revision, reclassification
or other like change of any of the Pledged Stock or otherwise received in
exchange for any of the Pledged Stock and any and all other rights issued to the
holders of, or otherwise in respect of, any of the Pledged Stock; and
(iii) in the event of any consolidation or merger in which
Seller is not the surviving corporation, all shares of each class of the capital
stock of the successor corporation formed by or resulting from such
consolidation or merger related to the Pledged Stock (collectively, and together
with the property described in clauses (i) and (ii) above, the "Stock
Collateral");
(B) to the extent related to all or any part of the other
Collateral, all books, correspondence, credit files, records, invoices, tapes,
cards, computer runs and other papers and documents in the possession or under
the control of Seller or any computer bureau or service Purchaser from time to
time acting for Seller; and
(C) all proceeds and products of and to any of the property of
Seller described in clause (A) of this Section 2.01.
Section 2.02. Perfection. Concurrently with the execution and delivery
of this Agreement, Seller shall (i) deliver to Purchaser all certificates for
the Shares, accompanied by undated stock powers duly executed in blank and (ii)
take all such other reasonable actions as shall be necessary or as Purchaser may
request to perfect and establish the priority of the liens granted by this
Agreement.
<PAGE>
Section 2.03. Preservation and Protection of Security Interests. Seller
shall:
(A) upon the acquisition after the date hereof by Seller of
any Stock Collateral, promptly notify Purchaser in writing of such acquisition
and either (i) transfer and deliver to Purchaser all such Stock Collateral
(together with any certificates representing such Stock Collateral duly endorsed
in blank or accompanied by undated stock powers duly executed in blank) or (ii)
take such other action as Purchaser shall deem necessary or appropriate to
perfect, and establish the priority of, the liens granted by this Agreement in
such Stock Collateral; and
(B) give, execute, deliver, file or record any and all
financing statements, notices, contracts, agreements or other instruments,
obtain any and all governmental approvals and take any and all steps that may be
necessary or as Purchaser may request to create, perfect, establish the priority
of, or to preserve the validity, perfection or priority of, the liens granted by
this Agreement or to enable Purchaser to exercise and enforce its rights,
remedies, powers and privileges under this Agreement with respect to such liens,
including causing any or all of the Stock Collateral to be transferred of record
into the name of Purchaser or its nominee (and Purchaser agrees that if any
Stock Collateral is transferred into its name or the name of its nominee,
Purchaser will thereafter promptly give to Seller copies of any notices and
communications received by it with respect to the Stock Collateral pledged by
Seller).
Subject to the rights of Seller under Section 2.05, Purchaser is hereby
appointed the attorney-in-fact of Seller for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instruments
which Purchaser may deem necessary or advisable to accomplish the purposes of
this Agreement, to preserve the validity, perfection and priority of the liens
granted by this Agreement and, following any default of the Obligations, to
exercise its rights, remedies, powers and privileges under this Agreement, and
to transfer the Collateral on the books and records of Seller and to collect the
proceeds thereof. This appointment as attorney-in-fact is irrevocable and
coupled with an interest. Without limiting the generality of the foregoing,
Purchaser shall be entitled under this Agreement upon the occurrence and
continuation of any default under the Obligations until such default is timely
cured (i) to ask, demand, collect, sue for, recover, receive and give receipt
and discharge for amounts due and to become due under and in respect of all or
any part of the Collateral; (ii) to receive, endorse and collect any drafts,
instruments, documents and chattel paper in connection with clause (i) above;
(iii) to file any claims or take any action or proceeding that Purchaser may
deem necessary or advisable for the collection of all or any part of the
Collateral; and (iv) to execute, in connection with any sale or disposition of
the Collateral under Section 5, any endorsements, assignments, bills of sale or
other instruments of conveyance or transfer with respect to all or any part of
the Collateral.
.ection 2.05. Special Provisions Relating to Stock Collateral
(A) So long as no default of the Obligations shall have
occurred and be continuing, Seller shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Stock Collateral for
all purposes not inconsistent with the terms of the Asset Purchase Agreement or
any of the documents related thereto, provided that Seller agrees that he will
not vote the Stock Collateral in any manner that is inconsistent with the terms
hereof or of the Asset Purchase Agreement or any of the documents related
thereto; and Purchaser shall, at Seller's expense, execute and deliver to Seller
or cause to be executed and delivered to Seller all such proxies, powers of
attorney, dividend and other orders and other instruments, without recourse, as
Seller may reasonably request for the purpose of enabling Seller to exercise the
rights and powers which he is entitled to exercise pursuant to this Section
2.05(A).
<PAGE>
(B) So long as no default of the Obligations shall have
occurred and be continuing, Seller shall be entitled to receive and retain any
dividends on the Stock Collateral paid in cash out of earned surplus.
(C) If any default of the Obligations shall have occurred and
be continuing, all dividends and other distributions on the Stock Collateral
shall be paid directly to Purchaser and retained by it, and, if Purchaser shall
so request, Seller agrees to execute and deliver to Purchaser appropriate
additional dividend, distribution and other orders and instruments to that end.
Section 2.06. Rights and Obligations. No reference in this Agreement to
proceeds or to the sale or other disposition of Collateral shall authorize
Seller to sell or otherwise dispose of any Collateral.
Section 2.07. Termination. This Agreement shall terminate one (1) year
from the Closing Date of the Asset Purchase Agreement, provided, that, Purchaser
has no claims pending with respect to the Asset Purchase Agreement, any document
related thereto, or any of the Obligations and Purchaser shall forthwith cause
to be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect of the Collateral, to or on the order of Seller. The
obligations of Seller under this Agreement shall be automatically reinstated if
and to the extent that for any reason any payment by or on behalf of Seller or
any other Person or any other application of funds (including the proceeds of
any collateral for all or any part of the Obligations) in respect of all or any
part of the Obligations is rescinded or must be otherwise restored by any holder
of such Obligations, whether as a result of any proceedings in bankruptcy,
reorganization or otherwise and Seller agrees that he will indemnify Purchaser
on demand for all reasonable costs and expenses (including fees and expenses of
counsel) incurred by Purchaser in connection with such rescission or
restoration.
Section 3. Representations and Warranties
As of the date hereof, Seller represents and warrants to
Purchaser:
Seller is the sole beneficial owner of the Collateral in which he
purports to grant a lien pursuant to this Agreement, and such Collateral is free
and clear of all liens (and, with respect to the Stock Collateral, no right or
option to acquire the same exists in favor of any other Person). The liens
granted by this Agreement in favor of Purchaser for the benefit of Purchaser
have attached and constitute a perfected security interest in all of such
Collateral prior to all other liens.
Section 3.02. Pledged Stock.
(A) Except as set forth herein, none of such Pledged Stock is
subject to any contractual restriction.
(B) After giving effect to the transactions contemplated by
the Asset Purchase Agreement, as of the Closing Date, the Pledged Stock
constitutes all of the issued and outstanding shares of capital stock of all
classes of the Purchaser beneficially owned by Seller on the date hereof
(whether or not registered in the name of Seller).
Section 4. Covenants.
Section 4.01. Books and Records. Seller shall keep full and accurate
books and records relating to the Collateral and stamp or otherwise mark such
books and records in such manner as Purchaser may reasonably require in order to
reflect the liens granted by this Agreement; and permit representatives of
Purchaser, upon reasonable notice, at any time during normal business hours to
inspect and make abstracts from Seller's books and records pertaining to the
Collateral, permit representatives of Purchaser to be present at Seller's place
of business to receive copies of all communications and remittances relating to
the Collateral and forward copies of any notices or communications received by
Seller with respect to the Collateral, all in such manner as Purchaser may
request.
Without the prior written consent of Purchaser, Seller shall not
assign, sell, transfer, pledge, encumber or dispose of any Collateral, create,
incur, assume or suffer to exist any lien upon any Collateral or file or suffer
to be on file or authorize to be filed, in any jurisdiction, any financing
statement or like instrument with respect to all or any part of the Collateral;
agrees that, from time to time upon the written request of Purchaser,
Seller will execute and deliver such further documents and do such other acts
and things as Purchaser may reasonably request in order to fully effect the
purposes of this Agreement.
<PAGE>
Section 5. Remedies
Section 5.01. Events of Default, Etc. If any default of the Obligations
shall have occurred and be continuing: (A) Purchaser in its discretion may, in
its name or in the name of Seller or otherwise, demand, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for all or any part of the Collateral, but shall be under no
obligation to do so; (B) Purchaser in its discretion may, upon ten business days
prior written notice to Seller of the time and place, with respect to all or any
part of the Collateral which shall then be or shall thereafter come into the
possession, custody or control of Purchaser or its agents, sell or otherwise
dispose of all or any part of such Collateral, at such place or places as
Purchaser deems best, for cash, for credit or for future delivery (without
thereby assuming any credit risk) and at public or private sale, without demand
of performance or notice of intention to effect any such disposition or of time
or place of any such sale (except such notice as is required above or by
applicable statute and cannot be waived), and Purchaser or any other Person may
be the purchaser or recipient of any or all of the Collateral so disposed of at
any public sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any right or equity of redemption (statutory or otherwise), of
Seller, or any such demand, notice and right or equity being hereby expressly
waived and released. Purchaser may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be made
at any time or place to which the sale may be so adjourned; and (C) Purchaser
shall have, and in its discretion may exercise, all of the rights, remedies,
powers and privileges with respect to the Collateral of a Purchaser under the
Uniform Commercial Code (whether or not the Uniform Commercial Code is in effect
in the jurisdiction where such rights, remedies, powers and privileges are
asserted) and such additional rights, remedies, powers and privileges to which a
Purchaser is entitled under the laws in effect in any jurisdiction where any
rights, remedies, powers and privileges in respect of this Agreement or the
Collateral may be asserted, including the right, to the maximum extent permitted
by law, to exercise all voting, consensual and other powers of ownership
pertaining to the Collateral as if Purchaser were the sole and absolute owner of
the Collateral (and Seller agrees to take all such action as may be appropriate
to give effect to such right).
The proceeds of, and other realization upon, the Collateral by virtue of the
exercise of remedies under this Section 5.01 shall be applied in accordance with
Section 5.04.
Section 5.02. Deficiency. If the proceeds of, or other realization
upon, the Collateral by virtue of the exercise of remedies under Section 5 are
insufficient to cover the costs and expenses of such exercise and the payment in
full of the other Obligations, Seller shall remain liable for any deficiency to
the extent and only to the extent Seller shall otherwise be liable for such
Obligations.
Section 5.03. Private Sale. Purchaser shall incur no liability as a
result of the sale, lease or other disposition of all or any part of the
Collateral at any private sale pursuant to Section 5 conducted in a commercially
reasonable manner. Seller hereby waives any claims against Purchaser arising by
reason of the fact that the price at which the Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the Obligations, even if
Purchaser accepts the first offer received and does not offer the Collateral to
more than one offeree. Seller recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and other applicable
securities laws, Purchaser may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to distribution or resale. Seller acknowledges that any such
private sales may be at prices and on terms less favorable to Purchaser than
those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that Purchaser
shall have no obligation to engage in public sales and no obligation to delay
the sale of any Collateral for the period of time necessary to permit the
respective issuer of such Collateral to register it for public sale.
<PAGE>
Section 5.04. Application of Proceeds. Except as otherwise expressly
provided in this Agreement and except as provided below in this Section 5.04,
the proceeds of, or other realization upon, all or any part of the Collateral by
virtue of the exercise of remedies under this Section 5 or this Section 5, shall
be applied by Purchaser:
First, to the payment of the costs and expenses of such
exercise of remedies, including reasonable out-of-pocket costs and expenses of
Purchaser, the fees and expenses of its agents and counsel and all other
expenses incurred and advances made by Purchaser in that connection;
Next, to the payment in full of the remaining Obligations; and
Finally, to the payment to Seller, or his respective
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.
As used in this Section 5, "proceeds" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to Seller or any issuer of, or
account debtor or other obligor on, any of the Collateral.
Section 6. Miscellaneous
Section 6.01. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission, recognized overnight courier
(carriage prepaid) or mail (first class postage prepaid) to the parties at the
following addresses or facsimile numbers:
If to Seller, addressed to:
Vision Digital Communications, Inc.
3404 Via Oporto, Suite 203
Newport Beach, CA 92663
Attn: Christopher Miglino
If to Purchaser, addressed to:
Genesis Media Group, Inc.
13063 Ventura Blvd.
Studio City, CA 91604-2238
Attn: Ramy El-Batrawi
Fax : (818) 464-7278
With a copy to:
Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
Attn: Theodore R. Maloney, Esq.
Fax: (805) 568-1955
. Any term or condition of this Agreement may be waived at any time by
the party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written instrument duly executed by or on behalf
of the party waiving such term or condition. No waiver by any party of any term
or condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this Agreement or
by Law or otherwise afforded, will be cumulative and not alternative.
<PAGE>
. This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of each party hereto.
. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
. If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future Law, and if the rights or obligations
of any party hereto under this Agreement will not be materially and adversely
affected thereby, (a) such provision will be fully severable, (b) this Agreement
will be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof, (c) the remaining provisions of
this Agreement will remain in full force and effect and will not be affected by
the illegal, invalid or unenforceable provision or by its severance here from
and (d) in lieu of such illegal, invalid or unenforceable provision, there will
be added automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
. This Agreement shall be governed by and construed in accordance with
the Laws of the State of California applicable to a contract executed and
performed in such State without giving effect to the conflicts of laws
principles thereof.
Section 6.07. Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that it
accepts the telecopied signatures of the other parties to this Agreement. The
original signature pages shall be forwarded to Purchaser or its counsel and
Purchaser or its counsel will provide all of the parties hereto with a copy of
the entire Agreement.
Section 6.08. Dispute Resolution. Any dispute under this Pledge and
Security Agreement shall be submitted to arbitration in accordance with Section
9.03 of the Asset Purchase Agreement.
[Signature Page to Follow]
<PAGE>
PLEDGE AND SECURITY AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officer of each party hereto as of the date first above
written.
PURCHASER:
GENESIS MEDIA GROUP, INC.,
a Florida Corporation,
By:
----------------------
Ramy El Batrawi
President
SELLER:
VISION DIGITAL COMMUNICATIONS, INC.
a California corporation,
By:
----------------------
<PAGE>
BINDING LETTER OF INTENT
October 27, 1998
Sam Elkholy
Animagic
1801 West 261st, Apt. 108
Alameda, California 90717
Re: PROPOSAL TO PURCHASE ALL OF THE ASSETS OF ANIMAGIC CORPORATION
Dear Mr. Elkholy:
The purpose of this letter (the "LETTER OF INTENT") is to set forth a
binding Letter of Intent between Animagic Corporation (the "SELLER") and Genesis
Media Group, Inc., a Delaware corporation (the "BUYER"), with respect to the
possible acquisition of all of the assets identified on SCHEDULE A (the
"ASSETS") of the Seller (the "TRANSACTION") related to the business (the
"Business") conducted by the Seller.
This Letter of Intent shall bind both parties to such an extent as stated
herein, unless it is terminated pursuant to SECTION 12 below. Because the
Seller has filed for bankruptcy protection, the terms of the Transaction are
subject to the approval of the United States Bankruptcy Court.
1. BASIC TRANSACTION. The Buyer will acquire the Assets and none of
the liabilities of any kind, contingent or otherwise, of the Seller. The
parties intend the closing of the Transaction to occur as soon as possible, but
not later than December 15, 1998 (the "CLOSING").
2. PROPOSED PURCHASE PRICE. Based on the information known to the
Buyer on the date hereof, the total consideration for the Assets will be as
follows (collectively, the "PURCHASE PRICE"):
(a) Fifty Thousand dollars ($50,000) will be paid to the Seller
in cash on January 1, 1999;
(b) Fifty Thousand dollars ($50,000) will be paid to the Seller
in cash on March 1, 1999; and
(c) Fifty Thousand dollars ($50,000) will be paid to the Seller
in cash on May 1, 1999.
1
<PAGE>
3. REPRESENTATIONS. Seller represents and warrants to Buyer that: (a)
Seller has all necessary corporate power and authority and has taken all
corporate action necessary to enter into this Letter of Intent, to consummate
the transactions contemplated hereby, and to perform its obligations hereunder;
(b) this Letter of Intent has been duly executed and delivered by Seller and is
a valid and binding obligation, enforceable against it in accordance with its
respective terms subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and limitations imposed by equitable principles,
whether considered in a proceeding at law or in equity and the discretion of the
court before which any proceeding therefor may be brought; (c) there are no
actions, suits, investigations or proceedings, at law or in equity or before or
by any governmental authority or instrumentality or before any arbitrator of any
kind, pending or, to Seller's knowledge, threatened against Seller relating to
the Assets; (d) there are no outstanding orders, decrees or stipulations issued
by any federal, state, local, international or foreign, judicial or
administrative authority in any proceeding to which Seller is or was a party
relating to the Assets; (e) no consent, waiver, approval or authorization of or
by, or declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by Seller in connection with the
execution, delivery and performance of this Letter of Intent and the
consummation of the transactions contemplated hereby; (f) Seller owns, or is
licensed or otherwise entitled to exercise pursuant to the terms of a license or
other similar agreement all rights to all intellectual property ("Intellectual
Property") used in the Business as currently conducted or in connection with
products to be used in the Business currently under development without any
conflict or infringement of the rights of others; (g) Seller is the absolute
owner or a nonexclusive or exclusive licensee of, with all necessary right,
title and interest in and to (free and clear of any liens, encumbrances or
security interests) all non-public domain intellectual property and has rights
to the use, sale, license or disposal thereof in connection with the services or
products in respect of which the Intellectual Property are being used or
proposed to be used in the Business in connection with products currently under
development; (h) no claims with respect to the Intellectual Property have been
asserted to Seller, or, to Seller's knowledge, are threatened by any person, and
Seller knows of no claims (1) to the effect that Seller in the conduct of the
Business infringes any copyright, patent, trade secret, or other Intellectual
Property right of any third party or violates any license or Letter of Intent
with any third party, (2) contesting the right of Seller to use, sell, license
or dispose of any Intellectual Property, or (3) challenging the ownership,
validity or effectiveness of any of the Intellectual Property; (i) all
trademarks, service marks, and other company, product or service identifiers
held by Seller and used in the Business are valid and subsisting; (j) there has
not been and there is not now any unauthorized use, infringement or
misappropriation of any of the Intellectual Property by any third party: (k) no
person has a license to use or the right to acquire a license to use any future
version of any Seller product used in or sold by the Business or any such Seller
product that is under development; (l) the Assets include all properties,
tangible and intangible, and only such properties, used by Seller in operating
the Business and necessary for Buyer to operate the Business; (m) Seller holds
good and marketable title, license to or leasehold interest in all of the
Assets and has the complete and unrestricted power and the unqualified right to
sell, assign and deliver the Assets to Buyer, and upon consummation of the
transactions contemplated by this Letter of Intent, Buyer will acquire good and
marketable title, license or leasehold interest to the Assets free and clear of
any liens or encumbrances (n) all taxes relating to the Business or the Assets
have been or will be paid by Seller with respect to all periods (or portions
thereof) prior to and including the date of Closing (o) the operation of the
Business has been conducted in all material respects in accordance with all
applicable laws, regulations and other requirements of governmental entities
having jurisdiction over the same.
2
<PAGE>
4. CONDITIONS TO TRANSACTION. The closing of the Transaction is
subject to the following conditions:
(a) receipt of the necessary approvals of the Buyer's Board of
Directors and the United States Bankruptcy Court and any
other necessary third parties;
(b) absence of pending or threatened litigation regarding this
Letter of Intent or the transactions contemplated hereby;
(c) certain employees of the Seller including Sam Elkholy shall
have entered into employment and non-competition agreements
acceptable to Buyer; and
(d) all representations of Seller shall be true and correct on
the date of such closing.
5. EXPENSES. Each of the Buyer and the Seller shall be responsible
for and bear all of its own costs and expenses (including attorney's fees)
incurred in connection with the Transaction.
6. GOVERNING LAW. The terms of the Transaction and all other
matters relating to the Transaction will be governed by the laws of the State of
California, without regard to the conflicts of law provisions thereof.
7. APPROVALS. This Letter of Intent will be subject to the approval
by the Buyer's Board of Directors and by the United States Bankruptcy Court.
Should such approvals not be received, then all matters pertaining to the
Transaction will be terminated.
8. ACCESS. Until the closing of the Transaction, the Seller shall
provide to the Buyer complete access to the Seller's facilities, books and
records, and shall cause the directors, employees, accountants and other agents
and representatives (collectively, the "REPRESENTATIVES") of the Seller to
cooperate fully with the Buyer and the Buyer's Representatives.
9. CONDUCT OF BUSINESS. Until the closing of the Transaction,
Seller shall not engage in any extraordinary transactions without the Buyer's
prior consent.
10. CONFIDENTIALITY. Except as and to the extent required by law,
each party (for purposes of this SECTION 10, the "FIRST PARTY") agrees that it
shall not disclose or use, and it shall cause its Representatives not to
disclose or use, any Confidential Information (as defined below) with respect to
the other party furnished, or to be furnished, by either the other party or its
Representatives to the first party or the first party's Representatives in
connection herewith at any time or in any manner other than in connection with
its evaluation of the Transaction. For purposes of this SECTION 10,
"CONFIDENTIAL INFORMATION" means any information about the other party stamped
"confidential" or identified in writing as such to the first party by the other
party; PROVIDED, HOWEVER, that Confidential Information does not include
information which the first party can demonstrate (i) is generally available to
or known by the public other than as a result of improper disclosure by the
first party or (ii) is obtained by the first party from a source other than the
other party, PROVIDED that such source
3
<PAGE>
was not bound by a duty of confidentiality to the other party or another party
with respect to such information. If this Letter of Intent is terminated
pursuant to SECTION 12 below, the first party shall promptly return to the other
party any Confidential Information in its possession. The parties shall enter
into a mutually acceptable updated confidentiality and non-disclosure agreement
concurrent with the execution and delivery of the Definitive Agreement.
11. CONSENTS. The Buyer and the Seller shall cooperate with each
other and proceed, as promptly as is reasonably practicable, to seek to obtain
all necessary consents and approvals from any government or regulating
authorities or lenders, landlords or other third parties, and to endeavor to
comply with all other legal or contractual requirements for or preconditions to
the execution and consummation of the Transaction.
12. TERMINATION. This Letter of Intent may be terminated:
(a) by mutual written consent of the Buyer and the Seller;
(b) upon written notice by any party to the other party if the
Definitive Agreement has not been executed by December 15, 1998;
(c) by either party when the other party is in material default of
this Letter of Intent; or
(d) by the Buyer in the event that the United States Bankruptcy Court
declines to accept the terms of the Buyer's offer to acquire the Assets of
Seller as set forth herein.
Upon termination, the parties hereto will have no further obligation,
except SECTION 10 above shall survive such termination.
13. INDEMNIFICATION. From and after the date hereof, Seller shall
indemnify, save and hold harmless Buyer and its affiliates, and its respective
Representatives, from and against any and all losses or damages caused by,
arising out of, asserted against resulting from or incurred or suffered by Buyer
or any of its affiliates or Representatives in connection with (i) any
misrepresentation or breach of any representation or warranty by Seller in or
pursuant to this Letter of Intent, (ii) the non-fulfillment of any covenant or
agreement made by Seller in or pursuant to this Letter of Intent, or (iii) any
liabilities of Seller, which are not being assumed by Buyer.
Please sign and date this Letter of Intent in the space provided below
to confirm the mutual agreements set forth herein, and return a signed copy to
the undersigned.
Very truly yours,
BUYER:
GENESIS MEDIA GROUP, INC.
By:/s/ Ramy El-Batrawi
----------------------------
4
<PAGE>
Ramy El-Batrawi
Chief Executive Officer
Acknowledged and agreed as to the foregoing.
Date: October 27, 1998 SELLER:
ANIMAGIC CORPORATION
By: /s/ Sam Elkholy
-----------------------
Sam Elkholy
(SEAL)
5
<PAGE>
ARTICLES OF INCORPORATION
OF
GENESIS MEDIA GROUP, INC.
ARTICLE I. NAME
The name of this corporation is GENESIS MEDIA GROUP, INC. (the
"Corporation").
ARTICLE II. PRINCIPAL OFFICE
The address of the principal office of the Corporation is 1717 North
Bayshore Drive, #3232, Miami, Florida 33132.
ARTICLE III. DURATION
This Corporation shall have perpetual existence commencing on the date of
execution and acknowledgment of these Articles.
ARTICLE IV. PURPOSE
This Corporation is organized to include the transaction of any or all lawful
business for which corporations may be incorporated under Chapter 607, Florida
Statutes 1991 as presently enacted and as it may be amended from time to time.
ARTICLE V. CAPITAL STOCK
This Corporation is authorized to issue 10,000 shares of Common Stock, par
value $1.00, each (hereafter called "Common Stock").
ARTICLE VI. INITIAL REGISTERED OFFICE AND AGENT
The name of the initial registered agent and the street address of the
initial registered office of this Corporation is:
NAME ADDRESS
---- -------
RAMY EL-BATRAWI 1717 N. Bayshore Drive, #3232
Miami, Florida 33132
ARTICLE VII. INITIAL BOARD OF DIRECTORS
This Corporation shall have one (1) director initially. The number of
directors may be changed form time to time as provided for by the Bylaws.
<PAGE>
The name and address of the initial director of this Corporation is:
NAME ADDRESS
---- -------
RAMY EL-BATRAWI 1717 N. Bayshore Drive, #3232
Miami, Florida 33132
ARTICLE VIII. INCORPORATOR
The name and address of the person signing these Articles of Incorporation
is:
NAME ADDRESS
---- -------
RAMY EL-BATRAWI 1717 N. Bayshore Drive, #3232
Miami, Florida 33132
ARTICLE IX. INDEMNIFICATION
The Corporation shall indemnify any officer or director, or any former
officer or director to the full extent permitted by law.
ARTICLE X. AMENDMENT
This Corporation reserves the right to amend or repeal any provision
contained in these Articles of Incorporation, or any amendment thereto, and any
right conferred upon the shareholders is subject to this reservation.
IN WITNESS WHEREOF, the undersigned subscriber has executed these Articles
of Incorporation this 27th day of October, 1993.
/s/ Ramy El-Batrawi
-----------------------------------
RAMY EL-BATRAWI, Incorporator
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 27th day of
October, 1993, by Ramy El-Batrawi, who is personally known to me and who did
take an oath.
/s/ Signature
------------------------------------
NOTARY PUBLIC
My Commission Expires: Notary Seal.
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GENESIS MEDIA GROUP, INC.
Pursuant to the provisions of Section 607.1006 of the Florida Statutes,
Genesis Media Group, Inc., a Florida corporation (the "Corporation") adopts the
following Articles of Amendment to the Articles of Incorporation:
FIRST: Article V of the Corporation's Articles of Incorporation are hereby
amended and restated in its entirety to read as follows:
ARTICLE V
CAPITAL STOCK
The Corporation shall be authorized to issue one class of Common Stock,
consisting of 25,000,000 shares designated as Common Stock, par value $0.001 per
share, and one class of Preferred Stock, consisting of 5,000,000 shares
designated as Preferred Stock, par value $0.001 per share.
A. PREFERRED STOCK. The Board of Directors of the Corporation
(hereinafter referred to as the "BOARD OF DIRECTORS") is hereby expressly
authorized at any time, and from time to time, to create and provide for the
issuance of shares of Preferred Stock in one or more series and, by filing a
certificate pursuant to the GCL (hereinafter referred to as a "PREFERRED STOCK
DESIGNATION"), to establish the number of shares to be included in each such
series, and to fix the designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors, including, but not limited to, the following:
1. the number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
2. whether dividends, if any, shall be cumulative or noncumulative, the
dividend rate of such series, and the dates and preferences of dividends on such
series;
3. the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
4. the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
5. whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes of, any other series of
any class or classes of capital stock of, or any other security of, the
Corporation or any other corporation, and, if provision be made for any such
conversion or exchange, the times, prices, rates, adjustments and any other
terms and conditions of such conversion or exchange;
6. the voting powers, if any, and whether such voting powers are full or
limited in such series;
7. the restrictions, if any, on the issue or reissue of shares of the
same series or of any other class or series;
8. the amounts payable on and the preferences, if any, of the shares of
such series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
9. any other relative rights, preferences and limitations of that series.
B. COMMON STOCK. The Common Stock shall be subject to the express terms
of any series of Preferred
<PAGE>
Stock set forth in the Preferred Stock Designation relating thereto. Each
holder of Common Stock shall have one vote in respect of each share of Common
Stock held by such holder of record on the books of the Corporation for the
election of directors and on all other matters on which stockholders of the
Corporation are entitled to vote. The holders of shares of Common Stock shall
be entitled to receive, when and if declared by the Board of Directors, out of
the assets of the Corporation which are by law available therefor, dividends
payable either in cash, in stock or otherwise. In addition, the Common Stock
shall be subject to the express restrictions set forth below in this SECTION B.
1. RESTRICTIONS ON THE COMMON STOCK.
a. CORPORATION'S RIGHT TO REPURCHASE UPON TERMINATION OF AFFILIATION. All
shares of the Common Stock held of record by a person who is an
employee or director of, or a consultant to, the Corporation or any of
its subsidiaries shall be subject to the Corporation's right to
repurchase all of such shares in the event that such holder's
affiliation with the Corporation as an employee, director or
consultant is terminated. Such right of repurchase upon termination
of affiliation shall also be applicable to all shares of the Common
Stock which such person has the right to acquire subsequent to his or
her termination of affiliation pursuant to any of the Corporation's
employee benefit plans or pursuant to any option or other contractual
right to acquire shares of the Common Stock in effect at the date of
such termination of affiliation. An authorized leave of absence
approved in accordance with the Corporation's policy from time to time
in effect shall not constitute a termination of affiliation for
purposes of this PARAGRAPH (a); PROVIDED, HOWEVER, that the issuance
of a formal personnel action notice by the Corporation's personnel
department advising an employee that his or her leave of absence is
terminated shall constitute a termination of affiliation for purposes
of this PARAGRAPH (a). The Corporation's right of repurchase shall be
exercised by mailing written notice to such holder at his or her
address of record on the Corporation's stock record books within
ninety (90) days following the termination of such affiliation, which
notice shall request delivery of certificates representing the shares
of the Common Stock, duly endorsed in blank or to the corporation,
free and clear of all liens, claims, charges and encumbrances of any
kind whatsoever. If the Corporation repurchases such shares, the
price shall be the higher of (i) the original purchase price paid for
such shares by such holder if such shares were acquired from the
Corporation by such holder or (ii) the Formula Price (as hereinafter
defined) per share on (x) the date of such termination of affiliation,
in the case of either shares owned by the holder at that date or
shares issuable to such holder subsequent to the date of termination
of affiliation pursuant to any option or other contractual right to
acquire shares of the Common Stock which were outstanding at that
date, or (y) the date such shares are distributed to such holder, in
the case of shares distributable to such holder subsequent to his or
her termination of affiliation pursuant to any of the Corporation's
employee benefit plans. For purposes of the foregoing sentence, an
adjustment shall be made to the original purchase price paid for such
shares to account for any changes in the capitalization of the
Corporation, as determined by the Board of Directors. If for any
reason the Corporation is unable to make payment directly to a holder,
then the Corporation may make such payment by depositing the purchase
price in an account for the benefit of such holder and such shares of
the Common Stock shall thereby be deemed to have been transferred to
the Corporation on the date cash payment is made and no longer
outstanding and all rights of the holder with respect to such shares
terminated.
b. CORPORATION'S RIGHT OF FIRST REFUSAL. If at any time a holder of the
Common Stock receives a bona fide offer to purchase such shares and
desires to sell any of such shares (other than through the limited
market maintained by the Corporation), such holder shall first give
notice to the Secretary of the Corporation containing:
(i) A statement signed by such holder notifying the Corporation that
such holder desires to sell shares of the Common Stock and has
received a bona fide offer to purchase such shares.
(ii) A statement signed by the intended purchaser containing:
<PAGE>
(a) the intended purchaser's full name, address and
taxpayer identification number;
(b) the number of shares to be purchased;
(c) the price per share to be paid;
(d) other terms under which the purchase is intended to be
made; and
(e) a representation that the offer, under the terms
specified, is bona fide.
(iii) If the purchase price is payable in cash, in whole or in part, a
copy of a certified check, cashier's check or money order payable
to such holder from the purchaser in the aggregate amount of the
purchase price which is to be paid in cash.
The Corporation shall thereupon have an option exercisable
within fourteen (14) days of receipt of such notice by the
Secretary to purchase all, but not less than all, of the shares
specified in the notice at the lesser of (a) the Formula Price
(as hereinafter defined) per share following receipt of the
notice from the holder, or (b) the offer price and upon the same
terms as set forth in the notice, accompanied by payment of the
purchase price; PROVIDED, HOWEVER, that if the offer price is
payable, in whole or in part, other than in cash, the Corporation
shall pay the equivalent value of any noncash consideration as
mutually agreed upon between the holder and the Corporation.
Such option shall be exercised by the Corporation by mailing
written notice to such holder at his or her address of record on
the Corporation's stock record books. In the event the
Corporation does not exercise such option, such holder may sell
the shares specified in the notice within thirty (30) days
thereafter to the purchaser, at the price and upon the terms and
conditions set forth therein. The holder may not sell such
shares to any other purchaser, or at any different price, or on
any different terms, without first reoffering such shares to the
Corporation.
c. ELECTION OF RIGHTS BY CORPORATION. In the event circumstances shall
occur which would ordinarily permit the Corporation to exercise its
rights under either PARAGRAPHS (a) or (b) of this SUBSECTION 1 at the
time when the Corporation's rights under the other subparagraph have
become and remain exercisable, the Corporation, by resolution of its
Board of Directors, acting in its sole discretion, may elect which of
such rights it shall exercise. The Board of Directors may designate
one or more nominees to purchase any shares of The Common Stock which
it has the right to purchase in lieu of purchasing such shares itself.
d. OTHER TRANSFERS. Except for the sales in the limited market
maintained by the Corporation and as provided in PARAGRAPHS (a) or (b)
of this SUBSECTION 1, no holder of shares of The Common Stock may
sell, assign, pledge, transfer or otherwise dispose of or encumber any
shares of the Common Stock without the prior written approval of the
Corporation, and any attempt to so sell, assign, pledge, transfer or
otherwise dispose of or encumber such shares without such prior
approval shall be null and void. The Corporation is expressly
authorized to condition its approval of a transfer (other than by
sale) of any shares of the Common Stock by an employee or director of,
or a consultant to, the Corporation or by a person who acquired such
shares other than by purchase, directly or indirectly, from an
employee or director of, or a consultant to, the Corporation upon the
transferee's agreement to hold such shares subject to the
Corporation's right to repurchase such shares pursuant to PARAGRAPH
(a) of this SUBSECTION 1 upon the termination of affiliation of the
employee, director or consultant.
e. DEFINITION OF FORMULA PRICE. As used in this Certificate of
Incorporation, the term "FORMULA PRICE" shall mean the price, as
determined in good faith, pursuant to the formula adopted by the Board
of Directors of the Corporation for the purpose of determining the
fair market value of one (1) share of the Corporation's the Common
Stock, as such formula may be modified from time to time by the Board
of Directors.
<PAGE>
f. LAPSE OR WAIVER OF RESTRICTIONS ON COMMON STOCK; CONVERSION UPON
LAPSE.
(i) LAPSE. All restrictions upon the shares of the Common Stock
other than such restrictions generally applicable to the Common
Stock pursuant set forth in this SUBSECTION 1 of ARTICLE FOURTH
shall automatically lapse and be of no further force or effect
if:
(a) the Corporation has declared effective by the United States
Securities and Exchange Commission a registration statement
(other than a registration statement on Form S-4 or Form S-8
or other similar form) to effect an underwritten offering of
any class or series of its capital stock (or any securities
convertible into shares of capital stock) to the general
public; or
(b) the Corporation's application to have any class or series of
its capital stock (or any securities convertible into shares
of capital stock) listed on a national securities exchange
or quoted on The Nasdaq Stock Market is approved.
(ii) WAIVER. The Corporation may, by resolution of its Board of
Directors, acting in its sole discretion, waive any or all of the
restrictions upon the shares of the Common Stock set forth in
this SUBSECTION 1 in such circumstances as the Board of Directors
deems appropriate, and such waiver may be effective as to any or
all of the shares of the Common Stock, or as to any or all of the
holders thereof.
C. Immediately upon the filing of these Articles of Amendment, each share
of Common Stock outstanding prior to the amendment ("Old Stock") shall split and
be converted to 38,834.95 shares of fully-paid and non-assessable Common Stock
("New Stock"). The Corporation shall issue 38,834.95 shares of New Stock for
each one share of Old Stock outstanding. From and after the date the amendment
becomes effective, certificates representing shares of Old Stock shall be deemed
to represent only the right to receive shares of New Stock to which an
individual stockholder would be entitled.
THIRD: The adoption of these Articles of Amendment is effective as of
October 6, 1998.
FOURTH: These Articles of Amendment were approved by the shareholders of
the Corporation. The number of votes cast for the Amendment was sufficient for
approval.
IN WITNESS THEREOF, Genesis Media Group, Inc. has caused these Articles of
Amendment to be executed this 27 day of October 1998.
Genesis Media Group, Inc.
By: /s/ Douglas E. Jacobson
------------------------------
Douglas E. Jacobson
Chief Financial Officer
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
GENESIS MEDIA GROUP, INC.
The undersigned, for the purpose of organizing a corporation under the
General Corporation Law of the State of Delaware, certifies:
FIRST: The name of the corporation is Genesis Media Group, Inc.
(hereinafter referred to as the "CORPORATION").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (hereinafter referred to as the
"GCL").
FOURTH: The Corporation shall be authorized to issue one class of
Common Stock, consisting of 25,000,000 shares designated as Common Stock, and
one class of Preferred Stock, consisting of 5,000,000 shares designated as
Preferred Stock.
A. PREFERRED STOCK. The Board of Directors of the Corporation
(hereinafter referred to as the "BOARD OF DIRECTORS") is hereby expressly
authorized at any time, and from time to time, to create and provide for the
issuance of shares of Preferred Stock in one or more series and, by filing a
certificate pursuant to the GCL (hereinafter referred to as a "PREFERRED STOCK
DESIGNATION"), to establish the number of shares to be included in each such
series, and to fix the designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors, including, but not limited to, the following:
1. the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;
2. whether dividends, if any, shall be cumulative or noncumulative,
the dividend rate of such series, and the dates and preferences of dividends on
such series;
3. the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
4. the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
5. whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes of, any other
series of any class or classes of capital stock of, or any other security of,
the Corporation or any other corporation, and, if provision be made for any
<PAGE>
such conversion or exchange, the times, prices, rates, adjustments and any other
terms and conditions of such conversion or exchange;
6. the voting powers, if any, and whether such voting powers are
full or limited in such series;
7. the restrictions, if any, on the issue or reissue of shares of
the same series or of any other class or series;
8. the amounts payable on and the preferences, if any, of the shares
of such series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
9. any other relative rights, preferences and limitations of that
series.
B. COMMON STOCK. The Common Stock shall be subject to the express
terms of any series of Preferred Stock set forth in the Preferred Stock
Designation relating thereto. Each holder of Common Stock shall have one vote
in respect of each share of Common Stock held by such holder of record on the
books of the Corporation for the election of directors and on all other matters
on which stockholders of the Corporation are entitled to vote. The holders of
shares of Common Stock shall be entitled to receive, when and if declared by the
Board of Directors, out of the assets of the Corporation which are by law
available therefor, dividends payable either in cash, in stock or otherwise. In
addition, the Common Stock shall be subject to the express restrictions set
forth below in this SECTION B.
1. RESTRICTIONS ON THE COMMON STOCK.
a. CORPORATION'S RIGHT TO REPURCHASE UPON TERMINATION OF
AFFILIATION. All shares of the Common Stock held of record by a
person who is an employee or director of, or a consultant to, the
Corporation or any of its subsidiaries shall be subject to the
Corporation's right to repurchase all of such shares in the event
that such holder's affiliation with the Corporation as an
employee, director or consultant is terminated. Such right of
repurchase upon termination of affiliation shall also be
applicable to all shares of the Common Stock which such person
has the right to acquire subsequent to his or her termination of
affiliation pursuant to any of the Corporation's employee benefit
plans or pursuant to any option or other contractual right to
acquire shares of the Common Stock in effect at the date of such
termination of affiliation. An authorized leave of absence
approved in accordance with the Corporation's policy from time to
time in effect shall not constitute a termination of affiliation
for purposes of this PARAGRAPH (a); PROVIDED, HOWEVER, that the
issuance of a formal personnel action notice by the Corporation's
personnel department advising an employee that his or her leave
of absence is terminated shall constitute a termination of
affiliation for purposes of this PARAGRAPH (a). The
Corporation's right of repurchase shall be exercised by mailing
written notice to such holder at his or her address of record on
the Corporation's stock record books within ninety (90) days
following the termination of such affiliation, which notice shall
request delivery of certificates representing the shares of the
Common Stock, duly endorsed in blank or to the corporation, free
and clear of all liens, claims, charges and encumbrances of any
kind whatsoever. If the Corporation repurchases such shares, the
price shall be the higher of (i) the original purchase price paid
for such shares by such holder if such shares were acquired from
the Corporation by such holder or (ii) the Formula Price (as
hereinafter defined) per share on (x) the date of such
termination of affiliation, in the case of either shares owned by
the holder at that date or shares issuable to such holder
subsequent to the date of termination of affiliation pursuant to
any option or other contractual right to acquire shares of the
Common Stock which were
2
<PAGE>
outstanding at that date, or (y) the date such shares are
distributed to such holder, in the case of shares distributable
to such holder subsequent to his or her termination of
affiliation pursuant to any of the Corporation's employee benefit
plans. For purposes of the foregoing sentence, an adjustment
shall be made to the original purchase price paid for such shares
to account for any changes in the capitalization of the
Corporation, as determined by the Board of Directors. If for any
reason the Corporation is unable to make payment directly to a
holder, then the Corporation may make such payment by depositing
the purchase price in an account for the benefit of such holder
and such shares of the Common Stock shall thereby be deemed to
have been transferred to the Corporation on the date cash payment
is made and no longer outstanding and all rights of the holder
with respect to such shares terminated.
b. CORPORATION'S RIGHT OF FIRST REFUSAL. If at any time a
holder of the Common Stock receives a bona fide offer to purchase
such shares and desires to sell any of such shares (other than
through the limited market maintained by the Corporation), such
holder shall first give notice to the Secretary of the
Corporation containing:
(i) A statement signed by such holder notifying the
Corporation that such holder desires to sell shares of
the Common Stock and has received a bona fide offer to
purchase such shares.
(ii) A statement signed by the intended purchaser
containing:
(a) the intended purchaser's full name, address
and taxpayer identification number;
(b) the number of shares to be purchased;
(c) the price per share to be paid;
(d) other terms under which the purchase is
intended to be made; and
(e) a representation that the offer, under the
terms specified, is bona fide.
(iii) If the purchase price is payable in cash, in whole or
in part, a copy of a certified check, cashier's check
or money order payable to such holder from the
purchaser in the aggregate amount of the purchase
price which is to be paid in cash.
The Corporation shall thereupon have an option exercisable within
fourteen (14) days of receipt of such notice by the Secretary to purchase
all, but not less than all, of the shares specified in the notice at the
lesser of (a) the Formula Price (as hereinafter defined) per share
following receipt of the notice from the holder, or (b) the offer price and
upon the same terms as set forth in the notice, accompanied by payment of
the purchase price; PROVIDED, HOWEVER, that if the offer price is payable,
in whole or in part, other than in cash, the Corporation shall pay the
equivalent value of any noncash consideration as mutually agreed upon
between the holder and the Corporation. Such option shall be exercised by
the Corporation by mailing written notice to such holder at his or her
address of record on the Corporation's stock record books. In the event
the Corporation does not exercise such option, such holder may sell the
shares specified in the notice within thirty (30) days thereafter to the
purchaser, at the price and upon the terms and conditions set forth
therein. The holder may not sell such shares to any other purchaser, or at
any different price, or on any different terms, without first reoffering
such shares to the Corporation.
3
<PAGE>
c. ELECTION OF RIGHTS BY CORPORATION. In the event circumstances shall
occur which would ordinarily permit the Corporation to exercise its
rights under either PARAGRAPHS (a) or (b) of this SUBSECTION 1 at the
time when the Corporation's rights under the other subparagraph have
become and remain exercisable, the Corporation, by resolution of its
Board of Directors, acting in its sole discretion, may elect which of
such rights it shall exercise. The Board of Directors may designate
one or more nominees to purchase any shares of The Common Stock which
it has the right to purchase in lieu of purchasing such shares
itself.
d. OTHER TRANSFERS. Except for the sales in the limited market
maintained by the Corporation and as provided in PARAGRAPHS (a) or (b)
of this SUBSECTION 1, no holder of shares of The Common Stock may
sell, assign, pledge, transfer or otherwise dispose of or encumber any
shares of the Common Stock without the prior written approval of the
Corporation, and any attempt to so sell, assign, pledge, transfer or
otherwise dispose of or encumber such shares without such prior
approval shall be null and void. The Corporation is expressly
authorized to condition its approval of a transfer (other than by
sale) of any shares of the Common Stock by an employee or director of,
or a consultant to, the Corporation or by a person who acquired such
shares other than by purchase, directly or indirectly, from an
employee or director of, or a consultant to, the Corporation upon the
transferee's agreement to hold such shares subject to the
Corporation's right to repurchase such shares pursuant to PARAGRAPH
(a) of this SUBSECTION 1 upon the termination of affiliation of the
employee, director or consultant.
e. DEFINITION OF FORMULA PRICE. As used in this Certificate of
Incorporation, the term "FORMULA PRICE" shall mean the price, as
determined in good faith, pursuant to the formula adopted by the Board
of Directors of the Corporation for the purpose of determining the
fair market value of one (1) share of the Corporation's the Common
Stock, as such formula may be modified from time to time by the Board
of Directors.
f. LAPSE OR WAIVER OF RESTRICTIONS ON COMMON STOCK; CONVERSION UPON
LAPSE.
(i) LAPSE. All restrictions upon the shares of the Common Stock
other than such restrictions generally applicable to the
Common Stock pursuant set forth in this SUBSECTION 1 of
ARTICLE FOURTH shall automatically lapse and be of no
further force or effect if:
(a) the Corporation has declared effective by the United
States Securities and Exchange Commission a
registration statement (other than a registration
statement on Form S-4 or Form S-8 or other similar
form) to effect an underwritten offering of any class
or series of its capital stock (or any securities
convertible into shares of capital stock) to the
general public; or
(b) the Corporation's application to have any class or
series of its capital stock (or any securities
convertible into shares of capital stock) listed on a
national securities exchange or quoted on The Nasdaq
Stock Market is approved.
(ii) WAIVER. The Corporation may, by resolution of its Board of
Directors, acting in its sole discretion, waive any or all
of the restrictions upon the shares of the Common Stock set
forth in this SUBSECTION 1 in such circumstances as the
Board of Directors deems appropriate, and such waiver may be
effective as to any or all of the shares of the Common
Stock, or as to any or all of the holders thereof.
4
<PAGE>
C. DELAWARE BUSINESS COMBINATION STATUTE. Section 203 generally prohibits
an "interested stockholder" from engaging in a broad range of "business
combination" transactions, including mergers, consolidations and sales of 10% or
more of a corporation's assets, with a Delaware corporation for three years
following the date on which such person became an interested stockholder unless
(i) the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of directors of
the corporation before the person becomes an interested stockholder, (ii) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder owns 85% or more of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also officers
and shares owned by certain employee stock plans, or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by holders of at least
two-thirds of the corporation's outstanding voting stock, excluding shares owned
by the interested stockholder, at a meeting of stockholders. Under Section 203,
an "interested stockholder" is generally defined as any person (and the
affiliates and associates of any such person), other than the corporation and
any direct or indirect majority-owned subsidiary, that is (a) the owner of 15%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
In no event shall Mr. Ramy El-Batrawi or any person who is a
transferee of Mr. El-Batrawi, regardless of the total percentage of the
corporation's Common Stock or other voting stock owned by Mr. El-Batrawi or such
persons, be deemed an interested stockholder for any purpose under Section 203
whatsoever.
FIFTH: A. In furtherance, and not in limitation, of the powers
conferred by law, the Board of Directors is expressly authorized and empowered:
1. to adopt, amend or repeal the Bylaws of the Corporation,
PROVIDED, HOWEVER, that any Bylaws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
Directors or by the stockholders having voting power with respect thereto;
and
2. from time to time to determine whether and to what extent,
and at what times and places, and under what conditions and regulations,
the accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined, or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be
conferred by law.
B. The Corporation may in its Bylaws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by law.
SIXTH: A. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall not be less than
3 nor more than 9 and shall be fixed from time to time in the manner described
in the Bylaws.
B. Unless and except to the extent that the Bylaws of the
Corporation shall so require, the
5
<PAGE>
election of directors of the Corporation need not be by written ballot.
C. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, any director may be removed from office at any time for cause by
the affirmative vote of the holders of at least a majority of the voting power
of the then outstanding Voting Stock, voting together as a single class. For
the purposes of this Certificate of Incorporation, "VOTING STOCK" shall mean the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors.
D. Advance notice of stockholder nominations for the election
of directors shall be given in the manner provided in the Bylaws of the
Corporation.
E. Subject to the rights of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in this
Certificate of Incorporation to elect additional directors under specified
circumstances, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by the affirmative vote of a majority of the remaining
directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the total number of directors which the Corporation would
at the time have if there were no vacancies shall shorten the term of any
incumbent director.
SEVENTH: A. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment or repeal of this ARTICLE SEVENTH shall adversely affect any right or
protection of a director of the Corporation existing hereunder in respect of any
act or omission occurring prior to such amendment or repeal.
B. Indemnification and Insurance.
1. Right to indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the GCL, as the same exists or may hereafter be amended but, in
the case of any such amendment, to the fullest extent permitted by law, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall
6
<PAGE>
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in paragraph 2 hereof, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the GCL requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of the Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
2. Right of Claimant to Bring Suit. If a claim under paragraph 1 of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the GCL for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the GCL, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
3. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
4. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the GCL.
EIGHTH: Except as may be expressly provided below in this ARTICLE EIGHTH,
the Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by law,
and all powers,
7
<PAGE>
preferences and rights of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the right reserved in this ARTICLE EIGHTH; PROVIDED, HOWEVER, that no Preferred
Stock Designation shall be amended after the issuance of any shares of the
series of Preferred Stock created thereby, except in accordance with the terms
of such Preferred Stock Designation and the requirements of law; AND PROVIDED,
FURTHER, that the affirmative vote of at least 66-2/3 percent of the voting
power of the then outstanding Voting Stock, voting together as a single class,
shall be required to amend, repeal or adopt any provision inconsistent with the
provisions of ARTICLE FIFTH, ARTICLE SIXTH or ARTICLE EIGHTH of this Certificate
of Incorporation, unless such amendments or changes are approved by a majority
of the directors of the Corporation not affiliated or associated with any person
holding (or which has announced an intention to acquire) 20% or more of the
voting power of the then outstanding Voting Stock, voting together as a single
class.
NINTH: The name and mailing address of the incorporator is Theodore
R. Maloney, c/o Nida & Maloney, 800 Anacapa Street, Santa Barbara, California
93101.
WITNESS my signature this 26th day of October 1998.
/s/ Theodore R. Maloney
-----------------------------
Theodore R. Maloney
Incorporator
8
<PAGE>
BY-LAWS
OF
Genesis Media Group, Inc.
ARTICLE I
Offices
The principal office shall be in the City of Miami, County of Dade, and
State of Florida.
The corporation may also have offices at such other places both within and
without the State of Florida as the stockholders may from time to time determine
or the business of the corporation may require.
ARTICLE II
Stockholders
Section l. Annual Meeting. The annual meeting of the stockholders shall
be held within the five (5) month period beginning with the first day of the
last month of the fiscal year of the corporation for the purpose of transacting
such business as may come before the meeting, the actual day thereof to be set
forth in the Notice of Meeting or in the Call and Waiver of Notice of Meeting.
Section 2. Special Meetings. Special meetings of the stockholders,
for any purposes, unless otherwise prescribed by law or by the Articles of
Incorporation, may be called by the Chairman of the Board, President or
Secretary at the request in writing of stockholders owning not less than
one-third (1/3) of the entire capital stock of the corporation issued and
outstanding and entitled to vote thereat. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in
the notice thereof.
Section 3. Place of Meeting. The Chairman of the Board may designate any
place, either within or without the State of Florida unless otherwise prescribed
by law or by the Articles of Incorporation, as the place of meeting for any
annual meeting or for any special meeting of the stockholders. A waiver of
notice signed by two thirds (2/3) of the stockholders entitled to vote at a
meeting may designate any place, either within or without the State of Florida
unless otherwise prescribed by law or by the Articles of Incorporation, as the
place for the holding of such meeting. If no designation is made, or if a
special meeting be otherwise called, the place of meeting shall be the principal
office of the corporation in the State of Florida.
Section 4. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by first-class mail, by or at the direction of the Chairman
of the Board, President or the Secretary, or the officer or persons who called
the meeting, to each stockholder of record entitled to
<PAGE>
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the stockholder at his
address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid.
Section 5. Waiver of Notice of Meeting. When stockholders who hold
four-fifths (4/5) of the voting stock having the right and entitled to vote
at any meeting, shall be present at such meeting, however called or notified,
and shall sign a written consent thereto on the record of the meeting, the
acts of such meeting shall be as valid as if legally called and notified.
Section 6. Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make, at least ten
(10) days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical
order, with the address and number and class and series of shares held by
each, which list, for a period of ten (10) days prior to such meeting, shall
be kept on file at the principal office of the corporation and shall be
subject to inspection by any stockholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence as
to who are the stockholders entitled to examine such list or transfer books
or to vote at any meeting of the stockholders.
Section 7. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, unless otherwise provided
in the Articles of Incorporation, but in no event shall a quorum consist of
less than one-half (1/2) of the shares entitled to vote in attendance at the
meeting. If less than a majority of the outstanding shares are represented at
a meeting, automatic adjournment shall occur thirty (30) minutes after the
time that the meeting was to begin.
Section 8. Voting of Shares. Each stockholder entitled to vote shall at
every meeting of the stockholders be entitled to one vote in person for each
share of voting stock held by him. No stockholder shall enter into a voting
trust agreement or any other type agreement vesting another person with the
authority to exercise the voting power of any or all of this stock.
Section 9. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy, executed in writing by the stockholder or by his duly authorized
attorney-in-fact; but no proxy shall be valid after eleven (11) months from its
date, unless the proxy provides for a longer period. Such proxies shall be
filed with the Secretary of the corporation before or at the time of the
meeting.
Section 10. Informal Action by Stockholders.
(a) Any action which may be taken, or is required by law to be
taken, at any annual or special meeting of the stockholders may be taken
without a meeting, without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of a majority of the
outstanding stock of the corporation. If any class of stock is entitled to
vote thereon as a class, such written consent shall be required of the
holders of a majority of the stock of each class of stock entitled to vote as
a class thereon and of the total stock entitled to vote thereon.
(b) Unless all of the holders of the outstanding stock of the
corporation have signed a written consent to an action in accordance with the
provisions of paragraph (a) hereinabove, then within ten (10) days after
obtaining such written consent, notice must be given to those stockholders
who have not so consented in writing. The notice shall fairly summarize the
material features of the authorized action and, if the action be a merger,
consolidation or sale or exchange of assets for which dissenters' rights are
provided by Florida law, the notice shall contain a clear statement of the
right of stockholders dissenting therefrom to be paid the fair value of their
shares upon compliance with Florida law regarding the rights of dissenting
stockholders.
<PAGE>
ARTICLE III
Directors and Officers
Directors
Section 1. Directors. The initial Board of Directors shall consist of
one (1) member who need not be a resident of the State of Florida or shareholder
of the corporation. At no time shall the corporation have more than seven (7)
Directors. The number of Directors may be increased or diminished from time to
time by the By-laws. However, there shall never be less than one (1).
Section 2. Election and Term of Director(s). The directors of the
corporation shall be elected annually by the Stockholders at their first
meeting after each annual meeting of stockholders. If the election of
directors shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each director shall hold office until
his successor shall have been duly elected and shall have qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided
Section 3. Removal. Any director elected or appointed by the Board
may be removed by a majority vote of the stockholders whenever in their
judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of
the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by two
thirds (2/3) vote of the other members of the Board of Directors for the
unexpired portion of the term.
Section 5. Duties of Directors. The Chairman of the Board, or his
designee shall preside at all meetings of the Board of Directors and
stockholders which he shall attend. The Board shall set policies, elect
officers, establish major operating controls, oversee the operation of the
corporation and shall have such powers and duties as usually pertain to their
office, specifically conferred by law, by the Articles of Incorporation, by
these By-Laws, or as may be assigned to them from time to time by the
stockholders.
Section 6. Compensation of Directors The stockholders shall establish
the compensation policy for directors at their annual meeting.
Officers
Section 7. Number and Qualifications of Officers. The officers of the
corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer. The Board of Directors may also elect one or more Vice
Presidents, one or more Assistant Secretaries and Assistant Treasurers and
such other officers as the Board of Directors shall deem appropriate. Two
(2) or more offices may be held by the same person.
Section 8. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at their
first meeting after each annual meeting of stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until
his successor shall have been duly elected and shall have qualified, or until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided.
<PAGE>
Section 9. Removal. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in their judgment
the best interests of the corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Section 10. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the
term.
Section 11. Duties of Officers. The President shall be the chief
executive officer of the corporation. Subject to the foregoing, the officers of
the corporation shall have such powers and duties as usually pertain to their
respective offices and such additional powers and duties specifically conferred
by law, by the Articles of Incorporation, by these By-Laws, or as may be
assigned to them from time to time by the Board of Directors.
Section 12. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a stockholder of the
corporation.
Section 13. Delegation of Duties. In the absence of or disability of any
officer of the corporation or for any other reason deemed sufficient by the
Board of Directors, the Board of Directors may delegate his powers or duties to
any other officer for the time being.
ARTICLE IV
Indemnification of Directors, Officers and Other Persons
The corporation shall, and does hereby indemnify any person made a party
to an action, suit or proceeding, whether civil or criminal, brought to
impose a liability or penalty on such person in his capacity of director,
officer or employee of the corporation, or of any other corporation which he
served as such at the request of the corporation, against judgment, fines,
amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred as a result of such action, suit or
proceeding, or any appeal therein, if such director or officer acted in good
faith in the reasonable belief that such action was in the best interests of
the corporation, and in criminal actions or proceedings, without reasonable
ground for belief that such action was unlawful. The termination of any
such civil or criminal action, suit or proceeding by judgment, settlement,
conviction or upon a plea of nolo contendere shall not in itself create a
presumption that any director or officer did not act in good faith in the
reasonable belief that such action was in the best interest of the
corporation or that he had reasonable ground for belief that such action was
in the best interest of the corporation or that he had reasonable ground for
belief that such action was unlawful. The foregoing rights of
indemnification shall apply to the heirs, executors and administrators of any
such, director, officer or employee and shall not be exclusive of other
rights to which any provision of the Certificate of Incorporation, By-Law,
agreement, vote of stockholders or otherwise apply.
ARTICLE V
Certificates of Stock
Section 1. Certificates for Shares. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by a President or a
Vice President or the Secretary or an Assistant Secretary, exhibiting the
holder's name and certifying the number of shares owned by him in the
corporation. The certificates shall be numbered and entered in the books of the
corporation as they are issued.
<PAGE>
Section 2. Transfer of Shares. Transfers of shares of the corporation
shall be made upon its books by the holder of the share in person or by his
lawfully constituted representative, upon surrender of the certificate of stock
for cancellation. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes and the corporation shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person whether
or not it shall have express or other notice thereof, save as expressly provided
by the laws of the State of Florida.
Section 3. Facsimile Signature. Where a certificate is manually
signed on behalf of a transfer agent or a registrar other than the
corporation itself or an employee of the corporation, or the President, Vice
President, Secretary or Assistant Secretary's facsimile signatures have been
used, if such persons shall cease to be such officer or officers of the
corporation, such certificate or certificates may nevertheless be adopted by
the corporation and be issued and delivered as though the person or persons
who signed such certificate of certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the corporation.
Section 4. Lost Certificate. The President may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost
or destroyed, upon the making of any affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing
such issue of new certificate or certificates, the President may, in his
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as he may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
Section 5. The corporation is authorized to issue only one class of stock,
and all issued stock shall be held of record by not more than thirty five
persons. Stock shall be issued and transferable only to natural persons who are
not nonresident aliens.
ARTICLE VI
Record Date
The stockholders are authorized, from time to time, to fix in advance a
date, not more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, or not more than sixty (60) days prior to the
date for the payment of any dividend or the date for the allotment of rights,
or the date when any change or conversion or exchange of stock shall go into
effect, or a date in connection with the obtaining of the consent of
stockholders for any purpose, as a record date for the determination of the
stockholders entitled to notice of and to vote at any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend or
to any such allotment, or to exercise the rights in respect of any such
change, conversion or exchange of stock; or to give such consent, as the case
may be; and, in such case, such stockholders and only such stockholders as
shall be stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at such meeting and any adjournment thereof, or
to receive payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
<PAGE>
ARTICLE VII
Dividends
The stockholders may from time to time declare, and the corporation may
pay, dividends on its outstanding shares of capital stock in the manner and upon
the terms and conditions provided by the Articles of Incorporation and by law.
Dividends may be paid in cash, in property, or in share of stock, subject to the
provisions of the Articles of Incorporation and to law.
ARTICLE VIII
Fiscal Year
The fiscal year of the corporation shall be the twelve (12) month period
selected by the stockholders as the taxable year of the corporation for federal
income tax purposes.
ARTICLE IX
Seal
The corporate seal shall bear the name of the corporation, which shall be
between two concentric circles, and in the inside of the inner circle shall be
the calendar year of incorporation, an impression of said seal appearing on the
margin hereof.
ARTICLE X
Stock in Other Corporations
Shares of stock in other corporations held by this corporation shall be
voted by such officer or officers of this corporation as the Board of Directors
shall from time to time designate for the purpose or by a proxy thereunto duly
authorized by said Board of Directors.
ARTICLE XI
Amendments
These By-Laws may be altered, amended or repealed and new by-laws may be
adopted by the stockholders.
ARTICLE XII
Restriction on Alienation of Shares of Stock
The stockholders of the corporation may enter into an agreement among
themselves for restrictions upon the alienation of shares of stock in the
corporation. In such a case, the stock certificates issued by the
corporation shall bear appropriate restrictive legends on their face, the
corporation shall be a party to those agreements, and a copy of the
agreements shall be maintained in the records of the corporation by its
Secretary.
<PAGE>
ARTICLE XIII
Reimbursement of Disallowed Expenses
The corporation may reimburse its officers, employees, or agents for
expenses incurred on behalf of the corporation in accordance with its
policies and procedures instituted by the stockholders from time to time. In
no event shall the corporation be obligated to reimburse any expense which is
inconsistent with the guidelines contained in the Internal Revenue Code of
1954, as amended. In the event the corporation reimburses any expense which
is subsequently disallowed in whole or in part as a deductible expense by the
Internal Revenue Service, that expense shall be reimbursed by such officer,
employee, or agent, to the corporation to the full extent of such
disallowance. Reimbursement of such disallowed amounts may, subject to the
determination of the stockholders, be withheld in proportionate amounts from
the future compensation payments due from the corporation until the amount
owed to the corporation has been recovered.
<PAGE>
BYLAWS
OF
GENESIS MEDIA GROUP, INC.
<PAGE>
BYLAWS
OF
GENESIS MEDIA GROUP, INC.
ARTICLE I
OFFICE AND RECORDS
SECTION 1.1 DELAWARE OFFICE. The principal office of the Corporation
in the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the name and address of its registered agent is Corporation
Service Company, 1013 Centre Road, Wilmington, County of New Castle, Delaware.
SECTION 1.2 OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
SECTION 1.3 BOOKS AND RECORDS. The books and records of the
Corporation may be kept at the Corporation's principal executive offices in
Studio City, California or at such other locations inside or outside the State
of Delaware as may from time to time be designated by the Board of Directors.
Any stockholder, in person or by attorney or other agent, shall, upon written
demand under oath stating the purpose thereof, have the right during the usual
hours for business to inspect for any proper purpose the Corporation's stock
ledger, a list of its stockholders, and its other books and records, and to make
copies or extracts therefrom. The demand under oath shall be directed to the
Corporation's Secretary at its registered Delaware office or at its principal
place of business.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of stockholders of
the Corporation shall be held on the date designated by the Board of Directors;
PROVIDED, HOWEVER, that the annual meeting of stockholders of this Corporation
shall be held (i) in the case of the initial annual meeting of stockholders, not
later than 13 months after the date of incorporation of this Corporation or (ii)
in the case of any subsequent annual meeting of stockholders, not later than 13
months after the date of the last annual meeting of stockholders of the
Corporation. The annual meeting in each year shall be held at 10:00 A.M., local
time, at the principal executive offices of the Corporation, or at such other
date, time and/or place within or without the State of Delaware as may be fixed
by the Board of Directors.
SECTION 2.2 SPECIAL MEETINGS. Subject to the rights of the holders
of any series of preferred stock, par value $.001 per share, of the Corporation
(the "PREFERRED STOCK"), or any other series or class of stock as set forth in
the Certificate of Incorporation of the Corporation (the "CERTIFICATE OF
INCORPORATION") to elect additional directors under specified circumstances, a
special meeting of the holders of stock of the Corporation entitled to vote on
any business to be considered at any such meeting may be called by the President
of the Corporation, the Chief Executive Officer of the Corporation or the
Chairman of the Board of the Corporation, or shall be called by the Secretary of
the Corporation at the request of the Board of Directors pursuant
<PAGE>
to a resolution adopted by a majority of the Board of Directors of the
Corporation or at the request of the holders of ten percent (10%) or more of
the outstanding voting stock of the Corporation. The Board of Directors may
designate the place of meeting for any special meeting of the stockholders,
and if no such designation is made, the place of meeting shall be the
principal executive offices of the Corporation.
SECTION 2.3 NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, unless notice is waived as
provided in Section 8.1 of these Bylaws, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed given when deposited in the mail, postage prepaid,
directed to the stockholder at his or her address as it appears on the records
of the Corporation. Any previously scheduled meeting of the stockholders may be
postponed by resolution of the Board of Directors upon public notice given prior
to the time previously scheduled for such meeting of stockholders.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If, however, the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.4 QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation or by these Bylaws, at any meeting of stockholders
the holders of a majority of the voting power of the outstanding shares of the
Corporation entitled to vote generally in the election of directors (the "VOTING
STOCK"), either present or represented by proxy, shall constitute a quorum for
the transaction of any business at such meeting, except that when specified
business is to be voted on by a class or series voting as a class, the holders
of a majority of the shares of such class or series shall constitute a quorum
for the transaction of such business. The chairman of the meeting or a majority
of the voting power of the shares of Voting Stock so represented may adjourn the
meeting from time to time, whether or not there is such a quorum (or in the case
of specified business to be voted on as a class or series, the chairman or a
majority of the shares of such class or series so represented may adjourn the
meeting with respect to such specified business). No notice of the time and
place of adjourned meetings need be given except as provided in the last
paragraph of Section 2.3 of these Bylaws. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 2.5 VOTING. Except as otherwise set forth in the Certificate
of Incorporation with respect to the right of any holder of any series of
Preferred Stock or any other series or class of stock to elect additional
directors under specified circumstances, whenever directors are to be elected at
a meeting, they shall be elected by a plurality of the votes cast at the meeting
by the holders of stock entitled to vote. Whenever any corporate action, other
than the election of directors, is to be taken by vote of stockholders at a
meeting, it shall, except as otherwise required by law or by the Certificate of
Incorporation or by these Bylaws, be authorized by a majority of the votes cast
with
<PAGE>
respect thereto at the meeting (including abstentions) by the holders of
stock entitled to vote thereon.
Except as otherwise provided by law, or by the Certificate of
Incorporation, each holder of record of stock of the Corporation entitled to
vote on any matter at any meeting of stockholders shall be entitled to one vote
for each share of such stock standing in the name of such holder on the stock
ledger of the Corporation on the record date for the determination of the
stockholders entitled to vote at the meeting.
Upon the demand of any stockholder entitled to vote, the vote for
directors or the vote on any other matter at a meeting shall be by written
ballot, but otherwise the method of voting and the manner in which votes are
counted shall be discretionary with the presiding officer at the meeting.
SECTION 2.6 PROXIES. Each stockholder entitled to vote at a meeting
of stockholders may authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period. Every proxy shall be
signed by the stockholder or by his duly authorized attorney. Such proxy must
be filed with the Secretary of the Corporation or his or her representative at
or before the time of the meeting.
SECTION 2.7 NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) ANNUAL MEETING OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) by or at the
direction of the Chairman of the Board or the Board of Directors pursuant to a
resolution adopted by a majority of the Board of Directors or (b) by any
stockholder of the Corporation who is entitled to vote at the meeting with
respect to the election of directors or the business to be proposed by such
stockholder, as the case may be, who complies with the notice procedures set
forth in clauses (2) and (3) of paragraph (A) of this Section 2.7 and who is a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation as provided below.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (b) of paragraph (A)(1) of
this Section 2.7, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such business must be a proper
subject for stockholder action under the Delaware General Corporation Law (the
"GCL"). To be timely, a stockholder's notice shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not less than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that
the date of the annual meeting is advanced by more than thirty (30) days, or
delayed by more than sixty (60) days, from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the one hundred
and twentieth (120th) day prior to such annual meeting and not later than the
close of business on the later of the sixtieth (60th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (b) as to any other
<PAGE>
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they appear
on the Corporation's books, and of such beneficial owner and (ii) the class
and number of shares of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 2.7 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least eighty
(80) days prior to the first anniversary of the preceding year's annual meeting,
a stockholder's notice required by paragraph (A)(2) of this Section 2.7 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary of
the Corporation at the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following the day on which
such public announcement is first made by the Corporation.
(B) SPECIAL MEETING OF STOCKHOLDERS. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) by or at the direction of
the Chairman of the Board of the Corporation or the Board of Directors pursuant
to a resolution adopted by a majority of the Board of Directors or (ii) by any
stockholder of the Corporation who is entitled to vote at the meeting with
respect to the election of directors, who complies with the notice procedures
set forth in this paragraph (B) and who is a stockholder of record at the time
such notice is delivered to the Secretary of the Corporation as provided below.
Nominations by stockholders of persons for election to the Board of Directors
may be made at such a special meeting of stockholders if the stockholder's
notice as required by paragraph (A)(2) of this Section 2.7 shall be delivered to
the Secretary of the Corporation at the principal executive offices of the
Corporation not later than the ninetieth (90th) day prior to such special
meeting or the tenth (10th) day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(C) GENERAL. (1) Only persons who are nominated in accordance with
the procedures set forth in this Section 2.7 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.7.
(2) Except as otherwise provided by law, the Certificate of
Incorporation or this Section 2.7, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section 2.7 and, if any proposed nomination or business is not in
compliance with this Section 2.7, to declare that such defective nomination or
proposal shall be disregarded.
(3) For purposes of this Section 2.7, "PUBLIC ANNOUNCEMENT" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
<PAGE>
(4) Notwithstanding the foregoing provisions of this Section 2.7, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.7. Nothing in this Section 2.7 shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy materials with respect to a meeting of stockholders pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock or any other series or class of stock as set forth in the
Certificate of Incorporation to elect directors under specified circumstances or
to consent to specific actions taken by the Corporation.
SECTION 2.8 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
(A) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of his or her ability. The
inspectors shall have the duties prescribed by the GCL.
(B) The chairman of the meeting shall fix and announce at the meeting
the time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
SECTION 2.9 LIST OF STOCKHOLDERS. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 2.10 WRITTEN CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action required by the GCL to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt written notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any such written consent may be
given by one or any number of substantially concurrent written instruments of
substantially similar
<PAGE>
tenor signed by such stockholders, in person or by attorney or proxy duly
appointed in writing, and filed with the Secretary or an Assistant Secretary
of the Corporation. Any such written consent shall be effective as of the
effective date thereof as specified therein, provided that such date is not
more than sixty (60) days prior to the date such written consent is filed as
aforesaid, or, if no such date is so specified, on the date such written
consent is filed as aforesaid.
ARTICLE III
DIRECTORS
SECTION 3.1 GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon it, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation or by these Bylaws required to be exercised or done
by the stockholders.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any series of Preferred Stock or any other series or class of
stock as set forth in the Certificate of Incorporation to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Board of
Directors, but shall consist of not more than nine (9) nor less than three (3)
directors.
SECTION 3.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
rights of the holders of any series of Preferred Stock or any other series or
class of stock as set forth in the Certificate of Incorporation to elect
additional directors under specified circumstances, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SECTION 3.4 RESIGNATION. Any director may resign at any time upon
written notice to the Corporation. Any such resignation shall take effect at
the time specified therein or, if the time be not specified, upon receipt
thereof, and the acceptance of such resignation, unless required by the terms
thereof, shall not be necessary to make such resignation effective.
SECTION 3.5 REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock or any other series or class of stock as set forth in
the Certificate of Incorporation to elect additional directors under specified
circumstances, any director may be removed from office at any time with or
without cause, by the affirmative vote of the holders of at least a majority of
the voting power of the then outstanding Voting Stock, voting together as a
single class.
SECTION 3.6 MEETINGS. Meetings of the Board of Directors, regular or
special, may be held at any place within or without the State of Delaware.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting by such means shall constitute presence in person
at such meeting. An annual meeting of the Board of Directors shall be held at
the same place and immediately following
<PAGE>
each annual meeting of stockholders, and no further notice thereof need be
given other than this Bylaw. The Board of Directors may fix times and places
for additional regular meetings of the Board of Directors and no further
notice of such meetings need be given. A special meeting of the Board of
Directors shall be held whenever called by the President of the Corporation,
the Chief Executive Officer of the Corporation or the Chairman of the Board
of the Corporation, or by a majority of the Board of Directors, at such time
and place as shall be specified in the notice or waiver thereof. The person
or persons authorized to call special meeting of the Board of Directors may
fix the place and time of the meetings. Notice of any special meeting shall
be given to each director at his or her business or residence in writing or
by telegram or by telephone communication. If mailed, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five (5) days before such
meeting. If by telegram, such notice shall be deemed adequately delivered
when the telegram is delivered to the telegraph company at least twenty-four
hours before such meeting. If by facsimile transmission, such notice shall
be transmitted at least twenty-four hours before such meeting. If by
telephone, the notice shall be given at least twelve hours prior to the time
set for the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice of such meeting, except for amendments to these
Bylaws as provided under Section 10.1 of these Bylaws.
SECTION 3.7 QUORUM AND VOTING. A whole number of directors equal to
at least a majority of the Board of Directors shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if there
be less than a quorum, a majority of the directors present may adjourn the
meeting from time to time, and no further notice thereof need be given other
than announcement at the meeting which shall be so adjourned. Except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws, the vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
SECTION 3.8 WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or of such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or of such committee.
SECTION 3.9 COMPENSATION. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board
of Directors.
SECTION 3.10 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors may from time to time, by resolution passed by majority of the Board
of Directors, designate one or more committees, each committee to consist of one
or more directors of the Corporation. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. The resolution
of the Board of Directors may, in addition or alternatively, provide that in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he, she or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it, except as otherwise provided by law.
Unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance
<PAGE>
of stock. Any such committee may adopt rules governing the method of calling
and time and place of holding its meetings. Unless otherwise provided by the
Board of Directors, a majority of any such committee (or the member thereof,
if only one) shall constitute a quorum for the transaction of business, and
the vote of a majority of the members of such committee present at a meeting
at which a quorum is present shall be the act of such committee. Each such
committee shall keep a record of its acts and proceedings and shall report
thereon to the Board of Directors whenever requested so to do. Any or all
members of any such committee may be removed, with or without cause, by
resolution of the Board of Directors, passed by a majority of the Board of
Directors.
ARTICLE IV
OFFICERS
SECTION 4.1 ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary and a
Treasurer, and may also include one or more Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers. All officers chosen
by the Board of Directors shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of this
Article IV, together with such other powers and duties as from time to time may
be conferred by the Board of Directors or any committee thereof. The Chairman
of the Board shall be chosen from among the directors. Any number of such
offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. The Board of
Directors may appoint, and may delegate power to appoint, such other officers,
agents and employees as it may deem necessary or proper, who shall hold their
offices or positions for such terms, have such authority and perform such duties
as may from time to time be determined by or pursuant to authorization of the
Board of Directors.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to
Section 4.3 of these Bylaws, each officer shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his or
her death or until such officer shall resign.
SECTION 4.3 RESIGNATION AND REMOVAL. Any officer may resign at any
time upon written notice to the Corporation. Any elected officer may be removed
by a majority of the members of the Board of Directors, with or without cause,
at any time. The Board of Directors may delegate such power of removal as to
officers, agents and employees not elected by the Board of Directors. Such
removal shall be without prejudice to a person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
SECTION 4.4 COMPENSATION AND BOND. The compensation of the officers
of the Corporation shall be fixed by the Board of Directors, but this power may
be delegated to any officer in respect of other officers under his or her
control. The Corporation may secure the fidelity of any or all of its officers,
agents or employees by bond or otherwise.
SECTION 4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation, shall make reports to the Board of Directors and the
stockholders and shall perform all duties incidental to such office which may be
required by law and all such other duties as are properly required by the Board
of Directors.
<PAGE>
Except where by law the signature of the President is required, the Chairman
of the Board shall possess the same power as the President to sign all
certificates, contracts and other instruments of the Corporation which may be
authorized by the Board of Directors. The Chairman of the Board shall see
that all orders and resolutions of the Board of Directors and of any
committee thereof are carried into effect.
SECTION 4.6 PRESIDENT. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the absence of
or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and of the Board of Directors. The President may sign, alone or with the
Secretary or any other proper officer of the Corporation authorized by the Board
of Directors, certificates, contracts and other instruments of the Corporation
as authorized by the Board of Directors.
SECTION 4.7 VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board of Directors, the Chairman of the
Board or the President may from time to time prescribe. In the absence or
inability to act of the President, unless the Board of Directors shall
otherwise provide, the Vice President who has served in that capacity for the
longest time and who shall be present and able to act, shall perform all the
duties and may exercise any of the powers of the President.
SECTION 4.8 TREASURER. The Treasurer shall have charge of all funds
and securities of the Corporation, shall endorse the same for deposit or
collection when necessary and deposit the same to the credit of the Corporation
in such banks or depositories as the Board of Directors may authorize. He or
she may endorse all commercial documents requiring endorsements for or on behalf
of the Corporation and may sign all receipts and vouchers for payments made to
the Corporation. He or she shall have all such further powers and duties as
generally are incident to the position of Treasurer or as may be assigned to him
or her by the Chairman of the Board, the President or the Board of Directors.
SECTION 4.9 SECRETARY. The Secretary shall record all the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose and shall also record therein all action taken by written
consent of directors in lieu of a meeting. He or she shall attend to the giving
and serving of all notices of the Corporation. He or she shall have custody of
the seal of the Corporation and shall attest the same by his or her signature
whenever required. He or she shall have charge of the stock ledger and such
other books and papers as the Board of Directors may direct, but he or she may
delegate responsibility for maintaining the stock ledger to any transfer agent
appointed by the Board of Directors. He or she shall have all such further
powers and duties as generally are incident to the position of Secretary or as
may be assigned to him or her by the President or the Board of Directors.
SECTION 4.10 ASSISTANT TREASURERS. In the absence or inability to
act of the Treasurer, any Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. An Assistant Treasurer shall also
perform such other duties as the Treasurer or the Board of Directors may assign
to him or her.
SECTION 4.11 ASSISTANT SECRETARIES. In the absence or inability to
act of the Secretary, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. An Assistant Secretary shall also
perform such other duties as the Secretary or the Board of Directors may assign
to him or her.
<PAGE>
SECTION 4.12 DELEGATION OF DUTIES. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any director.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 5.1 RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "PROCEEDING"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of any other corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to any employee benefit plan (hereinafter an "INDEMNITEE"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the GCL, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, excise taxes or penalties under
the Employee Retirement Income Security Act of 1974, as amended, and amounts
paid or to be paid in settlement) actually and reasonably incurred by such
indemnitee in connection therewith; PROVIDED, HOWEVER, that except as provided
in Section 5.3 with respect to proceedings seeking to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors.
SECTION 5.2 RIGHT TO ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in Section 5.1 shall include the right to be paid by
the Corporation the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"ADVANCEMENT OF EXPENSES"); PROVIDED, HOWEVER, that, if the GCL requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "UNDERTAKING"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"FINAL ADJUDICATION") that such indemnitee is not entitled to be indemnified for
such expenses under this Section 5.2 or otherwise.
SECTION 5.3 RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
Section 5.1 or Section 5.2 is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a
<PAGE>
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right of an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the GCL. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
to have made a determination prior to the commencement of such action that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the GCL,
nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or stockholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case
of such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified, or
to such advancement of expenses, under this Article V or otherwise shall be
on the Corporation.
SECTION 5.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the advancement of expenses conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, provision of
these Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 5.5 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.
SECTION 5.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to the
advancement of expenses, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article V with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
SECTION 5.7 CONTRACT RIGHTS. The rights to indemnification and to
the advancement of expenses conferred in Section 5.1 and Section 5.2 shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
<PAGE>
ARTICLE VI
COMMON STOCK
SECTION 6.1 CERTIFICATES. Certificates for stock of the Corporation
shall be in such form as shall be approved by the Board of Directors and shall
be signed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary. Such certificates may be sealed
with the seal of the Corporation or a facsimile thereof. Any of or all the
signatures on a certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
SECTION 6.2 TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the books of the Corporation by the holder, in person or by duly
authorized attorney, and on the surrender of the certificate or certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require. The
Board of Directors shall have the power to make all such rules and regulations,
not inconsistent with the Certificate of Incorporation and these Bylaws and the
GCL, as the Board of Directors may deem appropriate concerning the issue,
transfer and registration of certificates for stock of the Corporation. The
Board of Directors may appoint one or more transfer agents or registrars of
transfers, or both, and may require all stock certificates to bear the signature
of either or both.
SECTION 6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may issue a new stock certificate in the place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen or destroyed certificate
or his or her legal representative to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate. The Board of Directors may require such owner to
satisfy other reasonable requirements as it deems appropriate under the
circumstances.
SECTION 6.4 STOCKHOLDER RECORD DATE. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which shall not be more than sixty nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed by the Board of Directors, (1) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
date on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and (2) the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of
<PAGE>
stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
Only such stockholders as shall be stockholders of record on the date
so fixed shall be entitled to notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend or other
distribution, or to exercise such rights in respect of any such change,
conversion or exchange of stock, or to participate in such action, as the case
may be, notwithstanding any transfer of any stock on the books of the
Corporation after any record date so fixed.
ARTICLE VII
SEAL
SECTION 7.1 SEAL. The seal of the Corporation shall be circular in
form and shall bear, in addition to any other emblem or device approved by the
Board of Directors, the name of the Corporation, the year of its incorporation
and the words "Corporate Seal" and "Delaware". The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VIII
WAIVER OF NOTICE
SECTION 8.1 WAIVER OF NOTICE. Whenever notice is required to be
given to any stockholder or director of the Corporation under any provision of
the GCL or the Certificate of Incorporation or these Bylaws, a written waiver
thereof, signed by the person or persons entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. In the case of a stockholder, such waiver of notice may be signed by
such stockholder's attorney or proxy duly appointed in writing. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be specified
in any written waiver of notice.
ARTICLE IX
CHECKS, NOTES, DRAFTS, ETC.
SECTION 9.1 CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized committee thereof may from time to time
designate.
ARTICLE X
AMENDMENTS
SECTION 10.1 AMENDMENTS. These Bylaws may be amended, added to,
rescinded or repealed at any time by the stockholders by vote at a meeting or by
written consent without a meeting. The Board of Directors shall also have the
power, by a majority vote, to alter or repeal any of these Bylaws, and to adopt
new Bylaws. In the case of amendments by stockholders and
<PAGE>
notwithstanding the foregoing or any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of stock required by law, the Certificate of Incorporation or these
Bylaws, the affirmative vote of the holders of at least 66-2/3 percent of the
voting power of the then outstanding shares of Voting Stock voting together
as a single class, shall be required to alter, amend or repeal Sections 2.2,
2.7, 3.2, 3.3, 3.5 and this Section 10.1 of these Bylaws, unless such
amendments are approved by a majority of the directors of the Corporation not
affiliated or associated with any person, other than Ramy El-Batrawi, holding
(or which has announced an intention to acquire) 20% or more of the voting
power of the Corporation's then outstanding voting capital stock, voting
together as a single class.
The Bylaws of this Corporation were hereby adopted on October 26, 1998.
/s/ Ramy El-Batrawi
--------------------------
Ramy El-Batrawi, Secretary
<PAGE>
EXHIBIT 4.1
[LOGO]
GENESIS MEDIA GROUP, INC.
NUMBER SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 371934 20 9
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
----------------------- GENESIS MEDIA GROUP, INC. -----------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar. WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated:
[SEAL]
PRESIDENT TREASURER
COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common.
TEN ENT -- as tenants by the entireties.
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common.
UNIF GIFT MIN ACT -- ...................... Custodian ...................
(Cust) (Minor)
under Uniform Gifts to Minors Act ..............................................
(State)
UNIF TRF MIN ACT -- ................. Custodian (until age ................)
(Cust) (Minor)
under Uniform Transfers to Minors Act ......................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_____________________________
/ /
/ /
_____________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
<PAGE>
Dated _____________________________
X ___________________________________________
X ___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By _________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.1
GENESIS MEDIA GROUP, INC.
1998 STOCK INCENTIVE PROGRAM
1. PURPOSE. This 1998 Stock Incentive Program (the "PROGRAM") is
intended to secure for Genesis Media Group, Inc. (the "COMPANY"), its
subsidiaries, and its stockholders the benefits arising from ownership of the
Company's common stock (the "COMMON STOCK") by those selected individuals of the
Company and its subsidiaries, who will be responsible for the future growth of
such corporations. The Program is designed to help attract and retain superior
personnel for positions of substantial responsibility with the Company and its
subsidiaries, and to provide individuals with an additional incentive to
contribute to the success of the corporations. Nothing contained herein shall
be construed to amend or terminate any existing options, whether pursuant to any
existing plans or otherwise granted by the Company.
2. ELEMENTS OF THE PROGRAM. In order to maintain flexibility in the
award of stock benefits, the Program is composed of seven parts. The first part
is the Incentive Stock Option Plan (the "INCENTIVE PLAN") under which are
granted incentive stock options (the "INCENTIVE OPTIONS"). The second part is
the Non-Qualified Stock Option Plan (the "NONQUALIFIED PLAN") under which are
granted nonqualified stock options (the "NONQUALIFIED OPTIONS"). The third part
is the Restricted Share Plan (the "RESTRICTED PLAN") under which are granted
restricted shares of Common Stock. The fourth part is the Employee Stock
Purchase Plan (the "STOCK PURCHASE PLAN"). The fifth part is the Non-Employee
Director Stock Option Plan (the "DIRECTORS PLAN") under which grants of options
to purchase shares of Common Stock may be made to non-employee directors of the
Company. The sixth part is the Stock Appreciation Rights Plan (the "SAR PLAN")
under which SARs (as defined therein) are granted. The seventh part is the
Other Stock Rights Plan (the "STOCK RIGHTS PLAN") under which (i) units
representing the equivalent of shares of Common Stock (the "PERFORMANCE SHARES")
are granted; (ii) payments of compensation in the form of shares of Common Stock
(the "STOCK PAYMENTS") are granted; and (iii) rights to receive cash or shares
of Common Stock based on the value of dividends paid with respect to a share of
Common Stock (the "DIVIDEND EQUIVALENT RIGHTS") are granted. The Incentive
Plan, the Nonqualified Plan, the Restricted Plan, the Stock Purchase Plan, the
Directors Plan, the SAR Plan and the Stock Rights Plan are included herein as
Part I, Part II, Part III, Part IV, Part V, Part VI and Part VII, respectively,
and are collectively referred to herein as the "PLANS." The grant of an option,
SAR or restricted share or rights to purchase shares under one of the Plans
shall not be construed to prohibit the grant of an option, SAR or restricted
share or rights to purchase shares under any of the other Plans.
3. APPLICABILITY OF GENERAL PROVISIONS. Unless any Plan
specifically indicates to the contrary, all Plans shall be subject to the
General Provisions of the Genesis Media Group, Inc. 1998 Stock Compensation
Program set forth below.
4. ADMINISTRATION OF THE PLANS. The Plans shall be administered,
construed, governed, and amended in accordance with their respective terms.
<PAGE>
GENERAL PROVISIONS OF STOCK COMPENSATION PROGRAM
Article 1. ADMINISTRATION. The Program shall be administered by
the Company's Board of Directors (the "BOARD"). If an award is to be made to an
"Executive Officer" as defined in the Exchange Act (as hereinafter defined), it
must be approved if the Company has a class of equity securities registered
under Section 12 or 15(d) of the Exchange Act, by the Board or by a committee of
the Board, that is composed solely of two or more directors who are
"Non-Employee Directors" within the meaning of Rule 16b-3 promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). The
members of the Board, such committee of the Board or such other persons
appointed to administer the Program, when acting to administer the Program, are
herein collectively referred to as the "PROGRAM ADMINISTRATORS." To the extent
permitted under the Exchange Act, the Internal Revenue Code of 1986, as amended
(the "CODE") or any other applicable law, the Program Administrators, shall have
the authority to delegate any and all power and authority to administer and
operate the Program hereunder to such person or persons as the Program
Administrators deems appropriate which if formed may be referred to by such
title specified by the Board. Subject to the foregoing limitations, as
applicable, the Board may from time to time remove members from the committee,
fill all vacancies on the committee, however caused, and may select one of the
members of the committee as its Chairman.
The Program Administrators shall hold meetings at such times and
places as they may determine and as necessary to approve all grants and other
transactions under the Program as required under Rule 16b-3(d) of the Exchange
Act, shall keep minutes of their meetings, and shall adopt, amend, and revoke
such rules and procedures as they may deem proper with respect to the Program.
Any action of the Program Administrators shall be taken by majority vote or the
unanimous written consent of the Program Administrators.
Article 2. AUTHORITY OF PROGRAM ADMINISTRATORS. Subject to the
other provisions of this Program, and with a view to effecting its purpose, the
Program Administrators shall have sole authority, in their absolute discretion,
(a) to construe and interpret the Program; (b) to define the terms used herein;
(c) to determine the individuals to whom options and restricted shares and
rights to purchase shares shall be granted under the Program; (d) to determine
the time or times at which options and restricted shares or rights to purchase
shares shall be granted under the Program; (e) to determine the number of shares
subject to each option, restricted share and purchase right, the duration of
each option granted under the Program, and the price of any share purchase; (f)
to determine all of the other terms and conditions of options and restricted
shares and purchase rights granted under the Program; and (g) to make all other
determinations necessary or advisable for the administration of the Program and
to do everything necessary or appropriate to administer the Program; PROVIDED,
HOWEVER, that the Board shall establish the price for all shares issued
hereunder. All decisions, determinations, and interpretations made by the
Program Administrators shall be binding and conclusive on all participants in
the Program (the "PLAN PARTICIPANTS") and on their legal representatives, heirs
and beneficiaries.
Article 3. MAXIMUM NUMBER OF SHARES SUBJECT TO THE PROGRAM. The
maximum aggregate number of shares of Common Stock subject to the Plans shall be
20.60000077 shares. The maximum number of shares of Common Stock issuable
pursuant to the Plans in any given fiscal year shall be three percent (3%) of
the total number of issued and outstanding shares of Common Stock of the
Company. The board of directors of the Company shall make recommendations to
the Program Administrators from time to time with respect to the allocation of
the shares reserved under the Plans for for the directors, officers, employees
and agents of the Company and its wholly owned subsidiary, Genesis Intermedia,
Inc. The shares of Common Stock issued under the Plans may be authorized but
unissued shares, shares issued and reacquired by the Company or shares purchased
by the Company on the open market. If any of the options granted under the
Program expire or terminate for any reason before they have been exercised in
full, the unpurchased shares subject to those expired or terminated options
shall
2
<PAGE>
cease to reduce the number of shares available for purposes of the Program. If
the conditions associated with the grant of restricted shares are not achieved
within the period specified for satisfaction of the applicable conditions, or if
the restricted share grant terminates for any reason before the date on which
the conditions must be satisfied, the shares of Common Stock associated with
such restricted shares shall cease to reduce the number of shares available for
purposes of the Program.
The proceeds received by the Company from the sale of its Common Stock
pursuant to the exercise of options, transfer of restricted shares or issuance
of stock purchased under the Program, if in the form of cash, shall be added to
the Company's general funds and used for general corporate purposes.
Article 4. ELIGIBILITY AND PARTICIPATION. Officers, employees,
directors (whether employee directors or non-employee directors), and
independent contractors or agents of the Company or its subsidiaries who are
responsible for or contribute to the management, growth or profitability of the
business of the Company or its subsidiaries shall be eligible for selection by
the Program Administrators to participate in the Program. However, Incentive
Options may be granted under the Incentive Plan only to a person who is an
employee of the Company or its subsidiaries. An employee may be granted
Nonqualified Options under the Program; PROVIDED, HOWEVER, that the grant of
Nonqualified Options and Incentive Options to an employee shall be the grant of
separate options and each Nonqualified Option and each Incentive Option shall be
specifically designated as such in accordance with applicable provisions of the
Treasury Regulations.
The term "subsidiary" as used herein means any company, other than the
Company, in an unbroken chain of companies, beginning with the Company if, at
the time of any grant hereunder, each of the companies, other than the last
company in the unbroken chain, owns stock possessing more than 50% of the total
combined voting power of all classes of stock in one of the other companies in
such chain.
Article 5. EFFECTIVE DATE AND TERM OF PROGRAM. The Program shall
become effective upon its adoption by the Board of Directors of the Company
subject to approval of the Program by a majority of the voting shares of the
Company voting in person or by proxy at a meeting of stockholders, in either
case following adoption of the Program by the Board of Directors, which vote
shall be taken or consent granted within 12 months of adoption of the Program by
the Company's Board of Directors. The Program shall continue in effect for a
term of 10 years unless sooner terminated under Article 7 of these General
Provisions.
Article 6. ADJUSTMENTS. If the outstanding shares of Common Stock
are increased, decreased, changed into, or exchanged for a different number or
kind of shares or securities through merger, consolidation, combination,
exchange of shares, other reorganization, recapitalization, reclassification,
stock dividend, stock split or reverse stock split, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
as to which options and restricted shares may be granted under this Program. A
corresponding adjustment changing the number and kind of shares allocated to
unexercised options, restricted shares, or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the option, but with a
corresponding adjustment in the price for each share or other unit of any
security covered by the option.
Article 7. TERMINATION AND AMENDMENT OF PROGRAM. The Program
shall terminate 10 years from the date the Program is adopted by the Board of
Directors, or, if applicable, the date a particular Plan is approved by the
stockholders, whichever is earlier, or shall terminate at such earlier time as
the Board of Directors may so determine. No options or restricted shares shall
be granted and no stock
3
<PAGE>
shall be sold and purchased under the Program after that date. Subject to the
limitation contained in Article 8 of these General Provisions, the Program
Administrators may at any time amend or revise the terms of the Program,
including the form and substance of the option, restricted share and stock
purchase agreements to be used hereunder; PROVIDED, HOWEVER, that without
approval by the stockholders of the Company representing a majority of the
voting power (as contained in Article 5 of these General Provisions) no
amendment or revision shall (a) increase the maximum aggregate number of shares
that may be sold or distributed pursuant to options granted or stock sold and
purchased under Part 1 or Part IV, except as permitted under Article 6 of these
General Provisions; (b) change the minimum purchase price for shares under
Section 4 of Part I or the Purchase Price for shares under Part IV; (c) increase
the maximum term established under Parts I or IV for any option or restricted
share; (d) permit the granting of an option, or right to purchase shares under
Parts I or IV to anyone other than as provided in Article 4 of the General
Provisions; (e) change the term of Parts I or IV described in Article 5 of these
General Provisions; or (f) materially increase the benefits accruing to Plan
Participants under Parts I or IV of the Program.
Article 8. PRIOR RIGHTS AND OBLIGATIONS. No amendment,
suspension, or termination of the Program shall, without the consent of the
individual who has received an option or restricted share or who has purchased a
specified share or shares under Part IV, alter or impair any of that person's
rights or obligations under any option or restricted share granted or shares
sold and purchased under the Program prior to that amendment, suspension, or
termination.
Article 9. PRIVILEGES OF STOCK OWNERSHIP. Notwithstanding the
exercise of any option granted pursuant to the terms of this Program, the
achievement of any conditions specified in any restricted share granted pursuant
to the terms of this Program or the election to purchase any shares pursuant to
the terms of this Program, no individual shall have any of the rights or
privileges of a stockholder of the Company in respect of any shares of stock
issuable upon the exercise of his or her option, the satisfaction of his or her
restricted share conditions or the sale, purchase and issuance of such purchased
shares until certificates representing the shares have been issued and
delivered. No shares shall be required to be issued and delivered upon exercise
of any option, satisfaction of any conditions with respect to a restricted share
or a purchaser under Part IV unless and until all of the requirements of law and
of all regulatory agencies having jurisdiction over the issuance and delivery of
the securities shall have been fully complied with.
Article 10. RESERVATION OF SHARES OF COMMON STOCK. The Company,
during the term of this Program, will at all times reserve and keep available
such number of shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Program. In addition, the Company will from time to time,
as is necessary to accomplish the purposes of this Program, seek or obtain from
any regulatory agency having jurisdiction any requisite authority in order to
issue and sell shares of Common Stock hereunder. The inability of the Company
to obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary to the lawful issuance and sale of any
shares of its stock hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of the stock as to which the requisite
authority shall not have been obtained.
Article 11. TAX WITHHOLDING. The exercise of any option or
restricted share granted or the sale and issuance of any shares to be purchased
under this Program are subject to the condition that if at any time the Company
shall determine, in its discretion, that the satisfaction of withholding tax or
other withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then in such event, the
exercise of the option or restricted share or the sale and issuance of any
shares to be purchased shall not be effective unless such withholding shall have
been effected or obtained in a manner acceptable to the Company. At the
Company's sole and complete discretion, the Company may, from time to time,
accept
4
<PAGE>
shares of the Company's stock subject to one of the Plans as the source of
payment for such liabilities.
Article 12. COMPLIANCE WITH LAW. It is the express intent of the
Company that this Program complies in all respect with all applicable provisions
of state and federal law, including without limitation Section 25102(o) of the
California Corporations Code to the extent such Section is applicable to the
Company. It is the express intent of the Company that when the Company becomes
publicly-traded that this Program shall comply in all respects with applicable
provisions of the Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in
connection with any grant of awards to, or other transaction by, a Plan
Participant who is subject to Section 16 of the Exchange Act (except for
transactions exempted under alternative Exchange Act Rules). Accordingly, if
any provision of the Program or any agreement relating to any award thereunder
does not comply with Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any
such transaction, such provision will be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 or Rule
16a-1(c)(3) so that such Plan Participant shall avoid liability under Section
16(b). Unless otherwise provided in any grant or aware to any person who is or
may thereafter be subject to Section 16 of the Exchange Act the approval of
shall include the approval of the disposition of the Company of Company equity
securities for the purposes of satisfying the payment of the exercise or
purchase price or tax withholding obligations related to such grant or award
within the meaning of Section 16b-3(e).
Article 13. INDEMNIFICATION. No Program Administrator, as that
term is defined in the 1998 Stock Program, or any officer or employee of the
Company or an affiliate acting at the direction or on behalf of the Program
Administrator shall be personally liable for any action or determination taken
or made in good faith with respect to the1998 Stock Program, and shall, to the
extent permitted by law, be fully indemnified and protected by the Company with
respect to any such action or determination.
Article 14. PERFORMANCE-BASED AWARDS.
(a) Each agreement for the grant of Performance Shares
shall specify the number of Performance Shares subject to such
agreement, the Performance Period and the Performance Objective (each
as defined below), and each agreement for the grant of any other award
that the Program Administrators determine to make subject to a
Performance Objective similarly shall specify the applicable number of
shares of Common Stock, the period for measuring performance and the
Performance Objective. As used herein, "PERFORMANCE OBJECTIVE" means
a performance objective specified in the agreement for a Performance
Share, or for any other award which the Program Administrators
determine to make subject to a Performance Objective, upon which the
vesting or settlement of such award is conditioned and "PERFORMANCE
PERIOD" means the period of time specified in an agreement over which
Performance Shares, or another award which the Program Administrators
determine to make subject to a Performance Objective, are to be
earned. Each agreement for a performance-based grant shall specify in
respect of a Performance Objective the minimum level of performance
below which no payment will be made, shall describe the method for
determining the amount of any payment to be made if performance is at
or above the minimum acceptable level, but falls short of full
achievement of the Performance Objective, and shall specify the
maximum percentage payout under the agreement. Such maximum
percentage in no event shall exceed one hundred percent (100%) in the
case of performance-based restricted shares and two hundred percent
(200%) in the case of Performance Shares or performance-based Dividend
Equivalent Rights.
5
<PAGE>
(b) The Program Administrators shall determine and
specify, in their discretion, the Performance Objective in the
agreement for a Performance Share or for any other performance-based
award, which Performance Objective shall consist of: (i) one or more
business criteria, including (except as limited under subparagraph (c)
below for awards to Covered Employees (as defined below)) financial,
service level and individual performance criteria; and (ii) a targeted
level or levels of performance with respect to such criteria.
Performance Objectives may differ between Plan Participants and
between types of awards from year to year.
(c) The Performance Objective for Performance Shares
and any other performance-based award granted to a Covered Employee,
if deemed appropriate by the Program Administrators, shall be
objective and shall otherwise meet the requirements of Section
162(m)(4)(C) of the Code, and shall be based upon one or more of the
following performance-based business criteria, either on a business
unit or Company-specific basis or in comparison with peer group
performance: net sales; gross sales; return on net assets; return on
assets; return on equity; return on capital; return on revenues; cash
flow; book value; share price performance (including Options and SARs
tied solely to appreciation in the Fair Market Value of the shares);
earnings per share; stock price earnings ratio; earnings before
interest, taxes, depreciation and amortization expenses ("EBITDA");
earnings before interest and taxes ("EBIT"); or EBITDA, EBIT or
earnings before taxes and unusual or nonrecurring items as measured
either against the annual budget or as a ratio to revenue.
Achievement of any such Performance Objective shall be measured over a
period of years not to exceed ten (10) as specified by the Program
Administrators in the agreement for the performance-based award. No
business criterion other than those named above in this Article 14(c)
may be used in establishing the Performance Objective for an award to
a Covered Employee under this Article 14. For each such award
relating to a Covered Employee, the Program Administrators shall
establish the targeted level or levels of performance for each such
business criterion. The Program Administrators may, in their
discretion, reduce the amount of a payout otherwise to be made in
connection with an award under this Article 14(c), but may not
exercise discretion to increase such amount, and the Program
Administrators may consider other performance criteria in exercising
such discretion. All determinations by the Program Administrators as
to the achievement of Performance Objectives under this Article 14(c)
shall be made in writing. The Program Administrators may not delegate
any responsibility under this Article 14(c). As used herein, "COVERED
EMPLOYEE" shall mean, with respect to any grant of an award, an
executive of the Company or any subsidiary who is a member of the
executive compensation group under the Company's compensation
practices (not necessarily an executive officer) whom the Program
Administrators deem may be or become a covered employee as defined in
Section 162(m)(3) of the Code for any year that such award may result
in remuneration over $1 million which would not be deductible under
Section 162(m) of the Code but for the provisions of the Program and
any other "qualified performance-based compensation" plan (as defined
under Section 162(m) of the Code) of the Company; PROVIDED, HOWEVER,
that the Program Administrators may determine that a Plan Participant
has ceased to be a Covered Employee prior to the settlement of any
award.
(d) The Program Administrators, in their sole
discretion, may require that one or more award agreements contain
provisions which provide that, in the event Section 162(m) of the
Code, or any successor provision relating to excessive employee
remuneration, would operate to disallow a deduction by the Company
with respect to all or part of any award under the Program, a Plan
Participant's receipt of the benefit relating to
6
<PAGE>
such award that would not be deductible by the Company shall be
deferred until the next succeeding year or years in which the Plan
Participant's remuneration does not exceed the limit set forth in such
provisions of the Code.
Article 15. DEATH BENEFICIARIES. In the event of a Plan
Participant's death, all of such person's outstanding awards, including his or
her rights to receive any accrued but unpaid Stock Payments, will transfer to
the maximum extent permitted by law to such person's beneficiary (except to the
extent a permitted transfer of a Nonqualified Option or SAR was previously made
pursuant hereto). Each Plan Participant may name, from time to time, any
beneficiary or beneficiaries (which may be named contingently or successively)
as his or her beneficiary for purposes of this Program. Each designation shall
be on a form prescribed by the Program Administrators, will be effective only
when delivered to the Company, and when effective will revoke all prior
designations by the Plan Participant. If a Plan Participant dies with no such
beneficiary designation in effect, such person's beneficiary shall be his or her
estate and such person's awards will be transferable by will or pursuant to laws
of descent and distribution applicable to such person.
Article 16. UNFUNDED PROGRAM. The Program shall be unfunded and
the Company shall not be required to segregate any assets that may at any time
be represented by awards under the Program. Neither the Company, its
affiliates, the Program Administrators, nor the Board shall be deemed to be a
trustee of any amounts to be paid under the Program nor shall anything contained
in the Program or any action taken pursuant to its provisions create or be
construed to create a fiduciary relationship between any such party and a Plan
Participant or anyone claiming on his or her behalf. To the extent a Plan
Participant or any other person acquires a right to receive payment pursuant to
an award under the Program, such right shall be no greater than the right of an
unsecured general creditor of the Company.
Article 17. CHOICE OF LAW AND VENUE. The Program and all related
documents shall be governed by, and construed in accordance with, the laws of
the State of California. Acceptance of an award shall be deemed to constitute
consent to the jurisdiction and venue of the state and federal courts located in
Los Angeles, State of California for all purposes in connection with any suit,
action or other proceeding relating to such award, including the enforcement of
any rights under the Program or any agreement or other document, and shall be
deemed to constitute consent to any process or notice of motion in connection
with such proceeding being served by certified or registered mail or personal
service within or without the State of California, provided a reasonable time
for appearance is allowed.
Article 18. ARBITRATION. Any disputes involving the Program will
be resolved by arbitration in Los Angeles, California before one (1) arbitrator
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
Article 19. PROGRAM ADMINISTRATORS' RIGHT. Except as may be
provided in an award agreement, the Program Administrators may, in their
discretion, waive any restrictions or conditions applicable to, or accelerate
the vesting of, any award (other than the right to purchase shares pursuant to
the Stock Purchase Plan).
Article 20. TERMINATION OF BENEFITS UNDER CERTAIN CONDITIONS. The
Program Administrators, in their sole discretion, may cancel any unexpired,
unpaid or deferred award (other than a right to purchase shares pursuant to the
Stock Purchase Plan) at any time if the Plan Participant is not in compliance
with all applicable provisions of the Program or any award agreement or if the
Plan Participant, whether or not he or she is currently employed by the Company
or one of its subsidiaries, acts in a manner contrary to the best interests of
the Company and its subsidiaries.
Article 21. CONFLICTS IN PROGRAM. In case of any conflict in the
terms of the Program,
7
<PAGE>
or between the Program and an award agreement, the provisions in the Program
which specifically grant such award shall control, and the provisions in the
Program shall control over the provisions in any award agreement.
Article 22. OPTIONAL DEFERRAL. The right to receive any award
under the Program (other than the right to purchase shares pursuant to the Stock
Purchase Plan) may, at the request of the Plan Participant, be deferred to such
period and upon such terms and conditions as the Program Administrators shall,
in their discretion, determine, which may include crediting of interest on
deferrals of cash and crediting of dividends on deferrals denominated in shares
of Common Stock.
Article 23. INFORMATION TO PLAN PARTICIPANTS. To the extent
required by applicable law, the Company shall provide Plan Participants with the
Company's financial statements at least annually.
Article 24. COMPANY'S RIGHT OF FIRST REFUSAL. RIGHT OF FIRST
REFUSAL. Any attempt by any Plan Participant to sell, transfer or otherwise
dispose of any securities issued to such Plan Participant hereunder or upon
exercise of any other security or other right issued hereunder, that is
transferable in accordance with the terms of this Program and applicable law,
must also comply with the following provisions:
(a) The Plan Participant must have received a bona
fide offer to purchase the securities (the "OFFER") and the Plan
Participant must then give written notice to the Company outlining the
terms of the Offer (including the identity of the maker of the Offer (the
"OFFEROR")). The Company shall then have the right, for a period of sixty
(60) days, to repurchase all, but not less than all, of the securities
offered by the Plan Participant upon the terms contained in the Offer. If
the Offer includes the payment of non-cash consideration for the
securities, the Company shall pay an amount equal to the fair market value
of such non-cash consideration;
(b) If the Company does not exercise its rights
hereunder, the Plan Participant may, within sixty (60) days thereafter,
sell the offered securities to the Offeror upon terms not more favorable to
the Offeror than those contained in the Offer. Any sale of securities by
the Plan Participant after the expiration of the sixty (60) day period
referred to in the preceding sentence shall be deemed a new transaction
subject to the Company's right of first refusal here; and
(c) The Company's right of first refusal shall
terminate when the Company's securities become publicly traded.
Article 25. LOCK-UP. To the extent requested by any managing
underwriter to the Company, the Plan Participants shall enter into such market
lock-up, escrow or other agreements as may be requested by such underwriter in
connection with any public offering of the Company's securities.
8
<PAGE>
PART I
GENESIS MEDIA GROUP, INC.
INCENTIVE STOCK OPTION PLAN
Section 1. PURPOSE. The purpose of this Genesis Media Group, Inc.
Incentive Stock Option Plan (the "INCENTIVE PLAN") is to promote the growth and
general prosperity of the Company by permitting the Company to grant options to
purchase shares of its Common Stock. The Incentive Plan is designed to help
attract and retain superior personnel for positions of substantial
responsibility with the Company and its subsidiaries, and to provide individuals
with an additional incentive to contribute to the success of the Company. The
Company intends that options granted pursuant to the provisions of the Incentive
Plan will qualify as "INCENTIVE STOCK OPTIONS" within the meaning of Section 422
of the Code. This Incentive Plan is Part I of the Program. Unless any
provision herein indicates to the contrary, this Incentive Plan shall be subject
to the General Provisions of the Program.
Section 2. MAXIMUM NUMBER OF SHARES; OPTION TERMS AND CONDITIONS.
The maximum aggregate number of shares of Common Stock subject to the Incentive
Plan should be 6.866666923. The terms and conditions of options granted under
the Incentive Plan may differ from one another as the Program Administrators
shall, in its discretion, determine as long as all options granted under the
Incentive Plan satisfy the requirements of the Incentive Plan.
Section 3. DURATION OF OPTIONS. Each option and all rights
thereunder granted pursuant to the terms of the Incentive Plan shall expire on
the date determined by the Program Administrators, but in no event shall any
option granted under the Incentive Plan expire later than ten (10) years from
the date on which the option is granted. However, notwithstanding the above
portion of this Section 3, if at the time the option is granted the grantee (the
"OPTIONEE") owns or would be considered to own by reason of Code Section 424(d)
more than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries, such option shall expire not more than 5 years from
the date the option is granted. In addition, each option shall be subject to
early termination as provided in the Incentive Plan.
Section 4. PURCHASE PRICE. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any option shall
not be less than the fair market value of the shares at the time of the grant
of the option. Fair market value (the "FAIR MARKET VALUE") shall be
determined by the Program Administrators on the basis of such factors as they
deem appropriate; PROVIDED, HOWEVER, that Fair Market Value on any day shall
be deemed to be, if the Common Stock is traded on a national securities
exchange, the closing price (or, if no reported sale takes place on such day,
the mean of the reported bid and asked prices) of the Common Stock on such
day on the principal such exchange, or, if the stock is included on the
composite tape, the composite tape. In each case, the Program
Administrators' determination of Fair Market Value shall be conclusive.
Notwithstanding the above portion of this Section 4, if at the time
an option is granted the Optionee owns or would be considered to own by
reason of Code Section 424(d) more than 10% of the total combined voting
power of all classes of stock of the Company or its subsidiaries, the
purchase price of the shares covered by such option shall not be less than
110% of the Fair Market Value of a share of Common Stock on the date the
option is granted.
Section 5. MAXIMUM AMOUNT OF OPTIONS EXERCISABLE IN ANY
CALENDAR YEAR. Notwithstanding any other provision of this Incentive Plan,
the aggregate Fair Market Value (determined at the time any Incentive Stock
Option is granted) of the Common Stock with respect to which Incentive Stock
Options become exercisable for the first time by any employee during any
calendar year under all
9
<PAGE>
stock option plans of the Company and its subsidiaries shall not exceed
$100,000.
Section 6. EXERCISE OF OPTIONS. Each option shall be exercisable
in one or more installments during its term as determined by the Program
Administrators, and the right to exercise may be cumulative as determined by the
Program Administrators. Each option shall be exercisable at a rate of at least
twenty percent (20%) per year over five (5) years from the date the option is
granted, subject to such reasonable conditions as determined by the Program
Administrators. No option may be exercised for a fraction of a share of Common
Stock. The purchase price of any shares purchased shall be paid in full in cash
or by certified or cashier's check payable to the order of the Company or by
shares of Common Stock, if permitted by the Program Administrators, or by a
combination of cash, check, or shares of Common Stock, at the time of exercise
of the option. If any portion of the purchase price is paid in shares of Common
Stock, those shares shall be tendered at their then Fair Market Value as
determined by the Program Administrators in accordance with Section 4 of this
Incentive Plan. Payment in shares of Common Stock includes the automatic
application of shares of Common Stock received upon exercise of an option to
satisfy the exercise price for additional options.
Section 7. REORGANIZATION. In the event of the dissolution or
liquidation of the Company, any option granted under the Incentive Plan shall
terminate as of a date to be fixed by the Program Administrators; provided that
not less than 30 days' written notice of the date so fixed shall be given to
each Optionee and each such Optionee shall have the right during such period
(unless such option shall have previously expired) to exercise any option,
including any option that would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization (as defined below) in which the
Company is not the surviving or acquiring company, or in which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization, then:
(a) if there is no plan or agreement respecting the
Reorganization (the "REORGANIZATION AGREEMENT") or if the
Reorganization Agreement does not specifically provide for the change,
conversion or exchange of the outstanding options for options of
another corporation, then exercise and termination provisions
equivalent to those described in this Section 7 shall apply; or
(b) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the change,
conversion, or exchange of the outstanding options for options of
another corporation, then the Program Administrators shall adjust the
outstanding unexercised options (and shall adjust the options
remaining under the Incentive Plan which have not yet been granted if
the Reorganization Agreement makes specific provision for such an
adjustment) in a manner consistent with the applicable provisions of
the Reorganization Agreement.
The term "REORGANIZATION" as used in this Section 7 shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company or a sale of the Common Stock pursuant to which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization.
Adjustments and determinations under this Section 7 shall be made by
the Program Administrators, whose decisions as to such adjustments or
determinations shall be final, binding, and conclusive.
Section 8. WRITTEN NOTICE REQUIRED. Any option granted pursuant
to the terms of the Incentive Plan shall be exercised when written notice of
that exercise has been given to the Company at its
10
<PAGE>
principal office by the person entitled to exercise the option and full payment
for the shares with respect to which the option is exercised, together with
payment of applicable income taxes, has been received by the Company.
Section 9. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued with respect to any option granted under the Incentive Plan, unless the
exercise of that option and the issuance and delivery of the shares pursuant to
that exercise shall comply with all applicable provisions of foreign, state and
federal law including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restriction imposed by law, legend, condition, or otherwise, that the shares are
being purchased only for investment and without any present intention to sell or
distribute the shares in violation of any state or federal law, rule, or
regulation. Further, each Optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her Option and the imposition of
stop-transfer instructions restricting their transferability as required by law
or by this Section 9.
Section 10. EMPLOYMENT OF OPTIONEE. Each Optionee, if requested by
the Program Administrators, must agree in writing as a condition of receiving
his or her option, that he or she will remain in the employment of the Company
or its subsidiary corporations following the date of the granting of that option
for a period specified by the Program Administrators. Nothing in the Incentive
Plan or in any option granted hereunder shall confer upon any Optionee any right
to continued employment by the Company or its subsidiary corporations or limit
in any way the right of the Company or its subsidiary corporations at any time
to terminate or alter the terms of that employment.
Section 11. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT. If an
Optionee ceases to be employed by the Company or any subsidiary corporation for
any reason other than death or disability, his or her option shall terminate
within thirty (30) days after the date of termination of employment; PROVIDED,
HOWEVER, that in the event employment is terminated for cause as defined buy
applicable law, his or her option shall terminate immediately, PROVIDED,
FURTHER, HOWEVER, that the Program Administrators may, in their sole and
absolute discretion, allow the option to be exercised (to the extent exercisable
on the date of termination of employment) at any time within sixty (60) days
after the date of termination of employment, unless either the option or the
Incentive Plan otherwise provides for earlier termination.
Section 12. OPTION RIGHTS UPON DISABILITY. If an Optionee becomes
disabled within the meaning of Code Section 422(e)(3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the Incentive Plan otherwise provides for earlier termination.
Section 13. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as
otherwise limited by the Program Administrators at the time of the grant of an
option, if an Optionee dies while employed by the Company or any subsidiary
corporation, his or her Option shall expire one year after the date of death
unless by its terms it expires sooner. During this one year or shorter period,
the option may be exercised, to the extent that it remains unexercised on the
date of death, by the person or persons to whom the Optionee's rights under the
option shall pass by will or by the laws of descent and distribution, but only
to the extent that the Optionee is entitled to exercise the option at the date
of death.
Section 14. OPTIONS NOT TRANSFERABLE. Options granted pursuant to
the terms of the
11
<PAGE>
Incentive Plan may not be sold, pledged, assigned, or transferred in any manner
otherwise than by will or the laws of descent or distribution and may be
exercised during the lifetime of an Optionee only by that Optionee. No such
options shall be pledged or hypothecated in any way nor shall they be subject to
execution, attachment, or similar process.
Section 15. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED
SHARES. All options granted pursuant to the terms of this Incentive Plan shall
be adjusted in the manner prescribed by Article 6 of the General Provisions of
this Program.
12
<PAGE>
GENESIS MEDIA GROUP, INC., INCENTIVE STOCK OPTION PLAN
GRANT OF OPTION
Date of Grant: ____________________, ____
THIS GRANT, dated as of the date of grant first stated above (the
"DATE OF GRANT") , is delivered by, Genesis Media Group, Inc., a Florida
corporation (the "COMPANY") to ____________________ (the "GRANTEE"), who is an
employee of the Company or one of its subsidiaries (the Grantee's employer is
sometimes referred to herein as the "EMPLOYER").
WHEREAS, the Board of Directors of the Company (the "BOARD") on
October 1, 1998 adopted, with subsequent stockholder approval, the Genesis Media
Group, Inc., Incentive Stock Option Plan (the "PLAN");
WHEREAS, the Plan provides for the granting of incentive stock options
by the Board or Program Administrators to employees of the Company or any
subsidiary of the Company to purchase, or to exercise certain rights with
respect to, shares of the Common Stock of the Company, no par value (the
"STOCK"), in accordance with the terms and provisions thereof; and
WHEREAS, the Program Administrators consider the Grantee to be a
person who is eligible for a grant of incentive stock options under the Plan,
and has determined that it would be in the best interest of the Company to grant
the incentive stock options documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, the Company,
with the approval and at the direction of the Program Administrators, hereby
grants to the Grantee, as of the Date of Grant, an option to purchase up to
_____ shares of Stock at a price of $_____ per share, the fair market value (or,
with respect to 10% stockholders, 110% of fair market value). Such option is
hereinafter referred to as the "OPTION" and the shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "OPTION
SHARES." The Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under Section 422
of the Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein, the Option
shall become exercisable in __________ installments, the Grantee having the
right hereunder to purchase from the Company the following number of Option
Shares upon exercise of the Option, on and after the following dates, in
cumulative fashion as determined by the Program Administrators:
____________________________
3. Termination of Option.
(a) The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of _____ years from the Date of Grant (the
"OPTION TERM" [no more than 10 years from Date of Grant or, in the case of a 10%
13
<PAGE>
owner, no more than 5 years from Date of Grant]).
(b) Upon the occurrence of the Grantee's ceasing for any reason to be
employed by the Employer (such occurrence being a "termination of the Grantee's
employment"), the Option, to the extent not previously exercised, shall
terminate and become null and void within thirty (30) days after the date of
such termination of the Grantee's employment, except (1) in the event employment
is terminated for cause as defined by applicable law, in which case Grantee's
shall terminate and become null and void immediately or (2) in a case where the
Program Administrators may otherwise determine in its sole and absolute
discretion for up to sixty (60) days following the termination of employment.
As determined by the Program Administrators, upon a termination of the Grantee's
employment by reason of disability or death, the Option may be exercised, but
only to the extent that the Option was outstanding and exercisable on such date
of disability or death, up to a one-year period following the date of such
termination of the Grantee's employment.
(c) In the event of the death of the Grantee, the Option may be exercised
by the Grantee's legal representative, but only to the extent that the option
would otherwise have been exercisable by the Grantee.
(d) A transfer of the Grantee's employment between the Company and any
subsidiary of the Company, or between any subsidiaries of the Company, shall not
be deemed to be a termination of the Grantee's employment.
4. Exercise of Options.
(a) The Grantee may exercise the option with respect to all or any part of
the number of option Shares then exercisable hereunder by giving the Secretary
of the Company written notice of intent to exercise. The notice of exercise
shall specify the number of Option Shares as to which the Option is to be
exercised and the date of exercise thereof.
(b) Full payment (in U.S. dollars) by the Grantee of the option price for
the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Program Administrators, in whole or in part through the surrender of
shares of Stock at their fair market value on the exercise date. The Grantee
shall also pay any required income tax withholding taxes which may be payable in
U.S. dollars or Option shares if acceptable to the Company.
(c) On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the option Shares then being
purchased (out of theretofore unissued stock or reacquired Stock, as the Company
may elect) upon full payment for such option Shares. However, if (i) the
Grantee is subject to Section 16 of the Securities Exchange Act of 1934 and (ii)
the Grantee exercises the Option before six months have passed from the Date of
Grant, the Company shall be permitted to hold in its custody any stock
certificate arising from such exercise until six months has passed from the Date
of Grant. The obligation of the Company to deliver Stock shall, however, be
subject to the condition that if at any time the Program Administrators shall
determine in its discretion that the listing, registration or qualification of
the Option or the Option Shares upon any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the Option
or the issuance or purchase of Stock thereunder, the Option may not be exercised
in whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Program Administrators.
(d) If the Grantee fails to pay for any of the Option Shares specified in
such notice or fails to
14
<PAGE>
accept delivery thereof, the Grantee's right to purchase such Option Shares may
be terminated by the Company. The date specified in the Grantee's notice as the
date of exercise shall be deemed the date of exercise of the Option, provided
that payment in full for the Option Shares to be purchased upon such exercise
shall have been received by such date.
5. Adjustment of and Changes in Stock of the Company.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of capital stock of the Company, the Program
Administrators shall make such adjustment as may be required under the
applicable reorganization agreement in the number and kind of shares of Stock
subject to the Option or in the option price; PROVIDED, HOWEVER, that no such
adjustment shall give the Grantee any additional benefits under the Option. If
there is no provision for the treatment of the Option under an applicable
reorganization agreement, the Option may terminate on a date determined by the
Program Administrators following at least 30 days written notice to the Grantee.
6. Fair Market Value.
As used herein, the "fair market value" of a share of Stock shall be
determined by the Board. However, if the Stock is publicly-traded, fair market
value of a share of Stock shall be based upon the closing or other appropriate
trading price per share of Stock on a national securities exchange.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or shall have
any of the rights and privileges of, a stockholder of the Company with respect
to any shares of Stock purchasable or issuable upon the exercise of the Option,
in whole or in part, prior to the date of exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the Option hereunder shall be exercisable
only by the Grantee or any guardian or legal representative of the Grantee, and
the option shall not be transferable except, in case of the death of the
Grantee, by will or the laws of descent and distribution, nor shall the Option
be subject to attachment, execution or other similar process. In the event of
(a) any attempt by the Grantee to alienate, assign, pledge, hypothecate or
otherwise dispose of the option, except as provided for herein, or (b) the levy
of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the Option by notice to the Grantee
and it shall thereupon become null and void.
9. Restriction on Exercise.
The Option may not be exercised if the issuance of the Option Shares upon
such exercise would constitute a violation of any applicable federal or State
securities or other law or valid regulation. As a condition to the exercise of
the Option, the Company may require the Grantee exercising the Option to make
any representation or warranty to the Company as may be required by any
applicable law or regulation and, specifically, may require the Grantee to
provide evidence satisfactory to the Company that the Option Shares are being
acquired only for investment purposes and without any present intention to sell
or distribute the shares in violation of any federal or State securities or
other law or valid regulation.
15
<PAGE>
10. Employment Not Affected.
The granting of the option or its exercise shall not be construed as
granting to the Grantee any right with respect to continuance of employment of
the Employer. Except as may otherwise be limited by a written agreement between
the Employer and the Grantee, the right of the Employer to terminate at will the
Grantee's employment with it at any time (whether by dismissal, discharge,
retirement or otherwise) is specifically reserved by the Company, as the
Employer or on behalf of the Employer (whichever the case may be), and
acknowledged by the Grantee.
11. Amendment of Option.
The Option may be amended by the Program Administrators at any time (i) if
the Program Administrators determine, in their sole discretion, that amendment
is necessary or advisable in the light of any addition to or change in the
Internal Revenue Code of 1986 or in the regulations issued thereunder, or any
federal or state securities law or other law or regulation, which change occurs
after the Date of Grant and by its terms applies to the Option; or (ii) other
than in the circumstances described in clause (i), with the consent of the
Grantee.
12. Notice.
All notices, requests, demands, and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or by certified mail, return receipt requested, as follows:
To Employer: Genesis Media Group, Inc.
501 South Dakota Ave.
Tampa, Florida 33606
Attn: Secretary
To Grantee: ______________________________
______________________________
______________________________
______________________________
13. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the terms of which
are incorporated herein by reference, and the option shall in all respects be
interpreted in accordance with the Plan. The Program Administrators shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
14. Governing Law.
The validity, construction, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law of
the State of California, except to the extent preempted by federal law, which
shall to the extent govern.
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute this Grant of Option, and to apply the corporate seal hereto, and the
Grantee has placed his or her signature hereon, effective as of the Date of
Grant.
GENESIS MEDIA GROUP, INC.
By:
-------------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
- ------------------------------------
[Grantee]
By:
-------------------------------
Name:
Title:
17
<PAGE>
PART II
GENESIS MEDIA GROUP, INC.
NON-QUALIFIED STOCK OPTION PLAN
Section 1. PURPOSE. The purpose of this Genesis Media Group,
Inc., Non-Qualified Stock Option Plan (the "NONQUALIFIED PLAN") is to permit the
Company to grant options to purchase shares of its Common Stock. The
Nonqualified Plan is designed to help attract and retain superior personnel for
positions of substantial responsibility with the Company and its subsidiaries,
and to provide individuals with an additional incentive to contribute to the
success of the Company. Any option granted pursuant to the Nonqualified Plan
shall be clearly and specifically designated as not being an incentive stock
option, as defined in Section 422 of the Code. This Nonqualified Plan is Part
II of the Program. Unless any provision herein indicates to the contrary, the
Nonqualified Plan shall be subject to the General Provisions of the Program.
Section 2. OPTION TERMS AND CONDITIONS. The terms and conditions
of options granted under the Nonqualified Plan may differ from one another as
the Program Administrators shall in their discretion determine as long as all
options granted under the Nonqualified Plan satisfy the requirements of the
Nonqualified Plan.
Section 3. DURATION OF OPTIONS. Each option and all rights
thereunder granted pursuant to the terms of the Nonqualified Plan shall expire
on the date determined by the Program Administrators, but in no event shall any
option granted under the Nonqualified Plan expire later than ten (10) years from
the date on which the option is granted. In addition, each option shall be
subject to early termination as provided in the Nonqualified Plan.
Section 4. PURCHASE PRICE. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any option shall
not be less than the fair market value of the shares at the time of the grant
of the option. Fair market value (the "FAIR MARKET VALUE") shall be
determined by the Program Administrators on the basis of such factors as they
deem appropriate; PROVIDED, HOWEVER, that Fair Market Value on any day shall
be deemed to be, if the Common Stock is traded on a national securities
exchange, the closing price (or, if no reported sale takes place on such day,
the mean of the reported bid and asked prices) of the Common Stock on such
day on the principal such exchange, or, if the stock is included on the
composite tape, the composite tape. In each case, the Program
Administrators' determination of Fair Market Value shall be conclusive.
Notwithstanding the above portion of this Section 4, if at the time an
option is granted the Optionee owns or would be considered to own by reason of
Code Section 424(d) more than 10% of the total combined voting power of all
classes of stock of the Company or its subsidiaries, the purchase price of the
shares covered by such option shall not be less than 110% of the Fair Market
Value of a share of Common Stock on the date the option is granted.
Section 5. EXERCISE OF OPTIONS. Each option shall be exercisable
in one or more installments during its term and the right to exercise may be
cumulative as determined by the Program Administrators. Each option shall be
exercisable a rate of at least twenty percent (20%) per year over five (5) years
from the date the option is granted, subject to such reasonable conditions as
determined by the Program Administrators. No option may be exercised for a
fraction of a share of Common Stock. The purchase price of any shares purchased
shall be paid in full in cash or by certified or cashier's check payable to the
order of the Company or by shares of Common Stock, if permitted by the Program
Administrators, or by a combination of cash, check, or shares of Common Stock,
at the time of exercise of the option. If any portion of the purchase price is
paid in shares of Common Stock, those shares shall be
18
<PAGE>
tendered at their then Fair Market Value as determined by the Program
Administrators in accordance with Section 4 of the Nonqualified Plan. Payment
in shares of Common Stock includes the automatic application of shares of Common
Stock received upon exercise of an option to satisfy the exercise price for
additional options.
Section 6. REORGANIZATION. In the event of the dissolution or
liquidation of the Company, any option granted under the Nonqualified Plan shall
terminate as of a date to be fixed by the Program Administrators; provided that
not less than 30 days' written notice of the date so fixed shall be given to
each Optionee and each such Optionee shall have the right during such period
(unless such option shall have previously expired) to exercise any option,
including any option that would not otherwise be exercisable by reason of an
insufficient lapse of time.
In the event of a Reorganization (as defined below) in which the
Company is not the surviving or acquiring company, or in which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization, then:
a. if there is no plan or agreement respecting the
Reorganization ("REORGANIZATION AGREEMENT") or if the Reorganization
Agreement does not specifically provide for the change, conversion or
exchange of the outstanding options for options of another
corporation, then exercise and termination provisions equivalent to
those described in this Section 6 shall apply; or
(b) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the change,
conversion, or exchange of the outstanding options for options of
another corporation, then the Program Administrators shall adjust the
outstanding unexercised options (and shall adjust the options
remaining under the Nonqualified Plan which have not yet been granted
if the Reorganization Agreement makes specific provision for such an
adjustment) in a manner consistent with the applicable provisions of
the Reorganization Agreement.
The term "REORGANIZATION" as used in this Section 6 shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company or a sale of the Common Stock pursuant to which the Company is or
becomes a subsidiary of another company after the effective date of the
Reorganization.
Adjustments and determinations under this Section 6 shall be made by
the Program Administrators, whose decisions as to such adjustments or
determinations shall be final, binding, and conclusive.
Section 7. WRITTEN NOTICE REQUIRED. Any option granted pursuant
to the terms of this Nonqualified Plan shall be exercised when written notice of
that exercise has been given to the Company at its principal office by the
person entitled to exercise the option and full payment for the shares with
respect to which the option is exercised has been received by the Company.
Section 8. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued with respect to any option granted under the Nonqualified Plan, unless
the exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all applicable provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to
19
<PAGE>
furnish evidence satisfactory to the Company, including a written and signed
representation letter and consent to be bound by any transfer restrictions
imposed by law, legend, condition, or otherwise, that the shares are being
purchased only for investment purposes and without any present intention to sell
or distribute the shares in violation of any state or federal law, rule, or
regulation. Further, each Optionee shall consent to the imposition of a legend
on the shares of Common Stock subject to his or her option and the imposition of
stop-transfer instructions restricting their transferability as required by law
or by this Section 8.
Section 9. CONTINUED EMPLOYMENT OR SERVICE. Each Optionee, if
requested by the Program Administrators, must agree in writing as a condition of
receiving his or her Option, to remain in the employment of, or service to, the
Company or any of its subsidiaries following the date of the granting of that
option for a period specified by the Program Administrators. Nothing in this
Nonqualified Plan or in any option granted hereunder shall confer upon any
Optionee any right to continued employment by, or service to, the Company or any
of its subsidiaries, or limit in any way the right of the Company or any
subsidiary at any time to terminate or alter the terms of that employment or
service arrangement.
Section 10. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT OR
SERVICE. If an Optionee ceases to be employed by the Company or any subsidiary
corporation for any reason other than death or disability, his or her option
shall terminate within thirty (30) days after the date of termination of
employment; PROVIDED, HOWEVER, that in the event employment is terminated for
cause as defined buy applicable law, his or her option shall terminate
immediately, PROVIDED, FURTHER, HOWEVER, that the Program Administrators may, in
their sole and absolute discretion, allow the option to be exercised (to the
extent exercisable on the date of termination of employment) at any time within
sixty (60) days after the date of termination of employment, unless either the
option or the Nonqualified Plan otherwise provides for earlier termination.
Section 11. OPTION RIGHTS UPON DISABILITY. If an Optionee becomes
disabled within the meaning of Code Section 422 (e) (3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the Nonqualified Plan otherwise provides for earlier termination.
Section 12. OPTION RIGHTS UPON DEATH OF OPTIONEE. Except as
otherwise limited by the Program Administrators at the time of the grant of an
option, if an Optionee dies while employed by, or providing services to, the
Company or any of its subsidiaries, his or her option shall expire one year
after the date of death unless by its terms it expires sooner. During this one
year or shorter period, the option may be exercised, to the extent that it
remains unexercised on the date of death, by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the laws of descent
and distribution, but only to the extent that the Optionee is entitled to
exercise the option at the date of death.
Section 13. OPTIONS NOT TRANSFERABLE. Options granted pursuant to
the terms of this Nonqualified Plan may not be sold, pledged, assigned, or
transferred in any manner otherwise than by will or the laws of descent or
distribution and may be exercised during the lifetime of an Optionee only by
that Optionee. No such options shall be pledged or hypothecated in any way nor
shall they be subject to execution, attachment, or similar process.
Section 14. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED
SHARES. All options granted pursuant to the terms of this Nonqualified Plan
shall be adjusted in a manner prescribed by Article 6 of the General Provisions
of the Program.
20
<PAGE>
GENESIS MEDIA GROUP, INC.
NON-QUALIFIED STOCK OPTION PLAN
Date of Grant: __________, ____
THIS GRANT, dated as of the date of grant first stated above (the
"DATE OF GRANT"), is delivered by Genesis Media Group, Inc., a Florida
corporation (the "COMPANY"), to __________________ (the "GRANTEE"), who is a
employee or non-employee of the Company or one of its subsidiaries (the
Grantee's employer is sometimes referred to herein as the ("EMPLOYER").
WHEREAS, the Board of Directors of the Company (the "BOARD") on
October 1, 1998 adopted the Genesis Media Group, Inc., Non-Qualified Stock
Option Plan (the "PLAN");
WHEREAS, the Plan provides for the granting of stock options by the
Board or the Program Administrators to employees or non-employees of the Company
or any subsidiary of the Company to purchase, or to exercise certain rights with
respect to, shares of the Common Stock of the Company, no par value (the
"STOCK"), in accordance with the terms and provisions thereof; and
WHEREAS, the Program Administrators consider the Grantee to be a
person who is eligible for a grant of non-qualified stock options under the
Plan, and has determined that it would be in the best interest of the Company to
grant the non-qualified stock options documented herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of Option.
Subject to the terms and conditions hereinafter set forth, the
Company, with the approval and at the direction of the Program Administrators,
hereby grants to the Grantee, as of the Date of Grant, an option to purchase up
to __________ shares of Stock at a price of $__________ per share, the fair
market value. Such option is hereinafter referred to as the "OPTION" and the
shares of stock purchasable upon exercise of the Option are hereinafter
sometimes referred to as the "OPTION SHARES." The Option is intended by the
parties hereto to be, and shall be treated as, an option not qualified as an
incentive stock option (as such term is defined under Section 422 of the
Internal Revenue Code of 1986).
2. Installment Exercise.
Subject to such further limitations as are provided herein, the Option
shall become exercisable in __________ installments, the Grantee having the
right hereunder to purchase from the Company the following number of Option
Shares upon exercise of the Option, on and after the following dates, in
cumulative fashion as determined by the Program Administrators:
______________________
3. Termination of Option.
(a) The Option and all rights hereunder with respect thereto, to the
extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of _________ years from the Date of Grant
(the "OPTION TERM") [no more than 10 years from Date of Grant].
21
<PAGE>
(b) Upon the occurrence of the Grantee's ceasing for any reason to be
employed by the Employer (such occurrence being a "termination of the Grantee's
employment"), the Option, to the extent not previously exercised, shall
terminate and become null and void within thirty (30) days after the date of
such termination of the Grantee's employment, except (1) in the event employment
is terminated for cause as defined buy applicable law, in which case Grantee's
shall terminate and become null and void immediately or (2) in a case where the
Program Administrators may otherwise determine in its sole and absolute
discretion for up to sixty (60) days following the termination of employment.
As determined by the Program Administrators, upon a termination of the Grantee's
employment by reason of disability or death, the Option may be exercised, but
only to the extent that the Option was outstanding and exercisable on such date
of disability or death, up to a one-year period following the date of such
termination of the Grantee's employment.
(c) In the event of the death of the Grantee, the Option may be
exercised by the Grantee's legal representative, but only to the extent that the
Option would otherwise have been exercisable by the Grantee.
(d) A transfer of the Grantee's employment between the Company and
any subsidiary of the Company, or between any subsidiaries of the Company, shall
not be deemed to be a termination of the Grantee's employment.
4. Exercise of Options.
(a) The Grantee may exercise the Option with respect to all or any
part of the number of Option Shares then exercisable hereunder by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is to
be exercised and the date of exercise thereof.
(b) Full payment (in U.S. dollars) by the Grantee of the option price
for the Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Program Administrators, in whole or in part through the surrender of
shares of Stock at their fair market value on the exercise date. The Grantee
shall also pay any required income tax withholding taxes which may be payable in
U.S. dollars or Option Shares if acceptable to the Company.
(c) On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as the Company
may elect) upon full payment for such Option Shares. However, if (i) the
Grantee is subject to Section 16 of the Securities Exchange Act of 1934 and (ii)
the Grantee exercises the Option before six months have passed from the Date of
Grant, the Company shall be permitted to hold in its custody any stock
certificate arising from such exercise until six months has passed from the Date
of Grant. The obligation of the Company to deliver Stock shall, however, be
subject to the condition that if at any time the Program Administrators shall
determine in its discretion that the listing, registration or qualification of
the Option or the Option Shares upon any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the Option
or the issuance or purchase of Stock thereunder, the Option may not be exercised
in whole or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Program Administrators..
(d) If the Grantee fails to pay for any of the Option Shares
specified in such notice or
22
<PAGE>
fails to accept delivery thereof, the Grantee's right to purchase such Option
Shares may be terminated by the Company. The date specified in the Grantee's
notice as the date of exercise shall be deemed the date of exercise of the
Option, provided that payment in full for the Option shares to be purchased upon
such exercise shall have been received by such date.
5. Adjustment of and Changes in Stock of the Company.
In the event of a reorganization, recapitalization, change of shares,
stock split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the Company, the
Program Administrators shall make such adjustment as may be required under the
applicable reorganization agreement in the number and kind of shares of Stock
subject to the Option or in the option price; PROVIDED, HOWEVER, that no such
adjustment shall give the Grantee any additional benefits under the Option. If
there is no provision for the treatment of the Option under an applicable
reorganization agreement, the Option may terminate on a date determined by the
Program Administrators following at least 30 days written notice to the Grantee.
6. Fair Market Value.
As used herein, the "fair market value" of a share of Stock shall be
determined by the Board. However, if the Stock is publicly-traded, fair market
value of a share of Stock shall be based upon the closing or other appropriate
trading price per share of Stock on a national securities exchange.
7. No Rights of Stockholders.
Neither the Grantee nor any personal representative shall be, or shall
have any of the rights and privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
Option, in whole or in part, prior to the date of exercise of the Option.
8. Non-Transferability of Option.
During the Grantee's lifetime, the option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the Option shall not be transferable except, in case of the death
of the Grantee, by will or the laws of descent and distribution, nor shall the
Option be subject to attachment, execution or other similar process. In the
event of (a) any attempt by the Grantee to alienate, assign, pledge, hypothecate
or otherwise dispose of the Option, except as provided for herein, or (b) the
levy of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate the option by notice to the Grantee
and it shall thereupon become null and void.
9. Restriction on Exercise.
The Option may not be exercised if the issuance of the Option Shares
upon such exercise would constitute a violation of any applicable federal or
state securities or other law or valid regulation. As a condition to the
exercise of the Option, the Company may require the Grantee exercising the
Option to make any representation or warranty to the Company as may be required
by any applicable law or regulation and, specifically, may require the Grantee
to provide evidence satisfactory to the Company that the Option Shares are being
acquired only for investment purposes and without any present intention to sell
or distribute the shares in violation of any federal or state securities or
other law or valid regulation.
10. Employment of Service Not Affected.
23
<PAGE>
The granting of the option or its exercise shall not be construed as
granting to the Grantee any right with respect to continuance of employment or
service relationship with the Employer. Except as may otherwise be limited by a
written agreement between the Employer and the Grantee, the right of the
Employer to terminate at will the Grantee's employment or service relationship
with it at any time (whether by dismissal, discharge, retirement or otherwise)
is specifically reserved by the Company, as the Employer or on behalf of the
Employer (whichever the case may be), and acknowledged by the Grantee.
11. Amendment of Option.
The Option may be amended by the Program Administrators at any time
(i) if the Program Administrators determine, in their sole discretion, that
amendment is necessary or advisable in the light of any addition to or change in
the Internal Revenue Code of 1986 or in the regulations issued thereunder, or
any federal or state securities law or other law or regulation, which change
occurs after the Date of Grant and by its terms applies to the option; or (ii)
other than in the circumstances described in clause (i), with the consent of the
Grantee.
12. Notice.
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or by certified mail, return receipt requested, as follows:
To Employer: Genesis Media Group, Inc.
501 South Dakota Avenue
Tampa, Florida 33606
Attn: Secretary
To Grantee: ____________________
____________________
____________________
13. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the terms of
which are incorporated herein by reference, and the Option shall in all respects
be interpreted in accordance with the Plan. The Program Administrators shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
14. Governing Law.
The validity, construction, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law of
the State of California, except to the extent preempted by federal law, which
shall to the extent govern.
24
<PAGE>
IN WITNESS WHEREOF, the Company has caused its duly authorized
officers to execute this Grant of Option, and to apply the corporate seal
hereto, and the Grantee has placed his or her signature hereon, effective as of
the Date of Grant.
GENESIS MEDIA GROUP, INC.
By:
-------------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
- -------------------------------------
[Grantee]
By:
-------------------------------
Name:
Title:
25
<PAGE>
PART III
GENESIS MEDIA GROUP, INC.
RESTRICTED SHARE PLAN
Section 1. PURPOSE. The purpose of this Restricted Share Plan
(the "RESTRICTED PLAN") is to promote the growth and general prosperity of the
Company by permitting the Company to grant restricted shares to help attract and
retain superior personnel for positions of substantial responsibility with the
Company and its subsidiaries and to provide individuals with an additional
incentive to contribute to the success of the Company. The Restricted Plan is
Part III of the Program. Unless any provision herein indicates to the contrary,
the Restricted Plan shall be subject to the General Provisions of the Program.
Section 2. TERMS AND CONDITIONS. The terms and conditions of
restricted shares granted under the Restricted Plan may differ from one another
as the Program Administrators shall, in their discretion, determine as long as
all restricted shares granted under the Restricted Plan satisfy the requirements
of the Restricted Plan.
Each restricted share grant shall provide to the recipient (the
"HOLDER") the transfer of a specified number of shares of Common Stock of the
Company that shall become nonforfeitable upon the achievement of specified
service or performance conditions within a specified period or periods (the
"RESTRICTION PERIOD") as determined by the Program Administrators. At the time
that the restricted share is granted, the Program Administrators shall specify
the service or performance conditions and the period of duration over which the
conditions apply.
The Holder of restricted shares shall not have any rights with respect
to such award, unless and until such Holder has executed an agreement evidencing
the terms and conditions of the award (the "RESTRICTED SHARE AWARD AGREEMENT").
Each individual who is awarded restricted shares shall be issued a stock
certificate in respect of such shares. Such certificate shall be registered in
the name of the Holder and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award, substantially in
the following form:
The transferability of this certificate and the shares of stock represented
hereby are subject to the terms and conditions (including forfeiture) of
the Genesis Media Group, Inc., Restricted Share Plan and Restricted Share
Award Agreement entered into between the registered owner and Genesis Media
Group, Inc. Copies of such Plan and Agreement are on file in the offices
of Genesis Media Group, Inc.
The Program Administrators shall require that the stock certificates
evidencing such shares be held in the custody of the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
restricted share award, the Holder shall have delivered a stock power, endorsed
in blank, relating to the stock covered by such award. At the expiration of
each Restriction Period, the Company shall redeliver to the Holder certificates
held by the Company representing the shares with respect to which the applicable
conditions have been satisfied.
Section 3. NONTRANSFERABLE. Subject to the provisions of the
Restricted Plan and the Restricted Share Award Agreements, during the
Restriction Period as may be set by the Program Administrators commencing on the
grant date, the Holder shall not be permitted to sell, transfer, pledge, or
assign shares of restricted shares awarded under the Restricted Plan.
26
<PAGE>
Section 4. RESTRICTED SHARE RIGHTS UPON EMPLOYMENT OR SERVICE. If
a Holder terminates employment or service with the company prior to the
expiration of the Restriction Period, any restricted shares granted to him
subject to such Restriction Period shall be forfeited by the Holder and shall be
transferred to the Company. The Program Administrators may, in their sole
discretion, accelerate the lapsing of or waive such restrictions in whole or in
part based upon such factors and such circumstances as the Program
Administrators may determine, in its sole discretion, including, but not limited
to, the Plan Participant's retirement, death, or disability.
Section 5. STOCKHOLDER RIGHTS. The Holder shall have, with
respect to the restricted shares granted, all of the rights of a stockholder of
the Company, including the right to vote the shares, and the right to receive
any dividends thereon. Certificates for shares of unrestricted stock shall be
delivered to the grantee promptly after, and only after, the Restriction Period
shall expire without forfeiture in respect of such restricted shares.
Section 6. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued under the Restricted Plan unless the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require a Holder to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the shares
are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Holder shall consent to the imposition
of a legend on the shares of Common Stock issued pursuant to the Restricted
Share Plan and the imposition of stop-transfer instructions restricting their
transferability as required by law or by this Section 6.
Section 7. CONTINUED EMPLOYMENT OR SERVICE. Each Holder, if
requested by the Program Administrators, must agree in writing as a condition of
the granting of his or her restricted shares, to remain in the employment of, or
service to, the Company or any of its subsidiaries following the date of the
granting of that restricted share for a period specified by the Program
Administrators. Nothing in the Restricted Plan or in any restricted share
granted hereunder shall confer upon any Holder any right to continued employment
by, or service to, the Company or any of its subsidiaries, or limit in any way
the right of the Company or any subsidiary at any time to terminate or alter the
terms of that employment or service arrangement.
27
<PAGE>
GENESIS MEDIA GROUP, INC.
RESTRICTED SHARES PLAN
RESTRICTED SHARE AWARD AGREEMENT
THIS AGREEMENT is made as of __________, _____, by and between Genesis
Media Group, Inc. (the "COMPANY"), and _______________________ ("GRANTEE"):
WHEREAS, the Company maintains the Genesis Media Group, Inc.,
Restricted Shares Plan ("RESTRICTED SHARES PLAN") under which the Program
Administrators may award shares of the Company's common stock, no par value
("COMMON STOCK") to employees and non-employees as the Program Administrators
may determine, subject to terms, conditions, or restrictions as it may deem
appropriate; and
WHEREAS, pursuant to the Restricted Shares Plan, the Program
Administrators has awarded to Grantee a restricted stock award conditioned upon
the execution by the Company and Grantee of a Restricted Share Award Agreement
setting forth all the terms and conditions applicable to such award;
NOW, THEREFORE, in consideration of the mutual promise and covenant
contained herein, it is hereby agreed as follows:
1. Award of Shares.
Under the terms of the Restricted Shares Plan, the Program
Administrators hereby awards and transfers to Grantee a restricted stock
award on __________________ ("GRANT DATE"), covering shares of Common Stock
("SHARES") subject to the terms, conditions, and restrictions set forth in
this Agreement. This transfer of Shares shall constitute a transfer of
such property in connection with Grantee's performance of service to the
Company (which transfer is intended to constitute a "transfer" for purposes
of Section 83 of the Internal Revenue Code).
2. Share Restrictions.
During the period beginning on the Grant Date and ending on the
date(s) specified by the Program Administrators (the "RESTRICTION PERIOD"),
Grantee's ownership of the Shares shall be subject to a risk of forfeiture
(which risk is intended to constitute a "substantial risk of forfeiture"
for purposes of Section 83 of the Internal Revenue Code). Specifically, if
Grantee's employment or service with the Company is terminated for any
reason, including Grantee's death, disability, or retirement at any time
before the Restriction Period ends, Grantee shall forfeit his or her
ownership in the Shares. However, in the event of Grantee's termination of
employment or service, the Program Administrators may, in its sole
discretion, based upon relevant circumstances such as the Grantee's death,
disability, or retirement, waive the minimum employment or service
requirement and provide Grantee with a nonforfeitable right to the Shares
as of the date of such termination of employment or service.
3. Stock Certificates.
A stock certificate evidencing the Shares shall be issued in the name
of Grantee as of the Grant Date. Grantee shall thereupon be the
shareholder of all the Shares represented by the stock certificate. As
such, Grantee shall be entitled to all rights of a stockholder of the
Company, including the right to vote the Shares and receive dividends
and/or other distributions declared on such Shares.
28
<PAGE>
Physical possession or custody of the stock certificate shall be
retained by the Company until such time as the Restriction Period lapses
without the occurrence of any forfeiture of the Shares in a manner
described in the above Paragraph 2. Upon the expiration of the Restriction
Period without the occurrence of such a forfeiture, the Company shall cause
the stock certificate covering the Shares to be delivered to Grantee. In
the event that Grantee's employment or service with the Company is
terminated prior to the lapse of the Restriction Period and there occurs a
forfeiture of the Shares, the stock certificate representing such Shares
shall be then canceled and revert to the Company.
4. Nontransferable.
During the Restriction Period, the Shares covered by the restricted
stock award shall not be transferable by Grantee by means of sale,
assignment, sale, pledge, encumbrance, or otherwise. During the
Restriction Period, the Company shall place a legend on the stock
certificate restricting the transferability of such certificate and
referring to the terms and conditions applicable to the Shares pursuant to
the Restricted Shares Plan and this Agreement.
Upon the lapse of the Restriction Period, the Shares shall not be
delivered to Grantee if such delivery would constitute a violation of any
applicable federal or state securities or other law or valid regulation.
As a condition to the delivery of the Shares to Grantee, the Company may
require Grantee to make any representation or warranty as may be required
by any applicable law or regulation and, specifically, may require Grantee
to provide evidence satisfactory to the Company that the Shares are being
acquired only for investment purposes and without any present intention to
sell or distribute the shares in violation of any federal or state
securities or other law or valid regulation.
5. Administration.
The Program Administrators shall have full authority and discretion
(subject only to the express provisions of the Restricted Shares Plan) to
decide all matters relating to the administration and interpretation of the
Restricted Shares Plan and this Agreement. All such Program Administrators
determinations shall be final, conclusive, and binding upon the Company,
Grantee, and any and all interested parties.
6. Right to Continued Employment or Service.
Nothing in the Restricted Shares Plan or this Agreement shall confer
on a Grantee any right to continue in the employ of or service to the
Company or, except as may otherwise be limited by a written agreement
between the Company and the Grantee, in any way affect the Company's right
to terminate Grantee's employment or service, at will, at any time without
prior notice at any time for any or no reason (whether by dismissal,
discharge, retirement or otherwise).
7. Amendment.
This Agreement shall be subject to the terms of the Restricted Shares
Plan as amended, the terms of which are incorporated herein by reference.
However, the restricted stock award that is the subject of this Agreement
may not in any way be restricted or limited by any Restricted Shares Plan
amendment or termination approved after the date of the award without
Grantee's written consent.
29
<PAGE>
8. Force and Effect.
The various provisions of this Agreement are severable in their
entirety. Any determination of invalidity or unenforceability of any one
provision shall have no effect on the continuing force and effect of the
remaining provisions.
9. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of California.
10. Successors.
This Agreement shall be binding upon and inure to the benefit of the
successors, assigns, and heirs of the respective parties.
11. Notice.
All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if
delivered personally or by certified mail, return receipt requested, as
follows:
To Employer: Genesis Media Group, Inc.
501 South Dakota Ave.
Tampa, Florida 33606
Attn: Secretary
To Grantee: ______________________________
______________________________
______________________________
______________________________
12. Incorporation of Plan by Reference.
The Option is granted pursuant to the terms of the Plan, the terms of
which are incorporated herein by reference, and the Option shall in all respects
be interpreted in accordance with the Plan. The Program Administrators shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date hereof.
GENESIS MEDIA GROUP, INC. ------------------------------
[Grantee]
By: --------------------------- ------------------------------
Name: Name:
Title: Title:
31
<PAGE>
PART IV
GENESIS MEDIA GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
Section 1. PURPOSE. The purpose of the Genesis Media Group, Inc.
Employee Stock Purchase Plan (the "STOCK PURCHASE PLAN") is to promote the
growth and general prosperity of the Company by permitting the Company to sell
to employees of the Company and its subsidiaries shares of the Company's stock
in accordance with Section 423 of the Code ("SECTION 423"), and it is the
intention of the Company to have the Stock Purchase Plan qualify as an Employee
Stock Purchase Plan in accordance with Section 423, and the Stock Purchase Plan
shall be construed to administer stock purchases and to extend and limit
participation consistent with the requirements of Section 423. The Stock
Purchase Plan will be administered by the Program Administrators.
Section 2. MAXIMUM NUMBER OF SHARES; TERMS AND CONDITIONS. The
maximum aggregate number of shares of Common Stock subject to the Stock Purchase
price shall be ________. The terms and conditions of shares to be offered to be
sold to employees of the Company and its subsidiaries under the Stock Purchase
Plan shall comply with Section 423.
Section 3. OFFERING PERIODS AND PARTICIPATION. The Stock Purchase
Plan shall be implemented through a series of consecutive fiscal quarters of the
Company (the "OFFERING PERIODS"). A full-time employee may participate in the
Stock Purchase Plan and may enroll in an Offering Period by delivering to the
Company's payroll office an agreement evidencing the terms and conditions of the
stock subscription in a form prescribed by the Program Administrators (the
"PURCHASE AGREEMENT") at least thirty (30) business days prior to the Enrollment
Date for that Offering Period (or such lesser number of business days as the
Program Administrators, in their sole discretion, may permit). Eligible
Employees who participate in the Stock Purchase Plan may do so in the Offering
Period. Purchases will be made through payroll deductions, unless direct
purchases have been approved by the Program Administrators. The first day of
each Offering Period will be the "Enrollment Date" and the last day of each
period will be the "Exercise Date."
Section 4. PURCHASE PRICE. The "Purchase Price" means an amount
as determined by the Program Administrators that is the lesser of: (a) the
Purchase Price Discount from the Fair Market Value of a share of Common Stock on
the Enrollment Date, or (b) the Purchase Price Discount from the Fair Market
Value of a share of Common Stock on the Exercise Date. The "Purchase Price
Discount" shall mean the amount of the discount from the Fair Market Value
granted to Plan Participants not to exceed fifteen percent (15%) of the Fair
Market Value as established by the Board from time to time. "Fair Market Value"
of a share of stock shall be determined by the Board. However, if the Stock is
publicly-traded, fair market value of a share of Stock shall be based upon the
closing or other appropriate trading price per share of Stock on a national
securities exchange.
Section 5. GRANTS.
(a) GRANTS. On the Enrollment Date for each Offering Period,
each Eligible Employee participating in such Offering Period shall be
granted the right to purchase on each Exercise Date during such Offering
Period (at the Purchase Price) shares of Common Stock in an amount from
time to time specified by the Program Administrators as set forth in
Section 5(b) below. The Program Administrators will also establish the
Purchase Price Discount and the Periodic Exercise Limit. The right to
purchase shall expire immediately after the last Exercise Date of the
Offering Period.
32
<PAGE>
(b) GRANT LIMITATIONS. Any provisions of the Stock Purchase
Plan to the contrary notwithstanding, no Plan Participant shall be granted
a right to purchase under the Stock Purchase Plan:
(i) if, immediately after the grant, such Plan
Participant would own stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company
or of any subsidiary (applying the constructive ownership rules of Section
424(d) of the Code and treating stock that a Plan Participant may acquire
under outstanding options as stock owned by the Plan Participant);
(ii) that permits such Plan Participant's rights to
purchase stock under all employee stock purchase plans of the Company and
its subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the Fair Market Value of
the shares at the time such purchase) in any calendar year (computed
utilizing the rules of Section 423(b)(8) of the Code); or
(iii) that permits a Plan Participant to purchase Stock
in excess of twenty percent (20%) of his or her Compensation, which shall
include the gross base salary or hourly compensation paid to a Plan
Participant and the gross amount of any targeted bonus, without reduction
for contributions to any 401(k) plan sponsored by the Company.
(c) NO RIGHTS IN RESPECT OF UNDERLYING STOCK. The Plan
Participant will have no interest or voting right in shares covered by a
right to purchase until such purchase has been completed.
(d) PLAN ACCOUNT. The Company shall maintain a plan account for
the Plan Participants in the Stock Purchase Plan, to which are credited the
payroll deductions made for such Plan Participant pursuant to Section 6 and
from which are debited amounts paid for the purchase of shares.
(e) COMMON STOCK ACCOUNT. As a condition of participation in
the Stock Purchase Plan, each Plan Participant shall be required to receive
shares purchased under the Stock Purchase Plan in a common stock account
(the "COMMON STOCK ACCOUNT") maintained by the Company to hold the Common
Stock purchased under the Stock Purchase Plan.
(f) DIVIDENDS ON SHARES. Subject to the limitations of Section
5(a) hereof and Section 423(b)(8) of the Code, all cash dividends, if any,
paid with respect to shares of Common Stock purchased under the Stock
Purchase Plan and held in a Plan Participant's Common Stock Account shall
be automatically invested in shares of Common Stock purchased at 100% of
Fair Market Value on the next Exercise Date. All non-cash distributions on
Common Stock purchased under the Stock Purchase Plan and held in a Plan
Participant's Common Stock Account shall be paid to the Plan Participant as
soon as practicable.
Section 6. PAYROLL DEDUCTIONS/DIRECT PURCHASES.
(a) PLAN PARTICIPANT DESIGNATIONS. The Purchase Agreement
applicable to an Offering Period shall designate payroll deductions to be
made on each payday during the Offering Period as a whole number percentage
specified by the Program Administrators of such Eligible Employee's
Compensation for the pay period preceding such payday. Direct purchases
may be permitted on such terms specified by the Program Administrators.
33
<PAGE>
(b) PLAN ACCOUNT BALANCES. The Company shall make payroll
deductions as specified in each Plan Participant's Subscription Agreement
on each payday during the Offering Period and credit such payroll
deductions to such Plan Participant's Plan Account. A Plan Participant may
not make any additional payments into such Plan Account. No interest will
accrue on any payroll deductions. All payroll deductions received or held
by the Company under the Stock Purchase Plan may be used by the Company for
any corporate purpose, and the Company shall not be obligated to segregate
such payroll deductions.
(c) PLAN PARTICIPANT CHANGES. A Plan Participant may
discontinue his or her participation in the Stock Purchase Plan as provided
in Section 8, or may increase or decrease (subject to such limits as the
Program Administrator may impose) the rate of his or her payroll deductions
during any Offering Period by filing with the Company a new Subscription
Agreement authorizing such a change in the payroll deduction rate. The
change in rate shall be effective with the first full payroll period
following fifteen (15) business days after the Company's receipt of the new
Subscription Agreement, unless the Company elects to process a given change
in participation more quickly.
(d) DECREASES. Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 4(b)
herein, a Plan Participant's payroll deductions shall be decreased to zero
percent at such time during any Purchase Period that is scheduled to end
during a calendar year (the "CURRENT PURCHASE PERIOD") when the aggregate
of all payroll deductions previously used to purchase stock under the Stock
Purchase Plan in a prior Purchase Period which ended during that calendar
year plus all payroll deductions accumulated with respect to the Current
Purchase Period equal to the maximum permitted by Section 423(b)(8) of the
Code. Payroll deductions shall recommence at the rate provided in such
Plan Participant's Subscription Agreement at the beginning of the first
Purchase Period that is scheduled to end in the following calendar year,
unless terminated by the Plan Participant as provided in Section 8.
(e) TAX OBLIGATIONS. At the time of the purchase of shares, and
at the time any Common Stock issued under the Stock Purchase Plan to a Plan
Participant is disposed of, the Plan Participant must adequately provide
for the Company's federal, state or other tax withholding obligations, if
any, that arise upon the purchase of shares or the disposition of the
Common Stock. At any time, the Company may, but will not be obligated to,
withhold from the Plan Participant's Compensation the amount necessary for
the Company to meet applicable withholding obligations, including, but not
limited to, any withholding required to make available to the Company any
tax deductions or benefit attributable to sale or early disposition of
Common Stock by the eligible employee.
(f) STATEMENTS OF ACCOUNT. The Company shall maintain each Plan
Participant's Plan Account and shall give each Plan Participant a statement
of account at least annually. Such statements will set forth the amounts
of payroll deductions, the Purchase Price applicable to the Common Stock
purchased, the number of shares purchased, the remaining cash balance and
the dividends received, if any, for the period covered.
Section 7. PURCHASE OF SHARES.
(a) AUTOMATIC EXERCISE ON EXERCISE DATES. Unless a Plan
Participant withdraws as provided in Section 8 below, his or her Option for
the purchase of shares will be exercised automatically on each Exercise
Date within the Offering Period in which such Plan Participant is enrolled
for the maximum whole number of shares of Common Stock as can then be
34
<PAGE>
purchased at the applicable Purchase Price with the payroll deductions
accumulated in such Plan Participant's Plan Account and not yet applied to
the purchase of shares under the Stock Purchase Plan, subject to the
Periodic Exercise Limit. All such shares purchased under the Stock
Purchase Plan shall be credited to the Plan Participant's Common Stock
Account. During a Plan Participant's lifetime, a Plan Participant's
options to purchase shares under the Stock Purchase Plan shall be
exercisable only by the Plan Participant.
(b) COMPLIANCE WITH SECURITIES LAW. Shares of Common Stock
shall not be issued with respect to any purchase of shares granted under
the Stock Purchase Plan, unless the purchase of shares and the issuance and
delivery of those shares pursuant to that exercise comply with all
applicable provisions of foreign, state and federal law including, without
limitation, the Securities Act of 1933, as amended and the Exchange Act,
and the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall
be further subject to the approval of counsel for the Company with respect
to such compliance. The Program Administrators may also require a Plan
Participant to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any
transfer restrictions imposed by law, legend, condition, or otherwise, that
the shares are being purchased only for investment purposes and without any
present intention to sell or distribute the shares in violation of any
state or federal law, rule, or regulation. Further, each Plan Participant
shall consent to the imposition of a legend on the shares of Common Stock
purchased and the imposition of stop-transfer instructions restricting
their transferability as required by law or by this Section 7.
(c) EXCESS PLAN ACCOUNT BALANCES. If, due to application of the
Periodic Exercise Limit or otherwise, there remains in a Plan Participant's
Plan Account immediately following exercise of such Plan Participant's
option to purchase shares on an Exercise Date any cash accumulated
immediately preceding such Exercise Date and not applied to the purchase of
shares under the Stock Purchase Plan, such cash shall promptly be returned
to the Plan Participant; PROVIDED, HOWEVER, that if the Plan Participant
shall be enrolled in the Offering Period (including, without limitation, by
not withdrawing pursuant to Section 8), such cash shall be contributed to
the Plan Participant's Plan Account for such next Purchase Period.
Section 8. HOLDING PERIOD. The Program Administrators may
establish, as a condition to participation, a holding period of up to one (1)
year.
Section 9. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) VOLUNTARY WITHDRAWAL. A Plan Participant may withdraw from
an Offering Period by giving written notice to the Company's payroll office
at least thirty (30) business days prior to the next Exercise Date. Such
withdrawal shall be effective beginning thirty (30) business days after
receipt by the Company's payroll office of notice thereof. On or promptly
following the effective date of any withdrawal, all (but not less than all)
of the withdrawing Plan Participant's payroll deductions credited to his or
her Plan Account and not yet applied to the purchase of shares under the
Stock Purchase Plan will be paid to such Plan Participant, and on the
effective date of such withdrawal such Plan Participant's option to
purchase shares for the Offering Period will be automatically terminated
and no further payroll deductions for the purchase of shares will be made
during the Offering Period. If a Plan Participant withdraws from an
Offering Period, payroll deductions will not resume at the beginning of any
succeeding Offering Period, unless the Plan Participant delivers to the
Company a new Subscription Agreement with respect thereto.
35
<PAGE>
(b) TERMINATION OF EMPLOYMENT. Promptly after a Plan
Participant's ceasing to be an employee for any reason all shares of Common
Stock held in a Plan Participant's Common Stock Account and the payroll
deductions credited to such Plan Participant's Plan Account and not yet
applied to the purchase of shares under the Stock Purchase Plan will be
returned to such Plan Participant or, in the case of his or her death, to
the person or persons entitled thereto, and such Plan Participant's option
to purchase shares will be automatically terminated, PROVIDED that, if the
Company does not learn of such death more than five (5) business days prior
to an Exercise Date, payroll deductions credited to such Plan Participant's
Plan Account may be applied to the purchase of shares under the Stock
Purchase Plan on such Exercise Date.
Section 10. NON-TRANSFERABILITY. Neither payroll deductions
credited to a Plan Participant's Plan Account nor any rights with regard to the
exercise of a purchase of shares or to receive shares under the Stock Purchase
Plan may be assigned, transferred, pledged or otherwise disposed of by the Plan
Participant in any way other than by will or the laws of descent and
distribution, and any purchase of shares by a Plan Participant shall, during
such Plan Participant's lifetime, be exercisable only by such Plan Participant.
Any such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Program Administrator may treat such act as an
election to withdraw from an offering period in accordance with Section 8.
Section 11. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued with respect to the Stock Purchase Plan, unless the issuance and delivery
of the shares pursuant thereto shall comply with all applicable provisions of
foreign, state and federal law, including, without limitation, the Securities
Act of 1933, as amended, and the Exchange Act, and the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. The Program
Administrators may also require a Plan Participant to furnish evidence
satisfactory to the Company, including a written and signed representation
letter and consent to be bound by any transfer restrictions imposed by law,
legend, condition, or otherwise, that the shares are being purchased only for
investment purposes and without any present intention to sell or distribute the
shares in violation of any state or federal law, rule, or regulation. Further,
each Plan Participant shall consent to the imposition of a legend on the shares
of Common Stock subject to his or her Option and the imposition of stop-transfer
instructions restricting their transferability as required by law or by this
Section 11.
Section 12. CONTINUED EMPLOYMENT OR SERVICE. Each Plan
Participant, if requested by the Program Administrators, must agree in writing,
to remain in the employment of, or service to, the Company or any of its
subsidiaries following the date of the granting of that option to purchase
shares for a period specified by the Program Administrators. Nothing in this
Stock Purchase Plan shall confer upon any Plan Participant any right to
continued employment by, or service to, the Company or any of its subsidiaries,
or limit in any way the right of the Company or any subsidiary at any time to
terminate or alter the terms of that employment or service arrangement.
36
<PAGE>
PART V
GENESIS MEDIA GROUP, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Section 1. PURPOSE; PLAN. The purpose of this Genesis Media
Group, Inc., Non-Employee Director Stock Option Plan (the "DIRECTORS PLAN") is
to permit the Company to grant options to purchase shares of its Common Stock to
non-employee directors of the Company. Any option granted pursuant to the
Directors Plan shall be clearly and specifically designated as not being an
incentive stock option, as defined in Section 422 of the Code. This Directors
Plan is Part V of the Program. Unless any provision herein indicates to the
contrary, the Directors Plan shall be subject to the General Provisions of the
Program. On the next to last business day of each fiscal year of the Company,
the Company shall grant to each non-employee director of the Company options to
purchase that number of shares of Common Stock as determined annually by the
Program Administrators. The terms and conditions of options granted under the
Directors Plan shall be in duration, form and substance as the Program
Administrators shall in their discretion determine, but in no event shall any
option granted under the Directors Plan expire later than ten (10) years from
the date on which the option is granted.
Section 2. COMPLIANCE WITH SECURITIES LAWS. Shares of Common
Stock shall not be issued with respect to any option granted under the Directors
Plan, unless the exercise of that option and the issuance and delivery of the
shares pursuant thereto shall comply with all applicable provisions of foreign,
state and federal law, including, without limitation, the Securities Act of
1933, as amended, and the Exchange Act, and the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. The Program
Administrators may also require an Optionee to furnish evidence satisfactory to
the Company, including a written and signed representation letter and consent to
be bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the shares are being purchased only for investment purposes and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the shares of Common Stock subject to
his or her option and the imposition of stop-transfer instructions restricting
their transferability as required by law or by this Section 2.
Section 3. ADJUSTMENTS TO NUMBER AND PURCHASE PRICE OF OPTIONED
SHARES. All options granted pursuant to the terms of this Directors Plan shall
be adjusted in a manner prescribed by Article 6 of the General Provisions of the
Program.
Section 4. PURCHASE PRICE. The purchase price for shares
acquired pursuant to the exercise, in whole or in part, of any option shall
not be less than the fair market value of the shares at the time of the grant
of the option. Fair market value (the "FAIR MARKET VALUE") shall be
determined by the Program Administrators on the basis of such factors as they
deem appropriate; PROVIDED, HOWEVER, that Fair Market Value on any day shall
be deemed to be, if the Common Stock is traded on a national securities
exchange, the closing price (or, if no reported sale takes place on such day,
the mean of the reported bid and asked prices) of the Common Stock on such
day on the principal such exchange, or, if the stock is included on the
composite tape, the composite tape. In each case, the Program
Administrators' determination of Fair Market Value shall be conclusive.
Notwithstanding the above portion of this Section 4, if at the time an
option is granted the
37
<PAGE>
Optionee owns or would be considered to own by reason of Code Section 424(d)
more than 10% of the total combined voting power of all classes of stock of the
Company or its subsidiaries, the purchase price of the shares covered by such
option shall not be less than 110% of the Fair Market Value of a share of Common
Stock on the date the option is granted.
38
<PAGE>
PART VI
STOCK APPRECIATION RIGHTS PLAN
Section 1. SAR TERMS AND CONDITIONS. The purpose of this Stock
Appreciation Rights Plan (the "SAR PLAN") is to promote the growth and general
prosperity of the Company by permitting the Company to grant restricted shares
to help attract and retain superior personnel for positions of substantial
responsibility with the Company and its subsidiaries and to provide individuals
with an additional incentive to contribute to the success of the Company. The
terms and conditions of SARs granted under the SAR Plan may differ from one
another as the Program Administrators shall, in their discretion, determine in
each SAR agreement (the "SAR AGREEMENT"). Unless any provision herein indicates
to the contrary, this SAR Plan shall be subject to the General Provisions of the
Program.
Section 2. DURATION OF SARS. Each SAR and all rights thereunder
granted pursuant to the terms of the SAR Plan shall expire on the date
determined by the Program Administrators as evidenced by the SAR Agreement, but
in no event shall any SAR expire later than ten (10) years from the date on
which the SAR is granted. In addition, each SAR shall be subject to early
termination as provided in the SAR Plan.
Section 3. GRANT. Subject to the terms and conditions of the SAR
Agreement, the Program Administrators may grant the right to receive a payment
upon the exercise of a SAR which reflects the appreciation in the Fair Market
Value of the number of shares of Common Stock for which such SAR was granted to
any person who is eligible to receive Awards either: (i) in tandem with the
grant of an Incentive Option; (ii) in tandem with the grant of a Nonqualified
Option; or (iii) independent of the grant of an Incentive Option or Nonqualified
Option. Each grant of a SAR which is in tandem with the grant of an Incentive
Option or Nonqualified Option shall be evidenced by the same agreement as the
Incentive Option or Nonqualified Option which is granted in tandem with such SAR
and such SAR shall relate to the same number of shares of Common Stock to which
such Option shall relate and such other terms and conditions as the Program
Administrators, in their sole discretion, deem are not inconsistent with the
terms of the SAR Plan, including conditions on the exercise of such SAR which
relate to the employment of the Plan Participant or any requirement that the
Plan Participant exchange a prior outstanding option and/or SAR.
Section 4. PAYMENT AT EXERCISE. Upon the settlement of a SAR in
accordance with the terms of the SAR Agreement, the Plan Participant shall
(subject to the terms and conditions of the SAR Plan and SAR Agreement) receive
a payment equal to the excess, if any, of the SAR Exercise Price (as defined
below) for the number of shares of the SAR being exercised at that time over the
SAR Grant Price (as defined below) for such shares. Such payment may be paid in
cash or in shares of the Company's Common Stock or by a combination of the
foregoing, at the time of exercise of the SAR, specified by the Program
Administrators in the SAR Agreement. If any portion of the payment is paid
shares of the Company's Common Stock, such shares shall be valued for this
purpose at the SAR Exercise Price on the date the SAR is exercised and any
payment in shares which calls for a payment in fractional share shall
automatically be paid in cash based on such valuation. As used herein, "SAR
Exercise Date" shall mean the date on which the exercise of a SAR occurs under
the SAR Agreement, "SAR Exercise Price" shall mean the Fair Market Value of a
shares of Common Stock on a SAR Exercise Date and "SAR Grant Price" shall mean
the price which would have been the option exercise price for one share of
Common Stock if the SAR had been granted as an option, or if the SAR granted in
tandem with an option, the option exercise price per share for the related
option.
39
<PAGE>
Section 5. SPECIAL TERMS AND CONDITIONS. Each SAR Agreement which
evidences the grant of a SAR shall incorporate such terms and conditions as the
Program Administrators in their absolute discretion deem are not inconsistent
with the terms of the SAR Plan and the agreement for Incentive Option or
Nonqualified Option, if any, granted in tandem with such SAR except that: (i) if
a SAR is granted in tandem with an Incentive Option or Nonqualified Option, the
SAR shall be exercisable only when the related Incentive Option or Nonqualified
Option is exercisable; and (ii) the Plan Participant's right to exercise a SAR
granted in tandem with an Incentive Option or Nonqualified Option shall be
forfeited to the extent that the Plan Participant exercises the related
Incentive Option or Nonqualified Option and the Plan Participant's right to
exercise the Incentive Option or Nonqualified Option shall be forfeited to the
extent the Plan Participant exercises the related SAR, but any such forfeiture
shall not count as a forfeiture for purposes of making the shares subject to
such option or SAR again available for use under the General Provisions of the
Plan.
Section 6. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued with respect to any option granted under the SAR Plan, unless the
exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all applicable provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the shares
are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Optionee shall consent to the
imposition of a legend on the shares of Common Stock subject to his or her
option and the imposition of stop-transfer instructions restricting their
transferability as required by law or by this Section 6.
Section 7. CONTINUED EMPLOYMENT OR SERVICE. Each Optionee, if
requested by the Program Administrators, must agree in writing as a condition of
receiving his or her option, to remain in the employment of, or service to, the
Company or any of its subsidiaries following the date of the granting of that
option for a period specified by the Program Administrators. Nothing in this
SAR Plan or in any option granted hereunder shall confer upon any Optionee any
right to continued employment by, or service to, the Company or any of its
subsidiaries, or limit in any way the right of the Company or any subsidiary at
any time to terminate or alter the terms of that employment or service
arrangement.
Section 8. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT OR
SERVICE. If an Optionee under this SAR Plan ceases to be employed by, or provide
services to, the Company or any of its subsidiaries for any reason other than
death or disability, his or her option shall immediately terminate; PROVIDED,
HOWEVER, that the Program Administrators may, in their sole and absolute
discretion, allow the option to be exercised, to the extent exercisable on the
date of termination of employment or service, at any time within sixty (60) days
after the date of termination of employment or service, unless either the option
or this Nonqualified Plan otherwise provides for earlier termination.
Section 9. OPTION RIGHTS UPON DISABILITY. If an Optionee becomes
disabled within the meaning of Code Section 422 (e) (3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the SAR Plan otherwise provides for earlier termination.
40
<PAGE>
PART VII
OTHER STOCK RIGHTS PLAN
Section 1. TERMS AND CONDITIONS. The purpose of the Other Stock
Rights Plan (the "STOCK RIGHTS PLAN") is to promote the growth and general
prosperity of the Company by permitting the Company to grant restricted shares
to help attract and retain superior personnel for positions of substantial
responsibility with the Company and its subsidiaries to provide individuals with
an additional incentive to the success of the Company. The terms and conditions
of Performance Shares, Stock Payments or Dividend Equivalent Rights granted
under the Stock Rights Plan may differ from one another as the Program
Administrators shall, in their discretion, determine in each stock rights
agreement (the "STOCK RIGHTS AGREEMENT"). Unless any provision herein indicates
to the contrary, this Stock Rights Plan shall be subject to the General
Provisions of the Program.
Section 2. DURATION. Each Performance Share or Dividend Equivalent
Right and all rights thereunder granted pursuant to the terms of the Stock
Rights Plan shall expire on the date determined by the Program Administrators as
evidenced by the Stock Rights Agreement, but in no event shall any Performance
Shares or Dividend Equivalent Rights expire later than ten (10) years from the
date on which the Performance Shares or Dividend Equivalent Rights are granted.
In addition, each Performance Share, Stock Payment or Dividend Equivalent Right
shall be subject to early termination as provided in the Stock Rights Plan.
Section 3. GRANT. Subject to the terms and conditions of the Stock
Rights Agreement, the Program Administrators may grant Performance Shares, Stock
Payments or Dividend Equivalent Rights as provided under the Stock Rights Plant.
Each grant of Performance Shares, Dividend Equivalent Rights and Stock Payments
shall be evidenced by a Stock Rights Agreement, which shall state the terms and
conditions of each as the Program Administrators, in their sole discretion, deem
are not inconsistent with the terms of the Stock Rights Plan.
Section 4. PERFORMANCE SHARES. Performance Shares shall become
payable to a Plan Participant based upon the achievement of specified
Performance Objectives and upon such other terms and conditions as the
Program Administrators may determine and specify in the Stock Rights
Agreement evidencing such Performance Shares. Each grant shall satisfy the
conditions for performance-based awards hereunder and under the General
Provisions. A grant may provide for the forfeiture of Performance Shares in
the event of termination of employment or other events, subject to exceptions
for death, disability, retirement or other events, all as the Program
Administrators may determine and specify in the Stock Rights Agreement for
such grant. Payment may be made for the Performance Shares at such time and
in such form as the Program Administrators shall determine and specify in the
Stock Rights Agreement and payment for any Performance Shares may be made in
full in cash or by certified cashier's check payable to the order of the
Company or, if permitted by the Program Administrators, by shares of the
Company's Common Stock or by the surrender of all or part of an Award, or in
other property, rights or credits deemed acceptable by the Program
Administrators or, if permitted by the Program Administrators, by a
combination of the foregoing. If any portion of the purchase price is paid in
shares of the Company's Common Stock, those shares shall be tendered at their
then Fair Market Value as determined by the Program Administrators in
accordance herewith. Payment in shares of Common Stock includes the
automatic application of shares of Common Stock received upon the exercise or
settlement of Performance Shares or other option or Award to satisfy the
exercise or settlement price.
41
<PAGE>
Section 5. STOCK PAYMENTS. The Program Administrators may grant
Stock Payments to a person eligible to receive the same as a bonus or additional
compensation or in lieu of the obligation of the Company or a subsidiary to pay
cash compensation under other compensatory arrangements, with or without the
election of the eligible person, provided that the Plan Participant will be
required to pay an amount equal to the aggregate par value of any newly issued
Stock Payments. A Plan Participant shall have all the voting, dividend,
liquidation and other rights with respect to shares of Common Stock issued to
the Plan Participant as a Stock Payment upon the Plan Participant becoming
holder of record of such shares of Common Stock; provided, however, the Program
Administrators may impose such restrictions on the assignment or transfer of
such shares of Common Stock as they deem appropriate and as are evidenced in the
Stock Rights Agreement for such Stock Payment.
Section 6. DIVIDEND EQUIVALENT RIGHTS. The Program Administrators
may grant Dividend Equivalent Rights in tandem with the grant of Incentive
Option or Nonqualified Option, SARs, Restricted Shares or Performance Shares
that otherwise do not provide for the payment of dividends on the shares of
Common Stock subject to such awards for the period of time to which such
Dividend Equivalent Rights apply, or may grant Dividend Equivalent Rights that
are independent of any other such award. A Dividend Equivalent Right granted in
tandem with another award may be evidenced by the agreement for such other
award; otherwise, a Dividend Equivalent Right shall be evidenced by a separate
Stock Rights Agreement. Payment may be made by the Company in cash or by shares
of the Company's Common Stock or by a combination of the foregoing, may be
immediate or deferred and may be subject to such employment, performance
objectives or other conditions as the Program Administrators may determine and
specify in the Stock Rights Agreement for such Dividend Equivalent Rights. The
total payment attributable to a share of Common Stock subject to a Dividend
Equivalent Right shall not exceed one hundred percent (100%) of the equivalent
dividends payable with respect to an outstanding share of Common Stock during
the term of such Dividend Equivalent Right, taking into account any assumed
investment (including assumed reinvestment in shares of Common Stock) or
interest earnings on the equivalent dividends as determined under the Stock
Rights Agreement in the case of a deferred payment, provided that such
percentage may increase to a maximum of two hundred percent (200%) if a Dividend
Equivalent Right is subject to a Performance Objective.
Section 7. COMPLIANCE WITH SECURITIES LAWS. Shares shall not be
issued with respect to any option granted under the Stock Rights Plan, unless
the exercise of that option and the issuance and delivery of the shares pursuant
thereto shall comply with all applicable provisions of foreign, state and
federal law, including, without limitation, the Securities Act of 1933, as
amended, and the Exchange Act, and the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. The Program Administrators may also
require an Optionee to furnish evidence satisfactory to the Company, including a
written and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition, or otherwise, that the shares
are being purchased only for investment purposes and without any present
intention to sell or distribute the shares in violation of any state or federal
law, rule, or regulation. Further, each Optionee shall consent to the
imposition of a legend on the shares of Common Stock subject to his or her
option and the imposition of stop-transfer instructions restricting their
transferability as required by law or by this Section 7.
Section 8. CONTINUED EMPLOYMENT OR SERVICE. Each Optionee, if
requested by the Program Administrators, must agree in writing as a condition of
receiving his or her option, to remain in the employment of, or service to, the
Company or any of its subsidiaries following the date of the granting of that
option for a period specified by the Program Administrators. Nothing in this
Stock Rights Plan in any option granted hereunder shall confer upon any Optionee
any right to continued employment by, or service to, the Company or any of its
subsidiaries, or limit in any way the right of the Company or any
42
<PAGE>
subsidiary at any time to terminate or alter the terms of that employment or
service arrangement.
Section 9. OPTION RIGHTS UPON TERMINATION OF EMPLOYMENT OR
SERVICE. If an Optionee under this Stock Rights Plan an ceases to be employed
by, or provide services to, the Company or any of its subsidiaries for any
reason other than death or disability, his or her option shall immediately
terminate; PROVIDED, HOWEVER, that the Program Administrators may, in their sole
and absolute discretion, allow the option to be exercised, to the extent
exercisable on the date of termination of employment or service, at any time
within sixty (60) days after the date of termination of employment or service,
unless either the option or this Stock Rights Plan otherwise provides for
earlier termination.
Section 10. OPTION RIGHTS UPON DISABILITY. If an Optionee becomes
disabled within the meaning of Code Section 422 (e) (3) while employed by the
Company or any subsidiary corporation, the Program Administrators, in their
discretion, may allow the option to be exercised, to the extent exercisable on
the date of termination of employment, at any time within one year after the
date of termination of employment due to disability, unless either the option or
the Stock Rights Plan otherwise provides for earlier termination.
43
<PAGE>
<PAGE>
Exhibit 10.2
GENESIS MEDIA GROUP, INC.
FORM OF
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, dated as of , is between GENESIS MEDIA
GROUP, INC., a Delaware corporation (the "COMPANY"), and _________________
("Indemnitee").
RECITALS
A. Indemnitee is a director or officer of the Company and in such
capacity is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance, the significant cost of such
insurance and the periodic reduction in the coverage of such insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time such liability insurance is being severely limited.
D. The Company has adopted and its stockholders have approved bylaws (the
"BYLAWS") providing for the indemnification of the Company's directors and
officers to the full extent permitted by Section 145 of the General Corporation
Law of Delaware (the "STATUTE").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and they thereby contemplate that contracts may be entered into
between the Company and its directors and officers with respect to
indemnification of such directors and officers.
F. To induce Indemnitee to serve or continue to serve the Company, the
Company desires to confirm the contract indemnification rights provided in the
Bylaws and agrees to provide Indemnitee with the benefits contemplated by this
Agreement.
AGREEMENTS
1. INDEMNITY OF INDEMNITEE
1.1. SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to
the full extent permitted by law, notwithstanding that the basis for such
indemnification is not specifically enumerated in this Agreement, the
Company's Certificate of Incorporation, the Bylaws, any other statute or
otherwise. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule regarding the right of a Delaware
corporation to indemnify a member of its Board of Directors or an officer,
such change, to the extent it would expand Indemnitee's rights hereunder,
shall be included within Indemnitee's rights and the Company's obligations
hereunder, and, to the extent it would narrow Indemnitee's rights or the
Company's obligations hereunder, shall be excluded from this Agreement;
PROVIDED, HOWEVER, that any change required by applicable laws, statutes or
rules to be applied to this Agreement shall be so applied regardless of
whether the effect of such
<PAGE>
change is to narrow Indemnitee's rights or the Company's obligations hereunder.
1.2. NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Certificate of Incorporation, the Bylaws, any agreement, any vote of
stockholders or disinterested directors, the Statute or otherwise, whether as to
action in Indemnitee's official capacity or otherwise.
1.3. INCLUDED COVERAGE
If Indemnitee was or is made a party, or is threatened to be made a
party, to or is otherwise involved (including, without limitation, as a witness)
in any Proceeding (as defined below), the Company shall hold harmless and
indemnify Indemnitee from and against any and all losses, claims, damages,
liabilities or expenses, including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties, witness fees, amounts paid
in settlement and other expenses incurred in connection with such Proceeding
(collectively, "DAMAGES").
1.4. DEFINITION OF PROCEEDING
For purposes of this Agreement, "PROCEEDING" shall mean any
completed, actual, pending or threatened action, suit, claim or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of the Company) and whether formal or informal, in which
Indemnitee is, was or becomes involved by reason of the fact that Indemnitee is
or was a director, officer, employee, trustee or agent of the Company or that,
being or having been such a director, officer, employee, trustee or agent,
Indemnitee is or was serving at the request of the Company as a director,
officer, employee, trustee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise (collectively, a "RELATED COMPANY"),
including service with respect to an employee benefit plan, whether the basis of
such proceeding is alleged action (or inaction) by Indemnitee in an official
capacity as a director, officer, employee, trustee or agent or in any other
capacity while serving as a director, officer, employee, trustee or agent;
provided, however, that, except with respect to an action to enforce the
provisions of this Agreement, "Proceeding" shall not include any action, suit,
claim or proceeding instituted by or at the direction of Indemnitee, unless
such action, suit, claim or proceeding is or was authorized by the Company's
Board of Directors.
1.5. DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 145(d) of the Statute or a
successor statute or pursuant to other applicable law, the appropriate decision
maker shall make such determination; provided, however, that Indemnitee shall
initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee a written notice that Indemnitee is not entitled to indemnification
within 20 days after the Company's receipt of Indemnitee's initial written
request for indemnification, such determination shall conclusively be deemed to
have been made in favor of the Company's provision of indemnification, and that
the Company hereby agrees not to assert otherwise.
2
<PAGE>
1.6. CONTRIBUTION
If the indemnification provided under Section 1.1 is unavailable
by reason of a court decision, based on grounds other than any of those set
forth in paragraphs (b) through (d) of Section 4.1, then, in respect of any
Proceeding in which the Company is jointly liable with Indemnitee (or would
be if joined in such Proceeding), the Company shall contribute to the amount
of Damages (including attorneys' fees) actually and reasonably incurred and
paid or payable by Indemnitee in such proportion as is appropriate to reflect
(i) the relative benefits received by the Company on the one hand and
Indemnitee on the other from the transaction from which such Proceeding arose
and (ii) the relative fault of the Company on the one hand and of Indemnitee
on the other in connection with the events that resulted in such Damages as
well as any other relevant equitable considerations. The relative fault of
the Company on the one hand and of Indemnitee on the other shall be
determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such Damages. The Company agrees that it would not
be just and equitable if contribution pursuant to this Section 1.6 were
determined by pro rata allocation or any other method of allocation that does
not take account of the foregoing equitable considerations.
1.7. SURVIVAL
The indemnification and contribution provided under this
Agreement shall apply to any and all Proceedings, notwithstanding that
Indemnitee has ceased to serve the Company or a Related Company, and shall
continue so long as Indemnitee shall be subject to any possible Proceeding,
whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director or officer of the Company or serving in any other
capacity referred to in Section 1.4 of this Agreement.
2. EXPENSE ADVANCES
2.1. GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right, an "EXPENSE ADVANCE").
2.2. CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject
to the following conditions:
2.2.1. UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or Indemnitee's representative shall have executed and delivered to
the Company an undertaking, which need not be secured and shall be accepted
without reference to Indemnitee's financial ability to make repayment, by or on
behalf of Indemnitee, to repay all Expense Advances if it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties that Indemnitee is not entitled to be indemnified
by the Company.
3
<PAGE>
2.2.2. COOPERATION
Indemnitee shall give the Company such information and cooperation as it
may reasonably request and as shall be within Indemnitee's power.
3. PROCEDURES FOR ENFORCEMENT
3.1. ENFORCEMENT
In the event that any claim for indemnity, whether an Expense
Advance or otherwise, is made hereunder and is not paid in full within 60 days
after written notice of such claim is delivered to the Company, Indemnitee may,
but need not, at any time thereafter bring suit against the Company to recover
the unpaid amount of the claim (an "ENFORCEMENT ACTION").
3.2. PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action, the following presumptions (and
limitation on presumptions) shall apply:
(a) The Company expressly affirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereunder to
induce Indemnitee to continue as a director or officer of the Company;
(b) Neither (i) the failure of the Company (including the
Company's Board of Directors, independent or special legal counsel or the
Company's stockholders) to have made a determination prior to the
commencement of the Enforcement Action that indemnification of Indemnitee is
proper in the circumstances nor (ii) an actual determination by the Company,
its Board of Directors, independent or special legal counsel or stockholders
that Indemnitee is not entitled to indemnification shall be a defense to the
Enforcement Action or create a presumption that Indemnitee is not entitled to
indemnification hereunder; and
(c) If Indemnitee is or was serving as a director or officer of a
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or in an Indemnitee or management
capacity in a partnership, joint venture, trust or other enterprise of which the
Company or a wholly owned subsidiary of the Company is a general partner or has
a majority ownership, then such corporation, partnership, joint venture, trust
or other enterprise shall conclusively be deemed a Related Company and
Indemnitee shall conclusively be deemed to be serving such Related Company at
the Company's request.
3.3. ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action,
the Company shall pay all of Indemnitee's fees and expenses in bringing and
pursuing the Enforcement Action (including attorneys' fees at any stage,
including on appeal); provided, however, that the Company shall not be required
to provide such payment for such attorneys' fees or expenses if a court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee in such Enforcement Action was not made in good faith.
4
<PAGE>
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT
4.1. LIMITATIONS ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the Company:
(a) On account of any suit in which a final, unappealable
judgment is rendered against Indemnitee for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company in
violation of the provisions of Section 16(b) of the Securities Exchange Act
of 1934, as amended;
(b) For Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability insurance
maintained by the Company;
(c) With respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(d) On account of Indemnitee's conduct which is finally
adjudged to have been intentional misconduct, a knowing violation of law, a
violation of Section 174 of the Statute or a transaction from which
Indemnitee derived an improper personal benefit; or
(e) If a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
4.2. SEC UNDERTAKING
Indemnitee understands and acknowledges that the Company may be
required in the future to undertake with the Securities and Exchange Commission
(the "SEC") to submit in certain circumstances the question of indemnification
to a court for a determination of the Company's right under public policy to
indemnify Indemnitee.
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1. NOTIFICATION
Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding, Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of the commencement thereof; but the omission so to notify the
Company will not, however, relieve the Company from any liability which it
may have to Indemnitee under this Agreement unless and only to the extent
that such omission can be shown to have prejudiced the Company's ability to
defend the Proceeding.
5.2. DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies
the Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party
similarly notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to
5
<PAGE>
Indemnitee under this Agreement for any legal or other expenses (other than
reasonable costs of investigation) subsequently incurred by Indemnitee in
connection with the defense thereof unless (i) the employment of counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company (or any other person or persons included in the joint defense) and
Indemnitee in the conduct of the defense of such action, or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of counsel shall be at
the Company's expense. The Company shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to
which Indemnitee shall have reasonably made the conclusion provided for in
(ii) above;
(c) The Company shall not be liable to Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent;
(d) The Company shall not settle any action or claim in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent; and
(e) Neither the Company nor Indemnitee shall unreasonably
withhold its consent to any proposed settlement, provided that Indemnitee may
withhold consent to any settlement that does not provide a complete release
of Indemnitee.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or to fail to do any act in
violation of applicable law. The Company's inability, pursuant to court
order, to perform its obligations under this Agreement shall not constitute a
breach of this Agreement. The provisions of this Agreement shall be
severable, as provided in this Section 6, and if this Agreement or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, the Company shall nevertheless indemnify or make contribution
to Indemnitee to the full extent permitted by any applicable portion of this
Agreement that shall not have been invalidated, and the balance of this
Agreement not so invalidated shall be enforceable in accordance with its
terms.
7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of Delaware.
(b) This Agreement shall be binding on Indemnitee and on the
Company and its successors and assigns (including any transferee of all or
substantially all of its assets and any successor by merger or otherwise by
operation of law), and shall inure to the benefit of Indemnitee and Indemnitee's
heirs, personal representatives and assigns and to the benefit of the Company
and its successors and assigns. The Company shall not effect any sale of
substantially all of its assets, merger, consolidation or other reorganization
in which it is not the surviving entity, unless the surviving entity agrees in
writing to assume all such obligations of the Company under this Agreement.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both parties
hereto.
6
<PAGE>
Exhibit 10.2
8. NOTICES
All notices, claims and other communications hereunder shall be in writing
and made by hand delivery, registered or certified mail (postage prepaid, return
receipt requested), facsimile or overnight air courier guaranteeing next-day
delivery:
(a) If to the Company, to: with copies to:
Genesis Media Group, Inc. Genesis Media Group, Inc.
13063 Ventura Boulevard 1717 North Bayshore Drive #3232
Studio City, CA 91604-2238 Miami, Florida 33132
Attn: Ramy El-Batrawi Attn: Ramy El-Batrawi
and:
Nida & Maloney
800 Anacapa Street
Santa Barbara, California 93101
Attention: Theodore R. Maloney
(b) If to Indemnitee, to the address specified on the last
page of this Agreement or to such other address as either party may from time
to time furnish to the other party by a notice given in accordance with the
provisions of this Section 8. All such notices, claims and communications
shall be deemed to have been duly given if (i) personally delivered, at the
time delivered, (ii) mailed, five days after dispatched, (iii) sent by
facsimile transmission, upon confirmation of receipt, and (iv) sent by any
other means, upon receipt.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
GENESIS MEDIA GROUP, INC.,
a Delaware corporation
By: ___________________________________
Name: Ramy El-Batrawi
Title: President
INDEMNITEE:
By: ___________________________________
Name: __________________________________
Address:________________________________
________________________________
7
<PAGE>
[FORM OF REPRESENTATIVE'S WARRANT AGREEMENT]
[SUBJECT TO ADDITIONAL REVIEW]
- --------------------------------------------------------------------------------
GENESIS MEDIA GROUP, INC.
AND
MILLENNIUM FINANCIAL GROUP, INC.
---------------------
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF ________, 1998
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1998 between
GENESIS MEDIA GROUP, INC., a Delaware corporation (the "Company"), and
MILLENNIUM FINANCIAL GROUP, Inc. (hereinafter referred to variously as the
"Holder," "Millennium", or "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to Millennium warrants ("Warrants")
to purchase up to an aggregate 200,000 shares of Common Stock, $0.001 par value
("Common Stock"), of the Company; and
WHEREAS, Millennium has agreed pursuant to the underwriting agreement (the
"Underwriting Agreement") dated as of the date hereof by and between Millennium
as the Representative of the several Underwriters listed therein, and the
Company to act as a Representative in connection with the Company's proposed
public offering of up to 2,000,000 shares of Common Stock at a public offering
price of $_ per share of Common Stock; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to Millennium or its designees in consideration for,
and as part of Millennium's compensation in connection with, Millennium acting
as one of the Representatives pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by Millennium
to the Company of an aggregate one hundred dollars ($100), the agreements herein
<PAGE>
set forth and other good and valuable consideration, hereby acknowledged, the
parties hereto agree as follows:
1. Grant. Millennium (or its designees) is hereby granted the right to
purchase, at any time from __________, 1999 [one year from the effective date of
the Registration Statement], until 5:30 P.M., New York time, on __________, 2003
[five years from the effective date of the Registration Statement], up to an
aggregate of 200,000 shares of Common Stock at an initial exercise price
(subject to adjustment as provided in Section 8 hereof) of $____ per share of
Common Stock [120% of the initial public offering price per share], subject to
the terms and conditions of this Agreement. Except as set forth herein, the
shares of Common Stock are in all respects identical to the shares of Common
Stock being purchased by the Underwriters for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement. The shares of Common
Stock are sometimes hereinafter referred to as the "Securities."
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
ss.3.1 Method of Exercise. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per share of Common Stock set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal executive offices in
California (presently located at 13063 Ventura Boulevard, Studio City,
California 91604) the registered holder of a Warrant Certificate ("Holder" or
"Holders") shall be entitled to receive a certificate or certificates for the
shares of Common Stock so purchased. The purchase rights represented by each
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). Warrants may be exercised to purchase all or part of the shares
of Common Stock . In the case of the purchase of less than all the shares of
Common Stock purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock purchasable thereunder.
ss.3.2 Exercise by Surrender of Warrant. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
<PAGE>
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 hereof. The
number of shares of Common Stock to be issued pursuant to this Section 3.2 shall
be equal to the difference between (a) the number of shares of Common Stock in
respect of which the Warrants are exercised and (b) a fraction, the numerator of
which shall be number of shares of Common Stock in respect of which the Warrants
are exercised multiplied by the Exercise Price and the denominator of which
shall be the Market Price (as defined in Section 3.3 hereof) of the Common
Stock. Solely for the purposes of this paragraph, Market Price shall be
calculated either (i) on the date on which the form of election attached hereto
is deemed to have been sent to the Company pursuant to Section 13 hereof
("Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
ss.3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be when referring to the Common Stock, the
last reported sale price, or, in the case no such reported sale takes place on
such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or by the
Nasdaq SmallCap Market ("Nasdaq SmallCap") or by the National Association of
Securities Dealers Automated Quotation System National Market System ("Nasdaq"),
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by Nasdaq, the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through Nasdaq or similar organization if Nasdaq is no longer reporting such
information, or if the Common Stock is not quoted on Nasdaq, as determined in
good faith (using customary valuation methods) by resolution of the members of
the Board of Directors of the Company, based on the best information available
to it . methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or shares of Convertible
Preferred Stock and/or other securities, properties or rights underlying such
Warrants shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder, and
the Company shall not be required to issue or
<PAGE>
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock underlying the Warrants (and/or other securities, property or
rights issuable upon the exercise of the Warrants) shall be executed on behalf
of the Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
Certificates representing the shares of Common Stock (and/or other securities,
property or rights issuable upon exercise of the Warrants) shall be dated as of
the Notice Date (regardless of when executed or delivered) and dividend bearing
securities so issued shall accrue dividends from the Notice Date.
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representative.
6. Exercise Price.
ss.6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in
Section 8 hereof, the initial exercise price of each Warrant shall be $____
[120% of the initial public offering price] per share of Common Stock. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof. Any transfer of a Warrant shall constitute
an automatic transfer and assignment of the registration rights set forth in
Section 7 hereof with respect to the Securities or other securities, properties
or rights underlying the Warrants.
ss.6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
7. Registration Rights.
ss.7.1 Registration Under the Securities Act of 1933. The Warrants, the
shares of Common Stock or other
<PAGE>
securities issuable upon exercise of the Warrants, (collectively, the "Warrant
Securities") have not been registered under the Securities Act of 1933, as
amended (the "Act") pursuant to the Company's Registration Statement on Form
SB-2 (Registration No. ____) (the "Registration Statement"). The certificates
representing the Warrant Securities shall bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered or sold except pursuant to (i) an effective registration statement
under the Act, (ii) to the extent applicable, Rule 144 under the Act (or
any similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from registration
under such Act is available.
ss.7.2 Piggyback Registration. If, at any time commencing after the date
hereof and expiring five (5) years thereafter, the Company proposes to register
any of its securities under the Act (other than pursuant to Form S-4, Form S-8
or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to Millennium and to all other Holders of the Warrants
and/or the Warrant Securities of its intention to do so. If Millennium or other
Holders of the Warrants and/or Warrant Securities notify the Company within
twenty (20) business days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford Millennium and such Holders of the Warrants and/or
Warrant Securities the opportunity to have any such Warrant Securities
registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
ss.7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring five (5)
years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the
<PAGE>
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on two occasions, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for Millennium and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for six (6) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request. In connection with the first request the Company will bear all
expenses attendant to registering the Securities (subject to section 7.4(b)),
and in connection with the second request, the holders of the Securities will
bear all the expenses.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock on (x) the date of the notice sent pursuant to Section 7.3(a) or
(y) the expiration of the period specified in Section 7.4(a) and (ii) any and
all Warrants of such Holders at such Market Price less the Exercise Price of
such Warrant. Such repurchase shall be in immediately available funds and shall
close within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(c).
(d) If all of the Holders are able to sell the Warrant Securities pursuant
to Rule 144 under the Securities Act of 1933, as amended, and without regard to
the volume limitations thereunder, the Holders' rights under Section 7.2 and
7.3(a) shall terminate.
ss.7.4 Covenants of the Company With Respect to Registration. In connection
with any registration under Section 7.2 or 7.3 hereof, the Company covenants and
agrees as follows:
(a) The Company shall use its best efforts to file a registration statement
within thirty (30) days of receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the
<PAGE>
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) (excluding the costs attendant to a second demand
registration) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 7 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as requiring
<PAGE>
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof (other than (i) shelf registrations effective
prior thereto and (ii) registrations on Form S-4 or S-8), without the prior
written consent of the Holders of the Warrants and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
<PAGE>
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to Section 7.3(a) to be
included in such underwriting, which may be Millennium. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities whether pursuant to Section 7.2 or Section 7.3(a) and may, at their
option, require that any or all of the representations, warranties and covenants
of each of the Company and the Subsidiary to or for the benefit of such
underwriter(s) shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriter(s) except as they may relate to
such Holders and their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in reference to the
Holders of Warrants or Warrant Securities, shall mean in excess of fifty percent
(50%) of the then outstanding Warrants or Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
8. Adjustments to Exercise Price and Number of Securities.
ss.8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock and/or the
outstanding shares of Convertible Preferred Stock, the Exercise Price shall
forthwith be proportionately decreased in the case of subdivision or increased
in the case of combination.
ss.8.2 Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or shares of
Convertible Preferred Stock, the Exercise Price shall forthwith be
proportionately decreased. An adjustment made pursuant to this Section 8.2 shall
<PAGE>
be made as of the record date for the subject stock dividend or distribution.
ss.8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
ss.8.4 Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean (i) the class of stock designated as Common Stock
in the Certificate of Incorporation of the Company as may be amended as of the
date hereof, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value.
ss.8.5 Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock and/or the
outstanding Convertible Preferred Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the holder of each Warrant then outstanding or
to be outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of securities of the Company
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in Section 8. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
ss.8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made if the amount of said adjustment shall be less
than two cents (2(cent)) per Warrant Security, provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents (2(cent)) per Warrant Security.
<PAGE>
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock may then be
listed and/or quoted on Nasdaq SmallCap or Nasdaq, as applicable.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
<PAGE>
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings or
capital surplus (in accordance with applicable law), as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made and sent when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or
to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments. The Company and Millennium may from time to
time supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates (other than Millennium) in order to cure any ambiguity, to
<PAGE>
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and
Millennium may deem necessary or desirable and which the Company and Millennium
deem shall not adversely affect the interests of the Holders of Warrant
Certificates.
15. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business on
_______, 2005. Notwithstanding the foregoing, the indemnification provisions of
Section 7 shall survive such termination until the close of business on _______,
2010.
17. Governing Law; Legal Costs and Expenses. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, Millennium and the Holders agree that the prevailing
party(ies) in any action, proceeding or claim arising out of, or relating in any
way to this Agreement shall be entitled to recover from the other party(ies) all
of its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
18. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and
Millennium and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement;
<PAGE>
and this Agreement shall be for the sole benefit of the Company and Millennium
and any other registered Holders of Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
GENESIS MEDIA GROUP, INC.
By:
-----------------------------
Name:
Title:
Attest:
- -----------------
Secretary
MILLENNIUM FINANCIAL GROUP, INC.
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________, 2003
No. W- Warrants to Purchase
____ Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that Millennium Financial Group, Inc.,
or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from __________, 1999 [one year from the effective date
of the Registration Statement] until 5:30 p.m. New York time on ___________,
2003 [five years from the effective date of the Registration Statement]
("Expiration Date"), up to 200,000 fully-paid and non-assessable shares of
common stock, $0.001 par value ("Common Stock"), of GENESIS MEDIA GROUP, INC., a
Delaware corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $______ [120% of the
initial public offering price] per share of Common Stock upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _______, 1998 between the Company and MILLENNIUM FINANCIAL
GROUP, INC. (the "Warrant Agreement"). Payment of the Exercise Price shall be
made by certified or official bank check in New York
A-1
<PAGE>
Clearing House funds payable to the order of the Company or by surrender of
this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ___________, 1998
GENESIS MEDIA GROUP, INC.
By:
-----------------------------
Name:
Title:
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| _________________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of Genesis Media
Group, Inc. in the amount of $_______________________, all in accordance with
the terms of Section 3.1 of the Representative's Warrant Agreement dated as of
______________________, 1998 between Genesis Media Group, Inc. and Millennium
Financial Group, Inc. The undersigned requests that a certificate for such
securities be registered in the name of whose address is and that such
Certificate be delivered to____________________ whose address is.
___________________________.
Dated:
Signature
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| _________________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1998 between Genesis Media Group, Inc.
and Millennium Financial Group, Inc. The undersigned requests that a certificate
for such securities be registered in the name of ________ whose address is __
___________ and that such Certificate be delivered to ____________________ whose
address is ______________________________.
Dated:
Signature
-----------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
--------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature
---------------------- -------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
-------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
<PAGE>
LOCK-UP AGREEMENT
This Lock-Up Agreement (the "Agreement") is effective as of __________, 1998 by,
between and among Genesis Media Group, Inc., a Delaware corporation (the
"Company"), __________, a stockholder of the Company (the "Stockholder") and
Millennium Financial Group, Inc., as representative of the various underwriters
(the "Representative").
R E C I T A L S
WHEREAS, the Company is contemplating filing a Registration Statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission"), whereby the Company will register the offer and sale of shares of
its common stock in an initial public offering ("IPO");
WHEREAS, the Representative has informed the Company that it will not
underwrite the Company's IPO unless the Stockholder executes this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the Stockholder, the
Company, and the Representative, the parties hereto hereby agree as follows:
1. LOCK-UP. The Stockholder agrees that he, she or it, as the case may
be, will not, without the Representative's prior written consent,
offer, sell, transfer, pledge, hypothecate, contract to sell, grant
any option for the sale of, or otherwise dispose of (collectively, a
"Transfer"), directly or indirectly, any shares of the Company's
common stock or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for shares of the
Company's common stock beginning on the date hereof and ending one (1)
year after the date of any initial public offering by the Company of
its securities pursuant to a Registration Statement filed with, and
declared effective by, the Commission. The Stockholder further agrees
to be bound by such additional restrictions on Transfer as may be
required in order to comply with the requirements of the NASDAQ Stock
Market, the National Association of Securities Dealers, Inc. or the
Commission in connection with the IPO and the inclusion for quotation
of the Company's common stock in the NASDAQ Stock Market, which
agreement shall be self-executing without the need for execution of
any additional instruments. The Stockholder also agrees to the
placement of a legend on any certificate or other document evidencing
shares of the Company's common stock or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for, shares of the Company's common stock, which legend
states the operative provisions of this Agreement.
2. SUCCESSORS. The provisions of this Agreement shall be deemed to
obligate, extend to and inure to the benefit of the successors,
assigns, transferees, grantees, and indemnities of each of the parties
to this Agreement.
3. ATTORNEYS FEES. In the event of a dispute between the parties
concerning the enforcement or interpretation of this Agreement, the
prevailing party in such dispute, whether by legal proceedings or
otherwise, shall be reimbursed immediately for the reasonably incurred
attorney's fees and other costs and expenses by the other parties to
the dispute.
4. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to
its choice of law or conflict of law rules.
5. ARBITRATION. Any dispute or claim arising out of or in any way
related to this Agreement shall be settled by arbitration in Los
Angeles, California. All arbitration shall be conducted in accordance
with the rules and regulations of the American Arbitration Association
("AAA"). AAA shall designate an arbitrator from an approved list of
arbitrators following both parties' review and deletion of those
arbitrators on the approved list having a conflict of interest with
either party. Each
<PAGE>
party shall pay its own expenses associated with such arbitration
(except as set forth in Section 3 above). A demand for arbitration
shall be made within a reasonable time after the claim, dispute or
other matter has arisen and in no event shall such demand be made
after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be
barred by the applicable statutes of limitations. The decision of the
arbitrators shall be rendered within 60 days of submission of any
claim or dispute, shall be in writing and mailed to all the parties
included in the arbitration. The decision of the arbitrator shall be
binding upon the parties and judgment in accordance with that decision
may be entered in any court having jurisdiction thereof.
6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
GENESIS MEDIA GROUP, INC.
By:
---------------------------
Its:
--------------------------
STOCKHOLDER
-----------------------------------
MILLENNIUM FINANCIAL GROUP, INC.
By:
-------------------------
Its:
-------------------------
<PAGE>
EMPLOYMENT AGREEMENT
---------------------
This AGREEMENT is made and entered into as of this 30th day of
September, 1998, between Genesis Media Group, Inc. (the "COMPANY") and Ramy
El-Batrawi (the "EXECUTIVE").
WHEREAS, the Company desires to employ the Executive and to enter into
an agreement embodying the terms of such employment (the "AGREEMENT") and the
Executive desires to accept such employment and to enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Company and
the Executive (individually a "PARTY" and together the "PARTIES") agree as
follows:
1. DEFINITIONS.
(a) "AFFILIATE" shall mean any corporation, partnership or other
entity in which the Company owns, directly or indirectly, an equity interest of
50% or more or which owns, directly or indirectly, an equity interest of 50% in
the Company.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CAUSE" shall mean (i) the commission of a serious crime by the
Executive, (ii) the Executive, in carrying out his duties under this Agreement,
is guilty of gross neglect or gross misconduct, (iii) the Executive engages in
chronic alcohol or drug abuse or (iv) conduct on the part of the Executive which
causes damage to the reputation of the Company.
(d) "CONFIDENTIAL INFORMATION" shall mean all nonpublic information
respecting the Company's business including, but not limited to, its products,
research and development, processes, customer lists, marketing plans and
strategies. Confidential information does not include information that is, or
becomes, available to the public unless such availability occurs through an
unauthorized act on the part of the Executive.
(e) "DISABILITY" shall mean the Executive's inability to render, for
180 days during any 365 day period, full and effective services hereunder by
reason of permanent physical or mental disability, whether resulting from
illness, accident or otherwise.
(f) "SALARY" shall mean the salary provided for in SECTION 3 of this
Agreement or any adjusted salary granted to the Executive by the Board.
(g) "SALARY CONTINUATION PERIOD" shall mean the period after the
termination of the Executive's employment pursuant to the terms of this
Agreement during which the Executive is entitled to continued payment of the
Salary.
(h) "TERM OF THIS AGREEMENT" shall mean that period of time specified
in SECTION 2(b).
- 1 -
<PAGE>
(i) "TERM OF EMPLOYMENT" shall mean the period of the Executive's
employment by the Company.
2. TERM OF AGREEMENT, POSITION AND DUTIES.
(a) The Company hereby employs the Executive and the Executive hereby
accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
(b) The term of this Agreement shall commence as of September 30,
1998 and shall terminate upon the first to occur of (i) the termination of this
Agreement as provided herein or (ii) September 30, 2003. In the event that the
Executive's Term of Employment continues beyond the Term of this Agreement, such
continued employment shall be at will and no provision or condition of this
Agreement shall govern such extended period of employment except as specifically
noted herein.
(c) During the Term of this Agreement, the Executive shall be
employed as the Chief Executive Officer and a Director of the Company. During
the time as he serves in this position, the Executive shall serve under the
direction of and report directly to the Board. During the Term of Employment,
the Executive agrees to devote his full time and attention to carrying out his
duties and responsibilities hereunder and shall use his best efforts, skills and
abilities to further the interests of the Company. During the Term of
Employment, the Executive may not serve on the board of directors of any other
business entities without the express written permission of the Board and
subject to such limitations as may be imposed by the Board in granting such
permission.
3. SALARY.
During the Term of this Agreement, the Executive shall be paid a
salary by the Company at an annual rate of Two Hundred Fifty Thousand Dollars
($250,000) payable in accordance with the Company's standard payroll practices.
Such salary shall be reviewed at least annually for adjustment. Any adjustment
shall be determined by the Board, in its sole discretion.
4. ANNUAL BONUS.
During the Term of Employment, the Board may grant the Executive an
annual bonus. The amount of such annual bonus, if any, shall be determined by
the Board, in its sole discretion.
5. EMPLOYEE BENEFIT PROGRAMS.
During the Term of this Agreement, the Executive shall be eligible to
participate in employee benefit plans and programs available, from time to time,
to all senior executives of the Company. Specifically, the Executive shall be
entitled to the current annual vacation entitlement as set by the Board, but not
less than 20 business days of vacation for each employment year with the
- 2 -
<PAGE>
Company. The Executive shall be entitled to a pro rata share of an annual
accrual for fractional years of employment with the Company.
6. PERQUISITES.
During the Term of this Agreement, the Executive shall be entitled to
such perquisites as are provided, from time to time, to all senior executives of
the Company.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time of the
Executive's death, through the end of the month in which his death occurs;
and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant at
the time of his death, determined in accordance with the applicable terms
and provisions of such programs.
(b) TERMINATION DUE TO DISABILITY. The Company may terminate the
Executive's employment due to the Disability of the Executive. In the event of
such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the Executive's
Disability is deemed to have commenced, through the date on which he is
terminated due to Disability; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant at
the time of his Termination Due to Disability, determined in accordance
with the applicable terms and provisions of such programs.
(c) TERMINATION FOR CAUSE. The Executive's employment may be
terminated immediately by the Company for Cause. In the event the Executive's
employment is terminated for Cause during the Term of this Agreement, the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time of the
Termination for Cause, through the date on which such Termination for Cause
occurs; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant at
the time of the Termination for Cause, determined in accordance with the
applicable terms and provisions of such programs.
- 3 -
<PAGE>
(d) TERMINATION WITHOUT CAUSE. The Executive's employment under this
Agreement may be terminated without Cause, as provided in this subsection.
"TERMINATION WITHOUT CAUSE" shall mean a termination of the Executive's
employment by the Company during the Term of this Agreement other than due to
death, due to Disability or for Cause.
In the event there is a Termination Without Cause of the Executive's
employment, the Executive shall be entitled to:
(i) Salary at the rate in effect immediately prior to the
Termination Without Cause, for a period which shall end upon the earlier of
(x) the end of the twelfth (12th) month following such termination of
employment or (y) the Executive's reemployment in a position comparable to
that which he held with the Company immediately prior to the termination of
his employment ("COMPARABLE REEMPLOYMENT"), PROVIDED, HOWEVER, any Salary
due the Executive under this subsection shall be off-set by any
compensation earned by the Executive in respect of reemployment other than
Comparable Reemployment during the Salary Continuation Period; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant at
the time of his Termination Without Cause, determined in accordance with
the applicable terms and provisions of such programs;
PROVIDED, HOWEVER, that if at any time during the Salary Continuation Period,
the Company becomes aware of any action on the part of the Executive that would
constitute grounds for termination of the Executive's employment by the Company
for Cause, the Company shall be under no obligation to make any payments or
provide any rights or other benefits due under this Agreement.
Any payments received by the Executive under this Agreement that are
attributable to the termination of the Executive's employment shall be in full
and complete satisfaction of any and all claims the Executive may have against
the Company which are, in any way, related to the employment relationship
between the Executive and the Company.
8. INDEMNIFICATION.
(a) The Company agrees that if the Executive is made a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he is or was a director or officer of the Company (a "PROCEEDING"), he
shall be indemnified by the Company to the fullest extent authorized by Delaware
law, consistent with the Company's certificate of incorporation (or charter) and
by-laws, against expenses, liabilities and losses reasonably incurred or
suffered by the Executive in connection therewith; PROVIDED, HOWEVER:
(i) written notice of such Proceeding is given promptly to the
Company by the Executive;
(ii) the Company is permitted to participate in and assume the
defense of
- 4 -
<PAGE>
such Proceeding; and
(iii) such liability results from the final judgment of a court
of competent jurisdiction or, as a result of a settlement entered into with
the prior written consent of the Company or is required (x) by such court
as a bond, payment into escrow or similar payment, or (y) otherwise to
forestall imminent attachment or similar process against any of the
Executive's assets, and,
PROVIDED FURTHER that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in SUBSECTION (a) above,
the Company shall be under no obligation to indemnify the Executive with respect
to any act or acts of the Executive:
(i) in a knowing violation of any written agreement between
the Executive and the Company;
(ii) for which a court, having jurisdiction in the matter,
determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the matter,
determines to have been knowingly and fraudulently committed by the
Executive or which is the result of willful misconduct by the Executive.
9. COVENANT NOT TO COMPETE OR ENGAGE IN CERTAIN OTHER ACTS.
(a) During the Term of Employment, and for a period equal to the
greater of (x) 24 months following the end of the Term of Employment or (y) the
Salary Continuation Period, the Executive shall not, except while employed by
the Company, in the business of and for the benefit of the Company, directly or
indirectly, engage in any business whether as an employee, consultant, partner,
principal, agent, representative or stockholder or in any other corporate or
representative capacity, if it involves:
(i) manufacturing, purchasing, marketing or selling any item
or service that is manufactured, purchased, marketed or sold by the Company
or any of its Affiliates in the State of California;
(ii) rendering services or advice pertaining to the
manufacturing, purchasing, marketing or selling of any item or service
manufactured, purchased, marketed or sold by the Company or any Affiliate
to, or on behalf of, any person, firm or corporation in the State of
California; or
(iii) engaging, in, or rendering services or advice pertaining
to any other line of business that the Company, or any Affiliate, was
actively
- 5 -
<PAGE>
conducting or actively considering during the Term of Employment with the
Company, in competition with the Company, or any Affiliate, in the State of
California in the same aspect of such line of business as the Company or
any such Affiliate.
(b) The Executive agrees that for the Term of Employment and for the
period described in SUBSECTION (a) above, except when acting on behalf of the
Company or an Affiliate, he shall not:
(i) assist any other entity to enter into any line of business
that the Company, or any Affiliate, was actively conducting or was actively
considering during the Term of Employment in the State of California;
(ii) take any action to divert any business from the Company,
or from any Affiliate, or any business which was under active consideration
by the Company, or by any Affiliate, during the Term of Employment; or
(iii) induce customers, suppliers, agents, franchisees or other
persons under contract or franchise or otherwise doing business with the
Company, to terminate, reduce or alter business with or from the Company or
any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the Parties
that the restrictions on the Executive's future employment imposed by this
Section be reasonable in both duration and geographic scope. If for any reason
any court of competent jurisdiction shall find the provisions of this Section
unreasonable in duration or geographic scope, the Parties hereby agree that the
prohibitions contained herein shall be effective to the fullest extent allowed
under applicable law in such jurisdiction. It is further agreed that any
limitations on the restrictions such court shall impose shall apply only with
respect to the operations of such restrictions in the particular jurisdiction in
which such adjudication is made.
The Executive understands that the provisions of this Section may
limit his ability to earn a livelihood in a business similar to the business of
the Company, but nevertheless believes that he shall receive sufficient
remuneration and other benefits hereunder to justify the restrictions contained
in such provisions which, given his education, skills and abilities, he does not
believe would prevent him from earning a living.
(c) The Executive agrees that for the Term of Employment and for the
period described in SUBSECTION (a) above, except when acting on behalf of the
Company or any Affiliate, he shall not induce any person in the employment of
the Company or any Affiliate to (i) terminate such employment, (ii) accept
employment with anyone other than the Company or any Affiliate or (iii)
interfere with the business of the Company or any Affiliate in any material
manner.
(d) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
- 6 -
<PAGE>
10. INVENTIONS.
(a) The Executive shall, during the Term of Employment, disclose to
the Company, immediately after the same is made, discovered or devised, any
improvement, process, development, discovery or invention (including works of
authorship, trade secrets, technology, computer programs, formulas,
compositions, ideas, designs, techniques and data, whether or not patentable or
otherwise capable of being protected and whether or not related to technical or
commercial matters) which he may make, discover or devise (alone or in
conjunction with others) either:
(i) in the course of his normal duties (or of duties
specifically assigned to him);
(ii) as a result of knowledge gained during his employment; or
(iii) as a result of the use by the Executive of materials,
equipment or facilities of the Company.
Subject to SUBSECTIONS (b) AND (c) below, all such items shall become the
absolute property of the Company without further payment and the Executive shall
satisfy his obligation in this regard by presenting the same to the Company.
The Executive hereby assigns any and all rights in such items to the Company.
The Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process, development,
discovery or invention which is not covered by SUBSECTION (a) above, the
Executive shall (before exploiting or disclosing the same or otherwise
committing himself to a third party) discuss any such item with the Company to
ascertain whether or not it would be in the best interest of the Company for the
Company to take an assignment or license thereof.
(c) The Executive agrees that all inventions which the Executive
makes, conceives, reduces to practice or develops (in whole or in part, either
alone or jointly with others) during his employment shall be the sole property
of the Company to the maximum extent permitted by Section 2870 of the California
Labor Code, a copy of which is attached hereto as Exhibit A, and hereby assigns
such inventions, and all rights therein, to the Company. No assignment in this
Agreement shall extend to inventions, the assignment of which is prohibited by
Labor Code section 2870. The Company shall be the sole owner of all rights in
connection therewith.
(d) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement, including, without limitation, his
obligation to do all acts and other things that the Company may reasonably
require for obtaining any patent or other protection in
- 7 -
<PAGE>
respect of any improvement, process, development, discovery, or invention, and
his obligation to disclose to the Company, immediately after the same is made,
discovered or devised, any improvement, discovery or invention as provided in
SUBSECTION (a) above.
11. COVENANTS TO PROTECT CONFIDENTIAL INFORMATION.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
12. REMEDY FOR VIOLATION OF NONCOMPETITION, CONFIDENTIAL INFORMATION OR
INVENTIONS PROVISIONS.
(a) The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed if the Executive breaches or
threatens to breach the provisions of SECTION 9, 10 OR 11 above, and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
breach or threatened breach of any of those sections, and to specific
performance of the terms of each of such sections in addition to any other legal
or equitable remedy it may have. The Executive further agrees that he shall
not, in any equity proceeding involving him relating to the enforcement of
SECTION 9, 10 OR 11 above, raise the defense that the Company has an adequate
remedy at law. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have or
any other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event shall the
Company be obligated to provide payments or benefits pursuant to this Section
if, and to the extent, such payments or benefits would be nondeductible for
Federal income tax purposes as a result of the application of Section 280G of
the Internal Revenue Code of 1986. Any determination to be made with respect to
this clause shall be made by the Company's regular independent certified
accountants.
- 8 -
<PAGE>
13. BINDING ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration administered by the
American Arbitration Association under its Commercial Arbitration Rules and
judgment on the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof.
14. WITHHOLDING.
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
15. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
16. REPRESENTATION.
The Executive represents and warrants that the performance of the
Executive's duties under this Agreement will not violate any agreement between
the Executive and any other person, firm, partnership, corporation or
organization.
17. MUTUAL INTENT.
The language used in this Agreement is the language chosen by the
Parties to express their mutual intent. The Parties agree that in the event
that any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
18. ENTIRE AGREEMENT.
This Agreement contains the entire agreement between the Parties
concerning the subject matter hereof and supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the Parties with respect thereto.
- 9 -
<PAGE>
19. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended or waived unless such
amendment or waiver is agreed to in writing, signed by a duly authorized officer
of the Company. No waiver by the Company of any breach by the other Party of
any condition or provision of this Agreement to be performed by such other Party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time.
20. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
21. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
22. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the state of California without reference to
principles of conflict of laws. The Parties agree to submit exclusively to the
jurisdiction of the courts of the State of California with respect to any
controversy, dispute or claim arising out of this Agreement.
23. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered (whether by telecopy or otherwise) or
two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
Genesis Media Group, Inc.
13063 Ventura Boulevard
Studio City, California 91604-2238
Attn: Ramy El-Batrawi
- 10 -
<PAGE>
With a copy to:
Nida & Maloney
800 Anacapa Street
Santa Barbara, California 93110
Attn: Theodore R. Maloney, Esq.
If to the Executive:
Ramy El-Batrawi
13063 Ventura Boulevard
Studio City, California 91604-2238
24. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
25. COUNTERPARTS.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
GENESIS MEDIA GROUP, INC.
By: /s/ Douglas E. Jacobson
---------------------------------
Douglas E. Jacobson
Director
/s/ Ramy El-Batrawi
---------------------------------
Ramy El-Batrawi
- 11 -
<PAGE>
EXHIBIT A
- ---------
Section 2870. Application of provision providing that employee shall assign
or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) result from any work performed by the employee for his employer.
(b) To the extent that a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
- 12 -
<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT is made and entered into as of this 27th day of
October, 1998, between GENESIS MEDIA GROUP, INC., a Delaware corporation (the
"COMPANY"), and Sam I. Hassabo (the "EXECUTIVE").
WHEREAS, the Company desires to employ the Executive and to enter into
an agreement embodying the terms of such employment (the "AGREEMENT") and the
Executive desires to accept such employment and to enter into the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Company and
the Executive (individually a "PARTY" and together the "PARTIES") agree as
follows:
1. DEFINITIONS.
(a) "AFFILIATE" shall mean any corporation, partnership or other
entity in which the Company owns, directly or indirectly, an equity interest of
50% or more or which owns, directly or indirectly, an equity interest of 50% in
the Company.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CONFIDENTIAL INFORMATION" shall mean all nonpublic information
respecting the Company's business including, but not limited to, its products,
research and development, processes, customer lists, marketing plans and
strategies. Confidential information does not include information that is, or
becomes, available to the public unless such availability occurs through an
unauthorized act on the part of the Executive.
(d) "DISABILITY" shall mean the Executive's inability to render, for
180 days during any 365 day period, full and effective services hereunder by
reason of permanent physical or mental disability, whether resulting from
illness, accident or otherwise.
(e) "SALARY" shall mean the salary provided for in Section 3 of this
Agreement or any adjusted salary granted to the Executive by the Board.
(f) "TERM OF EMPLOYMENT" shall mean the period of the Executive's
employment by the Company.
2. TERM OF AGREEMENT, POSITION AND DUTIES.
(a) The Company hereby employs the Executive and the Executive hereby
accepts employment with the Company for the Term of this Agreement in the
position and with the duties and responsibilities set forth below and upon such
other terms and conditions as are hereinafter stated.
- 1 -
<PAGE>
(b) The term of this Agreement shall commence as of October 27, 1998
and shall terminate upon the first to occur if (i) the termination of this
Agreement as provided herein or (ii) October 26, 2001. In the event that the
Executive's Term of Employment continues beyond the Term of this Agreement, such
continued employment shall be at will and no provision or condition of this
Agreement shall govern such extended period of employment except as specifically
noted herein.
(c) During the Term of this Agreement, the Executive shall be
employed as President and Chief Executive Officer of the Company's wholly owned
subsidiary, Genesis Intermedia, Inc. and as a director of the Company. During
the time as he serves in this position, the Executive shall serve under the
direction of and and report directly to the Board. During the Term of
Employment, the Executive agrees to devote his full time and attention to
carrying out his duties and responsibilities hereunder and shall use his best
efforts, skills and abilities to further the interests of the Company. During
the Term of Employment, the Executive may not serve on the board of directors of
any other business entities without the express written permission of the Board
and subject to such limitations as may be imposed by the Board in granting such
permission.
3. SALARY.
During the Term of this Agreement, the Executive shall be paid a
salary by the Company at an annual rate of One Hundred Fifteen Thousand Dollars
($115,000) payable in accordance with the Company's standard payroll practices.
Such salary shall be reviewed at least annually for adjustment. Any adjustment
shall be determined by the Board, in its sole discretion.
4. ANNUAL BONUS.
During the Term of Employment, the Board may grant the Executive an
annual bonus. The amount of such annual bonus, if any, shall be determined by
the Board, in its sole discretion.
5. EMPLOYEE BENEFIT PROGRAMS.
During the Term of this Agreement, the Executive shall be eligible to
participate in employee benefit plans and programs available, from time to time,
to all senior executives of the Company. Specifically, the Executive shall be
entitled to the current annual vacation entitlement as set by the Board, but not
less than ten (10) business days of vacation. The Executive shall be entitled
to a pro rata share of an annual accrual for fractional years of employment with
the Executive. In October, 1998 the Executive received options, which shall
vest on September 30, 2000, to acquire 200,000 shares of the common stock of the
Company pursuant to the Company's 1998 Stock Incentive Program.
6. PERQUISITES.
During the Term of this Agreement, the Executive shall be entitled to
such perquisites as are provided, from time to time, to all senior executives of
the Company.
- 2 -
<PAGE>
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH. In the event of the death of the
Executive during the Term of this Agreement, this Agreement shall immediately
terminate and the estate or other legal representative of the Executive shall be
entitled to:
(i) Salary at the rate in effect at the time of the Executive's
death, through the end of the month in which his death occurs; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant at
the time of his death, determined in accordance with the applicable terms
and provisions of such programs.
(b) TERMINATION DUE TO DISABILITY. The Company may terminate the
Executive's employment due to the Disability of the Executive. In the event of
such a termination of the Executive's employment due to Disability during the
Term of this Agreement, this Agreement shall immediately terminate and the
Executive shall be entitled to:
(i) Salary at the rate in effect at the time the Executive's
Disability is deemed to have commenced, through the date on which he is
terminated due to Disability; and
(ii) any other rights and benefits available under employee
benefit programs of the Company in which the Executive was a participant at
the time of his Termination Due to Disability, determined in accordance
with the applicable terms and provisions of such programs.
(c) AT WILL EMPLOYMENT. The Executive's employment shall be "at
will" and the Company may terminate this Agreement at any time for any reason
whatsoever or for no reason.
8. INDEMNIFICATION.
(a) The Company agrees that if the Executive is made a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he is or was a director or officer of the Company (a "PROCEEDING"), he
shall be indemnified by the Company to the fullest extent authorized by
applicable law, consistent with the Company's certificate of incorporation (or
charter) and by-laws, against expenses, liabilities and losses reasonably
incurred or suffered by the Executive in connection therewith; PROVIDED,
HOWEVER:
(i) written notice of such Proceeding is given promptly to
the Company by the Executive;
(ii) the Company is permitted to participate in and assume
the defense of such Proceeding; and
(iii) such liability results from the final judgment of a
court of competent
- 3 -
<PAGE>
jurisdiction or, as a result of a settlement entered into with the prior
written consent of the Company or is required (x) by such court as a bond,
payment into escrow or similar payment, or (y) otherwise to forestall
imminent attachment or similar process against any of the Executive's
assets, and,
PROVIDED FURTHER that the Company agrees to indemnify the Executive if he seeks
indemnification in connection with a Proceeding (or part thereof) initiated by
the Executive only if such Proceeding (or part thereof) was authorized by the
Board.
(b) Notwithstanding anything to the contrary in SUBSECTION (a) above,
the Company shall be under no obligation to indemnify the Executive with respect
to any act or acts of the Executive:
(i) in a knowing violation of any written agreement between
the Executive and the Company;
(ii) for which a court, having jurisdiction in the matter,
determines that indemnification is not lawful; or
(iii) which a court, having jurisdiction in the matter,
determines to have been knowingly and fraudulently committed by the
Executive or which is the result of willful misconduct by the Executive.
9. COVENANT NOT TO COMPETE OR ENGAGE IN CERTAIN OTHER ACTS.
(a) During the Term of Employment, and for a period equal to 24
months following the end of the Term of Employment, the Executive shall not,
except while employed by the Company, in the business of and for the benefit of
the Company, directly or indirectly, engage in any business whether as an
employee, consultant, partner, principal, agent, representative or stockholder
or in any other corporate or representative capacity, if it involves:
(i) manufacturing, purchasing, marketing or selling any item
or service that is manufactured, purchased, marketed or sold by the Company
or any of its Affiliates in the State of California;
(ii) rendering services or advice pertaining to the
manufacturing, purchasing, marketing or selling of any item or service
manufactured, purchased, marketed or sold by the Company or any Affiliate
to, or on behalf of, any person, firm or corporation in the State of
California; or
(iii) engaging, in, or rendering services or advice pertaining
to any other line of business that the Company, or any Affiliate, was
actively conducting or actively considering during the Term of Employment
with the Company, in competition with the Company, or any Affiliate, in the
State of California in the same aspect of such line of business as the
Company or any such Affiliate.
- 4 -
<PAGE>
(b) The Executive agrees that for the Term of Employment and for the
period described in SUBSECTION (a) above, except when acting on behalf of the
Company or an Affiliate, he shall not:
(i) assist any other entity to enter into any line of
business that the Company, or any Affiliate, was actively conducting or was
actively considering during the Term of Employment in the State of
California;
(ii) take any action to divert any business from the Company,
or from any Affiliate, or any business which was under active consideration
by the Company, or by any Affiliate, during the Term of Employment; or
(iii) induce customers, suppliers, agents, franchisees or other
persons under contract or franchise or otherwise doing business with the
Company, to terminate, reduce or alter business with or from the Company or
any Affiliate.
The subsections of this Section are intended by the Parties as separate and
divisible provisions and if, for any reason, any one of them is held to be
invalid or unenforceable, neither the validity nor the enforceability of any
other provision shall thereby be affected. It is the intention of the Parties
that the restrictions on the Executive's future employment imposed by this
Section be reasonable in both duration and geographic scope. If for any reason
any court of competent jurisdiction shall find the provisions of this Section
unreasonable in duration or geographic scope, the Parties hereby agree that the
prohibitions contained herein shall be effective to the fullest extent allowed
under applicable law in such jurisdiction. It is further agreed that any
limitations on the restrictions such court shall impose shall apply only with
respect to the operations of such restrictions in the particular jurisdiction in
which such adjudication is made.
The Executive understands that the provisions of this Section may
limit his ability to earn a livelihood in a business similar to the business of
the Company, but nevertheless believes that he shall receive sufficient
remuneration and other benefits hereunder to justify the restrictions contained
in such provisions which, given his education, skills and abilities, he does not
believe would prevent him from earning a living.
(c) The Executive agrees that for the Term of Employment and for the
period described in SUBSECTION (a) above, except when acting on behalf of the
Company or any Affiliate, he shall not induce any person in the employment of
the Company or any Affiliate to (i) terminate such employment, (ii) accept
employment with anyone other than the Company or any Affiliate or (iii)
interfere with the business of the Company or any Affiliate in any material
manner.
(d) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
10. INVENTIONS.
(a) The Executive shall, during the Term of Employment, disclose to
the Company, immediately after the same is made, discovered or devised, any
improvement, process, development,
- 5 -
<PAGE>
discovery or invention (including works of authorship, trade secrets,
technology, computer programs, formulas, compositions, ideas, designs,
techniques and data, whether or not patentable or otherwise capable of being
protected and whether or not related to technical or commercial matters) which
he may make, discover or devise (alone or in conjunction with others) either:
(i) in the course of his normal duties (or of duties
specifically assigned to him);
(ii) as a result of knowledge gained during his employment; or
(iii) as a result of the use by the Executive of materials,
equipment or facilities of the Company.
Subject to SUBSECTIONS (b) AND (c) below, all such items shall become the
absolute property of the Company without further payment and the Executive shall
satisfy his obligation in this regard by presenting the same to the Company.
The Executive hereby assigns any and all rights in such items to the Company.
The Executive shall not at any time during the Term of Employment (except in the
performance of his duties) or thereafter, disclose any such improvement,
process, development, discovery or invention to any third party and, further,
shall, if and whenever required so to do by the Company (at the Company's
expense), do all acts and things as the Company may reasonably require for
obtaining any patent or other protection in respect thereof and vesting the same
and all rights therein in the Company or as the Company may direct; provided
that the above restriction shall not apply to any such improvement, process,
development, discovery or invention which is or becomes generally available to
the public other than as a result of disclosure by the Executive or by any
person to whom he has made such disclosure.
(b) In respect of any particular improvement, process, development,
discovery or invention which is not covered by SUBSECTION (a) above, the
Executive shall (before exploiting or disclosing the same or otherwise
committing himself to a third party) discuss any such item with the Company to
ascertain whether or not it would be in the best interest of the Company for the
Company to take an assignment or license thereof.
(c) The Executive agrees that all inventions which the Executive
makes, conceives, reduces to practice or develops (in whole or in part, either
alone or jointly with others) during his employment shall be the sole property
of the Company to the maximum extent permitted by Section 2870 of the California
Labor Code, a copy of which is attached hereto as Exhibit A, and hereby assigns
such inventions, and all rights therein, to the Company. No assignment in this
Agreement shall extend to inventions, the assignment of which is prohibited by
Labor Code section 2870. The Company shall be the sole owner of all rights in
connection therewith.
(d) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement, including, without limitation, his
obligation to do all acts and other things that the Company may reasonably
require for obtaining any patent or other protection in respect of any
improvement, process, development, discovery, or invention, and his obligation
to disclose to the Company, immediately after the same is made, discovered or
devised, any improvement, discovery or invention as provided in SUBSECTION (a)
above.
- 6 -
<PAGE>
11. COVENANTS TO PROTECT CONFIDENTIAL INFORMATION.
(a) The Executive shall not, during the Term of Employment or
thereafter, without the prior written consent of the Company, use, divulge,
disclose or make accessible to any other person, firm, partnership or
corporation, except while employed by the Company in the business of and for the
benefit of the Company or when required to do so by a lawful order of a court of
competent jurisdiction, any Confidential Information.
(b) Except as may be otherwise consented to in writing by the
Company, the Executive shall proffer to an appropriate officer of the Company,
at the termination of his employment, without retaining any copies, notes or
excerpts thereof, all memoranda, diaries, notes, records, cost information,
customer lists, marketing plans and strategies, and any other documents
containing any Confidential Information made or compiled by, or delivered or
made available to, or otherwise obtained by the Executive in his possession or
subject to his control at such time except that the Executive may proffer a
legible copy, and retain the original, of any personal diary or personal notes.
(c) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
12. REMEDY FOR VIOLATION OF NONCOMPETITION, CONFIDENTIAL INFORMATION OR
INVENTIONS PROVISIONS.
(a) The Executive acknowledges that the Company has no adequate
remedy at law and would be irreparably harmed if the Executive breaches or
threatens to breach the provisions of SECTION 9, 10 OR 11 above, and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
breach or threatened breach of any of those sections, and to specific
performance of the terms of each of such sections in addition to any other legal
or equitable remedy it may have. The Executive further agrees that he shall
not, in any equity proceeding involving him relating to the enforcement of
SECTION 9, 10 OR 11 above, raise the defense that the Company has an adequate
remedy at law. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have or
any other rights that it may have under any other agreement.
(b) The Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
Notwithstanding anything herein to the contrary, in no event shall the
Company be obligated to provide payments or benefits pursuant to this Section
if, and to the extent, such payments or benefits would be nondeductible for
Federal income tax purposes as a result of the application of Section 280G of
the Internal Revenue Code of 1986. Any determination to be made with respect to
this clause shall be made by the Company's regular independent certified
accountants.
13. BINDING ARBITRATION.
- 7 -
<PAGE>
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by arbitration administered by the
American Arbitration Association under its Commercial Arbitration Rules and
judgment on the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof.
14. WITHHOLDING.
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Executive shall be
subject to withholding of such amounts relating to taxes as the Company may
reasonably determine it should withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in part, the
Company may, in its sole discretion, accept other provision for payment of taxes
as required by law, provided it is satisfied that all requirements of law
affecting its responsibilities to withhold such taxes have been satisfied.
15. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his rights to compensation and benefits hereunder,
which may be transferred only by will or operation of law and subject to the
limitations of this Agreement.
16. REPRESENTATION.
The Executive represents and warrants that the performance of the
Executive's duties under this Agreement will not violate any agreement between
the Executive and any other person, firm, partnership, corporation or
organization.
17. MUTUAL INTENT.
The language used in this Agreement is the language chosen by the
Parties to express their mutual intent. The Parties agree that in the event
that any language, section, clause, phrase or word used in this Agreement is
determined to be ambiguous, no presumption shall arise against or in favor of
either Party and that no rule of strict construction shall be applied against
either Party with respect to such ambiguity.
18. ENTIRE AGREEMENT.
This Agreement contains the entire agreement between the Parties
concerning the subject matter hereof and supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the Parties with respect thereto.
19. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended or waived unless such
amendment
- 8 -
<PAGE>
or waiver is agreed to in writing, signed by a duly authorized officer of the
Company. No waiver by the Company of any breach by the other Party of any
condition or provision of this Agreement to be performed by such other Party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time.
20. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
21. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section are in addition to the survivorship provisions of any other section of
this Agreement.
22. GOVERNING LAW/JURISDICTION.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the state of California without reference to
principles of conflict of laws. The Parties agree to submit exclusively to the
jurisdiction of the courts of the State of California with respect to any
controversy, dispute or claim arising out of this Agreement.
23. NOTICES.
Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered (whether by telecopy or otherwise) or
two days after being sent by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
Genesis Media Group, Inc.
13063 Ventura Boulevard
Studio City, California 91604-2238
Attn: Ramy El-Batrawi
- 9 -
<PAGE>
With a copy to:
Nida & Maloney
800 Anacapa Street
Santa Barbara, California 93110
Attn: Theodore R. Maloney, Esq.
If to the Executive:
Sam I. Hassabo
Genesis Intermedia, Inc.
3151 Airway Avenue, Building T-3
Costa Mesa, California 92626
24. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
25. COUNTERPARTS.
This Agreement may be executed in two or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
GENESIS MEDIA GROUP, INC.
By: /s/ Ramy El-Batrawi
----------------------------------
Ramy El-Batrawi
Chief Executive Officer
/s/ Sam I. Hassabo
----------------------------------
Sam I. Hassabo
- 10 -
<PAGE>
EXHIBIT A
Section 2870. Application of provision providing that employee shall assign
or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) result from any work performed by the employee for his employer.
(b) To the extent that a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
- 11 -
<PAGE>
Exhibit 10.7
RECORDATION REQUESTED BY:
Western Security Bank, N.A.
4100 West Alameda Avenue
Burbank, CA 91505
WHEN RECORDED MAIL TO:
Western Security Bank, N.A.
4100 West Alameda Avenue
Burbank, CA 91505
SEND TAX NOTICES TO:
Genesis Media Group, Inc.
13063 Ventura Boulevard
Studio City, CA 91604
________________________________________________________________________________
DEED OF TRUST
THIS DEED OF TRUST is dated July 24, 1997, among GENESIS MEDIA GROUP, INC.,
whose address is 13063 Ventura Boulevard, Studio City, California 91604
(referred to below as "Trustor"); WESTERN SECURITY BANK, N.A., whose address
is 4100 West Alameda Avenue, Burbank, California 91505 (referred to below
sometimes as "Lender" and sometimes as "Beneficiary"); and WESTERN SECURITY
BANK, N.A., whose address is 4100 West Alameda Avenue, Burbank, CALIFORNIA
91505 (referred to below as "Trustee").
CONVEYANCE AND GRANT. For valuable consideration, Trustor irrevocably
grants, transfers and assigns to Trustee in trust, with power of sale, for
the benefit of Lender as Beneficiary, all of Trustor's right, title and
interest in and to the following described real property, together with all
existing or subsequently erected or affixed buildings, improvements, and
fixtures; all easements, rights of way, and appurtenances; all water, water
rights and ditch rights (including stock in utilities with ditch or
irrigation rights); and all other rights, royalties and profits relating tot
he real property, including without limitation, all minerals, oil, gas,
geothermal and similar matters, located in Los Angeles County, State of
California (the "Real Property"):
LOT 24 OF TRACT NO. 7457, IN THE CITY OF LOS ANGELES, COUNTY OF
LOS ANGELES, STATE OF CALIFORNIA AS PER MAP RECORDED IN BOOK 84 PAGE(S) 15
OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
The Real Property or its address is commonly known as 13063 Ventura
Boulevard, Studio City, California 91604. The Assessor's Parcel Number for
the Real Property is 2375-020-012.
Trustor presently assigns to Lender (also known as Beneficiary in this
Deed of Trust) all of Trustor's right, title and interest in and to all
present and future leases of the Property and all Rents from the Property.
This is an absolute assignment of Rents made in connection with an obligation
secured by real property pursuant to California Civil Code Section 2938. In
addition, Trustor grants Lender a Uniform Commercial Code security interest
in the Rents and the Personal Property defined below.
DEFINITIONS. The following words shall have the following meanings when
used in this Deed of Trust. Terms not otherwise defined in this Deed of
Trust shall have the meanings attributed to such terms in the Uniform
Commercial Code. All references to dollar amounts shall mean amounts in
lawful money of the United State of America.
<PAGE>
BENEFICIARY. The word "Beneficiary" means WESTERN SECURITY BANK,
N.A., its successors and assigns. WESTERN SECURITY BANK, N.A. also is
referred to as "Lender" in this Deed of Trust.
DEED OF TRUST. The words "Deed of Trust" mean this Deed of Trust
among Trustor, Lender and Trustee, and includes, without limitation, all
assignment and security interest provisions relating to the Personal
Property and Rents.
GUARANTOR. The word "Guarantor" means and includes, without
limitation, any and all guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
IMPROVEMENTS. The word "Improvements" means and includes, without
limitation, all existing and future improvements, buildings, structures,
mobile homes affixed on the Real Property, facilities, additions,
replacements and other construction on the Real Property.
INDEBTEDNESS. The word "Indebtedness" means all principal and
interest payable under the Note and any amounts expended or advanced by
Lender to discharge obligations of Trustor or expenses incurred by Trustee
or Lender to enforce obligations of Trustor under this Deed of Trust,
together with interest on such amounts as provided in this Deed of Trust.
LENDER. The word "Lender" means WESTERN SECURITY BANK, N.A., its
successors and assigns.
NOTE. The word "Note" means the Note dated July 24, 1997 in the
principal amount of $583,000.00 from Trustor to Lender, together with all
renewals, extensions, modifications, refinancings, and substitutions for
the Note. NOTICE TO TRUSTOR: THE NOTE CONTAINS A VARIABLE INTEREST RATE.
PERSONAL PROPERTY. The words "Personal Property" mean all equipment,
fixtures, and other articles of personal property now or hereafter owned by
Trustor, and now or hereafter attached or affixed to the Real Property;
together with all accessions, parts and additions to, all replacements of,
and all substitutions for, any of such property; and together with all
proceeds (including, without limitation all insurance proceeds and refunds
of premiums) from any sale or other disposition of the Property.
PROPERTY. The word "Property" means collectively the Real Property
and the Personal Property.
REAL PROPERTY. The words "Real Property" mean the property, interests
and rights described above in the "Conveyance and Grant" section.
RELATED DOCUMENTS. The words "Related Documents" mean and include,
without limitation, all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments agreements and
documents, whether now or hereafter existing, executed in connection with
the Indebtedness.
RENTS. The word "Rents" means all present and future leases, rents,
revenues, income, issues, royalties, profits and other benefits derived
from the Property, together with the cash proceeds of the Rents.
TRUSTEE. The word "Trustee" means WESTERN SECURITY BANK, N.A. and any
substitute or successor trustees.
<PAGE>
Page 3
TRUSTOR. The word "Trustor" means any and all persons and entities
executing this Deed of Trust, including, without limitation, all Trustors
named above.
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY
INTEREST IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (1) PAYMENT
OF THE INDEBTEDNESS AND (2) PERFORMANCE OF ANY AND ALL OBLIGATIONS OF TRUSTOR
UNDER THE NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF
TRUST IS GIVEN AND ACCEPTED ON THE FOLLOWING TERMS:
PAYMENT AND PERFORMANCE. Except as otherwise provided in this Deed of
Trust, Trustor shall pay to Lender all amounts secured by this Deed of Trust
as they become due, and shall strictly and in a timely manner perform all of
Trustor's obligations under the Note, this Deed of Trust, and the Related
Documents.
POSSESSION AND MAINTENANCE OF THE PROPERTY. Trustor agrees that
Trustor's possession and use of the Property shall be governed by the
following provisions:
POSSESSION AND USE. Until the occurrence of an Event of Default,
Trustor may (a) remain in possession and control of the Property, (b) use,
operate or manage the Property, and (c) collect any Rents from the
Property.
DUTY TO MAINTAIN. Trustor shall maintain the Property in tenant able
condition and promptly perform all repairs, replacements and maintenance
necessary to preserve its value.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Deed of Trust shall have the same meanings as set forth in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health
and Safety Code, Section 25100, et seq., or other applicable state of
Federal laws, rules or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall
also include, without limitation, petroleum and petroleum by-products or
any fraction thereof and asbestos. Trustor represents and warrants to
Lender that: (a) During the period of Trustor's ownership of the Property,
there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or substance
by any person on, under, about or from the Property; (b) Trustor has no
knowledge of, or reason to believe that there has been, except as
previously disclosed to and acknowledged by Lender in writing, (i) any use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance on, under, about or
from the Property by any prior owners or occupants of the Property or (ii)
any actual or threatened litigation or claims of any kind by any person
relating to such matters; and (c) Except as previously disclosed to and
acknowledged by Lender in writing, (i) neither Trustor nor any tenant,
contractor, agent or other authorized user of the Property shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from the Property and (iii) any such
activity shall be conducted in compliance with all applicable federal,
state and local laws, regulations and ordinances, including, without
limitation, those laws, regulations and ordinances described above.
Trustor authorizes Lender and its agents to enter upon the Property to make
such inspections and tests, at Trustor's expense, as Lender may deem
appropriate to determine compliance of the Property with this
<PAGE>
Page 4
section of the Deed of Trust. Any inspections or tests made by Lender
shall be for Lender's purposes only and shall not be construed to create
any responsibility or liability on the part of Lender to Trustor or to
any other person. The representations and warranties contained herein
are based on Trustor's due diligence in investigating the Property for
hazardous waste and hazardous substances. Trustor hereby (a) releases
and waives any future claims against Lender for indemnity or
contribution in the event Trustor becomes liable for clean-up or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages,
penalties and expenses which Lender may directly or indirectly sustain
or suffer resulting from a breach of this section of the Deed of Trust
or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Trustor's
ownership or interest in the Property, whether or not the same was or
should have been known to Trustor. The provisions of this section of
the Deed of Trust, including the obligation to indemnify, shall survive
the payment of the Indebtedness and the satisfaction and reconveyance of
the lien of this Deed of Trust and shall not be affected by Lender's
acquisition of any interest in the Property, whether by foreclosure or
otherwise.
NUISANCE, WASTE. Trustor shall not cause, conduct or permit any
nuisance nor commit, permit or suffer any stripping of or waste on or to
the Property or any portion of the Property Without limiting the
generality of the foregoing, Trustor will not remove, or grant to any other
party the right to remove, any timber, minerals (including oil and gas),
soil, gravel or rock products without the prior written consent of Lender.
REMOVAL OF IMPROVEMENTS. Trustor shall not demolish or remove any
Improvements from the Real Property without the prior written consent of
Lender. As a condition to the removal of any Improvements, Lender may
require Trustor to make arrangements satisfactory to Lender to replace such
Improvements with Improvements of at least equal value.
LENDER'S RIGHT TO ENTER. Lender and its agents and representatives
may enter upon the Real Property at all reasonable times to attend to
Lender's interests and to inspect the Property for purposes of Trustor's
compliance with the terms and conditions of this Deed of Trust.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Trustor shall promptly
comply with all laws, ordinances, and regulations, now or hereafter in
effect, of all governmental authorities applicable to the use or occupancy
of the Property, including, without limitation, the Americans With
Disabilities Act. Trustor may contest in good faith any such law,
ordinance, or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Trustor has notified Lender in
writing prior to doing so and so long as, in Lender's sole opinion,
Lender's interests in the Property are not jeopardized. Lender may require
Trustor to post adequate security or a surety bond, reasonably satisfactory
to Lender, to protect Lender's interest.
DUTY TO PROTECT. Trustor agrees neither to abandon nor leave
unattended the Property. Trustor shall do all other acts, in addition to
those acts set forth above in this section, which from the character and
use of the Property are reasonably necessary to protect and preserve the
Property.
DUE ON SALE - CONSENT BY LENDER. Lender may, at its option, declare
immediately due and payable all sums secured by this Deed of Trust upon the
sale or transfer, without the Lender's prior written consent, of all or any
part of the Real Property, or any interest in the Real Property. A "sale or
transfer" means the conveyance of Real Property, or any right, title or
interest therein; whether legal, beneficial or equitable; whether voluntary
or involuntary; whether by outright sale, deed, installment sale contract,
land contract, contract for deed, leasehold interest with a term
<PAGE>
Page 5
greater than three (3) years, lease-option contract, or by sale, assignment
or transfer of any beneficial interest in or to any land trust holding title
to the Real Property, or by any other method of conveyance of Real Property
interest. If any Trustor is a corporation, partnership or limited liability
company, transfer also includes any change in ownership of more than
twenty-five percent (25%) of the voting stock, partnership interests or
limited liability company interests, as the case may be, of Trustor.
However, this option shall not be exercised by Lender if such exercise is
prohibited by applicable law.
TAXES AND LIENS. The following provisions relating to the taxes and
liens on the Property are a part of this Deed of Trust.
PAYMENT. Trustor shall pay when due (and in all events at least ten
(10) days prior to delinquency) all taxes, special taxes, assessments,
charges (including water and sewer), fines and impositions levied against
or on account of the Property, and shall pay when due all claims for work
done on or for services rendered or material furnished to the Property.
Trustor shall maintain the Property free of all liens having priority over
or equal to the interest of Lender under this Deed of Trust, except for the
lien of taxes and assessments not due and except as otherwise provided in
this Deed of Trust.
RIGHT TO CONTEST. Trustor may withhold payment of any tax, assessment
or claim in connection with a good faith dispute over the obligation to
pay, so long as Lender's interest in the Property is not jeopardized. If a
lien arises or is filed as a result of nonpayment, Trustor shall within
fifteen (15) days after the lien arises or, if a lien is filed, within
fifteen (15) days after Trustor has notice of the filing, secure the
discharge of the lien, or if requested by Lender, deposit with Lender cash
or a sufficient corporate surety bond or other security satisfactory to
Lender in an amount sufficient to discharge the lien, plus any costs and
attorneys' fees or other charges that could accrue as a result of a
foreclosure or sale under the lien. In any contest, Trustor shall defend
itself and Lender and shall satisfy any adverse judgment before enforcement
against the Property. Trustor shall name Lender as an additional obligee
under any surety bond furnished in the contest proceedings.
EVIDENCE OF PAYMENT. Trustor shall upon demand furnish to Lender
satisfactory evidence of payment of the taxes or assessments and shall
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of the taxes and assessments against the Property.
NOTICE OF CONSTRUCTION. Trustor shall notify Lender at least fifteen
(15) days before any work is commenced, any services are furnished, or any
materials are supplied to the Property, if any mechanic's lien,
materialmen's lien or other lien could be asserted on account of the work,
services or materials. Trustor will, upon request of Lender, furnish to
Lender advance assurances satisfactory to Lender that Trustor can and will
pay the cost of such improvements.
PROPERTY DAMAGE INSURANCE. The following provisions relating to
insuring the Property are a part of this Deed of Trust.
MAINTENANCE OF INSURANCE. Trustor shall procure and maintain policies
of fire insurance with standard extended coverage endorsements on a
replacement basis for the full insurable value covering all Improvements on
the Real Property in an amount sufficient to avoid application of any
coinsurance clause, and with a standard mortgagee clause in favor of
Lender. Trustor shall also procure and maintain comprehensive general
liability insurance in such coverage amounts as Lender may request with
trustee and Lender being named as additional insureds in such liability
insurance policies.
<PAGE>
Page 6
Additionally, Trustor shall maintain such other insurance, including,
but not limited to, hazard, business interruption, and boiler insurance,
as Lender may reasonably require. Notwithstanding the foregoing, in no
vent shall Trustor be required to provide hazard insurance in excess of
the replacement value of the improvements on the Real Property.
Policies shall be written in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies
reasonably acceptable to Lender. Trustor, upon request of Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not
be canceled or diminished without at least ten (10) days' prior written
notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Trustor or any
other person. Should the Real Property at any time become located in an
area designated by the Director of the Federal Emergency Management
Agency as a special flood hazard area, Trustor agrees to obtain and
maintain Federal Flood Insurance for the full unpaid principal balance
of the loan, up to the maximum policy limits set under the National
Flood Insurance Program, or as otherwise required by Lender, and to
maintain such insurance for the term of the loan.
APPLICATION OF PROCEEDS. Trustor shall promptly notify Lender of any
loss or damage to the Property. Lender may make proof of loss if Trustor
fails to do so within fifteen (15) days of the casualty. If in Lender's
sole judgment Lender's security interest in the Property has been impaired,
Lender may, at its election, receive and retain the proceeds of any
insurance and apply the proceeds to the reduction of the Indebtedness,
payment of any lien affecting the Property, or the restoration and repair
of the Property. If the proceeds are to be applied to restoration and
repair, Trustor shall repair or replace the damaged or destroyed
Improvements in a manner satisfactory to Lender. Lender shall, upon
satisfactory proof of such expenditure, pay or reimburse Trustor from the
proceeds for the reasonable cost of repair or restoration if Trustor is not
in default under this Deed of Trust. Any proceeds which have not been
disbursed within one hundred and eighty (180) days after their receipt and
which Lender has not committed to the repair or restoration of the Property
shall be used first to pay any amount owing to Lender under this Deed of
Trust, then to pay accrued interest, and the remainder, if any, shall be
applied to the principal balance of the Indebtedness. If Lender holds any
proceeds after payment in full of the Indebtedness, such proceeds shall be
paid to Trustor as Trustor's interest may appear.
UNEXPIRED INSURANCE AT SALE. Any unexpired insurance shall inure to
the benefit of, and pass to, the purchaser of the Property covered by this
Deed of Trust at any trustee's sale or other sale held under the provisions
of this Deed of Trust, or at any foreclosure sale of such Property.
TRUSTOR'S REPORT ON INSURANCE. Upon request of Lender, however not
more than once a year, Trustor shall furnish to Lender a report on each
existing policy of insurance showing: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the property insured, the
then current replacement value of such property, and the manner of
determining that value; and (e) the expiration date of the policy. Trustor
shall, upon request of Lender, have an independent appraiser satisfactory
to Lender to determine the cash value replacement cost of the Property.
EXPENDITURES BY LENDER. If Trustor fails to comply with any provision
of this Deed of Trust, or if any action or proceeding is commenced that would
materially affect Lender's interests in the Property, Lender on Trustor's
behalf may, but shall not be required to, take any action that Lender deems
appropriate. Any amount that Lender expends in so doing will bear interest
at the rate provided for in the Note from the date incurred or paid by Lender
to the date of repayment by Trustor. All such expenses, at Lender's option,
will (a) be payable on demand, (b) be added
<PAGE>
Page 7
to the balance of the Note and be apportioned among and be payable with any
installment payments to become due during either (i) the term of any
applicable insurance policy, or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Deed of Trust also will secure payment of these amounts. The
rights provided for in this paragraph shall be in addition to any other
rights or any remedies to which Lender may be entitled on account of the
default. Any such action by Lender shall not be construed as curing the
default so as to bar Lender from any remedy that it otherwise would have had.
WARRANTY; DEFENSE OF TITLE. The following provisions relating to
ownership of the Property are a part of this Deed of Trust.
TITLE. Trustor warrants that: (a) Trustor holds good and marketable
title of record to the Property in fee simple, free and clear of all liens
and encumbrances other than those set forth in the Real Property
description or in any title insurance policy, title report, or final title
opinion issued in favor of, and accepted by, Lender in connection with this
Deed of Trust, and (b) Trustor has the full right, power and authority to
execute and deliver this Deed of Trust to Lender.
DEFENSE OF TITLE. Subject to the exception in the paragraph above,
Trustor warrants and will forever defend the title to the Property against
the lawful claims of all persons. In the event any action or proceeding is
commenced that questions Trustor's title or the interest of Trustee or
Lender under this Deed of Trust, Trustor shall defend the action at
Trustor's expense. Trustor may be the nominal party in such proceeding,
but Lender shall be entitled to participate in the proceeding and to be
represented in the proceeding by counsel of Lender's own choice, and
Trustor will deliver, or cause to be delivered, to Lender such instruments
as Lender may request from time to time to permit such participation.
COMPLIANCE WITH LAWS. Trustor warrants that the Property and
Trustor's use of the Property complies with all existing applicable laws,
ordinances and regulations of governmental authorities.
CONDEMNATION. The following provisions relating to eminent domain and
inverse condemnation proceedings are a part of this Deed of Trust.
APPLICATION OF NET PROCEEDS. If any award is made or settlement
entered into in any condemnation proceedings affecting all or any part of
the Property or by any proceeding or purchase in lieu of condemnation,
Lender may, at its election, and to the extent permitted by law, require
that all or any portion of the award or settlement be applied to the
Indebtedness and to the repayment of all reasonable costs, expenses and
attorneys' fees incurred by Trustee or Lender in connection with the
condemnation proceedings.
PROCEEDINGS. If any eminent domain or inverse condemnation proceeding
is commenced affecting the Property, Trustor shall promptly notify Lender
in writing, and Trustor shall promptly take such steps as may be necessary
to pursue or defend the action and obtain the award. Trustor may be the
nominal party in any such proceeding, but Lender shall be entitled, at its
election, to participate in the proceeding and to be represented in the
proceeding by counsel of its own choice, and Trustor will deliver or cause
to be delivered to Lender such instruments as may be requested by it from
time to time to permit such participation.
IMPOSITION OF TAXES, FEES AND CHARGES BY GOVERNMENTAL AUTHORITIES. The
following provisions relating to governmental taxes, fees and charges are a
part of this Deed of Trust:
<PAGE>
Page 8
CURRENT TAXES, FEES AND CHARGES. Upon request by Lender, Trustor
shall execute such documents in addition to this Deed of Trust and take
whatever other action is requested by Lender to perfect and continue
Lender's lien on the Real Property. Trustor shall reimburse Lender for all
taxes, as described below, together with all expenses incurred in
recording, perfecting or continuing this Deed of Trust, including, without
limitation, all taxes, fees, documentary stamps and other changes for
recording or registering this Deed of Trust.
TAXES. The following shall constitute taxes to which this section
applies: (a) a specific tax upon this type of Deed of Trust or upon all or
any part of the Indebtedness secured by this Deed of Trust; (b) a specific
tax on Trustor which Trustor is authorized or required to deduct from
payments on the Indebtedness secured by this type of Deed of Trust; (c) a
tax on this type of Deed of Trust chargeable against the Lender or the
holder of the Note; and (d) a specific tax on all or any portion of the
Indebtedness or on payments of principal and interest made by Trustor.
SUBSEQUENT TAXES. If any tax to which this section applies is enacted
subsequent to the date of this Deed of Trust, this event shall have the
same effect as an Event of Default (as defined below), and Lender may
exercise any or all of its available remedies for an Event of Default as
provided below, unless Trustor either: (a) pays the tax before it becomes
delinquent, or (b) contests the tax as provided above in the Taxes and
Liens section and deposits with Lender cash or a sufficient corporate
surety bond or other security satisfactory to Lender.
SECURITY AGREEMENT; FINANCING STATEMENTS. The following provisions
relating to this Deed of Trust as a security agreement are a part of this
Deed of Trust.
SECURITY AGREEMENT. This instrument shall constitute a security
agreement to the extent any of the Property constitutes fixtures or other
personal property, and Lender shall have all of the rights of a secured
party under the Uniform Commercial Code as amended from time to time.
SECURITY INTEREST. Upon request by Lender, Trustor shall execute
financing statements and take whatever other action is requested by Lender
to perfect and continue Lender's security interest in the Rents and
Personal Property. Trustor shall reimburse Lender for all expenses
incurred in perfecting or continuing this security interest. Upon default,
Trustor shall assemble the Personal Property in a manner and at a place
reasonably convenient to Trustor and Lender and make it available to Lender
within three (3) days after receipt of written demand from Lender.
ADDRESSES. The mailing addresses of Trustor (debtor) and Lender
(secured party), from which information concerning the security interest
granted by this Deed of Trust may be obtained (each as required by the
Uniform Commercial Code), are a stated on the first page of this Deed of
Trust.
FURTHER ASSURANCES; ATTORNEY-IN-FACT. The following provisions relating
to further assurances and attorney-in-fact are a part of this Deed of Trust.
FURTHER ASSURANCES. At any time, and from time to time, upon request
of Lender, Trustor will make, execute and deliver, or will cause to be
made, executed or delivered, to Lender or to Lender's designee, and when
requested by Lender, cause to be filed, recorded, refiled or re-recorded,
as the case may be, at such times and in such offices and places as Lender
may deem appropriate, any and all such mortgages, deeds of trust, security
deeds, security agreements, financing statements, continuation
<PAGE>
Page 9
statements, instruments of further assurance, certificates, and other
documents as may, in the sole opinion of Lender, be necessary or
desirable in order to effectuate, complete, perfect, continue or
preserve (a) the obligations of Trustor under the Note, this Deed of
Trust and the Related Documents, and (b) the liens and security
interests created by this Deed of Trust as first and prior liens on the
Property, whether now owned or hereafter acquired by Trustor. Unless
prohibited by law or agreed to the contrary by Lender in writing,
Trustor shall reimburse Lender for all costs and expenses incurred in
connection with the matters referred to in this paragraph.
ATTORNEY-IN-FACT. If Trustor fails to do any of the things referred
to in the preceding paragraph, Lender may do so for and in the name of
Trustor, and at Trustor's expense. For such purposes, Trustor hereby
irrevocably appoints Lender as Trustor's attorney-in-fact for the purpose
of making, executing, delivering, filing, recording and doing all other
things as may be necessary or desirable, in Lender's sole opinion, to
accomplish the matters referred to in the preceding paragraph.
FULL PERFORMANCE. If Trustor pays all the Indebtedness when due, and
otherwise performs all the obligations imposed upon Trustor under this Deed
of Trust, Lender shall execute and deliver to Trustee a request for full
reconveyance and shall execute and deliver to Trustor suitable statements of
termination of any financing statement on file evidencing Lender's security
interest in the Rents and the Personal Property. Lender may charge Trustor a
reasonable reconveyance fee at the time of reconveyance.
DEFAULT. Each of the following, at the option of Lender, shall
constitute an event of default ("Event of Default") under this Deed of Trust:
DEFAULT ON INDEBTEDNESS. Failure of Trustor to make any payment when
due on the Indebtedness.
DEFAULT ON OTHER PAYMENTS. Failure of Trustor within the time
required by this Deed of Trust to make any payment for taxes or insurance,
or any other payment necessary to prevent filing of or to effect discharge
of any lien.
COMPLIANCE DEFAULT. Failure of Trustor to comply with any other term,
obligation, covenant or condition contained in this Deed of Trust, the Note
or in any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Trustor under this Deed of Trust,
the Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Deed of Trust or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Trustor's existence as
a going business, the insolvency of Trustor, the appointment of a receiver
for any part of Trustor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Trustor.
FORECLOSURE, FORFEITURE, ETC. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Trustor
<PAGE>
Page 10
or by any governmental agency against any of the Property. However, this
subsection shall not apply in the event of a good faith dispute by Trustor
as to the validity or reasonableness of the claim which is the basis of the
foreclosure of forfeiture proceeding, provided that Trustor gives Lender
written notice of such claim and furnishes reserves or a surety bond for
the claim satisfactory to Lender.
BREACH OF OTHER AGREEMENT. Any breach by Trustor under the terms of
any other agreement between Trustor and Lender that is not remedied within
any grace period provided therein, including, without limitation, any
agreement concerning any Indebtedness or other obligation of Trustor to
Lender, whether existing now or later.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Trustor's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
RIGHT TO CURE. If such a failure is curable and if Trustor has not
been given a notice of a breach of the same provision of this Deed of Trust
within the preceding twelve (12) months, it may be cured (and no Event of
Default will have occurred) if Trustor, after Lender sends written notice
demanding cure of such failure: (a) cures the failure within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps sufficient to cure the failure and thereafter continues and
completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of
Default and at any time thereafter, Trustee or Lender, at its option, may
exercise any one or more of the following rights and remedies, in addition to
any other rights or remedies provided by law:
FORECLOSURE BY SALE. Upon an Event of Default under this Deed of
Trust, Beneficiary may declare the entire Indebtedness secured by this Deed
of Trust immediately due and payable by delivery to Trustee of written
declaration of default and demand for sale and of written notice of default
and of election to cause to be sold the Property, which notice Trustee
shall cause to be filed for record. Beneficiary also shall deposit with
Trustee this Deed of Trust, the Note, other documents requested by Trustee,
and all documents evidencing expenditures secured hereby. After the lapse
of such time as may then be required by law following the recordation of
the notice of default, and notice of sale having been given as then
required by law, Trustee, without demand on Trustor, shall sell the
Property at the time and place fixed by it in the notice of sale, either as
a whole or in separate parcels, and in such order as it may determine, at
public auction to the highest bidder for cash in lawful money of the United
States, payable at time of sale. Trustee may postpone sale of all or any
portion of the Property by public announcement at such time and place of
sale, and from time to time thereafter may postpone such sale by public
announcement at the time fixed by the preceding postponement in accordance
with applicable law. Trustee shall deliver to such purchaser its deed
conveying the Property so sold, but without any covenant or warranty,
express or implied. The recitals in such deed of any matters or facts
shall be conclusive proof of the truthfulness thereof. Any person,
including Trustor, Trustee or
<PAGE>
Page 11
Beneficiary may purchase at such sale. After deducting all costs, fees
and expenses of Trustee and of this Trust, including cost of evidence of
title in connection with sale, Trustee shall apply the proceeds of sale
to payment of: all sums expended under the terms hereof, not then
repaid, with accrued interest at the amount allowed by law in effect at
the date hereof; all other sums then secured hereby; and the remainder,
if any, to the persn or persons legally entitled thereto.
JUDICIAL FORECLOSURE. With respect to all or any part of the Real
Property, Lender shall have the right in lieu of foreclosure by power of
sale to foreclose by judicial foreclosure in accordance with and to the
full extent provided by California law.
UCC REMEDIES. With respect to all or any part of the Personal
Property, Lender shall have all the rights and remedies of a secured party
under the Uniform Commercial Code, including, without limitation, the right
to recover any deficiency in the manner and to the full extent provided by
California law.
COLLECT RENTS. Lender shall have the right, without notice to
Trustor, to take possession of and manage the Property and collect the
Rents, including amounts past due and unpaid, and apply the net proceeds,
over and above Lender's costs, against the Indebtedness. In furtherance of
this right, Lender may require any tenant or other user of the Property to
make payments of rent or use fees directly to Lender. If the Rents are
collected by Lender, then Trustor irrevocably designates Lender as
Trustor's attorney-in-fact to endorse instruments received in payment
thereof in the name of Trustor and to negotiate the same and collect the
proceeds. Payments by tenants or other users to Lender in response to
Lender's demand shall satisfy the obligations for which the payments are
made, whether or not any proper grounds for the demand existed. Lender may
exercise its rights under this subparagraph either in person, by agent or
through a receiver.
APPOINT RECEIVER. Lender shall have the right to have a receiver
appointed to take possession of all or any part of the Property, with the
power to protect and preserve the Property, to operate the Property
preceding foreclosure or sale, and to collect the Rents from the Property
and apply the proceeds, over and above the cost of the receivership,
against the Indebtedness. The receiver may serve without bond if permitted
by law. Lender's right to the appointment of a receiver shall exist
whether or not the apparent value of the Property exceeds the Indebtedness
by a substantial amount. Employment by Lender shall not disqualify a
person from serving as a receiver.
TENANCY AT SUFFERANCE. If Trustor remains in possession of the
Property after the Property is sold as provided above, or Lender otherwise
becomes entitled to possession of the Property upon default of Trustor,
Trustor shall become a tenant at sufferance of Lender or the purchaser of
the Property and shall, at Lender's option, either (a) pay a reasonable
rental for the use of the Property, or (b) vacate the Property immediately
upon the demand of Lender.
OTHER REMEDIES. Trustee or Lender shall have any other right or
remedy provided in this Deed of Trust or the Note or by law.
NOTICE OF SALE. Lender shall give Trustor reasonable notice of
the time and place of any public sale of the Personal Property or of
the time after which private sale or other intended disposition of the
Personal Property is to be made. Reasonable notice shall mean notice
given at least five (5) days before the time of the sale or
disposition. Any sale of Personal Property may be made in conjunction
with any sale of the Real Property.
<PAGE>
Page 12
SALE OF THE PROPERTY. To the extent permitted by applicable law,
Trustor hereby waives any and all rights to have the Property marshalled.
In exercising its rights and remedies, the Trustee or Lender shall be free
to sell all or any part of the Property together or separately, in one sale
or by separate sales. Lender shall be entitled to bid at any public sale
on all or any portion of the Property.
WAIVER; ELECTION OF REMEDIES. A waiver by any party of a breach of a
provision of this Deed of Trust shall not constitute a waiver of or
prejudice the party's rights otherwise to demand strict compliance with
that provision or any other provision. Election by Lender to pursue any
remedy provided in this Deed of Trust, the Note, in any Related Document,
or provided by law shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Trustor under this Deed of Trust after failure of Trustor to perform shall
not affect Lender's right to declare a default and to exercise any of its
remedies.
ATTORNEYS' FEES; EXPENSES. If Lender institutes any suit or action to
enforce any of the terms of this Deed of Trust, Lender shall be entitled to
recover such sum as the court may adjudge reasonable as attorneys' fees at
trial and on any appeal. Whether or not any court action is involved, all
reasonable expenses incurred by Lender which in Lender's opinion are
necessary at any time for the protection of its interest or the enforcement
of its rights shall become a part of the Indebtedness payable on demand
shall bear interest at the Note rate from the date of expenditure until
repaid. Expenses covered by this paragraph include, without limitation,
however subject to any limits under applicable law, Lender's attorneys'
fees whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals and any anticipated post-judgment collection
services, the cost of searching records, obtaining title reports (including
foreclosure reports), surveyors' reports, appraisal fees, title insurance,
and fees for the Trustee, to the extent permitted by applicable law.
Trustor also will pay any court costs, in addition to all other sums
provided by law.
RIGHTS OF TRUSTEE. Trustee shall have all of the rights and duties of
Lender as set forth in this section.
POWERS AND OBLIGATIONS OF TRUSTEE. The following provisions relating to
the powers and obligations of Trustee are part of this Deed of Trust.
POWERS OF TRUSTEE. In addition to all powers of Trustee arising as a
matter of law, Trustee shall have the power to take the following actions
with respect to the Property upon the written request of Lender and
Trustor: (a) join in preparing and filing a map or plat of the Real
Property, including the dedication of streets or other rights to the
public; (b) join in granting any easement or creating any restriction on
the Real Property; and (c) join in any subordination or other agreement
affecting this Deed of Trust or the interest of Lender under this Deed of
Trust.
OBLIGATIONS TO NOTIFY. Trustee shall not be obligated to notify any
other party of a pending sale under any other trust deed or lien, or of any
action or proceeding in which Trustor, Lender or Trustee shall be a party,
unless the action or proceeding is brought by Trustee.
TRUSTEE. Trustee shall meet all qualifications required for Trustee
under applicable law. In addition to the rights and remedies set forth
above, with respect to all or any part of the Property, the Trustee shall
have the right to foreclose by notice and sale, and Lender shall have the
right to foreclose
<PAGE>
Page 13
by judicial foreclosure, in either case in accordance with and to the full
extent provided by applicable law.
SUCCESSOR TRUSTEE. Lender, at Lender's option, may from time to time
appoint a successor Trustee to any Trustee appointed hereunder by an
instrument executed and acknowledged by Lender and recorded in the office
of the recorder of Los Angeles County, California. The instrument shall
contain, in addition to all other matters required by state law, the names
of the original Lender, Trustee and Trustor, the book and page where this
Deed of Trust is recorded, and the name and address of the successor
trustee, and the instrument shall be executed and acknowledged by Lender or
its successors in interest. The successor trustee, without conveyance of
the Property, shall succeed to all the title, power and duties conferred
upon the Trustee in this Deed of Trust and by applicable law. This
procedure for substitution of trustee shall govern to the exclusion of all
other provisions for substitution.
NOTICES TO TRUSTOR AND OTHER PARTIES. Any notice under this Deed of
Trust shall be in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered, or when
deposited with a nationally recognized overnight courier, or, if mailed,
shall be deemed effective when deposited in the United States mail first
class, certified or registered mail, postage prepaid, directed to the
addresses shown near the beginning of this Deed of Trust. Any party may
change its address for notices under this Deed of Trust by giving formal
written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. All copies of notices of
foreclosure from the holder of any lien which has priority over this Deed of
Trust shall be sent to Lender's address, as shown near the beginning of this
Deed of Trust. For notice purposes, Trustor agrees to keep Lender and
Trustee informed at all times of Trustor's current address. Each Trustor
requests that copies of any notices of default and sale be directed to
Trustor's address shown near the beginning of this Deed of Trust.
STATEMENT OF OBLIGATION. Lender may collect a fee, in an amount not to
exceed the statutory maximum, for furnishing the statement of obligation as
provided by Section 2943 of the Civil Code of California.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Deed of Trust:
AMENDMENTS. This Deed of Trust, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Deed of Trust. No alteration of or amendment to
this Deed of Trust shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
ANNUAL REPORTS. If the Property is used for purposes other than
Trustor's residence, Trustor shall furnish to Lender, upon request, a
certified statement of net operating income received from the Property
during Trustor's previous fiscal year in such form and detail as Lender
shall require. "Net operating income" shall mean all cash receipts from
the Property less all cash expenditures made in connection with the
operation of the Property.
ACCEPTANCE BY TRUSTEE. Trustee accepts this Trust when this Deed of
Trust, duly executed and acknowledged, is made a public record as provided
by law.
APPLICABLE LAW. This Deed of Trust has been delivered to Lender and
accepted by Lender in the State of California. This Deed of Trust shall be
governed by and construed in accordance with the laws of the State of
California.
<PAGE>
Page 14
CAPTION HEADINGS. Caption headings in this Deed of Trust are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Deed of Trust.
MERGER. There shall be no merger of the interest or estate created by
this Deed of Trust with any other interest or estate in the Property at any
time held by or for the benefit of Lender in any capacity, without the
written consent of Lender.
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Deed of Trust to be invalid or unenforceable as to any
person or circumstances, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Deed of Trust in all other respects shall remain valid
and enforceable.
SUCCESSORS AND ASSIGNS. Subject to the limitations stated in this
Deed of Trust on transfer of Trustor's interest, this Deed of Trust shall
be binding upon and inure to the benefit of the parties, their successors
and assigns. If ownership of the Property becomes vested in a person other
than Trustor, Lender, without notice to Trustor, may deal with Trustor's
successors with reference to this Deed of Trust and the Indebtedness by way
of forbearance or extension without releasing Trustor from the obligations
of this Deed of Trust or liability under the Indebtedness.
TIME IF OF THE ESSENCE. Time is of the essence in the performance of
this Deed of Trust.
WAIVERS AND CONSENTS. Lender shall not be deemed to have waived any
rights under this Deed of Trust (or under the Related Documents) unless
such waiver is in writing and signed by Lender. No delay or omission on
the part of Lender in exercising any right shall operate as a waiver of
such right or any other right. A waiver by any party of a provision of
this Deed of Trust shall not constitute a waiver of or prejudice the
party's right otherwise to demand strict compliance with that provision or
any other provision. No prior waiver by Lender, nor any course of dealing
between Lender and Trustor, shall constitute a waiver of any of Lender's
rights or any of Trustor's obligations as to any future transactions.
Whenever consent by Lender is required in this Deed of Trust, the granting
of such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required.
EACH TRUST ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS DEED OF
TRUST, AND EACH TRUSTOR AGREES TO ITS TERMS, INCLUDING THE VARIABLE RATE
PROVISIONS OF THE NOTE SECURED BY THIS DEED OF TRUST.
TRUSTOR:
GENESIS MEDIA GROUP, INC.
By: /s/ Ramy Y. El-Batrawi
-------------------------------------
Ramy Y. El-Batrawi,
President
<PAGE>
Page 15
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On July 24, 1997, before me, Lauren Jenkin, Notary Public, personally
appeared Ramy Y. El-Batrawi, personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument, and acknowledged to me that he executed the same in
his authorized capacity; and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Lauren Jenkin (Notary Public Seal)
----------------------------------
Lauren Jenkin
________________________________________________________________________________
(DO NOT RECORD)
REQUEST FOR FULL RECONVEYANCE
(To be used only when obligations have been paid in full)
TO: ___________________________________, Trustee
The undersigned is the legal owner and holder of all Indebtedness
secured by this Deed of Trust. All sums secured by this Deed of Trust have
been fully paid and satisfied. You are hereby directed, upon payment to you
of any sums owing to you under the terms of this Deed of Trust or pursuant to
any applicable statute, to cancel the Note secured by this Deed of Trust
(which is delivered to you together with this Deed of Trust), and to
reconvey, without warranty, to the parties designated by the terms of this
Deed of Trust, the estate now held by you under this Deed of Trust. Please
mail the reconveyance and Related Documents to:
_______________________________________________________________________________.
Date: __________________________ BENEFICIARY:
_________________________________________
By:______________________________________
Its: ____________________________________
<PAGE>
Exhibit 10.8
------------------
SBA LOAN NUMBER
PLP 143-155-4003
------------------
U.S. Small Business Administration
NOTE
BURBANK, CALIFORNIA
----------------------------
(City and State)
(Date) JULY 24, 1997
---------------------
$ 583,000.00
- ------------
For value received, the undersigned promises to pay to the order of
WESTERN SECURITY BANK, N.A. at its office in the City of Burbank, State of
California or at holder's option, at such other place as may be designated
from time to time by the holder Five Hundred Eighty-Three Thousand and No/100
dollars, with interest on unpaid principal computed form the date of each
advance to the undersigned at the rate of 11.25% percent per annum, payment
to be made in installments as follows:
ONE (1) interest installments, payable the first calendar day of the
first calendar month following the first disbursement, followed by 299
installments, including principal and interest, each in the amount of FIVE
THOUSAND EIGHT HUNDRED TWENTY THREE AND 27/100 dollars ($5,823.27), and
continuing due and payable monthly thereafter until 25 years from date of
FIRST DISBURSEMENT, when the full unpaid balance of principal and interest
shall become due and payable. Each installment shall be applied to interest
accrued as of date of receipt and the balance, if any, to principal.
THIS IS A VARIABLE INTEREST RATE NOTE. Interest on unpaid principal
shall accrue at the initial rate of ELEVEN AND ONE QUARTER PERCENT (11.25%)
per annum. Commencing on the first calendar day of the calendar QUARTER
following first disbursement, and calendar QUARTERLY thereafter, the interest
rate shall increase or decrease to TWO AND THREE QUARTERS PERCENT (2.75%)
above the prime rate in effect on the first business day of the month, as
published in the Money Rates Section of THE WALL STREET JOURNAL.
NOTE: The amount of the monthly payment shown above is based upon the
prime interest rate as of the date of the receipt of the loan application by
SBA of EIGHT AND ONE HALF PERCENT (8.50%), plus a spread of TWO AND THREE
QUARTERS PERCENT (2.75%).
The amount of the MONTHLY installments of principal and interest
required herein shall be increased or decreased, as appropriate, to an amount
necessary to amortize principal remaining unpaid as of the date of the change
in the interest rate over the remaining term of this Note.
The Lender shall give the Borrower written notice of any change in the
interest rate of this Note and of any change (either an increase or decrease)
in the amount of the principal and interest installments required herein
within thirty (30) days after the effective date of any such change.
If this Note contains a fluctuating interest rate, the notice provision
is not a pre-condition for fluctuation (which shall take place regardless of
notice). Payment of any installment of principal or interest owing on this
Note may be made prior to the maturity date thereof without penalty.
Borrower shall provide lender with written notice of intent to prepay part or
all of this loan at least three (3) weeks prior to the anticipated prepayment
date. A prepayment is any payment made ahead of schedule that exceeds twenty
(20) percent of the then outstanding principal balance. If borrower makes a
prepayment and fails to give at least three weeks advance
<PAGE>
notice of intent to prepay, then, notwithstanding any other provision to the
contrary in this note or other document, borrower shall be required to pay
lender three weeks interest on the unpaid principal as of the date preceding
such prepayment.
The term "indebtedness" as used herein shall mean the indebtedness
evidenced by this Note, including principal, interest and expenses, whether
contingent, now due or hereafter to become due and whether heretofore or
contemporaneously herewith or hereafter contracted. The term "Collateral" as
used in this Note shall mean any funds, guaranties, or other property or
rights therein of any nature whatsoever or the proceeds thereof which may
have been, are, or hereafter may be, hypothecated, directly or indirectly by
the undersigned or others. In connection with, or as security for, the
Indebtedness or any part thereof. The Collateral, and each part thereof,
shall secure the Indebtedness and each part thereof. The covenants and
conditions set forth or referred to in any and all instruments of
hypothecation constituting the Collateral are hereby incorporated in this
Note as covenants and conditions of the undersigned with the same force and
effect as though such covenants and conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without
notice or demand, upon the appointment of a receiver or liquidator, whether
voluntary or involuntary, for the undersigned or for any of its property, or
upon the filing of a petition by or against the undersigned under the
provisions of any State insolvency law or under the provisions of the
Bankruptcy Reform Act of 1978, as amended, or upon the making by the
undersigned of an assignment for the benefit of its creditors. Holder is
authorized to declare all or any part of the Indebtedness immediately due and
payable upon the happening of any of the following events: (1) Failure to pay
any part of the Indebtedness when due; (2) nonperformance by the undersigned
of any agreement with, or any condition imposed by Holder or Small Business
Administration (thereafter called "SBA"), with respect the Indebtedness; (3)
Holder's discovery of the undersigned's failure in any application of the
undersigned to Holder or SBA to disclose any fact deemed by Holder to be
material or of the making therein or in any of the said agreements, or in any
affidavit or other documents submitted in connection with said application or
the Indebtedness, of any misrepresentation by, on behalf of, or for the
benefit of the undersigned; (4) the reorganization (other than a
reorganization pursuant to any of the provisions of the Bankruptcy Reform Act
of 1978, as amended) or merger or consolidation of the undersigned (or the
making of any agreement therefor) without the prior written consent of
Holder; (5) the undersigned's failure duly to account, to Holder's
satisfaction, at such time or times as Holder may require, for any of the
collateral, or proceeds thereof, coming into the control of the undersigned;
or (6) the institution of any suit affecting the undersigned deemed by Holder
to affect adversely its interest hereunder in the collateral or otherwise.
Holder's failure to exercise its rights under this paragraph shall not
constitute a waiver thereof.
Upon the nonpayment of the Indebtedness, or any part thereof, when due,
whether by acceleration or otherwise, Holder is empowered to sell, assign,
and deliver the whole or any part of the Collateral at public or private
sale, without demand, advertisement or notice of the time or place of sale or
of any adjournment thereof, which are hereby expressly waived. After
deducting all expenses incidental to or arising from such sale or sales,
Holder may apply the residue of the proceeds thereof to the payment of the
Indebtedness, as it shall deemed proper, returning the excess, if any, to the
undersigned. The undersigned hereby waives all right of redemption or
appraisement whether before or after sale.
Holder is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by
suit or otherwise, and to surrender, compromise, release, renew, extend,
exchange, or substitute any item of the Collateral in transactions with the
undersigned or any third party, irrespective of any assignment thereof by
the undersigned, and without prior notice to or consent of the undersigned or
any assignee. Whenever any time of the Collateral shall not be paid when
due, or otherwise shall be in default, whether or not the Indebtedness, or
any part thereof, has become due, Holder shall have the same rights and
powers with respect to such item of the Collateral as are granted in this
paragraph in case of nonpayment of the Indebtedness, or any part thereof,
when due. None of the rights, remedies, privileges or powers of Holder
expressly provided for herein shall be exclusive, but each of them shall be
cumulative with and in addition to every other right, remedy, privilege, and
power now or hereafter existing in favor of Holder, whether at law or equity,
by statute or otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any action
taken by Holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out
of court, and whether incurred before or after this Note shall become due at
its maturity date or otherwise, including but not limited to reasonable
attorney's fees and costs, which Holder may deem necessary or proper in
connection with the satisfaction of the Indebtedness or the administration,
supervision, preservation, protection of (including, but not limited to, the
maintenance of adequate insurance) or the realization upon the Collateral.
Holder is authorized to pay at any time and from time to time any or all of
such expenses, add the amount of such payment to the amount of the
Indebtedness, and change interest thereon at the rate specified herein with
respect to the principal amount of this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypotecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including
but not limited to (a) any renewal, extension, or modification which Holder
may grant with respect to the Indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledgee of this Note, the Collateral. and guaranty,
and any other document (or any of them), sold, assigned, transferred,
pledged, or repledged, shall forthwith become vested with and entitled to
exercise all the powers and rights given by this Note and all applications of
the undersigned to Holder or SBA, as if said purchaser, assignee, transferee,
or pledgee were originally named as Payee in this Note and in said
application or applications.
2
<PAGE>
This promissory note is given to secure a loan which SBA is making or in
which it is participating and, pursuant to Part 101 of the Rules and
Regulations of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed
and (when SBA is the Holder or a party in interest) enforced in accordance
with applicable Federal law.
If the Borrower shall be in default in payment due on the indebtedness
herein and the Small Business Administration (SBA) purchases its guaranteed
portion of said indebtedness, the rate of interest on both the guaranteed and
unguaranteed portion herein shall become fixed at the rate in effect as of
the first date of uncured default. If the Borrower shall not be in default
in payment when SBA purchases its guaranteed portion, the rate of interest on
both the guaranteed and unguaranteed portion shall be fixed at the rate in
effect as of the date of purchase by SBA.
LATE CHARGE: If a payment is more than 10 days late, Borrower will be
charged 5.0% of the unpaid portion of the regularly scheduled payment.
Borrower acknowledges that this Note is secured by a Deed of Trust in
favor of Lender on the real property located in Los Angeles County, State of
California.
And in accordance with all other terms and conditions as noted and set
out in Loan Authorization PLP 143-155-4003.
GENESIS MEDIA GROUP, INC.
By: /s/ Ramy Y. El-Batrawi
-------------------------------
Ramy Y. El-Batrawi, President
______________________________________________________________________________
Note - Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested: partnership must
execute Note in firm name, together with signature of a general partner.
3
<PAGE>
Exhibit 10.9
PROMISSORY NOTE
$300,000.00 Los Angeles, CA
The 1st day of January,
1998
FOR VALUE RECEIVED, the undersigned promises to pay to ULTIMATE
HOLDINGS, LTD., or order, in the manner hereafter specified, the principal
sum of THREE HUNDRED THOUSAND AND 00/100 DOLLARS ($300,000.00), with interest
at the rate of 8% from the date above. The entire principal balance shall be
payable tin lawful money of the United States of America at such place as may
hereafter be designated by written notice from the Holder to the Maker
hereof, on or before the 30th day of January 1999.
Maker may prepay the obligation of this Note at any time in part or in full
without penalty.
If default be made in the payment of any of the sums mentioned herein,
then the entire principal sum shall, at the option of the holder hereof,
become at once due and collectible without notice, time being of the essence,
and said principal sum shall bear interest from such time of default at the
highest rate allowable under the laws of the State of California. Failure
to exercise the same in the event of any subsequent default.
Each person liable hereon, whether Maker or Endorser, hereby waives
presentment, protest, notice, notice of protest and notice of dishonor and
agrees to pay all costs, including all reasonable attorney's fees, whether
suit be brought or not, if after maturity of this Note or default hereunder,
counsel shall be employed to collect this Notice.
Whenever used herein, the terms "Holder," "Maker," and "Payee" shall be
construed in the singular or plural as the context may require or admit.
/s/ Ramy El-Batrawi
--------------------------------
Ramy El-Batrawi,
Genesis Media Group, Inc.
<PAGE>
Exhibit 10.10
PROMISSORY NOTE
$200,000.00 Los Angeles, CA
The 23rd day of April,
1998
FOR VALUE RECEIVED, the undersigned promises to pay to ULTIMATE
HOLDINGS, LTD., or order, in the manner hereafter specified, the principal
sum of TWO HUNDRED THOUSAND AND 00/100 DOLLARS ($200,000.00), with interest
at the rate of 8% from the date above. The entire principal balance shall be
payable in lawful money of the United States of America at such place as may
hereafter be designated by written notice from the Holder to the Maker
hereof, on or before the 30th day of January 1999.
Maker may prepay the obligation of this Note at any time in part or in
full without penalty.
If default be made in the payment of any of the sums mentioned herein,
then the entire principal sum shall, at the option of the holder hereof,
become at once due and collectible without notice, time being the essence,
and said principal sum shall bear interest from such time of default at the
highest rate allowable under the laws of the State of California. Failure
to exercise the same in the event of any subsequent default.
Each person liable hereon, whether Maker or Endorser, hereby waives
presentment, protest, notice, notice of protest and notice of dishonor and
agrees to pay all costs, including all reasonable attorney's fees, whether
suit be brought or not, if after maturity of this Note or default hereunder,
counsel shall be employed to collect this Notice.
Whenever used herein, the terms "Holder," "Maker," and "Payee" shall be
construed in the singular or plural as the context may require or admit.
/s/ Ramy El-Batrawi
--------------------------------
Ramy El-Batrawi,
Genesis Media Group, Inc.
<PAGE>
Exhibit 10.11
----------------
SBA LOAN NUMBER
----------------
PLP 221-893-4005
----------------
U.S. Small Business Administration
NOTE
Burbank, California
-----------------------
(City and State)
(Date) August 20, 1998
-----------------------
$ 300,0000.00
-----------
For value received, the undersigned promises to pay to the order of
WESTERN SECURITY BANK, N.A. at its office in the City of Burbank, State of
California or at holder's option, at such other place as may be designated
from time to time by the holder Three Hundred Thousand and No/100 dollars,
with interest on unpaid principal computed form the date of each advance to
the undersigned at the rate of 11.25% percent per annum, payment to be made
in installments as follows:
The interest on this Note will fluctuate. The initial interest rate is
11.25% per year. This initial rate is the prime rate on the date SBA
received the loan application, plus 2.75%.
Borrower must pay one payment of interest on the disbursed principal
balance on September 1, 1998.
Borrower must pay principal and interest payments of $5,217.36, on the
First day of each month, beginning on October 1, 1998.
Lender will apply each installment payment first to pay interest accrued
to the day Lender receives the payment, then to bring principal current, then
to pay any late fees, and will apply any remaining balance to reduce
principal.
Lender may adjust the interest rate for the first time no earlier than
the first calendar day of the first month after initial disbursement. The
interest rate will then be adjusted each calendar quarter (the "change date").
The "Prime Rate" is the prime rate published in the WALL STREET JOURNAL,
in effect on the first business day of the month in which a change occurs.
Lender will adjust the interest rate on each change date. The adjusted
interest rate will be 2.75% above the Prime Rate. The change in interest
rate is effective on the change date. It is effective whether or not Lender
gives Borrower notice of the change.
Lender must adjust the payment amount at least annually as needed to
amortize principal over the remaining term of the note.
If SBA purchases the guaranteed portion of the unpaid principal balance,
the interest rate becomes fixed at the rate in effect at the time of the
earliest uncured payment default. If there is no uncured payment default,
the rate becomes fixed at the rate in effect at the time of purchase.
<PAGE>
All remaining principal and accrued interest is due and payable 7
year(s) from the date of this Note.
Borrower agrees that if default occurs on this Note or on any other
outstanding SBA or SBA-guaranteed loan, Lender has the option to make this
Note and such other loans immediately due and payable.
Late Charge: If a payment on this Note is more than 10 days late,
Lender may charge Borrower a late fee of up to 5% of the unpaid portion of
the regularly scheduled payment.
If this Note contains a fluctuating interest rate, the notice provision
is not a pre-condition for fluctuation (which shall take place regardless of
notice). Payment of any installment of principal or interest owing on this
Note may be made prior to the maturity date thereof without penalty.
Borrower shall provide lender with written notice of intent to prepay part or
all of this loan at least three (3) weeks prior to the anticipated prepayment
date. A prepayment is any payment made a had of schedule that exceeds twenty
(20) percent of the then outstanding principal balance. If borrower makes a
prepayment and fails to give at least three weeks advance notice of intent to
prepay, then, notwithstanding any other provision to the contrary in this
note or other document, borrower shall be required to pay lender three weeks
interest on the unpaid principal as of the date preceding such prepayment.
The term "indebtedness" as used herein shall mean the indebtedness
evidenced by this Note, including principal, interest and expenses, whether
contingent, now due or hereafter to become due and whether heretofore or
contemporaneously herewith or hereafter contracted. The term "Collateral" as
used in this Note shall mean any funds, guaranties, or other property or
rights therein of any nature whatsoever or the proceeds thereof which may
have been, are, or hereafter may be, hypothecated, directly or indirectly by
the undersigned or others. In connection with, or as security for, the
Indebtedness or any part thereof. The Collateral, and each part thereof,
shall secure the Indebtedness and each part thereof. The covenants and
conditions set forth or referred to in any and all instruments of
hypothecation constituting the Collateral are hereby incorporated in this
Note as covenants and conditions of the undersigned with the same force and
effect as though such covenants and conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without
notice or demand, upon the appointment of a receiver or liquidator, whether
voluntary or involuntary, for the undersigned or for any of its property, or
upon the filing of a petition by or against the undersigned under the
provisions of any State insolvency law or under the provisions of the
Bankruptcy Reform Act of 1978, as amended, or upon the making by the
undersigned of an assignment for the benefit of its creditors. Holder is
authorized to declare all or any part of the Indebtedness immediately due and
payable upon the happening of any of the following events: (1) Failure to pay
any part of the Indebtedness when due; (2) nonperformance by the undersigned
of any agreement with, or any condition imposed by Holder or Small Business
Administration (thereafter called "SBA"), with respect the Indebtedness; (3)
Holder's discovery of the undersigned's failure in any application of the
undersigned to Holder or SBA to disclose any fact deemed by Holder to be
material or of the making therein or in any of the said agreements, or in any
affidavit or other documents submitted in connection with said application or
the Indebtedness, of any misrepresentation by, on behalf of, or for the
benefit of the undersigned; (4) the reorganization (other than a
reorganization pursuant to any of the provisions of the Bankruptcy Reform Act
of 1978, as amended) or merger or consolidation of the undersigned (or the
making of any agreement therefor) without the prior written consent of
Holder; (5) the undersigned's failure duly to account, to Holder's
satisfaction, at such time or times as Holder may require, for any of the
collateral, or proceeds thereof, coming into the control of the undersigned;
or (6) the institution of any suit affecting the undersigned deemed by Holder
to affect adversely its interest hereunder in the collateral or otherwise.
holder's failure to exercise its rights under this paragraph shall not
constitute a waiver thereof.
Upon the nonpayment of the Indebtedness, or any part thereof, when due,
whether by acceleration or otherwise, Holder is empowered to sell, assign,
and deliver the whole or any part of the Collateral at public or private
sale, without demand, advertisement or notice of the time or place of sale or
of any adjournment thereof, which are hereby expressly waived. After
deducting all expenses incidental to or arising from such sale or sales,
Holder may apply the residue of the proceeds thereof to the payment of the
Indebtedness, as it shall deemed proper, returning the excess, if any, to the
undersigned. The undersigned hereby waives all right of redemption or
appraisement whether before or after sale.
Holder is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by
suit or otherwise, and to surrender, compromise, release, renew, extend,
exchange, or substitute any item of the Collateral in transactions with the
undersigned or any third party, irrespective of any assignment thereof by
the undersigned, and without prior notice to or consent of the undersigned or
any assignee. Whenever any time of the Collateral shall not be paid when
due, or otherwise shall be in default, whether or not the Indebtedness, or
any part thereof, has become due, Holder shall have the same rights and
powers with respect to such item of the Collateral as are granted in this
paragraph in case of nonpayment of the Indebtedness, or any part thereof,
when due. None of the rights, remedies, privileges or powers of Holder
expressly provided for
2
<PAGE>
herein shall be exclusive, but reach of them shall be cumulative with and in
addition to every other right, remedy, privilege, and power now or hereafter
existing in favor of Holder, whether at law or equity, by statute or
otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any action
taken by Holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out
of court, and whether incurred before or after this Note shall become due at
its maturity date or otherwise, including but not limited to reasonable
attorney's fees and costs, which Holder may deem necessary or proper in
connection with the satisfaction of the Indebtedness or the administration,
supervision, preservation, protection of (including, but not limited to, the
maintenance of adequate insurance) or the realization upon the Collateral.
Holder is authorized to pay at any time and from time to time any or all of
such expenses, add the amount of such payment to the amount of the
Indebtedness, and change interest thereon at the rate specified herein with
respect to the principal amount of this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypotecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including
but not limited to (a) any renewal, extension, or modification which Holder
may grant with respect to the Indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledgee of this Note, the Collateral. and guaranty,
and any other document (or any of them), sold, assigned, transferred,
pledged, or repledged, shall forthwith become vested with the entitled to
exercise all the powers and rights given by this Note and all applications of
the undersigned to Holder or SBA, as if said purchaser, assignee, transferee,
or pledgee were originally named as Payee in this Note and in said
application or applications.
This promissory note is given to secure a loan which SBA is making or in
which it is participating and, pursuant to Part 101 0f the Rules and
Regulations of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed
and (when SBA is the Holder or a party in interest) enforced in accordance
with applicable Federal law.
Borrower acknowledges that this Note is secured by a Deed of Trust in
favor of Lender on real property located in Los Angeles County, California.
That deed of trust contains the following due-on-sale provision: "Lender may,
at its option, declare immediately due and payable all sums secured by this
Deed of Trust upon the sale or transfer, without the Lender's prior written
consent, of all or any part of the Real Property, or any interest in the Real
Property. A "sale or transfer" means the conveyance of Real Property or any
right, title or interest therein; whether legal, beneficial or equitable;
whether voluntary or involuntary; whether by outright sale, deed, installment
sale contract, land contract, contract for deed, leasehold interest with a
term greater than three (3) years, lease-option contract, or by sale,
assignment, or transfer of any beneficial interest in or to any land trust
holding title to the Real Property, or by any other method of conveyance of
Real Property interest. If any Trustor is a corporation, partnership or
limited liability company, transfer also includes any change in ownership of
more than twenty-five (25%) of the voting stock, partnership interest or
limited liability company interests, as the case may be, of Trustor.
However, this option shall not be exercised by Lender if such exercise is
prohibited by applicable law."
And in accordance with all other terms and conditions as noted and set
out in Loan Authorization PLP 221-893-4005.
GENESIS MEDIA GROUP, INC.
By: /s/ Signature
-----------------------------
Ramy Y. El-Batrawi, President
- -------------------------------------------------------------------------------
Note - Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested: partnership
must execute Note in firm name, together with signature of a general partner.
3
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
<TABLE>
<CAPTION>
COMMERCIAL SECURITY AGREEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$300,000.00 08-20-1998 08-01-2005 65681 040 50 JLL
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: GENESIS MEDIA GROUP, INC. LENDER: WESTERN SECURITY BANK,
13063 Ventura Blvd. N.A., MAIN OFFICE
Studio City, CA 91604 4100 W. Alameda Avenue
Burbank, CA 91505
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN GENESIS MEDIA GROUP,
INC., (REFERRED TO BELOW AS "GRANTOR"); AND WESTERN SECURITY BANK, N.A.
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BE LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, CONTRACT RIGHTS, EQUIPMENT,
GENERAL INTANGIBLES AND FIXTURES, TOGETHER WITH THE FOLLOWING
SPECIFICALLY DESCRIBED PROPERTY: ALL PRESENT AND FUTURE ACCOUNTS,
CONTRACT RIGHTS, CHATTEL PAPER, SECURITY AGREEMENTS AND DEBTS SECURED
THEREBY, DOCUMENTS, NOTES, DRAFTS, INSTRUMENTS, GENERAL INTANGIBLES
(INCLUDING, WITHOUT LIMITATION, ALL PRESENT AND FUTURE CHOSES AND
THINGS IN ACTION, GOODWILL, PATENTS, TRADEMARKS, TRADE NAMES, CUSTOMER
LISTS, PURCHASE ORDERS, DEPOSIT ACCOUNTS AND TAX REFUNDS), AND
RETURNED GOODS. ALL PRESENT AND HEREAFTER ACQUIRED INVENTORY WHEREVER
LOCATED, INCLUDING BUT NOT LIMITED TO ALL PRESENT AND FUTURE GOODS
HELD FOR SALE OR LEASE OR TO BE FURNISHED UNDER A CONTRACT OF SERVICE
AND ALL RAW MATERIALS, WORK IN PROCESS AND FINISHED GOODS. ALL
PRESENT AND HEREAFTER ACQUIRED EQUIPMENT WHEREVER LOCATED, INCLUDING
BUT NOT LIMITED TO MACHINERY, MACHINE TOOLS, MOTORS, EQUIPMENT,
CONTROLS, ATTACHMENTS, PARTS, TOOLS, FURNITURE, FURNISHINGS, FIXTURES
AND MOTOR VEHICLES AND ALL ATTACHMENTS, ACCESSORIES, ACCESSIONS,
REPLACEMENTS, SUBSTITUTIONS, ADDITIONS AND IMPROVEMENTS TO ANY OF THE
FOREGOING. ALL PRESENT AND FUTURE DIES, DRAWINGS, BLUEPRINTS,
CATALOGS AND COMPUTER PROGRAMS. ALL PROCEEDS AND PRODUCTS OF THE
FOREGOING, INCLUDING BUT NOT LIMITED TO ACCOUNTS, CONTRACT RIGHTS,
GENERAL INTANGIBLES, EQUIPMENT, INVENTORY, MONEY, DEPOSIT ACCOUNTS,
TOOLS, CHATTEL PAPER, DOCUMENTS, NOTES, DRAFTS, INSTRUMENTS, INSURANCE
PROCEEDS, AND ANY OTHER TANGIBLE OR INTANGIBLE PROPERTY RECEIVED UPON
THE SALE OR OTHER DISPOSITION OF ANY OF THE FOREGOING. ALL PRESENT
AND FUTURE BOOKS AND RECORDS PERTAINING TO ANY OF THE FOREGOING AND
THE EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. EXCEPT AS TO
INVENTORY HELD FOR SALE, THE DEBTOR HAS NO RIGHT TO SELL OR OTHERWISE
DISPOSE OF ANY OF THE COLLATERAL.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
(a) All attachments accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means GENESIS MEDIA GROUP, INC., its
successors and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties and accommodation parties in connection
with the indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means WESTERN SECURITY BANK, N.A., its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated August 20,
1998, in the principal amount of $300,000.00 from GENESIS MEDIA GROUUP,
INC. to Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
OBLIGATIONS OF GRANTOR: Grantor warrants and covenants to Lender as follows:
ORGANIZATION: Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Florida.
AUTHORIZATION: The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of , or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
without further authorization from Grantor, file a carbon, photographic or
other reproduction of any financing statement or of this Agreement for use
as a financing statement. Grantor will reimburse Lender for all expenses
for the perfection and the continuation of the perfection of Lender's
security interest in the Collateral. Grantor promptly will notify Lender
before any change in Grantor's name including any change to the assumed
business names of Grantor.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor; (c)
all storage facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located. Except in
the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of California, without the prior written consent of
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior
in right to the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall
not constitute consent by Lender to any sale or other disposition. Upon
receipt, Grantor shall immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representative and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as a
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may content in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall
also include, without limitation, petroleum and petroleum by-products or
any fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating the
Collateral for hazardous wastes and substances. Grantor hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other costs
under any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify shall survive
the payment of the indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fir, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
canceled or diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's liability for
failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any other person.
In connection with all policies covering assets in which Lender holds or
is offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such insurance
as Lender deems appropriate, including if it so chooses "single interest
insurance", which will cover only Lender's interest in the Collateral.
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to pay
all of the indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration of
the Collateral shall be used to prepay the indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, as least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise
reasonable care. Lender shall not be required to take any steps necessary to
preserve any rights in the Collateral against prior parties nor to protect,
preserve or maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall be come a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DETECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the
[THE REST OF THIS WAS CUT OFF AT THE BOTTOM OF PAGE]
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor dies
or becomes incompetent. Lender, at is option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to Lender,
and, in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonable practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by state law,
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender Chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to
this
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
the State of California. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
United States mail, first class, postage prepaid, addressed to the party to
whom the notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any Grantor
will constitute notice to all Grantors. For notice purposes, Grantor will
keep Lender informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim, and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of the Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision
<PAGE>
WSB Western Exhibit 10.12
Security
Bank
of this Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of Lender's
rights or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the indebtedness, Borrower irrevocably waives, disclaims and relinquishes
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
SMALL BUSINESS ADMINISTRATOR REGULATIONS.
"The Loan secured by this lien was made under a United States Small Business
Administration (SBA) nationwide program which uses tax dollars to assist small
business owners. If the United States is seeking to enforce this document, then
under SBA regulation:
a) When SBA is the holder of the Note, this document and all documents
evidencing or securing this Loan will be construed in accordance with federal
law.
b) Lender or SBA may use local or state procedures for purposes such as filing
papers, recording documents, giving notice, foreclosing liens, and other
purposes. By using these procedures, SBA does not waive any federal immunity
from local or state control, penalty, tax or liability. No Borrower or
Guarantor may claim or assert against SBA any local or state law to deny any
obligation of Borrower, or defeat any claim of SBA with respect to this Loan.
Any clause in this document requiring arbitration is not enforceable when SBA is
the holder of the Note secured by this instrument."
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 20,
1998.
GRANTOR:
GENESIS MEDIA GROUP, INC.
BY: /s/ Ramy El-Batrawi
-------------------------------------
RAMY Y. EL-BATRAWI, PRESIDENT
<PAGE>
Exhibit 10.13
LEASE
dated as of July 24, 1998
between
SOUTHERN CALIFORNIA SUNBELT DEVELOPERS, INC.,
as Landlord ("Landlord")
and
GENESIS INTERMEDIA, INC.,
A FLORIDA CORPORATION; AND
GENESIS MEDIA GROUP, INC., A FLORIDA CORPORATION
as Tenant ("Tenant")
relating to premises at
SUITE T-3
THE JOHN WAYNE EXECUTIVE GUILD CENTER
3151 Airway Avenue
Costa Mesa, California 92626
<PAGE>
LEASE SUMMARY
This page is for the convenience of the parties and summarizes the principal
terms of the lease. It does not alter or define any of the terms of this lease.
PROJECT: The project in which the Premises is located is THE JOHN WAYNE
EXECUTIVE GUILD CENTER, located at 3151 Airway Avenue, Costa
Mesa, California.
TENANT: The Tenant is GENESIS INTERMEDIA, a Florida corporation; and
GENESIS MEDIA GROUP, INC. a Florida corporation.
TERM: The term of the lease is two (2) year(s).
COMMENCEMENT
DATE: This lease shall commence on August 1, 1998.
TERMINATION
DATE: This lease shall terminate on July 31, 2000.
OPTION TO
EXTEND: Tenant shall have one (1) two (2) year option to renew this
lease, conditioned upon providing Landlord with written notice to
extend ninety (90) days prior but not greater than one hundred
and eighty (180) days prior to the termination date of July 31,
2000. The rental rate for the additional two (2) years shall be
as set forth below.
PREMISES: The Premises consist of ground floor office space located within
THE JOHN WAYNE EXECUTIVE GUILD, Building T and further referenced
as "Suite T-3", and further outlined in Exhibit(s) to the lease.
Net rentable area of the Premises: Approximately 2,503 rentable
square feet.
BASE
YEAR RENT: Effective Base Rental Rate for the twenty-four (24) month period
of occupancy is approximately $1.97-1/2 per square foot.
Year 1 $4,880.85 per month ($1.95 per sq. ft.)
*Year 2 $5,006.00 per month ($2.00 per sq. ft.)
SUBJECT TO OPTION:
*Year 3 $5,256.30 per month ($2.10 per sq. ft.)
*Year 4 $5,506.60 per month ($2.20 per sq. ft.)
*Following the first anniversary, and each subsequent anniversary of the
commencement date of this lease, Tenant's Base Rent will be further increased
based upon the increase, if any, in the Consumer Price Index for the Greater Los
Angeles, Anaheim, Riverside (California) areas in an amount not to exceed five
percent (5%) per annum nor less than one percent (1%) per annum.
<PAGE>
OPERATING EXPENSES: Base Year Start Date: 8-1-98 to 7-31-99.
Following the first anniversary, and each subsequent anniversary of the
commencement date of this lease, Tenant shall pay, each month, as Additional
Rent, at the same time as the Base Rent, Tenant's pro rata share of annual
Operating Expenses in excess of the Operating Expenses derived from the Base
Year Expenses. Landlord and Tenant agree that Tenant's pro rata share is a
fraction, the numerator of which is the number of rental square feet of the
Premises, and the denominator of which is the total rentable square feet
contained in the Project. Tenant's share is approximately 2.38% percent of the
rentable square footage of the total Project and shall be for an amount not to
exceed two and one-half percent (2-1/2% per annum nor less than one-half of one
percent (1/2 %) per annum, times the then current Rent amount.
SECURITY DEPOSIT: $6,000.00
TENANT IMPROVEMENTS: See Exhibit "E"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. TERM/PREMISES/USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 LEASING CLAUSE AND PREMISES. . . . . . . . . . . . . . . . . . . . . 1
1.2 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 INITIAL BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 ADJUSTMENTS IN BASE RENT . . . . . . . . . . . . . . . . . . . . . . 2
2.4 PARTIAL PAYMENT OF RENT. . . . . . . . . . . . . . . . . . . . . . . 2
2.5 ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. SERVICES TO BE FURNISHED BY LANDLORD. . . . . . . . . . . . . . . . . . . 3
3.1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 ELECTRICITY/HVAC . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.3 LIMITS RE AIR-CONDITIONING . . . . . . . . . . . . . . . . . . . . . 3
3.4 LANDLORD NOT TO BE LIABLE. . . . . . . . . . . . . . . . . . . . . . 3
4. PREPARATION AND ACCEPTANCE OF PREMISES. . . . . . . . . . . . . . . . . . 3
4.1 CONDITION OF PREMISES ON DELIVERY. . . . . . . . . . . . . . . . . . 3
4.2 TENANT IMPROVEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 4
5. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
REPAIRS AND RE-ENTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.1 TENANT'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . 4
6.2 LANDlORD'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . 4
6.3 RE-ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . 4
7. ALTERATIONS BY TENANT AND TENANT FIXTURES . . . . . . . . . . . . . . . . 5
7.1 TENANT ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 5
7.2 TENANT FIXTURES AND OTHER PROPERTY . . . . . . . . . . . . . . . . . 5
8. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . 5
8.1 PROHIBITION OF ASSIGNMENT AND OTHER TRANSFERS. . . . . . . . . . . . 5
8.2 PROPOSED ASSIGNMENT AND SUBLEASE . . . . . . . . . . . . . . . . . . 5
8.3 TENANT TO REMAIN LIABLE. . . . . . . . . . . . . . . . . . . . . . . 6
8.4 LANDLORD'S ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . 6
USE OF THE PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
9.1 LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE . . . . . . . . . . . 6
9.2 NUISANCE; RULES AND REGULATIONS. . . . . . . . . . . . . . . . . . . 6
10. INDEMNITY/LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
10.1 INDEMNITY BY TENANT. . . . . . . . . . . . . . . . . . . . . . . . . 6
10.2 LANDLORD NOT TO HAVE LIABILITY . . . . . . . . . . . . . . . . . . . 7
10.3 MUTUAL RELEASE AND WAIVER OF SUBROGATION . . . . . . . . . . . . . . 7
10.4 TRANSFER OF OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . 7
i
<PAGE>
10.5 EXPRESS AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 7
11. ACCESS FOR REPAIRS AND INSPECTIONS. . . . . . . . . . . . . . . . . . . . 8
12. FIRE AND OTHER CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.1 MAJOR CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
12.2 REPARABLE CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . 9
12.3 LANDLORD'S ELECTION. . . . . . . . . . . . . . . . . . . . . . . . . 9
13. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13.1 CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13.2 RESTORATION AFTER PARTIAL TAKING . . . . . . . . . . . . . . . . . . 9
14. LIEN FOR RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
15. HOLDOVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
16. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
16.1 LANDLORD'S INSURANCE . . . . . . . . . . . . . . . . . . . . . . . .10
16.2 TENANT'S INSURANCE - LIABILITY . . . . . . . . . . . . . . . . . . .10
16.3 TENANT'S INSURANCE - OTHER . . . . . . . . . . . . . . . . . . . . .10
16.4 EVIDENCE OF INSURANCE. . . . . . . . . . . . . . . . . . . . . . . .11
16.5 NO REPRESENTATION OF ADEQUATE COVERAGE . . . . . . . . . . . . . . .11
17. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
17.1 NON-PAYMENT OF RENT. . . . . . . . . . . . . . . . . . . . . . . . .11
17.2 BREACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
17.3 INSOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
17.4 ABANDONMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
17.5 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
17.6 LATE CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
18. OPERATING EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
18.2 OPERATING EXPENSES DEFINED . . . . . . . . . . . . . . . . . . . . .12
18.2 PAYMENT OF OPERATING EXPENSES. . . . . . . . . . . . . . . . . . . .13
18.3 PERSONAL PROPERTY TAXES. . . . . . . . . . . . . . . . . . . . . . .13
19. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
20. UNDERLYING MORTGAGES. . . . . . . . . . . . . . . . . . . . . . . . . . .14
20.1 SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
20.2 ATTORNMENT TO MORTGAGE . . . . . . . . . . . . . . . . . . . . . . .14
20.3 LANDLORD'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . .15
20.4 NON-DISTURBANCE. . . . . . . . . . . . . . . . . . . . . . . . . . .15
20.5 ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . .15
21. PARKING PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
21.1 UNASSIGNED PARKING . . . . . . . . . . . . . . . . . . . . . . . . .15
21.2 LANDLORD NOT TO BE LIABLE. . . . . . . . . . . . . . . . . . . . . .15
22. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . .15
22.1 LANDLORD'S REPRESENTATION AND INDEMNITY AS TO HAZARDOUS MATERIALS. .15
22.2 FREON. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
22.3 HAZARDOUS MATERIALS DEFINED. . . . . . . . . . . . . . . . . . . . .16
23. RELOCATION; PROJECT NAME. . . . . . . . . . . . . . . . . . . . . . . . .16
23.1 RELOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
23.2 PROJECT NAME . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
24. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
25. BROKER'S OR AGENT'S COMMISSION. . . . . . . . . . . . . . . . . . . . . .17
26. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
26.1 EQUAL EMPLOYMENT OPPORTUNITY . . . . . . . . . . . . . . . . . . . .17
26.2 PLACE OF PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . .18
26.3 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
26.4 INUREMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
26.5 INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
26.6 NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
26.7 ATTORNEY'S FEES AND ARBITRATION. . . . . . . . . . . . . . . . . . .18
26.8 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
26.9 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
26.10 SUBMISSION OF LEASE . . . . . . . . . . . . . . . . . . . . . . . .19
26.11 EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
</TABLE>
ii
<PAGE>
STATE OF CALIFORNIA
COUNTY OF ORANGE
OFFICE LEASE
THIS LEASE ("Lease"), made and entered into by and between SOUTHERN CALIFORNIA
SUNBELT DEVELOPERS, INC. ("SCSD"), and GENESIS INTERMEDIA, INC., A FLORIDA
CORPORATION; AND GENESIS MEDIA GROUP, INC., A FLORIDA CORPORATION ("Tenant"),
and dated, July 24, 1998, for reference purposes only.
1.
TERM/PREMISES/USE
1.1 LEASING CLAUSE AND PREMISES. Pursuant to the terms and conditions of
this Lease, Landlord hereby leases premises to Tenant, and Tenant
hereby rents and accepts premises from Landlord. The "Premises" are
approximately 2,503 rentable square feet on the ground floor of
Building T at THE JOHN WAYNE EXECUTIVE GUILD CENTER, located at 3151
Airway Avenue, Costa Mesa, California (the "Project"), designated
suite number T-3 and more fully described on a floor plans attached
hereto and marked Exhibit "D". Landlord and Tenant mutually agree and
acknowledge that the square footage calculation is an approximation
subject to subsequent measurement and recalculation by DARYL MALMBERG
ASSOCIATES INTERIOR PLANNING & DESIGN, in accordance with industry
guidelines.
1.2 TERM. The term of this Lease (the "Term") shall be two (2) years
commencing August 1, 1998 and terminating terminate on July 31, 2000,
subject to earlier termination as provided in this Lease. Tenant
shall have one (1) two (2) year option to renew this lease,
conditioned upon providing Landlord with written notice to extend
ninety (90) days prior but not greater than one hundred and eighty
(180) days prior to the termination date of July 31, 2000. The rental
rate for the additional two (2) years shall be as set forth below.
1.3 USE. Tenant shall use the Premises for general business offices uses
and shall not occupy or use, or permit any portion of the Premises to
be occupied or used for any other purpose whatsoever. This Lease
covers no other part of the Project or the ground upon which it is
located, except the nonexclusive rights granted by Landlord to Tenant,
its agents, employees, customers, business invitees and visitors to
use the public corridors, the elevators, stairways and similar common
areas within the Project, and the ground level parking area.
2.
RENT
2.1 BASE RENT. Tenant shall pay Landlord a monthly base rent ("Base
Rent"), without offset or deduction, as set forth in this Section.
Base Rent shall be payable commencing on the Commencement Date. The
first payment, or partial month proration, shall be made, in
1
<PAGE>
advance, upon execution of this Lease. The second and subsequent
payments shall be made in monthly installments in advance for the
following month, on the first day of each and every month until the
end of the Term, to the following address:
SCSD EXECUTIVE GUILD J.W.A.
3230 East Imperial Hwy., Suite 200
Brea, California 92821
2.2 INITIAL BASE RENT. Tenant shall pay a Base Rent of $4,880.85 per
month until adjusted pursuant to Section 2.3.
2.3 ADJUSTMENTS IN BASE RENT. Base Rent shall be adjusted according to
the following schedule:
<TABLE>
<CAPTION>
LEASE YEAR BASE RENT/MONTHLY ANNUAL BASE RENT
<S> <C> <C>
Months 01-12 $4,880.85 $58,570.20
*Months 13-24 $5,006.00 $60,072.00
SUBJECT TO OPTION:
*Months 25-36 $5,256.30 $63,075.60
*Months 37-48 $5,506.60 $66,079.20
</TABLE>
*Following the first anniversary, and each subsequent anniversary of
the commencements date of this lease, Tenant's Base Rent will be
further increased based upon the increase, if any, in the Consumer
Price Index for the Greater Los Angeles, Anaheim, Riverside
(California) areas in an amount not to exceed five (5) Index points
per annum nor less than one (1) Index points per annum.
2.4 PARTIAL PAYMENT OF RENT. Tenant shall make all rental payments in
full. Payment or receipt of a rental payment of less than the amount
stated in the lease shall be deemed to be nothing more than a partial
payment on that month's account. Under no circumstances shall
Landlord's acceptance of a partial payment constitute accord and
satisfaction. Nor will Landlord's acceptance of a partial payment
forfeit Landlord's right to collect the balance due on the account,
despite any endorsement, stipulation, or other statement on any check.
The Landlord may accept any partial payment check with any conditional
endorsement without prejudice to its right to recover the balance
remaining due, or to pursue any other remedy available under this
Lease.
2.5 ADDITIONAL RENT. All other sums of money required under this Lease to
be paid by Tenant to Landlord, other than Base Rent, are designated
"Additional Rent". The term "Rent" in this Lease means Base Rent and
Additional Rent.
2.6 Tenant's pro rata share of Operating Expenses shall be determined as
set forth in Section 18.
2
<PAGE>
3.
SERVICES TO BE FURNISHED BY LANDLORD
3.1 GENERAL. Landlord shall furnish or cause to be furnished to the
Premised the following services: (a) electricity for lighting the
Premised and operating ordinary 110-volt portable desk top office
equipment of the type normally used in general business offices,
subject to paragraph 3.2 of this Lease, (b) heat and air-conditioning
as may be reasonably be required for the comfortable use and occupancy
of the Premises during Project Operating Hours, (c) janitor and
cleaning services limited to emptying and removal of general office
refuse, dusting and light vacuuming of floors as needed, Monday
through Friday, and such window washing as may in the reasonable
judgment of Landlord be required, (d) replacement of fluorescent
tubes and light bulbs, (e) domestic water for the operation of
lavatories, drinking fountains and coffee bars and (f) toilet room
supplies.
3.2 ELECTRICITY/HVAC. There will be no additional cost to Tenant for
Tenant's use of electrical service unless and until Tenant's use of
electrical power exceeds electrical allowance of $.12 (twelve cents)
per square foot per month. The electric usage shall be reviewed on a
quarterly basis and any amount in excess of said allowance shall be
billed to Tenant which is immediately due and payable to Landlord as
"additional rent".
3.3 LIMITS RE AIR-CONDITIONING. In the event that Tenant requires
equipment or machines, generating heat substantially in excess of what
is generally considered standard equipment for professional and
clerical office use, which affect the temperature of the Premised
maintained by the air-conditioning system, Landlord reserves the right
to provide supplementary air-conditioning equipment. Prior to
installation of any additional air-conditioning equipment, Landlord
will review with Tenant the cost, installation and maintenance cost of
said equipment and said cost shall be paid by Tenant upon demand.
3.4 LANDLORD NOT TO BE LIABLE. Landlord shall not be liable for failure
to furnish or cause to be furnished any of the foregoing services when
such failure is caused be accidents or conditions beyond the control
of the Landlord, or by necessary repairs, labor disturbances or labor
disputes of any character, whether resulting from or caused by acts of
Landlord or otherwise; provided, however, that in any such events,
Landlord shall make a prompt and diligent effort to cause the
resumption of such services. Landlord shall not be liable under any
circumstances for loss of or injury to property, however occurring,
through or in connection with or incidental to the furnishing of any
of the foregoing, nor shall any failure relieve Tenant from the duty
to pay the full amount of rent herein reserved, or constitute or be
construed as a constructive or other eviction of Tenant.
4.
PREPARATION AND ACCEPTANCE OF PREMISES
4.1 CONDITION OF PREMISES ON DELIVERY. The Premises are rented "as-is",
without any additional services or improvements to be provided by
Landlord unless otherwise specified in Exhibit "E" attached hereto.
Taking possession of the Premises by Tenant shall be conclusive
evidence as against Tenant that the Premises and the Project were in
good and satisfactory condition when possession was taken. All Tenant
Improvements, per Exhibit "E", to be completed by August 1, 1998.
3
<PAGE>
4.2 TENANT IMPROVEMENTS. Prior to the commencement of the term of this
Lease, Landlord shall substantially complete the work, if any, as may
be required to be done as specified in attached Exhibit "E" and/or
Lease Summary Page. Landlord's time to complete such work, if any be
specified in attached Exhibit "E" and/or Lease Summary Page, shall be
extended by one day for each day of delay resulting from interference
with or hindrance of such work by Tenant, or any of Tenant's
employees, servants, or agents, for changes in such work requested by
Tenant and agreed to by Landlord and for delays caused by the failure
of Tenant or Tenant's contractor to timely and properly complete any
of Tenant's work in the Premises. Neither such delays or any other
delay shall make this Lease void or voidable or alter or affect any of
the terms hereof and Tenant shall not be entitled to any abatement of
rent therefor; and all claims for damages arising our of any delay are
waived and released by Tenant.
5.
QUIET ENJOYMENT
Tenant, upon keeping, observing and performing all of the covenants
and agreements of this Lease on its part to be kept, observed and
performed, shall lawfully and quietly hold, occupy and enjoy the
Premises during the term of this Lease, subject, however, to the
covenants, agreements, terms, provisions and conditions of this Lease
and to underlying mortgages to which this Lease is subject and
subordinate.
6.
REPAIRS AND RE-ENTRY
6.1 TENANT'S OBLIGATIONS. Tenant will, at Tenant's own cost and expense,
repair or replace any damage done to the Project or any part thereof,
caused by Tenant or Tenant's agents, employees, invitees, or visitors.
If Tenant fails to promptly make such repairs or replacements within
fifteen (15) days of the occurrence of the event causing such damage,
Landlord may, at its option, make such repairs and replacements
itself, and Tenant shall repay the cost thereof to Landlord on demand
as Additional Rent. Tenant shall take good care of the Premises and
the fixtures and improvements therein and shall not commit or allow
any waste or damage to be committed on any portion of the Premises,
and shall, upon termination of this Lease, deliver up the Premises
(except as otherwise herein provided) in substantially the same
condition as accepted by the Tenant on commencement date, reasonable
wear and tear excepted, and shall deliver to Landlord all keys to the
Premises.
6.2 LANDLORD'S OBLIGATIONS. Landlord shall make repairs, restorations and
replacements as and when needed to the Premises which are not the
requirement of the Tenant or other Tenants of the Project.
6.3 RE-ENTRY BY LANDLORD. Upon termination of this Lease, Landlord shall
have the right to re-enter and assume possession of the Premises, and
the cost and expense of any repairs necessary to restore the condition
of the Premises to the condition in which they are to be delivered to
Landlord shall be borne by Tenant.
4
<PAGE>
7.
ALTERATIONS BY TENANT AND TENANT FIXTURES
7.1 TENANT ALTERATIONS. Tenant will not make or allow to be made any
alterations, additions or improvements ("Tenant Alterations") in or to
the Premises without the prior written consent of Landlord, which will
not be unreasonably withheld. Tenant shall pay or cause to be paid
all costs for work done by it or caused to be done by it on the
Premises of a character which will or may result in liens on
Landlord's interest therein and Tenant will keep the Premises free and
clear of all mechanic's liens, and other liens on account of work done
for Tenant or persons claiming under it. Tenant shall indemnify and
hold Landlord harmless against any liability, loss, damage, costs or
expenses, including attorneys fees, on account of any claims of any
natures whatsoever relating to Tenant Alterations, including claims of
liens of laborers or materialmen or others for work performed for, or
materials or supplies furnished to Tenant or persons claiming under
Tenant. All Tenant Alterations (whether temporary or permanent in
character) made in or upon the Premises, either by Landlord or Tenant,
shall be Landlord's property on termination of this Lease and shall
remain on the Premises, without compensation to Tenant.
7.2 TENANT FIXTURES AND OTHER PROPERTY. All built-in furniture,
cabinetwork, movable business and trade fixtures and equipment
installed by Tenant shall be removed by Tenant at the termination of
this Lease if Tenant so elects, and shall be so removed if required by
Landlord, or if not so removed, shall, at the option of Landlord,
become the property of Landlord. All such removals and restoration
shall be accomplished in good and workmanlike manner so as not to
damage the Premises or the Project. Any damage to the Premises caused
by installation, alteration or removal of Tenant's fixtures or
equipment shall be repaired at the expense of Tenant.
8.
ASSIGNMENT AND SUBLETTING
8.1 PROHIBITION OF ASSIGNMENT AND OTHER TRANSFERS. Tenant shall not,
except as otherwise provided herein, without the prior written consent
of Landlord: (a) assign, mortgage, pledge, encumber or otherwise
transfer this Lease or any interest under the Lease; or (b) sublease
all or any part of the Premises. The consent of Landlord to any
assignment, other transfer or sublease of this Lease and the term and
estate hereby granted shall not relieve Tenant of the obligation to
obtain such consent to any further assignment or other transfer.
8.2 PROPOSED ASSIGNMENT AND SUBLEASE. If Tenant desires to assign or
sublease this Lease or any part hereof, then at least thirty (30)
days, but not more than one hundred eighty (180) days, prior to the
date, when Tenant desires the assignment or sublease to be effective
(the "Transfer Date"), Tenant shall give Landlord a Notice (the
"Assignment Notice") which shall set forth the name, address and
business of the proposed assignee or sublessee, the Transfer Date,
information (including references) on the credits and financial
condition of the proposed assignee or sublessee and such other
material as Landlord shall reasonably require. Landlord shall within
thirty (30) days following the Assignment Notice notify Tenant in
writing that Landlord elects to (a) either disapprove the proposed
assignee or sublessor; or (b) permit Tenant to assign or sublet such
space to the proposed assignee or sublessee. If Landlord shall fail
to notify Tenant in Writing of such election within thirty
5
<PAGE>
(30) day period, Landlord shall be deemed to have elected to approve
the proposed assignee or sublessee. If the Rent agreed to by Tenant
and its subtenant and assignee is greater than the rent payable under
this Lease, such excess Rent shall be paid to Landlord at the same
time and in the same manner as the Basic Rent.
8.3 TENANT TO REMAIN LIABLE. Notwithstanding any assignment or
subletting, Tenant and any guarantor of Tenant's obligations under
this Lease shall at all times remain fully responsible and liable for
the payment of all Rent under this Lease and for compliance with all
of Tenant's other obligations under this Lease.
8.4 LANDLORD'S ASSIGNMENT. Landlord may sell, transfer, mortgage,
encumber or assign the Project or this Lease. Within ten (10) days
after request by Landlord, upon such sale, transfer, mortgage,
encumbrances or assignment, by Landlord, Tenant shall execute,
acknowledge and deliver a certificate ("Estoppel Certificate") in
recordable form certifying: the capacity of the person executing such
certificate and that such person is duly authorized to execute it on
behalf of Tenant; the commencement date of this Lease and the date
upon which the Term expires; that this Lease is unmodified and in full
force and effect (or if modified, in full force and effect as
modified); that Landlord is not in default thereunder, that there are
no defenses or offsets thereto know to Tenant (if such be the case);
and the date to which Rent has been paid.
9.
USE OF THE PREMISES
9.1 LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE. Tenant shall use the
Premises in a careful, safe and proper manner and shall not occupy or
use, or permit any portion of the Premises to be occupied or used, for
any business or purpose which is unlawful or deemed to be disreputable
in any manner, nor shall Tenant permit anything to be done which will
in any way increase the risk of fire, any hazard, loss or rent,
casualty or other loss of value to the Project, and/or its contents,
and in the event that, by reason and acts of Tenant, there shall be
any increase in the rate of any insurance policy on the Project or its
contents, created by Tenant's acts or conduct of business, then Tenant
hereby agrees, upon documentation of such increase by Landlord, to pay
such increases as Additional Rent.
9.2 NUISANCE; RULES AND REGULATIONS. Tenant shall conduct its business in
such manner as not to create any nuisance, or interfere with, or
disturb any other Tenant, or Landlord in its management of the
Project. Tenant shall observe and comply with the Rules and
Regulations set forth in attached Exhibit A and such other and further
reasonable Rules and Regulations which Landlord at any time may make
and communicate to Tenant and apply to Tenants and occupants of the
Project generally and which, in the reasonable judgment of Landlord,
shall be necessary for the operation, maintenance, reputation or
appearance of the Project.
10.
INDEMNITY/LIABILITY
10.1 INDEMNITY BY TENANT. Tenant shall indemnify, defend, protect, and
hold harmless Landlord from and against any and all claims, losses,
proceedings, damages, causes or action, liability,
6
<PAGE>
costs and expenses (including attorney's fees) arising from or in
connection with, or caused by any act, omission or negligence of
Tenant or any sublessee or Tenant, or their respective contractors,
licensees, invitees, agents, servants or employees, on or about the
Premises or the Project, to the extent permitted by law; and if any
action or proceeding be brought against the Landlord by reason of any
such claim, Tenant upon notice from Landlord shall defend the same at
Tenant's expense by counsel satisfactory to Landlord. Tenant, as a
material part of the consideration to Landlord, hereby assumes all
risk of damage to property or injury to persons in, upon or about the
Premises arising from any cause other than Landlord's gross negligence
or willful misconduct, and Tenant hereby waives all claims in respect
thereof against Landlord. These provisions are in addition to, and
not in lieu of, the insurance required to be provided elsewhere in
this Lease.
10.2 LANDLORD NOT TO HAVE LIABILITY. Tenant hereby assumes all risks and
liabilities of a landowner in the possession, use or operation of the
Premises. Tenant hereby agrees that Landlord shall not be liable for
injury to Tenant's business or any loss of income therefrom or for
damages to the goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers, contractors, workers, or any
other person in or about the Premises, nor shall Landlord be liable
for injury to the person of Tenant, Tenant's employees, agents or
contractors, where such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning or lighting fixtures, or from
any other cause, whether the cause of such damage or injury or the
means or repairing the same is inaccessible to Tenant. Landlord shall
not be liable or responsible for any injury, loss or damage to any
property or person occasioned by theft, fire, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or other
matter beyond the control of Landlord. Nothing contained herein shall
be construed as excusing Landlord from liability for its gross
negligence or intentional misconduct.
10.3 MUTUAL RELEASE AND WAIVER OF SUBROGATION. Landlord and Tenant each
hereby waives, and releases the other from any claim or liability for
damage to such party's property occurring during the Term which is
covered by insurance. Each party shall cause the property hazard
insurance carried by it, with respect to the Project, the Premises or
such party's other property located therein, to be endorsed, if
necessary, to prevent any invalidation of such insurance by reason of
the waivers and releases contained in this Section, provided such
endorsement can be obtained at no cost. If additional costs are
involved, the party carrying such insurance shall give the other party
the opportunity to apply for such endorsement.
10.4 TRANSFER OF OWNERSHIP. Upon the sale or transfer or the Project, the
obligations and duties, of the Landlord selling or transferring the
Project under the Lease shall terminate, except as to liabilities that
shall have accrued prior to the transfer or which are the result of
the conduct of that Landlord.
10.5 EXPRESS AGREEMENT. This Lease shall be considered an express
agreement governing any case of damage to or destruction of the
Project or the Premises by fire or other casualty, and any law which
purports to govern the rights of Landlord and Tenant in such a
contingency in the absence of express agreement, and any successor or
other law of like import shall have no application.
7
<PAGE>
11.
ACCESS FOR REPAIRS AND INSPECTION
Landlord and Landlord's agents shall have the right to enter the
Premises at all reasonable hours and reasonable notice to examine
them, to show them to prospective purchasers, mortgagees or Tenants,
and to make and perform such cleaning, maintenance, repairs,
alterations, improvements or additions as Landlord may deem necessary
or desirable for the safety, improvement, or preservation of the
Premises or of other portions of the Project, without such acts
constituting an eviction of Tenant in whole or in part or entitling
Tenant to any abatement of rent by reason of loss or interruption of
business of Tenant, or otherwise. If Tenant shall not be personally
present to open and permit entry in the Premises, at any time when for
any reason an entry therein shall be necessary or permissible,
Landlord or Landlord's agents may enter the Premises by use of a
master key, or in any emergency may forcibly enter the Premises,
without rendering Landlord or Landlord's agents liable therefor
(provided that during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property), and without in any
manner affecting the obligations and covenants of this Lease.
Landlord shall have the right to erect, built, use and maintain
unexposed pipes, ducts and conduits in and through the Premises.
12.
FIRE AND OTHER CASUALTY
12.1 MAJOR CASUALTY. If the Premises, or the Project, shall be so damaged
by fire or other casualty as to render the Premises untenantable, and
if such damage shall be so great that an architect selected by
Landlord shall certify in writing to Landlord that the Premises, with
the exercise of reasonable diligence, but without the payments of
overtime or other premiums, cannot be made Tenantable within one
hundred twenty (120) days) from the happening of the fire or other
casualty, or if insurance proceeds are not made available to Landlord
for repair or such damages, then, in either event, this Lease may be
terminated by Landlord as of the date of the occurrence of the fire or
other casualty by giving thirty (30) days written notice to Tenant of
such termination. Upon such notice of termination, Tenant shall
surrender to Landlord the Premises and all interest therein under this
Lease, and Landlord may re-enter and take possession of the Premises
and remove Tenant therefrom. Landlord and Tenant shall be free and
discharged from all obligations arising under this Lease after the
date of such termination. If, however, the damages shall be such that
Landlord's architect shall certify that the Premises can be made
Tenantable within the one hundred twenty (120) day period from the
happening of the fire or other casualty and insurance proceeds are
made available to Landlord for repair of such damage or if Landlord
does not terminate this Lease as set forth above, then, except as
hereinafter provided, Landlord shall, with reasonable promptness,
repair the damage so done except that Landlord shall not be required
to repair, replace or restore any items which Tenant is obligated to
repair or replace. Until such repair is substantially completed, the
Base Rent shall be abated in proportion to the part of the Premises
which is unusable by Tenant in the reasonable conduct of its business
or profession. There shall be no abatement of Base Rent by reason of
any portion of the Premises being unusable for a period of fifteen
(15) days or less. If the damage is due to the fault or negligence of
Tenant or Tenant's employees, agents or invitees, there shall be no
abatement of Base Rent.
8
<PAGE>
12.2 REPARABLE CASUALTY. If the Premises, without the fault or negligence
of Tenant, shall be damaged by fire or other casualty but not so as to
render them untenantable and insurance proceeds are made available to
Landlord, Landlord shall cause the damage to be repaired with
reasonable promptness and there shall be no abatement of Base Rent or
any other amounts due under this Lease. If the fire or other casualty
causing damage to the Premises or other parts of the Project have been
caused by Tenant or Tenants employees, agents or invitees, such damage
shall be repaired by Landlord and the amount paid for such repair
shall be immediately due from Tenant to Landlord with interest at the
Default Rate from the dates of Landlord's payments.
12.3 LANDLORD'S ELECTION. If the Project is so damaged by fire or other
casualty (although the Premises are unaffected by such fire or other
casualty, or if affected, can be repaired within one hundred twenty
(120) days that Landlord shall deem it advisable to reconstruct,
rebuild or raze the Project, then, notwithstanding anything contained
herein to the contrary, this Lease may be terminated by Landlord as of
the date of the occurrence of the fire or other casualty by giving
written notice to Tenant of such termination within thirty (30) days
after the occurrence of the fire or other casualty. Upon such notice
of termination, Tenant shall surrender to Landlord the Premises and
all interest therein under this Lease, and Landlord may re-enter and
take possession of the Premises and remove Tenant therefrom. Landlord
and Tenant shall be free and discharged from all obligations arising
hereunder after the date of such termination.
13.
CONDEMNATION
13.1 CONDEMNATION. Upon any taking under the power of eminent domain, or
sale under threat of the exercise of said power ("Condemnation") of
the whole or a substantial part of the Project, the Premises or the
parking area that shall substantially interfere with Tenant's use and
occupancy of the balance thereof, this Lease shall, at the election of
either Tenant or Landlord exercised by either party giving written
notice to the other of such termination, terminate as of the date the
condemning authority takes title or possession, whichever first
occurs. No award from the condemning authority shall be apportioned,
and Tenant hereby assigns to Landlord and award which may be made,
together with any and all rights of Tenant nor or hereafter arising in
or to such award or any part thereof; provided, however, that Tenant
may receive any award for Tenant's property and fixtures removable by
Tenant at the expiration of the Term under the terms of this Lease, or
for the interruption of, or damage to Tenant's business or for
relocation expenses recoverable against the condemning authority.
13.2 RESTORATION AFTER PARTIAL TAKING. If there is a Condemnation which
does not result in a termination of this lease, Landlord shall, to the
extent of any funds received from the condemning authority for repair
or restoration, restore the Project or Premises substantially to their
condition prior to such partial Condemnation and Rent shall be abated
in the proportion which the square footage of the part of the Premises
so made unusable bears to the amount of useable square footage
immediately prior to the Condemnation. No temporary taking of a part
of the Premises or of the Project shall give Tenant any right to
terminate this Lease or to any abatement of Rent.
9
<PAGE>
14.
LIEN FOR RENT
In consideration of the mutual benefits arising under this contract,
Tenant grants a security interest to Landlord in all property of
Tenant now or hereafter placed in or upon the Premises and such
property is hereby subjected to a lien in favor of Landlord and shall
be and remain subject to such lien or Landlord for payment of all
rents and other sums agreed to be paid by Tenant herein. Such liens
shall be in addition to the cumulative of the Landlord's liens
provided by law. Promptly upon request by Landlord, Tenant shall
execute any UCC-1 Financing Statement evidencing and perfecting said
lien.
15.
HOLDOVER
If Tenant or any person claiming through or under Tenant is in
possession of any part of the Premises after the expiration of the
term, with or without the express or implied consent of Landlord, such
tenancy shall be from month-to-month only, and not a renewal of this
Lease or an extension for any further term, and such month-to-month
tenancy shall be subject to each and every term, covenant and
agreement contained herein, except that Base Rent shall be increased
to one hundred fifty percent (150%) of the amount of Base Rent payable
by Tenant during the last month of the Term. Nothing in this Section
shall be construed as a consent by Landlord to any continued
possession by Tenant and Landlord expressly reserves the right to
require Tenant to surrender possession of the Premises upon the
expiration of the Term or upon the earlier termination hereof and to
assert any remedy in law or equity to evict Tenant and/or collect
damages in connection with such continued possession.
16.
INSURANCE
16.1 LANDLORD'S INSURANCE. Landlord shall at all time during the term of
the lease, as an operating cost, procure and maintain in force and
effect a Broad Form policy or policies or insurance covering the
Project. At Landlord's option, Landlord may procure endorsements
thereon for flood, earthquake, tornado, theft and collapse, or such
other coverage as Landlord deems appropriate. Landlord may also
obtain a Comprehensive Package policy of liability insurance
(including contractual liability), employer's liability insurance,
excess liability insurance and such other insurance as Landlord deems
necessary or appropriate. Any insurance carried by Landlord may be
under a blanket policy (or policies) covering other properties of
Landlord and/or its related or affiliated entities.
16.2 TENANT'S INSURANCE - LIABILITY. Tenant shall keep in force with
respect to the Premises and Tenant's business and other activities
therein Commercial Package liability insurance, including contractual
and personal injury liability, payable on an occurrence basis, with a
minimum combined limit of $1,000,000, naming Landlord and Landlord's
manager for the Project as additional insureds.
16.3 TENANT'S INSURANCE - OTHER. Tenant shall carry and maintain a Broad
Form policy of insurance covering all of Tenant's property and all
alterations, additions or improvements
10
<PAGE>
permitted under this Lease, from time to time in, on or upon the
Premises in an amount not less than ninety percent (90%) of their full
replacement cost from time to time during the term of this Lease,
providing coverage for sprinkler damage, vandalism and malicious
mischief. Such insurance shall name Landlord and Landlord's manager
for the Project as additional insureds.
16.4 EVIDENCE OF INSURANCE. Tenant shall deliver to Landlord policies or
duly executed certificates of insurance. Renewals shall be delivered
to Landlord at least ten (10) days prior to the expiration of the
respective policy terms.
16.5 NO REPRESENTATION OF ADEQUATE COVERAGE. Landlord makes no
representation that the limits or forms or coverage of insurance
specified in this Paragraph 16 are adequate to cover Tenant's property
or obligations under this Lease.
17.
DEFAULT
The occurrence of any one or more of the events set forth in Sections
17.1, 17.2 and 17.3 shall constitute a material default and breach of
this Lease by Tenant.
17.1 NON-PAYMENT OF RENT. The failure of Tenant to make any payment of
Rent as and when due, where such failure shall continue for a period
of three (3) days after notice from Landlord that said payment is
delinquent.
17.2 BREACH. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of the Lease to be observed or
performed by Tenant, other than the failure to pay Rent where such
failure shall continue for a period of ten (10) days after written
notice thereof from Landlord to Tenant.
17.3 INSOLVENCY. (a) The making by Tenant of any general arrangement or
assignment for the benefit of creditors; (b) Tenant becomes a
"debtor" as defined in 11 U.S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Tenant, the
petition is dismissed within thirty (30) days; (c) the appointment of
a trustee or receiver to take possession of substantially all of
Tenant's assets located at the Premises or of Tenant interest in this
Lease, where possession is not restored to Tenant within fifteen (15)
days; or (d) the attachment, execution or other judicial seizure of
substantially all of Tenant' assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged
within fifteen (15) days.
17.4 ABANDONMENT. The abandonment or vacation of the Premises by Tenant.
17.5 REMEDIES. Upon default by Tenant, Landlord shall have the right, but
not the obligation, to re-enter and take the Premises and resume
possession thereof and thereafter to relet same for the remainder of
the period of the Term specified in this Lease; and if the Rent
received through such reletting is not at least equal to the Rent
provided for in this Lease, Tenant shall pay and satisfy any
deficiencies between the amount of the Rent called for and that
received through reletting, and all expenses incurred as a result of
such reletting including, but not limited to the cost of renovating,
altering, and decorating for a new occupant.
11
<PAGE>
Nothing herein shall be construed as in any way denying Landlord the
right, in case of any default by Tenant to treat the default as an
entire breach of the Lease and at Landlord's option immediately sure
for any and all damages occasioned by Landlord thereby. Should
Landlord terminate this Lease and thereafter seek relief pursuant to
Section 1951.2 of the California Civil Code, interest shall be allowed
upon unpaid rent, and/or late penalties, etc., for the purposes of
Section 1941.2(b), at ten percent (10%) per annum. Any proof by
Tenant under subparagraphs (2) or (3) of subdivision (a) of Section
1951.2 of the California Civil Code, as the amount of rental loss that
could be reasonably avoided, shall be made in the following manner:
Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same use as the Premises and
in the same geographic vicinity, and such two real estate brokers
shall select a third licensed real estate broker and the three
licensed real estate brokers so selected shall determine the amount of
the rental loss that could be reasonably avoided for the balance of
the term of this Lease after the time of award. The decision of the
majority of said licensed real estate brokers shall be final and
binding upon the parties hereto. Until Landlord elects to terminate
this lease, Landlord shall have the remedy provided for in Section
1951.4 of the California Civil Code.
17.6 LATE CHARGES. Tenant acknowledges that late payment by Tenant to
Landlord of Base Rent, operational expenses or other monies that come
due from time to time will cause Landlord to incur costs not
contemplated by this lease. The exact amount of said costs will be
difficult to ascertain. Such costs would include processing and
accounting charges, late charges which may be imposed on Landlords by
the terms of any mortgage or ground lease covering this Project.
Accordingly, if any installment of Base Rent, Additional Rent or
operating expenses due from Tenant shall not be received by Landlord
or his designee within ten (10) days after such amount shall be due,
then without further notice or demand Tenant shall pay to Landlord a
late charge of Ten Percent (10%) of such overdue amount. Both parties
agree that such late charge represents a fair and reasonable estimate
of the costs that Landlord will incur by reason of the late payment by
Tenant. Acceptance of a late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any other rights and
remedies he may have under this Lease.
18.
OPERATING EXPENSES
18.1 OPERATING EXPENSES DEFINED. "Operating Expenses", as used in
this Lease, means all amounts paid or accrued by Landlord per calendar
year for the operation and maintenance of the Project or the land on
which it is situated, and the equipment, fixtures and facilities used
in connection therewith, including the parking area. Operating
Expenses includes, but it not limited to the cost of utilities,
building supplies, janitorial and window cleaning services, normal
maintenance and repair of the Project and the common areas (including
elevators, if any, and the periodic refurbishing of the common areas),
heating and air-conditioning, waste disposal, lighting, maintenance of
fire protection and security systems, planting and landscaping,
landscape maintenance, taxes (defined below), insurance premiums
(including boiler and machinery, fire and extended coverage,
earthquake, flood, rental and public liability insurance), and all
labor, supplies, materials, tools, professional fees, management fees,
wages, salaries and payroll burden of the Project Manager, clerical
maintenance and other employees directly associated with the operation
of the Project,
12
<PAGE>
(including Project office rent or rental value, office supplies and
materials, and all other items constituting operating and maintenance
costs in connection with the Project and land according to generally
accepted accounting principles). Operating Expenses shall not include
the following: (a) depreciation of the Project, (b) leasing
commissions, (c) repairs and restorations paid for by the proceeds of
any insurance policy or (d) construction of improvements of a capital
nature, except for the cost, or a portion thereof properly allocable
to the Project, of any capital improvements made to the Project
specifically to reduce Operating Expenses, or required to be made to
the Project specifically to reduce Operating Expenses, or required to
be made to the Project under any governmental law or regulation not
applicable to the Project at the time it was constructed. Such cost
shall be amortized over such reasonable period of time as Landlord
shall determine, (e) ground rent, (f) debt service, (g) income and
franchise taxes other than that portion, if any, of income and
franchise taxes which may hereinafter be assessed and paid in lieu of
or as a substitute in whole or in part for Taxes.
18.2 PAYMENT OF OPERATING EXPENSES. It is mutually agreed that the
calculation of the actual annual increase in the operating expenses,
for each individual unit of the John Wayne Executive Guild complex, is
difficult, costly, and time consuming. Therefore, whenever the base
monthly rent provided for herein is to be increased in response to
changes in the Consumer Price Index, the Landlord shall hare the
unilateral option to observe the following provisions. The
adjustment, if any, shall be calculated upon the basis of the Untied
States Department of Labor Statistics, upon the basis Consumer Price
Index for SUBGROUP ALL ITEMS - ALL URBAN CONSUMERS, Los Angeles -
Anaheim - Riverside, 1982/1984 = 100 (Index). The index, published as
of ninety (90) days prior to the commencement date of the Lease shall
be considered the "Base." The amounts to be adjusted shall be
increased by the percentage increase, if any, in the Index, as of
ninety (90) days prior to the adjustment date, over the "Base."
Additional adjustments will be made in the same manner, at the end of
each ensuing twelve (12) month period, including option periods, of
the full lease term. The annual adjustment in the C.P.I. shall be
cumulative and will be added to each adjusted amount on an annual
basis. Said increase shall not exceed four percent (4%) per annum nor
be less than one percent (1%) per annum. For each subsequent
anniversary date of the Lease, Tenant's share of the annual increase
in operating expenses shall be calculated in like manner.
For example: Lease commencement date is August 1, 1998 and the
increase in the C.P.I. published on May 1, 1999 is two percent (2%)
greater than the previous year, and the current monthly base lease
payment is $5,006.00, the monthly operating expense increase is
determined as follows:
$5,006.00 x .02 x 0.50 (50%) = $50.06 increase per month. Such
monthly increase shall commence with the thirteenth (13) month (i.e.,
August 1, 1999) of this Lease.
18.3 PERSONAL PROPERTY TAXES. Tenants shall be liable for and shall pay
before delinquency all taxes, and penalties and interest thereon, if
any, levied against Tenant's furniture, trade fixtures and equipment,
and any other personal property of Tenant situated or installed in and
upon the Premises. For the purposes of determining the amount of such
taxes, figures supplied by the county assessor's office or other
taxing authority as to the amount thereof shall be conclusive.
13
<PAGE>
19.
SECURITY DEPOSIT
Concurrently with the execution of this Lease, Tenant shall deliver to
Landlord in good funds, the sum of $6,000.00 to be held by Landlord as
security for the full and faithful performance of every provision of
this Lease (the "Security Deposit"). If Tenant defaults with respect
to any provision of this Lease, including but not limited to the
provisions relating to the payment of Rent, Landlord may use, apply or
retain all or any part of the Security Deposit for the payment of any
Rent or for the payment of any other amount which Landlord may spend
or become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss, cost or damage which Landlord
may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefore deposit cash with Landlord in an
amount sufficient to restore the Secured Deposit to the amount first
deposited, and Tenant's failure to do so shall be a material breach of
this Lease. Should Tenant faithfully perform all of the terms,
covenants and conditions of this Lease and be in possession of the
Premises at the end of the Term, the amount of the Security Deposit
shall be repaid by Landlord to Tenant at the end of the Term.
20.
UNDERLYING MORTGAGES
20.1 SUBORDINATION. This Lease and the term and estate hereby granted are
and shall be subject to subordinate to the lien of each mortgage which
may now or at any time hereafter affect Landlord's interest in the
Project, (an "underlying Mortgage") at the option of the Landlord or
Landlord's Mortgagee, regardless of the interest rate, the terms of
repayment, the use of the proceeds or any other provision of any such
mortgage. Each holder of each Underlying Mortgage shall have the
right, exercisable at such holders' sole option at any time, to cause
any of the Underlying Mortgages which such holder owns to be and
become subordinate and inferior to the lien and charge of this Lease
by delivering Notice of such exercise to Tenant. Tenant shall from
time to time execute and deliver such instruments as Landlord or the
holder of any Underlying Mortgage, may reasonably request to confirm
the status of this Lease as provided in this Section 20.
20.2 ATTORNMENT TO MORTGAGEE. Tenant confirms that if by reason of a
default under any Underlying Mortgage the holder of such Underlying
Mortgage or its successors or assignee in interest becomes the
Landlord hereunder, Tenant shall attorn to, and shall recognize such
holder as Tenant's Landlord under this Lease. Tenant shall execute
and deliver, at any time and form time to time, upon request of
Landlord or of the holder of any Underlying Mortgage, an instrument
which may be reasonably necessary or appropriate to evidence such
attornment. Tenant waives the provision of any statute or rule of law
now or hereafter in effect which may give or purpose to give Tenant
any right or election to terminate this Lease or to surrender
possession of the premises in the event any proceeding is brought by
the holder of the Underlying Mortgage to acquire Landlord's interest
hereunder.
14
<PAGE>
20.3 LANDLORD'S DEFAULT. In the event of any act or omission by Landlord
which pursuant to this Lease or by law would give Tenant the right to
terminate this Lease, Tenant shall not exercise such right unless or
until (a) it has given written Notice of such act or omission to the
holder of each Underlying Mortgage who has previously given Tenant
written Notice of the existence of such Underlying Mortgage and (b) a
reasonable period of time for remedying such act or omission shall
have elapsed following the giving of such Notice.
20.4 NON-DISTURBANCE. Notwithstanding anything contained in this Section,
as a condition to the attornment of subordination obligation set forth
in this section, this Lease and the leasehold estate hereby created
shall not be extinguished or terminated or the possession or the right
of Tenant (including the rights with respect o enjoyment and removal
of tenant's property) be disturbed so long as this Lease shall be in
force and no material default by Tenant exists and the Underlying
Mortgagee shall enter into a non-disturbance and attornment agreement
at the request of Tenant in form and substance reasonably acceptable
to Tenant, Landlord and such Underlying Mortgagee.
20.5 ESTOPPEL CERTIFICATE. Tenant shall promptly upon request of Landlord,
deliver to Landlord for the holder of the Underlying Mortgage an
Estoppel Certificate.
21.
PARKING PROVISIONS
21.1 UNASSIGNED PARKING. Tenants at the JOHN WAYNE EXECUTIVE GUILD have
the right to the use of four (4) parking spaces per 1,000 sq. ft. of
rentable space. Tenant shall have the right to use nineteen (19)
unassigned automobile parking spaces located on the uncovered surface
parking area for which there shall be no monthly charge.
21.2 LANDLORD NOT TO BE LIABLE. Tenant, its agents, employees, customers,
business invitees, and all persons using the drives and parking areas
do so at their own risk and Landlord shall not be responsible for, or
in any way have any obligation or liability for, any damage, loss,
theft, or injury to any vehicle or other equipment, any contents
thereof or any other personal property or for the death or injury to
any person while located in or entering or exiting any portion of the
drives and parking area. Landlord shall have the right at any time to
change the arrangement or location of the assigned or unassigned
spaces without incurring any liability to Tenant or entitling Tenant
to any abatement of any parking fee.
22.
HAZARDOUS MATERIALS
22.1 LANDLORD'S REPRESENTATION AND INDEMNITY AS TO HAZARDOUS MATERIALS.
Landlord represents and warrants that no Hazardous Materials are
present on or affect the Premises or the Project, and Landlord agrees
to indemnify and hold Tenant harmless for costs of any monitoring,
testing, removal cleanup or compliance with the laws of any federal,
state or local government having jurisdiction over Hazardous Materials
which Tenant may cause or permit to be present, discharged, stored or
disposed on the Premises during the Term.
15
<PAGE>
22.2 FREON. Tenant shall not install any freon-containing systems or
equipment, including, but not limited to, refrigerators, freezers,
supplemental HVAC systems or self-contained air conditioners.
22.3 HAZARDOUS MATERIALS DEFINED. "Hazardous Materials", for purposes of
this Section 22, means any substance defined as "hazardous
substances", "hazardous materials", "hazardous waste", "toxic
substances", or related terms by the California Health and Safety
Code, or applicable Federal law from time to time.
23.
RELOCATION; PROJECT NAME
23.1 RELOCATION. Landlord shall have the right, at any time upon giving
Tenant thirty (30) days' notice in writing, to substitute for the
Premises substantially similar space in the Project. Substantially
similar space shall mean space that is approximately the same size,
and has substantially the same facilities. Landlord will, as
Landlord's sole cost and expense (including the cost of relocating
telephone service and the reasonable cost of new stationary, should
the Tenant be relocated to another building or floor), move Tenant to
such substituted space. *The parties hereto agree, that in such
event, this Lease shall remain in full force and effect and be deemed
applicable to such space designated by Landlord and such held space
shall thereafter be the Premises. Should Tenant refuse to permit
Landlord to Move Tenant to such new space at the end of the thirty
(30) day period, Landlord shall have the right to terminate this Lease
effective sixty (60) days from the date of the original notice from
Landlord. Once Landlord gives Tenant the 30-day notice of intent to
relocate, Tenant may terminate the lease by given written notice to
the Landlord effective either at the end of the 30-day or 60-day
period after the date of the notice of intent to relocate.
23.2 PROJECT NAME. Landlord shall have the right to name the Project and
to change the name or designation by which the Project is commonly
known at any time. Tenant shall not use the name of the Project for
any purpose other than as the address of the business conducted by
Tenant in the Premises. Landlord shall provide a building directory
in the conspicuous place in the Project. Landlord shall also provide
one suite identification sign adjacent to the main entry door of the
Premises in Landlord's standard size and form. Tenant shall pay
Landlord'' reasonable charges for the initial installation of the
suite identification sign and for any subsequent changes to the
directory listing and identification sign at Tenant's request.
24.
NOTICES
Any notice, demand or request provided for or permitted to be given pursuant to
this Lease must be in writing and shall be properly given and effective when
personally served, when sent by prepaid Western Union telegrams or air courier
or when deposited in an official depository under the regular care and custody
of the Untied States Mail, addressed as specified below, sent by registered or
certified mail, return receipt requested, with postage prepaid. The time period
in which a response of any such mailed Notice must be given, however, shall
commence to run from the date of receipt on the return receipt by the Notice by
the addressee thereof. Rejection or other refusal to accept or
16
<PAGE>
the inability to deliver because of changes in address of which no notice was
given shall be deemed to be receipt of the notice. Notices shall be addressed
as follows:
To Landlord: Southern California Sunbelt
Developers, Inc. - JWA
3230 East Imperial Hwy., Suite 200
Brea, California 92821
With a copy to the leasing agent on the Premises:
Leasing Office
John Wayne Executive Guild
3151 Airway Avenue, Suite K-101
Costa Mesa, California 92626
Attention: Property Manager
Notice of change of address shall be given in the same manner as prescribed
herein for other Notices.
25.
BROKER'S OR AGENT'S COMMISSION
There are no claims for brokerage commission or finder's fees in connection
with the execution of this Lease, except as listed below, and Tenant agrees to
indemnify Landlord and hold Landlord harmless against all liabilities and costs
arising from such claims, including without limitation attorneys' fees in
connection therewith.
BROKER/AGENT: Hamilton Cove Realty, Inc.
The parties hereby acknowledge that HAMILTON COVE REALTY, INC., a
California corporation ("HCR"), DAN W. BAER, a California licensed real
estate broker, has a valid listing agreement for the subject property at
the JOHN WAYNE EXECUTIVE GUILD, and in the event a lease is consummated,
Landlord will pay commissions to HCR.
If there is more than one Tenant, the obligations hereunder imposed upon Tenant
shall be joint and several.
26.
GENERAL
26.1 EQUAL EMPLOYMENT OPPORTUNITY. The provisions of Executive Order 11246
(as amended) of the President of the United States on Equal employment
opportunities and the rules and regulations issued pursuant thereto
are incorporated in this lease, and Landlord represents that it will
comply with those provisions unless exempted.
17
<PAGE>
26.2 PLACE OF PERFORMANCE - GOVERNING LAW. Tenant shall perform all
covenants, conditions and agreements contained herein, including, but
not limited to payment of Rent, in Orange County, California. Any
suite arising from or relating to this Lease shall be brought in
Orange County, California. This Lease shall be governed by and
construed in accordance with the laws of the State of California.
26.3 SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during
the Term, then, and in that event, the parties intend that the
remainder of this Lease shall not be affected thereby, and the parties
also intend that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there is added as a part of
this Lease a clause or provision as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be possible and
be legal, valid and enforceable.
26.4 INUREMENT. Subject to the provision of this Lease governing
assignments and transfers by Landlord and Tenant, respectively, the
terms, provisions, covenants and conditions contained in this Lease
shall apply to, inure to the benefit of, and be binding upon the
parties thereto, and upon their respective successors in interest and
legal representatives.
26.5 INTEGRATION. This Lease and the Exhibits thereto constitute the
entire understanding between Landlord and Tenant. All previous
conversations, memorandums, and writings pertaining to leasing of the
Premises not incorporated or referenced in this Lease are suspended
hereby. Any modifications hereto must be made by a separate written
instrument. No officer, employee or representative of Landlord, of
Landlord's Manager or of Tenant has the authority to make any
representation or promise not already contained herein or made
pursuant to the within provisions, and Landlord and Tenant expressly
agree that by executing this Agreement, and any other document
required herein or caused to be executed hereby that it is not doing
so in reliance upon any representation or promise which is not set
forth herein.
26.6 NO WAIVER. No delay or failure of Landlord in exercising any right,
privilege or remedy hereunder or any single or partial exercise of any
right, power or privilege shall preclude other or future exercise
thereof or the exercise of any other right, power or privilege. Any
waiver, permission or consent of any kind by Landlord must be in
writing and shall be effective only to the extent provided herein.
26.7 ATTORNEYS' FEES AND ARBITRATION. If any litigation, arbitration or
other legal proceeding is commenced between any of the parties or
their personal representatives concerning any provision of this lease,
or the rights and duties of any party in relation thereto, the
prevailing party in such litigation or arbitration shall be entitled,
in addition to such other relief as may granted, to recover their
costs and reasonable attorneys' fees, expenses and costs of enforcing
such judgment and this post-judgment right to attorney's fees is
intended to be severable from the other provisions of this Agreement,
to survive any judgment contained hereunder, and it is not deemed
merged into the judgment. As used herein, "reasonable attorneys'
fees", "expenses", and "costs" shall mean the full and actual costs
incurred by the attorney performing such services.
18
<PAGE>
26.8 CAPTIONS. Captions used in this Lease are for ease of reference only
and do not define or limit provisions.
26.9 AUTHORITY. If Tenant is a corporation, partnership, trust,
association or other entity, Tenant and each person executing this
Lease on behalf of Tenant hereby covenants and warrants that (a)
Tenant is duly incorporated or otherwise established or formed and
validly existing under the laws of its state of incorporation,
establishment or formation, (b) Tenant is duly qualified to do
business in California, (c) Tenant has full corporate, partnership,
trust, association or other appropriate power and authority to enter
into this Lease and to perform all Tenant's obligations hereunder, and
(d) each Person (and all the person if more than one signs) signing
this Lease on behalf of Tenant is duly and validly authorized to do
so.
26.10 SUBMISSION OF LEASE. The submission of this Lease to Tenant for
examination or execution does not constitute a reservation of or
option on the Premises or an agreement to lease the Premises or any
other space. This Lease shall become effective as a lease and
Landlord shall become obligated to rent space to Tenant only upon the
execution and delivery of this Lease by Landlord and Tenant.
26.11 EXHIBITS. The following Exhibits are part of this Lease.
A Project Rules and Regulations
-------
B Condominium/Sublease Rider
-------
C Site Plan of Project
-------
D Floor Plan of Premises
-------
E Tenant Improvements
-------
19
<PAGE>
Landlord:
SOUTHERN CALIFORNIA SUNBELT DEVELOPERS,
INC., JWA
By: /S/ Dan W. Baer Date: July 28, 1998
---------------------------------- ---------------------------
Dan W. Baer, President
Tenant:
GENESIS INTERMEDIA, INC.,
a Florida corporation
By: /S/Sam Hassabo Date: July 24, 1998
---------------------------------- ---------------------------
Sam Hassabo, President
By: /S/Ramy El-Batrawi Date: August 13, 1998
---------------------------------- ---------------------------
Ramy El-Batrawi, Secretary
GENESIS MEDIA GROUP, INC.,
a Florida corporation
By: /S/Douglas E. Jacobson Date: July 24, 1998
---------------------------------- ---------------------------
Douglas E. Jacobson, CFO
By: /S/Ramy El-Batrawi Date: August 13, 1998
---------------------------------- ---------------------------
Ramy El-Batrawi, President and CEO
20
<PAGE>
EXHIBIT "A"
PROJECT RULES AND REGULATIONS
EXHIBIT to that Lease dated July 24, 1998 between SOUTHERN CALIFORNIA SUNBELT
DEVELOPERS, INC. ("Landlord"), and GENESIS INTERMEDIA, INC., a Florida
corporation; and GENESIS MEDIA GROUP, INC., a Florida corporation ("Tenant") for
the premises at 3151 Airway Avenue, Suite T-3, Costa Mesa, California 92626,
consisting of approximately 2,503 rentable square feet.
1) Tenant will refer all contractors, contractors' representatives and
installation technicians rendering any service for Tenant to Landlord
for Landlord's supervision and/or approval before performance of any
such contractual services. This shall apply to all work performed in
the Project, including but not limited to installation of telephones,
telegraph equipment, electrical devices and attachments, and
installations of any and every nature affecting floors, walls, woodwork,
trim, windows, ceilings, equipment, or any other physical portion of the
Project. No such work shall be done by Tenant without Landlord's
written approval first had and obtained.
2) The work of the janitor or cleaning personnel shall not be hindered by
Tenant after 5:30 p.m., and such work may be done at any time when the
offices are vacant. The windows, doors, and fixtures may be cleaned at
any time. Tenant shall provide adequate waste and rubbish receptacles ,
cabinets, book cases, map cases, etc., necessary to prevent unreasonable
hardship to Landlord in discharging its obligations regarding cleaning
service.
3) Movement in or out of the Project of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
requires the use of elevators or stairways, or movements through the
Project entrances or lobby shall be restricted to the hours designated
by Landlord from time to time. All such movement shall be directed by
Landlord and in a manner to be agreed upon between Tenant and Landlord
by prearrangement before performance. Such prearrangement initiated by
Tenant shall include determination by Landlord and be subject to is
decision and control of the time, method, and routing of movement.
Limitations are imposed by safety or other concerns which may prohibit
any articles, equipment or any other item from being brought into the
Project. Tenant expressly assumes all risk of loss or damage to any and
all articles so moved, as well as injury to any person or persons or the
public engaged or not engaged in such movement, including, without
limitations, equipment, property, and personnel of Landlord if damaged
or injured as a result of any acts done or undertaken in connection with
carrying out this service for Tenant from the time of entering property
to completion of the work; and Landlord shall not be liable for the act
or acts of any person or persons so engaged in, or any damage or loss to
any property of persons resulting directly or indirectly from any act
done or undertaken in connection with such service performed by or for
Tenant.
4) No sign or signs will be allowed in any form on the exterior of the
Project or on any window or windows inside or outside of the Project and
so sign or signs, except in uniform location and uniform style fixed by
Landlord, will be permitted in the public corridors or on corridor doors
or entrances of Tenant's space. All "special" or large signs will be
contracted for by Landlord for Tenant at the rate fixed by Landlord from
time to time, and Tenant will be
21
<PAGE>
billed and pay for such service accordingly. Written consent from
Landlord is an absolute prerequisite for any such sign or signs Tenant
may be so permitted to use.
5) Tenant shall not operate a wholesale or retail establishment such as
food, drink, clothing, etc., without the written consent of Landlord
first had and obtained.
6) Tenant shall not place, install or operate on the Premises or in any
part of the Project, any engine or machinery, or conduct mechanical
operations, or place or use in or about the Premises any explosives,
gasoline, kerosene, oil, acids, caustics, or any other flammable,
explosive or hazardous material without the written consent of Landlord
first had and obtained.
7) Landlord will not be responsible for any lost or stolen personal
property, equipment, money or jewelry from Tenant's area public rooms
regardless of whether such loss occurs when the area is locked against
entry or not.
8) No birds, animals, or bicycles shall be brought into or kept in or about
the Project.
9) Landlord may permit entrance to Tenant's offices by use of pass keys
controlled by Landlord or employees, contractors, or service personnel
supervised or employed by Landlord.
10) None of the entries, passages, doors, elevators, elevators doors,
hallways or stairways shall be blocked, or obstructed , nor shall any
rubbish, litter, trash or materials of any nature be placed, emptied or
thrown into these areas, nor shall such areas be used at any time except
for access or egress by Tenant, Tenant's agents, employees or invitees.
11) Any plant brought into the Project shall be subject to inspection by
Landlord's maintenance personnel. Any plants found to be carrying
disease or pests shall be removed from the Project immediately upon
request by the Landlord.
12) No Tenant shall at any time occupy any part of the Project as sleeping
or lodging quarters.
13) The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed. No person
shall waste water by interfering with the faucets or otherwise.
14) No person shall disturb the occupants of the Project by the use of any
musical instruments, the making of raucous noises, or other unreasonable
use.
15) Nothing shall be thrown out of the windows of the Project, or down the
stairways or other passages.
16) Tenant shall not store any materials, equipment, products, etc., outside
the premises as shown on the plats attached hereto.
17) Tenant shall comply with all local and federal codes and ordinances. In
the event of fire or code problems, Tenant shall comply with said
requirements.
22
<PAGE>
18) Tenant and its agents, employees and invitees shall observe and comply
with the driving and parking signs and markers on the Project grounds
and surrounding areas.
19) Directories will be placed by the Landlord at Landlord's expense, in the
Project and no other directors shall be permitted.
20) No signs, draperies, shutters, window coverings, decorations, hangings
or obstructions of any type shall be placed on any skylights or any
doors or windows which are visible from outside the premises without
prior written consent of the Landlord.
21) "Project Operating Hours" shall be from 7:00 a.m. to 5:30 p.m. Monday
through Friday, and 8:00 a.m. to 12:00 p.m. on Saturday, but not on
Sundays, New Year's Day, Memorial Day, July 4th, Labor Day,
Thanksgiving, Christmas or other legal holidays. Landlord reserves the
right to restrict entry to the Project by unidentified persons during
the hours 5:30 p.m. to 7:00 a.m., all hours Saturdays after 12:00 p.m.,
and all hours Sundays and legal holidays.
22) The roof is a restricted and unsafe area of unauthorized persons. Only
those specifically authorized by Project management may enter the roof
area.
23) Only those with specific authority from Project management may enter the
elevator, electrical, machine and janitor rooms.
24) Tenant will be furnished, free of charge, two keys to each of the
following: (a) All doors locks to each Tenant premises. Extra keys may
be furnished at a reasonable charge. Tenant may not (a) copy entrance
keys; (b) After lock or install additional locks in any door, unless
agreed to in writing by Project management. In such a case, work and
materials will be at Tenant's expense and Landlord will be furnished a
key to the lock. All keys furnished Tenants will be returned to
Landlord upon termination of the Lease.
25) Only trucks or similar material handling equipment with soft rubber
wheels and side guards will be allowed in the Project. No other vehicle
of any kind will be brought in by the Tenants or kept in its premises.
26) Cooking by any method other than a microwave is prohibited. Brewing
coffee, tea, hot chocolate and similar beverages is provided: (a)
Underwriter's laboratory approved equipment are used for brewing
beverages; (b) Applicable Federal, State and City laws, codes,
ordinances, rules and regulations are followed.
27) Only telephone company technicians authorized by Project management may
enter and work in any telephone room. Tenants who hire a telephone
company to work in the Project are responsible for notifying the company
to instruct their technicians to obtain authority from Project
management to enter telephone rooms and other parts of the Project.
28) Packages, messages, mail, etc., must be delivered direct to Tenant
suites. Project management will not receive or accept them for Tenants.
23
<PAGE>
29) Tenants shall store their trash and garbage in their premises in
receptacles which facilitate disposal methods in the City of Costa Mesa.
Boxes, receptacles, etc., which are used in moving Tenants in the
Project will be removed from the Project by the moving company or Tenant
will absorb the cost of removal. Disposal cost of excessive trash or
garbage beyond the normal and ordinary garbage of an office facility
will be the cost of the Tenant.
30) Tenant shall not place a load upon any floor of the Premises exceeding
50lbs., of live load per square foot. Tenant will pay the fees of the
structural engineer of the Project if structural engineering advice is
necessary in planning the positioning of heavy loads. Business machines
and mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in setting sufficient to absorb and prevent vibration,
noise and annoyance. Safes and other heavy equipment, the weight of
which will not constitute a hazard or damage the Project or its
equipment, shall be moved into, from or about the Project only during
such hours and in such manner as shall be prescribed by Landlord.
31) The Landlord reserves the right to rescind any of these rules and make
such other and further rules and regulations as in the judgment of
Landlord shall from time to time be needed for safety, protection, care
and good order therein, and in protection and comfort of its Tenants,
their agents, employees and invitees, including, but not limited to
rules and regulations regarding hours of access to the Project, which
rules when made and notice thereof given to a Tenant shall be binding
upon him in like manner as if originally herein prescribed. In the
event of any conflict, inconsistency or other difference between the
terms and provisions of these rules and regulations and any lease now or
hereafter in effect between Landlord and any Tenant in the Project,
Landlord shall have the right to rely on the terms or provision in
either such lease or such Rules and Regulations which is most
restrictive on such Tenant and most favorable to Landlord.
32) Landlord desires to maintain high standards of environment, comfort, and
convenience for its Tenants. It will be appreciated if any undesirable
conditions or lack or courtesy or attention by its employees is reported
directly to Landlord.
24
<PAGE>
EXHIBIT "B"
CONDOMINIUM/SUBLEASE RIDER
EXHIBIT to that Lease dated July 24, 1998 between SOUTHERN CALIFORNIA SUNBELT
DEVELOPERS, INC., ("Landlord"), and GENESIS INTERMEDIA, INC., a Florida
corporation; and GENESIS MEDIA GROUP, INC., a Florida corporation ("Tenant") for
the premises at 3151 Airway Avenue, Suite T-3, Costa Mesa, California 92626,
consisting of approximately 2,503 rentable square feet.
RECITALS
A. Premises is a condominium which is a part of that certain condominium
project known as Executive Guild - Costa Mesa Business Park - Phase II
(the "Project").
B. The real property upon which the Project is constructed was owned by The
Irvine Company, a Michigan Corporation, and is now assigned to the
Corporation of the Presiding Bishop of the Latter Day Saints and had
been leased to Shearson American Express Mortgage Corporation
("Shearson") and is now assigned to GE Capital under that certain
unrecorded Ground Lease, dated March 1, 1981, between the Irvine
Company, as lessor and Shearson as lessee; a Memorandum of which was
recorded on April 16, 1981, in Book 14022, Pages 858 to 860 of Official
Records of Orange County, California (said Ground Lease and the recorded
Memorandum are hereinafter collectively referred to as the "Ground
Lease"). Landlord is a subtenant of GE Capital Corporation as assignee
under that certain Sublease dated October 1984 (the "Shearson Lease").
C. There has been recorded upon the Project that certain Declaration of
Restrictions, which was recorded on June 8, 1981, in book 14091, Pages
437, ET SEQ., of Official Records of Orange County, California ("the
Declaration of Restrictions"); and the Declaration of Annexation, which
was recorded on June 17, 1983, as Instrument No. 83-024927 of Official
Records of said County, and Amendment there to recorded on February 14,
1983, as Instrument No. 83-070391 of Official Records of said County
(collectively the "Declaration of Annexation, as amended").
Accordingly, Landlord and Tenant agree as follows:
1. This Lease is a sublease and is subject and subordinate to the
terms and provisions of the Ground Lease, the Shearson Lease, the
Declaration of Restrictions, the Declaration of Annexation, and
the Association Management Documents. The rights of Tenant to
use, occupy and posses the Premises are subject to Landlord's
right to use, occupy, and possess the Premises as set forth in
the Ground Lease, the Shearson Lease, the Declaration of
Restrictions, the Declaration of Annexation and the Association
Management Documents.
<PAGE>
2. Tenant agrees to comply with all applicable provisions of the
Ground Lease, the Shearson Lease, the Declaration of
Restrictions, the Declaration of Annexation, and the Association
Management Documents. Tenants shall neither suffer nor permit
any breach of the terms and provisions of the Ground Lease, the
Shearson Lease, the Declaration of Restrictions, the Declaration
of Annexation, or the Association Management Documents; any
breach of or default under such terms and provisions shall
represent a material default under this lease.
3. Although care has been taken so that terms and provisions of the
Lease, and Tenant's rights hereunder, are not in conflict under
the terms and provisions of the Ground Lease, the Shearson Lease,
the Declaration of Restrictions, the Declaration of Annexation
and/or the Association Management Documents, to the extent that
Landlord subsequently determines that any duty of Landlords under
this lease would require acts or omissions by Landlord which
would result in a breach of a term or provision of the Ground
Lease, the Shearson Lease, the Declaration of Restrictions, the
Declaration of Annexations and/or Association Management
Documents, Landlord shall be excused from performance of any duty
under this lease.
4. Landlord agrees to use its best efforts to maintain the Ground
Lease and the Shearson Lease in full force and effect during the
entire Term of this Lease; provided, however, that if the Ground
Lease or the Shearson Lease shall for any reason whatsoever
terminate prior to its entire Term, this Lease shall concurrently
terminate.
5. In the event that Landlord is in default under the terms or
provisions of the Ground Lease, the Shearson Lease, Declaration
of Restrictions, Declaration of Annexation and/or the Association
Management Documents by reason of the existence or non-existence
of any particular term of provision of this Lease (but not by
reason of any act or omission taken under, or in violation of,
any particular term or provision of this Lease), then in that
event Landlord and Tenant agree that they shall execute an
amendment to this Lease to cause the deletion or addition of such
particular term or condition as may be required under the terms
of the Ground Lease; provided, however, that Tenant may terminate
this Lease if any amendment would materially increase the
obligations of Tenant hereunder (for such purposes and without
limitation of the materiality standard, any amendment which would
increase Tenant's cost of occupying the premises more than One
Thousand Dollars ($1,000.00) in any one (1) year or which would
deny Tenant the substantial use and enjoyment of the Premises
shall be deemed material.
6. The "Premises", as it pertains to this Lease, shall include a
non-exclusive right to use the common area of the Project, such
as landscaping and driveways, in accordance with the Ground
Lease, the Shearson Lease, the Declaration of Restrictions, the
Declaration of Annexation and the Association Management
Documents.
2
<PAGE>
Landlord:
SOUTHERN CALIFORNIA SUNBELT DEVELOPERS,
INC., JWA
By: /S/ Dan W. Baer Date: July 28, 1998
---------------------------------- ---------------------------
Dan W. Baer, President
Tenant:
GENESIS INTERMEDIA, INC.,
a Florida corporation
By: /S/Sam Hassabo Date: July 24, 1998
---------------------------------- ---------------------------
Sam Hassabo, President
By: /S/Ramy El-Batrawi Date: August 13, 1998
---------------------------------- ---------------------------
Ramy El-Batrawi, Secretary
GENESIS MEDIA GROUP, INC.,
a Florida corporation
By: /S/Douglas E. Jacobson Date: July 24, 1998
---------------------------------- ---------------------------
Douglas E. Jacobson, CFO
By: /S/Ramy El-Batrawi Date: August 13, 1998
---------------------------------- ---------------------------
Ramy El-Batrawi, President and CEO
3
<PAGE>
EXHIBIT "E"
TENANT IMPROVEMENTS
GENESIS INTERMEDIA, INC.,
a Florida Corporation; and
SAM HASSABO, an Individual
Suite T-3
The following Tenant improvements to be provided to Tenant by the Landlord, at
Landlord's sole cost and expense.
1. Air conditioning ducts are to be THOROUGHLY CLEANED by a professional
air conditioning service, of Landlord's selection, including vacuuming
(removal of dust and debris in ducts) and repainting of exterior
visible vents. Such cleaning shall be performed prior to painting and
carpeting;
2. Remove the interior window which separates the two front offices;
3. Interior office painting, all in white (Swiss Coffee) including
interior window trimmings, and closets, repair cupboards, replace
hinges; fill and paint all holes and nail/screw marks;
4. Replace carpeting as per selected swatch presented (Mountain Dove
Grey) and based board black trim;
5. Entryway parquet flooring to be rebuffed and polished;
6. Repair gap in front door with weather stripping to obtain tight
closure of said doors;
7. Refinish bathroom and kitchen countertops to match the suite's general
decor;
8. All blinds to be thoroughly cleaned or replaced if unable to clean;
9. Sky light blinds to be replaced as they are sun damaged;
10. Replace all stained and broken ceiling tiles, including those which
contain screws, hooks or any other hardware;
11. Replace all light switch plates with new plates;
12. Replace bathroom faucet knobs;
13. Replace toilet seats in both bathrooms.
All of the above "Tenant improvements" will be provided by Landlord at the
Landlord's sole cost and expense. Any ADDITIONAL improvements, not currently
anticipated or listed above, requested by Tenant, either prior to or subsequent
to Tenant's occupancy, shall be at the Tenant's sole cost and expense.
Additionally, any further Tenant improvements, even if provided by
4
<PAGE>
and/or paid by Tenant, must receive prior approval by Landlord, which will not
be unreasonably withheld.
5
<PAGE>
Merrill Lynch No. 230-07D33
- -------------------------------------------------------------------------------
WCMA NOTE, LOAN AND SECURITY AGREEMENT
WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 230-07D33 ("Loan Agreement") dated as
of June 8, 1998, between GENESIS MEDIA GROUP, INC. D/B/A "MEN ARE FROM MARS,
WOMEN ARE FROM VENUS", a corporation organized and existing under the laws of
the State of Florida having its principal office at 501 S. Dakota Avenue, Tampa
FL 33606 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a
corporation organized and existing under the laws of the State of Delaware
having its principal office at 33 West Monroe Street, Chicago IL 60603
("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT ACCOUNT AGREEMENT NO.
230-07D33 ("WCMA Agreement") between Customer and MLBFS' affiliate, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the
WCMA Line of Credit to be fully activated under MLPF&S' computer system as part
of the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interest upon the Collateral or any other collateral for the
Obligations.
(vi) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (B) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed on withdrawn within sixty (60) days after
filing; or (C) Customer or any Guarantor shall make a general assignment for the
benefit of creditors; or (D) Customer or any Guarantor shall generally fail to
pay or admit in writing its inability to pay its debts as they become due; or
(E) Customer or any Guarantor shall be adjudicated a bankrupt or insolvency.
(v) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(vi) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, however arising, whether
<PAGE>
now owned or existing or hereafter acquired or arising, and wherever located;
together with all parts thereof (including spare parts), all accessories and
accessions thereto, all books and records (including computer records) directly
related thereto, all proceeds thereof (including, without limitation, proceeds
in the form of Accounts and insurance proceeds), and the additional collateral
described in Section 9(b) hereof.
(vii) "Commitment Expiration Date" shall mean July 5, 1998.
(viii) "Default" shall mean an "Event of Default" as defined in Section 8
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.
(ix) "General Funding Conditions" shall mean each of the following conditions
to any WCMA Loan by MLBFS hereunder: (A) no Default shall have occurred and be
continuing or would result from the making of any WCMA Loan hereunder by MLBFS;
(B) there shall not have occurred and be continuing any material adverse change
in the business or financial condition of Customer or any Guarantor; (C) all
representations and warranties of Customer or any Guarantor herein or in any
Additional Agreements shall then be true and correct in all material respects;
(D) MLBFS shall have received this Loan Agreement and all of the Additional
Agreements, duly executed and filed or recorded where applicable, all of which
shall be in form and substance reasonably satisfactory to MLBFS; (E) MLBFS shall
have received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security interest
thereon, as well as the ownership of and the perfection and priority of MLBFS'
liens and security interest on any other collateral for the Obligations
furnished pursuant to any of the Additional Agreements; (F) MLBFS shall have
received evidence reasonably satisfactory to it of the insurance required
hereby or by an of the Additional Agreements; and (G) any additional conditions
specified in the "WCMA Line of Credit Approval" letter executed by MLBFS with
respect to the transactions contemplated hereby shall have been met to the
reasonably satisfaction of MLBFS.
(x) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations.
(xi) "Initial Maturity Date" shall mean the first date upon which the WCMA Line
of Credit will expire (subject to renewal in accordance with the terms hereof);
to wit: June 30, 1999.
(xii) "Interest Rate" shall mean a variable per annum rate of interest equal
to the sum of 2.90% and the 30-Day Commercial Paper Rate. The "30-Day
Commercial Paper Rate" shall mean, as of the date of any determination, the
interest rate from time to time published in the "Money Rates" section of THE
WALL STREET JOURNAL for 30-day high-grade unsecured notes sold through dealers
by major corporations. These Interest Rate will change as of the date of
publication in THE WALL STREET Journal of a 30-Day Commercial Paper Rate that is
difference from that published on the preceding Business Day. In the event that
THE WALL STREET JOURNAL shall, for any reason, fall or case to publish the
30-Day Commercial Paper Rate, MLBFS will choose a reasonably comparable index or
source to use as the basis for the Interest Rate.
(xiii) "Line Fee" shall mean the fee of $3,5000.00 payable periodically by
Customer to MLBFS in connection with the WCMA Line of Credit, as provided
herein.
(xiv) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xv) "Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.
(xvi) "Maximum WCMA Line of Credit" shall mean $750,000.00.
<PAGE>
(xvii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting
the foregoing, shall include interest accruing after the filing of any petition
in bankruptcy, and all present and future liabilities, Indebtedness and
obligations of Customer under this Loan Agreement.
(xviii) "Permitted Liens" shall mean with respect to the Collateral: (A) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being consented in good faith by appropriate proceedings; (B)
liens in favor of MLBFS; (C) liens which will be discharged with the proceeds of
the initial WCMA Loan; and (D) any other liens expressly permitted in writing by
MLBFS.
(xix) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12-month period thereafter.
(xx) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 230-07D33 and any
successor WCMA account.
(xxi) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(xxii) "WCMA Loan Balance" shall mean an amount equal the aggregate unpaid
principal amount of all WCMA Loans.
(b) OTHER TERMS. Except as otherwise defined herein: (1) all terms used in
this Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meanings set
forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, or if earlier, on the date of termination
of the WCMA Line of Credit, the WCMA Loan Balance; (b) interest at the Interest
Rate on the outstanding WCMA Loan Balance, from and including the date on which
the initial WCMA Loan is made until the date of payment of all WCMA Loans in
full; and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including , but not limited to, the periodic Line Fee and any late charges.
Except as otherwise expressly set forth herein, Customer hereby waives
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate and all other
notices and formalities in connection with this WCMA Promissory Note and this
Loan Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall
not then have occurred, and (ii) Customer shall have subscribed to the WCMA
Program and its subscription to the WCMA Program shall then be in effect, the
Activation Date shall occur on or promptly after the date, following the
acceptance of this Loan Agreement by MLBFS at its office in Chicago, Illinois,
upon which each of the General Funding Conditions shall have been met or
satisfied to the reasonable satisfaction of MLBFS. No activation by MLBFS of
the WCMA Line of Credit for a nominal amount shall be deemed evidence of the
satisfaction of any of the conditions herein set forth, or a wavier of any of
the terms or conditions hereof. Customer hereby authorizes MLBFS to pay out of
and charge to Customer's WCMA Account on the Activation Date any and
<PAGE>
all amounts necessary to fully pay off any bank or other financial institution
having a lien upon any of the Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
form and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WCMA Line of Credit pursuant to the terms hereof:
(i) MLBFS will make WCMA Loans to Customer in such amounts as Customer may from
time to time request in accordance with the terms hereof, up to an aggregate
outstanding amount not to exceed the Maximum WCMA Line of Credit, and (ii)
Customer may repay any WCMA Loans in whole or in part at any time, and request a
re-borrowing of amounts repaid on a revolving basis. Customer may request such
WCMA Loans by use of WCMA Checks, TFS, Visa' charges, wire transfers, or such
other means of access to the WCMA Line of Credit as may be permitted by MLBFS
from time to time access to the WCMA Line of Credit as may be permitted by MLBFS
from time to time; it being understood that so long as the WCMA Line of Credit
shall be in effect, any charge or debit to the WCMA Account which but for the
WCMA Line of Credit would under the terms of the WCMA Agreement result in an
overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not
be obligated to make any WCMA Loan, and may without notice refuse to honor any
such request by Customer, if at the time of receipt by MLBFS of Customer's
request: (i) the making of such WCMA Loan would cause the Maximum WCMA Line of
Credit to be exceeded; or (ii) the Maturity Date shall have occurred or the WCMA
Line of Credit shall have otherwise been terminated in accordance with the terms
hereof; or (iii) Customer' subscription to the WCMA Program shall have been
terminated; or (iv) an event shall have occurred and be continuing which shall
have caused any of the General Funding Conditions to not then be met or
satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any
WCMA Loan at a time when any one or more of said conditions shall not have been
met shall not in any event be construed as a waiver of said condition or
conditions or of any Default and shall not prevent MLBFS at any time thereafter
while any condition shall not have been met from refusing to honor any request
by Customer for a WCMA Loan.
(d) LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error loss of power, fire,
Act of God, or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising form any
act or omission by MLBFS. MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall required the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ("Excess Interest"). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a credit against the then unpaid WCMA Loan Balance,
(ii) refunded to the payer thereof, or (iii) any combination of the foregoing.
Except as otherwise provided herein, accrued and unpaid interest on the WCMA
Loan Balance shall be payable monthly on the last Business Day of each calendar
month, commencing with the last Business Day of the calendar month in which the
Activation Date shall occur. Customer hereby irrevocably authorizes and directs
MLPF&S to pay MLBFS such accrued interest form any available free credit
balances in the WCMA Account, and if such available free credit balances are
insufficient to satisfy any interest payment due to liquidate any investments in
the Money
<PAGE>
Accounts (other than any investments constituting any Minimum Money Accounts
Balance under the WCMA Directed Reserve Program) in an amount up to the
balance of such accrued interest, and pay to MLBFS the available proceeds on
account thereof. If available free credit balances in the WCMA Account and
available proceeds of the Money Accounts are insufficient to pay the entire
balance of accrued interest, and Customer otherwise fails to make such
payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an
amount equal to the balance of such accrued interest and pay the proceeds of
such WCMA Loan to itself on account of such interest. The amount of any such
WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to
extend a WCMA Loan to Customer under these circumstances, Customer hereby
authorizes and directs MLPF&S to make all such interest payments to MLBFS
from any Minimum Money Accounts Balance. If there is no Minimum Money
Accounts Balance, or it is insufficient to pay all such interest, MLBFS will
invoice Customer for payment of the balance on the accrued interest, and
Customer shall pay such interest as directed by MLBFS within 5 Business Days
of receipt of such invoice.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of TFS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
(g) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(h) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of each WCMA
Loan shall be used by Customer solely for working capital in the ordinary course
of its business, or, with the prior written consent of MLBFS, for other lawful
business purposes of Customer not prohibited hereby. Customer agrees that under
no circumstances will funds borrowed from MLBFS through the WCMA Line of Credit
be used: (i) for personal, family or household purposes of any person
whatsoever, or (ii) to purchase, carry or trade in securities, or repay debt
incurred to purchase, carry or trade in securities, whether in or in connection
with the WCMA Account, another account of Customer with MLPF&S or an account of
Customer at any other broker or dealer in securities.
(i) RENEWAL AT OPTION OF MLBFS; RIGHT TO CUSTOMER TO TERMINATE. MLBFS may at
any time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by
<PAGE>
a proposed change in the terms of the WCMA Line of Credit (other than the
extension of the Maturity Date), no such renewal shall require Customer's
approval. Customer shall, however, have the right to terminate the WCMA Line of
Credit at any time upon written notice to MLBFS.
(j) LINES FEES. (i) In consideration of the extension of the WCMA Line of
Credit by MLBFS to Customer during the period from the Activation Date to the
Initial Maturity Date, Customer has paid or shall pay the Line fee to MLBFS.
If the Line Fee has not heretofore been paid by Customer, Customer hereby
authorizes, at its option, to either cause the Lien Fee to be paid on the
Activation Date with a WCMA Loan, or invoice Customer for such Line Fee (in
which event Customer shall pay said fee within 5 Business Days after receipt of
such invoice). No delay in the Activation Date, howsoever caused, shall entitle
Customer to any rebate or reduction in the Line Fee or to any extension of the
Initial Maturity Date.
(ii) CUSTOMER SHALL PAY AN ADDITIONAL LINE FEE FOR EACH RENEWAL YEAR. In
connection therewith, Customer hereby authorizes MLBFS, at its option, to either
cause each such additional Line Fee to be paid with a WCMA Loan on or at any
time after the first Business Day of such Renewal Year or invoiced to Customer
at such time (in which event Customer shall pay such Lien Fee within 5 Business
Days after receipt of such invoice). Each Line Fee shall be deemed fully earned
by MLBFS on the date payable by Customer, and no termination of the WCMA Line of
Credit, howsoever caused, shall entitle Customer to any rebate or refunds of any
portion of such Line Fee.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Florida and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it makes such qualification
necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, deliver and
performance by Customer of this Loan Agreement and by Customer and each
Guarantor of such of the Additional Agreements to which it is a party: (i) have
been duly authorized by all requisite action, (ii) do not and will not violate
or conflict with any law or other governmental requirement, or any of the
agreements, instruments or documents which formed or govern Customer or any such
Guarantor, and (iii) do not and will not breach or violate any of the provisions
of, and will not result in a default by Customer or any such Guarantor under,
any other agreement, instrument or document to which it is a party or by which
it or its properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
or any Guarantor of such of this Loan Agreement and the Additional Agreements to
which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements
to which Customer or any Guarantor is a party are the respective legal, valid
and binding obligations of Customer and such Guarantor, enforceable against it
or them, as the case may be, in accordance with their respective terms, except
as enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally or by general principles of equity.
(e) COLLATERAL. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its
<PAGE>
(f) liens and security interests, MLBFS will have valid and perfected first
liens and security interests upon all of the Collateral.
(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor are true and correct and fairly represent such Guarantor's financial
condition as of the date of such financial statements, and since the most recent
date of such financial statements, there has been no material adverse changes in
such financial condition.
(g) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially and
adversely affect the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
such Guarantor or the continued operations of Customer.
(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxed due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer).
(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a
Location of Tangible Collateral.
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each
fiscal year of Customer, Customer shall furnish or cause to be furnished to
MLBFS a copy of the annual audited financial statements of Customer, consisting
of at least a balance sheet as at the close of such fiscal year and related
statements of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other independent certified public
accountants reasonably acceptable to MLBFS.
(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each
fiscal quarter of Customer, Customer shall furnish or cause to be furnished to
MLBFS: (i) its statement of profit and loss for the fiscal quarter then ended,
and (ii) a balance sheet as at the close of such fiscal quarter; all in
reasonable detail and certified by its chief financial officer.
(c) AGING OF ACCOUNTS. Within 45 days after the close of each fiscal quarter
of Customer, Customer shall furnish or cause to be furnished to MLBFS an aging
of Accounts and Chattel Paper for Customer as of the end of such fiscal quarter,
in reasonable detail and certified by its chief financial officer.
<PAGE>
(d) TAX RETURNS. Customer shall further furnish or cause to be furnished to
MLBFS a copy of each Federal Income Tax Return of Jet Vacations International,
Inc., Genesis/PGP Joint Venture (Genesis Aviation, Inc.), and Trade Your Way to
Riches, Inc. f/k/a Trading Your Way to Riches, Inc. filed during the
term hereof, including all schedules thereto, not later than 15 days after the
date filed with the Internal Revenue Service.
(e) OTHER INFORMATION. Customer shall furnish or cause to be furnished to
MLBFS such other information as MLBFS may from time to time reasonably request
relating to Customer, any Guarantor or the Collateral.
6. OTHER COVENANTS
Customer further covenants and agrees during the term of this Loan Agreement
that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its
principal place of business complete and accurate books and records, and
maintain all of its financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such other basis as may
be approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes,
assessments and other governmental charges, howsoever designated, and all other
liabilities and obligations, except to the extent that any such failure to pay
will not materially and adversely affect either the liens and security interests
of MLBFS hereunder or under any of the Additional Agreements, the financial
condition of Customer or any Guarantor or the continued operations of Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor
will violate any law, regulation or other governmental requirement, any judgment
or order of any court or governmental agency or authority, or any agreement,
instrument or document to which it is a party or by which it is bound, if any
such violation will materially and adversely affect either the liens and
security interests of MLBFS hereunder or under any of the Additional Agreements,
the financial condition of Customer or any Guarantor, or the continued
operations of Customer.
(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any materially adverse change in the
business, financial condition or operations of Customer; and (iii) any
information which indicates that any financial statements of Customer or any
Guarantor fail in any material respect to present fairly the financial condition
and results of operations purported to be presented in such statements. Each
notification by Customer pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.
(e) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Customer, or (B) a material adverse change in the financial condition or
operations of Customer; (ii) Customer shall preserve its existence and good
standing in the jurisdiction(s) of establishment and operation; (iii) Customer
shall not engage in any material business substantially different from their
respective business
<PAGE>
in effect as of the date of application by Customer for credit from MLBFS, or
cease operating any such material business; (iv) Customer shall not cause or
permit any other person or entity to assume or succeed to
any material business or operations of Customer; and (v) Customer shall not
cause or permit any material change in its controlling ownership.
7. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to MLBFS,
and grants to MLBFS first liens and security interests in and upon all of the
Collateral, subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and be continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts. Customer shall take such action with respect
to protection of ITS INVENTORY and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Customer shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value or
utility. Customer shall at all times keep the tangible Collateral in good
condition and repair and shall pay or cause to be paid all obligations arising
from the repair and maintenance of such Collateral, as well as all obligations
with respect to any Location of Tangible Collateral, except for any such
obligations being contested by Customer in good faith by appropriate
proceedings.
(g) LOCATION. Expect for movements required in the ordinary course of
Customer's business, Customer shall give MLBFS 30 days' prior written notice of
the placing at or movement of any tangible Collateral to any location other than
a Location of Tangible Collateral. In no event shall Customer cause or permit
any material tangible Collateral to be removed from the United States without
the express prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as
<PAGE>
may be required by law or is customarily maintained by companies in a similar
business or otherwise reasonably required by MLBFS. All such insurance shall
provide that MLBFS will receive not less than 10 days prior written notice of
any cancellation, and shall otherwise be in form and amount and with an insurer
or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any expiration
or cancellation, each renewal or replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly repair all
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an
"Event of Loss") and such Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss. Customer shall, at Customer's option either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
deposit into the WCMA Account an amount equal to the actual cash value of such
Collateral as determined by either the insurance company's payment (plus any
applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that any such
deposit shall be accompanied by a like permanent reduction in the Maximum WCMA
Line of Credit. Notwithstanding the foregoing, if at the time of occurrence of
such Event of Loss or any time thereafter prior to replacement or line
reduction, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, then MLBFS may at its sole option, exercisable at any time
while such Event of Default shall be continuing, require Customer to either
replace such Collateral or make a deposit into the WCMA Account and reduce the
Maximum WCMA Line of Credit, as aforesaid.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration
or termination of this Loan Agreement as to all matters arising or accruing
prior to such expiration or termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. If the WCMA Loan Balance shall
at any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within five (5) Business Days after
written notice thereof shall have been given by MLBFS to Customer.
(b) OTHER FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement, or shall fail to pay when due
any other Obligations, and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS to
Customer.
<PAGE>
(c) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Section ), and such default shall continue unremedied for ten (10) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(d) BREACH OF WARRANTY. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
(e) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by Customer or any Guarantor of any of their respective liabilities or
obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the maturity of any indebtedness of $100,000.00 or more of Customer
or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(i) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure of confiscation which is not released within ten (10)
Business Days.
9. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default. MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer (it being understood, however, that
upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and all such
obligations shall automatically terminate without any action on the part of
MLBFS); and upon any such termination MLBFS shall be relieved of all such
obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.
<PAGE>
(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonable convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS
may purchase any Collateral at any such public sale. The net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and each Guarantor remaining jointly and severally liable for
any amount remaining unpaid after such application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such items which may be
so received by Customer with any other of its funds or property but instead hold
them separate and apart and in trust for MLBFS until delivery is made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Customer hereby
collaterally assigns and grants to MLBFS a continuing security interest in all
such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement, including, but not
limited to, to receive, endorse and collect all checks, drafts and other
instruments for the payment of money made payable to Customer included in the
Collateral.
<PAGE>
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) NOTICES. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from
any such sale. Any notices required under applicable law shall be reasonably
and properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, any and demand for
possession prior to the commencement of any suit or action.
10. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any
waiver of any provision of this Loan Agreement or any of the Additional
Agreements, nor any consent to any departure by Customer therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS. Any waiver
of any provision of this Loan Agreement or any of the Additional Agreements and
any consent to any departure by Customer from the terms of this Loan Agreement
or any of the Additional Agreements shall be effective only in the specific
instance and for the specific purpose for which given. Except as otherwise
expressly provided herein, no notice to or demand on Customer shall in any case
entitle Customer to any other or further notice or demand in similar or other
circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
(c) COMMUNICATIONS. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse
MLBFS for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any other the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to,
<PAGE>
reasonable fees and expenses of outside counsel) incurred by MLBFS in connection
with the collection of any sum payable hereunder or under any of the Additional
Agreements not paid when due, the enforcement of this Loan Agreement or any of
the Additional Agreements and the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and normal overhead attributable to
MLBFS' employees. The obligations of Customer under this paragraph shall
survive the expiration or termination of this Loan Agreement and the discharge
of the other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer (or such lesser notice, including no notice, as is
reasonable under the circumstances), do the same or cause it to be done or
remedy any such breach, and may expend its funds for such purpose. Any and all
reasonable amounts so expended by MLBFS shall be repayable (to MLBFS by Customer
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by MLBFS to the date of repayment, and
all such amounts shall be additional Obligations. The payment or performance by
MLBFS of any of Customer's obligations hereunder shall not relieve Customer of
said obligations or of the consequences of having failed to pay or perform the
same, and shall not waive or be deemed a cure of any Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall be
subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charge shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement or any of the Additional Agreements, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located
to execute and deliver to MLBFS waivers or subordinations reasonably
satisfactory to MLBFS with respect to any rights in such Collateral.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall be
binding upon, and shall insure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its rights
or delegate any of its obligations under this Loan Agreement or any of the
Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan
Agreement are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly
provided therein, each of the Additional Agreements, shall be governed in all
respects by the laws of the State of Illinois.
() SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
<PAGE>
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) TERM. This Loan Agreement shall be come effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding.
(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATIONS OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER
CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR
FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY
AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES
ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN
THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH
EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH
RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR
ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
(o) INTEGRATION: THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER
ACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN: (I) NO PROMISE
OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE
EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMA LINE
OF CREDIT OR THE MATURITY DATE, OR TO INCREASE THE MAXIMUM WCMA LINE OF CREDIT,
OR OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER OR ANY OTHER PARTY; (II) NO
PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE IN THE MAXIMUM WCMA LINE OF
CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID OR
BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS; AND
(III) THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS
OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF
WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENTS OR
MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH
CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS
AND CUSTOMER.
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
GENESIS MEDIA GROUP, INC. D/B/A "MEN ARE FROM MARS, WOMEN ARE FROM VENUS"
BY: /S/ RAMY EL-BATRAWI
-------------------------------------
Ramy El-Batrawi
-------------------------------------
President
-------------------------------------
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES )
The foregoing instrument was acknowledged before me this day of 11, June AD,
1998 by Ramy El-Batrawi of GENESIS MEDIA GROUP INC. D/B/A/"MEN ARE FROM MARS,
WOMEN ARE FROM VENUS", a Florida corporation, on behalf of the corporation.
Said person is personally known to me or has produced Drivers License as
identification.
- ----------------------------------
NOTARY PUBLIC
/S/ Maria Kuyper
- ----------------------------------
Maria Kuyper
- ----------------------------------
PRINTED NAME OF NOTARY PUBLIC
My Commission Expires: 12/12/01
(Notary Seal)
- ----------------------------------
Accepted at Chicago, Illinois,
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /S/ Kattry Thomas
- ----------------------------------
<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF WCMA NOTE, LOAN AND SECURITY AGREEMENT NO.
230-07D33 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND GENESIS
MEDIA GROUP, INC. D/B/A "MEN ARE FROM MARS, WOMEN ARE FROM VENUS"
- --------------------------------------------------------------------------------
LOCATIONS OF TANGIBLE COLLATERAL:
13063 VENTURA BLVD.
STUDIO CITY, CA 91604
<PAGE>
MERRILL LYNCH
- --------------------------------------------------------------------------------
CERTIFICATE OF SECRETARY
THE UNDERSIGNED HEREBY CERTIFIES TO MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of GENESIS MEDIA GROUP, INC. D/B/A "MEN ARE FROM MARS,
WOMEN ARE FROM VENUS", a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida; and that the following is
a true, accurate and compared transcript of resolutions duly, validly and
lawfully adopted on the 11th day of June, 1998 by the Board of Directors of said
Corporation acting in accordance with the laws of the state of incorporation and
the charter and by-laws of said Corporation:
"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS"), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof; all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature theron, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and THE SIGNATURES SET FORTH BELOW ARE THE
TRUE SIGNATURES OF SAID OFFICERS:
President: /S/ Ramy El-Batrawi
------------------------------------------
Vice President: N/A
-------------------------------------
Treasurer: /S/ Ramy El-Batrawi
------------------------------------------
Secretary: /S/ Ramy El-Batrawi
------------------------------------------
<PAGE>
:
-------------- --------------------------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this 11th day of June, 1998.
(Corporate Seal) /S/ Ramy El-Batrawi
------------------------------------
Secretary
Printed Name: Ramy El-Batrawi
------------------------------------
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF GENESIS MEDIA GROUP, INC.
Genesis Intermedia, Inc., a Florida corporation
Incorporated as of July 6, 1998
Principal Place of Business: 501 S. Dakota Avenue
Tampa, County of Hillsborough
Florida 33606
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 23, 1998 (except for Note 7, as to
which the date is October 27, 1998) accompanying the financial statements of
Genesis Media Group, Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
October 27, 1998
<PAGE>
October 27, 1998
Genesis Media Group, Inc.
13063 Ventura Boulevard
Studio City, California 91604-2238
Gentlemen:
We hereby consent to the use of our name under the captions "Legal
Matters," "Risk Factors--Government Regulation and Legal Uncertainties,"
"Business--Industry Regulation," and "Business-- Legal Proceedings," and the
description of the regulation matters contained in the sections entitled
"Underwriting--Legal Matters," in the Registration Statement and in the
Prospectus which forms a part thereof.
Very truly yours,
HENDERSON & LYMAN
By: /s/Jeffry M. Henderson
-----------------------
Jeffry M. Henderson
<PAGE>
EXHIBIT 24.2
CERTIFIED RESOLUTION
The following is a true and correct copy of a resolution of the Board of
Directors of Genesis Media Group, Inc., a Delaware corporation (the
"Corporation") which was duly adopted pursuant to a Unanimous Written Consent of
the Board of Directors of the Corporation dated October 27, 1998:
RESOLVED FURTHER, that each officer and director of the
Corporation who may be required to sign and execute the Registration
Statement or any amendment thereto or document in connection therewith
(whether for and on behalf of the Corporation, or otherwise), be, and
hereby is, authorized and empowered to execute a power of attorney
appointing Ramy El-Batrawi and Douglas E. Jacobson, or any one of
them, his or her true and lawful attorneys-in-fact and agents to sign
in his or her name, place and stead in any such capacity any and all
amendments (including post-effective amendments) to the Registration
Statement and any and all other documents in connection therewith, and
to file the same with the SEC, each of said attorneys-in-fact to have
the power and authority to do and perform, in the name and on behalf
of such officers and directors who shall have executed such a power of
attorney, every act whatsoever which such attorneys, or either of
them, may deem necessary, appropriate or advisable to be done in
connection therewith as fully as such officers and directors might or
could do in person.
In WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by its Secretary this 27th day of October 1998.
GENESIS MEDIA GROUP, INC.
By: /s/ Ramy El-Batrawi
--------------------------------
Ramy El-Batrawi,
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 101,721 280,289
<SECURITIES> 0 0
<RECEIVABLES> 4,736,533 3,499,776
<ALLOWANCES> 75,000 75,000
<INVENTORY> 336,786 275,579
<CURRENT-ASSETS> 6,243,405 5,522,654
<PP&E> 1,392,972 1,238,234
<DEPRECIATION> 90,381 46,680
<TOTAL-ASSETS> 7,602,499 6,714,208
<CURRENT-LIABILITIES> 3,050,779 2,485,829
<BONDS> 581,849 609,545
0 0
0 0
<COMMON> 4,000 4,000
<OTHER-SE> 3,965,871 3,614,834
<TOTAL-LIABILITY-AND-EQUITY> 7,602,499 6,714,208
<SALES> 8,026,520 18,164,166
<TOTAL-REVENUES> 8,026,520 18,164,166
<CGS> 2,626,498 7,158,561
<TOTAL-COSTS> 4,627,322 8,570,739
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 36,663 33,247
<INCOME-PRETAX> 736,037 2,401,619
<INCOME-TAX> 10,000 35,000
<INCOME-CONTINUING> 726,037 2,366,619
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 726,037 2,366,619
<EPS-PRIMARY> 0.18 0.61
<EPS-DILUTED> 0.18 0.61
</TABLE>
