<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1999
REGISTRATION NO. 333-66281
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
TO
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENESISINTERMEDIA.COM, 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
------------------------
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 APRIL 15, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
, 1999
[LOGO]
[LOGO]
GENESISINTERMEDIA.COM, INC.
2,000,000 SHARES OF COMMON STOCK
We are a marketing company that markets our own products and our clients'
products utilizing conventional media and interactive multimedia technologies.
The underwriters named in this prospectus are initially offering the stock in
the United States and internationally on a firm commitment basis at a price we
currently estimate will be between $7 and $10 per share. All of the common stock
being offered is being sold by us.
This is our initial public offering and no public market currently exists
for our stock. We have applied to have our stock listed on the Pacific Exchange
under the symbol and to have our stock quoted on the Nasdaq National Market
under the symbol GENI.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK AND COULD RESULT IN A LOSS OF
YOUR INVESTMENT. 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 Genesis................................................................... $ $
</TABLE>
- ------------------------
The table does not include a three percent (3%) non-accountable expense
allowance payable to the underwriters. The underwriters may purchase an
additional 300,000 shares solely to cover over-allotments.
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.
MILLENNIUM FINANCIAL GROUP, INC.
HD BROUS & CO., INC.
AMERICAN FRONTEER FINANCIAL CORPORATION
<PAGE>
GenesisIntermedia.com, Genesis Intermedia, Genesis Media, Genesis Media
Group, Centerlinq, the Genesis Media logo and the Genesis Intermedia logo are
trademarks of GenesisIntermedia.com, Inc. Other trademarks referenced in this
prospectus are trademarks of their respective legal owners.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS ONLY A SUMMARY AND YOU SHOULD REFER TO THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND ACCOMPANYING NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS.
GENESISINTERMEDIA.COM, INC.
We are a marketing company that has historically marketed and sold our own
products and those of our clients through conventional media channels. We have
more recently supplemented our marketing efforts with the interactive multimedia
technologies described below. We refer to this innovative blend of marketing
services as an integrated multimedia marketing solution.
As a marketing company, we sell our marketing services and we also may
market, advertise and sell a wide variety of products. The products that we have
marketed and sold or are currently marketing and selling include:
- audio and video cassette packages and accompanying materials based on the
book Men Are From Mars, Women Are From Venus, authored by John M. Gray,
Ph.D.;
- audio and video cassette packages and accompanying materials based on
stock, commodities and real estate investing programs; and
- consumer products, such as skin care and automotive products and exercise
equipment.
In general, interactive multimedia technologies allow businesses to convey a
combination of text, graphics, sound, video and animation content to consumers,
and these technologies permit consumers to actively manipulate this content. For
example, individuals using an interactive multimedia technology may choose to
play a game or to request specific information that is immediately delivered in
an entertaining and engaging format.
Interactive multimedia technologies include:
- compact discs, or CD-ROMs, and digital video discs, or DVDs, which
deliver audio and visual information stored on a disk through a
computer or other device, and
- the Internet, which allows individuals, businesses and governments
throughout the world to communicate with one another in a common
language and offers a wide array of resources to the general public.
The Internet allows any business to open its doors to the world, via an
electronic storefront, and to market its products and services to a group of
individuals who may never have had access to that business' products and
services in any other context. In addition, electronic commerce, or eCommerce,
and the Internet now allow that business to sell its products and services
directly to the customer over the Internet. With some audio, video and textual
content, this sale and the delivery of product can both be immediate.
Through our Centerlinq Network we utilize freestanding Internet access
portals known as kiosks to provide consumers with direct access to the Internet
and to marketing messages that are delivered in an interactive format and
targeted to consumers with a specific demographic profile. The Centerlinq kiosks
provide a window to the Internet via a touch screen computer terminal, which can
be installed in almost any location, such as shopping malls, grocery stores,
schools and city halls. The kiosks provide us and other businesses with
information regarding the preferences and interests of the consumers who utilize
them, which enables these businesses to more successfully target consumers
likely to purchase their products and services in the future.
Our principal executive offices are located at 13063 Ventura Boulevard,
Studio City, California 91604-2238. Our telephone number at that location is
(818) 464-7270.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total common stock offered.......... 2,000,000 shares
Assumed offering price.............. $8.50 per share
Outstanding common stock
Before offering................. 3,310,000 shares, exclusive of options
After offering.................. 5,452,857 shares, exclusive of options, including the
underwriters' over-allotment option, and assuming the
conversion of all outstanding preferred stock.
Use of proceeds..................... The net proceeds to be received by Genesis from the
offering are estimated to be approximately
$14,630,000.
We intend to use approximately $500,000 of the
proceeds for the repayment of outstanding short-term
debt and to distribute approximately $2 million to
existing stockholders for the purpose of paying
income taxes on S corporation ownership earnings.
We intend 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 and using approximately $2.5
million of the proceeds to acquire a computerized
travel-package marketing system.
Proposed Pacific Exchange symbol....
Proposed Nasdaq symbol.............. GENI
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables set forth summary financial data to aid investors in
their analysis of this potential investment. The summary financial data should
be read in conjunction with our complete financial statements and notes included
elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA
Genesis is currently taxed as an S corporation. As an S corporation, our
taxable income is passed through to our individual stockholders who are
responsible for paying federal and state income taxes on their portion of
Genesis's taxable income. Shortly before the closing of the initial public
offering, we will terminate our status as an S corporation and will be subject
to federal and additional state income taxes after that. The pro forma
information reflects our net income (loss) and earnings per share as if we were
taxed as a C corporation. The income tax rate used is 40% which approximates the
federal and state income tax rates for the respective periods. See note 11 to
the financial statements.
The basis for the determination of stock used in computing net earnings
(loss) per share in the following table is described in note 1 to the financial
statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1995 1996 1997 1998
------------- ----------- --------- ---------
1994 (UNAUDITED)
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total net revenue..................................... $ 332 $ 8,665 $ 14,342 $ 18,164 $ 14,906
Income (loss) from operations......................... (149) 111 386 2,435 1,592
Net income (loss)..................................... $ (151) $ 93 $ 386 $ 2,367 $ 1,427
Basic earnings (loss) per share....................... $ (0.04) $ 0.02 $ 0.10 $ 0.57 $ 0.35
Diluted earnings (loss) per share..................... $ (0.04) $ 0.02 $ 0.10 $ 0.57 $ 0.35
Shares used in computing earnings (loss) per share.... 3,883 3,883 3,883 4,119 4,083
Pro forma net income (loss)........................... $ (151) $ 93 $ 232 $ 1,441 $ 874
Pro forma basic earnings (loss) per share............. $ (0.04) $ 0.02 $ 0.06 $ 0.35 $ 0.21
Pro forma diluted earnings (loss) per share........... $ (0.04) $ 0.02 $ 0.06 $ 0.35 $ 0.21
</TABLE>
BALANCE SHEET DATA
The following pro forma balance sheet data are adjusted to give effect to
the private placement of 250,000 shares of common stock in January 1999 at $7
per share, net of commissions and expenses of $201,250 and 142,857 shares of
convertible preferred stock in April 1999 at $7 per share, net of commissions
and expenses of $115,000. See note 9 to the financial statements.
The pro forma as adjusted balance sheet data are also adjusted to give
effect to:
- the pro forma adjustments described in the preceding paragraph;
- the sale of 2,000,000 shares of common stock in this offering at an
assumed initial public offering price of $8.50 per share, after deducting
underwriting discounts and commissions and estimated offering expenses
payable by Genesis; and
- the conversion of 142,857 shares of convertible preferred stock into
142,857 shares of common stock
- the application of the estimated net proceeds, 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 income that was passed
through to the individual stockholders.
5
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, 1998
-------------------------------------------------------- ----------------------------
1995 1996 1997 ACTUAL PRO FORMA
------------- ------------- --------- ------------- -------------
1994 (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........... $ 58 $ (53) $ 334 $ 3,037 $ 2,449 $ 4,883
Current assets...................... 176 390 708 5,523 6,690 9,124
Total assets........................ 226 409 726 6,714 9,988 12,421
Current liabilities................. 118 443 374 2,486 4,241 4,241
Long-term debt...................... 237 -- -- 609 1,056 1,056
Stockholders' equity (deficit)...... (129) (34) 352 3,619 4,691 7,124
<CAPTION>
AS ADJUSTED
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)........... $ 17,513
Current assets...................... 21,254
Total assets........................ 24,551
Current liabilities................. 3,741
Long-term debt...................... 1,056
Stockholders' equity (deficit)...... 19,754
</TABLE>
6
<PAGE>
RISK FACTORS
WE HAVE GENERATED LITTLE REVENUE TO DATE FROM OUR RECENT EXPANSION INTO NEW
INTERACTIVE MULTIMEDIA MARKETS
In 1998, we commenced expansion of our media offerings into interactive
multimedia technologies, including the Internet, interactive kiosks through our
Centerlinq Network, CD-ROMs and DVDs to businesses seeking to conduct electronic
commerce. The expansion included the formation of our Genesis Intermedia, Inc.
subsidiary. However, revenue generated by this subsidiary has not been
significant, nor have we generated revenue from our audio and video download and
streaming capabilities. We also expect to continue to invest in our
infrastructure and expansion and experience losses in these areas in 1999.
WE HAVE GENERATED MINIMAL REVENUE AND EXPECT TO CONTINUE EXPERIENCING OPERATING
LOSSES FROM OUR RECENT ACQUISITION OF VISION DIGITAL AND ANIMAGIC ASSETS
We recently acquired substantially all of the assets of Vision Digital
Communications, Inc. and AniMagic Corporation. Revenue generated from these new
operations has been minimal and we have experienced and expect to continue to
experience in 1999 operating losses in these start-up areas. See
"Business--Acquisitions and Alliances."
WE ARE HIGHLY DEPENDENT ON OUR CHIEF EXECUTIVE OFFICER TO EXECUTE ON OUR
BUSINESS PLAN
Our ability to maintain our competitive position is dependent on the
services of our senior management, in particular our chief executive officer,
Ramy El-Batrawi. Mr. El-Batrawi has been principally responsible for developing
our corporate vision and leading our product and personnel growth to date.
Although we have a $4 million key-man life insurance policy covering Mr.
El-Batrawi, $900,000 of which is allocated to payment of the mortgage on our
headquarters, and we are developing a strong management team around him, the
loss of Mr. El-Batrawi would be extremely damaging to us at our early stage of
growth.
OUR CONCENTRATION OF REVENUES IN A SMALL NUMBER OF PRODUCTS AND CLIENTS
INCREASES OUR DEPENDENCE ON EACH SINGLE PRODUCT'S SUCCESS AND OUR RELIANCE ON
THE SUCCESS OF OUR DIVERSIFICATION STRATEGY
A relatively small number of clients and products have historically
contributed significantly to our revenues. 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 our largest products or clients, and this is not replaced by new
products or client accounts or an increase in business from existing products or
clients, then it will have a significant adverse impact on us. In 1997, the two
largest products, Men Are From Mars, Women Are From Venus and Trade Your Way to
Riches, constituted approximately 89% of our total revenues. Selling media time
to Trade Your Way to Riches, Inc. and the Trade Your Way to Riches line of
products constituted approximately 41% of our revenue in 1997 and approximately
25% of our revenue in 1998. Our majority stockholder owns Trade Your Way To
Riches, Inc. In late 1998, we acquired the rights to 13 new products and revenue
from Trade products in the first quarter of 1999 declined to less than 1% of our
revenue and is expected to contribute little or none of our revenue in the
future. However, because we intend to continue to rely on broad-or multi-market
products like the Men From Mars and Trade product lines, it is possible that our
dependence on revenues from a limited number of products will continue in the
future. If we fail to diversify our product line and client base, we may
continue to be at risk that the loss or under performance of a single product or
client may materially affect us.
WE HAVE DERIVED A SUBSTANTIAL PORTION OF OUR REVENUE TO DATE FROM RELATED PARTY
TRANSACTIONS
Selling media time to Trade Your Way To Riches, Inc., a corporation owned by
our majority stockholder, represented none of our revenue in 1996, approximately
41% in 1997 and approximately 25% in 1998. In addition, in 1997 and
7
<PAGE>
1998, revenue from Trade represented approximately 90% and 78% of our revenue
from telemarketing for products owned by our clients. Although total revenue
related to Trade in the first quarter of 1999 had declined to less than 1% of
total revenue, and we anticipate that such revenue will continue to represent
less than 1% of future revenue, we have only since October 1998 begun selling
media time to a significant number of new clients and we have only recently
begun marketing the new products we acquired in the third quarter of 1998. Any
inability to continue media sales to third parties or failure of our new
products could significantly and adversely affect us.
BECAUSE OF OUR UNIQUE BUSINESS STRUCTURE INVOLVING SALES AND MARKETING FOR OUR
OWN AND THIRD PARTIES' DIVERSE PRODUCTS AND SERVICES, OUR AMBITIOUS
ACQUISITION STRATEGY AND OUR NEW ENTRY INTO SIGNIFICANT NEW MARKETS, WE EXPECT
OUR QUARTERLY RESULTS TO FLUCTUATE
We believe that our business structure of offering integrated multimedia
marketing solutions for our own and third parties' disparate products and
services is unique. We believe the uniqueness of this structure, as well as the
inherent uncertainty of forecasting product sales generally, will make quarterly
forecasts difficult and quarterly results will fluctuate. We expect these
fluctuations to be exaggerated as we execute on our acquisition strategy, which
will involve direct expenses, as well as new product development and marketing
expenses. The magnitude and timing of these expenses will vary. Integration of
disparate products, services and distribution channels we may internally
develop, acquire or contract with third parties to market, will also contribute
to the unpredictability of our quarterly results.
IF THE MARKETING CHANNELS OR TECHNOLOGIES WE SELECT OR IMPLEMENT DO NOT RECEIVE
SUFFICIENT MARKET ACCEPTANCE, WE MAY NOT BE COMPETITIVE
We are developing integrated multimedia marketing solutions that we believe
will be competitive. This development includes choices about the right marketing
channel--such as our Centerlinq Network kiosk program for deployment in regional
shopping malls and other public access areas--and the right technology to
exploit that channel--the Internet and the interface of the kiosks. A number of
factors related to those choices may adversely affect our competitiveness,
including:
- rapid technological changes that make these or future offerings of ours
obsolete;
- changes in or mistakes in gauging user and client requirements and
preferences; and
- frequent new product and service introductions by others or evolving
industry standards and practices in our emerging markets that may promote
adoption of technologies other than those we have chosen.
WE ARE DEPENDENT FOR OUR REVENUE ON ORAL AGREEMENTS THAT ARE TERMINABLE AT WILL
BY OTHER PARTIES AND WE MAY NOT BE ABLE TO TIMELY REPLACE THESE REVENUES
We frequently market products on the basis of oral agreements that may be
terminated by either party at any time, and we have no written contracts
relating to our sale of media time to clients. Because of those terminable
arrangements, any of our clients may discontinue utilizing us and our services
at any time in the future.
THE LIMITED EXPERIENCE OF THE LEAD MANAGING UNDERWRITER MAY ADVERSELY AFFECT THE
TRADING MARKET FOR THE COMMON STOCK
Although the co-managing underwriters have previously lead-managed public
offerings and have worked with the lead managing underwriter in prior public
offerings, the lead managing underwriter has never previously acted as the lead
managing underwriter of a public offering and has had limited experience in
acting as an underwriter in public offerings of securities. If the lead managing
underwriter and its co-managers are unable to effectively place the common stock
in the offering, the after-market for the common stock may be negatively
affected. See "Underwriting."
8
<PAGE>
THE CONTINUING INFLUENCE OF MILLENNIUM OVER US MAY ADVERSELY AFFECT US OR LIMIT
OUR ABILITY TO OBTAIN NEEDED FINANCING
Millennium Financial Group, Inc., the lead managing underwriter, will
continue to have influence over us following the offering. This influence may
adversely affect our business or ability to obtain future financing. This
influence results from the following factors:
- Millennium will be able to appoint a member of the board of directors for
a five-year period;
- Millennium has the right to have an observer present at all meetings of
our board of directors;
- Millennium will receive warrants to purchase 200,000 shares of common
stock, for a nominal consideration, exclusive of the over-allotment
option;
- Millennium can refuse to allow us to sell or offer any securities over a
12-month period after the date of the prospectus; and
- Millennium has demand and piggyback registration rights with respect to
its Genesis securities.
PRIOR TO THIS OFFERING, WE HAVE NOT BEEN ABLE TO RAISE SUFFICIENT CAPITAL TO
EXECUTE ON OUR AMBITIOUS GROWTH STRATEGY
Although we believe our available cash resources and credit facilities,
combined with the net proceeds from this offering, will be sufficient to meet
our presently anticipated working capital and capital expenditure requirements
through 1999, because of our ambitious growth strategy we may need to raise
additional capital, even prior to that time. Unless the success of this offering
and our continued operations change our ability to raise capital in the future,
this additional funding may not be available on terms acceptable to us, or at
all, and may involve additional risks.
If adequate funds are not available on acceptable terms, we may be unable to
develop or enhance our services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
significant negative impact.
A PENDING COMMODITY FUTURES TRADING COMMISSION INVESTIGATION MAY INVOLVE
ADDITIONAL EXPENSE, MANAGEMENT DIVERSION OR LIMITS ON OUR BUSINESS
We may also be subject to regulation by the Commodity Futures Trading
Commission, which regulates commodities trading. On November 14, 1997, the CFTC
issued an order authorizing the issuance of subpoenas and depositions in a
private investigation involving Jake Bernstein and MBH Commodity Advisors.
Although the order does not reference Genesis, its employees or affiliates, the
CFTC has nonetheless requested that we provide various documents arising out of
our involvement in the production and marketing of an infomercial titled Success
and You which promotes and markets a video series titled Trade Your Way To
Riches. The infomercial Success and You involves the marketing of videos which
provide instruction regarding trading strategies. The CFTC has contended that,
by virtue of our activities in producing and marketing the video, we may be
required to be registered in some capacity with the CFTC. In the event that the
CFTC brings an enforcement action against us by virtue of our failure to
register, or against Trade Your Way To Riches, Inc., with whom we have in the
past done significant business and which is owned by our majority stockholder,
any adverse determination or settlement could adversely affect us. The range of
possible sanctions available to the CFTC in enforcement actions generally
include a simple request to become registered, a cease and desist order-- which
may, if successfully applied to us or Trade, terminate sales of some Trade Your
Way To Riches products or services--and a possible order of disgorgement of
profits--which could, again if applied to us, result in substantial payments by
us. The CFTC may still bring an enforcement action against us or we may seek to
settle the matter. Based on our analysis of all of the facts and legal advice
from our regulatory counsel, we believe that the CFTC proceeding can be settled
on terms that will not materially adversely affect us, or that, if not settled,
the final resolution will not have a material adverse effect on us. See
"Business--Legal proceedings."
9
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of many factors, including those
set forth in the preceding "Risk Factors" section and elsewhere in this
prospectus. In evaluating our business, prospective investors should consider
carefully the factors presented in the "Risk Factors" section in addition to the
other information set forth in this prospectus.
USE OF PROCEEDS
The net proceeds to us from this offering, assuming an initial public
offering price of $8.50 per share and after deducting applicable underwriting
discounts and commissions, the non-accountable expense allowance and estimated
offering expenses payable by us, are estimated to be approximately $14.63
million. We intend to use the proceeds as set forth in the following table. All
amounts in the table are approximate and the actual uses may vary, depending on
a number of factors, including management determinations and business
developments.
<TABLE>
<CAPTION>
NET PERCENTAGE OF
USE PROCEEDS NET PROCEEDS
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Repayment of short-term debt........................................................ $ 500,000 3.42%
S corporation distribution.......................................................... 2,000,000 13.67
Centerlinq kiosk development/deployment............................................. 2,000,000 13.67
Expansion of operations............................................................. 2,000,000 13.67
Development and acquisition of new products......................................... 1,000,000 6.83
Contour System acquisition.......................................................... 2,500,000 17.09
Acquisitions........................................................................ 2,525,000 17.26
General corporate purposes.......................................................... 2,105,000 14.39
------------- ------
------------- ------
Total........................................................................... $ 14,630,000 100.00%
</TABLE>
As of March 31, 1999, there was an aggregate of $750,000 outstanding under
our credit facilities, which bore interest at the lender's "prime rate" plus
2.90% per annum. The approximately $2 million distribution to existing
stockholders is to pay income taxes on undistributed S corporation earnings. We
anticipate using the approximately $2 million for our Centerlinq Network kiosk
development and deployment over 18 months to develop and deploy interactive
multimedia kiosks in regional shopping malls across the United States and other
entertainment centers. We intend to expand our operations in 1999 through the
lease or acquisition of additional space for telephone service representatives
and supporting infrastructure. We expect other expenditures for expansion of
operations to include expenses associated with technology enhancement and
development and new employee hirings. Except for the Contour System acquisition,
we have not identified any other specific acquisition targets. We intend to
invest the proceeds of the offering in short-term U.S. government obligations
pending their ultimate use.
DIVIDEND POLICY
We have no current intention following our conversion to C corporation
status to declare or pay dividends on our common stock, other than the
approximately $2 million distribution out of the proceeds of the offering to our
existing stockholders for the purpose of paying income taxes on undistributed S
corporation earnings. We currently anticipate that we will retain any future
earnings for use in our business. As a result, we do not anticipate paying any
cash dividends in the foreseeable future. Any determination to pay dividends in
the future will be at the discretion of our board of directors and will depend
upon, among other factors, our results of operations, financial condition,
capital requirements and contractual restrictions under our credit facilities.
10
<PAGE>
CAPITALIZATION
The table set forth below shows our capitalization as of December 31, 1998.
The adjustments for the pro forma presentation and for the adjusted pro
forma presentation are described in detail in the introductory narrative to the
Summary Financial Data on pages 5 and 6. In accordance with Staff Accounting
Bulletin Topic 4.B, 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.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -------------
<S> <C> <C> <C>
Long-term debt.................................... $ 1,056,358 $ 1,056,358 $ 1,056,358
------------ ------------ -------------
Stockholders' equity
Convertible preferred stock, $.001 par value,
5,000,000 shares authorized, 0, 142,857 and 0,
respectively, shares issued and outstanding... 0 143 0
Common stock, $.001 par value 25,000,000 shares
authorized 3,060,000, 3,310,000 and 5,452,857,
respectively, shares issued and outstanding... 3,060 3,310 5,453
Additional paid-in capital........................ 1,521,522 3,954,879 19,748,844
Retained earnings................................. 3,165,965 3,165,965 --
------------ ------------ -------------
Total stockholders' equity...................... 4,690,547 7,124,297 19,754,297
------------ ------------ -------------
Total capitalization............................ $ 5,746,905 $ 8,180,655 $ 20,810,655
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
11
<PAGE>
DILUTION
On a pro forma basis at December 31, 1998, assuming the conversion of
142,857 shares of convertible preferred stock upon the consummation of this
offering, there were 3,452,857 shares of our common stock outstanding, having a
net tangible book value per share of $1.96. Net tangible book value per share
represents the amount of our 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 our common stock
under this offering at an assumed price of $8.50 per share and the application
of the net proceeds, there would be a total of 5,452,857 shares of common stock
outstanding with a net tangible book value of $3.56 per share. This would
represent an immediate increase in net tangible book value of $1.60 per share to
existing stockholders and an immediate dilution of $4.94 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...................... $ 8.50
Net tangible book value per share as of December 31,
1998..................................................... $ 1.96
Increase attributable to new investors..................... 1.60
---------
Pro forma net tangible book value per share after this
offering................................................... 3.56
---------
Dilution per share to new investors.......................... $ 4.94
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 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....... 3,452,857 63.32% $ 4,274,582 20.09% $ 1.24
New investors............... 2,000,000 36.68% 17,000,000 79.91% $ 8.50
---------- --------- ------------- ---------
Total..................... 5,452,857 100.00% $ 21,274,582 100.00%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
The preceding table assumes no exercise of any stock options outstanding as
of December 31, 1998. As of March 31, 1999, there were options outstanding to
purchase a total of 450,000 shares of common stock, with a weighted average
exercise price of $8.79 per share. If all options outstanding as of March 31,
1999 had been exercised as of such date, the dilution per share to new investors
in the offering would be $4.55. On October 1, 1998, we adopted a stock incentive
program under which 500,000 shares of common stock were reserved for issuance.
The number of shares of common stock reserved for issuance under the program was
increased in January 1999 to 600,000. Options with respect to 250,000 of these
shares were granted and outstanding as of December 31, 1998 and options with
respect to an additional 100,000 of these shares were granted in January 1999.
To the extent options are granted and subsequently exercised or shares are
issued under the program, new investors may experience further dilution.
12
<PAGE>
SELECTED FINANCIAL DATA
We are providing the following selected financial data to aid investors in
their analysis of this potential investment. This information was derived from
(1) our 1998, 1997 and 1996 historical financial statements and (2) our
internally prepared unaudited financial statements for the years ended December
31, 1995 and 1994. Our financial statements for the years ended December 31,
1998, 1997 and 1996 with the accompanying notes and the related reports of
Singer Lewak Greenbaum & Goldstein LLP, independent certified public
accountants, are included elsewhere in the prospectus. Our unaudited financial
statements, in the opinion of management, include all adjustments, which consist
of normal recurring adjustments, necessary for a fair presentation of our
financial position and results of operations for the unaudited 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 15 and our financial statements and related notes included
elsewhere in the prospectus. The basis for the presentation of the following pro
forma financial data and the adjustments to the pro forma data are set forth on
page 5.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998
----------- --------- --------- ---------
1994 (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 $ 3,703
Media sales...................................................... -- -- -- -- 1,220
Product sales.................................................... 149 8,268 13,152 8,252 6,326
Commissions and royalties--affiliate............................. -- -- -- 742 1,789
Commissions and royalties........................................ 183 325 79 1,738 1,855
Other............................................................ -- 72 1,111 20 13
----------- ----------- --------- --------- ---------
Total net revenue.............................................. 332 8,665 14,342 18,164 14,906
Operating costs and expenses
Media purchases.................................................. -- -- -- 6,445 4,198
Direct costs..................................................... 53 1,264 1,842 713 937
Selling, general and administrative.............................. 428 7,290 12,114 8,571 8,179
----------- ----------- --------- --------- ---------
Total operating costs and expenses............................. 481 8,554 13,956 15,729 13,314
----------- ----------- --------- --------- ---------
Income (loss) from operations...................................... (149) 111 386 2,435 1,592
Interest expense................................................... 2 18 -- 33 135
----------- ----------- --------- --------- ---------
Income before taxes................................................ (151) 93 386 2,402 1,457
Income taxes....................................................... -- -- -- 35 30
----------- ----------- --------- --------- ---------
Net income (loss).................................................. $ (151) $ 93 $ 386 $ 2,367 $ 1,427
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Basic earnings (loss) per share.................................... $ (0.04) $ 0.02 $ 0.10 $ 0.57 $ 0.35
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Diluted earnings (loss) per share.................................. $ (0.04) $ 0.02 $ 0.10 $ 0.57 $ 0.35
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Weighted average shares outstanding................................ 3,883 3,883 3,883 4,119 4,083
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
PRO FORMA
Income before taxes................................................ $ (151) $ 93 $ 386 $ 2,402 $ 1,457
Pro forma income taxes............................................. -- -- 154 961 583
----------- ----------- --------- --------- ---------
Pro forma net income (loss)........................................ $ (151) $ 93 $ 232 $ 1,441 $ 874
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Pro forma basic earnings (loss) per share.......................... $ (0.04) $ 0.02 $ 0.06 $ 0.35 $ 0.21
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
Pro forma diluted earnings (loss) per share........................ $ (0.04) $ 0.02 $ 0.06 $ 0.35 $ 0.21
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
13
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31, 1998
------------------------------------------------------ -------------------------
1997 ACTUAL
1994 1995 1996 --------- ----------- PRO FORMA
------------- ------------- ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit)................. $ 58 $ (53) $ 334 $ 3,037 $ 2,449 $ 4,883
Current assets............................ 176 390 708 5,523 6,690 9,124
Total assets.............................. 226 409 726 6,714 9,988 12,421
Current liabilities....................... 118 443 374 2,486 4,241 4,241
Long-term debt............................ 237 -- -- 609 1,056 1,056
Stockholders' equity (deficit)............ (129) (34) 352 3,619 4,691 7,124
<CAPTION>
AS ADJUSTED
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit)................. $ 17,513
Current assets............................ 21,254
Total assets.............................. 24,551
Current liabilities....................... 3,741
Long-term debt............................ 1,056
Stockholders' equity (deficit)............ 19,754
</TABLE>
14
<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 THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. OUR 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 company that utilizes conventional media and
emerging, interactive multimedia technologies to market our own products and our
clients' products. The interactive multimedia technologies we use include the
Internet, and CD-ROMs and DVDs. 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 buying
media time, managing inventory levels and contracting 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;
- 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; and
- focused our advertising on markets that yielded higher responses, which
significantly reduced advertising costs.
During the later part of 1997, after creating our infrastructure, we began
contracting with other companies to sell their products via our outbound
telemarketing capabilities. In performing these services we are typically given
a database of customer names and telephone numbers from the contracting company
and we receive a sales commission ranging from 35% to 70%. Through December 31,
1998, approximately $2.53 million or 41% of the commission and royalty 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 merketing
solutions--marketing and sales plans and capabilities that allow businesses to
convey a combination of text, graphics, sound, video and animation content
15
<PAGE>
to their customers in a way that the customers can actively manipulate or
interact with the content. Through our subsidiary we are exploiting digital
media to market and distribute our and our clients' products and services via
the Internet and other interactive delivery platforms, including interactive
publicly available kiosks through our Centerlinq Network, and CD-ROMs and DVDs.
We design these solutions to provide targeted consumers with an innovative
introduction to our client's products or services. The solutions are intended to
strengthen and broaden our customer base and significantly increase our Internet
presence. Each multimedia solution enables us and our clients to promote and
sell products or services to large target markets more efficiently and
effectively than is possible through conventional media. Through December 31,
1998, revenue generated by our newly formed Genesis Intermedia subsidiary was
approximately $151,000.
Historically, our sales have generally been seasonal, reflecting the media
buying patterns of advertisers and are concentrated in the second and fourth
quarters. The third quarter has historically been the slowest quarter of the
year. Our historical revenues were also dependent on a small number of products.
During the latter part of 1998, we focused our efforts on identifying and
acquiring additional products we can sell during 1999. We were successful in
adding four new telemarketing campaigns and a total of 13 new products to our
existing product line. The Company has acquired the rights to distribute these
products and has agreed to pay royalties of approximately 5% of net sales to the
licensors of the products. These products include, for example, a memory
improvement program, a money management program, an educational line of DVDs and
the Hawaiian Tropic swimwear line. Genesis will market these products using
integrated multimedia technology, as well as conventional media, such as
television and print advertisements, and through retail distribution outlets.
Each of the new telemarketing campaigns has also been market tested and is
currently generating revenue. While our revenue in the year ended December 31,
1998 was below 1997, we expect our revenue to increase in 1999 from the sale of
media time to third parties and from sales of our new products.
We recently completed the acquisitions of assets of Vision Digital
Communications, Inc., a company that places interactive kiosks in shopping
malls, and AniMagic Corporation, an interactive technology company. In addition,
in April 1999 we entered into a strategic alliance with Global Liesure Travel,
Inc., a leading travel company, which grants us the right to be the exclusive
e-Commerce marketing and advertising agent for Global and grants us an option to
purchase all of the assets comprising its computerized Contour System
travel-package marketing system. Global's majority stockholder is a company that
is wholly owned by Mr. El-Batrawi. We will continue to evaluate acquisition
opportunities that will enable us to expand our core multimedia marketing
capabilities, our product offerings and the geographic scope of our operations.
We plan to acquire well-regarded niche companies or leaders in specific
marketing and communications disciplines as well as products or services which
we believe have strong earnings potential. We will also review joint venture and
strategic alliance possibilities.
Genesis has five primary potential revenue generating sources:
1. INTEGRATED MARKETING SOLUTIONS. We have historically utilized conventional
media to fulfill our and our clients' marketing needs. We have recently
expanded our distribution capability to include an Internet-based eCommerce
solution through which we can market and expand our product line. In
addition, we will offer Internet-based marketing and advertising to our
current clients as well as target new sources for Internet-based marketing
and advertising.
2. CD-ROMS AND DVDS. We produce and sell CD-ROM- and DVD-based entertaining
educational programs known as edutainment.
16
<PAGE>
3. 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.
4. PUBLIC ACCESS COMMUNICATIONS NETWORKS. Through our Centerlinq Network, we
have placed and we plan to continue to place interactive kiosks in regional
shopping malls throughout the United States and other entertainment centers.
The Centerlinq 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. In addition, these kiosks
expose retail shoppers to eCommerce and integrate the physical shopping
experience with interactive options. We earn revenue from the sale of
advertising space and a percentage of the merchandise sales made through the
kiosks. Based upon our negotiations with management companies managing
regional shopping malls in various regions in the United States and the
prospect for deploying a network of kiosks that may attract national
advertising revenue, we expect these kiosks to generate significant revenue
in the future.
5. 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 revenue from this streaming and
downloading technology.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VS. YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF NET
YEAR ENDED DECEMBER 31, REVENUE
------------------------ --------------------
1997 1998 1997 1998
----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUE
Media sales--affiliate............................................... $ 7,412 $ 3,703 40.8% 24.8%
Media sales.......................................................... -- 1,220 0.0% 8.2%
Product sales........................................................ 8,252 6,326 45.4% 42.4%
Commissions and royalties--affiliate................................. 742 1,789 4.1% 12.0%
Commissions and royalties............................................ 1,738 1,855 9.6% 12.5%
Other................................................................ 20 13 0.1% 0.1%
----------- ----------- --------- ---------
Total net revenue.................................................. 18,164 14,906 100.0% 100.0%
OPERATING COSTS AND EXPENSES
Media purchases...................................................... 6,445 4,198 35.5% 28.1%
Direct costs......................................................... 713 937 3.9% 6.3%
Selling, general and administrative.................................. 8,571 8,179 47.2% 54.9%
----------- ----------- --------- ---------
Total operating costs and expenses................................. 15,729 13,314 86.6% 89.3%
----------- ----------- --------- ---------
INCOME FROM OPERATIONS................................................. 2,435 1,592 13.4% 10.7%
Interest expense....................................................... 33 135 0.2% 0.9%
----------- ----------- --------- ---------
Income before taxes.................................................... 2,402 1,457 13.2% 9.8%
Income taxes........................................................... 35 30 0.2% 0.2%
----------- ----------- --------- ---------
Net Income............................................................. $ 2,367 $ 1,427 13.0% 9.6%
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
Revenue for the year ended December 31, 1998 decreased by $3,258,000 or
17.9% from $18,164,000 for the year ended December 31, 1997 to $14,906,000 for
the same period in 1998. The decrease in revenue was due to the following:
- Commissions and royalties--affiliate increased $1,047,000 principally from
commissions received from the sale of mentoring programs for the Trade
Your Way To Riches products. The increase
17
<PAGE>
in revenue is due to this affiliate company purchasing names and phone
numbers of potential customers and contracting with us to sell its
products and mentoring services through our outbound telemarketing
capabilities. We receive a commission ranging from 35% to 55% for the sale
of these products and mentoring programs. The mentoring programs give the
customer unlimited access during business hours for periods ranging from
three to 12 months to mentors who can help the customer understand and
utilize the audio and video tapes and materials sold by Trade Your Way To
Riches, Inc. During the fourth quarter of 1998 we discontinued selling of
these mentoring programs for Trade Your Way To Riches, Inc.;
- Media sales to unrelated third parties increased from $0 in 1997 to
$1,220,000 in 1998 due our hiring of personnel with media buying
experience and contacts in the industry. We expect media sales to
unrelated third parties to increase significantly in 1999 as we obtain
additional capital with which to purchase larger blocks of media time to
resell;
- Media sales to a company owed by our majority stockholder decreased
$3,709,000 as a result of this company purchasing less media time and
focusing more on outbound telemarketing sales. This affiliated company
that purchased media from us was able to purchase names and phone numbers
of potential buyers for its products and, therefore, used its resources on
outbound telemarketing to increase sales rather than purchasing media time
to advertise its products. Media sales to affiliates are expected to
decrease significantly in 1999.
- Product sales decreased $1,926,000 principally as a result of focusing our
efforts in the latter part of 1998 to expand our product line by
identifying and acquiring new products to sell. Promoting our products
through the use of infomercials is capital intensive due to the need to
prepay for media airtime. During the latter part of 1998, we used more of
our resources to acquire new products and to create our Genesis
Intermedia, Inc. subsidiary. As a result, we spent less money on
advertising our current products that resulted in lower product sales.
Sales from our Men Are From Mars, Women Are From Venus product line
decreased by $5,176,000 in 1998, which was offset by an increase in sales
from our new products of $3,250,000. With the acquisition of new products,
the new sources of income that will result from Genesis Intermedia and the
availability of resources to market and advertise all of our old and new
products, we expect our product sales to increase in 1999.
Media purchases for the year ended December 31, 1998 decreased by $2,247,000
or 34.9% from $6,445,000 for the year ended December 31, 1997 to $4,198,000 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 year ended December 31, 1998 increased by $224,000 or
31.4% from $713,000 for the year ended December 31, 1997 to $937,000 for the
same period in 1998. The increase was due to direct costs being approximately
15% of product sales for the year ended December 31, 1998 compared to 9% for the
same period in 1997. The increase is principally due to the change in product
mix. During the latter part of 1998 we began selling new products that had a
higher cost of goods sold. Direct costs in the future are expected to be 15%-20%
of product sales.
Selling, general and administrative expenses for the year ended December 31,
1998 decreased by $392,000 or 4.6% from $8,571,000 for the year ended December
31, 1997 to $8,179,000 for the same period in 1998. The decrease was due
principally to an increase in payroll and related benefits of $1,750,000 offset
by a decrease of $2,488,000 in advertising expenses. 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 a third party, but
also to staff our expanding operations. 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 and reduced our advertising costs. In
addition, in the latter part of 1998 we focused our efforts on expanding our
product line by identifying and acquiring new products to sell that resulted in
less money being spent on advertising our older products. We also
18
<PAGE>
created our Genesis Intermedia, Inc. subsidiary in July 1998. From inception to
December 31, 1998, our subsidiary incurred $422,000 in selling, general and
administrative expenses.
Interest expense for the year ended December 31, 1998 increased by $102,000
or 309.1% from $33,000 for the year ended December 31, 1997 to $135,000 for the
same period in 1998. The increase in interest expense was due to the issuance of
notes payable for the purchase of an automobile and the corporate office
building, the line of credit, and notes payable and capitalized lease
obligations assumed as a result of our purchase of Vision Digital assets.
Income taxes for the year ended December 31, 1998 decreased by $5,000 or 15%
from $35,000 for the year ended December 31, 1997 to $30,000 for the same period
in 1998. We were 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 year ended December 31, 1998 decreased by $940,000 or
39.7% from $2,367,000 for the year ended December 31, 1997 to $1,427,000 for the
same period in 1998. The decrease is principally due to lower sales and
increased selling, general and administrative expenses incurred as a result of
the creation of our Genesis Intermedia, Inc. subsidiary.
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--affiliate..................................... -- 742 -- 4.1%
Commissions and royalties................................................ 79 1,738 0.6% 9.6%
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>
Revenue 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--affiliate increased $742,000 due to increased
commissions received from the sale of mentoring services for a company
owned by our majority stockholder;
- Commissions and royalties increased $1,656,000 principally from sales of
customer names to an unrelated third party totaling $689,000 and an
increase in royalty income totaling $880,000;
19
<PAGE>
- 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 marketing 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. We had entered into joint venture agreements
where we received a percentage of the operating profits from the sale of
products. These agreements were discontinued in early 1997.
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 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 financed our operations initially from cash generated from operations.
More recently, we have financed operations through the sale of common and
preferred 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
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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 (29,126 of which were surrendered on November 1, 1998) 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 May 1, 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
our assets, except our office building, and the loan is guaranteed by our
majority stockholder. As of December 31, 1998, we had $79,965 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. In January 1999, we sold 250,000 shares of common
stock in a private placement at $7 per share for an aggregate of $1,750,000,
with underwriting commissions and expenses of $201,250 and in April 1999 we sold
142,857 shares of convertible preferred stock in a private placement at $7 per
share for an aggregate of $1,000,000 with underwriting commissions and expenses
of $115,000.
At December 31, 1998, we had an accounts receivable from affiliate of
$1,676,219 which was a decrease of $707,444 from the balance at December 31,
1997. The decrease in accounts receivable from affiliate is due to us not
selling as much media to this affiliate in the fourth quarter of 1998 and
discontinuing the sale of this affiliate's mentoring program in the fourth
quarter of 1998 for which we received a commission. Generally, we are not paid
our commission on these sales for 90 to 120 days, which is longer than the
payment cycle for media sales to this affiliate. We believe the amounts due from
affiliate are fully collectible and these amounts are secured by a pledge of the
affiliate's mailing list and an option to purchase that list.
During the years ended December 31, 1998 and 1997, we spent $345,554 and
$1,210,846, respectively, on capital expenditures and provided (used) $2,373,582
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. Under our
employment agreements with Mr. El-Batrawi, as well as two employees retained as
a result of the acquisition of certain of the assets of Vision Digital
Communications, Inc., we are committed to paying annual salaries totalling
$418,000 in each of the next three years and $250,000 in the year 2002 and for
the nine months ended September 30, 2003.
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 or Y2K issue. We are also
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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. We are 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. We also rely on our own
computer systems. We expect to complete our Year 2000 compliance program by
mid-1999 and anticipate that our total expenditures on such program will not
exceed $20,000. However, we may experience cost overruns or delays in the
future, which could have a material adverse effect on us. 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 or may cost substantially more to
remedy than the amount we anticipate. Failure to satisfactorily address the Year
2000 issue could have a material adverse effect on us.
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. For the year ended December 31, 1998, we adopted SFAS No.
130. Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments, minimum pension liability adjustments, and
unrealized gains and losses on available-for-sale securities. Comprehensive
income is not presented in our financial statements since we did not have any
changes in equity from non-owner sources.
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. For the year ended
December 31, 1998 we adopted this statement which had no impact 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 some 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.
In February 1999, the FASB issued SFAS No. 135, "Recession of FASB Statement
No. 75 and Technical Corrections." This statement is not applicable to us.
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BUSINESS
GENERAL
We market, advertise and sell our own products and those of our clients
utilizing conventional media and interactive multimedia technologies. We refer
to this innovative blend of marketing services as an integrated multimedia
marketing solution. While we have historically utilized conventional media to
fulfill our own and our clients' marketing needs, and will continue to do so, we
have focused more recently on providing innovative multimedia solutions to
businesses, including ourselves, seeking to conduct eCommerce through a variety
of interactive platforms. These interactive platforms include the Internet,
interactive kiosks through our Centerlinq Network, CD-ROMs and DVDs. Even though
we are entering emerging markets and have already generated revenue from our
interactive multimedia marketing channels, we will continue to rely on
traditional markets for a substantial part of our business. We expect that
conventional media solutions will continue to account for a significant
percentage of our revenues in the foreseeable future but that the percentage
will decline as eCommerce continues to develop.
Numerous businesses have begun to establish their own websites and e-mail
addresses and to advertise their products and services on the Internet. We
believe that many of these businesses, accustomed to marketing their products
and services through conventional media in local markets, will require
assistance to effectively adapt their marketing strategies to the emerging
eCommerce marketplace. The interactive multimedia marketing solutions offered by
us allow businesses that may be struggling with this transition to enhance their
traditional marketing strategies with new technologies and an element of
interactivity that Internet users find engaging.
For Internet-based strategies like ours to be successful, companies and
their marketing or advertising agencies who have only limited experience with
the Internet as a marketing or advertising medium and who have not historically
devoted a significant portion of their marketing or advertising expenditures to
Internet solutions must be persuaded to spend money on Internet solutions. To
continue using Internet-based solutions, these companies will need to find
Internet-based marketing and advertising as effective or more effective in
promoting their products and services than conventional print and broadcast
media. Acceptance of the Internet for the conduct of eCommerce, and not just
advertising, will also depend on the level of use of the Internet by consumers.
In addition, no standards have yet been widely accepted for the measurement
of the effectiveness of Internet-based marketing or advertising. However,
despite the lack of this type of empirical evidence that typically is necessary
to justify marketing or advertising expenditures in other media, we believe that
the significant increases in advertising volume on the Internet indicate that
the Internet is increasingly being accepted by advertisers as an advertising
medium. However, we believe that long-term acceptance of the Internet as an
advertising medium will depend on both:
- the advertising industry's ability to develop accepted standards of
measurement of the success of Internet advertising; and
- Internet advertising being proven effective under those standards.
Regardless of these open questions about the Internet as an advertising and
marketing medium, we believe our assessment of the importance of the Internet as
a new source of revenue for growing businesses is substantiated, as recently
reflected in a report published by the Internet Advertising Bureau in October
1998. The report indicates that Internet advertising expenditures grew to $423
million in the second quarter of 1998, a 97% increase over the second quarter of
1997.
The integrated marketing services offered by us that are designed to
maintain and enhance our and our clients' marketing efforts include:
- market analysis;
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- an assessment of a client's business requirements;
- the development and deployment of an appropriate marketing strategy--which
may involve interactive multimedia solutions, conventional media
solutions, or both;
- ongoing solution maintenance; and
- media placement.
These services are available to our clients separately, on an as-needed basis,
or together, on a fully integrated basis.
We have two additional revenue generating capabilities:
- proprietary products we sell through our integrated marketing
capabilities, such as the audio and video tapes and companion material
products based on the book authored by John M. Gray, Ph.D., Men Are From
Mars, Women Are From Venus, Hawaiian Tropic swimwear and the new products
acquired by us in late 1998; and
- non-proprietary 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 our technical expertise, vision and creativity, we will leverage
our conventional media and interactive multimedia technologies to provide
integrated marketing solutions which will increase our and our clients' market
exposure and facilitate the distribution of our and our clients' products.
THE DEVELOPMENT OF THE INTEGRATED MARKETING 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
that 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, like television,
radio and print advertisements. Advertising spending tends to correlate to
trends in the overall economy and corporate profits. The media and
communications consulting firm Veronis, Suhler & Associates Inc. in its October
1998 Communications Industry Forecast reported that overall advertising spending
growth over the 1993 to 1997 period was driven by the growth in corporate
profits during the same period. Despite projecting reduced corporate profits,
Veronis, Suhler forecasts that overall advertising spending will continue to
grow at a compound annual growth rate of 8.3% over the 1997 to 2000 period.
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 the United States Department of Commerce in
its April 1998 Emerging Digital Economy publication, the number of users of
Internet technology is estimated to double every 100 days. International Data
Corporation estimated in August 1998 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%. According to Veronis, Suhler, online
advertising spending is forecast to increase from $906 million in 1997 to $6.5
billion in 2002.
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The market for Internet advertising has recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants. Still, banner-type Internet advertising continues to be dominated by
the larger web sites. Non-advertising marketing solutions utilizing the Internet
as a base, such as direct sales and on-line shopping, have also only recently
been developed.
We have entered this market through our acquisition-based expansion, the
development and acquisition of new technological capability and the hiring of
additional personnel. In particular, our Centerlinq Network kiosk program which
we commenced through our Vision Digital acquisition is designed around using the
Internet as an information medium to those kiosks. 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.
Our ability to generate increased revenue will depend on, among other
factors:
- the continued development of the Internet as an advertising medium;
- pricing of marketing and advertising services by other Internet
participants;
- our ability to develop new marketing solutions, like our Centerlinq
Network kiosks, that use the Internet and that appeal to both our clients
and their customers;
- our ability to achieve and demonstrate user demographic characteristics
that are attractive to clients;
- the development and expansion of our marketing and advertising sales
forces; and
- the establishment and maintenance of desirable marketing and advertising
sales agency relationships.
GENESIS BACKGROUND, PRODUCTS AND GROWTH
Genesis began by producing infomercials and performing telemarketing
services for our own products and for products owned by others. These products
included counseling programs and mentoring seminars on topics related primarily
to interpersonal relationships and financial planning. The counseling programs
and mentoring seminars are reproduced on audio and video cassettes and are
supplemented with printed materials, including workbooks and user manuals, which
assist consumers to learn to apply the principles discussed during the programs
to their own lives. The mentoring seminars are unique, as they include personal
tutorial services which are discussed below.
More recently, we undertook to diversify our product offerings and our
marketing channel capabilities. In late 1998, we acquired the right to market
and distribute 13 new consumer products developed by third parties, such as skin
care products, engine additives and exercise equipment. We concurrently
developed our eCommerce capabilities and developed our infrastructure. We now
utilize a mix of conventional media and interactive multimedia technology to
market and distribute all of these products. We were incorporated on October 28,
1993 under the name Genesis Media Group, Inc. and we changed our name to
GenesisIntermedia.com, Inc. on December 3, 1998.
In 1994, we acquired a license to produce, market and distribute a
counseling program based on the book Men Are From Mars, Women Are From Venus
authored by John M. Gray, Ph.D. Consumers who purchase this particular product
receive the book, several audio cassettes and a companion video series
concerning interpersonal relationships. During 1995 and 1996, we worked with Dr.
Gray to develop a continuing education and training program on this topic as
well. Although we currently produce infomercials and perform telemarketing to
sell these products to consumers, it is likely that these products and others
like them will be produced on CD-ROMs and DVDs and marketed through the Internet
in the future.
In 1996, we also produced a mentoring program concerning trading strategies
on the commodity futures trading market. The program, Trade Your Way To Riches,
is hosted by Jake Bernstein. It was
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made available on audio and video cassette and included a training manual and a
workbook. Individuals who purchased this product were assigned a mentor and
participate in regularly scheduled, private tutorials with their mentor. Each
mentor is available to its pupil to answer questions regarding the product and
to provide continuing education with respect to the trading strategies set forth
in the program. The program was produced in connection with a joint venture
between Genesis and Positive Response Television, Inc., which was succeeded by
Trade Your Way To Riches, Inc. Trade Your Way To Riches, Inc. is owned by
Genesis's majority stockholder. In late 1998, we ceased marketing Trade Your Way
To Riches products.
Until 1997, some of our administrative functions, including media sales,
inventory management and order fulfillment were outsourced to third parties. In
1997, we purchased an office building and hired additional personnel, enabling
us to perform all of the administrative functions relevant to our business
in-house. Additionally, we strengthened our infrastructure by purchasing
sophisticated telemarketing and computer equipment, which enabled us to sell our
proprietary products and those of our customers to a greater number of
consumers. Late in the year, we added Larry Williams' Secrets to Stock Investing
mentoring program and Ted Thomas' Personal Fortune real estate investment
program to our product line. Each of these products is available in traditional
audio and video formats and includes training manuals and workbooks. The program
hosted by Larry Williams also includes mentoring services.
In late 1998, we obtained the exclusive right to market and distribute the
Hawaiian Tropic swimwear line and added a total of 13 new programs and consumer
products to our line. Out of the 13 new programs and products, we have
successfully test marketed and launched six and we are in various stages of test
marketing for the other seven. These products include:
- Money Mastery, a financial planning program;
- Theracel, a skin care product;
- Pure Power EHP Lubricant, an engine additive;
- Roladecor, an interior decorating product;
- Memory Power, a memory development program;
- John Beck's Tax Lien and Tax Deed program, a real estate, financial and
investment program; and
- Mark McGwire's Gold Baseball Cards, a series of collectible baseball
cards.
We intend to continue to add new programs and products to our product line in
the future. These programs and products are integral to our strategy to
diversify our marketing approach and product offerings.
In 1998, we also formed our Genesis Intermedia, Inc. subsidiary and hired
approximately 20 persons experienced in multimedia technologies for this
subsidiary. To accelerate our multimedia technology capabilities, we acquired
substantially all of the assets of Vision Digital Communications, Inc. and
AniMagic Corporation and hired some of their experienced personnel. This
division has launched our Centerlinq Network kiosk initiative and our Internet
marketing initiatives. The purpose of these initiatives is to target consumers
utilizing interactive multimedia technologies and to position Genesis to deliver
integrated multimedia marketing solutions to our clients and for our own
products. New clients retained by this technology and eCommerce division
include:
- Hallmark Entertainment;
- Media Tech Productions;
- Graphic Image Technology;
- Lexus;
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- Serene Software;
- Legacy Interactive; and
- Teradyne, Inc.
Through our Centerlinq Network, we have attracted new clients to participate in
both the kiosk advertising and the interactive eCommerce capabilities of the
interactive kiosks. These clients include:
- Babbage's;
- Ben Bridge Jeweler;
- Carlson Wagonlit Travel;
- Frederick's of Hollywood;
- Gloria Jean's Coffees;
- McDonalds Corporation;
- Mrs. Fields Cookies; and
- Sam Goody.
We intend to expand our client participation in interactive eCommerce and our
Centerlinq Network programs, particularly as the Centerlinq Network is rolled
out throughout regional shopping malls across the United States and into
additional public access areas. We are presently focusing our marketing efforts
on local or regional advertisers or local representatives of national
organizations, such as McDonalds. We intend to seek national advertisers and
participants in our Centerlinq Network once our deployment has sufficient
national scope, which we anticipate will occur when we have deployed the network
in more than 15 malls.
In late 1998 and early 1999, we significantly expanded our telemarketing of
third parties' products to replace and diversify from the prior Trade Your Way
To Riches product line. During this period, we signed seven new client contracts
to telemarket products, including contracts with:
- Global Investment Research Corporation;
- Fortune 21, Inc.;
- Diablo Associates LLC;
- Professional Farmers of America, Inc.; and
- Unified Precious Metals.
We also expanded our telemarketing capability in 1999 by hiring approximately 20
new telemarketers and opening a call center in Utah. We anticipate adding
additional new clients to the telemarketing group to take advantage of our
significant infrastructure development in 1998 and early 1999.
In late 1998 and early 1999, we also significantly expanded our media group
by adding experienced industry personnel and focusing our media placement
services on third parties' products. Prior to this initiative, we placed media
exclusively for Trade Your Way To Riches products. During the first quarter of
1999, we increased our monthly media placement revenue over December 1998 by
approximately 500% and increased our client base with eight new clients. New
clients to our media group include:
- Allied Communications Corporation;
- WellQuest;
- Emson Incorporated;
- Ronco-Castle;
- Time-Life-Abacus;
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- Custom Marketing;
- Telebrands; and
- Interwood Marketing Group.
Depending on the availability of capital to acquire media time, we intend to
continue to increase activity in this media group in 1999.
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, like the Internet, and the complexity of the
global, digitized economy pose a significant challenge for many traditional
marketing companies. We believe this challenge represents an opportunity for
companies prepared to offer integrated marketing and business solutions.
INCREASED DEMAND FOR INTEGRATED MULTIMEDIA SOLUTIONS. Several factors have
fostered the development of new marketing approaches and delivery platforms.
These factors have included:
- the globalization of the economy; and
- advances in technology and the growth of the Internet as a popular medium
for eCommerce, entertainment and education.
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. We
believe that many businesses will be unable to ignore the competitive challenge
posed by the emerging eCommerce market and, as a result, will demand that their
marketing strategies target a generation accustomed to the fast-paced power of
the Internet and other interactive technologies, as well as those individuals
who continue to rely on conventional media for information and entertainment.
Multimedia solutions that 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.
We believe that the demand for integrated multimedia solutions and targeted
marketing strategies represent compelling opportunities to expand our own
operations. We believe that, to be successful, a marketing 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 solutions provider must also provide the support
services necessary to ensure the success of its clients' marketing and
distribution efforts.
THE GENESIS SOLUTION
We believe we are positioned to address the growing demand for integrated
multimedia marketing solutions by providing a uniquely integrated marketing
strategy of conventional media and newly developed multimedia technology. We can
use any combination of the marketing capabilities we have to create the specific
marketing solution that meets our and our clients' strategic requirements.
INITIAL ASSESSMENT
We work closely with each client and product to thoroughly assess the
strategic marketing position, business requirements and existing systems
capabilities to determine which marketing strategies and solutions will most
effectively accomplish the marketing goals. We utilize comprehensive market
research compiled by independent consultants to learn the demographics of the
customers and to
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determine what approach will meet the marketing needs. For example, clients in
the toy 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
We use existing technologies available from third parties, proprietary
interactive multimedia technologies and our expertise in marketing to develop
and deploy creative solutions that are tailored to each client's and product's
marketing needs. Our graphic designers and marketing strategists work together
to create engaging audio/visual experiences for the user by employing a variety
of interactive delivery platforms, including the Internet, interactive publicly
accessible kiosks, CD-ROMs and DVDs.
We generally design our 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 the products and
services are offered. The solutions are intended to attract and hold the
attention of the client's target audience while at the same time conforming to
and strengthening the client's brand image, which adds value to the client's
products and services.
Multimedia solutions selected in consultation with the client can also
enable a client to improve its business processes--for instance through direct
sales through kiosks or the Internet--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.
Our unique characteristics provide us the capability to provide multimedia
solutions to our clients and for our own products. These characteristics
include:
- an infrastructure that provides strong marketing and branding
consultation;
- core competency in the development of system applications, systems
integration and data communications;
- expertise in the development of proprietary multimedia technology; and
- a management team focused on providing creative and functional solutions
to marketing and business needs.
For example, Hallmark Entertainment, a producer of films, situation comedies
and cable programming, recently hired us to develop an interactive multimedia
format for the delivery of its trade show presentations to film distributors and
representatives of television networks. We determined that distributors base the
price point for those products on the amount of advertising revenue the products
are likely to generate. Thus, we 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 we 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.
Another example is a retail merchant or fast food chain participating in our
Centerlinq Network which may place long-term brand awareness advertising on the
exterior of our kiosks and also offer targeted or periodic promotions within the
interactive interface of the kiosks. These may include coupon promotions
serviced directly through the kiosks. That same retail merchant may also wish to
tie these promotions to an Internet site developed, enhanced or maintained by
us.
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THE DEVELOPMENT AND DEPLOYMENT OF CONVENTIONAL MEDIA SOLUTIONS
In addition to our ability to provide interactive multimedia marketing and
business solutions, we continue to provide solutions for our own products and
for the products of our clients 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
us; and
- inbound telemarketing services, which typically involve responding to
customer inquiries and electronic order processing.
Our success depends on our ability to rapidly develop positive customer
response to the products and services we market. Our future results in product
sales will be dependent upon our ability to rapidly generate positive customer
response to our and our clients' products and services. This is particularly the
case with directly marketed products. Customer response to direct marketing
depends on many variables, including
- the appeal of the products being marketed,
- the effectiveness of the marketing medium chosen and the marketing script,
- the availability of competing products, and
- the timing and frequency of consumer presence, phone contacts and
air-time.
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 or product's
marketing strategy calls for coverage to the public at large, we 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. We
specialize 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 we have
promoted using outbound telemarketing.
We recently acquired improved computer and telecommunications technology to
supplement our telemarketing business and to enable us to expand this segment of
our 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. Our
computerized call management systems use predictive dialers to:
- automatically dial telephone numbers;
- determine if a live connection is made; and
- present connected calls to a telephone sales representative who has been
specifically trained for the particular sales program.
Our ability to train and to retain our sales personnel is critical to our
success because of the need to develop an in-depth knowledge of the complex
products typically sold by us. We believe the complexity of our products, the
in-depth knowledge of our telemarketing personnel and our success in retaining
such personnel following training differentiate us from many of our competitors
in this field. Sales personnel are compensated by salary, commissions and
bonuses based on individual performance
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and overall profitability. As of March 31, 1999, there were a total of 104
full-time sales personnel employed in this division.
Inbound telemarketing services typically include:
- the electronic receipt and processing of all sales information;
- the communication of necessary sales information to our contracted order
fulfillment center; and
- the administration of customer order and service inquiries.
We continue to produce infomercials and to perform teleservices for our own
products. We also perform these services for products owned by other companies.
We typically retain a percentage of total sales revenue for these services. The
pricing for inbound teleservices may vary, depending upon several factors,
including the time spent, the number of calls received by our personnel and
sales-based performance fees. We will also work on a fee-for-service basis.
In the normal course of business, we have entered into various agreements
under which we are obligated to pay royalties on products we sell. 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, 1998, 1997 and
1996, was $454,997, $50,101 and $423,207, respectively.
Approximately 90% of our total revenue from telemarketing for others in 1997
was generated from the Trade Your Way to Riches product line and approximately
79% of third-party telemarketing revenue in 1998 was generated from Trade
products. During the first nine months of 1998 telemarketing revenue related to
Trade products was approximately $1.8 million, while in the last quarter of
1998, this had been reduced to $0, while we also sell our own products through
our telemarketing capabilities. In the last quarter of 1998, seven new products
and customer list data generated $1.2 million in revenue. See "Certain
Transactions." We did not generate more than 10% of our third-party
telemarketing revenue in 1997 from any other client and in 1998 18% of
third-party telemarketing revenue was generated from Ted Thomas' Personal
Fortune products.
ONGOING SOLUTIONS SUPPORT
Genesis provides ongoing support services to our clients. These include:
(1) content maintenance;
(2) sales support administration;
(3) customer support; and
(4) technical support.
Additionally, our 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 enhancements facilitate ongoing management of the implemented
system and allow the customer to conduct secure eCommerce. In delivering these
solutions, we utilize hardware manufactured by independent third parties and
off-the-shelf and proprietary software.
MEDIA PLACEMENT
Our media planning, buying and placement services are conducted through a
team of media purchasers and sellers. We will place media for clients seeking
traditional media solutions and for those seeking integrated multimedia
marketing solutions. We typically purchase media time or space, hold it in
inventory for a relatively short period of time and then resell it to clients.
We also purchase media time for our own products and our direct marketing
efforts. We have historically been dependent on having access to media time to
televise our infomercials on cable networks, network affiliates and local
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stations. As a result of our successful media purchasing and sales, we have
established relationships with media sellers and purchasers and developed a
reputation for successfully committing for, purchasing and selling media time.
Because of these relationships, we believe that we frequently receive more
favorable access to desirable media time slots, and have consequently been able
to place such time with our clients at greater margins than less desirable time
slots would support.
The placement of media time is a capital intensive segment of our business
because media time, unavailable on an as-needed basis, must be purchased in
advance and stored in our inventory. We typically take advantage of single time
or spot purchases, but intend to consider long-term purchases when prudent. We
purchase a significant amount of our 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. We currently do not pay and are not paid for the "privilege" of
being broadcast by these operators. If demand for air time grows, these
operators may begin to charge us to continue broadcasting our 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--the hours during which a station does not broadcast its own programming.
Our ability to manage our media time is vitally important to our success in
media sales. This media management function must also include a meaningful
coordination between available marketing and available media time. Whenever we
make advance purchases and commitments to purchase media time, the importance of
managing that time effectively is magnified. If we are unable to utilize all of
the media time we have acquired, we attempt to arrange to sell a portion of our
media time to others. However, we may not be able to use all of our media time
or sell it to others and, if we enter into long-term media contracts, we may not
be able to successfully negotiate extensions on terms favorable to us.
To date, our media purchases have been limited by our capital resources. We
believe that media sales will become more profitable when we have more capital
available to purchase larger blocks of time. In fiscal 1997 and 1998, we sold
approximately $7.4 million and $3.7 million, respectively, of media time to an
affiliate. See "Certain Transactions." In late 1998 and early 1999 we
significantly expanded our media placement capability through the hiring of
experienced personnel and in the first quarter of 1999 we added eight new media
placement clients.
GENESIS'S INDEPENDENT REVENUE STREAMS
In addition to revenue from our integrated multimedia solutions, our
marketing capabilities provide independent sources for revenue streams. These
sources include:
- offerings of proprietary products;
- media placement; and
- revenue streams from new technologies, including:
- public access networks, including our Centerlinq Network; and
- audio/visual streaming and download technology.
PUBLIC ACCESS NETWORKS
Through our recent acquisition of assets of Vision Digital, we utilize
proprietary multimedia technologies to create engaging, interactive user
interfaces that are delivered through electronic platforms known as kiosks. For
regional shopping mall deployment we have developed the Centerlinq Network of
interactive kiosks. Centerlinq kiosks are presently located in three regional
shopping malls in the United States and began generating revenue in the first
quarter of 1999. We intend to expand the deployment of Centerlinq kiosks to
other malls throughout the United States, including three more in
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the second quarter of 1999, 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. We
believe that the kiosks also increase merchant visibility, facilitate product
sales and enhance customer service.
AUDIO/VISUAL STREAMING AND DOWNLOAD TECHNOLOGY
We have the technological capability and expertise to enable our 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. We
believe that this non-proprietary 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
Our goal is to be recognized as a leading integrated marketing solutions
provider utilizing conventional and interactive multimedia technologies. Our
strategy is to:
- effectively utilize and leverage our conventional and multimedia
capabilities and our media access;
- develop and market innovative consumer products;
- expand our capabilities through strategic acquisitions and alliances;
- focus on higher profit margin segments of the marketing and advertising
business; and
- engineer the most efficient business model for the conduct of our targeted
multimedia business.
LEVERAGING CONVENTIONAL AND MULTIMEDIA CAPABILITIES AND MEDIA ACCESS. We
are positioned to become a leader in delivering integrated marketing solutions.
We are currently able to:
- concurrently market a given product or service through both conventional
and 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 our 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 these products through conventional
marketing channels.
We intend to continue to explore new ways to effectively utilize and
leverage this cross-discipline capability and our media access by:
- taking advantage of the product/brand awareness created by our various
methods of distribution, including direct marketing, retail, Internet and
interactive multimedia, and leveraging it to other disciplines;
- continuing to offer our cross-discipline capability and media access to
other product and service distributors; and
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- entering into alliances with or acquiring companies and developing or
acquiring technologies that provide expanded multimedia marketing
capabilities.
Additionally, we intend to more aggressively utilize our assets, such as our
customer lists, in order to realize their full value.
We will also seek to develop the strength of our brands to attract the
volume of business necessary to make our investments profitable. Because we are
new to many of our markets, including interactive multimedia marketing through
the Internet, our brand in this market will need to be strengthened. Like most
branded products, we believe that developing strong company and product brand
recognition will be an important aspect of our efforts to attract clients and
customers. We expect the importance of brand recognition to increase due to the
continuing number of companies purporting to offer integrated multimedia
marketing solutions to companies, including companies solely conducting
eCommerce.
CONTINUING TO DEVELOP AND MARKET INNOVATIVE PRODUCTS. We continually seek
out innovative consumer products which we can market and distribute profitably.
For example, in the third quarter of 1998 we added 13 new products that we will
sell directly. Six of these have been test marketed and launched, generating new
revenue in the last quarter of 1998 and the first quarter of 1999, and the other
seven are in various stages of test marketing, with launches scheduled during
1999. Our 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.
Our marketing operations are dependent on our continuing ability to develop
or obtain rights to new products to supplement or replace existing products as
they mature through their product life cycles. Historically, most products in
the direct marketing industry generate their most significant revenue in their
introductory year. We introduced our Men Are From Mars, Women Are From Venus
audio, video and companion materials products in 1994 and our Trade Your Way To
Riches audio, video and companion materials products in 1996. While we have
experienced continuing revenue from these products, we may not in the future,
particularly in the case of Trade products which we stopped marketing in late
1998. Other products we introduce may experience much shorter revenue lives. One
or more or all of the new products acquired in late 1998 or in the future may
also fail to achieve profitability or result in net loss to us.
Our future results of operations will also depend on our ability to spread
our 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 we
introduce through all levels of consumer marketing, whether directly or through
third parties. The future revenues of the business will depend substantially on
our ability to:
- create and maintain an effective, integrated organization that develops,
introduces and markets products that address changing consumer needs on a
timely basis;
- establish and maintain effective delivery platforms for our products; and
- develop new and expand established geographic markets.
We believe that the infrastructure investments we made in 1998 and the number of
new products we acquired in 1998 and are bringing to market in 1999 provide the
foundation for a solid, diversified revenue base.
GROWTH BY STRATEGIC ACQUISITIONS AND ALLIANCES. We regularly evaluate
acquisition opportunities that will enable us to expand our product offerings,
core multimedia marketing capabilities and the geographic scope of our
operations. To this end, we intend to acquire well-regarded niche companies or
leaders in specific marketing and communications disciplines. We will also seek
to acquire product lines
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or companies that have products that we believe we can integrate into our
product offerings and successfully market through our marketing channels. We
also review joint venture and strategic alliance candidates. We will focus on
acquiring or forming alliances with relatively well-established, revenue
producing, eCommerce businesses, or businesses we believe can be marketed and
sold effectively in eCommerce, which will complement our existing capabilities.
Key personnel who possess technical expertise will be given incentives to remain
with us on a long-term basis. We have made two acquisitions to date and have
recently entered into a strategic alliance that gives us an option to acquire
new marketing capability targeted to the travel industry.
ACQUISITIONS AND ALLIANCES
In October 1998, we 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. For the regional shopping mall
market we have created the Centerlinq Network kiosk program using this
technology. The consideration for the assets was 60,000 shares of common stock
valued at $600,000 plus the assumption of short-term obligations and long-term
debt of $214,000 and $238,000, respectively. We have also granted to the seller
and a shareholder in the seller options to purchase up to an additional 50,000
shares of common stock. The options will become exercisable at a rate of 10,000
shares for each $1,000,000 of total revenue generated by the acquired division
during the three-year period after the closing. The per share exercise prices of
the options issued to the shareholder and the seller are $8.50 and $10.00,
respectively. All of the options will expire at the end of the three-year
period. In connection with the acquisition, we entered into three-year
employment agreements with two of the executive officers of the seller, each of
which provides for an annual salary of $84,000. Under these employment
agreements, each of the employees will be eligible to receive options covering
up to an additional 75,000 shares upon the achievement of three Centerlinq
Network kiosk deployment goals. We have also agreed to make a $40,000
interest-free loan to both employees. We have not yet extended either of the
loans. Up to $30,000 of each loan is subject to forgiveness upon the achievement
of the same three kiosk deployment goals.
In the first quarter of 1999, we also acquired substantially all of the
assets of AniMagic Corporation, an interactive multimedia company that provided
audio and video download and streaming capability to clients, for $45,000. We
have hired two former employees of AniMagic. Prior to entering into the
acquisition agreements, there were no affiliations between us and either Vision
Digital or AniMagic.
In April 1999, we entered into a strategic alliance with Global Leisure
Travel, Inc., a leading provider of wholesale travel to travel agents and
consumers. Global's majority stockholder is a company that is wholly owned by
Mr. El-Batrawi. Under the alliance we will become the principal marketing and
advertising agent and the exclusive Internet marketing and advertising agent and
eCommerce consultant and provider to Global and all of its subsidiaries and
affiliates. The strategic alliance will initially comprise an Internet
advertising campaign, a mall kiosk development program and various e-Commerce
marketing and advertising initiatives. We will be paid base fees for our
services plus transaction fees to be negotiated for transactions effected though
the new marketing channels we develop for Global. Under the term sheet, Global
also has granted us a five-year right of first refusal on any new Global
marketing or advertising. We have agreed to advance up to $3 million to Global
upon the negotiation and execution of definitive documentation containing terms
to be negotiated to finance the development of its marketing and advertising
initiatives, as well as for general corporate purposes. We do not anticipate
that the proceeds of this offering will be used to fund these loans.
As part of the Global strategic alliance, Global also granted us an option
to acquire all of the technology and assets comprising its proprietary
computerized travel marketing system known as the Contour System. The purchase
price is the development cost for the system and we estimate that the price for
these assets and technology will be between $2 million and $3 million, subject
to an audit,
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which will be conducted within 30 days of the proposed acquisition. We intend to
exercise this option in the second quarter of 1999 and to complete the
development of the Contour System and market it to Global and other travel
industry participants. Under the alliance, Global has agreed to certain minimum
purchase commitments for Contour System services. Global also granted us a right
of first refusal, which expires on June 30, 2000, to purchase Global or all of
its assets at fair market value as determined by an independent appraisal.
To keep Genesis profitable and successful, we will need to manage our
acquisition and non-acquisition growth effectively. Because internal and
external growth are critical elements of our business strategy, our ability to
manage that growth effectively will be critical to our success. In addition to
the specific risks associated with acquisition-based growth discussed in the
section of this prospectus entitled "Risk Factors," growth will require that we
continue to implement and improve our operational, administrative, and financial
and accounting systems. This will be further complicated by the fact that we
anticipate integrating diverse product and distribution channel companies and
assets that may or may not have common administrative or other support needs.
Unlike companies proving single-industry "roll up" strategies, because of the
diverse nature of these potential acquisitions, we are not able to fix a single
acquisition model or anticipate precisely what issues we may face in analyzing,
closing or assimilating particular acquisitions. Future acquisitions will
involve a number of risks, including:
- increased management time devoted to unique or tailored acquisition types
and structures;
- the risks of acquiring undiscovered, undisclosed or undesired liabilities;
- integration difficulties or difficulties in achieving desired economies of
scale; and
- diffusion of management or marketing skills across diverse companies or
product lines.
If we cannot make desired acquisitions or integrate those acquisitions once
made, we will not be able to achieve our business objectives.
COMPETITION
The market for fully integrated multimedia marketing and business solutions
is relatively new, is intensely competitive and is subject to rapid
technological change. We expect competition to persist, intensify and increase
in the future. Our 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,
Guthy-Renker Corporation and Xoom.com, Inc.;
- 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.
Each of these companies compete directly with particular segments of our
business. 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. Microsoft Corporation also recently
announced its acquisition of an Internet advertising concern.
There are relatively low barriers to entry into the multimedia marketing and
business solutions market. We rely heavily on the skill of our personnel and the
quality of our client service, and we have no patented technology that would
preclude or inhibit competitors from entering our market. We
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expect that we 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 us, then our business, results of operations and financial condition would be
negatively affected.
Most of our 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 we do. These competitors could decide at any time to increase
their resource commitments to compete directly with us in markets we serve, such
as regional shopping malls with our kiosk program. In addition, the relatively
new market for eCommerce is subject to continuing definition, and, as a result,
may better position our competitors to compete in this market as it matures.
INTELLECTUAL PROPERTY
We regard our trademarks, trade secrets and similar intellectual property as
critical to our success. Although we currently have no registered copyrights,
trademarks or patents covering any of our proprietary technology, we currently
rely on a combination of common law copyright and trademark laws, trade secret
protection, confidentiality and non-disclosure agreements and contractual
provisions with our employees and with third parties to establish and protect
our proprietary rights. For the development of our marketing channel
capabilities and technologies, we intend to rely upon unpatented trade secrets
and know-how and on the expertise of our employees. These steps may not be
adequate.
We intend to pursue the registration of our copyrights and trademarks based
upon anticipated use internationally. We may not be able to secure copyright or
trademark registrations for all of our marks in the United States or other
countries. We have filed trademark claims for "Genesis Intermedia" and "Show
Super Star Interactive Video Presentation Systems," which is an interactive
media presentation software product developed for the entertainment industry.
Owners of other registered or unregistered copyrights, trademarks or
servicemarks could bring potential copyright or trademark infringement claims.
If our technology infringes on the rights of other companies, we may be required
to seek licenses from third parties. However, we may not be able to do so on
commercially reasonable terms, if at all. In addition, we 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. Likewise, and particularly because of our acquisition and growth
strategy, disputes may arise with respect to ownership of technology developed
by employees who were previously employed by other companies.
If our competitors prepare and file applications in the United States that
claim trademarks used or registered by us, we may oppose those applications and
be required to participate in proceedings before the United States Patent and
Trademark Office to determine priority of rights to the trademark, which could
result in substantial costs to us. Similarly, actions could be brought by third
parties claiming that our products or technology infringe patents or copyrights
owned by others. An adverse outcome could require us to license disputed rights
from third parties or to cease using a trademark or infringing
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product or technology. Any litigation regarding our proprietary rights could be
costly and divert management's attention, result in the loss of some of our
proprietary rights, require us to seek licenses from third parties and prevent
us from selling our products and services.
We generally license intellectual property from third parties. We license
the rights to John M. Gray, Ph.D.'s book Men Are From Mars, Women Are From Venus
for creation and marketing of the video and audio products directly marketed by
us. We also license the rights to produce and market other products, such as
Hawaiian Tropic swimwear. We are dependent upon the protection of these
intellectual properties by their licensors and are responsible for protecting
them as well. In addition, we anticipate in the future licensing our content
from third parties. As a result, our exposure to copyright infringement actions
may increase because we must rely upon those third parties for information as to
the origin and ownership of the licensed content. We intend to obtain
representations as to the origin and ownership of licensed content and to
indemnification to cover any breach of any representations. However, the
representations may not be accurate and the indemnification may not adequately
protect us.
REGULATION
Advertising is regulated by the government, by private organizations,
including self-regulatory bodies and trade associations, and by consumer groups.
THE FEDERAL TRADE COMMISSION ACT. The Federal Trade Commission may seek
cease and desist orders, impose monetary penalties, or pursue other remedies in
the event that an advertising company violates this Act's rules or regulations
pertaining to false, misleading and unfair advertising. We believe that we are
in compliance with the Act and the regulations promulgated under the Act.
THE FEDERAL TELEMARKETING AND CONSUMER FRAUD AND ABUSE PREVENTION ACT. A
variety of deceptive, unfair or abusive practices in telemarketing sales have
been prohibited under this Act. 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. We believe that we are in compliance with the
Act and the regulations promulgated under the Act.
Violation of the rules and regulations applicable to telemarketing practices
may result in injunctions against certain operations, monetary penalties or
disgorgement of profits. Violations may also give rise to private actions for
damages.
THE FEDERAL TELEPHONE CONSUMER PROTECTION ACT OF 1991. This Act imposes
restrictions on unsolicited automated telephone calls to residential telephone
subscribers. Under the Act 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 specified subscribers. Additionally,
the Act requires teleservice firms to develop a written policy which
- clearly delineates the types of calls that the firms are prohibited from
making under the Act,
- lists specific individuals or groups of individuals that the firms are
prohibited from contacting under the Act, and
- prohibits its personnel from making the calls.
Our call management system has been modified to eliminate some of its
capabilities to help prevent violations of the Act. These modifications prevent
personnel from initiating telephone calls during
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restricted hours or to individuals listed on our "do not call" list. We also
educate our personnel on the restrictions and prohibitions of the Act.
STATE REGULATION. Most states have enacted statutes similar to the Federal
Trade Commission Act 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
some states are not final until a written contract is delivered to and signed by
the buyer, and that 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 some telemarketers to obtain licenses,
post bonds or submit sales scripts to the state's attorney general. State
regulation has not materially affected our operations as we currently conduct
them and we do not presently anticipate that state regulation will materially
and adversely affect our operations in the future.
INTERNATIONAL REGULATION. Advertising is subject to regulation in countries
other than the United States in which we may choose to do business. We will need
to review any of these regulations before conducting business in any other
country.
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 for advertising that is acceptable for broadcast or
publication,
- trade associations in some 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. Some industries served by us are also subject to
government regulation. Our 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. We provide this
continuing education to our employees and believe that we have, in all material
respects, complied with this and other relevant industry regulations. We may
also be subject to regulation by the Commodity Futures Trading Commission, which
regulates commodities trading. The Commission has initiated an investigation
which may affect the infomercial titled Success and You based on Jake
Bernstein's Trade Your Way To Riches product. See "--Legal proceedings" below.
THE COMMUNICATION DECENCY ACT OF 1996. The Communications Decency Act of
1996 was enacted in 1996. Although those sections of this Act 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, similar laws may be proposed and adopted. Although we do not
currently distribute the types of materials that this Act may have deemed
illegal, the nature of this legislation and the manner in which it may be
interpreted and enforced cannot be fully determined, and legislation similar to
the Communications Decency Act could subject us to potential liability, which in
turn could have an adverse effect on our business. These types of laws could
also damage the growth of the Internet generally and decrease the demand for our
products and services.
REGULATORY COMPLIANCE. We have developed internal review procedures to help
ensure that our work product is accurate and fairly discloses the nature of the
products marketed and sold by us. We believe that we are in compliance with
federal, state and local laws and regulations pertaining to advertising and the
pre-clearance procedures of the broadcast media.
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EMPLOYEES
As of March 31, 1999, we had 147 full-time employees, including 104
telemarketers, four systems engineers and three graphic designers. None of these
employees are covered by collective bargaining agreements and management
believes that our relations with our employees are good.
PROPERTIES
We own our 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 us. Most of our administrative, telemarketing and media
time operations are conducted at our headquarters. We lease production
facilities for the production of direct marketing programming on an as-needed
basis from third parties on commercially available terms. We also operate a call
center in Utah, where we occupy space that is provided to us on a temporary,
rent-free basis. We plan to lease space and to relocate the call center to that
space by the end of the second quarter of 1999. Genesis Intermedia, Inc.
occupies approximately 4,000 square feet located at 3151 Airway Avenue, Building
T-3, Costa Mesa, California 92626. The lease for that space provides for monthly
rental payments of $8,175 and the term expires on August 1, 2000.
Our planned capital expenditures for 1999 include expenditures for expansion
of our telemarketing division, which will likely include lease or acquisition of
additional space for telephone service representatives and supporting
infrastructure. In addition, as we add new space we will consider relocating and
consolidating Genesis Intermedia, Inc.'s operations into that new space. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and capital resources."
LEGAL PROCEEDINGS
On November 14, 1997, the Commodity Futures Trading Commission issued an
order authorizing the issuance of subpoenas and depositions in a private
investigation involving Jake Bernstein and MBH Commodity Advisors, a company not
affiliated with Genesis. Although the order does not reference Genesis, its
employees or affiliates, the CFTC has nonetheless requested that we provide
various documents arising out of our involvement in the production and marketing
of an infomercial titled Success and You which promotes and markets a video
series titled Trade Your Way To Riches. To date, the CFTC has directed one
subpoena to Genesis. Various documents have been produced on our behalf in
response to the subpoena. Additionally, the CFTC has taken the deposition of
Ramy El-Batrawi, our president, in connection with its investigation. We have
not to date been required to discontinue sales of Trade Your Way to Riches
products or services as a result of the CFTC's actions.
Although the CFTC has articulated its belief that Genesis, by virtue of our
involvement in the production and marketing of the infomercial, may be required
to be registered in some capacity to continue to engage in our sales activities
related to the Trade products, we believe the CFTC's analysis and conclusions
are incorrect and are based on incomplete information. In October 1998, we
issued a written response to the CFTC's position setting forth the reasons why
we are not required to register in any capacity with the CFTC. The CFTC has
indicated that registration may be required. We have been advised by our counsel
that the initiation of a CFTC enforcement action against us requiring
registration or seeking the imposition of sanctions is unwarranted. As of the
date of this prospectus, there has been no indication that the CFTC seeks any
relief other than registration. To date, no complaint or enforcement action has
been asserted against Genesis, our officers, directors or employees.
If it is determined in the investigation or any resulting proceeding that
registration is required, we intend promptly to effect any required
registration. It is estimated that the cost of registering Genesis with the CFTC
will be less than $1,000. In the event that the CFTC were to bring an
enforcement action against Genesis by virtue of our failure to register, which
we believe would be unwarranted, any adverse determination or settlement in this
action could adversely affect us. The range of possible
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sanctions available to the CFTC in enforcement actions generally include a
simple request to become registered, a cease and desist order--which could, if
successfully applied to us or Trade, terminate sales of some Trade Your Way To
Riches products or services--and a possible order of disgorgement of
profits--which could, again if applied to us, result in substantial payments by
us. In February 1999, we commenced negotiations with the CFTC to terminate the
investigation and settle all underlying claims against us and all other persons
subject to the investigation. Although we believe that a settlement can be
reached that will not have a material adverse impact on us, we can not predict
whether any settlement proposal we may make will be accepted by the CFTC or by
what time. For the reasons discussed in the preceding paragraph, we believe that
if we are unable to reach agreement on a consensual resolution with the CFTC,
then the final resolution of the investigation or any ensuing action or
proceeding will not have a material adverse effect on us.
On February 5, 1999, the former chief executive officer of our Genesis
Intermedia, Inc. subsidiary commenced a suit for wrongful termination in
California Superior Court in Los Angeles County. The plaintiff is Sam Hassabo
and the principal defendants are Genesis, our Genesis Intermedia, Inc.
subsidiary and our chief executive officer, Mr. El-Batrawi. The complaint
alleges wrongful termination and breach of employment contract. The complaint
also alleges that the defendants engaged in fraud and negligent
misrepresentation in connection with the plaintiff's hiring and the termination
of his employment. Mr. Hassabo was terminated from his position as director and
chief executive officer of Genesis Intermedia, Inc. in December 1998. The
complaint primarily seeks monetary and punitive damages. We believe the suit is
frivolous and we intend to defend it vigorously. We carry employment practices
and general liability insurance which we believe is adequate to cover any
potential liability.
We may also be involved from time to time in various other claims and legal
actions incident to its operations, either as plaintiff or defendant. As an
advertiser, we may be exposed to unforeseen liability to consumers, competitors
or others, against which we are not insured. We from time to time may be, or may
be joined as, a defendant in litigation brought against us or our clients by
third parties. As we acquire the rights to diverse new products and increase our
client base, the likelihood of such a suit will increase. These possible claims
include those brought by clients' competitors, regulatory bodies or consumers
alleging that advertising claims are false, deceptive or misleading, that our
clients' products are defective or injurious or that marketing and
communications materials infringe on the proprietary rights of third parties. We
do not maintain insurance designed specifically for advertising agency
liability. If we are not adequately insured or indemnified, then the damages,
costs, expenses or attorneys' fees could have an adverse effect on us.
In addition, the contracts we enter into with our clients sometimes require
us to indemnify clients for claims brought by competitors or others claiming
that advertisements or other communications infringe on intellectual property
rights. Although we maintain business insurance we believe is adequate for our
operations, adequate insurance coverage may not be available in the future or
the insurance held by us may not be sufficient if a significant adverse claim is
made.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is information concerning the directors, executive officers
and other key employees of Genesis as of March 31, 1999.
<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
Craig T. Dinkel........................... 40 Chief Operating Officer
Blair LaCorte............................. 36 Director
George W. Heyworth........................ 49 Director
KEY EMPLOYEES
Sam Elkholy............................... 41 Vice President, Technology
</TABLE>
RAMY EL-BATRAWI. Mr. El-Batrawi is the principal stockholder and chief
executive officer of Genesis. He has been a director and chairman of the board
of Genesis 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 Genesis 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. As Genesis's chief financial officer, Mr. Jacobson's
responsibilities include overseeing and preparing the financial analysis of our
financial growth and reporting.
CRAIG T. DINKEL. Mr. Dinkel joined Genesis as its chief operating officer
in October 1998. Prior to joining Genesis, Mr. Dinkel served as chief operating
officer of Trade Your Way to Riches, Inc., a company owned by Genesis's majority
stockholder. Mr. Dinkel's responsibility is to manage and oversee the day-to-day
operations of Genesis, including the management of our core group of inbound and
outbound telemarketers. His principal responsibilities include effectuating
Genesis'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, Inc., a
subsidiary of National Media Corporation. He managed that company's profit
center and was responsible for the delivery of
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<PAGE>
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 Genesis 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.
GEORGE W. HEYWORTH. Mr. Heyworth was elected a director of Genesis in
January 1999. From March 1998 to February 1999, Mr. Heyworth was the
vice-president of Intersolv/MicroFocus Inc., a software change management firm.
He is directly responsible for formulating business strategy, partnerships,
acquisitions and product direction for Intersolv/MicroFocus, Inc. Prior to
joining Intersolv, Mr. Heyworth was chief technology officer and vice president
of engineering at Cadis, Inc., where he was a key member of the senior
management team. Prior to joining Cadis, Inc. in March 1997, Mr. Heyworth held
several technical management positions at Perot Systems Corporation, which he
joined in April 1994. These positions included director of software development
and director of global technical training. Mr. Heyworth also served as chief
software engineer for NASA's Space Station Trainer from January to December
1993. Prior to this project, Mr. Heyworth worked as program manager of NASA's
Computer Services Programs. Mr. Heyworth received his Masters of Science degree
from the University of Oregon and is a graduate of the United States Military
Academy, where he received a Bachelor of Science degree in Civil Engineering.
SAM ELKHOLY. Mr. Elkholy has been the vice president, technology of Genesis
since September 1998. Mr. Elkholy has been a pioneer in the development of
multimedia and Internet solutions. Before joining Genesis, he served as
president and chief executive officer of AniMagic Corporation, a position he
held since 1993. In 1998, AniMagic filed for protection under Chapter 11 of the
United States Bankruptcy Code, which case was dismissed, and AniMagic then filed
for protection under Chapter 7 of the Code. Mr. Elkholy also served as MIS
director for Technicolor, Inc., Coca Cola Enterprise West, 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.
43
<PAGE>
BOARD OF DIRECTORS
Our board of directors is currently composed of four members. We anticipate
expanding the board of directors to five members. Prior to 1999, we did not have
a compensation committee or an audit committee. Mr. LaCorte and Mr. Heyworth now
serve on the audit committee and Mr. El-Batrawi, Mr. LaCorte and Mr. Heyworth
comprise the compensation committee. Each director holds office until the next
annual meeting of the stockholders or until his or her successor is duly elected
and qualified.
Our directors who are not employees each received stock options for 50,000
shares of common stock at an exercise price of $8.50 per share for their
services as directors. Directors who are employees 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. We will enter into
arrangements with respect to fees and other compensation, including expense
reimbursement, for other directors who are not employees at the time they are
selected to serve on the board. In addition, directors who are not employees may
annually receive automatic grants of non-qualified stock options under our 1998
Stock Incentive Program. See "--Employee compensation programs--1998 stock
incentive program" below. We maintain directors' and officers' liability
insurance and our corporate bylaws provide for indemnification of directors and
officers to the fullest extent permitted by Delaware law. We have entered into
indemnification agreements with all of our directors. In addition, our
certificate of incorporation limits the personal liability of the directors to
Genesis or our 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, 1998 decisions concerning compensation of
executive officers were made by the board of directors. No interlocking
relationship exists between Genesis's board of directors and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned by our chief executive officer and each of the other most highly
compensated executive officers whose aggregate cash compensation exceeded
$100,000 for services rendered in all capacities during the fiscal year ended
December 31, 1998.
No executive officer named in the table below received perquisites or other
personal benefits, securities or property in an amount in excess of the lesser
of $50,000 or 10% of that officer's cash compensation, nor did all named
officers together receive that type of other compensation in excess of the
lesser of $50,000 times the number of named officers or 10% of those officers'
aggregate cash compensation. See, however, "Certain Transactions" for a
discussion of certain transactions between Genesis and Mr. El-Batrawi and his
affiliates. Of the options granted to Mr. Jacobson, 100,000 vested March 31,
1999 and 50,000 vest March 31, 2000.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS/SARS(#)
- ------------------------------------------- ---------- ----------- -----------------------
<S> <C> <C> <C>
Ramy El-Batrawi, chairman of the board and
chief executive officer.................. $ 250,000 $ -- --
Douglas E. Jacobson, chief financial
officer.................................. 115,000 -- 150,000
</TABLE>
44
<PAGE>
During 1998 Mr. El-Batrawi also received an additional $705,000 distribution
of undistributed S corporation earnings. Mr. Jacobson became our chief financial
officer in October 1998 and his salary is presented on the table on an
annualized basis.
OPTION GRANTS
The following table sets forth information with respect to grants of stock
options to the named officers during 1998. We did not grant any stock
appreciation rights in 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO
SARS EMPLOYEES IN EXERCISE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE
- --------------------------------------------- ----------- ----------------- --------------- ----------------------
<S> <C> <C> <C> <C>
Ramy El-Batrawi.............................. -- -- -- --
Douglas E. Jacobson.......................... 100,000 40% $ 8.50 September 30, 2005
Douglas E. Jacobson.......................... 50,000 20% $ 8.50 December 31, 2005
FISCAL YEAR-END OPTION VALUES
</TABLE>
The following table sets forth for the chief executive officer and the other
named executive officer information concerning the fiscal year-end value of
unexercised options based on the estimated initial public offering price of
$8.50. The exercise price of all options granted to the named officer is $8.50
per share. No options were exercised during the fiscal year ended December 31,
1998.
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($)(1)
--------------- ---------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------------------------- --------------- ---------------------
<S> <C> <C>
Ramy El-Batrawi............................................................. --/-- --/--
Douglas E. Jacobson......................................................... --/150,000 --/--
</TABLE>
EMPLOYEE COMPENSATION PROGRAMS
1998 STOCK INCENTIVE PROGRAM
In October 1998, the board of directors adopted and the stockholders
approved our 1998 Stock Incentive Program. Under the 1998 program, the board of
directors, or its designated administrators, have the flexibility to determine
the type and amount of awards to be granted to eligible participants.
PURPOSE, STRUCTURE, AWARDS AND ELIGIBILITY. The 1998 program is intended to
secure for Genesis and our stockholders the benefits arising from ownership of
common stock by individuals employed or retained by us who will be responsible
for the future growth of the enterprise. The 1998 program is designed to help
attract and retain superior personnel for positions of substantial
responsibility, and to provide individuals with an additional incentive to
contribute to our success.
The 1998 program is composed of seven parts and the program administrators
may make the following types of awards under the 1998 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;
45
<PAGE>
(5) stock appreciation rights under the Stock Appreciation Rights Plan;
(6) grants of options under the Non-Employee Director Stock Option Plan; and
(7) specified other stock rights under the 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 on a share of common stock.
Officers, key employees, employee directors, consultants and other independent
contractors or agents of Genesis or our subsidiaries who are responsible for or
contribute to the management, growth or profitability of our business will be
eligible for selection by the program administrators to participate in the 1998
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 Genesis
or its subsidiaries.
SHARES SUBJECT TO 1998 PROGRAM. We have authorized and reserved for
issuance an aggregate of 600,000 shares of our common stock under the 1998
program. The aggregate number of shares of common stock which may be granted
through awards under the 1998 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 program may be
authorized but unissued shares, shares issued and reacquired by us or shares
purchased by us on the open market. If any of the awards granted under the 1998
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
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. The Incentive Stock Option Plan and
the Employee Stock Purchase Plan became effective upon their adoption by the
board of directors and approval of the 1998 program by a majority of the
stockholders. The 1998 program will continue in effect until September 30, 2008
unless sooner terminated under the general provisions of the 1998 program.
ADMINISTRATION. The 1998 program will be administered by the board of
directors or by a committee appointed by the board. That committee must consist
of not less than two directors who are:
- non-employee directors within the meaning of SEC Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, so long as non-employee
director administration is required under Rule 16b-3; and
- outside directors as defined in Section 162(m) of the Internal Revenue
Code of 1986, so long as outside directors are required by the Code.
Subject to these limitations, 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 chair. The
program administrators may hold meetings when and where they determine, will
keep minutes of their meetings, and may adopt, amend and revoke rules and
procedures in accordance with the terms of the 1998 program.
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<PAGE>
STOCK OPTION GRANTS
On March 31, 1999, we had stock options outstanding with respect to 350,000
shares of common stock authorized under the 1998 program, all with exercise
prices of $8.50 per share. Such options vest as follows:
- 200,000 on March 31, 1999
- 25,000 on July 31, 1999
- 25,000 on January 31, 2000
- 50,000 on March 31, 2000
- 25,000 on July 31, 2000
- 25,000 on January 31, 2001
We also had 100,000 additional options outstanding that were not granted under
the 1998 program with a weighted average exercise price of $9.79.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In September 1998, we entered into an employment agreement with Mr.
El-Batrawi which continues until September 30, 2003, unless terminated earlier
by us, either for cause, death or other specified circumstances. Under the terms
of the employment agreement, Mr. El-Batrawi is to be paid an annual salary of
$250,000. Mr. El-Batrawi is eligible to receive bonuses at the discretion of the
board of directors. We have obtained a $4 million term life insurance policy
covering Mr. El-Batrawi. We are the sole beneficiary on the policy, $900,000 of
which is allocated to payment of the mortgage on our headquarters.
In connection with its acquisition of substantially all of the assets of
Vision Digital Communications, Inc., we entered into employment agreements with
two former employees of Vision Digital, each providing for three-year terms and
annual salaries of $84,000. Each employee is also eligible to receive grants of
options to purchase an aggregate of 75,000 shares of common stock, upon the
achievement of three separate performance hurdles. The 25,000 options that may
be granted to each employee at each hurdle will have per share exercise prices
of $11.00, $13.00 and $15.00, respectively.
Effective December 7, 1998, the former chief executive officer of our
Genesis Intermedia, Inc. subsidiary ceased to hold that position and was removed
from the position of director of Genesis. In February 1999, this former employee
commenced a suit against Genesis for wrongful termination. See "Business--Legal
proceedings." In the event that there is a dispute with respect to the terms of
any Genesis employment agreement, a state court may determine not to enforce or
only to partially enforce some provisions of the employment agreements relating
to non-competition.
Effective December 31, 1998, Robert Kline resigned from his position as vice
president, business development, for personal reasons. Dr. Kline has agreed to
provide services that are similar to those he previously provided to us on a
part-time, as-needed basis.
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<PAGE>
CERTAIN TRANSACTIONS
We believe that the transactions set forth below were made on terms no less
favorable to us 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 us than could be obtained
from unaffiliated third parties.
TRANSACTIONS WITH THE MAJORITY STOCKHOLDER
During the year ended December 31, 1998, Mr. El-Batrawi received a
distribution of $955,000 from S corporation earnings accrued through December
31, 1998. From the net proceeds of this offering, we expect to make an
additional distribution to Genesis'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 has lent money to Genesis. These advances
have generally been repaid at the stockholder's request. These advances are
non-interest bearing and have no scheduled repayment terms. At September 30,
1998, the amount owed to Mr. El-Batrawi was $33,427 and at December 31, 1998 the
balance was $15,495.
In June 1997, Genesis obtained a $750,000 line of credit from a financial
institution. The line of credit is collateralized by substantially all of our
assets, except our corporate office building, and is personally guaranteed by
Mr. El-Batrawi.
From time to time, Genesis has advanced money to business associates of Mr.
El-Batrawi. Mr. El-Batrawi has guaranteed repayment of all of these advances and
is obligated to repay the advances in the event of non-payment by the borrower.
At September 30, 1998, advances to business associates of Mr. El-Batrawi were as
follows: Mr. F. Pigeon--$4,184; Mr. O. Khashoggi--$28,000; and World
Capital--$1,088. At December 31, 1998, all of these loans had been repaid in
full.
TRANSACTIONS WITH AFFILIATES
From time to time, we have advanced 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 have
generally been repaid upon our request, are non-interest bearing and have no
scheduled repayment terms. Mr. El-Batrawi has guaranteed repayment of these
advances and is responsible for repayment of these advances in the event of
non-payment by the borrower. At September 30, 1998, advances to affiliates were
as follows: Mentoring Institute, Inc.-- $117,118; Mars and Venus Counseling
Centers, Inc.--$98,029; International Futures Brokerage Company--$32,000; and
Jet Vacations, Inc.--$76,405. At December 31, 1998, all of these loans had been
repaid in full.
From time to time, companies owned by Mr. El-Batrawi or companies in which
Mr. El-Batrawi has an ownership interest have advanced money to Genesis. These
advances are non interest bearing and are repaid upon demand. At September 30,
1998, advances from Genesis Aviation, Inc. amounted to $796,601 and at December
31, 1998, this loan had been repaid in full.
Genesis was also engaged in the following transactions with Trade Your Way
To Riches, Inc., a company that is wholly-owned by Mr. El-Batrawi. During the
years ended December 31, 1998 and 1997, we sold media time to Trade for
$3,702,731 and $7,412,038, respectively. In addition, during the years ended
December 31, 1998 and 1997, we earned commissions from the sale of Trade
products that amounted to $1,789,415 and $742,315, respectively. Amounts due to
us at December 31, 1998 and 1997, related to the sales of media to Trade and
commissions earned were $1,676,219 and $2,383,663, respectively. Our accounts
receivable from Trade are on a revolving open account. Accounts are typically
paid
48
<PAGE>
within 90 to 120 days, based upon the anticipated sales and collection cycle for
Trade's products, which typically involves four equal monthly payments by
Trade's customers.
In April, 1999, we entered into a strategic alliance with Global Leisure
Travel, Inc., a leading provider of wholesale travel to travel agents and
consumers. Global's majority stockholder is a company that is wholly owned by
Mr. El-Batrawi. As part of the strategic alliance with Global, Global granted us
an option to acquire all of the technology and assets comprising its proprietary
computerized travel marketing system known as the Contour System. The agreed
purchase price is the actual cost of development and we estimate that the price
for these assets and technology will be between $2 million and $3 million,
subject to an audit, which will be conducted within 30 days of the proposed
acquisition. Global also granted us a right of fair refusal to purchase Global
or all of its assets at fair market value as determined by an independent
appraisal. We have also agreed to advance up to $3 million to Global upon the
negotiation and execution of definitive documentation containing terms to be
negotiated to finance the development of its marketing and advertising
initiatives and for general coporate purposes.
During the year ended December 31, 1997, we 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, we sold 116,504 shares of our common stock to Dr. Gray
for $900,000. Dr. Gray surrendered to Genesis 29,126 of these shares,
representing 25% of his shares, on November 1, 1998 concurrently with the
surrender by Mr. El-Batrawi of 970,874 of his shares, representing 25% of his
shares of common stock.
Royalties paid to Dr. Gray for the years ended December 31, 1998, 1997 and
1996 were $0, $50,101 and $423,207, respectively.
TRANSACTIONS WITH DOUGLAS E. JACOBSON
Between 1993 and 1997, Mr. Jacobson performed accounting and tax services
for us for which he was compensated based on his standard hourly rates ranging
from $100 to $125.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of March 31, 1999 and as adjusted to reflect the sale of
common stock offered in this prospectus, by
- each person who is known by us to own beneficially five percent or more of
our common stock prior to this offering,
- each of our directors and each of the officers named in
"Management--Executive compensation" section of this prospectus, and
- all current directors and executive officers as a group.
The address of each person is in care of Genesis at 13063 Ventura Boulevard,
Studio City, California 91604-2218.
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. Those shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person. For Mr. Jacobson, this results in the 100,000 shares underlying his
option that vests March 31, 1999 being deemed held by him. Unless otherwise
indicated in the table, the persons and entities named in the table have sole
voting and sole investment power with respect to the shares set forth opposite
the stockholder's name. All share numbers and percentages assume no exercise of
the underwriters' over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE PRIOR PERCENTAGE AFTER
SHARES TO THE OFFERING THE OFFERING
BENEFICIALLY IF GREATER THAN IF GREATER THAN ONE
NAME OF BENEFICIAL OWNER OWNED PERCENT ONE PERCENT PERCENT
- -------------------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
Ramy El-Batrawi....................... 2,912,622 84.35% 53.41%
Douglas E. Jacobson................... 100,000 * *
Blair LaCorte......................... 0 * *
George W. Heyworth.................... 0 * *
All directors and executive officers
as a group (five persons)........... 3,012,622 84.79% 54.25%
</TABLE>
50
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of Genesis
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 March
31, 1999, there were 3,310,000 shares of common stock outstanding held by five
stockholders and 142,857 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 for that
purpose, any dividends on a pro rata basis. In the event of liquidation,
dissolution or winding up of Genesis, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to prior distribution rights of any then outstanding preferred stock. 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 Genesis 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
of preferred stock, 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 the
series, without further vote or action by Genesis's stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Genesis and may adversely affect the voting and other
rights of the holders of common stock.
The board has authorized the issuance of one series of preferred
stock--series A convertible preferred stock. There are 450,000 authorized shares
of series A. Of these, 142,857 are issued and outstanding as of the date hereof
. The series A stock has a cash dividend of 8.75% per annum, payable quarterly.
Dividends on the series A stock are cumulative and are payable before we may
declare, pay or set aside dividends on our common stock. Upon a voluntary or
involuntary liquidation, dissolution or winding up of Genesis, the holders of
the series A stock are entitled to a preference of $7.00 per share plus any
accrued and unpaid dividends. Each share of series A stock may be converted at
any time by the holder into one share of common stock. No common stock received
on conversion may be transferred at any time prior to ninety (90) days following
the date on which a registration statement filed by Genesis with respect to
those shares is declared effective by the Commission. After that initial 90-day
period, the common stock underlying 25% of the series A stock will no longer be
subject to this transfer restriction and dividends cease to accrue or be payable
as to those shares of series A stock. On each of the 90th, 180th and 270th days
following the end of the initial 90-day period, the transfer restriction and
dividend accrual ends as to 25% more of the underlying common stock. The holders
of the series A stock have no voting rights.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
We estimate that following the completion of this offering we will have
approximately 19,690,000 shares of authorized but unissued common stock,
including an aggregate of 600,000 shares reserved for issuance upon the exercise
of options under its stock incentive program, and 5,000,000 shares of authorized
preferred stock, 450,000 of which have been designated as series A convertible
preferred stock, of
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which 142,857 will be issued and outstanding. If the underwriters'
over-allotment option is exercised in full, we will have approximately
19,390,000 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 Pacific Exchange and of The Nasdaq Stock Market,
Inc., which apply so long as the common stock remains listed on such exchange or
included in such inter-dealer quotation system, require prior stockholder
approval of specified 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. We currently do 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 to issue shares to persons who may agree or be inclined
to vote in concert with current management on issues put to consideration of
stockholders, which issuance could render more difficult or discourage an
attempt to obtain control of Genesis by means of a merger, tender offer, proxy
contest or otherwise, and protect the continuity of our management and possibly
deprive the stockholders of the opportunity to sell their shares of common stock
at prices higher than prevailing market prices.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock Transfer
Corporation, Glendale, California.
CERTAIN PROVISIONS OF STATE LAW
The terms of section 203 of the Delaware General Corporations Law apply to
Genesis. 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 the person
became an interested stockholder unless
- the transaction that results in the person 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,
- 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 specified employee stock plans, or
- on or after the date the person becomes an interested stockholder, the
business combination is approved by the board of directors and by holders
of at least two-thirds of the 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 that person, other than the
corporation and any direct or indirect majority-owned subsidiary, that is
- the owner of 15% or more of the outstanding voting stock of the
corporation or
- 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 the person is an interested stockholder.
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The restrictions contained in section 203 do not apply to a corporation that
provides that the section will not apply in an amendment to its certificate of
incorporation or by-laws passed by a majority of its outstanding voting shares,
but that 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. Our certificate of
incorporation and bylaws do not exclude us from the restrictions imposed under
section 203, but our certificate of incorporation 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 common stock or other voting stock owned by Mr.
El-Batrawi or those persons, be deemed an interested stockholder for any purpose
under section 203 whatsoever.
Under some 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 us to negotiate in advance with our
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. These provisions also may have the effect of preventing changes in
the board of directors. It is further possible that these provisions could make
it more difficult to accomplish transactions that stockholders may otherwise
deem to be in their best interests.
We may be subject to section 2115 of the California Corporations Code.
Section 2115 provides that, regardless of a company's legal domicile, specified
provisions of California corporate law will apply to that company if the company
meets certain requirements relating to its property, payroll and sales in
California and if more than one-half of its outstanding voting securities are
held of record by persons having addresses in California. Among other things,
section 2115 may limit the ability of Genesis to elect a classified board of
directors and requires cumulative voting in the election of directors.
Cumulative voting is a voting scheme which allows minority stockholders a
greater opportunity to have board representation by allowing those stockholders
to have a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the stockholder's shares are entitled
and to "cumulate" those votes for one or more director nominees. Generally,
cumulative voting allows minority stockholders the possibility of board
representation on a percentage basis equal to their stock holding, where under
straight voting such stockholders may receive less or no board representation.
Genesis will not be subject to section 2115
- at such time as Genesis is qualified for trading as a national market
security on the Nasdaq Stock Market and has at least 800 stockholders as
of the record date of its most recent annual meeting of stockholders or
- at the end of any income year during which a certificate shall have been
filed showing that less than one-half of its outstanding voting securities
are held of record by persons having addresses in California or that one
of the other tests of section 2115 is not met.
We expect that we will no longer be subject to section 2115 by the record
date of our 1999 annual meeting of stockholders because we anticipate that our
stock will be qualified for trading as a national market security on the Nasdaq
Stock Market and we will have more than 800 stockholders as calculated under
section 2115.
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
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<PAGE>
price of the common stock and could impair our future ability to raise capital
through the sale of our equity securities.
Upon the closing of the offering, we will have outstanding 5,310,000 shares
of common stock, 5,610,000 if the underwriters' over-allotment option is
exercised in full. Of these shares, the 2,000,000 shares offered in this
prospectus will be freely tradable, without restriction under the Securities Act
of 1933 unless held by affiliates of Genesis. The remaining 3,310,000 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 Genesis, who has beneficially owned restricted
securities for at least one year, including the holding period of any prior
owner other than an affiliate of Genesis, 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 5,310,000 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 the 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
Genesis. Under rule 144(k), a person who is not deemed to have been an affiliate
of Genesis 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 other than an affiliate of Genesis, is
entitled to sell the 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 Genesis will continue to be subject to the volume
limitations and the manner of sale, notice and public information requirements.
The directors, executive officers and other stockholders holding 3,250,000
outstanding shares of common stock, all 142,857 shares of convertible preferred
stock and options to purchase 250,000 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, or otherwise dispose of any shares of
common stock or any related securities except in specified circumstances. The
underwriters' representative has informed us that it has no current intention to
release shares from the lock-up agreements until the one-year has passed. 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 based
upon the facts and circumstances existing at the time of the request.
Beginning upon expiration of the lock-up agreements, the shares will be
eligible for sale under rule 144 or rule 701 under the Securities Act, subject
to the specific provisions of those rules and continued vesting for the options.
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, we 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
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. We intend to file a registration statement on Form S-8 under
the Securities Act within 90 days after the date of consummation of the
offering.
54
<PAGE>
CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of some United States federal income
and estate tax consequences of the ownership and disposition of common stock by
a person that, for United States federal income tax purposes, is not a U.S.
person. 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
of the United States, an estate the income of which is subject to United States
federal income taxation regardless of its source or a trust if (1) a United
States 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. The discussion does not consider
specific facts and circumstances that may be relevant to a particular non-U.S.
person's tax position. Accordingly, each non-U.S. person is urged to consult its
own tax advisor with respect to the United States 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 holder of common stock who is not a U.S. person
ordinarily will be subject to withholding of United States 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 United States federal income
tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A holder who is not a U.S. person generally will not be subject to United
States 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. person in the United States and (b) in the
case of a non-U.S. person who is an individual and who holds the common stock as
a capital asset, the 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. person at the
time of death will be included in the holder's gross estate for United States
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to dividends paid on common stock to a non-U.S. person outside
the United States, except that with regard to payments made after December 31,
1998, a non-U.S. person will be entitled to that exemption only if it provides a
Form W-8, 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
- is a U.S. person,
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<PAGE>
- derives 50 percent or more of its gross income for specified periods from
the conduct of a trade or business in the United States,
- is a "controlled foreign corporation" as to the United States, or
- is a foreign partnership that, at any time during its taxable year is 50
percent or more 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. person and other
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-U.S. person status under penalties
of perjury or otherwise establishes an exemption.
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<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 us and we have 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............................................
HD Brous & Co., Inc........................................................
American Fronteer Financial Corporation....................................
-----------------
Total.................................................................. 2,000,000
-----------------
-----------------
</TABLE>
The underwriters are committed to purchase all the shares of common stock
offered in this prospectus, if any shares of common stock are purchased. The
underwriting agreement provides that the obligations of the several underwriters
are subject to conditions specified in the underwriting agreement. Millennium
anticipates that a significant portion or all of the 1,000,000 shares of common
stock to be sold by it will be sold in Europe, primarily to institutional
investors. The co-managing underwriters have agreed among themselves to limit
European sales to no more than 50% of the offering.
COMMISSIONS, DISCOUNTS AND COMPENSATION
The representative has advised us 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 selected dealers at
that price less concessions not in excess of $ per share. After the
commencement of this offering, the public offering price, concession and
reallowance may be changed by the representative, but only after the initial
distribution of the common stock has been completed.
The representative has informed us that it does not expect sales to
discretionary accounts by the underwriters to exceed five percent of the shares
of common stock offered.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
underwriters may be required to make. We have 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.
We have 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,
less underwriting discounts and the non-accountable expense allowance. This
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 in this
prospectus. To the extent the option is exercised, in whole or in part, each
underwriter will have a firm commitment, subject to specified conditions, to
purchase the number of the additional shares of common stock proportionate to
its initial commitment.
In connection with this offering, we have agreed to sell to the
representative, for nominal consideration, warrants to purchase from Genesis up
to 200,000 shares of common stock. The representative's warrants are initially
exercisable at a price equal to 165% of the initial public offering price per
share.
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<PAGE>
The representative's warrants are restricted from sale, transfer, assignment,
pledge or hypothecation for a period of 12 months from the date of this
prospectus, 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 upon their exercise and in the exercise price
of the representative's warrants as a result of specified events, including
subdivisions and combinations of the common stock. The representative's warrants
grant to the holders demand and piggyback rights of registration for the
securities issuable upon exercise and also provide for cashless exercise.
NO SALES OF SIMILAR SECURITIES; OFFERING LIMITATIONS
All officers, directors and existing stockholders holding a total of
3,250,000 shares of common stock, all 142,857 shares of convertible preferred
stock and all holders of options granted under the 1998 program 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 those 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
of those securities.
We have agreed not to, directly or indirectly, without the prior written
consent of Millennium, issue, sell, agree or offer to sell, grant an option for
the purchase or sale of, or otherwise transfer or dispose of any of our
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 our 1998
stock incentive program or (y) debt in connection with bona fide business
acquisitions and/or expansions consistent with our business plans as generally
described in this prospectus.
BOARD REPRESENTATION RIGHT
We have agreed for a period of five years after the date of this prospectus,
if requested by Millennium, to use our best efforts to nominate for election to
the board of directors one person designated by Millennium. In the event
Millennium elects not to exercise this right, Millennium may designate a person
to receive all notices of meetings of the board of directors and all other
correspondence and communications sent by us to our board of directors and to
attend all meetings of the board of directors. We have agreed to reimburse
designees of Millennium for their out-of-pocket expenses incurred in connection
with their attendance at meetings of the board of directors. Millennium has not
yet exercised its right to elect a board member or designate a person to receive
notice of and attend board meetings.
LIMITED EXPERIENCE OF LEAD MANAGING UNDERWRITER
The lead managing underwriter, Millennium, has had limited experience in
acting as an underwriter in public offerings of securities. Commencing in
September 1996, the lead managing underwriter has acted as an underwriter or a
member of the selling group in seven public offerings. It acted as co-managing
underwriter in four of those offerings and participated in five private
offerings. The lead managing underwriter has never previously acted as the lead
managing underwriter of a public offering. This may adversely affect the
proposed public offering of the common stock and the subsequent development of a
trading market, if any, for the common stock.
STOCK EXCHANGE LISTING
Prior to this offering, there has been no public market for the shares of
common stock. We have submitted applications to have the common stock listed on
the Pacific Exchange and quoted on The Nasdaq Stock Market, Inc.'s National
Market System. If approved for listing on the Pacific Exchange or
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<PAGE>
for quotation on 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 listing of the common stock on the Pacific Exchange and
inclusion of the common stock in 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. We
intend to conclude our public offering upon becoming approved by either the
Pacific Exchange or Nasdaq and intend to maintain a dual listing if we are
approved by both.
DETERMINATION OF OFFERING PRICE
The initial public offering price of the shares of common stock will be
determined by negotiation between us and the representative and will not
necessarily bear any relationship to our 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 we compete, an
assessment of our management, our prospects, our capital structure, the market
for initial public offerings and other factors that are deemed relevant.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In connection with this offering, the 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.
These transactions may include stabilization transactions effected in accordance
with rule 104 of Regulation M, under which those 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 us, and in that case may
purchase shares of common stock in the open market following completion of this
offering to cover all or a portion of that short position. The underwriters may
also cover all or a portion of this 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 under which 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. Please refer to the complete copies of the agreements which are
filed as exhibits to the registration statement of which this prospectus is a
part.
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LEGAL MATTERS
Nida & Maloney, a Professional Corporation, Santa Barbara, California will
pass upon the validity of the shares of common stock offered in this prospectus
for Genesis. Donahue, Mesereau & Leids, LLP, Los Angeles, California is advising
the underwriters in connection with the offering. Regulatory matters relating to
the CFTC contained in the sections of the prospectus captioned "Risk Factors,"
"Business--Regulation" and "Business--Legal proceedings" are set forth in
reliance upon the opinion of Henderson & Lyman, Chicago, Illinois.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been included in reliance on the report of Singer Lewak
Greenbaum & Goldstein LLP, independent accountants, given on authority of that
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC. This
prospectus forms a part of that registration statement. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. Some of the items in the registration
statement are omitted from this prospectus 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 the contract or other document filed as an
exhibit to the registration statement. Each statement about those contracts is
qualified in its entirety by that reference.
Following the offering, we will become subject to the reporting requirements
of the Securities Exchange Act of 1934. In accordance with that law we will be
required to file reports and other information with the SEC. The registration
statement and exhibits, as well as those 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. Those reports and other information may also be
inspected at the offices of the Pacific Exchange. 301 Pine Street, San
Francisco, California 94104, The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington D.C. 20006-1500, once the common stock has been approved for listing
or quotation on each.
We will furnish our 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 our independent auditors.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998................. F-4
Consolidated Statement of Stockholders' Equity............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
GenesisIntermedia.com, Inc.
We have audited the accompanying consolidated balance sheets of
GenesisIntermedia.com, Inc. and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of 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 consolidated financial position of
GenesisIntermedia.com, Inc. and subsidiary as of December 31, 1998 and 1997, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 8, 1999
F-2
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
PRO FORMA ------------ ------------
DECEMBER 31,
1998
(NOTE 11)
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $ 1,841,562 $ 280,289
Accounts receivable--trade, net of allowance for doubtful accounts of
$175,000 and $75,000............................................... 1,991,166 1,041,113
Accounts receivable--affiliates...................................... 1,676,219 2,383,663
Inventory............................................................ 180,208 275,579
Prepaid advertising.................................................. 550,823 1,059,423
Deposits and other prepaid assets.................................... 450,440 355,835
Due from related parties............................................. -- 126,752
------------ ------------
Total current assets............................................... 6,690,418 5,522,654
PROPERTY AND EQUIPMENT, net............................................ 2,054,100 1,191,554
DEFERRED OFFERING COSTS................................................ 689,531 --
GOODWILL, net.......................................................... 362,040 --
OTHER ASSETS........................................................... 192,229 --
------------ ------------
TOTAL ASSETS..................................................... $ 9,988,318 $ 6,714,208
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable..................................... $ 603,728 $ 603,728 $ 52,734
Current portion of capital lease obligations......................... 32,934 32,934 --
Line of Credit....................................................... 670,035 670,035 --
Accounts payable..................................................... 2,026,151 2,026,151 1,800,506
Other accrued liabilities............................................ 539,107 539,107 141,709
Income taxes payable................................................. 65,000 65,000 35,000
Deferred revenue..................................................... 288,963 288,963 267,500
Distribution to stockholders......................................... 2,000,000 -- --
Due to related parties............................................... 15,495 15,495 188,380
------------ ------------ ------------
Total current liabilities.......................................... 6,241,413 4,241,413 2,485,829
NOTES PAYABLE, net of current portion.................................. 988,310 988,310 609,545
CAPITAL LEASE OBLIGATIONS, net of current portion...................... 68,048 68,048 --
------------ ------------ ------------
Total liabilities................................................ 7,297,771 5,297,771 3,095,374
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
25,000,000 shares authorized
3,060,000 and 4,000,000 shares issued and outstanding.............. 3,060 3,060 4,000
Additional paid-in capital........................................... 2,687,487 1,521,522 920,582
Retained earnings.................................................... -- 3,165,965 2,694,252
------------ ------------ ------------
Total stockholders' equity......................................... 2,690,547 4,690,547 3,618,834
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $9,988,318 $ 9,988,318 $ 6,714,208
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET REVENUE
Media sales--affiliate............................................ $ 3,702,731 $ 7,412,038 $ --
Media sales....................................................... 1,219,977 -- --
Product sales..................................................... 6,325,887 8,251,628 13,152,158
Commissions and royalties--affiliate.............................. 1,789,415 742,315 --
Commissions and royalties......................................... 1,854,450 1,737,863 78,855
Other............................................................. 13,264 20,322 1,110,707
------------- ------------- -------------
Total net revenue............................................... 14,905,724 18,164,166 14,341,720
------------- ------------- -------------
OPERATING COSTS AND EXPENSES
Media purchases................................................... 4,198,159 6,445,250 --
Direct costs...................................................... 936,567 713,311 1,841,704
Selling, general, and administrative expenses..................... 8,179,150 8,570,739 12,113,838
------------- ------------- -------------
Total operating costs and expenses.............................. 13,313,876 15,729,300 13,955,542
------------- ------------- -------------
INCOME FROM OPERATIONS.............................................. 1,591,848 2,434,866 386,178
INTEREST EXPENSE.................................................... 135,135 33,247 45
------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES............................ 1,456,713 2,401,619 386,133
PROVISION FOR INCOME TAXES.......................................... 30,000 35,000 --
------------- ------------- -------------
NET INCOME.......................................................... $ 1,426,713 $ 2,366,619 $ 386,133
------------- ------------- -------------
------------- ------------- -------------
BASIC EARNINGS PER COMMON SHARE..................................... $ 0.35 $ 0.57 $ 0.10
------------- ------------- -------------
------------- ------------- -------------
DILUTED EARNINGS PER COMMON SHARE................................... $ 0.35 $ 0.57 $ 0.10
------------- ------------- -------------
------------- ------------- -------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING.......................... 4,082,746 4,119,108 3,883,495
------------- ------------- -------------
------------- ------------- -------------
UNAUDITED PRO FORMA INFORMATION (NOTE 11):
INCOME BEFORE PROVISION FOR INCOME TAXES............................ $ 1,456,713 $ 2,401,619 $ 386,133
Income taxes assuming Sub-Chapter S corporation election had not
been made....................................................... 583,000 961,000 154,000
------------- ------------- -------------
NET INCOME.......................................................... $ 873,713 $ 1,440,619 $ 232,133
------------- ------------- -------------
------------- ------------- -------------
PRO FORMA BASIC EARNINGS PER COMMON SHARE........................... $ 0.21 $ 0.35 $ 0.06
------------- ------------- -------------
------------- ------------- -------------
PRO FORMA DILUTED EARNINGS PER COMMON SHARE......................... $ 0.21 $ 0.35 $ 0.06
------------- ------------- -------------
------------- ------------- -------------
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING.......................... 4,082,746 4,119,108 3,883,495
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONSOLIDATED 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..................... (955,000) (955,000)
SURRENDER OF SHARES OF COMMON STOCK............. (1,000,000) (1,000) 1,000 --
ISSUANCE OF COMMON STOCK FOR ACQUISITION........ 60,000 60 599,940 -- 600,000
NET INCOME...................................... 1,426,713 1,426,713
----------- --------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998...................... 3,060,000 $ 3,060 $ 1,521,522 $ 3,165,965 $ 4,690,547
----------- --------- ------------ ------------ ------------
----------- --------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GENESISINTERMEDIA.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................. $ 1,426,713 $ 2,366,619 $ 386,133
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization......................................... 142,609 37,619 8,198
(Increase) decrease in
Accounts receivable--trade.............................................. (887,269) (789,629) (62,417)
Accounts receivable--affiliates......................................... 707,444 (2,358,626) (25,037)
Inventory............................................................... 98,371 (142,258) (6,812)
Prepaid advertising..................................................... 508,600 (1,059,423) --
Deposits and other prepaid assets....................................... (83,478) (342,158) (1,264)
Increase (decrease) in
Accounts payable........................................................ 33,731 1,654,203 119,996
Other accrued liabilities............................................... 390,031 20,985 (177,206)
Income taxes............................................................ 30,000 35,000 --
Deferred revenue........................................................ 6,830 267,500 --
----------- ----------- ----------
Net cash provided by (used in)
operating activities.................................................... 2,373,582 (310,168) 241,591
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment...................................... (345,554) (1,210,846) (7,365)
Cash acquired in acquisition............................................ 19,673 -- --
Other................................................................... (192,229) -- --
----------- ----------- ----------
Net cash used in investing activities................................... (518,110) (1,210,846) (7,365)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from related parties....................................... (46,133) 10,946 (68,276)
Net proceeds from line of credit........................................ 670,035 -- --
Distribution to stockholder............................................. (955,000) -- --
Proceeds from sale of common stock to related party..................... -- 900,000 --
Proceeds from notes payable............................................. 800,000 676,596 --
Payment of offering costs............................................... (689,531) -- --
Payments on capital lease obligations................................... (8,745) -- --
Payments on notes payable............................................... (64,825) (14,317) --
----------- ----------- ----------
Net cash provided by financing activities................................. (294,199) 1,573,225 (68,276)
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents during period............ 1,561,273 52,211 165,950
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD...................................................... 280,289 228,078 62,128
----------- ----------- ----------
END OF PERIOD............................................................ $ 1,841,562 $ 280,289 $ 228,078
----------- ----------- ----------
----------- ----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID........................................................... $ 135,135 $ 33,247 $ 45
----------- ----------- ----------
----------- ----------- ----------
INCOME TAXES PAID........................................................ -- $ -- $ --
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
GenesisIntermedia.com, Inc. was incorporated in the State of Florida on
October 28, 1993 under the name Genesis Media Group, Inc. On December 3, 1998,
Genesis amended its Certificate of Incorporation to change its name to Genesis
Intermedia.com, Inc. Genesis is an integrated marketing and business solutions
provider utilizing conventional, emerging and interactive multimedia
technologies. Genesis has devoted substantially all its resources to selling
products it owned or had purchased the rights to sell through conventional
marketing methods. Genesis sold these products to the general public through the
use of infomercials, radio advertisements, print media and retail outlets. A
substantial portion of Genesis's product revenue has come from its "Men Are From
Mars, Women Are From Venus" product series authored by John Gray, Ph.D.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiary Genesis Intermedia, Inc. from its inception in
August 1998. All intercompany accounts and transactions have been eliminated.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Genesis measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of Genesis'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 notes payable and
capital lease obligations also approximate fair value because current interest
rates offered to Genesis for debt or leases 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. Genesis 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.
F-7
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purpose of the statement of cash flows, Genesis considers all
highly-liquid investments purchased with original maturities of three months or
less to be cash equivalents.
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 Genesis'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. Included in other assets in the accompanying consolidated
balance sheets as of December 31, 1998 are capitalized production costs of
$137,784, net of accumulated amortization of $28,377.
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....................................... 5 to 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
Genesis's policy to refund unconditionally the total price of merchandise
returned within 30 days of the customer's receipt of the merchandise. Genesis
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
Genesis 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 Genesis's taxable income. In addition, there is a minimal franchise
tax on Genesis's taxable income for state purposes.
F-8
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Genesis expenses advertising costs when the advertisement takes place,
except for direct-response advertising costs that elicits a customer to respond
to a specific advertisement and that results in future benefits. These costs are
capitalized and amortized using an accelerated method over its expected period
of future benefit, not to exceed twelve months. Genesis is able to identify to
which advertisement a customer is responding by using a separate toll free
number for each ad. Genesis evaluates the probable future benefits of
direct-response advertising costs based on recent historical experience based on
the type of advertisement, the target audience and the product being sold.
Direct response advertising consists principally of television airtime
purchased to broadcast Genesis's infomercials and print media. At December 31,
1998, $550,823 of advertising was reported as an asset which consisted of the
unamortized portion of the capitalized direct response advertising, net of
accumulated amortization of $1,763,918. 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. Genesis incurred $2,808,716, $5,296,069 and
$8,580,386 in advertising expense for the years ended December 31, 1998, 1997
and 1996, respectively.
CONCENTRATION OF CREDIT RISK
Genesis 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, 1998 and 1997, the uninsured portions of
the balances held at these financial institutions aggregated to $159,507 and
$361,125, respectively. Genesis has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash and cash
equivalents.
During the years ended December 31, 1998 and 1997 approximately 41% and 25%,
respectively, of Genesis's revenue was derived from selling media time to a
corporation owned by Genesis's majority stockholder.
EARNINGS PER SHARE
Genesis 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.
In accordance with staff Accounting Bulletin Topic 1.B.3, the weighted
average number of common shares outstanding for the years ended December 31,
1998 and 1997 was increased by 235,294 to reflect the number of shares that will
be sold in Genesis's initial public offering to pay the $2 million distribution
to stockholders. As a result, earnings per share decreased from $0.37 to $0.35
and decreased from $0.61 to $0.57 for the years ended December 31, 1998 and
1997, respectively.
F-9
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Genesis continually monitors its goodwill to determine whether any
impairment of this asset has occurred. In making such determination with respect
to goodwill, Genesis evaluates the performance, on an undiscounted cash flow
basis, of the underlying assets or group of assets that gave rise to this
amount. Goodwill is being amortized on the straight-line basis over 60 months.
As of December 31, 1998, goodwill was $362,040, net of accumulated amortization
of $10,760.
RISKS AND UNCERTAINTIES
Genesis operates in an industry that is highly competitive. Genesis's
principal competitors are marketing and communication companies that operate in
the United States. In order to maintain its current sales levels, Genesis 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 Genesis's revenue has come from selling media time to a
related party and from product sales from one group of products. Genesis 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.
Genesis also relies on third party fulfillment facilities to store
inventory, process orders and ship products. The termination of or adverse
change in Genesis's relationship with such fulfillment facilities or the partial
or total loss of any of these facilities or Genesis's inventories stored there
may have a material adverse effect upon Genesis's business.
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. For the year ended December 31,
1998, Genesis adopted SFAS No. 130. Comprehensive income as defined includes all
changes in equity (net assets) during a period from non-owner sources. Examples
of items to be included in comprehensive income, which are excluded from net
income, include foreign currency translation adjustments, minimum pension
liability adjustments, and unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in Genesis's financial
statements since Genesis did not have any changes in equity from non-owner
sources.
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
F-10
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements. For the year ended December 31, 1998, Genesis adopted this
statement which had no impact on Genesis'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 Genesis.
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 Genesis's 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 Genesis.
In February 1999, the FASB issued SFAS No. 135, "Recession of FASB Statement
No. 75 and Technical Corrections." This statement is not applicable to Genesis.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform with the 1998 presentation.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land.............................................................. $ 87,750 $ 87,750
Building and improvements......................................... 857,527 791,329
Vehicles.......................................................... 113,269 113,269
Furniture and equipment........................................... 1,173,871 245,886
------------ ------------
2,232,417 1,238,234
Less accumulated depreciation..................................... 178,317 46,680
------------ ------------
TOTAL........................................................... $ 2,054,100 $ 1,191,554
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and 1996,
was $131,849, $37,619, and $8,198, respectively.
F-11
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 3--NOTES PAYABLE
Notes payable at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Note 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........................................................... $ 32,688 $ 79,279
Note payable--bank is collateralized by a 1st Trust Deed on the land
and building located in Studio City, California and is guaranteed
by Genesis's majority stockholder. The note bears interest at
prime (7.75% at December 31, 1998 and 8.50% at December 31, 1997)
plus 2.75%. Monthly principal and interest payments are $5,823
with any unpaid principal and interest due on July 1, 2022........ 576,986 583,000
Note payable--bank is collateralized by a 2nd Trust Deed on the land
and building located in Studio City, California and is guaranteed
by Genesis's majority stockholder. The note bears interest at
prime (7.75% at December 31, 1998 and 8.50% at December 31, 1997)
plus 2.75%. Monthly principal and interest payments are $5,217
with any unpaid principal and interest due on August 1, 2005...... 290,435 --
Note payable--bank is collateralized by certain furniture and
equipment. The note bears interest at 8.5%. Monthly principal and
interest payments are $4,127 with any unpaid principal and
interest due in August 2003....................................... 191,929 --
Notes payable to an unrelated third party. The notes are unsecured,
bear interest at 8% and are due on May 1, 1999.................... 500,000 --
------------ ----------
$ 1,592,038 $ 662,279
Current portion..................................................... 603,728 52,734
------------ ----------
LONG-TERM PORTION................................................. $ 988,310 $ 609,545
------------
------------ ----------
----------
</TABLE>
F-12
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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>
1999............................................................................ $ 603,728
2000............................................................................ 78,417
2001............................................................................ 86,583
2002............................................................................ 95,723
2003............................................................................ 91,378
Thereafter.................................................................... 636,209
------------
Total....................................................................... $ 1,592,038
------------
------------
</TABLE>
NOTE 4--LINE OF CREDIT
In June 1998, Genesis 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 Genesis. The line of credit bears
interest at prime plus 2.90%, is collateralized by substantially all of
Genesis's assets, except real estate, and is guaranteed by Genesis's majority
stockholder.
NOTE 5--RELATED PARTY TRANSACTIONS
DUE TO RELATED PARTIES
Due to related parties are principally amounts advanced to Genesis by its
majority stockholder. The advances are non-interest bearing with no repayments
terms. The amount outstanding is subordinate to all other debts of Genesis.
DUE FROM RELATED PARTIES
From time to time, Genesis lends funds to companies that are owned by
Genesis's majority stockholder. The amounts receivable from these companies are
non-interest bearing with no repayment terms.
MEDIA SALES AND ACCOUNTS RECEIVABLE--AFFILIATE
Genesis purchases media airtime and resells it to other companies. For the
years ended December 31, 1998, 1997 and 1996, media sold to a company owned by
Genesis's majority stockholder amounted to $3,702,731, $7,412,038, and $0,
respectively. The above mentioned media sales resulted in a gross profit of
$555,410, $966,788, and $0, respectively. The mark-up on the media sales was
approximately 15% which is the standard industry mark-up and consistent with
amounts that could be realized from sales to unrelated third parties. The amount
due from this affiliated company, principally related to media purchases and
commissions earned by selling this affiliated company's products, was $1,676,219
and $2,383,663 at December 31, 1998 and 1997, respectively.
F-13
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 5--RELATED PARTY TRANSACTIONS (CONTINUED)
COMMISSION REVENUE
For the years ended December 31, 1998, 1997 and 1996, Genesis earned
$1,789,415, $742,315, and $0, respectively, in commission from selling products
for companies owned by Genesis's majority stockholder. The commission received
from selling these products ranged from 35% to 55%.
TRANSACTIONS WITH DR. GRAY
On December 31, 1997, Genesis sold 116,504 shares of its common stock to Dr.
John Gray for $900,000. On November 1, 1998, 29,126 of those shares were
surrendered. Royalties paid to Dr. Gray for the years ended December 31, 1998,
1997 and 1996 were $0, $50,101, and $423,207, respectively.
NOTE 6--COMMITMENTS AND CONTINGENCIES
ROYALTIES
In the normal course of business, Genesis has entered into various
agreements under which 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,
1998, 1997 and 1996 was $454,997, $50,101, and $423,207, respectively.
LITIGATION
On November 14, 1997, the Commodity Futures Trading Commission issued an
Order authorizing the issuance of subpoenas and depositions in a private
investigation involving Jake Bernstein and MBH Commodity Advisors, a company not
affiliated with Genesis. Although the Order does not reference Genesis, its
employees or affiliates, the CFTC has nonetheless requested that Genesis provide
various documents arising out of Genesis's involvement in the production and
marketing of an infomercial titled Success and You which promotes and markets a
video series titled Trade Your Way To Riches. To date, the CFTC has directed one
subpoena to Genesis. Various documents have been produced on behalf of Genesis
in response to the subpoena. Additionally, the CFTC has taken the deposition of
Ramy El-Batrawi, president of Genesis, in connection with its investigation.
Genesis has not to date been requested to discontinue sales of Trade Your Way To
Riches products or services as a result of the CFTC's actions.
Although the CFTC has articulated its belief that Genesis, 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, Genesis believes the CFTC's analysis and conclusions are incorrect
and are based on incomplete information. In October 1998, Genesis issued a
written response to the CFTC's position setting forth the reasons why Genesis is
not required to register in any capacity with the CFTC. The CFTC has indicated
that registration may be required. Genesis has been advised by its counsel that
the initiation of a CFTC enforcement action against Genesis requiring
registration or seeking the imposition of sanctions is unwarranted. As of the
date of this prospectus, there has been no indication that the CFTC seeks any
relief other than registration. To date, no complaint or enforcement action has
been asserted against Genesis, its officers, directors or employees.
F-14
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
If it is determined in the investigation or any resulting proceeding that
registration is required, Genesis intends promptly to effect any required
registration. It is estimated that the cost of registering Genesis with the CFTC
will be less than $1,000.00. In the event that the CFTC brings an enforcement
action against Genesis by virtue of its failure to register, any adverse
determination or settlement in this action could adversely affect Genesis. The
range of possible sanctions available to the CFTC include a simple request to
become registered, a cease and desist order--which may terminate sales of
certain Trade Your Way To Riches products or services--and a possible order of
disgorgement of profits--which could, if applied to Genesis, result in
substantial payments by Genesis.
On February 5, 1999, the former chief executive officer of Genesis
Intermedia, Inc. commenced a suit for wrongful termination in California
Superior Court in Los Angeles County. The plaintiff is Sam Hassabo and the
principal defendants are Genesis, Genesis Intermedia, Inc. and Genesis's chief
executive officer, Mr. El-Batrawi. The complaint alleges wrongful termination
and breach of employment contract. The complaint also alleges that the
defendants engaged in fraud and negligent misrepresentation in connection with
the plaintiff's hiring and the termination of his employment. Mr. Hassabo was
terminated from his position as director and chief executive officer of Genesis
Intermedia, Inc. in December 1998. The complaint primarily seeks monetary and
punitive damages. Genesis believes the suit is frivolous and intends to defend
it vigorously. Genesis carries employment practices and general liability
insurance which Genesis believes is adequate to cover any potential liability.
Genesis may also be involved from time to time in various other claims and
legal actions incident to its operations, either as plaintiff or defendant.
LEASES
Genesis leases certain office space and an automobile under a non-cancelable
operating lease expiring beginning in July 2000. Genesis also leases certain
office furniture and equipment under capitalized lease obligations. Future
minimum rental commitments under lease agreements with initial or remaining
terms of one year or more are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
1999.................................................................. $ 110,856 $ 43,091
2000.................................................................. 69,981 41,942
2001.................................................................. 9,567 28,233
2002.................................................................. -- 7,754
---------- ----------
$ 190,404 $ 121,020
----------
----------
Less amount representing interest..................................... 20,038
----------
100,982
Less current portion.................................................. 32,934
----------
$ 68,048
----------
----------
</TABLE>
Included in property and equipment is capitalized lease equipment of
$114,897 with accumulated amortization of $5,745 at December 31, 1998.
F-15
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 6--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for the year ended December 31, 1998 was $24,405. There was no
rent expense for any other period presented in the statements of operations.
EMPLOYMENT AGREEMENTS
In September 1998, Genesis entered into an employment agreement with its
President which continues until September 30, 2003, unless terminated earlier by
Genesis, either for cause, death or certain other circumstances. Pursuant to the
terms of the Employment Agreement, the President is to be paid an annual salary
of $250,000 and is eligible to receive bonuses at the discretion of the Board of
Directors.
In October, 1998 Genesis entered into employment agreements with two
employees retained as a result of the acquisition of certain of the assets of
Vision Digital Communications, Inc. The term of each of the employment
agreements commenced on November 1, 1998 and will terminate on October 31, 2001,
unless terminated earlier by Genesis for cause, death or under certain other
circumstances. The employment agreements provide that each of the employees is
to be paid an annual salary of $84,000 and is eligible to receive an annual
bonus at the discretion of the Board of Directors.
NOTE 7--STOCKHOLDERS' EQUITY
On October 27, 1998, Genesis 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 in the
authorized shares and par value. In addition, Genesis authorized 5,000,000
shares of $0.001 par value preferred stock. No preferred shares were issued or
outstanding as of December 31, 1998.
On November 1, 1998, Genesis's two principal stockholders surrendered an
aggregate of 1,000,000 shares of Genesis's common stock.
STOCK OPTION PLAN
In October 1998, the board of directors adopted and the stockholders
approved Genesis's 1998 Stock Incentive Program ("Stock Option Plan"). Under the
Stock Option Plan, 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. The Stock Option Plan is intended to secure for Genesis
and its stockholders the benefits arising from ownership of Genesis's common
stock by individuals employed or retained by Genesis who will be responsible for
the future growth of Genesis. The Stock Option Plan is designed to help attract
and retain superior personnel for positions of substantial responsibility, and
to provide individuals with an additional incentive to contribute to Genesis's
success.
The Stock Option Plan is composed of seven parts and the program
administrators may make the following types of awards under the Stock Option
Plan: (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 Stock
Rights Plan, which may include the issuance of units representing the equivalent
of
F-16
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 7--STOCKHOLDERS' EQUITY (CONTINUED)
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.
Genesis has authorized and reserved for issuance an aggregate of 600,000
shares of common stock under the Stock Option Plan. The aggregate number of
shares of common stock which may be granted through awards under the Stock
Option Plan, 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 Stock Option Plan may be authorized but
unissued shares, shares issued and reacquired by Genesis or shares purchased by
Genesis on the open market. If any of the awards granted under the Stock Option
Plan 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 Stock
Option Plan.
Genesis has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its Stock Option Plan and does not
recognize compensation expense for its Stock Option Plan other than for
restricted stock and options issued to outside third parties. If Genesis had
elected to recognize compensation expense based upon the fair value at the grant
date for awards under the Stock Option Plan consistent with the methodology
prescribed by SFAS No. 123, Genesis's net income and earnings per share would be
reduced to the pro forma amounts indicated below for the year ended December 31,
1998:
<TABLE>
<S> <C>
Net Income
As reported................................................... $1,426,713
Pro forma..................................................... $1,074,630
---------
Basic earnings per common share
As reported................................................... $ 0.35
Pro forma..................................................... $ 0.26
---------
Diluted earnings per common share
As reported................................................... $ 0.35
Pro forma..................................................... $ 0.26
---------
</TABLE>
For purposes of computing the pro forma disclosures required by SFAS No.
123, the fair value of each option granted to employees and directors is
estimated using the Black-Scholes option-pricing model. The fair value is
computed as of the date of grant using the following assumptions: (i) dividend
F-17
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 7--STOCKHOLDERS' EQUITY (CONTINUED)
yield of 0%, (ii) expected volatility of 65%, (iii) weighed-average risk-free
interest rate of approximately 5.5%, and (iv) expected life of 2 years.
<TABLE>
<CAPTION>
STOCK WEIGHTED AVERAGE OTHER WEIGHTED AVERAGE
OPTION PLAN EXERCISE PRICE OPTIONS EXERCISE PRICE
----------- ----------------- --------- -----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997........................... -- -- -- --
Granted.............................................. 450,000 $ 8.50 50,000 $ 9.57
Exercised............................................ -- -- -- --
Canceled............................................. 200,000 8.50 -- --
----------- ----- --------- -----
Balance, December 31, 1998........................... 250,000 $ 8.50 50,000 $ 9.57
----------- ----- --------- -----
----------- ----- --------- -----
</TABLE>
The weighted average remaining contractual life of options outstanding
issued under the Stock Option Plan and the other options is 4.75 and 2.83 years,
respectively, at December 31, 1998.
NOTE 8--ACQUISITIONS
On October 26, 1998, Genesis acquired certain assets of Vision Digital
Communications, Inc., ("Vision Digital") a company that places interactive
kiosks in shopping malls. Genesis purchased current assets, equipment and
intangible assets in exchange for 60,000 shares of Genesis's common stock valued
at $600,000 plus the assumption of certain liabilities. The common stock was
valued at $10 per share which approximates the per share price Genesis received
when it sold stock in December 1997. Genesis also issued to the seller options
to purchase up to an additional 50,000 shares of common stock at a weighted
average exercise price of $9.57 per share. The options will be exercisable if
the acquired division meets certain targeted levels of total revenue over a
three-year period. These options were issued outside the Stock Option Plan. Such
options will expire at the end of such three-year period. Genesis entered into
employment agreements with two former employees of Vision Digital, each
providing for three-year terms and annual salaries of $84,000. Each such
employee is also eligible to receive grants of options to purchase an aggregate
of 75,000 shares of common stock, upon the achievement of three separate
performance hurdles. The 25,000 options that may be granted to each employee at
each such hurdle will have per share exercise prices of $11.00, $13.00 and
$15.00, respectively. In addition, each employee is to receive an interest free
loan of $40,000 of which $30,000 will be forgiven upon the achievement of
certain performance goals. These loans have not yet been extended by Genesis.
Listed below are the assets purchased from Vision Digital:
<TABLE>
<S> <C>
Cash............................................................ $ 19,673
Other current assets............................................ $ 76,911
Property and equipment.......................................... $ 582,895
Goodwill........................................................ $ 372,800
Current liabilities............................................. $(213,914)
Long-term debt and Capital leases............................... $(238,365)
-----------
Purchase price............................................ $ 600,000
</TABLE>
F-18
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8--ACQUISITIONS (CONTINUED)
In March 1999, Genesis acquired substantially all the assets of AniMagic
Corporation, an interactive multimedia company that produces CD-ROMs for the
edutainment industry, for $45,000.
The following table presents the unaudited pro forma condensed consolidated
statements of operations for the years ended December 31, 1998 and 1997 and
reflects the results of operations of Genesis as if the acquisition of Vision
Digital had been effective January 1, 1997. The pro forma amounts are not
necessarily indicative of the combined results of operations had the acquisition
been effective as of that date, or of the anticipated results of operations, due
to cost reductions and operating efficiencies that are expected as a result of
the acquisition.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
YEAR ENDED ------------
DECEMBER 31,
1998 (UNAUDITED)
-------------
(UNAUDITED)
<S> <C> <C>
Total net revenue............................................... $ 15,069,347 18,363,980
Direct costs.................................................... 998,057 859,001
Selling, general and administrative expenses.................... 8,696,034 8,748,870
Income from operations.......................................... 1,177,097 2,310,859
Net income...................................................... 1,011,162 2,241,812
Basic earnings per share........................................ 0.25 0.54
</TABLE>
NOTE 9--SUBSEQUENT EVENT
In January, 1999, Genesis completed a private placement of 175,000 shares of
common stock at $10.00 per share, net of commissions and expenses of
approximately $201,250. In March 1999 the board of directors authorized the
issuance of one series of preferred stock--series A convertible preferred stock.
There are 450,000 authorized shares of series A convertible preferred stock.
This stock has a cash dividend of 8.75% per annum, payable quarterly. The
holders of this stock have no voting rights. In April, 1999, Genesis sold
142,857 shares of convertible preferred stock at $7.00 per share, net of
commissions of $115,000, and warrants to purchase 142,857 shares of common stock
at 120% of the IPO price to the same investors. In connection with this
transaction, Genesis issued 75,000 additional shares of common stock and
warrants to purchase an additional 250,000 shares of common stock to the
investors, which brought the effective purchase price of the shares issued in
connection with the private placement which occurred in January to $7.00 per
share. Depending upon the final offering price, Genesis may be subject to a
charge to earnings for the difference between the offering price and the
convertible preferred stock private placement sales price.
In April 1999, Genesis entered into a strategic alliance with Global Leisure
Travel, Inc., a leading provider of wholesale travel to travel agents and
consumers. Global's majority stockholder is a company that is wholly owned by
Genesis's majority stockholder. The strategic alliance provides that Genesis
will become the principal marketing and advertising agent and the exclusive
Internet marketing and advertising agent and eCommerce consultant and provider
to Global and all of its subsidiaries and affiliates. Subject to the negotiation
and execution of definitive documentation, Genesis has agreed to advance up to
$3 million to Global to finance the development of its marketing and advertising
initiatives, as well as for general corporate purposes.
Global also granted Genesis an option to acquire all of the technology and
assets comprising its proprietary computerized travel marketing system known as
the Contour System. The agreed purchase
F-19
<PAGE>
GENESISINTERMEDIA.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 9--SUBSEQUENT EVENT (CONTINUED)
price is the actual cost of development and Genesis estimates that the price for
these assets and technology will be between $2 million and $3 million, subject
to an audit, which will be conducted within 30 days of the proposed acquisition.
Genesis intends to exercise this option in the second quarter of 1999 and to
complete the development of the Contour System and market it to Global and other
travel industry participants. Under the term sheet, Global has agreed to certain
minimum purchase commitments for Contour System services. Global also granted
Genesis a right of first refusal, which expires on June 30, 2000, to purchase
Global or all of its assets at fair market value as determined by an independent
appraisal.
NOTE 10--YEAR 2000 ISSUE
Genesis has completed a comprehensive review of its computer system 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 or Y2K issue. Genesis 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 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. Genesis also relies on its
own computer systems. Genesis expects to complete its Year 2000 compliance
program by mid-1999 and anticipate that its total expenditures on such program
will not exceed $20,000. However, Genesis may experience cost overruns or delays
in the future, which could have a material adverse effect on Genesis. While
Genesis 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
interacts, may not be satisfactorily completed in a timely fashion or may cost
substantially more to remedy than the amount Genesis anticipates. Failure to
satisfactorily address the Year 2000 issues could have a material adverse effect
on Genesis.
NOTE 11--PRO FORMA INFORMATION (UNAUDITED)
Shortly before the closing of the IPO, Genesis will terminate its status as
an S corporation and will be subject to federal and additional state income
taxes thereafter.
For informational purposes, the accompanying balance sheets include the
unaudited pro forma adjustments for the distribution of $2,000,000 to the S
corporation stockholders and the transfer of the undistributed S corporation
earnings to additional paid-in capital. In addition, the accompanying statements
of operations for the years ended December 31, 1998 and 1997 include pro forma
earnings per share information assuming the number of shares being sold in the
IPO to pay the $2,000,000 distribution to stockholders were outstanding
throughout the two most recent years presented.
For informational purposes, the accompanying statements of operations
include the unaudited pro forma adjustment for income taxes which would have
been recorded if Genesis had been an S corporation, based on a combined federal
and state income tax rate of 40% which approximates the federal and state income
tax rates in effect during the respective periods.
F-20
<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 GENESIS, 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 BY ANYONE IN ANY JURISDICTION IN WHICH AN 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 AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE UNDER THIS PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Forward Looking Statements................................................ 10
Use of Proceeds........................................................... 10
Dividend Policy........................................................... 10
Capitalization............................................................ 11
Dilution.................................................................. 12
Selected Financial Data................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 15
Business.................................................................. 23
Management................................................................ 42
Certain Transactions...................................................... 48
Principal Stockholders.................................................... 50
Description of Capital Stock.............................................. 51
Underwriting.............................................................. 57
Legal Matters............................................................. 60
Experts................................................................... 60
Available Information..................................................... 60
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1999 (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.
2,000,000 SHARES
GENESISINTERMEDIA.COM, INC.
[LOGO]
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MILLENNIUM FINANCIAL GROUP, INC.
HD BROUS & CO., INC.
AMERICAN FRONTEER FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.......................................... $ 58,725
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............................................................. $ 15,947
---------
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
II-1
<PAGE>
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)
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 provides that no Program Administrator, as
that term is defined in the 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.
II-2
<PAGE>
Pursuant to the proposed form of Underwriting Agreement, the underwriters
have agreed to indemnify the directors and officers of the Registrant in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order below is information regarding the number
of shares of capital stock issued and the number of options granted by the
Registrant since January 1, 1995. Further included is the consideration, if any,
received by the Registrant for such shares and options, and information relating
to the section of the Securities Act or rule of the Securities and Exchange
Commission under which exemption from registration was claimed. All awards of
options under the Registrant's 1998 Stock Incentive Program did not involve any
offer or sale under the Securities Act and therefore the issuance of such
options by the Registrant was not registered under the Securities Act.
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.
In October 1998, the Registrant issued 60,000 shares of common stock and
granted options to purchase 50,000 shares of common stock to Vision Digital
Communications, Inc., in partial consideration of the acquisition of
substantially all of the assets of such company. Vision Digital distributed
28.5% of such securities to one of its stockholders, Crown American Enterprises,
Inc. Such offers and sales of securities were made in reliance on the exemption
from registration under Section 4(2) of the Securities Act relating to offers
and sales not involving a public offering. Each recipient of such securities in
both transactions represented in such transaction that such investor was a
sophisticated investor (Dr. Gray is also an accredited investor) and 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 each transaction the investor received access to and reviewed
full financial and business records of the Registrant and visited with the
Registrant's management and inspected the Registrant's facilities and
operations. Vision Digital and each of its stockholders also received
substantially all of the disclosure contained in the draft of the prospectus
contained in this Registration Statement, including all information contained in
the risk factor, business, management and financial statement sections.
In addition to the foregoing transactions, in October 1998, the Registrant
granted options to purchase an aggregate of 200,000 shares of common stock to
two employees under the Program and in December 1998, the Registrant granted
options to purchase an additional 50,000 shares of common stock to one employee
under the Program. In January 1999, the Registrant granted options to purchase
an aggregate of 100,000 shares of common stock to two board members and options
to purchase an aggregate of 50,000 shares of common stock to a consultant. The
securities underlying such options were offered in reliance upon the exemption
from registration under Rule 701 promulgated under the Securities Act relating
to certain offers and sales by an issuer to its employees under certain
compensatory benefit plans. In addition, in connection with the hiring of two
employees in October 1998, the Registrant agreed to issue options to purchase an
aggregate of 150,000 shares of common stock at an average exercise price of
$13.00 if certain business performance goals are met. To the extent such
agreement constituted an offer or sale of securities, it was made 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 a
written compensation contract.
In January 1999, the Registrant issued 175,000 shares of its common stock to
two institutional investors that are not U.S. persons within the meaning of
Regulation S under the Securities Act in consideration of $1,750,000, with
aggregate underwriting commissions and discounts of $201,250. The offer and sale
of such securities were made in reliance on the exemption from registration
under Regulation S relating to non-United States offers and sales.
II-3
<PAGE>
In April 1999, the Registrant issued 142,857 shares of convertible preferred
stock and warrants to purchase 142,857 shares of common stock to the same
institutional investors for consideration of $1,000,000, with aggregate
underwriting commissions and discounts of $115,000. In connection with this
transaction, the Registrant issued 75,000 additional shares of common stock and
warrants to purchase an additional 250,000 shares of common stock to the
investors, bringing the effective purchase price of the shares issued in January
to $7.00 per share. The offer and sale of such securities was made in reliance
upon the exemption from registration under Regulation S relating to non-United
States offers and sales.
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-4
<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 Amendment No. 5 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, California, on April 15, 1999.
<TABLE>
<S> <C> <C>
GENESIS INTERMEDIA.COM, INC.
By: /s/ RAMY EL-BATRAWI
-----------------------------------------
Ramy El-Batrawi
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 5 to 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 April 15, 1999
Ramy El-Batrawi Officer)
Director, Chief Financial
/s/ DOUGLAS E. JACOBSON Officer (Principal
- ------------------------------ Financial and Accounting April 15, 1999
Douglas E. Jacobson Officer)
/s/ BLAIR LACORTE*
- ------------------------------ Director April 15, 1999
Blair LaCorte
/s/ GEORGE W. HEYWORTH*
- ------------------------------ Director April 15, 1999
George W. Heyworth
</TABLE>
* By Douglas E. Jacobson, Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED (F)
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement................................................................ *
2.1 Agreement and Plan of Merger between Genesis Media Group, Inc., a Florida corporation
("Genesis Florida") and GenesisIntermedia.com, Inc. (formerly Genesis Media Group, Inc.), a
Delaware corporation ("Genesis Delaware")................................................... *
2.2 Asset Purchase Agreement between the Registrant and Vision Digital Communications, Inc. dated
as of October 26, 1998...................................................................... *
2.3 Letter Agreement between the Registrant and AniMagic Corporation dated October 27, 1998....... *
2.4 Letter of Agreement between the Registrant and Crown American Enterprises, Inc. dated as of
November 17, 1998........................................................................... *
3.1 Articles of Incorporation of Genesis Florida filed with the Florida Secretary of State on
October 28, 1993............................................................................ *
3.2 Articles of Amendment of Genesis Florida filed on October 27, 1998............................ *
3.3 Certificate of Incorporation of Genesis Delaware filed with the Delaware Secretary of State on
October 26, 1998............................................................................ *
3.4 Bylaws of Genesis Florida..................................................................... *
3.5 Bylaws of Genesis Delaware.................................................................... *
3.6 Certificate of Amendment of Certificate of Incorporation of Genesis Delaware filed with the
Delaware Secretary of State on December 3, 1998............................................. *
3.7 Certificate of Merger of Genesis Florida into Genesis Delaware filed with the Delaware
Secretary of State on December 9, 1998...................................................... *
3.8 Certificate of Designation, Rights and Preferences of the Series A Convertible Preferred Stock
of Genesis Intermedia.com, Inc.............................................................. F
4.1 Specimen Stock Certificate.................................................................... *
5.1 Opinion of Nida & Maloney, a Professional Corporation......................................... *
10.1 Genesis Intermedia.com, Inc. Amended and Restated 1998 Stock Incentive Program................ F
10.2 Form of Indemnification Agreement with Directors and Executive Officers....................... *
10.3 Form of Representative's Warrant.............................................................. *
10.4 Form of Lock-Up Agreement..................................................................... *
10.5 Employment Agreement between the Registrant and Ramy El-Batrawi............................... *
10.6 Employment Agreement between the Registrant and Sam I. Hassabo................................ *
10.7 Deed of Trust (dated July 24, 1997)........................................................... *
10.8 Note U.S. Small Business Administration (dated July 24, 1997)................................. *
10.9 Promissory Note (dated January 1, 1998)....................................................... *
10.10 Promissory Note (dated April 23, 1998)........................................................ *
10.11 Note U.S. Small Business Administration (dated August 20, 1998)............................... *
10.12 Commercial Security Agreement (dated August 20, 1998)......................................... *
10.13 Lease Agreement (dated July 24, 1998)......................................................... *
10.14 WCMA Note, Loan and Security Agreement between the Registrant and Merrill Lynch Business
Financial Services, Inc. ................................................................... *
10.15 Addendum to that Lease dated July 24, 1998 between the Registrant and Southern California
Sunbelt Developers, Inc. ................................................................... *
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION FILED (F)
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.16 License Agreement between the Registrant (as assignee) and John Gray, Ph.D. dated September
29, 1993.................................................................................... *
10.17 Amendment to Agreement between the Registrant (as assignee) and John Gray, Ph.D. ............. *
10.18 Employment Agreement between Registrant and Michael F. Costa.................................. *
10.19 Employment Agreement between Registrant and Christopher Miglino............................... *
10.20 Assignment between Registrant (as Assignee) and Ramy El-Batrawi (as Assignor)................. *
10.21 Surrender and Cancellation Agreement among the Registrant, Ramy El-Batrawi and John M. Gray... *
10.22 Term Sheet between the Registrant and Global Leisure Travel, Inc.+ F
10.23 Letter Amendment to Employment Agreement between Registrant and Michael F. Costa dated as of
April 9, 1999............................................................................... F
10.24 Letter Amendment to Employment Agreement between Registrant and Christopher Miglino dated as
of April 9, 1999............................................................................ F
21.1 Subsidiaries of the Registrant................................................................ *
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.................................................................. *
24.1 Power of Attorney............................................................................. *
24.2 Authorizing Resolutions....................................................................... *
27.1 Financial Data Schedule....................................................................... F
</TABLE>
- ------------------------
* Previously filed.
+ Portions of the exhibit containing confidential information have been
omitted pursuant to a request for confidential treatment and have been filed
separately with the Commission.
II-7
<PAGE>
CERTIFICATE OF DESIGNATION,
RIGHTS AND PREFERENCES
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
GENESISINTERMEDIA.COM, INC.
----------------------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
-----------------------------
GenesisIntermedia.com, Inc. (the "CORPORATION"), a corporation
organized and existing under and by virtue of the provisions of the General
Corporation Law of the State of Delaware, certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation
authorizes the issuance of 5,000,000 shares of preferred stock ("PREFERRED
STOCK"), and, further, authorizes the Board of Directors of the Corporation
(the "BOARD OF DIRECTORS"), by resolution or resolutions, at any time and
from time to time, to divide and establish any or all of the unissued shares
of Preferred Stock not then allocated to any class or series of Preferred
Stock into one or more classes or series, and without limiting the generality
of the foregoing, to fix and determine the designation of each such class or
series, the number of shares which shall constitute such class or series and
such voting powers, and such preferences and relative participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof of the shares of each class or series so established.
SECOND: The Board of Directors at a meeting held on the 31st day
of March 1999 in accordance with Section 141(i) of the General Corporation
Law of the State of Delaware, did duly adopt the following resolutions
authorizing the tcreation and issuance of a series of said Preferred Stock to
be known as Series A Convertible Preferred Stock:
RESOLVED, that the Board of Directors, pursuant to authority
vested in it by the provisions of the Certificate of Incorporation of
the Corporation, hereby authorizes the issue of a class of the
Corporation's Preferred Stock, and hereby fixes the number,
designation, preferences, rights and limitations and restrictions
thereof in addition to those set forth in said Certificate of
Incorporation as follows:
1. DESIGNATION; RANK.
A series of the Corporation's Preferred Stock is designated as
"Series A Convertible Preferred Stock" (the "SERIES A CONVERTIBLE PREFERRED
STOCK") and the maximum number of shares of Series A Convertible Preferred
Stock shall be 450,000 and no more.
The Series A Convertible Preferred Stock shall be issuable in
sub-Series to be designated as sub-Series A-1, A-2, A-3 and A-4. Each
purchaser of Series A Convertible Preferred
<PAGE>
Stock shall be issued equal parts of each such sub-series (or as nearly as
possible thereto, with any adjustment being made in sub-Series A-4).
The Series A Convertible Preferred Stock has a liquidation
preference equivalent to the sum of $7.00 per whole share (the "LIQUIDATION
PREFERENCE"). The Series A Convertible Preferred Stock ranks, with respect to
rights to receive dividends and distributions upon liquidation, winding up or
dissolution of the Corporation (a) senior to the Corporation's Common Stock
(the "COMMON STOCK"), and any class or series of Preferred Stock issued by
the Corporation whose terms provide specifically that such class or series
shall rank junior to the Series A Convertible Preferred Stock with respect to
rights to receive payment of dividends and distributions upon liquidation or
fail to specify the ranking of such class or series relative to the Series A
Convertible Preferred Stock with respect to rights to receive payment of
dividends and distributions upon liquidation (together with the Common Stock,
the "JUNIOR SECURITIES"), (b) on a parity with any other class or series of
Preferred Stock issued by the Corporation whose terms provide specifically
that such class or series shall rank on a parity with the Series A
Convertible Preferred Stock with respect to rights to receive payment of
dividends and distributions upon liquidation (the "PARITY SECURITIES"), and
(c) junior to any class or series of stock issued by the Corporation whose
terms provide specifically that such class or series shall rank senior to the
Series A Convertible Preferred Stock with respect to rights to receive
payment of dividends and distributions upon liquidation (the "SENIOR
SECURITIES").
2. DIVIDENDS; PRIORITY.
(a) Each holder of Series A Convertible Preferred Stock shall
be entitled to receive, out of the funds of the Corporation legally available
therefor, cumulative dividend payments, payable in accordance with this
SECTION 2, on the last day of each calendar quarter of each year (each, a
"DIVIDEND PAYMENT DATE"), and terminating in accordance with SECTION 2(d)
below. Such dividends shall be cumulative only to the extent payable and
shall be payable on each Dividend Payment Date at the end of each such
period, PROVIDED that, if a Dividend Payment Date is not a Business Day (as
defined in SECTION 8 hereof), dividends shall be payable on the next
succeeding Business Day and no Additional Dividends (as defined in SECTION
2(e) hereof) shall accrue on the dividends payable on such Dividend Payment
Date for the intervening period. Dividends payable on the Series A
Convertible Preferred Stock for any period less than a full dividend period
shall be computed on the basis of the actual number of days elapsed and the
actual number of days for such dividend period.
(b) Dividends will be payable only in cash, to the extent that
funds are legally available therefor, when, as and if declared by the Board of
Directors.
(c) Except as provided below, the dividend on each share of
Series A Convertible Preferred Stock (the "DIVIDEND") on each Dividend
Payment Date shall be payable and shall cumulate at an annual rate of 8.75%
of the Liquidation Preference of such share.
-2-
<PAGE>
(d) The dividends referred to in SECTION 2(a) hereof shall
accrue (subject to the restrictions contained in SECTION 2(c) hereof and
whether or not declared and paid) from the applicable Dividend Payment Date,
except that with respect to the first dividend, such dividend shall accrue
from the date of original issuance of the Series A Convertible Preferred
Stock (the "ORIGINAL ISSUE DATE"). The accrual of such dividends shall cease
on the earlier of (x) the date on which such shares are converted into Common
Stock pursuant to SECTION 3(a) or (y) the date on which the Common Stock into
which such shares may be converted becomes freely transferable by the holder
thereof in accordance with SECTION 3(c) hereof.
(e) For any dividend period commencing after the issuance of
the Series A Convertible Preferred Stock with respect to which the Dividend
(as determined pursuant to SECTION 2(c) hereof) is not fully paid in cash on
the Dividend Payment Date at the end of such dividend period, such accrued
dividends shall be added (solely for the purpose of calculating dividends
payable on the Series A Convertible Preferred Stock) to the Liquidation
Preference, as defined in SECTION 1 hereof, of the Series A Convertible
Preferred Stock effective at the beginning of the dividend period next
succeeding the dividend period as to which such dividends were not paid and
shall thereafter accrue additional dividends in respect thereof ("ADDITIONAL
DIVIDENDS") as determined pursuant to SECTION 2(c) until such unpaid
dividends have been paid in full.
(f) Dividends shall be paid to the holders of record of
shares of Series A Convertible Preferred Stock as they appear in the stock
register of the Corporation at the close of business on the record date
therefor, which record date shall be the fifth Business Day immediately
preceding the Dividend Payment Date relating thereto.
3. CONVERSION.
(a) Each share of Series A Convertible Preferred Stock may be
converted at any time or from time to time by the holder into one share of
Common Stock of the Corporation in accordance with SECTION 3(d) below.
(b) Neither the shares of Series A Convertible Preferred
Stock issued hereunder nor the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock by the holders thereof have been
registered under the Securities Act of 1933, as amended. The
above-referenced shares must be held indefinitely and may not be assigned,
resold or otherwise disposed of by the initial holder thereof unless a
registration statement pertaining to such shares is declared effective by the
Securities and Exchange Commission or an exemption from such registration is
available. Legends regarding the restrictions on the transferability of the
shares will be placed on any certificates representing such shares.
-3-
<PAGE>
(c) No Common Stock received or receivable upon the
conversion of the Series A Convertible Preferred Stock by any holder thereof
may be assigned, resold, or otherwise disposed of or transferred at any time
prior to ninety (90) days following the date on which a registration
statement filed by the Corporation with respect to such shares is declared
effective by the Securities and Exchange Commission (the "INITIAL HOLDING
PERIOD"). Upon termination of the Initial Holding Period, the Common Stock
underlying the sub-Series A-1 Convertible Preferred Stock shall no longer be
subject to such transfer restriction and dividends shall cease to accrue or
be payable with respect to the sub-Series A-1 Convertible Preferred Stock. On
the 90th, 180th and 270th days following the end of the Initial Holding
Period, the Common Stock underlying the sub-Series A-2, A-3 and A-4
Convertible Preferred Stock, respectively, shall no longer be subject to such
transfer restriction and dividends with respect to such sub-Series A-2, A-3
and A-4 Convertible Preferred Stock, respectively, shall cease to accrue or
be payable.
(d) In order for any holder of the Series A Convertible
Preferred Stock to convert the same into Common Stock, such holder shall
surrender to the Corporation at its offices the certificate or certificates
representing such Series A Convertible Preferred Stock, accompanied by a
written notice that such holder elects to convert all or a specified number
of such shares. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder a certificate or certificates
representing the number of shares of Common Stock to which such holder shall
be entitled and a certificate for any surrendered shares of Series A
Convertible Preferred Stock not converted. Any conversion made at the
election of a holder of Series A Convertible Preferred Stock shall be deemed
to have been made immediately prior to the close of business on the date of
such surrender of the Series A Convertible Preferred Stock to be converted.
4. LIQUIDATION RIGHTS; PRIORITY.
(a) In the event of any liquidation, merger, sale,
consolidation or dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary (a "LIQUIDATION"), the holders of shares of
the Series A Convertible Preferred Stock shall be entitled to receive, after
payment or provision for payment of the debts and other liabilities of the
Corporation and after payment of the liquidation preference of any Senior
Securities, out of the remaining net assets of the Corporation, whether such
assets are capital or surplus and whether or not any dividends as such are
declared, the Liquidation Preference of $7.00 per whole share (and the pro
rata portion thereof in the case of fractional shares), together with an
amount equal to all accrued and unpaid dividends thereon to the date fixed
for distribution, before any distribution shall be made with respect to any
Junior Securities (collectively, the "LIQUIDATION AMOUNT"). In the event of
any change in the Corporation's Series A Convertible Preferred Stock by
reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, exchanges of shares or the like, the Liquidation Preference per
share of Series A Convertible Preferred Stock shall be appropriately adjusted
by the Board of Directors so as to protect the rights of the holders of
shares of Series A Convertible Preferred Stock.
-4-
<PAGE>
(b) Except as otherwise provided in this SECTION 4, holders
of Series A Convertible Preferred Stock shall not be entitled to any
participation in any distribution of assets in the event of any Liquidation.
For the purposes of this SECTION 4, neither the voluntary sale, lease,
conveyance, exchange or transfer (for cash, securities or other
consideration) of all or substantially all of the assets of the Corporation,
nor the consolidation or merger of the Corporation with one or more Persons
(as defined in SECTION 8), shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
(c) If, upon any Liquidation, the Liquidation Amount is not
paid in full, the holders of the Preferred Stock shall share in such
distribution in accordance with the respective certificates of designation of
such stock. If, upon any Liquidation, the amounts payable with respect to
the Series A Convertible Preferred Stock and any Parity Securities are not
paid in full, holders of the Series A Convertible Preferred Stock and holders
of any Parity Securities will share ratably in any distribution of the assets
of the Corporation in proportion to the respective amounts that would be
payable per share if such assets were sufficient to permit payment in full.
(d) Written notice of any Liquidation stating a payment date
and the place where the distributive amounts shall be payable, shall be given
by mail, postage prepaid, not less than thirty (30) days prior to the payment
date stated therein, to the holders of record of the Series A Convertible
Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation.
(e) Any liquidation payment with respect to each fractional
share of the Series A Convertible Preferred Stock outstanding shall be equal
to a ratably proportionate amount of the Liquidation Amount with respect to
each outstanding whole share of Series A Convertible Preferred Stock.
5. RESTRICTED PAYMENTS.
The Corporation may not directly or indirectly declare, pay or set
apart for payment dividends on or make any payment on account of, or set
apart for payment money for a sinking or other similar fund for the purchase,
redemption or other acquisition of, or make any distribution in respect of,
whether in cash, obligations, or shares of the Corporation or other property,
any Parity Securities or Junior Securities (or options, rights or warrants to
acquire shares of Parity Securities or Junior Securities) if at the time of
such action, (A) the Corporation is in arrears in the payment of dividends on
the Series A Convertible Preferred Stock, meaning that full cumulative
dividends determined in accordance with SECTION 2(c) hereof on the Series A
Convertible Preferred Stock as of the then most recent Dividend Payment Date
have not, in full, been paid in cash. None of the foregoing restrictions
shall apply to: (i) the acquisition of Parity Securities or Junior
Securities (or options, rights or warrants to acquire shares of Parity
Securities or Junior Securities) in exchange for
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or upon conversion thereof into shares of Capital Stock (as defined in
SECTION 8 hereof) of the Corporation (other than Senior Securities, without
the consent of holders of Series A Convertible Preferred Stock) or upon the
exercise of options, rights or warrants to acquire such shares; (ii) the
repurchase of Capital Stock of the Corporation from employees or former
employees of the Corporation pursuant to employee benefit plans, employment
contracts or securityholders agreements; (iii) the acquisition of any shares
of Capital Stock of the Corporation or options, rights or warrants to acquire
such shares in connection with a purchase price adjustment arising out of
acquisitions by the Corporation pursuant to which such shares of Capital
Stock or options, rights or warrants to acquire such shares were issued; (iv)
the rescission of any agreement by the Corporation pursuant to which shares
of Capital Stock of the Corporation or options, rights or warrants to acquire
such shares were issued; or (v) a dividend on Parity Securities or Junior
Securities at any time in additional shares of the respective Parity Security
or Junior Security.
6. VOTING.
Except as required by the General Corporation Law of the State of
Delaware, the holders of shares of Series A Convertible Preferred Stock shall
not be entitled to any voting rights.
7. REPORTS.
So long as the Series A Convertible Preferred Stock remains
outstanding, the Corporation shall cause its annual reports to stockholders
and any quarterly or other financial reports and information furnished by it
to stockholders pursuant to the requirements of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), to be mailed to the holders of the
Series A Convertible Preferred Stock (no later than the date such materials
are mailed to the Corporation's stockholders) at their addresses appearing on
the books of the Corporation. If the Corporation is not required to furnish
annual or quarterly reports to its stockholders pursuant to the Exchange Act,
it shall cause its financial statements, including any notes thereto (and
with respect to annual reports, an auditors' report by a nationally
recognized firm of independent certified public accountants), to be mailed to
the holders of the Series A Convertible Preferred Stock within one hundred
twenty (120) days after the end of each of the Corporation's fiscal years and
within sixty (60) days after the end of each of its first three fiscal
quarters.
8. CERTAIN DEFINITIONS.
The following terms shall have the meanings set forth below:
"BUSINESS DAY" means any day other than a Saturday, a Sunday, any
day on which the New York Stock Exchange is closed or any other day on which
banking institutions in New York, New York are authorized or required by law
to be closed.
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<PAGE>
"CAPITAL STOCK" means any and all shares, interests, participations
or other equivalents (however designated) of corporate stock or any and all
equivalent ownership interests in a Person (other than a corporation).
"COMMON STOCK" means the 25,000,000 shares of Common Stock of the
Corporation authorized for issuance in its Certificate of Incorporation.
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
AND FURTHER RESOLVED, that, before the Corporation shall issue
any shares of the Series A Convertible Preferred Stock, a certificate
pursuant to Section 151 of the General Corporation Law of the State
of Delaware shall be executed, acknowledged, filed and recorded in
accordance with the provisions of said Section 151, and the proper
officers of the Corporation are hereby authorized and directed to do
all acts and things which may be necessary or proper in their opinion
to carry into effect the purposes of and intent of this and the
foregoing resolutions.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name and on its behalf and attested on this 31st day of March 1999
by duly authorized officers of the Corporation.
GENESISINTERMEDIA.COM, INC., a
Delaware corporation
By: /S/ Ramy El-Batrawi
----------------------
Name: Ramy El-Batrawi
Title: President
ATTEST:
By: /S/ Douglas E. Jacobson
------------------------
Name: Douglas E. Jacobson
Title: Treasurer
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<PAGE>
GENESIS MEDIA GROUP, INC.
1998 STOCK COMPENSATION PROGRAM
1. PURPOSE. This 1998 Stock Compensation 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 600,000 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
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<PAGE>
before they have been exercised in full, the unpurchased shares subject to
those expired or terminated options shall 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
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<PAGE>
time as the Board of Directors may so determine. No options or restricted
shares shall be granted and no stock 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
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<PAGE>
to the Company. At the Company's sole and complete discretion, the Company
may, from time to time, accept 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. 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.
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(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 13(c) may be used in establishing the
Performance Objective for an award to a Covered Employee under
this Article 13. 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 13(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
13(c) shall be made in writing. The Program Administrators may
not delegate any responsibility under this Article 13(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
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<PAGE>
benefit relating to 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 14. 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 15. 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 16. 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 17. 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 18. 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 19. 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 20. CONFLICTS IN PROGRAM. In case of any conflict in
the terms of the
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Program, 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 21. 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 22. 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 23. 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 24. 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 200,000. 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 stock option plans of the Company and its subsidiaries shall not
exceed $100,000.
<PAGE>
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 principal office by
the person entitled to exercise the option and full payment for the shares with
2
<PAGE>
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.
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<PAGE>
Section 14. OPTIONS NOT TRANSFERABLE. Options granted
pursuant to the terms of the 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.
4
<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 ______________
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%
owner, no more than 5 years from Date of Grant]).
<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 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.
2
<PAGE>
(d) If the Grantee fails to pay for any of the Option Shares
specified in such notice or 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.
3
<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.
13063 Ventura Blvd.
Studio City, CA 91604-2238
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.
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<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:
5
<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 tendered at their then Fair Market Value as determined by the Program
Administrators in accordance
<PAGE>
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 furnish evidence satisfactory to the Company, including a
written and signed
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<PAGE>
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.
3
<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 _____________
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].
<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..
2
<PAGE>
(d) If the Grantee fails to pay for any of the Option Shares
specified in such notice or 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.
3
<PAGE>
10. Employment of Service 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
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.
13063 Ventura Blvd.
Studio City, CA 91604-2238
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.
4
<PAGE>
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.
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:
5
<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.
<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.
2
<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.
<PAGE>
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.
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).
2
<PAGE>
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.
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.
13063 Ventura Blvd.
Studio City, CA 91604-2238
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.
3
<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:
4
<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.
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(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.
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(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.
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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 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
4
<PAGE>
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.
(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.
5
<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.
<PAGE>
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.
2
<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.
<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.
2
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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.
<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
2
<PAGE>
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 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.
3
<PAGE>
TERM SHEET
This TERM SHEET (this "TERM SHEET") sets forth the basic terms of the
agreement in principle between GenesisIntermedia.com, Inc., a Delaware
corporation, on one part, and Global Leisure Travel, Inc., a Washington
corporation ("GLTI"), on another part, and is dated as of April 2, 1999. The
terms of the strategic alliance proposed hereunder must be submitted to the
Board of Directors of each of the parties hereto for approval.
I. STRATEGIC ALLIANCE.
GenesisIntermedia.com, Inc. in conjunction with its Genesis Intermedia,
Inc. subsidiary (collectively, "GENESIS") is entering into a strategic
alliance with GLTI, pursuant to which Genesis will become the principal
marketing and advertising agent and the exclusive Internet marketing and
advertising agent and e-commerce consultant and provider to GLTI and all of
its subsidiaries and affiliates (collectively, "GLOBAL"). In return,
Global provides to Genesis channel access options to acquire.
II. ALIGNMENT -- The opportunity to capitalize on one another's strengths:
GENESIS INTERMEDIA GLOBAL LEISURE
Marketing Know How Brand Name Recognition
New Channels Current Product Inventory
Technology Base Negotiated Contracts
Established Media Business Established Leisure Vacation Business
III. GENESIS' INITIATIVES.
The strategic alliance will initially comprise a number of initiatives to
be performed by Genesis for or in conjunction with Global and will be
embodied by such agreements as appropriate. The initiatives will include
the following:
A. INTERNET ADVERTISING CAMPAIGN. An Internet-based advertising campaign
to be prepared by Genesis for Global, which will include:
i. The creation of initial basic advertising campaign outlines for
each of the principal Global companies.
ii. The creation of initial Internet advertising layouts and features
to be mutually determined by the parties, taking into account the
short time line under which this project will be developed.
iii. The overhaul of the web sites for each of the principal Global
companies. Genesis has the right to display its logos and
appropriate "Powered by" language on the sites.
B. MALL DEVELOPMENT PROJECT. Development of basic graphical user
interfaces and advertising templates for Global for Genesis's mall
kiosk deployment program. Genesis has the right to display its logos
and appropriate "Powered by" language at the malls and kiosks.
<PAGE>
C. E-COMMERCE PROJECTS. The development of a fully functional e-commerce
business structure for all Global products and services to include:
i. Direct customer Internet access to Global product and service
inventory.
ii. On-line virtual tours.
iii. On-line real-time consultation and booking.
iv. Payment processing fees to be charged at Genesis's customary
fees in effect from time to time and to be incorporated in
Genesis's standard tariff schedule updated no less frequently
than quarterly.
v. Unlimited product and service listings, subject to price
adjustments at product/service number breaks.
vi. Unlimited cataloguing.
vii. Standard feature set described on the attached Exhibit A.
viii. Help Desk support.
ix. Subject to pricing/profit sharing structure set forth below.
D. PRICING.
i. The following monthly pricing will apply to the above-referenced
e-commerce project:
- Base Pricing: A monthly base fee to be calculated on the
basis of the number of unique product or service offerings
(including available combinations or packages of product and
service offerings). The Base Pricing will be based upon
the Genesis's budgeted fully allocated overhead associated
with the project.
- Charges for product and service offerings above Base Pricing
will be based on the standard pricing schedule as set forth
from time to time by Genesis.
- Prices subject to adjustment on a quarterly or more frequent
basis as determined by Genesis.
ii. PER TRANSACTION FEE: The parties will negotiate a per
transaction marketing and payment processing fee based on a
percentage of commission or income to Global, with a set dollar
minimum per transaction.
iii. Global will pay to Genesis mall advertising rent for all mall
advertising at a rate equal to one standard deviation above the
mean of all comparable third party mall advertising.
2
<PAGE>
iv. Global will pay to Genesis kiosk participation rent for all
kiosk participation at a rate equal to one standard deviation
above the mean of all comparable third party kiosk participant
rent.
v. Global shall pay to Genesis for all personnel training at
Genesis's standard hourly rates.
vi. Custom work to be performed at Genesis's standard hourly rates.
E. FUNDING COMMITMENT FOR INITIAL EFFORT. The parties acknowledge that
Global does not currently have the funds necessary to fully develop
its Internet and e-Commerce distribution channel. Genesis has agreed
to provide up to $3 million of senior secured debt to Global to
facilitate the development and deployment of its Internet and
e-Commerce capability and for general corporate purposes. The
obligation to advance any funds and the final terms and conditions of
such loans shall be subject to the negotiation and execution of and
shall be included in definitive documentation, which shall include, at
a minimum, a first priority security interest in all of the personal
property of each company comprising Global, and performance hurdles
for each agreed Tranche of funding.
IV. GLOBAL INITIATIVES.
The strategic alliance will initially comprise a number of initiatives to
be performed by Genesis for or in conjunction with Global and will be
embodied by such agreements as appropriate. The initiatives will include
the following:
A. NON-INTERNET MARKETING AND ADVERTISING; ADDITIONAL CHANNELS. The
parties acknowledge that Global currently has marketing and
advertising arrangements for non-Internet marketing and advertising.
Global hereby grants to Genesis a five-year right of first refusal on
any new marketing or advertising contracted for by Global, which shall
include any replacements or extensions of current marketing or
advertising. Global will not during the term of this right of first
refusal commence any in-house advertising or marketing initiatives
unless Genesis shall have been granted the right to bid on such
initiatives. The parties have also discussed that Genesis intends to
market Global products and services through various other new channels
and possibly through reseller relationships. Global hereby agrees
that Genesis shall have the exclusive right to develop and market such
new channels and to participate in any such reseller relationships
created or facilitated by Genesis and that the parties shall mutually
agree upon the compensation for such services.
B. CHANNEL. During the term of the agreement, Global shall use its
reasonable best efforts to enroll as many of its affiliated agents as
possible for Genesis's Internet distribution channel and to
continuously and prominently market and promote Genesis's Internet
channel to Global's customers.
3
<PAGE>
C. ACQUISITION OPTION GRANTED TO GENESIS.
i. OPTION 1 -- PURCHASE THE NEWTON GROUP. In consideration of
Genesis's initiatives as contained in this Term Sheet, Global
hereby grants to Genesis the option to purchase substantially all
of the operating and capital assets of Newton Group, including
all assets and intellectual property constituting the "Contour
System." This strategy is in keeping with Global's business
strategy of focusing on the travel business only and Genesis'
business strategy of building enhanced product delivery services,
especially as they directly relate to e-commerce.
- PRICE. The purchase price shall be $2.5 million + or - 20%
based on an agreed to audit to be conducted within 30 days
of said purchase. This payment acknowledges the Global's
current investment.
- TERM. The option shall expire on June 30, 1999.
- ASSUMPTION OF FUTURE DEVELOPMENT COSTS. In the event
Genesis exercises this option, Genesis shall assume the
obligation to pay for and complete and in process
technology development being conducted by Fourth Dimension
Systems.
- ASSUMPTION OF RELATIONSHIP WITH FOURTH DIMENSIONS SYSTEMS,
INC. In the event Genesis exercises this option, Genesis
will assume control of the Contour System Software License
issued by Fourth Dimension Software, Inc. Furthermore,
Genesis will honor the royalty payment to Fourth Dimensions
Software as prescribed in this System Software License.
- GLOBAL USE COMMITMENT. In the event Genesis exercises this
option, Global agrees to commit to subscribe to and use the
Contour System for a period of not less than _________. For
the ___________, Global hereby commits to pay to Genesis a
transaction fee of $________ per transaction for such usage,
with a minimum fee of $________, payable on ________________,
commencing on ____________________________. This contract
will be re-negotiated for the remaining ____________________.
ii. OPTION 2 -- PURCHASE GLOBAL. In consideration of Genesis's
initiatives as contained in this Term Sheet, Global hereby grants
to Genesis a right of first refusal to purchase Global or all of
the assets of Global.
- PRICE. Price will be equal to the fair market value of
Global as determined by an independent valuation firm
selected by Genesis and GLTI. Such valuation shall be
incorporated herein by this reference.
- TERM. The option shall expire on June 30, 2000.
[*] Indicates redacted text.
4
<PAGE>
V. COORDINATION.
The parties acknowledge that they anticipate a close alliance and ongoing
relationship. To this end, project owners form both organizations will be
appointed. It is anticipated that they will coordinate for periodic
project meetings to agree upon business objectives, scope, resource
commitment and schedule. Such meetings will be in person or by telephone
as appropriate. In order to establish the relationship, during the first
60 days, weekly project meetings will be scheduled (not to exceed 20 hours
per month) at such times or times as the parties agree. Thereafter
meetings will be scheduled as the parties determine to be necessary. Such
project meetings will also include, but not be limited to, discussion
concerning Global marketing efforts and success, implementation and use of
the electronic channel, design and functionality of the electronic channel.
VI. CLOSING.
While the parties intend to replace this Strategic Agreement with a more
formal set of documents, this agreement nonetheless intended to be a
binding agreement between the parties when signed by both of the parties in
the spaces provided below. This initial strategic agreement will govern
the relationship between the parties until a more formal set of documents
is executed and will not in any way be affected by the failure to complete
such formal set of documents.
ACCEPTED AND AGREED:
GLOBAL LEISURE TRAVEL, INC. GENESISINTERMEDIA.COM, INC.
By: By:
-------------------------------- -------------------------------
Name: Ravi Rao Name: Ramy El-Batrawi
Title: Chief Executive Officer Title: Chief Executive Officer
5
<PAGE>
EXHIBIT A
STANDARD FEATURE SET
CATALOGS
- - International Currencies
- - Weight Units: Kilograms, Grams, Pounds, and Ounces
- - Sending Methods: Internet, Fax/Mail, and Phone
- - Faxed Internet Orders
- - Payment Methods: VISA, MasterCard, American Express, Discover, Diners Club
and JCB
- - Custom Payment Methods
- - Standard Shipping Destinations: US States, Canadian Provinces, and World
Countries
- - Custom Shipping Destinations
- - Multiple Shipping Methods and Regions
- - Shipping Formula Variables: Quantities Ordered, Weight, and Subtotal
- - Shipping Formula Functions: Minimum, Maximum, and Range
- - Custom Tax Rates
- - Custom Survey Questions: Long Answer, Short Answer, Multiple Choice, and
Single Choice
- - Custom Subtotal Items: Fixed, User Enterable, and Optional
- - Users and Passwords
CATEGORIES
- - Unlimited Categories
- - Full Description
- - Image
PRODUCTS
- - Base Item Number
- - Description
- - Full Description
- - Image
- - Price
- - Sale Price
- - Unique Sale Price for Each Catalogue
- - Non-taxable products
- - Weight
- - Category
- - Multiple Product Options (i.e. Color, Size)
- - Multiple Product Option Items (i.e. Red, Green, Blue)
- - Custom Item Numbers based on Options
- - Custom Pricing based on Options
- - Option Conflicts
- - Quantity Discounts
- - Links to Related Items
- - Links to other URLs
- - Preview product pages
- - Generated HTML code to copy and paste into existing sites
- - Graphical pricing for easy integration into existing sites
- - Import product information from a test-delimited file
ORDERS
- - E-mail notification of new Orders
- - Order Status
- - Waybill Number and Shipper
- - Custom Notes
- - End-user Order Tracking
- - Export Order Information
POINT OF SALE
- - Multiple Merchant Numbers
- - Automatic Authorizations of orders sent over the Internet
- - Manual Authorizations
- - Credits
- - Automatic Settlement
E-COMMERCE HOSTING
- - Home Page builder
- - Unique URL
- - 10 MB Free
- - Virtual Hosting of existing domain names
- - Professionally Designed Templates
- - Customize your own Templates
E-COMMERCE SEARCH
- - Product Based Search Engine
- - Full Word Listing
- - Phrase or Boolean Searching
- - Re-index your site anytime
- - Integrate into existing sites
6
<PAGE>
Exhibit 10.23
[GENESIS INTERMEDIA LETTERHEAD]
April 9, 1999
Michael F. Costa
3151 Airway Avenue
Building T-3
Costa Mesa, CA 92626
Re: Employment Agreement/GenesisIntermedia.com, Inc.
------------------------------------------------
Dear Mr. Costa:
This letter agreement is made with reference to that certain Employment
Agreement (the "Agreement") dated as of October 26, 1998 between
GenesisIntermedia.com, Inc., a Delaware corporation (the "Company"), and Michael
F. Costa. It is necessary to amend the Agreement as follows, the Agreement
having already been filed with the Securities and Exchange Commission on
December 4, 1998 as an exhibit to Amendment No. 1 of the Company's Registration
Statement on Form SB-2.
SECTION 6 of the Agreement presently provides that the Company shall grant
options to you to purchase up to an aggregate of 75,000 shares of the common
stock of the Company upon your achievement of the performance goals described
therein (the "Options"). It is hereby confirmed and agreed that the Options
shall be granted to the extent permissible under applicable law in three (3)
separate installments under the Company's incentive stock option program and you
shall have the right hereunder to purchase from the Company the following number
of shares on the following terms, in a cumulative fashion:
(a) up to 25,000 shares of common stock at a price of $11.00 per share, if
you successfully install a communications system kiosk and video network known
as the "CenterlinQ System" in five (5) shopping centers on or before July 1,
1999;
(b) an additional 25,000 shares of common stock at a price of $13.00 per
share, if you successfully install the CenterlinQ System in an additional ten
(10) shopping centers on or before July 1, 2000; and
<PAGE>
Michael Costa
April 9, 1999
Page 2 of 2
(c) an additional 25,000 shares of common stock at a price of $15.00 per
share, if you successfully install the CenterlinQ System in an additional 20
shopping centers on or before January 1, 2002.
To the extent that an amendment to this letter agreement is required in
order to effectuate the issuance of such Options under the Company's incentive
stock option program in accordance with applicable law, the Company hereby
confirms and agrees that it shall execute such an amendment upon receipt of your
request that it do so.
Except as specifically amended or clarified by this letter agreement, it is
hereby confirmed and agreed that the agreements and undertakings otherwise
contained in the Agreement are reaffirmed and incorporated herein by reference.
Please confirm your agreement to the foregoing by signing a copy of this
letter in the space indicated below and returning the same to our office.
Please contact me at (818) 464-7270 if you have any questions regarding this
matter.
Very truly yours,
GENESISINTERMEDIA.COM, INC.
By:_________________________
Ramy El-Batrawi
Chairman
THE FOREGOING AMENDMENTS TO THE
AGREEMENT ARE CONSENTED TO AND
AGREED BY THE UNDERSIGNED:
_______________________________
MICHAEL F. COSTA
<PAGE>
Exhibit 10.24
[GENESIS INTERMEDIA LETTERHEAD]
April 9, 1999
Christopher Miglino
3151 Airway Avenue
Building T-3
Costa Mesa, CA 92626
Re: Employment agreement/GenesisIntermedia.com, Inc.
Dear Mr. Miglino:
This letter agreement is made with reference to that certain Employment
Agreement (the "Agreement") dated as of October 26, 1998 between
GenesisIntermedia.com, Inc., a Delaware corporation (the "Company"), and
Christopher Miglino. It is necessary to amend the Agreement as follows, the
Agreement having already been filed with the Securities and Exchange Commission
on December 4, 1998 as an exhibit to Amendment No. 1 of the Company's
Registration Statement on Form SB-2.
SECTION 6 of the Agreement presently provides that the Company shall grant
options to you to purchase up to an aggregate of 75,000 shares of the common
stock of the Company upon your achievement of the performance goals described
therein (the "Options"). It is hereby confirmed and agreed that the Options
shall be granted to the extent permissible under applicable law in three (3)
separate installments under the Company's incentive stock option program and you
shall have the right hereunder to purchase from the Company the following number
of shares on the following terms, in a cumulative fashion:
(a) up to 25,000 shares of common stock at a price of $11.00 per share, if
you successfully install a communications system kiosk and video network known
as the "CenterlinQ System" in five (5) shopping centers on or before July 1,
1999;
(b) an additional 25,000 shares of common stock at a price of $13.00 per
share, if you successfully install the CenterlinQ System in an additional ten
(10) shopping centers on or before July 1, 2000; and
<PAGE>
Christopher Miglino
April 9, 1999
Page 2 of 2
(c) an additional 25,000 shares of common stock at a price of $15.00 per
share, if you successfully install the CenterlinQ System in an additional 20
shopping centers on or before January 1, 2002.
To the extent that an amendment to this letter agreement is required in
order to effectuate the issuance of such Options under the Company's incentive
stock option program in accordance with applicable law, the Company hereby
confirms and agrees that it shall execute such an amendment upon receipt of your
request that it do so.
Except as specifically amended or clarified by this letter agreement, it is
hereby confirmed and agreed that the agreements and undertakings otherwise
contained in the Agreement are reaffirmed and incorporated herein by reference.
Please confirm your agreement to the foregoing by signing a copy of this
letter in the space indicated below and returning the same to our office.
Please contact me at (818) 464-7270 if you have any questions regarding this
matter the same to our office. Please
Very truly yours,
GENESISINTERMEDIA.COM, INC.
By:_________________________
Ramy El-Batrawi
Chairman
THE FOREGOING AMENDMENTS TO THE
AGREEMENT ARE CONSENTED TO AND
AGREED BY THE UNDERSIGNED:
_________________________________________
CHRISTOPHER MIGLINO
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 (No.
333-66281) of our report, dated April 8, 1999, relating to the consolidated
financial statements of GenesisIntermedia.com, Inc. and subsidiary. We also
consent to the reference to our Firm under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 15, 1999
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,841,562
<SECURITIES> 0
<RECEIVABLES> 3,842,385
<ALLOWANCES> 175,000
<INVENTORY> 180,208
<CURRENT-ASSETS> 6,690,418
<PP&E> 2,232,417
<DEPRECIATION> (178,317)
<TOTAL-ASSETS> 9,988,318
<CURRENT-LIABILITIES> 4,241,413
<BONDS> 0
0
0
<COMMON> 3,060
<OTHER-SE> 4,687,487
<TOTAL-LIABILITY-AND-EQUITY> 9,988,318
<SALES> 14,905,724
<TOTAL-REVENUES> 14,905,724
<CGS> 5,134,726
<TOTAL-COSTS> 13,313,876
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,135
<INCOME-PRETAX> 1,456,713
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 1,426,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,426,713
<EPS-PRIMARY> 0.35
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