SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB-A1
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GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant To Section 12(g) of the Securities Exchange Act of 1934
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Reliant Interactive Media Corp.
formerly Reliant Corporation
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Nevada 87-0411941
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
13535 Feather Sound Drive - Suite 220, Clearwater, Florida 33762
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 299-0020
The following Securities are to be registered pursuant to Section 12(g) of
the Act:
Class-A Common Voting Equity Stock
5,885,271
October 15, 1999
The EXHIBIT INDEX is located at Page 58 of this Registration Statement
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENT
This Report contains "forward-looking" statements regarding potential
future events and developments affecting the business of the Company. Such
statements relate to, among other things, (i) competition for customers for its
products and services; (ii) the uncertainty of developing or obtaining rights to
new products that will be accepted by the market and the timing of the
introduction of new products into the market; (iii) the limited market life of
the Company's products; and (iv) other statements about the Company or the
direct response industry.
The Company's ability to predict results or the effects of any pending
events on the Company's operating results is inherently subject to various risks
and uncertainties, including competition for products, customers and media
access; the risks of doing business abroad; the uncertainty of developing or
obtaining rights to new products that will be accepted by the market; the
limited market life of the Company's products; and the effects of government
regulations. See MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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PART I
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Item 1. Description of Business.
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(a) Business Development.
(1) Form and Year of Organization.
This Corporation Reliant Interactive Media Corp. (of Nevada) ("the
Company") was first incorporated in Utah on July 30, 1984, as Reliant
Corporation for the purpose of creating a vehicle to obtain capital and seek
out, investigate and acquire interests in products and businesses with the
potential for profit. On or about July 15, 1998 the company acquired its present
name, Reliant Interactive Media Corp. On or about March 18, 1999, the company
moved its place of incorporation from Utah to Nevada without other changes in
its corporate organization.
In July of 1985, the Company became a public company when it completed an
offering of 2,000,000 shares of common stock, at $0.01, for $20,000.00 pursuant
to Rule 504 of Regulation D.
This Company's original operating business is somewhat different from its
present business. In 1991 the Company purchased a one-half interest in certain
physical fitness video tapes and a related production contract in exchange for
9,600,000 share of common stock. The video tape venture proved unsuccessful and
was terminated in 1993. Then, the Company sought other potential profitable
programs, in the same general industrial area, namely audio-visual marketing,
and/or marketing of audio-visual products.
In an effort to provide working capital, the Company engaged in certain
limited offerings and/or private placements of its common stock, selling 300,000
shares for $10,000.00, and selling 1,960,000 for $196,000, in 1995.
On December 31, 1995, and continuously through December 31, 1997, the
issuer had 2,369,600 shares of common stock issued and outstanding.
On August 7, 1998, shareholders approved (1) a five to one reverse split of
the Company's common stock; (2) an agreement and plan of reorganization dated
July 21, 1998, between the Company and Kevin Harrignton Enterprises, Inc., a
Florida corporation ("Harrington Enterprises"), pursuant to which, the company
acquired Harrington Enterprises (as a wholly-owned subsidiary) in a corporate
reorganization, the shareholders of Harrington Enterprises receiving and
aggregate of 7,898,667 post-reverse shares of the Company's common stock; (3) an
agreement and plan of
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reorganization dated July 21, 1998, between the Company and Cigar Television
Network ("Cigar TV"), a Florida corporation, in a corporate reorganization
pursuant to which, the Company acquired Cigar TV as a wholly-owned subsidiary,
the shareholders of Cigar TV receiving an aggregate of 3,949,333 post-reverse
shares of the Company's common stock; and (4) a corporate name-change to Reliant
Interactive Media Corp.
Those two acquisitions (2) and (3) were related-party transactions. Form
more information see Item 7 of this Part I, CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
On March 23, 1999, certain actions were taken by a Majority of
Shareholders, which action was ratified by all shareholders at a meeting called
and held May 5, 1999:
1) Approved and empowered the Board of Directors to effect a reverse split
of the issuer's common stock, every five shares to become one share;
2) Approved an Agreement and Plan of Reorganization whereby the Company
would acquire TPH Marketing, Inc., in a tax-free exchange, for the issuance
of 1,500,000 [post-reverse] shares of the Company's common stock. The
Shares have been issued to the two shareholders of TPH Marketing, Inc., Tim
Harrington having received 800,000 shares, and Kevin Harrrington having
received 700,000 shares.
3) Approved a Qualified Shareholder Option Plan for 24 months for 500,000
[post-reverse] shares at $2.50 to $7.50 per share, based on a formula and
terms to be determined by the Board of Directors, for key employees,
consultants and other key people;
4) Approved the Issuance [post-reverse] to each of the following, based
upon 100,000 shares for each $10,000,000.00 in gross revenues, received by
the Company and determined in accordance with Regulation SX accounting
standards; no more than 1/6 of the shares shall be vested in any 6 month
period: up to 1,000,000 shares for Mel Arthur; up to 3,000,000 shares to
Kevin Harrington; and up to 2,000,000 shares for Tim Harrington;
5) Approved issuance of the following stock [post-reverse] for services in
connection with financing obtained for the company within the next 24
months, for each of the following: Intrepid International S.A. and N&R Ltd.
Group, Inc. as follows: 100,000 shares per $1,000,000.00 for up to
$10,000,000.00 raised; 50,000 shares per $1,000,000.00 for the next
$20,000.00 raised; 20,000 shares per $1,000,000.00 for over $30,000,000.00
raised. The number of "dollars raised" shall be the gross dollars received
before payment of commissions, fees and other expenses directly connected
to raising these funds.
6) Approved the sale of corporate debentures for a total issuance of not
less than $6,000,000 in denominations of $1,000 and bearing interest at the
market rate, of 8% or less, due in 5 years from issuance. Debentures shall
be convertible to shares of common stock of the company at a conversion
rate of $7.50 per share.
7) Confirmed, Elected and/or re-elected four directors, Kevin Harrington,
Tim Harrington, Mel Arthur, and Karl Rodriguez, to serve until the next
meeting of shareholders.
The numbers used hereinafter are those which give effect to two successive
reverse splits of the common stock of the issuer, in August 1998, and March
1999, each having been a five to one reverse. Please refer to Part II, Item 4,
for subsequent share issuances, during the past three years. Accordingly, the
total issued and outstanding shares of the issuer's common stock stands at
5,885,271 as of October 15, 1999.
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(2) Bankruptcy, Receivership or Similar Proceeding. None from inception to
date.
(b) Business of the Issuer. This Company will engage in the business of
Electronic & Multi Media Retailing (print, radio, television and the internet).
Reliant Interactive Media Corp. is engaged in direct response transactional
television programming (known as "infomercials"), to market consumer products.
Reliant, with its focus on global markets and products of global marketability,
expects to bring its products into more than 370 million households in 70
countries worldwide, primarily through television and the Internet.
Background
The infomercial industry was first developed in the United States after the
FCC rescinded its limitations on advertising minutes per hour in 1984, thereby
permitting 30-minute blocks of television advertising. In fact, Kevin
Harrington, the Issuer's CEO produced his first infomercial in 1985, and then
founded Quantum Marketing International, one of the pioneers in the
international infomercial industry's development, commencing operations in 1988.
The deregulation of the cable television industry and the resulting
proliferation of cable channels increased the available media time and led to
the growth of the United States infomercial industry. Producers of infomercials
combined direct response marketing and retailing principles within a television
talk show-type format and purchased media time from cable channels to air their
infomercials. After an initial growth period, the industry consolidated through
the end of the 1980's. At the same time, increased attention from the FTC and
the federal and state consumer protection agencies led to greater regulation of
the industry and to the development of the National Infomercial Marketing
Association as a self-regulatory organization. By the early 1990's, infomercials
and home shopping cable channels had become a more accepted forum for obtaining
information about products and services and making purchases from home. As the
infomercial industry has matured, the variety of products marketed through
infomercials has steadily increased. Today, offerings as diverse as car care
products and computers are marketed through infomercials.
Industry Overview
The development of the international infomercial industry began in Western
Europe following the initial industry development in the United States. Quantum
Marketing International, which had been founded by Reliant's chairman, Kevin
Harrington, was acquired by National Media in 1991. Following that acquisition,
Kevin Harrignton, who had owned 100% of Quantum International Marketing
International, retained an insignificant amount of stock in the acquired entity.
No affiliate of this Issuer has or maintained any relationship with Quantum
Marketing International.
The industry expanded throughout Europe and then into non-European markets
through the early 1990's and continues to expand into other worldwide markets
today. Whereas domestically, distribution of products through infomercials is
viewed as an alternative to retail, mail order and other means of distribution,
in many international markets distribution through traditional channels is not
readily accessible to many consumers. As a result of these factors, the Company
believes that it has an opportunity to be one of the primary distributors of
innovative consumer products in the international marketplace.
Prior to 1984, the maximum allowable minutes of television per hour was
limited (16 minutes of commercial messages per hour) by the Federal
Communications Commission ("FCC"), making the television infomercial an
impossibility. In 1984, the FCC rescinded its limitations, permitting the sale
of blocks of advertising and the television infomercial was born. Currently, the
electronic retailing industry, which includes infomercials and short-form
commercials, television shopping channels and multimedia marketing, has
estimated annual sales of $8.6 billion. Management estimates that
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approximately thirteen million adults in the United States (about 6% of the
adult population) bought at least at one item from a TV offer in 1997 versus in
1995, when approximately nine million bought merchandise. Many electronic
retailers are now approaching cyberspace and the world of e-commerce as their
next frontier. A U.S. Commerce Department study shows that 100 million consumers
are now online. Internet traffic is doubling every 100 days. The "digital
economy" is growing twice as fast the economy overall. 10 million Internet users
made online purchases by the end of 1997, up from 4.7 million six months
earlier.
Company Strategy
Reliant's goal is to be recognized as a worldwide leader in direct
marketing. Through direct response transactional television programming and
integrated consumer marketing techniques, the Company is pursuing a business
strategy focusing on: (i) increasing the utilization of its global relationship,
(ii) developing and marketing innovative consumer products to develop its
library of infomercial programs and (iii) engineering an efficient business
model for the conduct of its worldwide direct response business. The Company is
revving up its efforts to create a position as a worldwide leader in infomercial
programming. Through its global contracts, and media access, the Company will
have the ability to deliver infomercial programming and products to over 370
million households worldwide. The Company intends to continue to explore new
ways to effectively utilize and leverage this worldwide distribution, reach and
capability. In addition, the Company intends to aggressively utilize its assets
such as its customer lists in order to realize the true value thereof.
Develop and Market Innovative Products to
Develop a Library of Infomercial Programs
The Company continually seeks out innovative consumer products which it can
market and distribute profitably. The Company has an in-house product
development/marketing capability responsible for researching, developing and
analyzing products and product ideas. The Company augments its product
development activities through relationships with third party product
developers, from time to time, whose products may appear to management to
present profitable infomercial marketing potential. The Company may develop or
acquire product lines, or may engage in marketing agreements for marketing of
product lines owned by others. As a practical matter, the difference between
acquired product lines, and marketing arrangements for products which may be
owned by third persons is deemed to be technical, but otherwise not
substantially different; in as much as, acquired products or acquired marketing
rights are acquired, with royalty and other arrangements which may amount to the
same essential financial impact upon costs, revenues and profitability See the
unnumbered subtitle below "Current Products".
While the Company incurs certain initial and ongoing costs in connection
with adapting a product and infomercial for specific markets, the primary
expenses are incurred when the product/infomercial is first developed for its
initial target market. Thus, as the Company decides to introduce a product into
additional markets, it can do so quickly, efficiently and relatively
inexpensively. The Company believes that by further expanding its coverage into
other parts of the world it will be able to further leverage its library of
infomercial programs and associated products by extending the time period during
which each product generates revenues and, therefore, the total worldwide
revenues for a particular product. Management reports that the normal range of
costs for a marketing program is $50,000.00 to $250,000.00, with the exceptional
project rarely extending to as much as $500,000.00.
Engineering the Most Efficient Business Model for the Company
The Company continues to explore methods to better control each step in the
development and life cycle of a product/infomercial and develop its expertise
in, and refine its systems with regards to,
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product sourcing, in-bound telemarketing, production, order fulfillment and
customer service. Reliant believes that its current competitive advantages of
fully-integrated program production, sourcing, as well as the development of new
marketing partners, provide it with a strong base from which it can lower its
costs and engineer a business model which is the most efficient for a worldwide
direct response business.
The Company will utilize its executive managements' proven expertise in the
direct response transactional television (DRTV) arena, known as infomercials, to
market consumer products. By combining television's proven ability to drive
product sales with the global informational and access capabilities of the
Internet, the Company is a true multi-media marketing company. Print, radio and
direct mail are the other key components of the Company's strategy. The mix of
expenses and revenues for television to other media is heavily weighted to
television, about 95%. Other media expenses are expected to exceed 5% of project
advertising rarely, if ever.
In 1998, this Issuer was a "Development Stage Company", as described in the
Company's financial statements for the years so ended. During the three months
ended June 30, 1999, revenues exceeded expenses; such that this formerly
"Development Stage Company" is now considered by management to be an "Operating
Company." The term "Development Stage Company" is a cautionary term used to
refer to a company whose principal business activity is organization and capital
formation in order to pursue or launch its business plan. While issues of
capital augmentation may arise in the course of the affairs of an "Operating
Company", by such term, the Issuer means that it has launched its business plan,
and is now generating revenues which reasonably appear to be increasing. It is
therefore expected that increasing revenues will fund continuing operations in
substantial part, supplemented by normal commercial borrowing, such that capital
formation or augmentation would be secondary considerations in relation to
Issuer's ability to sustain itself as a going concern.
The Company is a Corporate Member of the Association of Internet
Professionals ("AIP"). AIP's web site can be found at www.association.org. The
AIP is the premier professional association for internet professionals
worldwide. AIP, founded in 1994, is the largest and fastest growing professional
association in the industry. The Company is also a member of the Electronics
Retailing Association, the trade association for the infomercial industry. The
Company's initial focus will be to market consumer products through the
infomercial vehicle. Reliant has chosen products that offer sales continuity,
and Reliant endeavors to own the full product rights, the name, manufacturing
and the product itself. The Company has full product rights for in excess of 50%
of the products to which it has rights. The specific products and rights are
disclosed in more detail in the following discussion. In product sales,
television creates interest: a broader, multi-media approach ensures maximum
profits. The Company plans to use its infomercial programming to develop a
worldwide presence in e- commerce markets. Reliant will use segments of its TV
infomercial programs to drive consumers to its web sites,
www.lifestylesmall.com, www.cigarnow.com, www.rimc.com and
www.reliantinteractive.com. Web site activities are presently in development
stage, by which the Issuer means to say that sites are being designed, refined
and promoted, but that revenues from web site activities are presently
insignificant.
The Cigar Television Network is a wholly-owned subsidiary of the Company.
This subsidiary has transferred its two primary business activities to this
Registrant Company to operate. The Company now is responsible for the marketing
and sales of a line of cigar lighters and the CigarNow.com web site. The Company
is now selling a line of Cobee lighters/cigar cutters, including dual-flame and
triple-flame lighters. CigarNow.com was the Company's first web-based e-commerce
venture and features over 550 premium cigars, plus accessories and upscale
lifestyle products. CigarNow.com will also serve as the electronic cigar vendor
on several high-profile, high-traffic partner sites.
The Company entered into a Web Site Purchase Agreement on May 26, 1999 to
purchase from Tony Little the Tony Little Web Site. Tony Little is one of the
most recognized fitness personalities on television and is often referred to as
"America's Fitness Guru." This web site currently offers a
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variety of health-related products promoted by Tony Little. The Company is
responsible for the operating expenses of the web site and will receive one-half
of the net revenues. The consideration for the purchase was $10,000 and 100,000
shares of the Company's common stock to be issued subject to the exemption
provided by section 4(2) of the Securities Act of 1933.
Product Development
The Company's product development/marketing department is the most vital
component of the Company. Kevin and Tim Harrington, along with Mel Arthur,
actively participate on a daily basis in the ongoing effort to research and
develop new products that may be suited for direct response television marketing
and subsequent marketing through non-infomercial distribution channels. This
group develops new product ideas from a variety of sources, including inventors,
suppliers, trade shows, industry conferences, strategic alliances with
manufacturing and consumer product companies and the Company's ongoing review of
new developments within its targeted product categories. As a result of
management's prominence in the infomercial and retail television industry, it
also receives unsolicited new product proposals from independent third parties.
During the evaluation phase of product development, the Company evaluates the
suitability of the product for television demonstration and explanation as well
as the anticipated perceived value of the product to consumers, determines
whether an adequate and timely supply of the product can be obtained and
analyzes whether the estimated profitability of the product satisfies the
Company's criteria.
The Company is devoting attention to the development and products
specifically targeted at markets outside of North America. The Company will
review its infomercial inventory on an ongoing basis to select those products
which it believes will be successful in Europe and/or Asia and/or its other
international markets. When a product which was initially sold domestically is
selected for international distribution, the infomercial is dubbed and product
literature is created in the appropriate foreign languages. In addition, a
review of the product's and the infomercial's compliance with the local laws is
completed. The Company's licensed distributor then begins airing the infomercial
internationally. The Company also airs shows and distributes products of other
independent domestic infomercial companies. 2% of expenses are targeted for
foreign markets. Presently revenues from foreign markets are 1% of total
revenues. It should be anticipated, in the opinion of management, that in the
future, 5% of expenses for foreign markets will ripen into 10% of revenues. The
reasoning upon which this expectation is based is that once the United States
marketing has been put in place, the only significant additional expense, for
foreign distribution would be dubbing into the appropriate foreign language.
The Company obtains the rights to new products created by third parties
through various licensing arrangements generally involving royalties related to
sales of the product. The amount of the royalty is negotiated and generally
depends upon the level of involvement of the third party in the development and
marketing of the product. The Company generally pays the smallest royalty to a
third party that only provides a product concept. A somewhat higher royalty to a
third party that has fully developed and manufactured a product. The Company
also obtains the rights to sell products which have already been developed,
manufactured and marketed through infomercials produced by other companies. In
such cases, the Company generally pays a higher royalty rate to the third party
because of the relatively small amount of the Company's resources required to
develop the product. The Company generally seeks exclusive worldwide rights to
all products in all means of distribution. In some cases, the Company does not
obtain all marketing and distribution rights, but seeks to receive a royalty on
sales made by the licensor pursuant to the rights retained by the licensor.
Infomercial Development and Test Marketing
Once the Company decides to bring a product to market, it arranges for the
production of a 30- minute infomercial that will provide in-depth demonstrations
and explanations of the product. The Company attempts to present a product in an
entertaining and informative manner utilizing a variety of
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program formats. The Company's infomercials are currently produced in-house by
contracting with established independent experienced producers who work under
Reliant's direction. The cost of producing an infomercial generally ranges from
$25,000 to $350,000. In addition, producers, hosts and spokespersons generally
receive fees based upon sales of the products.
Following completion of the production of an infomercial, the program is
then tested in the United States in specific time slots on both national cable
networks and targeted broadcast stations. If a show achieves acceptable results
in the market tests, it is generally aired on a rapidly increasing schedule on
cable networks and broadcast channels. During this initial phase, the Company
may modify the creative presentation of the infomercial and/or the retail
pricing, depending upon viewer response. After the initial marketing phase, the
Company may adjust the frequency of a program's airing to achieve a schedule of
programs that it believes maximizes the profitability of all of the Company's
products being marketed through infomercial programming at a given time.
Media Access
An important part of the Company's ability to successfully market products
is its access to media time. The Company's infomercial programming will be
available through licensed distributors to more than 370 million households in
70 countries worldwide, including Argentina, Australia, Austria, Belarus, the
Benelux countries, Brazil, China, Denmark, Ecuador, most Eastern European
countries, Finland, France, Germany, Greece, Ireland, Italy, Japan, Mexico, most
Middle Eastern countries, New Zealand, Norway, Peru, Portugal, Russia, Spain,
most South American countries, Sweden, Switzerland, Taiwan, Turkey, Ukraine and
the United Kingdom.
Internationally, the Company's infomercials are aired on one or more of
three technologies by its licensed distributors: (i) satellite transmission
direct to home with satellite reception dishes; (ii) cable operators who
retransmit satellite broadcasts to cable-ready homes and (iii) terrestrial
broadcast television.
Domestically, the Company purchases most of its cable television time
directly from cable networks and their respective media representatives. In
addition to domestic air time purchased on cable networks, the Company also
purchases broadcast television time from network affiliates and independent
stations. Broadcast television time segments are purchased primarily in
30-minute spots. The Company believes that there is currently more than an
adequate supply of broadcast television time available from these sources in the
United States to satisfy the Company's needs. The Company is dependent on having
access to media time to televise its infomercials on cable networks, satellite
networks, network affiliates and local stations.
Sourcing and Manufacturing
The Company intends to develop sources in the United States and several
countries in Europe and Asia to manufacture products sold through its
infomercials if it deems it to be economically advantageous. There are no
commitments or established relationships in place at this time.
In general, before the Company takes any sizable inventory position in a
product, the Company test markets the product. The Company would then purchase
additional inventory for roll-out of the product. The skill of management is
extremely important in the area of building inventory to anticipate sales. This
is more important in direct response marketing than in elsewhere, for the reason
that delivery time is critical to customer acceptance, and further by virtue of
the dependance on credit card payment, for charges cannot attach until the
product is shipped out of the fulfillment house. The process begins with a
"small test". The amount of initial inventory will vary based upon the
management's best projections of the quality and appeal of the product, the
sales price of the product, and the delivery time projected for the product. A
normal small test will involve the investment of about $30,000.00 dollars in
initial inventory. Although there can never be any guaranty of resulting
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demand, management's experience is that about half, and sometimes more, of the
initial inventory will be sold, even if the program is not deemed successful.
Skillful management should not allow the accumulation of excessive inventory.
Management's general policy is to build inventory of a successful product
against one month's anticipated sales, on the basis of continuing evaluation of
current sales and known trends, by which every successful marketing program and
product have a cycle of increasing demand, eventually peak, and ultimately
decline to marginal significance. A typical product/marketing cycle, in any
given market may range from three months to six months, but every program and
product is unique, and its marketing cycle may exceed or fail to match normative
expectations.
In-Bound Telemarketing
The Company strives to create a problem-free fulfillment process for its
customers. This process consists of in-bound telemarketing, order fulfillment
and customer service. The first step in this process is the order-taking
function known as in-bound telemarketing. Customers may order products marketed
through infomercials during or after the infomercial by calling a telephone
number (toll-free in the United States), which is shown periodically on the
television screen during the broadcast.
The Company anticipates normal subcontracting of its telemarketing function
to one of various third parties that provide this service for a fee-based
principally on the number of telephone calls answered. In all instances
domestically, in-bound telemarketers electronically transmit orders to the
Company's order fulfillment contractors where the product is packaged and
shipped. In certain cases, at the time of purchase, the in-bound telemarketers
also promote, cross-sell and upsell complementary and/or additional products
relating to the product for which the inquiry is received. Such sales efforts
are orchestrated by the Company's marketing personnel who script the sales
approaches of the telemarketing personnel. Currently, the Company has no
international subcontractor. Domestically, the Company's telemarketing
subcontractor is West Telemarketing, 9910 Maple Street, Omaha NE 68134; and also
Aftermarket Company, 5260 West Phelts, Suite 8B, Glendale AZ 85306, for computer
sales only.
The majority of customer payments in the United States are made by credit
cards over the telephone with the remainder paid by check.
Order Fulfillment
The Company anticipates contracting with one or more fulfillment centers.
Activities at these facilities include receiving merchandise from manufacturers,
inspecting merchandise for damages or defects, storing and assembling product
for later delivery, packaging and shipping of products and processing of
customer returns. They primarily use bulk shippers to deliver products to
customers in the United States. In certain instances, the manufacturer of the
product ships orders directly to the customer. Each customer is charged a
shopping handling fee, which varies among products. Currently, the Company's
fulfillment centers are BWL Distributors, and Reliant Fulfillment, both at 17250
Dallas Parkway, Dallas TX 75248. There is no other relationship between this
Issuer and its fulfillment center, and the similarity of name is purely
co-incidental. Management reports that Reliant Fulfillment has conducted
business by that name before the first contacts between it and this Issuer.
Customer Service
An important aspect of the Company's marketing strategy is to maintain and
improve the quality of customer service and to respond to customer inquires,
provide product information to customers and process product returns. The
average rate of return, of 8% to 15%, has been consistent in the experience of
the Issuer, and in the previous experience of its management in association with
other direct response companies in the past. Customer service is provided on a
contract basis through third parties who operations are monitored by the
Company. The Company generally offers an unconditional
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30-day money back return policy to purchasers of any of its products. In
addition, products are generally covered by warranties offered by the
manufacturer for defective products. The terms of such warranties vary depending
upon the product and the manufacturer. The Company believes that its return
rates will be within the customary range for direct marketing businesses.
Non-Infomercial Marketing
Based on the success of certain of its products in traditional retail
markets and the evolution of its business, the Company believes that its
transactional television programming is effective in building consumer awareness
of its products, as well as positioning the Company to act as the media
marketing partner for manufacturers of consumer products. The Company's
attempting to capitalize on its ability to create product awareness and its
ability to act as a media marketing partner to extend the sales life of its
products by shifting products from traditional infomercial programming to
non-infomercial marketing channels such as retail distribution, catalogs, direct
mail, direct response print ads, television home shopping programs, credit card
statement inserts and other channels resulting from the development of strategic
partnerships. The Company believes that established manufacturers are
increasingly regarding infomercials as a desirable vehicle to showcase their
products to create and build brand awareness and generate follow-up product
sales through traditional retail outlets.
The Company intends to pursue expansion of its retail operations in order
to capitalize on the consumer brand-awareness created by the Company's
infomercials and reinforced by the "As Seen On TV" in-store signage. The Company
believes that the product exposure created by the Company's transactional
television programming enables the Company and its partners to utilize
traditional retail distribution channels without incurring any of the additional
advertisement costs that other consumer product companies may incur. In this
manner, the Company believes that it will be able to market products to
consumers who view its programming, but do not traditionally purchase products
through direct response marketing.
Current Products
The Company markets consumer products in a wide variety of categories,
i.e.: health fitness, beauty, weight loss, business opportunities, household
appliances, etc. The Company will be dependent, in significant part, upon its
ability to develop or obtain rights to new products to supplement and replace
existing products as they mature through their product life cycles. The
Company's expansion into international markets reduces somewhat its dependency
on new shows by lengthening the potential duration of the life cycle of programs
that will comprise the Company's infomercial library. Historically, the majority
of the industry's products generate their most significant domestic revenues in
the first 6 months following initial airing of the product's infomercial.
Internationally, however, products typically generate revenues more evenly over
a longer period. The Company has not had enough operating history to determine
if it is following the historical trends of its industry.
The Company enters into agreements for the sale of a number of products. If
the products are successfully tested and deemed to have sufficient commercial
marketability, they are then "rolled-out" in a Nation-wide media effort. The
following products have been rolled-out:
Pure Protein Bar. The Company has an International Marketing and
Distribution Agreement with Worldwide Sports Nutrition, Inc. for television
sales only of the high protein, low carbohydrate, low fat Pure Protein Bar.
The program will be rolled-out on November 15, 1999.
BIOflex Therapeutic Magnet Product Line. The Company has an International
Marketing and Distribution Agreement with BWL Distributors, Ltd. to market
the Sobakawa BIOflex therapeutic magnet product line through direct
response infomercials. Sobakawa Magnetic insoles are ultra thin, cushioned
insoles containing the patented Bioflex Magnets. These specific insoles
have a
10
<PAGE>
moisture resistant feature intended to prevent germs and odors. The
roll-out date of this product was February 27, 1999. Sales of this product
currently account for 43% of the revenues of the Company. The Company does
not have full product rights.
Trash or Treasure. The Company has a contract with Dr. Tony Hyman for his
Trash or Treasure program that shows how money can be earned from items
that are often considered as "trash". Through this informative and
educational program, Dr. Hyman shows others how to find the items
collectors are scouring the country to find: salt & pepper shakers,
thimbles, maps, and toys, just to name a few. Many of these items are
sitting in garages, buried in attics or sold at flea markets for next to
nothing! The book includes over 2,200 product categories and the names,
addresses, phone numbers, and e-mail addresses of over 1,200 buyers that
will purchase these items. The rollout date of this product was January 30,
1999. Sales of this product currently accounts for 29% of the revenues of
the Company. The Company does not have full product rights.
Pest Offense. Pest Offense is a safe, effective way to control pests around
your home or business without the use of any dangerous chemicals or
pesticides. This environmentally safe device plugs into a wall a creates an
intermittent signal in the wiring that drive pests out. It will not affect
electrical equipment, has no smell or fumes, cover 2,500 square feet, and
is safe for all household pets. This product was rolled out on May 1, 1999
and accounts for 15% of the Company's revenues. The Company has full
product rights.
Wonder Steamer. The Company has a talent agreement with Sandy Bradley to
promote a lightweight steam iron for pressing clothes while they hang, or
it steams and presses like a flat iron. Steams in less than one minute and
is designed to not burn, scorch, melt, or shine the clothes. The Wonder
Steamer is lightweight, easy for travel and safe for use on delicate
fabrics. The product was rolled out on June 26, 1999 and represents 4% of
the revenues of the Company. The Company has full product rights.
Enduro Bits. Enduro Bits utilize a high-tech metalurgical fusion comprised
of a combination of carbide, titanium, and carbon, making it practically
indestructible. The Enduro Bit cuts wood, steel, aluminum, glass, plastic,
ceramic tile, and even granite without having to change a bit. This product
was rolled out on September 11 1999, and has generated insignificant income
at this time. The Company does not have full product rights.
System Max Computers. The Company has full product rights for the sale of
the 500mz System Max computer system with monitor, printer, and an
assortment of popular software titles. An Infomercial aired at the end of
the 3rd quarter of 1999, generated orders for in excess of $1,000,000.00;
but these revenues have not been realized yet due to shipping delays
attributed to the manufacturer's having been affected by the recent
earthquakes in Taiwan. The Product is now being shipped and the Company
expects to fulfill these orders. Management believes that future computer
sales from infomercials and the internet may account for a significant
percentage of its revenues in the near future.
Eternal Energy Products. The Company has an International Marketing and
Distribution Agreement with Golden Pride, Inc., which manufactures a
proprietary line of vitamin and energy supplement products. The Agreement
for provides for television rights only for selling a starter kit of
various products and inviting viewers to join "Tony Little's Eternal
Energy" multi-level marketing program. The show will be run monthly, and at
this time Revenues from this program are not material.
11
<PAGE>
Government Regulation
Various aspects of the Company's business are subject to regulation and
ongoing review by a variety of federal, state, and local agencies, including the
FTC, the United States Post Office, the CPSC, the FCC, FDA, various States'
Attorneys General and other state and local consumer protection and health
agencies. The statutes, rules and regulations applicable to the Company's
operations, and to various products marketed by it, are numerous, complex and
subject to change.
The Company collects and remits sales tax in the states in which it has a
physical presence. The Company is prepared to collect sales taxes for other
states, if laws are passed requiring such collection. The Company does not
believe that a change in the tax laws requiring the collecting of sales tax will
have a material adverse effect on the Company's financial condition or results
of operations.
Competitive business conditions and the small business issuer's
competitive position in the industry.
Competition in the Electronic Retailing Industry is intense and may be
expected to intensify. There are other, larger and well-established electronic
retailers, with whom this company must compete. The Company competes directly
with several companies which generate sales from infomercials. The Company also
competes with a large number of consumer product companies and retailers which
have substantially greater financial, marketing and other resources than the
Company, some of which have recently commenced, or indicated their intent to
conduct, direct response marketing. The Company also competes with companies
that make imitations of the Company's products at substantially lower prices.
Products similar to the Company's products may be sold in department stores,
pharmacies, general merchandise stores and through magazines, newspapers, direct
mail advertising and catalogs. It is management's opinion that all of its major
competitors are better and longer established, better financed and with enhanced
borrowing credit based on historical operations, and enjoy substantially higher
revenues than the Issuer does currently. As a new entrant into this marketing
industry, the Issuer relies on the skill, experience and innovative discernment
of management in the hope that superior judgment will provide its only
competitive advantage. This Company's major competitors are now listed: Thane
International, Inc.; Fitness Quest, Inc.; Telebrands Advertising Corporation;
Media Group Incorporated; e4L, Inc.; Guthy Renker Corp.; Media Enterprises, Inc.
Properties and Employees.
This Company's principal offices are located at 13535 Feather Sound Drive,
Suite 220, Clearwater, Florida, 33762 Telephone: (727) 299-0020 Facsimile: (727)
299-0101. The Company currently leases approximately 7,959 square feet of office
space pursuant to a year lease for its Clearwater, Florida, principal executive
offices. The lease, which commenced in 1999, but which has recently been
expanded to include additional space, now provides for monthly rent of
$16,400.00 or annual rent payments of $196,800.00. The facility encompasses 25
separate offices and a board room. As of October 15, 1999, the Company had
approximately 7 full-time employees and 2 contract employees, i.e. producers,
technical and artistic talent. None of the Company's employees are covered by
collective bargaining agreements and management considers relations with its
employees to be good.
12
<PAGE>
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------------------
(a) Plan of Operation.
(1) Plan of Operation for the next twelve months.
(i) Cash Requirements and of Need for additional funds, twelve months.
The Issuer/Company is "a development stage Company" and has only limited
capital resources. It may be necessary for the Company to seek additional
capital over time to optimize the accomplishment its business plan. It is the
judgment of Management that increasing revenues from operations will maintain
this Company in a position of substantial liquidity; however it is forseeable
that the Company will seek additional capital in order to accelerate its growth
and realize its potential more rapidly.
On or about February 23, 1999, the Company received $330,000.00 (before the
second reverse split, from six highly sophisticated and unrelated investors,
specifically targeted to infomercial production. In consideration of this
investment, the investors received an aggregate of 1,000,000 shares of
restricted common stock of the Company. In addition, the investors will receive
an aggregate of 5% of the gross revenues (as defined by agreement) from sales
generated by the four infomercials produced until 120% of the investment has
been returned to the investors. Thereafter, the percentage received by these
investors will be reduced to an aggregate of 4%. These investors were also
granted an option to provide funding on two additional infomercials for similar
consideration, in the future. The price was arrived at in arm-length
negotiations in the context of the entire transaction. The shares so issued
reduce the per share loss calculations proportionally. The Company expects to
value the shares at $330,000.00 and to treat other recovery by investors as
expenses.
The Company has recently made an agreement with Oasis Entertainment's
Fourth Movie Project, Inc. (a related party transaction) to provide funding in
the amount of $250,000.00 for use specifically in the production of three
additional infomercials. Oasis is to receive 250,000 shares (after the second
reverse-split) of common stock upon completion of the funding in April, plus a
royalty of 2% of the adjusted gross revenues derived on all products designated
in the agreement until Oasis has been paid $625,000.00, and thereafter 1%
thereof in perpetuity. This transaction is deemed to be a related party for the
reason that, and only for the reason that, Karl Rodriguez is the fourth Director
of this registering Company and is also Secretary and a Director of Oasis
Entertainment's Fourth Movie Project, Inc. These 250,000 shares have been
authorized, but not issued yet. The Company expects to value the shares at
$250,000.00 and to treat other recovery by investors as expenses. The shares if
and when issued will reduce the per share loss calculations proportionally.
This Company is expected to generate enough sales revenues to satisfy its
cash requirements for the next twelve months, although there is no assurance
that this can be achieved. The sum and substance of these arrangements is that
the Company has the funding to pursue its business plan, for the next twelve
months, but has paid a substantial premium to secure it. In the last two
quarters, revenues have increased, relieving the urgency for additional capital
from necessary to desirable. It remains desirable for the simple reason that the
more money the company has available, the more projects it can undertake and the
more media and inventory it can buy.
The fact remains that, in all likelihood, unless the Company is successful
in generating continuing investor interest, and in securing additional
investment, or possibly debt-financing arrangements, the business of the
Company, however promising, cannot expand toward its full potential, and may not
achieve the optimum profitability expected. The Company's business plan is
ambitious, and although its products and services enjoy a certain synergy with
each other, the sheer number of projects, each with its own focus and potential
market, will require that Company grow and expand its operations over time. Its
failure to grow in a timely manner would be expected to leave incentive openings
for
13
<PAGE>
other competitors to fill. For that reason, the need to grow and expand
operations, it is likely that this Company will pursue additional capital in the
year 2000, notwithstanding that its present capital resources including growing
revenues are sufficient for current operations and modest growth at a
respectable level of profitability.
(ii) Summary of Product Research and Development.
The Company's product development/marketing department is the most vital
component of the Company. Kevin and Tim Harrington, along with Mel Arthur,
actively participate on a daily basis in the ongoing effort to research and
develop new products that may be suited for direct response television marketing
and subsequent marketing through non-infomercial distribution channels. This
group develops new product ideas from a variety of sources, including inventors,
suppliers, trade shows, industry conferences, strategic alliances with
manufacturing and consumer product companies and the Company's ongoing review of
new developments within its targeted product categories. As a result of
management's prominence in the infomercial and retail television industry, it
also receives unsolicited new product proposals from independent third parties.
During the evaluation phase of product development, the Company evaluates the
suitability of the product for television demonstration and explanation as well
as the anticipated perceived value of the product to consumers, determines
whether an adequate and timely supply of the product can be obtained and
analyzes whether the estimated profitability of the product satisfies the
Company's criteria.
The Company is devoting attention to the development and products
specifically targeted at markets outside of North America. The Company will
review its infomercial library on an ongoing basis to select those products
which it believes will be successful in Europe and/or Asia and/or its other
international markets. When a product which was initially sold domestically is
selected for international distribution, the infomercial is dubbed and product
literature is created in the appropriate foreign languages. In addition, a
review of the product's and the infomercial's compliance with the local laws
completed. The Company's licensed distributor then begins airing the infomercial
internationally. The Company also airs shows and distributes products of other
independent domestic infomercial companies.
The Company obtains the rights to new products created by third parties
through various licensing arrangements generally involving royalties related to
sales of the product. The amount of the royalty is negotiated and generally
depends upon the level of involvement of the third party in the development and
marketing of the product. The Company generally pays the smallest royalty to a
third party that only provides a product concept. A somewhat higher royalty to a
third party that has fully developed and manufactured a product. The Company
also obtains the rights to sell products which have already been developed,
manufactured and marketed through infomercials produced by other companies. In
such cases, the Company generally pays a higher royalty rate to the third party
because of the relatively small amount of the Company's resources required to
develop the product. The Company generally seeks exclusive worldwide rights to
all products in all means of distribution. In some cases, the Company does not
obtain all marketing and distribution rights, but seeks to receive a royalty on
sales made by the licensor pursuant to the rights retained by the licensor.
(iii) Expected purchase or sale of plant and significant equipment.
None.
(iv) Expected significant change in the number of employees. Not
known.
(b) Discussion and Analysis of Financial Condition and Results of Operations.
In 1998, the company closed the year with a loss, with minimal revenues, in
pre-launch development mode, but these results are not deemed to reflect true
business operations. In 1998, the company had significant expenses that resulted
in a loss for the year. Management believes that revenues will continue to
increase in 1999, but to achieve the continued growth of the Company's
14
<PAGE>
business, advertising, promotional and production expenses will remain
significant. While the upside potential from successful infomercial marketing is
tremendous, the risk of failure is always present. Some of the projects may
fail, or all may fail. If some are successful, the success may offset the losses
from others significantly or may not. Accordingly, there can be no assurance
that substantial profitability will be sustained in the next twelve months.
Development Stage/Going Concern. There are two material thresholds in the
transition of this Company, from Development Stage to Going Concern. The first
is the commencement of limited operations, during 1998, and the first quarter of
1999. The second is the achievement of substantial revenues and the dawn of
profitability, corresponding to the second quarter of 1999. While the
Harringtons began some limited operations in 1998, their two companies were not
acquired as subsidiaries until August of that year. The Harringtons honored
certain non-compete agreements, with HSN Direct, a division of Home Shopping
Network, which expired in December of 1998. During the interim period, the
Harringtons located, developed and prepared for production and rollout of
various products. For that reason, full-fledged operations were not launched
until April of 1999. While the affairs of the Company improved consistently,
from 1998, the second quarter of 1999 was the first profitable quarter, and is
the first quarter of unlimited operations. For these reasons, management refers
to this Company as in its Development Stage for 1998, and for the first quarter
of 1999, and as an operating company and a going concern during the second
quarter of 1999.
Revenues are Increasing. There were no revenues in 1997. Sales in 1998 were
$120,234, which was $60,118 for the first half, and $60,116, for the second
half. Corresponding amounts for the first quarter, and second quarter of 1999,
were $352,483 and $3,135,013. Thus the sales of the first half of 1999 total
$3,477,490. The increase in the second 1999 quarter reflects the launching of
full operations in April, more completely reflected by the end of the second
half of 1999. The significance of these figures is not only that revenues have
increased exponentially, due to operations, but that the Company has achieved
profitability during the second quarter, the three months ended June 30, 1999.
1998 operations have been characterized as limited. They consisted of the
sale of cigarette lighters and the marketing of a single non-infomercial
television show. In 1998, Gross Margins, after cost of goods sold, was only 45%;
whereas,that margin has been stable between 85% to 86% of Gross Sales, for the
first half of 1999. This improvement is largely due to the difference between
limited operations, and the economy and efficiency of unlimited operations,
beginning in April of 1999. It is also attributable to the marketing of
different products from those currently offered by the Company.
Interest Income and Expense reflected on the Company's financial statements
refer to the company's ownership of a certificate of deposit, pledged against a
loan. The interest income from the CD is shown. The interest expense for the
loan is shown.
Operating Expenses would be expected to increase with increasing
operations. Expenses in 1998 were attributable to the marketing of different
products than those which form the core of the Company's current business. In
general, expenses have decreased as a percentage of sales.
================================================================================
General and Administrative
Expenses $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 792,533 120,234 659.16
- --------------------------------------------------------------------------------
first quarter 1999 337,843 352,483 95.85
- --------------------------------------------------------------------------------
first half 1999 1,347,827 3,487,490 38.65
- --------------------------------------------------------------------------------
second quarter 1999 1,010,984 3,135,013 32.25
================================================================================
15
<PAGE>
These figures reflect a continuing improvement in this relationship, due to
expanding operations, additional products and customers.
================================================================================
Research and Development $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 41,449 120,234 34.47
- --------------------------------------------------------------------------------
first quarter 1999 4,754 352,483 1.35
- --------------------------------------------------------------------------------
first half 1999 30,155 3,487,490 0.86
- --------------------------------------------------------------------------------
second quarter 1999 25,401 3,135,013 0.81
================================================================================
These figures reflect that Research and Development is trending downward as
a decreasing percentage of sales.
================================================================================
Production and Media Costs $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 -0- 120,234 0.00
- --------------------------------------------------------------------------------
first quarter 1999 355,279 352,483 100.79
- --------------------------------------------------------------------------------
first half 1999 1,523,711 3,487,490 43.69
- --------------------------------------------------------------------------------
second quarter 1999 1,168,432 3,135,013 37.27
================================================================================
These expenses were not a factor in 1998, due to differing nature of the
products marketed. These figures for 1999 reflect an improvement in the ratio of
these expenses to sales, even as total costs increase with expanding operations.
================================================================================
Marketing $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 339,877 120,234 282.68
- --------------------------------------------------------------------------------
first quarter 1999 202,596 352,483 57.48
- --------------------------------------------------------------------------------
first half 1999 274,995 3,487,490 7.89
- --------------------------------------------------------------------------------
second quarter 1999 72,399 3,135,013 2.31
================================================================================
These figures reflect an improvement in the ratio of these expenses to
sales, even as total costs increase with expanding operations.
================================================================================
Rent $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 48,226 120,234 40.11
- --------------------------------------------------------------------------------
first quarter 1999 12,951 352,483 3.67
- --------------------------------------------------------------------------------
first half 1999 29,952 3,487,490 0.86
- --------------------------------------------------------------------------------
second quarter 1999 17,001 3,135,013 0.54
================================================================================
16
<PAGE>
The Company initially had leased approximately four thousand (4000) square
feet of office space pursuant to a year lease for its Clearwater, Florida,
principal executive offices. The lease, which commenced in 1999, provided for
monthly rent of $6,750.42, or annual rent payments of $81,005.04 The facility
encompassed 25 separate offices and a board room. Additional space has recently
been taken. The current monthly rent is $16,400.00, or annual rent payments of
$196,800.00.
================================================================================
Total Operating Expenses $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 1,228,714 120,234 1,021.94
- --------------------------------------------------------------------------------
first quarter 1999 915,099 352,483 259.62
- --------------------------------------------------------------------------------
first half 1999 3,229,402 3,487,490 92.60
- --------------------------------------------------------------------------------
second quarter 1999 2,314,303 3,135,013 73.82
================================================================================
This comparison shows that total operating expenses are declining as a
percentage of sales, even as total expenses are increasing with expanded
operations. These tables also illustrate the significance of the second
operating quarter of 1999.
Profitability, as indicated previously, appeared in the second quarter of
1999.
================================================================================
Operating Income (Loss) $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 (1,134913) 120,234 (943.92)
- --------------------------------------------------------------------------------
first quarter 1999 (631,147) 352,483 (179.06)
- --------------------------------------------------------------------------------
first half 1999 (256,317) 3,487,490 (7.35)
- --------------------------------------------------------------------------------
second quarter 1999 374,830 3,135,013 11.96
================================================================================
The achievement of profitability, in the second quarter, does not guaranty
that the trend to increasing profitability will follow. However, it appears to
management that operations are expanding in an orderly and promising manner, and
that expenses are being managed appropriately.
Total Assets (and accordingly Total Liabilities and Equity) increased
modestly from $276,967 for 1997, to $335,301 for 1998, doubling to $648,068 in
the first three months of 1999, and rising to $1,675,325 by the end of the first
six moths of the current year. While Property and equipment has not risen during
these periods, Accounts Receivable have grown more rapidly, in keeping with the
transition from development to operational stage: $56,787 for the first
quarters, rising to $1,047,675 for the first six months. There were no accounts
receivable in 1998 or 1997, during the purely development stage of the Company.
Accordingly, Inventory has been increasing as sales increased, in the second
quarter from $27,342, at the end of 1998 and the three months ended June 30,
1999, to $74,313 at the end of the second quarter. This tripling of inventory is
modest in comparison to the increase in the volume of sales for the same period.
While this Company is presently able to manage its present phase of
development, for a indefinite interim, it cannot regard its financial condition
as optimal. Unless events in the future are favorable, both in terms of profit
from operations now being undertaken, and also favorable in attracting investor
interest, the Company may not be able to sustain a stable growth pattern for the
Company. These remarks should be understood in context, discussed elsewhere,
that increasing revenues are expected to
17
<PAGE>
provide substantially all of the requirements for continued operations at
present levels and for some possible growth. This company must grow to reach its
full potential. For this reason, stability at its present levels is not
considered optimal for long-term growth.
- --------------------------------------------------------------------------------
Item 3. Description of Property.
- --------------------------------------------------------------------------------
This Company's principal offices are located at 13535 Feather Sound Drive,
Suite 220, Clearwater, Florida, 33762 Telephone: (727) 299-0020; Facsimile:
(727) 299-0101. The Company currently leases approximately seven thousand nine
hundred fifty-nine (7,959) square feet of office space pursuant to a month to
month lease for its Clearwater, Florida, principal executive offices. The lease,
which commenced in 1999, provides for monthly rent of $16,400, or annual rent
payments of $196,800. The facility encompasses 25 separate offices and a board
room. The Company is currently negotiating with its landlord to enter into a
long term lease.
- --------------------------------------------------------------------------------
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- --------------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners. To the best of Registrant's
knowledge and belief the following disclosure presents the total security
ownership of all persons, entities and groups, known to or discoverable by
Registrant, to be the beneficial owner or owners of more than five percent of
any voting class of Registrant's stock. More than one person, entity or group
could be beneficially interested in the same securities, so that the total of
all percentages may accordingly exceed one hundred percent of some or any
classes. Please refer to explanatory notes if any, for clarification or
additional information.
(b) Security Ownership of Management. To the best of Registrant's knowledge and
belief the following disclosure presents the total beneficial security ownership
of all Directors and Nominees, naming them, and by all Officers and Directors as
a group, without naming them, of Registrant, known to or discoverable by
Registrant. More than one person, entity or group could be beneficially
interested in the same securities, so that the total of all percentages may
accordingly exceed one hundred percent of some or any classes. Please refer to
explanatory notes if any, for clarification or additional information. Table A
following discloses the share ownership actually issued and outstanding.
Table B following Table A and its notes, discloses the existence and the
effect of certain management options, as if exercised, on the share ownership of
management and affiliates. Please refer to Executive Compensation, Item 6 of
this Part, for details as to entitlement, terms of exercise and prices for the
Options disclosed.
TABLE A
COMMON STOCK
OFFICERS AND DIRECTORS AND OWNERS OF 5% OR MORE
================================================================================
NAME AND ADDRESS OF BENEFICIAL OWNER ACTUAL
OWNERSHIP %
- --------------------------------------------------------------------------------
Kevin Harrington Chairman and CEO 2,156,101 36.64
80 Gulf Blvd
Belleair Beach FL 33786
- --------------------------------------------------------------------------------
Tim Harrington President and COO 1,100,000 18.69
531 Rafael Blvd NE
St. Petersburg FL 33704
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
NAME AND ADDRESS OF BENEFICIAL OWNER ACTUAL
OWNERSHIP %
- --------------------------------------------------------------------------------
Mel Arthur, Executive Vice 105,000 1.78
12001 9th St N #2509 President
St. Petersburg FL 33716
- --------------------------------------------------------------------------------
Karl Rodriguez Secretary 1,000 0.02
23592 Windsong #19E
Aliso Viejo CA 92656
================================================================================
All Officers and Directors as a Group 3,362,101 57.13
================================================================================
Total Shares Issued and Outstanding 5,885,271 100.00
================================================================================
As more fully developed, discussed and disclosed hereinafter, the following
discloses the amount of shares which each beneficial owner shown in Table A has
the right to acquire within 60 days, from options, warrants, rights, conversion
privileges or similar obligations: (1) Kevin Harrington-160,000 shares; (2) Tim
Harrington-140,000 shares; and (3) Mel Arthur-105,000 shares.
Table B following, and its notes, discloses the existence and the effect of
all of certain management options, as if exercised, on the share ownership of
management and affiliates. These Options were granted June 30, 1999. The terms
of the vesting of the various options are somewhat complex. Please refer to
Executive Compensation, Item 6 of this Part, Table C, for details as to
entitlement, terms of exercise and prices for the Options disclosed.
The following discussion concerns which options might reasonably be
exercised within the next 60 days: (Please see Table C from which this
information is taken.
<TABLE>
<CAPTION>
=============================================================================================================================
60 day Exercisable
Option/Bonus Rights Kevin Harrington Tim Harrington Mel Arthur
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensatory Stock 6 months: 60,000 6 months: 40,000 6 months: 5,000
Option Plan (See shares @ $2.50 shares @ $2.50 shares @ $2.50
Exhibit 6.2):
- -----------------------------------------------------------------------------------------------------------------------------
Revenue For each $10,000,000 For each $10,000,000 For each $10,000,000
Performance Stock in gross revenues, in gross revenues, in gross revenues,
Bonus issuance of 100,000 issuance of 100,000 issuance of 100,000
shares up to a total of shares up to a total of shares up to a total of
3,000,000 shares (no 2,000,000 shares (no 900,000 shares (no
more than 1/6 of total more than 1/6 of total more than 1/6 of total
to vest in any 6 month to vest in any 6 month to vest in any 6
period) period) month period)
=============================================================================================================================
</TABLE>
These Compensatory Stock Options were granted June 30, 1999, are vested,
and exercisable January 1, 1999. These Revenue Performance Stock Bonuses are
dependent upon gross revenues. It is deemed likely that the $10,000,000.00
threshold will be reached within 60 days.
The following Table B discloses the effect of share ownership as if all of
the those rights, more fully detailed in Item 6 of this Part, Table C, EXECUTIVE
COMPENSATION, were vested and exercised.
19
<PAGE>
TABLE B
EFFECT OF OPTION EXERCISE ON SHARE OWNERSHIP
<TABLE>
<CAPTION>
====================================================================================================================================
SHARES TOTAL IF
ACTUAL OPTIONS
OPTION OWNER AND AS % OPTIONS EXERCISED %
ATTRIBUTED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kevin Harrington 2,156,101 36.64 3,720,000 5,876,101 45.04
- ------------------------------------------------------------------------------------------------------------------------------------
Tim Harrington 1,100,000 18.69 2,480,000 3,580,000 27.44
- ------------------------------------------------------------------------------------------------------------------------------------
Mel Arthur 105,000 1.78 960,000 1,065,000 8.16
====================================================================================================================================
Total Shares/Options 5,885,271 100.00 7,160,000 13,045,271 100.00
Outstanding
====================================================================================================================================
</TABLE>
(c) Changes in Control/Reverse Acquisition. There are no arrangements known to
Registrant, including any pledge by any persons, of securities of Registrant,
which may at a subsequent date result in a change of control of the Issuer. A
"reverse acquisition" is the acquisition of a private company by a public
company, by which the private company's shareholders acquired control of the
public company. This Issuer is presently committed to the development of its
infomercial business. While this Issuer is continuously interested in
opportunities for direct acquisition of products, projects, assets and possible
businesses, which may have some synergy with its core business, this Issuer may
not be used as a vehicle for a reverse acquisition.
- --------------------------------------------------------------------------------
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- --------------------------------------------------------------------------------
The following persons are the Directors of Registrant, having taken office
from the inception of the issuer, to serve until their successors might be
elected or appointed. The time of the next meeting of shareholders has not been
determined. Kevin Harrington and Tim Harrington took office August 7, 1998. Mel
Arthur took office January 20, 1999. The present four Directors were
elected/reelected by Majority Shareholder Action, on or about March 23, 1999,
and were confirmed and reelected at a regular meeting of Shareholders held on
May 3, 1999.
Kevin Harrington. 42, prior to his current tenure as Chairman and CEO of
Reliant Interactive Media, Kevin Harrington helped pioneer the growth and
acceptance of televised direct-response marketing, or what our culture more
commonly calls "infomercials." In fact, Harrington produced his first
infomercial in 1985, and then founded Quantum International, one of the most
successful companies in direct response history. Limited to a three-person staff
(which included his brother, Tim), Harrington turned a $25,000 investment into
sales of more $140 million in the company's first two years of operation. While
at the helm of Quantum, Harrington launched a string of highly-profitable shows
featuring such universally popular products as The Great Wok of China, Wolfman
Jack's Solid Gold Rock 'n Roll Hits (the first ever music infomercial), The
JetStream Oven, The Daily Mixer, Ginsu/The Blade Knives, Kevin Trudeau's Mega
Memory and The Flying Lure (the industry's first fishing lure show). In 1989,
Harrington started the expansion of direct-response television into more than 30
foreign markets. In 1991, Quantum was sold to industry giant National Media. As
a result of this transaction, Harrington ascended to the presidency of National,
where he presided over the launch of another string of a blockbuster shows,
including Bruce Jenner's Stair Climber, Bruce Jenner's Super Step, Bruce
Jenner's Powerwalk, Blue Coral's Autofoam and Regal Royal Diamond Cookware. In
July, 1994, Harrington left National Media to form joint venture company with
The Home Shopping Network. Called HSN Direct International, the aim of the
venture was to develop an infomercial company that could take products that had
performed successfully on HSN and roll them
20
<PAGE>
out into traditional infomercial formats for broadcast around the world. The
high-profile domestic and foreign successes of HSN Direct include shows such as
Tony Little's Ab Isolator; Sweet Simplicity, a hair removal product; and Kathy
Smith's AirTech Glider. HSN Direct also forged a number of ground- breaking
alliance with international marketers in countries throughout Europe, Latin
America, Asia and the Middle East. Eventually, the company saw its shows
broadcast in some 70 countries around the world. In August of 1998, Harrington
was appointed Chairman and CEO of Reliant Interactive Media Corp., (OTC BB:
RIMC). Kevin Harrington is a founding Board member Electronic Retailing
Association, an industry association.
Tim Harrington. 33, prior to his current tenure as President and COO of
Reliant Interactive Media, Tim Harrington worked in close concert with his
brother pioneering the growth of the infomercial industry into an accepted means
of driving both direct and retail sales. Through his primary focus on the
details of legal, contractual and production matters. He continued in that role
as the executive vice-president of National Media, also picking up executive
responsibility for the firm's marketing and sales departments. As the co-founder
and executive vice-president of HSN Direct International, Tim exercised
executive control and leadership over product development and marketing groups
that generated approximately $30 million in annual sales. HSN Direct's solid
production values and media-buying savvy are directly attributed to his
leadership of those two key areas. In his current role as president of Reliant,
Tim is more involved than ever in over-seeing the infomercial production and
product development activities for the Company.
Mel Arthur. 56, prior to his current tenure as Executive Vice President and
Director of Reliant Interactive Media, Mr. Arthur was the "Top Producing show
host," producing approximately a billion dollars in revenues while on the air
during his eight-year career with Home Shopping Network, and was acknowledged in
the industry as one of the most versatile hosts on the air. His expertise ranges
from computers, fine jewelry, oriental rugs, exercise equipment, home
electronics, vitamins, health and fitness to collectibles and more. Mr. Arthur
achieved record sales, including almost 3 million dollars sold in computers, in
less than 30 minutes. He has appeared with some of the top celebrities on
television and in sports, such as Vanna White, Barbara Mandrel, Ed McMahon,
Mickey Mantle, Ted Williams, Willie Mays, and Jim Brown, just to name a few. His
business experience is highlighted by a six-year career as a sportscaster and
color announcer for the USFL, NASL, the Jacksonville University Basketball Team,
and he was the force behind the first half hour magazine shows emanating from
PGA Tour Headquarters and The Tournament Player's Championship. Mel was voted
Jacksonville's Most Popular radio personality. Mr. Arthur was President of his
own insurance agency for three years; was a leader in the telecommunications
industry for eight years between 1972 and 1980 as a pioneer in the telephone
interconnect industry; and between 1970 and 1972 he was one of the top sales
producers for Honeywell's EDP division, marketing large scale,
multimillion-dollar mainframe computers. From 1962 through 1970, Mel starred all
over the United States, Canada, Europe and the Caribbean as a stand-up comedian,
as well as writing for other stand-up comedians such as Jackie Mason and Gabe
Kaplan.
Karl E. Rodriguez, 52, the Company's Secretary, received his Juris Doctor
degree in 1972 from Louisiana State University Law School. He has practiced
business and corporate law since 1972, emphasizing securities and entertainment
matters, and has been self-employed in that capacity for the past five years. He
has served as a director of Oasis Entertainment's Fourth Movie Project, Inc.,
since April 1998. During his law practice he has also been involved in a variety
of dynamic business experiences. From 1975 to 1982, he was active in real estate
development in the Baton Rouge, Louisiana area. From 1980 until 1985, he
specialized in the sale of businesses and franchises as the owner and operator
of VR Business Brokers. In 1986, he became the Project Manager for Bluffs
Limited Partnership, where he structured the development of an Arnold Palmer
Design Golf Course and in 1992, Mr. Rodriguez was the Managing Director for
MedAmerica, LLC., medicine clinics for children. From 1993 through 1998, he was
the Director, Corporate Secretary and General Counsel for
21
<PAGE>
Telco Communications, Inc., which is a long distance reseller company. From 1992
until 1996, he was the President of Healthcare Financial and Management
Services, Inc., providing billing services to three Louisiana hospitals.
- --------------------------------------------------------------------------------
Item 6. Executive Compensation.
- --------------------------------------------------------------------------------
The Company has entered into Employment Agreements with Kevin Harrington
and Tim Harrington for 5 years and with Mel Arthur for 3 years. (See Exhibits
6.1, 6.2 and 6.3 "Employment Agreements"). The Company's Officers and Directors
serve with the following elements of compensation at this time:
Kevin Harrington is scheduled to receive $10,000.00 monthly (which is
$120,000.00 annually), and Tim Harrington is scheduled to receive $8,000.00,
monthly (which is $96,000.00 annually), respectively, as a base, with overrides
of 9/10 of 1% for Kevin Harrington and 6/10 of 1% for Tim Harrington of
"ADJUSTED GROSS REVENUES" as hereinafter defined. Mel Arthur receives $3500 per
month as an advance against his scheduled compensation of 1/2 of 1% of "ADJUSTED
GROSS REVENUES", with a maximum of $10,000.00 per month.
The Officers have deferred and are deferring a substantial portion of their
accrued compensation pending increased corporate liquidity and profitability.
The Company pays 100% of a medial insurance plan for the three officers above
mentioned, and life insurance for Kevin Harrington. Karl Rodriguez, serves
without compensation from the Issuer.
No other executive officer has received or is entitled to receive
compensation for any service to this Small Business Issuer, during 1997, 1998 or
1999.
================================================================================
1999 through Sept 30 Accrued $ Paid $ Deferred $
- --------------------------------------------------------------------------------
Kevin Harrington 90,000.00 0 90,000.00
- --------------------------------------------------------------------------------
Tim Harrington 72,000.00 5,000 67,000.00
- --------------------------------------------------------------------------------
Mel Arthur 31,000.00 8,125 22,875.00
- --------------------------------------------------------------------------------
Karl Rodriguez 0 0 0
================================================================================
As previously indicated, certain unexercised options and bonuses, are
disclosed in detail in Table C, following.
TABLE C
OPTIONS
The Company has provided certain additional bonuses, incentives and
benefits for Kevin Harrington, Tim Harrington and Mel Arthur, all pursuant to
ss.4(2) of the 1933 Securities Act, as follows. No options have been exercised
<TABLE>
<CAPTION>
=============================================================================================================================
Additional Bonuses,
Incentives/Benefits Kevin Harrington Tim Harrington Mel Arthur
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensatory Stock 6 months: 60,000 6 months: 40,000 6 months: 5,000
Option Plan (See shares @ $2.50 shares @ $2.50 shares @ $2.50
Exhibit 6.2):
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12 months: 60,000 12 months: 40,000 12 months: 5,000
shares @ $4.00 shares @ $4.00 shares @ $4.00
- ----------------------------------------------------------------------------------------------------------------
18 months: 60,000 18 months: 40,000 18 months: 5,000
shares @ $6.00 shares @ $6.00 shares @ $6.00
- ----------------------------------------------------------------------------------------------------------------
24 months: 60,000 24 months: 40,000 24 months: 5,000
shares @ $7.50 shares @ $7.50 shares @ $7.50
- ----------------------------------------------------------------------------------------------------------------
Revenue For each $10,000,000 For each $10,000,000 For each $10,000,000
Performance Stock in gross revenues, in gross revenues, in gross revenues,
Bonus issuance of 100,000 issuance of 100,000 issuance of 100,000
shares up to a total of shares up to a total of shares up to a total of
3,000,000 shares (no 2,000,000 shares (no 900,000 shares (no
more than 1/6 of total more than 1/6 of total more than 1/6 of total
to vest in any 6 month to vest in any 6 month to vest in any 6
period) period) month period)
- ----------------------------------------------------------------------------------------------------------------
Stock Trading Purchase 144,000 Purchase 100,000 Purchase 12,500
Performance Stock shares if trading at shares if trading at shares if trading at
Options @ $7.50 per $15; 144,000 shares if $15; 100,000 shares if $15; 12,500 shares if
share trading at $20; trading at $20; trading at $20; 15,000
192,000 shares if 120,000 shares if shares if trading at
trading at $25. trading at $25. $25.
- ----------------------------------------------------------------------------------------------------------------
Life, Health &
Disability Insurance Yes Yes Yes
- ----------------------------------------------------------------------------------------------------------------
Automobile $1,000/month $750/month $500/month
================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------------------------------
A. The Following Relationships are deemed material relationships and
transactions between the Company, and its Officers, Directors, and 5%
Controlling persons: None other than as disclosed.
Kevin and Tim Harrington are brothers and officers and directors of the
Company. Both of them are the owners of business interests acquired by this
Registrant Company; namely, Kevin Harrington Enterprises (Kevin Harrington), and
Cigar Television Network (Tim Harrington). Karl Rodriguez serves as secretary
and general counsel of Oasis Fourth Movie Project, Inc., engaged in business
with the Company, in the film and video tape production industry. The Ownership
and Management of Oasis is otherwise unrelated to the ownership and management
of this Issuer. This Registrant Company also acquired TPH Marketing, Inc., in a
tax-free exchange, for the issuance of 1,500,000 [post-reverse] shares of this
Company's common stock. The Shares have been issued to the two shareholders of
TPH Marketing, Inc., Tim Harrington having received 800,000 shares, and Kevin
Harrrington having received 700,000 shares.
B. The following information discloses that the Company, and its Officers,
Directors, and 5% Controlling persons, interests may have interests which, from
time to time, may be inconsistent in some respects with the interests of the
Issuer. The nature of these conflicts of interest may vary. There may be
circumstances in which they may take advantage of an opportunity that might be
suitable for the Company. Although there can be no assurance that a conflict of
interest will not arise or that resolutions of any such conflicts will be made
in a manner most favorable to the Company and its
23
<PAGE>
shareholders, the officers and directors have a fiduciary responsibility to the
Company and its shareholders and, therefore, must adhere to a standard of good
faith and integrity in their dealings with and for the Company and its
shareholders. Certain specific conflicts of interest may include the following:
1. Conflicts Arising From Related Party Transactions. From time to time,
transactions may be proposed between the Company and related persons or
entities. It is expected that any such transactions will be consummated on terms
and conditions no less favorable to the Company than could be obtained in
arm's-length negotiations with unaffiliated third parties. The Company's
shareholders may not be notified prior to any related party transaction, but any
significant related party transactions are expected to be disclosed in the
Company's annual report. There can be no assurance, in such a circumstance, that
some consideration, benefit or value would not be lost to or relinquished by the
Company and accrue to such related persons. The Company expects, however, that
following any business combination involving the Company, present management
will be replaced with candidates of the acquired company, and that, thereafter,
any transactions with presently related persons may be deemed arm's-length
transactions.
2. Lack of Separate Representation. Related persons and the Company have
not been represented by separate counsel and it is not expected that they will
be represented by separate counsel prior to the consummation of any proposed
business combination. The officers and directors are accountable to the Company
and its shareholders as fiduciaries and, therefore, must adhere to a standard of
good faith and integrity in their dealings with and for the Company. The area of
fiduciary responsibility is a rapidly developing area of law, and persons who
have questions concerning the duties of the officers and directors should
consult with their legal counsel.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
24
<PAGE>
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 1.
Market Price of and Dividends on Registrant's Common Equity
and Shareholder Matters Equity and Shareholder Matters.
- --------------------------------------------------------------------------------
(a) Market Information. The Common Stock of this Issuer is quoted Over the
Counter on the Bulletin Board ("OTC BB"). There was no substantial market
activity before December 1998. Based upon standard reporting sources, the
following information is provided:
================================================================================
PERIOD HIGH BID LOW BID PERIOD HIGH BID LOW BID
- --------------------------------------------------------------------------------
1st 1998 0.44 0.22 1st 1999 1.69 0.72
- --------------------------------------------------------------------------------
2nd 1998 0.56 0.19 2nd 1999 (1) 10.00 5.50
- --------------------------------------------------------------------------------
3rd 1998 1.75 0.63 3rd 1999 (1) 7.50 2.00
- --------------------------------------------------------------------------------
4th 1998 1.68 0.60
================================================================================
(1) These last two figures have been adjusted, for comparative purposes, as if
the most recent 5 to 1 Reverse had not taken place.
The foregoing price information is based upon inter-dealer prices without
retail mark-up, markdown or commissions and may not reflect actual transactions.
(b) Holders. 128
(c) Dividends. No dividends have been paid by the Company on its Common Stock
or other Stock and no such payment is anticipated in the foreseeable future.
- --------------------------------------------------------------------------------
Item 2. Legal Proceedings.
- --------------------------------------------------------------------------------
There are no proceedings, legal, enforcement or administrative, pending,
threatened or anticipated involving or affecting this Issuer.
- --------------------------------------------------------------------------------
Item 3. Changes in and Disagreements with Accountants.
- --------------------------------------------------------------------------------
There have been no disagreements of any sort or kind with Auditors or
Accountants respecting any matter or item reflected in the financial statements
of this Issuer.
25
<PAGE>
- --------------------------------------------------------------------------------
Item 4. Recent Sales of Unregistered Securities.
- --------------------------------------------------------------------------------
The following disclosure is provided with respect to each of the following
items, if applicable:
(a) The date, title and amount of securities sold.
(b) Principal Underwriters, if any. If the small business issuer did not
publicly offer any securities, identify the persons or class of persons to whom
the small business issuer sold the securities.
(c) For securities sold for cash, the total offering price and the total
underwriting discounts or commissions. For securities sold other than for cash,
describe the transaction and the type and amount of consideration received by
the small business issuer.
(d) The Section of the Securities Act or the rule of the Commission under which
the small business issuer claimed exemption from registration and the facts
relied upon to make the exemption available.
(e) If the securities sold are convertible or exchangeable into equity
securities, or are warrants or options representing equity securities, disclose
the terms of conversion or exercise of the securities.
The following disclosure is provided of sales and placements of
unregistered securities, for the past three years. There having been two
historical reverse splits, all numbers represent the after and current condition
and coordinate with the issuer's financial statements.
During 1998, the Issuer acquired Reliant Corporation (a.k.a. Kevin
Harrington Enterprises) and Cigar Television Network for the issuance of a total
of 570,400 shares of common stock. Kevin and Tim Harrington are brothers and are
officers and directors of this Issuer. Both of them are the owners of business
interests acquired by this Company; namely, Kevin Harrington Enterprises (Kevin
Harrington and Tim Harrington), and Cigar Television Network (Kevin Harrington).
These shares were issued pursuant to ss.4(2) of the Securities Act of 1933.
During 1998, the issuer placed a total of 329,770 (post-reverse) shares of
common stock to sophisticated investors, for cash totaling $513,500. These
shares were issued pursuant to Regulation D, Rule 504, promulgated by the
Commission pursuant to ss.3(b) of the Securities Act of 1933. These investors
had pre-existing relationships with the Company, and had access, by virtue of
those relationships to the kind of information which registration would have
provided.
Also during 1998, the issuer issued a total 103,800 (post-reverse) shares
to and among 29 service providers, for services to the issuer, valued at
$129,750 ($1.25 post-reverse, $0.25 pre-reverse, per share). These shares were
issued pursuant to ss.4(2) of the Securities Act of 1933.
In January of 1999, the company issued 236,000 shares of common stock for
cash and services as follows: Fortune Marketing, 105,000 shares, for public
relations services; Michael Barclay, 100,000 shares for consulting services;
Coffin Communications, 20,000 shares, for consulting services; Tony Hyman, 5,000
shares, for talent services; and David Gray, 100,000 shares, for $25,000.00
cash. The issuances for services were valued at $1.00 per share. Mr. Gray is a
sophisticated investors with pre-existing relationships with the Company, having
access, by virtue of those relationships to the kind of information which
registration would have provided.
On or about February 23, 1999, the Company received $330,000.00, from six
highly sophisticated investors, specifically targeted to infomercial production.
In consideration of this investment, the investors received an aggregate of
1,000,000 shares of restricted common stock of the Company. In addition, the
investors will receive an aggregate of 5% of the gross revenues (as defined by
agreement) from sales generated by the four infomercials produced until 120% of
the investment has been
26
<PAGE>
returned to the investors. Thereafter, the percentage received by these
investors will be reduced to an aggregate of 4% These investors were also
granted an option to provide funding on two additional infomercials for similar
consideration, in the future.
The Company made an agreement in April with Oasis Entertainment's Fourth
Movie Project, Inc. (a related party transaction) to provide funding in the
amount of $250,000.00 for use in the production of three additional
infomercials. Oasis is to receive 250,000 shares of common stock upon completion
of the funding in April, plus a royalty of 2% of the adjusted gross revenues
derived on all products designated in the agreement until Oasis has been paid
$625,000.00, and thereafter 1% thereof in perpetuity. This transaction is deemed
to be a related party for the reason that, and only for the reason that, Karl
Rodriguez is the fourth Director of this registering Company and is also
Secretary and a Director of Oasis Entertainment's Fourth Movie Project, Inc. The
right to receive these shares has vested, these shares have not been issued as
of this date.
On or about February 18, 1999, the Issuer compensated Concept TV
Productions with 15,000 shares of common stock, pursuant to ss.4(2) of the 1933
Act, for production services valued at $1.00 per share.
On or about March 10, 1999, Earl Greenberg, a sophisticated investor and
the president of the Electronics Retailers Association, a trade group for
infomercial companies, purchased 100,000 new investment shares of common stock,
pursuant to ss.4(2) of the 1933 Act, for $25,000.00. Kevin Harrington having
been associated with that association, the purchaser had a pre-existing
relationships with the Company, and had access, by virtue of that relationship
to the kind of information which registration would have provided.
On or about March 10, 1999, Lee Robinson, a sophisticated investor and the
owner of Robinson Reality of Cincinnati Ohio, as a personal friend of Kevin
Harrington, purchased 40,000 new investment shares of commons stock, pursuant to
ss.4(2) of the 1933 Act, for $25,000.00. The purchaser had a pre-existing
relationships with the Company, and had access, by virtue of that relationship
to the kind of information which registration would have provided.
On or about April 1, 1999, the Issuer compensated Lifestyle Marketing with
40,000 shares of common stock, pursuant to ss.4(2) of the 1933 Act, for the
acquisition of production services valued at $1.00 per share.
On or about April 1, 1999, and before the effective changes to Rule 504,
three highly sophisticated investors purchased 600,000 additional shares of
common stock, for cash totalling $300,000. These investors had pre-existing
relationships with the Company, and had access, by virtue of those relationships
to the kind of information which registration would have provided.
On or about April 28, 1999, 4,000 new investment shares of common stock
were issued to Coffiin Communications for public relations and investor services
valued at $1.00 per share.
On or about April 28, 1999, 1,000 new investment shares of common stock
were issued to Buzz Nofal for Y2K infomercial services valued at $1.00 per
share.
On or about April 28, 1999, 500 new investment shares of common stock were
issued to for Y2K infomercial services valued at $1.00 per share.
27
<PAGE>
- --------------------------------------------------------------------------------
Item 5. Indemnification of Officers and Directors.
- --------------------------------------------------------------------------------
The following indemnification provision is contained in the Employment
Agreements (See Exhibit 6.1) of Kevin Harrington, Tim Harrington and Mel Arthur:
"Indemnification. Employer shall indemnify Employee and hold Employee
harmless from liability for acts or decisions made by Employee while performing
services for Employer to the greatest extent permitted by applicable law.
Employer shall use its best efforts to obtain coverage for Employee under any
insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer against such liability."
Karl Rodriguez has no Employment Agreement and no indemnification from the
Company.
28
<PAGE>
- --------------------------------------------------------------------------------
PART F/S
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS PAGE
- --------------------------------------------------------------------------------
F-1 AUDITED FINANCIAL STATEMENTS: Years Ended December 31, 1998, 1997 F-1
- --------------------------------------------------------------------------------
F-2 UN-AUDITED FINANCIAL STATEMENTS: Quarter ended March 31, 1999 F-14
================================================================================
29
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
<PAGE>
C O N T E N T S
Independent Auditors' Report................................................. 3
Consolidated Balance Sheet................................................... 4
Consolidated Statements of Operations........................................ 6
Consolidated Statements of Stockholders' Equity.............................. 7
Consolidated Statements of Cash Flows........................................ 8
Notes to the Consolidated Financial Statements............................... 9
<PAGE>
[LETTERHEAD OF JONES, JENSEN & COMPANY,LLC]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Reliant Interactive Media Corporation
and Subsidiaries
(Formerly Reliant Corporation)
(A Development Stage Company)
Clearwater, Florida
We have audited the accompanying consolidated balance sheet of Reliant
Interactive Media Corporation and Subsidiaries (formerly Reliant Corporation) (a
development stage company) at December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1998 and 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Reliant
Interactive Media Corporation and Subsidiaries (formerly Reliant Corporation) (a
development stage company) as of December 31, 1998 and the consolidated results
of their operations and their cash flows for the years ended December 31, 1998
and 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of the uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 13, 1999
3
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
1998
---------
CURRENT ASSETS
Cash $ 122,257
Inventory (Note 1) 27,342
---------
Total Current Assets 149,599
---------
PROPERTY AND EQUIPMENT (Note 1)
Machinery and equipment 25,925
Office furniture and equipment 45,292
---------
Total Property and Equipment 71,217
Less Accumulated depreciation (10,258)
---------
Net Property and Equipment 60,959
---------
OTHER ASSETS
Deposits 12,773
Prepaid advertising (Note 1) 85,302
Patent and trademark costs (Note 1) 26,668
---------
Total Other Assets 124,743
---------
TOTAL ASSETS $ 335,301
=========
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1998
-----------
CURRENT LIABILITIES
Accounts payable $ 73,192
Accrued expenses 5,418
Notes payable - current portion (Note 7) 40,000
-----------
Total Current Liabilities 118,610
-----------
LONG-TERM DEBT
Notes payable - shareholders (Note 6) 87,500
-----------
Total Long-Term Debt 87,500
-----------
TOTAL LIABILITIES 206,110
-----------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $0.001 par
value, 16,867,850 shares issued and outstanding 16,868
Additional paid-in capital 1,346,491
Deficit accumulated during the development stage (1,234,168)
-----------
Total Stockholders' Equity 129,191
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 335,301
===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Consolidated Statements of Operations
From
Inception on
For the Years Ended June 15,
December 31, 1995 Through
-------------------------- December 31,
1998 1997 1998
----------- ----------- -----------
SALES $ 120,234 $ -- $ 120,234
COST OF GOODS SOLD 66,654 -- 66,654
----------- ----------- -----------
GROSS MARGIN 53,580 -- 53,580
----------- ----------- -----------
OPERATING EXPENSES
Depreciation 6,629 3,629 10,258
General and administrative 792,533 28,114 854,976
Research and development 41,449 -- 41,449
Marketing 339,877 25,147 365,024
Rent 48,226 8,036 56,262
----------- ----------- -----------
Total Operating Expenses 1,228,714 64,926 1,327,969
----------- ----------- -----------
OPERATING LOSS (1,175,134) (64,926) (1,274,389)
----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (9,033) -- (9,033)
Interest income 296 -- 296
Other income 48,958 -- 48,958
----------- ----------- -----------
Total Other Income (Expenses) 40,221 -- 40,221
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,134,913) (64,926) (1,234,168)
INCOME TAXES -- -- --
----------- ----------- -----------
NET LOSS $(1,134,913) $ (64,926) $(1,234,168)
=========== =========== ===========
BASIC LOSS PER SHARE $ (0.08) $ (0.01)
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES 13,367,052 11,848,000
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------------- Paid-in Development
Shares Amount Capital Stage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, June 15, 1995 -- $ -- $ -- $ --
Shares issued to the founders at
inception at $0.00025 per share 11,848,000 11,848 (9,848) --
Net loss from inception on June 15,
1995 through December 31, 1995 -- -- -- (2,000)
----------- ----------- ----------- -----------
Balance, December 31, 1995 11,848,000 11,848 (9,848) (2,000)
Capital contributions, 1996 -- -- 34,401 --
Net loss for the year ended
December 31, 1996 -- -- -- (32,329)
----------- ----------- ----------- -----------
Balance, December 31, 1996 11,848,000 11,848 24,553 (34,329)
Capital contributions, 1997 -- -- 343,688 --
Net loss for the year ended
December 31, 1997 -- -- -- (64,926)
----------- ----------- ----------- -----------
Balance, December 31, 1997 11,848,000 11,848 368,241 (99,255)
Capital contributions, 1998 -- -- 340,020 --
Common stock issued to acquire
Reliant Corporation and Cigar
Television Network, Inc. 2,852,000 2,852 (2,852) --
Common stock issued for cash at an
average price of $0.31 per share 1,648,850 1,649 511,851 --
Common stock issued for services
valued at $0.25 per share 519,000 519 129,231 --
Net loss for the year ended
December 31, 1998 -- -- -- (1,134,913)
----------- ----------- ----------- -----------
Balance, December 31, 1998 16,867,850 $ 16,868 $ 1,346,491 $(1,234,168)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
For the Years Ended June 15,
December 31, 1995 Through
---------------------------- December 31,
1998 1997 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(1,134,913) $ (64,926) $(1,234,168)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 6,629 3,629 10,258
Common stock issued for services 129,750 -- 129,750
Changes in assets and liabilities:
Due from stockholder 4,000 (4,000) --
Inventory (27,342) -- (27,342)
Deposits 19,727 (32,500) (12,773)
Prepaid expenses (73,970) (11,332) (85,302)
Accounts payable 73,159 (74) 73,192
Accrued expenses 5,318 -- 5,418
----------- ----------- -----------
Net Cash Used in Operating Activities (997,642) (109,203) (1,140,967)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (51,343) (19,874) (71,217)
Patent and trademark costs (19,783) (6,885) (26,668)
----------- ----------- -----------
Net Cash Used in Investing Activities (71,126) (26,759) (97,885)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 127,500 -- 127,500
Proceeds from issuance of common stock 513,500 -- 515,500
Proceeds from additional capital contribution 340,020 343,688 718,109
----------- ----------- -----------
Net Cash Provided by Financing Activities 981,020 343,688 1,361,109
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (87,748) 207,726 122,257
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 210,005 2,279 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 122,257 $ 210,005 $ 122,257
=========== =========== ===========
Cash Payments For:
Income taxes $ -- $ -- $ --
Interest $ 3,615 $ -- $ 3,615
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Reliant Interactive Media Corporation (formerly Reliant Corporation)
(the Company) was organized under the laws of the State of Utah on
July 30, 1984. The Company subsequently ceased its original business
activity in 1993 and was not engaged in any business activity but was
seeking potential investments or business acquisitions and
consequently was considered a development stage company as defined in
SFAS No. 7. At the time of the acquisition, the Company was a
non-operating public shell with nominal assets. The Company changed
its name from Reliant Corporation to Reliant Interactive Media
Corporation (Reliant) in August 7, 1998.
Kevin Harrington Enterprises, Inc. (KHE) was organized under the laws
of the State of Florida on June 15, 1995. The Company is currently
developing a dual flame lighter/cutter cigar product.
Cigar Television Network, Inc. (Cigar TV) was organized under the laws
of the State of Florida on April 1, 1998. The Company was formed to
create a cigar related television show that will air monthly on a
national television network as well as being on the Internet. Cigar TV
in conjunction with major magazines will operate its TV show in
conjunction with an Internet site currently under development called
CigarNow.com.
On July 21, 1998, the Company completed an agreement and plan of
reorganization whereby Reliant issued 11,848,000 shares of its common
stock in exchange for all of the outstanding common stock of KHE and
Cigar TV. Immediately prior to the agreement and plan of
reorganization, the Company had 2,852,000 shares of common stock
issued and outstanding. The reorganization was accounted for as a
recapitalization of KHE and Cigar TV because the shareholders of KHE
and Cigar TV controlled the Company immediately after the acquisition.
Therefore, KHE and Cigar TV are treated as the acquiring entities.
Accordingly, there was no adjustment to the carrying value of the
assets or liabilities of KHE and Cigar TV. Reliant is the acquiring
entity for legal purposes and KHE and Cigar TV are the surviving
entities for accounting purposes. On August 7, 1998, the shareholders
of the Company authorized a reverse stock split of 1-for-5 prior to
the agreement and plan of reorganization. All references to shares of
common stock have been retroactively restated.
Basic Loss Per Share
The computation of basic loss per share is based on the weighted
average number of shares outstanding during the period presented.
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
9
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase, to be cash equivalents.
Inventory
Inventory is stated at the lower of cost determined by the first-in,
first-out method or market.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for small tools, ordinary maintenance and
repairs are charged to operations as incurred. Major additions and
improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Office furniture and equipment 5 to 7 years
Machinery and equipment 5 to 7 years
Depreciation expense for the year ended December 31, 1998 was $6,629.
Patent and Trademark Costs
These costs will be amortized on the straight-line method over their
remaining lives beginning when the patents are received in 1999.
Prepaid Advertising
Prepaid advertising consisted of the following at December 31, 1998:
Production costs of informercials $ 44,523
Production costs of tv show 52,430
--------
Subtotal 96,953
Less: accumulated amortization (11,651)
Net prepaid advertising $ 85,302
========
These advertising costs are amortized over the useful life of the
informercials and tv show which is estimated at 18 months. These
production costs will begin amortizing when they begin broadcasting
which was August 1998 for the tv show and March 1999 for the
informercials. Advertising expense for the year ended December 31,
1998 was $11,651.
10
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Credit Risks
The Company maintains its cash accounts primarily in one bank in
Florida. The Federal Deposit Insurance Corporation insures accounts to
$100,000. The Company's accounts occasionally exceed the insured
amount.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Reliant
Interactive Media Corporation (Reliant), Kevin Harrington Enterprises,
Inc. (KHE) (a wholly-owned subsidiary) and Cigar Television Network,
Inc. (Cigar TV) (a wholly-owned subsidiary). All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
Income Taxes
No provision for federal income taxes has been made at December 31,
1998 due to accumulated operating losses. The Company has accumulated
approximately $129,750 of net operating losses as of December 31,
1998, which may be used to reduce taxable income and income taxes in
future years. The use of these losses to reduce future income taxes
will depend on the generation of sufficient taxable income prior to
the expiration of the net operation loss carryforwards. The
carryforwards expire in 2013.
Revenue Recognition
Revenue is recognized upon shipment of goods to the customer. The
Company has adopted a returns policy whereby the customer can return
any goods received within 30 days of receipt for a full refund.
11
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the relation of assets and liquidation of liabilities in
the normal course of business. The Company has incurred operating
losses from its inception through December 31, 1998. It has not
established revenues sufficient to cover its operating costs and to
allow it to continue as a going concern. Management believes that
revenues will continue to increase in 1999 allowing the Company to
cover its product development and marketing costs. It is also the
intent of the Company to complete a limited offering of its common
stock in 1999 to help cover its operating expenses. In the interim,
shareholders of the Company have committed to meet its operating
needs.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In May 1998, the Company entered into a one year lease agreement for
office space located in Florida. The lease obligation is currently
$5,157 per month and expires on May 31, 1999.
NOTE 4 - RELATED PARTY TRANSACTIONS
Related party transactions charged to operations were as follows
during 1998:
Interest expense to stockholders $ 1,918
Advertising and promotional services provided
by a stockholders' related company. $36,813
NOTE 5 - COMMON STOCK TRANSACTIONS
During 1998, the Company sold 1,648,850 shares of its common stock for
$513,500, or an average price of $0.31 per share. The Company also
issued 519,000 shares of its common stock for services rendered,
valued at $129,750 or $0.25 per share.
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consisted of the following: December 31,
1998
Note payable to a shareholder, unsecured, interest
at 8.0%, interest payments due quarterly beginning
March 31, 1999, principal balance due December 31, 2000. $37,500
Note payable to a shareholder, unsecured, interest
at 8.0%, interest payments due quarterly beginning
March 31, 1999, principal balance due December 31, 2000. 50,000
------
Total notes payable - shareholders 87,500
Less: current portion --
Long-term notes payable - shareholders $87,500
=======
12
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS (Continued)
Maturities of notes payable - shareholders are as follows:
Year Ending
December 31,
1999 $ --
2000 87,500
2001 --
2002 --
2003 --
2004 and thereafter --
--------
Total $ 87,500
========
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
1998
Note payable to Nations Bank, secured by stock,
interest at 8.0%, interest payments due monthly,
principal balance due on demand. $ 40,000
--------
Total notes payable 40,000
Less: current portion (40,000)
Long-term notes payable $ --
========
Maturities of notes payable are as follows:
Year Ending
December 31,
1999 $ 40,000
2000 --
2001 --
2002 --
2003 --
2004 and thereafter --
--------
Total $ 40,000
========
13
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 8 - SUBSEQUENT EVENTS
On March 23, 1999, the Company completed a reverse stock split on a 1
share for 5 shares basis. No shareholder was reduced to less tan 100
shares. References to shares issued and outstanding have not been
adjusted at December 31, 1998.
In 1999, the Company entered into a new lease agreement for its office
space in Florida. The lease requires annual payments of $81,000 or
$6,750 per month.
14
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1998
<PAGE>
C O N T E N T S
Consolidated Balance Sheets.................................................. 3
Consolidated Statements of Operations........................................ 5
Consolidated Statements of Stockholders' Equity.............................. 6
Consolidated Statements of Cash Flows........................................ 7
Notes to the Consolidated Financial Statements............................... 9
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ -- $ 122,257
Accounts receivable, net (Note 1) 1,047,675 --
Inventory (Note 1) 74,313 27,342
----------- -----------
Total Current Assets 1,121,988 149,599
----------- -----------
PROPERTY AND EQUIPMENT (Note 1)
Machinery and equipment 25,925 25,925
Office furniture and equipment 45,292 45,292
----------- -----------
Total Property and Equipment 71,217 71,217
Less Accumulated depreciation (15,610) (10,258)
----------- -----------
Net Property and Equipment 55,607 60,959
----------- -----------
OTHER ASSETS
Deposits 1,050 12,773
Prepaid advertising (Note 1) 452,012 85,302
Patent and trademark costs (Note 1) 26,668 26,668
----------- -----------
Total Other Assets 479,730 124,743
----------- -----------
TOTAL ASSETS $ 1,657,325 $ 335,301
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ 91,647 $ --
Accounts payable 561,975 73,192
Accrued expenses 43,897 5,418
Payable - related party (Note 4) 38,898 --
Notes payable - related parties, current portion (Note 6) 200,000 --
Notes payable, current portion (Note 7) 40,000 40,000
----------- -----------
Total Current Liabilities 976,417 118,610
----------- -----------
LONG-TERM DEBT
Notes payable - related parties (Note 6) 87,500 87,500
----------- -----------
Total Long-Term Debt 87,500 87,500
----------- -----------
TOTAL LIABILITIES 1,063,917 206,110
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $0.001
par value, 4,265,440 and 3,373,570 shares issued
and outstanding, respectively 4,265 3,374
Additional paid-in capital 2,099,594 1,359,985
Accumulated deficit (1,510,451) (1,234,168)
----------- -----------
Total Stockholders' Equity 593,408 129,191
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,657,325 $ 335,301
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 3,135,013 $ 30,059 $ 3,487,490 $ 60,118
COST OF GOODS SOLD 445,880 16,664 514,405 33,328
----------- ----------- ----------- -----------
GROSS MARGIN 2,689,133 13,395 2,973,085 26,790
----------- ----------- ----------- -----------
OPERATING EXPENSES
Depreciation 2,676 1,657 5,352 3,314
Bad debt expense 17,410 -- 17,410 --
General and administrative 1,010,984 165,696 1,347,827 331,392
Research and development 25,401 10,362 30,155 20,724
Production and media costs 1,168,432 -- 1,523,711 --
Marketing 72,399 38,255 274,995 76,510
Rent 17,001 12,057 29,952 24,114
----------- ----------- ----------- -----------
Total Operating Expenses 2,314,303 228,027 3,229,402 456,054
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 374,830 (214,632) (256,317) (429,264)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (14,941) (2,258) (20,061) (4,516)
Interest income 95 -- 95 --
----------- ----------- ----------- -----------
Total Other Income (Expenses) (14,846) (2,258) (19,966) (4,516)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES 359,984 (216,890) (276,283) (433,780)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 359,984 $ (216,890) $ (276,283) $ (433,780)
=========== =========== =========== ===========
BASIC INCOME (LOSS) PER SHARE $ 0.09 $ (0.08) $ (0.07) $ (0.15)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 2,369,600 $ 2,370 $ 377,719 $ (99,255)
Capital contributions, 1998 -- -- 340,020 --
Common stock issued in recapitalization
of Reliant Corporation and Cigar
Television Network, Inc. 570,400 570 (570) --
Common stock issued for cash at an
average price of $1.56 per share 329,770 330 513,170 --
Common stock issued for services
valued at $1.25 per share 103,800 104 129,646 --
Net loss for the year ended
December 31, 1998 -- -- -- (1,134,913)
----------- ----------- ----------- -----------
Balance, December 31, 1998 3,373,570 3,374 1,359,985 (1,234,168)
Common stock issued for cash at an
average price of $0.81 per share
(unaudited) 848,000 848 689,152 --
Common stock issued for services
valued at $1.15 per share (unaudited) 43,700 43 50,457 --
Fractional shares issued in the reverse
stock split (unaudited) 170 -- -- --
Net loss for the six months ended
June 30, 1999 (unaudited) -- -- -- (276,283)
----------- ----------- ----------- -----------
Balance, June 30, 1999 (unaudited) 4,265,440 $ 4,265 $ 2,099,594 $(1,510,451)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ 359,984 $ (216,890) $ (276,283) $ (433,780)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 2,676 1,657 5,352 3,314
Bad debt 17,410 -- 17,410 --
Common stock issued for services 2,750 -- 50,500 --
Changes in assets and liabilities:
Accounts receivable (799,855) -- (1,065,085) --
Prepaids and advances 20,396 -- (1,050) --
Inventory (74,313) -- (46,971) --
Deposits -- 4,932 12,773 9,864
Prepaid expenses (378,647) -- (366,710) --
Cash overdraft 91,647 -- 91,647 --
Accounts payable 410,408 18,290 488,783 36,580
Accrued expenses (321) -- 38,479 --
----------- ----------- ----------- -----------
Net Cash Used in Operating
Activities (347,865) (192,011) (1,051,155) (384,022)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Patent and trademark costs -- (6,885) -- (26,668)
----------- ----------- ----------- -----------
Net Cash Used in Investing Activities -- (6,885) -- (26,668)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from notes payable (8,279) -- 238,898 --
Proceeds from issuance of common
stock 300,000 100,000 690,000 100,000
Proceeds from additional capital
contribution -- 68,991 -- 250,880
----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities $ 291,721 $ 168,991 $ 928,898 $ 350,880
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (56,144) $ (29,905) $ (122,257) $ (59,810)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 56,144 180,100 122,257 210,005
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ -- $ 150,195 $ -- $ 150,195
=========== =========== =========== ===========
Cash Payments For:
Income taxes $ -- $ -- $ -- $ --
Interest $ 14,941 $ -- $ 20,061 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
8
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Reliant Interactive Media Corporation (formerly Reliant Corporation)
(the Company) was organized under the laws of the State of Utah on
July 30, 1984. The Company was considered a development stage company
as defined in SFAS No. 7 until April 1999. The Company changed its
name from Reliant Corporation to Reliant Interactive Media Corporation
(Reliant) on August 7, 1998. On or about March 18, 1999, the Company
changes its place of incorporation from Utah to Nevada without other
changes in its corporate organization.
Kevin Harrington Enterprises, Inc. (KHE) was organized under the laws
of the State of Florida on June 15, 1995. The Company is currently
developing a dual flame lighter/cutter cigar product.
Cigar Television Network, Inc. (Cigar TV) was organized under the laws
of the State of Florida on April 1, 1998. The Company was formed to
create a cigar related television show that will air monthly on a
national television network as well as being on the Internet. Cigar TV
in conjunction with major magazines will operate its TV show in
conjunction with an Internet site currently under development called
CigarNow.com.
On July 21, 1998, the Company completed an agreement and plan of
reorganization whereby Reliant issued 11,848,000 shares of its common
stock in exchange for all of the outstanding common stock of KHE and
Cigar TV. Immediately prior to the agreement and plan of
reorganization, the Company had 2,852,000 shares of common stock
issued and outstanding. The reorganization was accounted for as a
recapitalization of KHE and Cigar TV because the shareholders of KHE
and Cigar TV controlled the Company immediately after the acquisition.
Therefore, KHE and Cigar TV are treated as the acquiring entities.
Accordingly, there was no adjustment to the carrying value of the
assets or liabilities of KHE and Cigar TV. Reliant is the acquiring
entity for legal purposes and KHE and Cigar TV are the surviving
entities for accounting purposes. On August 7, 1998, the shareholders
of the Company authorized a reverse stock split of 1-for-5 prior to
the agreement and plan of reorganization. All references to shares of
common stock have been retroactively restated.
Basic Income (Loss) Per Share
The computation of basic income (loss) per share is based on the
weighted average number of shares outstanding during the period
presented.
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
9
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
For purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase, to be cash equivalents.
Inventory
Inventory is stated at the lower of cost determined by the first-in,
first-out method or market.
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Expenditures for small tools, ordinary maintenance and
repairs are charged to operations as incurred. Major additions and
improvements are capitalized. Depreciation is computed using the
straight-line method over estimated useful lives as follows:
Office furniture and equipment 5 to 7 years
Machinery and equipment 5 to 7 years
Depreciation expense for the six months ended June 30, 1999 and the
year ended December 31, 1998 was $5,352 and $6,629, respectively.
Patent and Trademark Costs
These costs are amortized on the straight-line method over their
remaining lives beginning when the patents are received in 1999.
Prepaid Advertising
Prepaid advertising consisted of the following:
June 30, December 31,
1999 1998
(Unaudited)
Production costs of informercials $456,907 $ 44,523
Production costs of tv show 52,430 52,430
-------- --------
Subtotal 509,337 96,953
Less: accumulated amortization (57,325) (11,651)
-------- --------
Net prepaid advertising $452,012 $ 85,302
======== ========
10
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Prepaid Advertising (Continued)
These advertising costs are amortized over the useful life of the
informercials and tv show which is estimated at 3 years and 18 months,
respectively. These production costs will begin amortizing when they
begin broadcasting which was August 1998 for the tv show and various
months for each of the informercials. Advertising expense for the six
months ended June 30, 1999 and the year ended December 31, 1998 was
$33,738 and $11,651, respectively.
Credit Risks
The Company maintains its cash accounts primarily in one bank in
Florida. The Federal Deposit Insurance Corporation insures accounts to
$100,000. The Company's accounts occasionally exceed the insured
amount.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Reliant
Interactive Media Corporation (Reliant), Kevin Harrington Enterprises,
Inc. (KHE) (a wholly-owned subsidiary) and Cigar Television Network,
Inc. (Cigar TV) (a wholly-owned subsidiary). All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
Income Taxes
No provision for federal income taxes has been made at June 30, 1999
due to accumulated operating losses. The Company has accumulated
approximately $1,500,000 of net operating losses as of June 30, 1999,
which may be used to reduce taxable income and income taxes in future
years. The use of these losses to reduce future income taxes will
depend on the generation of sufficient taxable income prior to the
expiration of the net operation loss carryforwards. The carryforwards
expire in 2014.
Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a
fair presentation. Such adjustments are of a normal, recurring nature.
11
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable
Accounts receivable are shown net of allowance for doubtful accounts
of $17,410 and $-0- at June 30, 1999 and December 31, 1998,
respectively.
Revenue Recognition
Revenue is recognized upon shipment of goods to the customer. The
Company has adopted a returns policy whereby the customer can return
any goods received within 30 days of receipt for a full refund.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the relation of assets and liquidation of liabilities in
the normal course of business.
The Company has incurred significant losses since inception and has
had no significant operating revenues until 1999. The Company believes
it can meet and exceed its operating expenses through increased sales
in 1999.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In May 1999, the Company entered into a one year lease agreement for
office space located in Florida. The lease obligation is currently
$6,750 per month and expires on May 31, 2000.
NOTE 4 - RELATED PARTY TRANSACTIONS
An officer of the Company has advanced funds to the Company in order
to assist in the payment of operating expenses. These advances are
non-interest bearing and due on demand. The balance related to these
advances was $38,898 at June 30, 1999.
NOTE 5 - COMMON STOCK TRANSACTIONS
During 1998, the Company sold 329,770 shares of its common stock for
$513,500, or an average price of $1.56 per share. The Company also
issued 103,800 shares of its common stock for services rendered,
valued at $129,750 or $1.25 per share.
During 1999, the Company sold 848,000 shares of its common stock for
$690,000, or an average price of $0.81 per share. The Company also
issued 43,700 shares of its common stock for services rendered, valued
at $50,500 or $1.15 per share.
On March 23, 1999, the Company completed a reverse stock split on a 1
share for 5 shares basis. All references to shares issued and
outstanding have been restated on a retroactive basis. No shareholder
was reduced to less than 100 shares.
12
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Note payable to a shareholder, unsecured, interest at 8.0%,
interest payments due quarterly beginning March 31, 1999,
principal balance due December 31, 2000 $ 37,500 $ 37,500
Note payable to a shareholder, unsecured, interest at 8.0%,
interest payments due quarterly beginning March 31, 1999,
principal balance due December 31, 2000 50,000 50,000
Note payable to a related company, unsecured,
interest at 8.0%, interest and principal due
September 30, 1999 200,000 --
--------- ---------
Total notes payable - related parties 287,500 87,500
Less: current portion (200,000) --
--------- ---------
Long-term notes payable - related parties $ 87,500 $ 87,500
========= =========
</TABLE>
Maturities of notes payable - related parties are as follows:
Years Ending
June 30,
------------
2000 $200,000
2001 87,500
2002 --
2003 --
2004 --
2005 and thereafter --
--------
Total $287,500
========
13
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Note payable to Nations Bank, secured
by stock, interest at 8.0%, interest payments
due monthly, principal balance due on
demand. $ 40,000 $ 40,000
--------- ---------
Total notes payable 40,000 40,000
Less: current portion (40,000) (40,000)
--------- ---------
Long-term notes payable $ -- $ --
========= =========
</TABLE>
Maturities of notes payable are as follows:
Years Ending
June 30,
------------
2000 $40,000
2001 --
2002 --
2003 --
2004 --
2005 and thereafter --
-------
Total $40,000
=======
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to signed on its behalf by the undersigned, thereunto
authorized.
Reliant Interactive Media Corp
formerly Reliant Corporation
by
------------------------------------
/s/ /s/
- ----------------------------- -----------------------------
Kevin Harrington Tim Harrington
CHAIRMAN AND CEO/DIRECTOR PRESIDENT AND
COO/DIRECTOR
/s/ /s/
- ----------------------------- -----------------------------
Mel Arthur Karl E. Rodriguez
EXECUTIVE VICE SECRETARY/DIRECTOR
PRESIDENT/DIRECTOR
<PAGE>
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 1. Index to Exhibits.
- --------------------------------------------------------------------------------
Exhibit Index
<TABLE>
<CAPTION>
=====================================================================================
# Table Category / Description of Exhibit Page
- -------------------------------------------------------------------------------------
<S> <C> <C>
[2] Articles/Certificates of Incorporation, By-Laws and Minutes
- -------------------------------------------------------------------------------------
2.0 ARTICLES OF INCORPORATION of the Issuer: Reliant Interactive Media Corp. 59
(a Nevada Corporation)
- -------------------------------------------------------------------------------------
2.1 ARTICLES OF AMENDMENT: Reliant Corporation. 62
- -------------------------------------------------------------------------------------
2.2 BY-LAWS 70
- -------------------------------------------------------------------------------------
[6] Material Contracts
- -------------------------------------------------------------------------------------
6.0 PLAN OF REORGANIZATION AND MERGER FOR CHANGE OF SITUS: Utah to Nevada, 80
March 15, 1999
- -------------------------------------------------------------------------------------
6.1 EMPLOYMENT AGREEMENT: Kevin Harrington 83
- -------------------------------------------------------------------------------------
6.2 EMPLOYMENT AGREEMENT: Tim Harrington 97
- -------------------------------------------------------------------------------------
6.3 EMPLOYMENT AGREEMENT: Mel Arthur 110
- -------------------------------------------------------------------------------------
6.4 COMPENSATORY STOCK OPTION PLAN 123
- -------------------------------------------------------------------------------------
=====================================================================================
</TABLE>
58
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective this 30th
day of June, 1999, by and between Reliant Interactive Media Corp. (the
"Employer"), and Kevin Harrington (the "Employee").
PREMISES
a) Employee possesses expertise, experience and skill in the development
and marketing of products via electronic and other multi-media means.
b) Employee has demonstrated the ability to run, manage and build a
development stage business.
c) Employer desires to employ Employee to serve as its Chief Executive
Officer to run, manage and build its business.
d) Employee desires to perform all of such services as Employer's employee
and both parties want to enter into a written agreement as to their
understanding of the employment relationship.
AGREEMENT
For and in Consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
ten (10) days following an applicable Termination Date and which shall be
equal to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in connection
with Employee's employment for reasonable and necessary expenses
incurred by Employee and approved by the Employer through the
Termination Date; and
(iii) All other payments and benefits to which Employee may be
entitled under the terms of any benefit plan of the Employer.
(b) "Board" shall mean the board of directors of the Employer.
(c) "Cause" shall mean any of the following:
(i) The engagement by Employee in fraudulent conduct, which has a
significant adverse impact on the Employer in the conduct of the
Employer's business;
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 2
(ii) Conviction of a felony involving a crime against the
Employer, as evidenced by a binding and final judgment, order or
decree of a court of competent jurisdiction.
(iii) Gross negligence or refusal by Employee to perform his
duties or responsibilities; or
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Confidential Information" means information (i) disclosed to or
actually known by Employee as a consequence of or through his/her
employment with the Employer, (ii) not generally known outside the
Employer, and (iii) which relates to the Employer's business. Confidential
Information includes, but is not limited to, information of a technical
nature, such as methods and materials, trade secrets, inventions,
processes, formulas, systems, computer programs, and studies, and
information of a business nature such as project plans, market information,
costs, customer lists, and so forth.
(f) "Disability" shall mean a physical or mental condition whereby
Employee is unable to perform on a full-time basis his customary duties
under this Agreement.
(g) "Developments" means all Inventions (defined hereafter), computer
programs, copyright works, mask works, trademarks, Confidential
Information, Works of Authorship (defined hereafter), and other
Intellectual Property (defined hereafter), made, conceived or authored by
Employee, alone or jointly with others, while employed by the Employer;
whether or not during normal business hours or on the Employer's premises,
that are within the present scope of the Employer's business at the time
such Developments are made, conceived, or authored, or which result from or
are suggested by any work Employee or others may do for or on behalf of the
Employer.
(h) "Employer" means Reliant Interactive Media Corp. and its
subsidiaries, divisions and affiliates as well as majority owned companies
of such subsidiaries, divisions and affiliates, or their successors or
assigns.
(i) "Invention" means discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to improvements,
know-how, data, processes, methods, formulae, and techniques, as well as
improvements thereof, or know-how related thereto, concerning any present
or prospective activities of the Employer which Employee makes, discovers
or conceives (whether or not during the hours of his engagement of with the
use of the Employer's facilities, materials or personnel), either solely or
jointly
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 3
with others during his engagement by the Employer or any affiliate and, if
based on or related or Proprietary Information, at any time after
termination of such engagement.
(j) "Intellectual Property" means Inventions, Confidential
Information, Works of Authorship, patent rights, trademark rights, service
mark rights, copyrights, know-how, Developments and rights of like nature
arising or subsisting anywhere in the world, in relation to all of the
foregoing, whether registered or unregistered.
(k) "Notice of Termination" shall mean the notice described in Section
13 hereof.
(l) "Person" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity, other than an employee
benefit plan of the Employer of an entity organized, appointed of
established pursuant to the terms of any such benefit plan.
(m) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a similar nature related to the
business of the Employer disclosed to the Employee or otherwise made known
to him as a consequence of or through his engagement by the Employer
(including information originated by Employee) in any technological area
previously developed by the Employer or developed, engaged in, or
researched, by the Employer during the term of Employee's engagement,
including, but not limited to, trade secrets, processes, products,
formulae, apparatus, techniques, know-how, marketing plans, data,
improvements, strategies, forecasts, customer lists, and technical
requirements of customers, unless such information is in the public domain
to such an extent as to be readily available to competitors.
(n) "Termination Date" shall mean, except as otherwise provided in
Section 12 hereof.
(i) Employee's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment on account of Disability pursuant
to Section 16 hereof, unless Employee returns on a full-time basis to
the performance of his duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by Employee
voluntarily; and
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 4
(iv) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by the Employer for
any reason other than death or Disability.
(o) "Termination Payment" shall mean the payment described in Section
14 hereof.
(p) "Works of Authorship" means an expression fixed in a tangible
medium of expression regardless of the need for a machine to make the
expression manifest, and includes but is not limited to, writings, reports,
drawings, sculptures, illustrations, video recordings, audio recordings,
computer programs, and charts.
2. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth.
3. Term. Subject to the terms and conditions of this Agreement, the term of
this Agreement shall commence retroactively from December 1, 1998, and end on
December 1, 2003.
4. Duties. During the term of this Agreement, Employee shall be employed by
Employer as its Chief Executive Officer. In addition to the office of Chief
Executive Officer, Employee agrees to serve in such other office or position
with Employer or any subsidiary of Employer and as such shall, from time to
time, be determined by Employer's Board. Employee agrees to serve as a member of
the Employer's Board as Chairman of its Board. Employee shall devote
substantially all of his working time and efforts to the business of Employer
and its subsidiaries and shall not during the term of this Agreement be engaged
in any other substantial business activities which will significantly interfere
or conflict with the reasonable performance of his duties hereunder.
5. Compensation.
(a) Salary. For all services rendered by Employee, Employer shall pay
to Employee a base salary of $120,000 for the first year, and the base
salary shall increase by $12,000 per year for each of the remaining four
years of this Agreement, payable in bi-monthly installments. Employee shall
also be due a base salary from the time of the inception of employment by
Employer of the Employee to the date of this Agreement equal to the rate of
compensation as defined for the first year of this Agreement. If Employer's
financial constraints so dictate, Employee agrees to defer a portion of the
salary contained in this Section. This deferred base salary along with any
deferred base salary earned prior to the date of this Agreement shall be
paid to Employee at such time or times as financial constraints so dictate.
All salary payments shall be subject
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 5
to withholding and other applicable taxes. The rate of salary may be
increased at any time, as the Board may determine, based on earnings,
increased activities of the Employer, or such other factors as the Board
may deem appropriate from time to time. Employee shall receive bonus or
incentive compensation as approved by the Board.
(b) Incentive Compensation. In the event that Employer achieves
"ADJUSTED GROSS REVENUES" annually in excess of $10,000,000 Employee shall
receive additional compensation equal to 9/10 of 1% of "ADJUSTED GROSS
REVENUES". This Incentive compensation shall be paid on a quarterly basis
within thirty days of the end of the calendar quarter based on the
preceding calendar quarter's "ADJUSTED GROSS REVENUES". "GROSS" and
"ADJUSTED GROSS REVENUES" are defined as follows: "GROSS REVENUES" shall
mean all income of Employerfrom all sources exclusive of sales taxes, use
taxes, value added taxes, and any other taxes imposed upon sales of
products. "ADJUSTED GROSS REVENUES" shall mean Employer's Gross Revenues
from sales of the Products, less all of the following:
(i) refunds, credits or other allowances on account of return or
rejection of goods or otherwise granted in the ordinary course of
business, as actually incurred and as reserved for ("Returns");
(ii) uncollectible accounts due to credit card charge backs, bad
checks or other reasons of uncollectability, as actually incurred and
as reserved for ("Uncollectibles"); and
(iii) sales made at or below Reliant's cost of goods for purposes of
liquidation or closeout ("Liquidation Sales").
(c) Insurance Benefits. Employer shall provide health and medical
insurance for Employee in a form and program to be chosen by Employer for
certain of its full-time employees. Employer shall provide Employee with
directors and officers liability insurance in the amount of $2,000,000 and
life and disability insurance in amounts approved by the Board.
(d) Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, or other plan as may be put in effect
from time to time by the Board, including the following:
(i) Qualified Stock Option Plan. Pursuant to a Qualified Stock Option
Plan authorized by the Board and approved by the Shareholders of
Employer, Employee shall have the option to purchase up to 60,000
shares of Employer's stock in six months at $2.50 per share, in 12
months at $4.00 per share, in eighteen months at $6.00 per share and
in twenty-four months at $7.50 per share;
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 6
(ii) Revenue Performance Bonuses. Employee shall be issued 100,000
shares of Employer's stock for each $10,000,000 in gross revenues (in
accordance with SEC Reg SX accounting rules) received by Employer with
a maximum of 3,000,000 shares to be issued; and
(iii) Stock Performance Options. Employee shall have the option to
purchase stock of Employer at $7.50 per share as follows: up to
144,000 shares if the public trading price close at a minimum of $15
per share for five consecutive days; up to an additional 144,000
shares should the public trading price close at a minimum of $20 per
share for five consecutive days; and up to an additional 192,000
shares if the public trading price should close at a minimum of $25
for five consecutive days.
(e) Automobile / Transportation. Employer shall pay for Employees
monthly automobile payment, not to exceed $1,000 per month, including
applicable insurance.
6. Expenses. Employer will reimburse Employee for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items of Employee's periodic
presentation of an account of such expenses. Employer shall reimburse Employee
for the following expenses whether incurred or to be incurred on behalf of
Employer:
(a) Reimbursement for Legal Expenses Incurred by Employee. To date,
Employee has paid and/or incurred legal fees in the amount of $50,000 for
services rendered in connection with the operation of Reliant Interactive
Media Corp. Employer hereby agrees to either release Employee from any
further obligation or reimburse Employee for all such expenses on or before
December 1, 1999.
(b) Reimbursement for Accounting Expenses Incurred by Employee. To
date Employee has paid and/or incurred accounting fees in the amount of
$20,000 for services rendered in connection with the operation of Reliant
Interactive Media Corp. Employer hereby agrees to either release Employee
from any further obligations or reimburse Employee of such expenses on or
before December 1, 1999.
(c) Assumption of Loan. Employer agrees to assume all financial
obligations to the loans in the approximate aggregate amounts of $300,000,
now held in the name of Kevin Harrington and as shown in detail on the
attache Schedule A. Employer shall sign and execute all necessary documents
of assumption as required by the banks on or before June 30, 1999.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 7
7. Working Facilities. Employer shall provide to Employee offices and
facilities appropriate to Employee's position and suitable for the performance
of Employee's duties as set forth in this Agreement.
8. Nondisclosure of Proprietary and Confidential Information. Recognizing
that the Employer is presently engaged, and may hereafter continue to be engaged
in the research and development of processes, the manufacturing of products or
performance of services, which involve experimental and inventive work and that
the success of the Employer's business depends upon the protection of the
processes, products and services by patent, copyright or by secrecy and that
Employee has had, or during the course of his engagement may have, access to
Proprietary and Confidential Information, as herein defined, of the Employer or
other information and data of a secret or proprietary nature of the Employer
which the Employer wishes to keep confidential and Employee has furnished, or
during the course of his engagement may furnish, such information to the
Employer, Employee agrees and acknowledges that:
(a) The Employer has exclusive property rights to all Proprietary and
Confidential Information and Employee hereby assigns all rights he might
otherwise possess in any Proprietary and Confidential Information to the
Employer. Except as required in the performance of his duties to the
Employer, Employee will not at any time during or after the term of his
engagement, which term shall include any time in which Employee may be
retained by the Employer as a consultant, directly or indirectly use,
communicate, disclose or disseminate any Proprietary or Confidential
Information of a secret, proprietary, confidential or generally undisclosed
nature relating to the Employer, its products, customers, processes and
services, including information relating to testing, research, development,
manufacturing, marketing and selling.
(b) All documents, records, notebooks, notes, memoranda and similar
repositories of, or containing, Proprietary and Confidential Information or
any other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Employer or its operations and
activities made or compiled by Employee at any time or made available to
him prior to or during the term of his engagement by the Employer,
including any and all copies thereof, shall be the property of the
Employer, shall be held by him in trust solely for the benefit of the
Employer, and shall be delivered to the Employer by him on the termination
of his engagement or at any other time on the request of the Employer.
(c) Employee will not assert any rights under any inventions,
trademarks, copyrights, discoveries, concepts or ideas, or improvements
thereof, or know-how related thereto, as having been made or acquired by
him during the term
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 8
of his engagement if based on or otherwise related to Proprietary or
Confidential Information.
9. Assignment Of Inventions.
(a) All Inventions shall be the sole property of the Employer, and
Employee agrees to perform the provisions of the Section 9 with respect
thereto without the payment by the Employer of any royalty or any
consideration therefor other than the regular compensation paid to Employee
in the capacity of any employee or consultant, with the exception that
Employee shall continue to receive royalties from sales of the Cobee
Dual-Flame Lighter, as per the previously contracted agreement.
(b) Employee shall apply, at the Employer's request and expense, for
United States and foreign letters patent or copyrights either in Employee's
name or otherwise an the Employer shall desire.
(c) Employee hereby assigns to the Employer all of his rights to such
Inventions, and to applications for United States and/or foreign letters
patent or copyrights and to United States and/or foreign letter patent or
copyrights granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Employer,
without charge to the Employer, but at its expense, such written
instruments (including applications and assignments) and do such other
acts, such as giving testimony in support of Employee's inventorship, as
may be necessary in the opinion of the Employer to obtain, maintain,
extend, reissue and enforce United States and/or foreign letters patent and
copyrights relation to the Inventions and to vest the entire right and
title thereto in the Employer of its nominee. Employee acknowledges and
agrees that any copyright developed or conceived of, by Employee during the
term of his employment which is related to the Business of the Employer
shall be a "work for hire" under the copyright law of the United States and
other applicable jurisdictions.
(e) Employee represents that his performance of all the terms of this
Agreement and as an employee of or consultant to the Employer does not and
will not breach any trust prior to his employment by the Employer. Employee
agrees not to enter into any agreement either written or oral in conflict
herewith and represents and agrees that he has not brought and will not
bring with to the Employer or use in the performance of his
responsibilities at the Employer any materials or documents of a former
employer which are not generally available to the public, unless he has
obtained written authorization from the former employer for their
possession and use, a copy of which has been provided to the Employer.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 9
(f) No provisions of the Paragraph shall be deemed to limit the
restrictions applicable to Employee under Section 8 and 9.
10. Shop Rights.
The Employer shall also have the royalty-free right to use in its business,
and to make, use and sell products, processes and/or services derived from any
inventions, discoveries, concepts and ideas, whether or not patentable,
including but not limited to processes, methods, formulas and techniques, as
well as improvements thereof or know-how related thereto, which are not within
the scope of Inventions as defined herein but which are conceived of or made by
Employee during the period he is engaged by the Employer or with the use or
assistance of the Employer's facilities, materials or personnel.
11. Non-Compete.
Employee hereby agrees that during the term of this Agreement, that
Employee will not:
(a) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, own,
manage, operate, or control any business of the type and character engaged
in and competitive with the Employer or any subsidiary thereof. For
purposes of this paragraph, ownership of securities of not in excess of
five percent (5%) of any class of securities of a public employer listed on
a national securities exchange or on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) shall not be considered to be
competition with the Employer or any subsidiary thereof;
(b) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, act as, or
become employed as an officer, director, employee, consultant or agent of
any business of the type and character engaged in and competitive with the
Employer or any of its subsidiaries;
(c) Solicit any similar business to that of the Employer's for, or
sell any products that are in competition with the Employer's products to
which is, as of the date hereof, a customer or client of the Employer or
any of its subsidiaries, or was such a customer or client thereof within
two years prior to the date of this Agreement; or
(d) For up to six months following the termination of this Agreement
solicit the employment of, or hire, any full time employee employed by the
Employer or its subsidiaries as of the date of termination of this
Agreement.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 10
12. Termination. Employer may not terminate this Agreement during its term
without Cause as defined herein. If this Agreement is terminated without Cause,
Employee shall be entitled to the Termination Payments set forth in Section 14
hereof. Any termination by Employer of Employee of Employee's employment during
the term hereof shall be communicated by written Notice of Termination to
Employee, if such Notice of Termination is delivered by the Employer, and to the
Employee, if such Notice of Termination is delivered by Employee, all in
accordance with the following procedures:
(a) The Notice of termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances alleged to provide a basis for
termination;
(b) Any Notice of Termination by the Employer shall be approved by a
resolution duly adopted by a majority of the members of the Employer;
(c) If Employee shall provide the president or chief executive officer
with a Notice of Termination at least 30 days prior to leaving the
employment of the Employer. Upon the end of the thirty days, all
compensation provisions of this Agreement shall cease.
13. Termination Upon Transfer of Business. Notwithstanding any provision
this Agreement to the contrary, Employee may terminate this Agreement upon the
happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the sale, exchange, or other disposition to a single
entity or group of entities under common control in one transaction or series of
related transactions of greater than 50% of the outstanding shares of Employer's
common stock; (c) the decision by Employer to terminate its business and
liquidate its assets; or (d) the merger or consolidation of Employer in a
transaction in which the shareholders of the Employer immediately prior to such
merger or consolidation receive less than 50% of the outstanding voting shares
of the new or continuing corporation. In the event Employee does not elect to
terminate this Agreement upon the happening of any of the events noted above,
and as a result of such event, Employer is not the surviving entity, then the
provisions of this Agreement shall inure to the benefit of and be binding upon
the surviving or resulting entity. If as a result of the merger, consolidation,
transfer of assets, or other event listed above, the duties of Employee are
increased, then the compensation of Employee provided for in paragraph 5 of this
Agreement shall be reasonably adjusted upward for the additional duties and
responsibilities assumed.
14. Termination Payments. In the event the Employee's employment is
terminated by the Employer during the term hereof for reasons other than Cause,
as defined herein, Employee shall be paid any sums owed under this Agreement,
including but not limited to any salary, any deferred compensation, accrued
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 11
benefits, bonuses and options, and for any potential actions for breach of this
Agreement by Employer. Other than any payments set forth in this Section 14,
Employment shall be entitled to no further compensation nor any other payments
after termination. Employee shall receive no further payments if terminated for
Cause other than Accrued Benefits.
15. Death During Employment. If Employee dies during the term of this
Agreement, Employer shall have no further obligations to pay Employee other than
any Accrued Benefits.
16. Illness or Incapacity. If Employee is unable to perform Employee's
services by reason of illness or incapacity for a period of more than two (2)
consecutive months, the compensation thereafter payable to Employee during the
next two (2) consecutive months shall be 50% of the compensation provided for
herein. During such period of illness or incapacity, Employee shall be entitles
to receive incentive compensation if any. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within a four (4) consecutive
month period, Employee shall not be entitled to receive any further compensation
nor any payments for such illness or incapacity, and Employer may terminate this
Agreement without further liability to Employee. Any existing options to
purchase Employer's common stock held by Employee at the time termination shall
be governed by the terms of the option and not affected by this provision. At
the termination of such illness or incapacity, Employee shall be entitled to
receive Employee's full compensation payable pursuant to the terms of this
Agreement.
17. Nontransferability. Neither Employee, Employee's spouse, Employee's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement. Such
payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
18. Indemnification. Employer shall indemnify Employee and hold Employee
harmless from liability for acts or decisions made by Employee while performing
services for Employer to the greatest extent permitted by applicable law.
Employer shall use its best efforts to obtain coverage for Employee under any
insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer against such liability.
19. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
20. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of employee by employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 12
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by the
parties to this Agreement.
21. Enforcement. Each of the parties to this Agreement shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party. Employee hereby specifically
acknowledges and agrees that a breach of the agreements, covenants and
conditions of this Agreement will cause irreparable harm and damage to the
Employer, that the remedy at law, for the breach or threatened breach of this
Agreement will be adequate, and that, in addition to all other remedies
available to the Employer for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be entitled
to injunctive relief for any breach or threatened breach of this Agreement.
22. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
23. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
24. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
25. Litigation Expenses. In the event that it shall be necessary or
desirable for the Employee or Employer to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
provisions of this Agreement, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees, costs, and expenses incurred by
the prevailing party in connection with the enforcement of this Agreement.
Payment shall be made upon the conclusion of such action.
26. Survivability. The provisions of Section 8, 9, 10, 11 and 12 shall
survive termination of this Agreement.
AGREED AND ENTERED INTO as of the date first above written.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 13
EMPLOYER: EMPLOYEE:
Reliant Interactive Media Corp.
By: /s/ By: /s/
- ---------------------------------- ----------------------------------
Duly Authorized Officer Kevin Harrington
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective this 30th
day of June, 1999, by and between Reliant Interactive Media Corp. (the
"Employer"), and Tim Harrington(the "Employee").
PREMISES
a) Employee possesses expertise, experience and skill in the development
and marketing of products via electronic and other multi-media means.
b) Employee has demonstrated the ability to run, manage and build a
development stage business.
c) Employer desires to employ Employee to serve as its President and Chief
Operating Officer to run, manage and build its business.
d) Employee desires to perform all of such services as Employer's employee
and both parties want to enter into a written agreement as to their
understanding of the employment relationship.
AGREEMENT
For and in Consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
ten (10) days following an applicable Termination Date and which shall be
equal to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in connection
with Employee's employment for reasonable and necessary expenses
incurred by Employee and approved by the Employer through the
Termination Date; and
(iii) All other payments and benefits to which Employee may be
entitled under the terms of any benefit plan of the Employer.
(b) "Board" shall mean the board of directors of the Employer.
(c) "Cause" shall mean any of the following:
(i) The engagement by Employee in fraudulent conduct, which has a
significant adverse impact on the Employer in the conduct of the
Employer's business;
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 2
(ii) Conviction of a felony involving a crime against the
Employer, as evidenced by a binding and final judgment, order or
decree of a court of competent jurisdiction.
(iii) Gross negligence or refusal by Employee to perform his
duties or responsibilities; or
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Confidential Information" means information (i) disclosed to or
actually known by Employee as a consequence of or through his/her
employment with the Employer, (ii) not generally known outside the
Employer, and (iii) which relates to the Employer's business. Confidential
Information includes, but is not limited to, information of a technical
nature, such as methods and materials, trade secrets, inventions,
processes, formulas, systems, computer programs, and studies, and
information of a business nature such as project plans, market information,
costs, customer lists, and so forth.
(f) "Disability" shall mean a physical or mental condition whereby
Employee is unable to perform on a full-time basis his customary duties
under this Agreement.
(g) "Developments" means all Inventions (defined hereafter), computer
programs, copyright works, mask works, trademarks, Confidential
Information, Works of Authorship (defined hereafter), and other
Intellectual Property (defined hereafter), made, conceived or authored by
Employee, alone or jointly with others, while employed by the Employer;
whether or not during normal business hours or on the Employer's premises,
that are within the present scope of the Employer's business at the time
such Developments are made, conceived, or authored, or which result from or
are suggested by any work Employee or others may do for or on behalf of the
Employer.
(h) "Employer" means Reliant Interactive Media Corp. and its
subsidiaries, divisions and affiliates as well as majority owned companies
of such subsidiaries, divisions and affiliates, or their successors or
assigns.
(i) "Invention" means discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to improvements,
know-how, data, processes, methods, formulae, and techniques, as well as
improvements thereof, or know-how related thereto, concerning any present
or prospective activities of the Employer which Employee makes, discovers
or conceives (whether or not during the hours of his engagement of with the
use of the Employer's facilities, materials or personnel), either solely or
jointly
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 3
with others during his engagement by the Employer or any affiliate and, if
based on or related or Proprietary Information, at any time after
termination of such engagement.
(j) "Intellectual Property" means Inventions, Confidential
Information, Works of Authorship, patent rights, trademark rights, service
mark rights, copyrights, know-how, Developments and rights of like nature
arising or subsisting anywhere in the world, in relation to all of the
foregoing, whether registered or unregistered.
(k) "Notice of Termination" shall mean the notice described in Section
13 hereof.
(l) "Person" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity, other than an employee
benefit plan of the Employer of an entity organized, appointed of
established pursuant to the terms of any such benefit plan.
(m) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a similar nature related to the
business of the Employer disclosed to the Employee or otherwise made known
to him as a consequence of or through his engagement by the Employer
(including information originated by Employee) in any technological area
previously developed by the Employer or developed, engaged in, or
researched, by the Employer during the term of Employee's engagement,
including, but not limited to, trade secrets, processes, products,
formulae, apparatus, techniques, know-how, marketing plans, data,
improvements, strategies, forecasts, customer lists, and technical
requirements of customers, unless such information is in the public domain
to such an extent as to be readily available to competitors.
(n) "Termination Date" shall mean, except as otherwise provided in
Section 12 hereof.
(i) Employee's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment on account of Disability pursuant
to Section 16 hereof, unless Employee returns on a full-time basis to
the performance of his duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by Employee
voluntarily; and
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 4
(iv) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by the Employer for
any reason other than death or Disability.
(o) "Termination Payment" shall mean the payment described in Section
14 hereof.
(p) "Works of Authorship" means an expression fixed in a tangible
medium of expression regardless of the need for a machine to make the
expression manifest, and includes but is not limited to, writings, reports,
drawings, sculptures, illustrations, video recordings, audio recordings,
computer programs, and charts.
2. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth.
3. Term. Subject to the terms and conditions of this Agreement, the term of
this Agreement shall commence retroactively from December 1, 1998, and end on
December 1, 2003.
4. Duties. During the term of this Agreement, Employee shall be employed by
Employer as its President and Chief Operating Officer. In addition to the office
of President and Chief Operating Officer, Employee agrees to serve in such other
office or position with Employer or any subsidiary of Employer and as such
shall, from time to time, be determined by Employer's Board. Employee agrees to
serve as a member of the Employer's Board. Employee shall devote substantially
all of his working time and efforts to the business of Employer and its
subsidiaries and shall not during the term of this Agreement be engaged in any
other substantial business activities which will significantly interfere or
conflict with the reasonable performance of his duties hereunder.
5. Compensation.
(a) Salary. For all services rendered by Employee, Employer shall pay
to Employee a base salary of $96,000 for the first year and the base salary
shall increase by $12,000 per year for each of the remaining four years of
this Agreement payable in bi-monthly installments. Employee shall also be
due a base salary from the time of the inception of employment by Employer
of the Employee to the date of this Agreement equal to the rate of
compensation as defined for the first year of this Agreement. If Employer's
financial constraints so dictate, Employee agrees to defer a portion of the
salary contained in this Section. This deferred base salary along with any
deferred base salary earned prior to the date of this Agreement shall be
paid to Employee at such time or times as financial constraints so dictate.
All salary payments shall be subject
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 5
to withholding and other applicable taxes. The rate of salary may be
increased at any time, as the Board may determine, based on earnings,
increased activities of the Employer, or such other factors as the Board
may deem appropriate from time to time. Employee shall receive bonus or
incentive compensation as approved by the Board.
(b) Incentive Compensation. In the event that Employer achieves
"ADJUSTED GROSS REVENUES" annually in excess of $10,000,000 Employee shall
receive additional compensation equal to 6/10 of 1% of "ADJUSTED GROSS
REVENUES". This Incentive compensation shall be paid on a quarterly basis
within thirty days of the end of the calendar quarter based on the
preceding calendar quarter's "ADJUSTED GROSS REVENUES". "GROSS" and
"ADJUSTED GROSS REVENUES" are defined as follows: "GROSS REVENUES" shall
mean all income of Employer from all sources exclusive of sales taxes, use
taxes, value added taxes, and any other taxes imposed upon sales of
products. "ADJUSTED GROSS REVENUES" shall mean Employer's Gross Revenues
from sales of the products, less all of the following:
(i) refunds, credits or other allowances on account of return or
rejection of goods or otherwise granted in the ordinary course of
business, as actually incurred and as reserved for ("Returns");
(ii) uncollectible accounts due to credit card charge backs, bad
checks or other reasons of uncollectability, as actually incurred and
as reserved for ("Uncollectibles"); and
(iii) sales made at or below Reliant's cost of goods for purposes of
liquidation or closeout ("Liquidation Sales").
(c) Insurance Benefits. Employer shall provide health and medical
insurance for Employee in a form and program to be chosen by Employer for
certain of its full-time employees. Employer shall provide Employee with
directors and officers liability insurance in the amount of $2,000,000 and
life and disability insurance in amounts approved by the Board.
(d) Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, or other plan as may be put in effect
from time to time by the Board, including the following:
(i) Qualified Stock Option Plan. Pursuant to a Qualified Stock Option
Plan authorized by the Board and approved by the Shareholders of
Employer, Employee shall have the option to purchase up to 40,000
shares of Employer's stock in six months at $2.50 per share, in 12
months at $4.00 per share, in eighteen months at $6.00 per share and
in twenty-four months at $7.50 per share;
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 6
(ii) Revenue Performance Bonuses. Employee shall be issued 100,000
shares of Employer's stock for each $10,000,000 in gross revenues (in
accordance with SEC Reg SX accounting rules) received by Employer with
a maximum of 2,000,000 shares to be issued; and
(iii) Stock Performance Options. Employee shall have the option to
purchase stock of Employer at $7.50 per share as follows: up to
100,000 shares if the public trading price close at a minimum of $15
per share for five consecutive days; up to an additional 100,000
shares should the public trading price close at a minimum of $20 per
share for five consecutive days; and up to an additional 120,000
shares if the public trading price should close at a minimum of $25
for five consecutive days.
(e) Automobile / Transportation. Employer shall pay for Employees
monthly automobile payment, not to exceed $750 per month, including
applicable insurance.
6. Expenses. Employer will reimburse Employee for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items of Employee's periodic
presentation of an account of such expenses.
7. Working Facilities. Employer shall provide to Employee offices and
facilities appropriate to Employee's position and suitable for the performance
of Employee's duties as set forth in this Agreement.
8. Nondisclosure of Proprietary and Confidential Information. Recognizing
that the Employer is presently engaged, and may hereafter continue to be engaged
in the research and development of processes, the manufacturing of products or
performance of services, which involve experimental and inventive work and that
the success of the Employer's business depends upon the protection of the
processes, products and services by patent, copyright or by secrecy and that
Employee has had, or during the course of his engagement may have, access to
Proprietary and Confidential Information, as herein defined, of the Employer or
other information and data of a secret or proprietary nature of the Employer
which the Employer wishes to keep confidential and Employee has furnished, or
during the course of his engagement may furnish, such information to the
Employer, Employee agrees and acknowledges that:
(a) The Employer has exclusive property rights to all Proprietary and
Confidential Information and Employee hereby assigns all rights he might
otherwise possess in any Proprietary and Confidential Information to the
Employer. Except as required in the performance of his duties to the
Employer, Employee will not at any time during or after the term of his
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 7
engagement, which term shall include any time in which Employee may be
retained by the Employer as a consultant, directly or indirectly use,
communicate, disclose or disseminate any Proprietary or Confidential
Information of a secret, proprietary, confidential or generally undisclosed
nature relating to the Employer, its products, customers, processes and
services, including information relating to testing, research, development,
manufacturing, marketing and selling.
(b) All documents, records, notebooks, notes, memoranda and similar
repositories of, or containing, Proprietary and Confidential Information or
any other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Employer or its operations and
activities made or compiled by Employee at any time or made available to
him prior to or during the term of his engagement by the Employer,
including any and all copies thereof, shall be the property of the
Employer, shall be held by him in trust solely for the benefit of the
Employer, and shall be delivered to the Employer by him on the termination
of his engagement or at any other time on the request of the Employer.
(c) Employee will not assert any rights under any inventions,
trademarks, copyrights, discoveries, concepts or ideas, or improvements
thereof, or know-how related thereto, as having been made or acquired by
him during the term of his engagement if based on or otherwise related to
Proprietary or Confidential Information.
9. Assignment Of Inventions.
(a) All Inventions shall be the sole property of the Employer, and
Employee agrees to perform the provisions of the Section 9 with respect
thereto without the payment by the Employer of any royalty or any
consideration therefor other than the regular compensation paid to Employee
in the capacity of any employee or consultant.
(b) Employee shall apply, at the Employer's request and expense, for
United States and foreign letters patent or copyrights either in Employee's
name or otherwise an the Employer shall desire.
(c) Employee hereby assigns to the Employer all of his rights to such
Inventions, and to applications for United States and/or foreign letters
patent or copyrights and to United States and/or foreign letter patent or
copyrights granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Employer,
without charge to the Employer, but at its expense, such written
instruments (including applications and assignments) and do such other
acts, such as
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 8
giving testimony in support of Employee's inventorship, as may be necessary
in the opinion of the Employer to obtain, maintain, extend, reissue and
enforce United States and/or foreign letters patent and copyrights relation
to the Inventions and to vest the entire right and title thereto in the
Employer of its nominee. Employee acknowledges and agrees that any
copyright developed or conceived of, by Employee during the term of his
employment which is related to the Business of the Employer shall be a
"work for hire" under the copyright law of the United States and other
applicable jurisdictions.
(e) Employee represents that his performance of all the terms of this
Agreement and as an employee of or consultant to the Employer does not and
will not breach any trust prior to his employment by the Employer. Employee
agrees not to enter into any agreement either written or oral in conflict
herewith and represents and agrees that he has not brought and will not
bring with to the Employer or use in the performance of his
responsibilities at the Employer any materials or documents of a former
employer which are not generally available to the public, unless he has
obtained written authorization from the former employer for their
possession and use, a copy of which has been provided to the Employer.
(f) No provisions of the Paragraph shall be deemed to limit the
restrictions applicable to Employee under Section 8 and 9.
10. Shop Rights.
The Employer shall also have the royalty-free right to use in its business,
and to make, use and sell products, processes and/or services derived from any
inventions, discoveries, concepts and ideas, whether or not patentable,
including but not limited to processes, methods, formulas and techniques, as
well as improvements thereof or know-how related thereto, which are not within
the scope of Inventions as defined herein but which are conceived of or made by
Employee during the period he is engaged by the Employer or with the use or
assistance of the Employer's facilities, materials or personnel.
11. Non-Compete.
Employee hereby agrees that during the term of this Agreement Employee will
not:
(a) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, own,
manage, operate, or control any business of the type and character engaged
in and competitive with the Employer or any subsidiary thereof. For
purposes of this paragraph, ownership of securities of not in excess of
five percent (5%) of any class of securities of a public employer listed on
a national securities exchange
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 9
or on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) shall not be considered to be competition with the Employer
or any subsidiary thereof;
(b) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, act as, or
become employed as an officer, director, employee, consultant or agent of
any business of the type and character engaged in and competitive with the
Employer or any of its subsidiaries;
(c) Solicit any similar business to that of the Employer's for, or
sell any products that are in competition with the Employer's products to
which is, as of the date hereof, a customer or client of the Employer or
any of its subsidiaries, or was such a customer or client thereof within
two years prior to the date of this Agreement; or
(d) For up to six months following the termination of this Agreement,
solicit the employment of, or hire, any full time employee employed by the
Employer or its subsidiaries as of the date of termination of this
Agreement.
12. Termination. Employer may not terminate this Agreement during its term
without Cause as defined herein. If this Agreement is terminated without Cause,
Employee shall be entitled to the Termination Payments set forth in Section 14
hereof. Any termination by Employer of Employee of Employee's employment during
the term hereof shall be communicated by written Notice of Termination to
Employee, if such Notice of Termination is delivered by the Employer, and to the
Employee, if such Notice of Termination is delivered by Employee, all in
accordance with the following procedures:
(a) The Notice of termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances alleged to provide a basis for
termination;
(b) Any Notice of Termination by the Employer shall be approved by a
resolution duly adopted by a majority of the members of the Employer;
(c) If Employee shall provide the president or chief executive officer
with a Notice of Termination at least 30 days prior to leaving the
employment of the Employer. Upon the end of the thirty days, all
compensation provisions of this Agreement shall cease.
13. Termination Upon Transfer of Business. Notwithstanding any provision
this Agreement to the contrary, Employee may terminate this Agreement upon the
happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 10
sale, exchange, or other disposition to a single entity or group of entities
under common control in one transaction or series of related transactions of
greater than 50% of the outstanding shares of Employer's common stock; (c) the
decision by Employer to terminate its business and liquidate its assets; or (d)
the merger or consolidation of Employer in a transaction in which the
shareholders of the Employer immediately prior to such merger or consolidation
receive less than 50% of the outstanding voting shares of the new or continuing
corporation. In the event Employee does not elect to terminate this Agreement
upon the happening of any of the events noted above, and as a result of such
event, Employer is not the surviving entity, then the provisions of this
Agreement shall inure to the benefit of and be binding upon the surviving or
resulting entity. If as a result of the merger, consolidation, transfer of
assets, or other event listed above, the duties of Employee are increased, then
the compensation of Employee provided for in paragraph 5 of this Agreement shall
be reasonably adjusted upward for the additional duties and responsibilities
assumed.
14. Termination Payments. In the event the Employee's employment is
terminated by the Employer during the term hereof for reasons other than Cause,
as defined herein, Employee shall be paid any sums owed under this Agreement,
including but not limited to any salary, any deferred compensation, accrued
benefits, bonuses and options, and for any potential actions for breach of this
Agreement by Employer. Other than any payments set forth in this Section 14,
Employment shall be entitled to no further compensation nor any other payments
after termination. Employee shall receive no further payments if terminated for
Cause other than Accrued Benefits.
15. Death During Employment. If Employee dies during the term of this
Agreement, Employer shall have no further obligations to pay Employee other than
any Accrued Benefits.
16. Illness or Incapacity. If Employee is unable to perform Employee's
services by reason of illness or incapacity for a period of more than two (2)
consecutive months, the compensation thereafter payable to Employee during the
next two (2) consecutive months shall be 50% of the compensation provided for
herein. During such period of illness or incapacity, Employee shall be entitles
to receive incentive compensation if any. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within a four (4) consecutive
month period, Employee shall not be entitled to receive any further compensation
nor any payments for such illness or incapacity, and Employer may terminate this
Agreement without further liability to Employee. Any existing options to
purchase Employer's common stock held by Employee at the time termination shall
be governed by the terms of the option and not affected by this provision. At
the termination of such illness or incapacity, Employee shall be entitled to
receive Employee's full compensation payable pursuant to the terms of this
Agreement.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 11
17. Nontransferability. Neither Employee, Employee's spouse, Employee's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement. Such
payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
18. Indemnification. Employer shall indemnify Employee and hold Employee
harmless from liability for acts or decisions made by Employee while performing
services for Employer to the greatest extent permitted by applicable law.
Employer shall use its best efforts to obtain coverage for Employee under any
insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer against such liability.
19. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
20. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of employee by employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by the
parties to this Agreement.
21. Enforcement. Each of the parties to this Agreement shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party. Employee hereby specifically
acknowledges and agrees that a breach of the agreements, covenants and
conditions of this Agreement will cause irreparable harm and damage to the
Employer, that the remedy at law, for the breach or threatened breach of this
Agreement will be adequate, and that, in addition to all other remedies
available to the Employer for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be entitled
to injunctive relief for any breach or threatened breach of this Agreement.
22. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
23. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 12
24. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
25. Litigation Expenses. In the event that it shall be necessary or
desirable for the Employee or Employer to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
provisions of this Agreement, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees, costs, and expenses incurred by
the prevailing party in connection with the enforcement of this Agreement.
Payment shall be made upon the conclusion of such action.
26. Survivability. The provisions of Section 8, 9, 10, 11 and 12 shall
survive termination of this Agreement.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER: EMPLOYEE:
Reliant Interactive Media Corp.
By: /s/ By: /s/
- ---------------------------------- ----------------------------------
Duly Authorized Officer Tim Harrington
Reliant Interactive Media Corp.
1999 COMPENSATORY STOCK OPTION PLAN
1. Purpose of this Plan.
This Compensatory Stock Option Plan ("Plan") is intended as an employment
incentive, to aid in attracting and retaining in the employ or service of
Reliant Interactive Media Corp. ("Company"), a Nevada corporation, and any
Affiliated company, persons of experience and ability and whose services are
considered valuable, to encourage the sense of proprietorship in such persons,
and to stimulate the active interest of such persons in the development and
success of the Company. This Plan provides for the issuance of non-statutory
stock options ("CSOs" or "Options") which are not intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"). Certain other terms also are defined
in Paragraph 17 and elsewhere of this Plan.
2. Administration of this Plan.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee ("Committee") of the Board
which shall consist of at least two members of the Board. At any time that the
Committee is not duly constituted, the Board itself shall have and fulfill the
duties herein allocated to the Committee. The Committee shall have full power
and authority to designate Plan participants, to determine the provisions and
terms of respective CSOs (which need not be identical as to number of shares
covered by any CSO, the method of exercise as related to exercise in whole or in
installments, or otherwise), including the CSO price, and to interpret the
provisions and supervise the administration of this Plan. The Committee may in
its discretion provide that certain CSOs not vest (that is, become exercisable)
until expiration of a certain period after issuance or until other conditions
are satisfied, so long as not contrary to this Plan.
A majority of the members of the Committee shall constitute a quorum. All
decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. Each Option shall be evidenced by a written
agreement containing terms and conditions established by the Committee
consistent with the provisions of this Plan.
3. Designation of Participants
Only Employees shall be eligible for participation in this Plan. The
Committee shall have full power to designate, from among eligible individuals,
the persons to whom CSOs may be granted. A person who has been granted a CSO
hereunder may be granted an additional CSO or CSOs, if the committee shall so
determine. Persons eligible under this Plan additionally may be granted one or
more options under any other compensation or stock option plan or awarded shares
under any other benefit plan of the Company. No Option shall confer any
1
<PAGE>
right upon the Optionee with respect to the continuation of his employment (or
his position as an officer, director, employee or consultant) with the Company
or any Affiliated Company, and shall not interfere with the right of the Company
or any Affiliated Company to terminate such relationship(s) at any time in
accordance with law and any agreements then in force.
4. Stock Reserved for this Plan.
Subject to adjustment as provided in Paragraph 9 below, a total of 500,000
Shares of Common Stock of the Company ("Option Stock" or "Option Shares") shall
be subject to this Plan. The Option Stock subject to this Plan shall consist of
unissued shares of Common Stock or previously issued shares of Common Stock
reacquired and held by the Company or any Affiliated Company, and such number of
Option Shares shall be and is hereby reserved for sale for such purpose. Any
Option Shares which may remain unsold and which are not subject to outstanding
CSOs at the termination of this Plan shall cease to be reserved for the purpose
of this Plan, but until termination of this Plan the Company shall at all times
reserve a sufficient number of shares to meet the requirements of this Plan.
Should any CSO expire or be cancelled prior to its exercise in full, the
unexercised Option Shares theretofore subject to such CSO may again be subjected
to a CSO under this Plan.
5. Option Exercise Price.
The purchase (exercise) price of each share of Option Stock made subject to
an Option shall be Two Dollars and fifty cents ($2.50) per share for the first
six (6) months; Four Dollars ($4.00) per share for the seventh (7th) through
twelfth (12th) month; Six Dollars ($6.00) per share for the thirteenth (13th)
through eighteenth (18th) month; and Seven Dollars and fifty cents ($7.50) for
the nineteenth (19th) through twenty-fourth (24th) month of Common Stock.
6. Exercise Period; Vesting.
(a) An Option shall have a term of not more than five (5) years from the
date of grant and shall automatically terminate:
(i) Upon termination of the Optionee's employment with the Company for
cause;
(ii) At the expiration of a period to be determined by the Committee at the
time of grant which is not to exceed six (6) months following the date
of termination of the Optionee's employment with the Company without
cause for any reason other than death; provided that if no such period
is specified in the Option, the Option shall automatically terminate
thirty days following termination of Optionee's employment; provided,
further, that if the Optionee dies within such period, subclause (iii)
below shall apply; or
(iii) At the expiration of twelve (12) months after the date of death of
the Optionee; provided, that the Committee may in its discretion
provide that any Option not be exercisable after the Optionee's death
or may be exercised for a further period which shall be less than
further twelve months.
2
<PAGE>
(iv) Unless otherwise specified in the Option, if termination is due to the
Optionee's "permanent and total disability" within the meaning of
Section 422(c)(6) of the Code, on Option may be exercised at any time
within twelve (12) months following termination of employment or
relationship as a consultant or director.
(b) "Employee" and "Employment with the Company" as used in this Plan shall
include employment or relationship as a consultant, adviser or director with the
Company or any Affiliated Company in any such capacity, even if employment or
engagement in another capacity ceases. Options granted under this Plan shall not
be affected by an employee's transfer of employment among the Company and any
one or more Affiliated Companies. An Optionee's employment with the Company
shall not be deemed interrupted or terminated by a bona fide leave of absence
(such as sabbatical leave or employment by the Government) duly approved,
military leave or sick leave. As to consultants, advisers or other non-employee
providers of services, employment with the Company shall be deemed to cease upon
formal termination of the Optionee's engagement.
(c) Each Option may be made exercisable (that is, vest) in whole or in
installments, cumulative or otherwise, during its term, or subject to other
restrictions or limitations. Unless otherwise set forth in the granting
resolution, an Option shall vest immediately upon grant. If an Option is made to
vest over time, any portion not vested at the time of termination of employment
or relationship as a direct or consultant with the Company shall lapse as if
never granted. Nothing contained in this Section shall be construed to extend
the term of any Option or to permit anyone to exercise an Option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any Option is exercisable from the amount exercisable on the
date of termination of the Optionee's employment or relationship as a consultant
or director.
7. Exercise Options.
(a) The Committee, in granting CSOs, shall have discretion to determine the
terms upon which CSOs shall be exercisable, subject to applicable provisions of
this Plan. Once available for purchase, unpurchased Option Shares shall remain
subject to purchase until the CSO expires or terminates in accordance with
Paragraph 6 above. Unless otherwise provided in the CSO, a CSO may be exercised
in whole or in part, one or more times, but no CSO may be exercised for a
fractional share. Resulting fractions shall be rounded up or down, as
appropriate.
(b) CSOs may be exercised solely by the Optionee or a permitted transferee
during his lifetime or by a spouse or former spouse pursuant to a qualified
domestic relations order, or if the Option permits, after his death (with
respect to the number of shares which the Optionee could have purchased at the
time of death) by the person or persons entitled thereto under the decedent's
will or the laws of descent and distribution.
(c) The purchase price of the Option Shares as to which a CSO is exercised
shall be paid or delivered in full at the time of exercise and no Option Shares
shall be issued until full payment is made therefore. Payment shall be made by
any one or more of the following means:
3
<PAGE>
(i) in cash, represented by bank or cashier's check, certified check or
money order, or made by bank wire transfer;
(ii) by offsetting against the purchase price a cash obligation of the
Company which is both liquidated (meaning the dollar amount is fixed
and known or easily determinable) and uncontested;
(iii) with the prior approval of the Committee, by delivering shares of the
Company's Common Stock which have been beneficially owned by the
Optionee, the Optionee's spouse or both of them, for a period of at
least six (6) months prior to the time of exercise (the "Delivered
Stock"), the Delivered Stock to be valued by the Committee in good
faith at its Fair Market Value on the date of exercise;
(iv) with the prior approval of the Committee, by delivery of shares of
corporate stock which are freely tradeable without restriction and
which are part of a class of securities which has been listed for
trading on the Nasdaq National Market System, the Nasdaq Small Cap
Market or a national securities exchange, with an aggregate Fair
Market Value on the date of exercise equal to or greater than the
exercise price of the Option Shares being purchased under the Option
("Other Shares"); or
(v) with the prior approval of the Committee, by delivering to the Company
the Optionee's personal recourse promissory note, adequately secured
by property other than the Option Shares thereby purchased, containing
such terms and conditions as the Committee shall determine.
(d) An Option shall be deemed exercised when written notice thereof,
accompanied by the appropriate payment in full, is received by the Company. No
holder of an Option shall be,or have any of the rights and privileges of, a
shareholder of the Company in respect of any Option Shares purchasable upon
exercise of an Option unless and until certificates evidencing such shares shall
have been issued by the Company to him, her or it.
(e) An Option may, but need not, provide that the Optionee may at any time
when and to the extent the Option is exercisable, effect an Option Exchange,
provided the then market price of the Common Stock exceeds the Option's exercise
price. To effect an Option Exchange, the Optionee must surrender the Option at
the Company's principal offices stating the intent to effect the Option Exchange
and the number of Option Shares being exchanged, an the Option Exchange shall be
deemed to take place on the date of the Company's receipt thereof or such later
date as the Optionee specifics in writing. In connection with any Option
Exchange, an Option shall represent the right to subscribe for and acquire the
number of Option Shares equal to (i) the number of Option Shares specified by
the Optionee in its notice of exchange (the "Total Number") LESS (ii) the number
of Option Shares equal to the quotient obtained by dividing (A) the product of
the Total Number and the exercise price by (B) the current Fair Market Value of
a share of the Common Stock on the date of exchange, or if such date is not a
trading day, on the trading day preceding. One or more certificates for the
Option Shares issuable and, if applicable, a new Option of like tenor evidencing
the
4
<PAGE>
balance of the Option Shares remaining subject to the Option, shall be issued as
of the exercise date.
8. Non-Transferability of Options.
No Option shall be assignable or otherwise transferable except by will or
by operation of law, pursuant to a qualified domestic relations order (as
defined in Rule 16b-3 of the Securities and Exchange Commission, or any
successor rule), or pursuant to Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or rules thereunder. No CSO shall be
pledged or hypothecated in any manner, whether by operation of law or otherwise,
nor be subject to execution, attachment or similar process. The same
restrictions on transfer or assignment shall apply to any heirs, devisees,
beneficiaries, legal representatives or other persons acquiring this Option or
an interest herein under such an instrument or by operation of law. Any attempt
to transfer or otherwise dispose of an Option in contravention of its terms
shall void the Option.
9. Reorganization and Recapitalization of the Company.
(a) No Limit Imposed on Corporate Powers. The existence of this Plan and
Options granted hereunder shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any and all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures or other indebtedness, or any preferred or prior
preference stocks senior to or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale, exchange or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) Certain Adjustments to be Made. The Option Shares with respect to which
Options may be granted hereunder are shares of the Common Stock of the Company
as currently constituted. In certain instances, the number of shares purchasable
upon exercise of Options and the exercise price shall be adjusted as provided
herein. All adjustments and made under this Section shall be made by the
Committee in good faith in its sole discretion. Every adjustment inn outstanding
options shall be made without change in the total price applicable to the
unexercised portion of the Option but with a corresponding adjustment in the
exercise price per share and numbers (and if applicable, kind) of share
purchasable.
(c) Stock Splits, Stock Combinations, Etc. If, and whenever, prior to
delivery by the Company of all of the Option Shares which are subject to Options
granted hereunder, the Company shall effect a split or combination of the Common
Stock or other capital readjustment, the payment of a Common Stock dividend, or
recapitalization, reclassification or other increase or reduction of the number
of shares of the Common Stock outstanding without receiving compensation
therefor in money, services or property, then the number of Option shares
available under this Plan and the number of Option shares with respect to which
Options granted hereunder may thereafter be exercised shall (i) in the event of
an increase in the number of outstanding shares of Common Stock, be
proportionately increased , and the cash consideration payable per share shall
be proportionately reduced; and (ii) in the event of a reduction in the number
of outstanding shares of Common Stock, be
5
<PAGE>
proportionately reduced, and the cash consideration payable per share shall be
proportionately increased.
(d) Certain Other Changes in the Common Stock. If the outstanding Common
Stock shall be hereafter increased or decreased, or changed into or exchanged
for a different number or kind of shares or other securities of the Company or
of another corporation, by reason of reorganization, merger, consolidation,
share exchange or other business combination in which the Company is the
surviving parent corporation, appropriate adjustment shall be made by the
Committee in the number and kind of shares for which Options may be granted
under the Plan. In addition, the Committee shall make appropriate adjustment in
the number and kind of shares as to which outstanding and unexercised Options
shall be exercisable, to the end that the proportionate interest of the holder
of the Option shall, to the extent practicable, be maintained as before the
occurrence of such event.
(e) Certain Defined Reorganization. For purposes of this Section, the term
"Reorganization" shall mean any reorganization, merger, consolidation, share
exchange, or other business combination pursuant to which the Company is not the
surviving parent corporation after the effective date of the Reorganization, or
any sale or lease of all or substantially all of the assets of the Company, and
the therm "Reorganization Agreement" shall mean a plan or agreement with respect
to a Reorganization. Nothing herein shall require the Company to adopt a
Reorganization Agreement, or to make provision for the adjustment, change,
conversion, or exchange of any Options, or the shares subject thereto, in any
Reorganization Agreement which it does adopt. In the event of a Reorganization
(as hereinafter defined), then,
(i) If there is no Reorganization Agreement, or if the Reorganization
Agreement does not specifically provide for the adjustment, change,
conversion, or exchange of the outstanding and unexercised options for
cash or other property or securities of another corporation, then any
outstanding and unexercised options shall terminate as of a future
date to be fixed by the Committee; or,
(ii) If there is a Reorganization Agreement, and the Reorganization
Agreement specifically provides for the adjustment, change,
conversion, or exchange of the outstanding and unexercised options for
cash or other property or securities of another corporation, the
Committee shall adjust the shares under such outstanding and
unexercised options, and shall adjust the shares remaining under the
Plan which are then available for the issuance of options under the
Plan if the Reorganization Agreement for the adjustment, change,
conversion, or exchange of such options and shares.
(iii) The Committee shall provide to each Optionee then holding an
outstanding and unexercised Option not less than thirty (30) calendar
days' advance written notice of any date fixed by the Committee
pursuant to this Section 13 and of the terms of any Reorganization
Agreement providing for the adjustment, change, conversion, or
exchange of outstanding and unexercised Options. Except as the
Committee may otherwise provide, each Optionee shall have the right
during such period to exercise his Option only to the
6
<PAGE>
extent that the Option was exercisable on the date such notice was
provided to the Optionee.
(f) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, any outstanding and unexercised options shall
terminate as of a future date to be fixed by the Committee.
(g) No Adjustments to be Made. Except as expressly provided above, the
Company's issuance of shares of its capital stock of any class, or securities
convertible into shares of its capital stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Option shares subject to
CSOs granted hereunder or the purchase price of such shares.
10. Purchase for Investment.
Unless the Option Shares covered by this Plan have been registered under
the Act prior to issuance, each person exercising a CSO under this Plan may be
required by the Company to give a representation in writing that he is acquiring
such shares for his or her own account for investment and not with a view to, or
for sale in connection with, the distribution of any part thereof.
11. Effective Date and Expiration of this Plan.
This Plan shall be effective as of EFFECTIVE DATE, the date of its adoption
by the Board, and no CSO shall be granted pursuant to this Plan after its
expiration. This Plan shall expire on EXPIRATION DATE except as to CSOs then
outstanding, which shall remain in effect until they have expired or been
exercised.
12. Amendments or Termination.
The Committee or Board may amend, alter or discontinue this Plan at any
time in such respects as it shall deem advisable in order to conform to any
change in any other applicable law, or in order to comply with the provisions of
any rule or regulation of the Securities and Exchange Commission required to
exempt this Plan or any CSOs granted thereunder from the operation of Section
16(b) of the Exchange Act, or in any other respect not inconsistent with Section
16(b) of the Exchange Act; provided, that no amendment or alteration shall be
made which would impair the rights of any participant under any CSO theretofore
granted, without his consent (unless made solely to conform such CSO to, and
necessary because of, changes in the foregoing laws, rules or regulations), and
except that no amendment or alteration shall be made without the approval of
shareholders which would increase the total number of shares reserved for the
purposes of this Plan (except as provided in Paragraph 9) or extend the
expiration date of this Plan as set forth in Paragraph 11.
13. Government Regulations.
7
<PAGE>
This Plan, and the granting and exercise of CSOs hereunder, and the
obligation of the Company to sell and deliver Option Shares under such CSOs,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
14. Liability.
No member of the Board of Directors or the Committee, nor any officers,
employees or agents of the Company or any Affiliated Company shall be personally
liable for any action, omission or determination made in good faith in
connection with this Plan.
15. Options in Substitution for Other Options.
The Committee may, in its sole discretion, at any time during the term of
this Plan, grant new options to an employee under this Plan or any other stock
option plan of the Company on the condition that such employee shall surrender
for cancellation one or more outstanding options which represent the right to
purchase (after giving effect to any previous partial exercise thereof) a number
of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted option. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Company as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Company, or the acquisition by the
Company or an Affiliated Company of the assets of the employing corporation, or
the acquisition by the Company or an Affiliated Company of stock of the
employing corporation as the result of which such other corporation becomes an
Affiliated Company.
16. Withholding Taxes.
Pursuant to applicable federal and state laws, the Company may be required
to collect withholding taxes upon the exercise of a CSO. The Company may
require, as a condition to the exercise of a CSO, that the Optionee concurrently
pay to the Company the entire amount or a portion of any taxes which the Company
is required to withhold by reason of such exercise, in such amount as the
Committee or the Company in its discretion may determine. In lieu of part or all
of any such payment, the Optionee may elect to have the Company withhold from
the shares to be issued upon exercise of the option that number of shares having
a Fair Market Value equal to the amount which the Company is required to
withhold.
17. Other Definitions.
Whenever used in this Plan, except where the context might clearly indicate
otherwise, the following terms shall have the meanings set forth below:
a. "Act" means the U.S. Securities Act of 1933, as amended.
8
<PAGE>
b. "Affiliated Company" means any Parent or Subsidiary of the Company.
c. "Award" or "grant" means any grant of a CSO (Option) made under this
Plan.
d. "Board of Directors" means the Board of Directors of the Company. The
term "Committee" is defined in Section 2 of this Plan.
e. "Common Stock" or "Common Shares" means the common stock, $.001 par
value per share, of the Company, or in the event that the outstanding
Common shares are hereafter changed into or exchanged for different
shares or securities of the Company or any other issuer, such other
shares or securities.
f. "Date of Grant" means the day the Committee authorizes the grant of a
CSO or such later date as may be specified by the Committee as the
date a particular grant will become effective.
g. "Employee" means and includes the following persons: (i) executive
officers, officers and directors (including advisory and other special
directors) of the Company or an Affiliated Company, (ii) full-time and
part-time employees of the Company or an Affiliated Company (iii)
persons engaged by the Company or an Affiliated Company as a
consultant, advisor or agent; and (iv) a lawyer, law firm, accountant
or accounting firm, or other professional or professional firm engaged
by the Company or an Affiliated Company.
h. "Optionee" means an Employee to whom a CSO is granted.
i. "Parent" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of another
corporation qualifying as a Parent within this definition.
j. "Subsidiary" means a corporation more than 50% of whose total combined
capital stock of all classes is held by the Company or by another
corporation qualifying as a Subsidiary within this definition.
18. Litigation.
In the event that any Optionee or Optionee's successor should bring any
lawsuit or other action or proceeding ("Action") against the Company or an
Affiliated Company based upon or arising in relation to an Option, an Optionee,
or successor, as the case may be, not prevailing in such Action shall be
required to reimburse the Company or Affiliated Company's costs and expenses,
including reasonable attorneys' fees, incurred in defending such action and
appealing any award by a lower court.
19. Miscellaneous Provisions.
The place of administration of this Plan shall be in the State of Nevada
(or subsequently, wherever the Company's principal executive offices are
located), and the validity, construction, interpretation and effect of this Plan
and of its rules, regulations and rights
9
<PAGE>
relating to it, shall be determined solely in accordance with the laws of the
State of Nevada or subsequent state of domicile, should the Company be
redomiciled. Without amending this Plan, the Committee may issue Options and
Options Shares to employees of the Company who are foreign nationals or employed
outside the United States, or both, on such terms and conditions different from
those specified in this Plan but consistent with the purpose of this Plan, as it
deems necessary and desirable to create equitable opportunities given
differences in tax laws in other countries. All expenses of administering this
Plan and issuing Option and Option Shares shall be borne by the Company.
By signature below, the undersigned officers of the Company hereby certify
that the foregoing is a true and correct copy of the 1999 Compensatory Stock
Option Plan of the Company.
DATED: March 23, 1999
Reliant Interactive Media Corp.
By: /s/ By: /s/
- ---------------------------------- ----------------------------------
Authorized Officer Secretary
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<PAGE>
Reliant Interactive Media Corp.
----------------
CERTIFICATION OF PLAN ADOPTION
----------------
I, the undersigned Secretary of this corporation, hereby certify that the
foregoing Compensatory Stock Option Plan of this corporation was duly approved
by the requisite number of holders of the issued and outstanding common stock of
this corporation as of the date below.
Date of Approval: March 23, 1999
/s/
------------------------------
Secretary
11
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- --------------------------------------------------------------------------------
Attachment
Reliant Interactive Media Corp. Option List
- --------------------------------------------------------------------------------
<PAGE>
Reliant Interactive Media Corp.
Option List
<TABLE>
<CAPTION>
==============================================================================================================
Kevin Harrington Tim Harrington Mel Arthur
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Up to 60,000 shares for each Up to 40,000 shares for each six Up to 5,000 shares for each
six month period up to a total month period up to a total of six month period up to a total
of 240,000 shares. 160,000 shares. of 20,000 shares.
==============================================================================================================
</TABLE>
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective this 30th
day of June, 1999, by and between Reliant Interactive Media Corp. (the
"Employer"), and Mel Arthur (the "Employee").
PREMISES
a) Employee possesses expertise, experience and skill in the development
and marketing of products via electronic and other multi-media means.
b) Employee has demonstrated the ability to run, manage and build a
development stage business.
c) Employer desires to employ Employee to serve as its Executive Vice
President.
d) Employee desires to perform all of such services as Employer's employee
and both parties want to enter into a written agreement as to their
understanding of the employment relationship.
AGREEMENT
For and in Consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
ten (10) days following an applicable Termination Date and which shall be
equal to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in connection
with Employee's employment for reasonable and necessary expenses
incurred by Employee and approved by the Employer through the
Termination Date; and
(iii) All other payments and benefits to which Employee may be
entitled under the terms of any benefit plan of the Employer.
(b) "Board" shall mean the board of directors of the Employer.
(c) "Cause" shall mean any of the following:
(i) The engagement by Employee in fraudulent conduct, which has a
significant adverse impact on the Employer in the conduct of the
Employer's business;
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EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 2
(ii) Conviction of a felony involving a crime against the
Employer, as evidenced by a binding and final judgment, order or
decree of a court of competent jurisdiction.
(iii) Gross negligence or refusal by Employee to perform his
duties or responsibilities; or
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Confidential Information" means information (i) disclosed to or
actually known by Employee as a consequence of or through his/her
employment with the Employer, (ii) not generally known outside the
Employer, and (iii) which relates to the Employer's business. Confidential
Information includes, but is not limited to, information of a technical
nature, such as methods and materials, trade secrets, inventions,
processes, formulas, systems, computer programs, and studies, and
information of a business nature such as project plans, market information,
costs, customer lists, and so forth.
(f) "Disability" shall mean a physical or mental condition whereby
Employee is unable to perform on a full-time basis his customary duties
under this Agreement.
(g) "Developments" means all Inventions (defined hereafter), computer
programs, copyright works, mask works, trademarks, Confidential
Information, Works of Authorship (defined hereafter), and other
Intellectual Property (defined hereafter), made, conceived or authored by
Employee, alone or jointly with others, while employed by the Employer;
whether or not during normal business hours or on the Employer's premises,
that are within the present scope of the Employer's business at the time
such Developments are made, conceived, or authored, or which result from or
are suggested by any work Employee or others may do for or on behalf of the
Employer.
(h) "Employer" means Reliant Interactive Media Corp. and its
subsidiaries, divisions and affiliates as well as majority owned companies
of such subsidiaries, divisions and affiliates, or their successors or
assigns.
(i) "Invention" means discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to improvements,
know-how, data, processes, methods, formulae, and techniques, as well as
improvements thereof, or know-how related thereto, concerning any present
or prospective activities of the Employer which Employee makes, discovers
or conceives (whether or not during the hours of his engagement of with the
use of the Employer's facilities, materials or personnel), either solely or
jointly
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EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 3
with others during his engagement by the Employer or any affiliate and, if
based on or related or Proprietary Information, at any time after
termination of such engagement.
(j) "Intellectual Property" means Inventions, Confidential
Information, Works of Authorship, patent rights, trademark rights, service
mark rights, copyrights, know-how, Developments and rights of like nature
arising or subsisting anywhere in the world, in relation to all of the
foregoing, whether registered or unregistered.
(k) "Notice of Termination" shall mean the notice described in Section
13 hereof.
(l) "Person" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity, other than an employee
benefit plan of the Employer of an entity organized, appointed of
established pursuant to the terms of any such benefit plan.
(m) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a similar nature related to the
business of the Employer disclosed to the Employee or otherwise made known
to him as a consequence of or through his engagement by the Employer
(including information originated by Employee) in any technological area
previously developed by the Employer or developed, engaged in, or
researched, by the Employer during the term of Employee's engagement,
including, but not limited to, trade secrets, processes, products,
formulae, apparatus, techniques, know-how, marketing plans, data,
improvements, strategies, forecasts, customer lists, and technical
requirements of customers, unless such information is in the public domain
to such an extent as to be readily available to competitors.
(n) "Termination Date" shall mean, except as otherwise provided in
Section 12 hereof.
(i) Employee's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment on account of Disability pursuant
to Section 16 hereof, unless Employee returns on a full-time basis to
the performance of his duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by Employee
voluntarily; and
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EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 4
(iv) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by the Employer for
any reason other than death or Disability.
(o) "Termination Payment" shall mean the payment described in Section
14 hereof.
(p) "Works of Authorship" means an expression fixed in a tangible
medium of expression regardless of the need for a machine to make the
expression manifest, and includes but is not limited to, writings, reports,
drawings, sculptures, illustrations, video recordings, audio recordings,
computer programs, and charts.
2. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth.
3. Term. Subject to the terms and conditions of this Agreement, the term
of this Agreement shall commence retroactively from __________________, and end
on ___________________.
4. Duties. During the term of this Agreement, Employee shall be employed by
Employer as its Executive Vice President. In addition to the office of Executive
Vice President, Employee agrees to serve in such other office or position with
Employer or any subsidiary of Employer and as such shall, from time to time, be
determined by Employer's Board. Employee agrees to serve as a member of the
Employer's Board. Employee shall devote substantially all of his working time
and efforts to the business of Employer and its subsidiaries and shall not
during the term of this Agreement be engaged in any other substantial business
activities which will significantly interfere or conflict with the reasonable
performance of his duties hereunder.
5. Compensation.
(a) Salary. For all services rendered by Employee, Employer shall pay
to Employee a base salary of $3,500 per month, in bi-monthly installments.
Employee shall also be due a base salary from the time of the inception of
employment by Employer of the Employee to the date of this Agreement equal
to the same base salary rate. If Employer's financial constraints so
dictate, Employee agrees to defer a portion of the salary contained in this
Section. This deferred base salary along with any deferred base salary
earned prior to the date of this Agreement shall be paid to Employee at
such time or times as financial constraints so dictate. The rate of salary
may be increased at any time, as the Board may determine, based on
earnings, increased activities of the Employer, or such other factors as
the Board may deem appropriate from
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EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 5
time to time. Employee shall receive bonus or incentive compensation as
approved by the Board.
(b) Insurance Benefits. Employer shall provide health and medical
insurance for Employee in a form and program to be chosen by Employer for
certain of its full-time employees. Employer shall provide Employee with
directors and officers liability insurance in the amount of $2,000,000 and
life disability insurance in amounts approved by the Board.
(c) Other Benefits. On or about August 5, 1999, Employee shall be
issued 100,000 shares of Employer's stock as additional compensation for
his services. Employee shall be entitled to participate in any retirement,
pension, profit-sharing, or other plan as may be put in effect from time to
time by the Board, including the following:
(i) Qualified Stock Option Plan. Pursuant to a Qualified Stock Option
Plan authorized by the Board and approved by the Shareholders of
Employer, Employee shall have the option to purchase up to 5,000
shares of Employer's stock in six months at $2.50 per share, in 12
months at $4.00 per share, in eighteen months at $6.00 per share and
in twenty-four months at $7.50 per share;
(ii) Revenue Performance Bonuses. Employee shall be issued 100,000
shares of Employer's stock for each $10,000,000 in gross revenues (in
accordance with SEC Reg SX accounting rules) received by Employer with
a maximum of 900,000 shares to be issued; provided that no more than
1/6 of this stock can be vested in any six month period. However, the
first 100,000 shares cannot be vested prior to February 5, 2000, and
for this first issuance hereunder Employer must have received a
minimum of $20,000,000 in gross revenues; and
(iii) Stock Performance Options. Employee shall have the option to
purchase stock of Employer at $7.50 per share as follows: up to 12,500
shares if the public trading price close at a minimum of $15 per share
for five consecutive days; up to an additional 12,500 shares should
the public trading price close at a minimum of $20 per share for five
consecutive days; and up to an additional 15,000 shares if the public
trading price should close at a minimum of $25 for five consecutive
days.
(d). Automobile / Transportation. Emploer shall pay for Employee's
monthly automobile payment, not to exceed $500 per month, including
applicable insurance.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 6
6. Expenses. Employer will reimburse Employee for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items of Employee's periodic
presentation of an account of such expenses.
7. Working Facilities. Employer shall provide to Employee offices and
facilities appropriate to Employee's position and suitable for the performance
of Employee's duties as set forth in this Agreement.
8. Nondisclosure of Proprietary and Confidential Information. Recognizing
that the Employer is presently engaged, and may hereafter continue to be engaged
in the research and development of processes, the manufacturing of products or
performance of services, which involve experimental and inventive work and that
the success of the Employer's business depends upon the protection of the
processes, products and services by patent, copyright or by secrecy and that
Employee has had, or during the course of his engagement may have, access to
Proprietary and Confidential Information, as herein defined, of the Employer or
other information and data of a secret or proprietary nature of the Employer
which the Employer wishes to keep confidential and Employee has furnished, or
during the course of his engagement may furnish, such information to the
Employer, Employee agrees and acknowledges that:
(a) The Employer has exclusive property rights to all Proprietary and
Confidential Information and Employee hereby assigns all rights he might
otherwise possess in any Proprietary and Confidential Information to the
Employer. Except as required in the performance of his duties to the
Employer, Employee will not at any time during or after the term of his
engagement, which term shall include any time in which Employee may be
retained by the Employer as a consultant, directly or indirectly use,
communicate, disclose or disseminate any Proprietary or Confidential
Information of a secret, proprietary, confidential or generally undisclosed
nature relating to the Employer, its products, customers, processes and
services, including information relating to testing, research, development,
manufacturing, marketing and selling.
(b) All documents, records, notebooks, notes, memoranda and similar
repositories of, or containing, Proprietary and Confidential Information or
any other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Employer or its operations and
activities made or compiled by Employee at any time or made available to
him prior to or during the term of his engagement by the Employer,
including any and all copies thereof, shall be the property of the
Employer, shall be held by him in trust solely for the benefit of the
Employer, and shall be delivered to the Employer by him on the termination
of his engagement or at any other time on the request of the Employer.
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 7
(c) Employee will not assert any rights under any inventions,
trademarks, copyrights, discoveries, concepts or ideas, or improvements
thereof, or know-how related thereto, as having been made or acquired by
him during the term of his engagement if based on or otherwise related to
Proprietary or Confidential Information.
9. Assignment Of Inventions.
(a) All Inventions shall be the sole property of the Employer, and
Employee agrees to perform the provisions of the Section 9 with respect
thereto without the payment by the Employer of any royalty or any
consideration therefor other than the regular compensation paid to Employee
in the capacity of any employee or consultant.
(b) Employee shall apply, at the Employer's request and expense, for
United States and foreign letters patent or copyrights either in Employee's
name or otherwise an the Employer shall desire.
(c) Employee hereby assigns to the Employer all of his rights to such
Inventions, and to applications for United States and/or foreign letters
patent or copyrights and to United States and/or foreign letter patent or
copyrights granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Employer,
without charge to the Employer, but at its expense, such written
instruments (including applications and assignments) and do such other
acts, such as giving testimony in support of Employee's inventorship, as
may be necessary in the opinion of the Employer to obtain, maintain,
extend, reissue and enforce United States and/or foreign letters patent and
copyrights relation to the Inventions and to vest the entire right and
title thereto in the Employer of its nominee. Employee acknowledges and
agrees that any copyright developed or conceived of, by Employee during the
term of his employment which is related to the Business of the Employer
shall be a "work for hire" under the copyright law of the United States and
other applicable jurisdictions.
(e) Employee represents that his performance of all the terms of this
Agreement and as an employee of or consultant to the Employer does not and
will not breach any trust prior to his employment by the Employer. Employee
agrees not to enter into any agreement either written or oral in conflict
herewith and represents and agrees that he has not brought and will not
bring with to the Employer or use in the performance of his
responsibilities at the Employer any materials or documents of a former
employer which are not generally available to the public, unless he has
obtained written authorization from the former employer for their
possession and use, a copy of which has been provided to the Employer.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 8
(f) No provisions of the Paragraph shall be deemed to limit the
restrictions applicable to Employee under Section 8 and 9.
10. Shop Rights.
The Employer shall also have the royalty-free right to use in its business,
and to make, use and sell products, processes and/or services derived from any
inventions, discoveries, concepts and ideas, whether or not patentable,
including but not limited to processes, methods, formulas and techniques, as
well as improvements thereof or know-how related thereto, which are not within
the scope of Inventions as defined herein but which are conceived of or made by
Employee during the period he is engaged by the Employer or with the use or
assistance of the Employer's facilities, materials or personnel.
11. Non-Compete.
Employee hereby agrees that during the term of this Agreement Employee will
not:
(a) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, own,
manage, operate, or control any business of the type and character engaged
in and competitive with the Employer or any subsidiary thereof. For
purposes of this paragraph, ownership of securities of not in excess of
five percent (5%) of any class of securities of a public employer listed on
a national securities exchange or on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) shall not be considered to be
competition with the Employer or any subsidiary thereof;
(b) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, act as, or
become employed as an officer, director, employee, consultant or agent of
any business of the type and character engaged in and competitive with the
Employer or any of its subsidiaries;
(c) Solicit any similar business to that of the Employer's for, or
sell any products that are in competition with the Employer's products to
which is, as of the date hereof, a customer or client of the Employer or
any of its subsidiaries, or was such a customer or client thereof within
two years prior to the date of this Agreement; or
(d) For up to six months following the termination of this Agreement,
solicit the employment of, or hire, any full time employee employed by the
Employer or its subsidiaries as of the date of termination of this
Agreement.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 9
12. Termination. Employer may not terminate this Agreement during its term
without Cause as defined herein. If this Agreement is terminated without Cause,
Employee shall be entitled to the Termination Payments set forth in Section 14
hereof. Any termination by Employer of Employee of Employee's employment during
the term hereof shall be communicated by written Notice of Termination to
Employee, if such Notice of Termination is delivered by the Employer, and to the
Employee, if such Notice of Termination is delivered by Employee, all in
accordance with the following procedures:
(a) The Notice of termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances alleged to provide a basis for
termination;
(b) Any Notice of Termination by the Employer shall be approved by a
resolution duly adopted by a majority of the members of the Employer;
(c) If Employee shall provide the president or chief executive officer
with a Notice of Termination at least 30 days prior to leaving the
employment of the Employer. Upon the end of the thirty days, all
compensation provisions of this Agreement shall cease.
13. Termination Upon Transfer of Business. Notwithstanding any provision
this Agreement to the contrary, Employee may terminate this Agreement upon the
happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the sale, exchange, or other disposition to a single
entity or group of entities under common control in one transaction or series of
related transactions of greater than 50% of the outstanding shares of Employer's
common stock; (c) the decision by Employer to terminate its business and
liquidate its assets; or (d) the merger or consolidation of Employer in a
transaction in which the shareholders of the Employer immediately prior to such
merger or consolidation receive less than 50% of the outstanding voting shares
of the new or continuing corporation. In the event Employee does not elect to
terminate this Agreement upon the happening of any of the events noted above,
and as a result of such event, Employer is not the surviving entity, then the
provisions of this Agreement shall inure to the benefit of and be binding upon
the surviving or resulting entity. If as a result of the merger, consolidation,
transfer of assets, or other event listed above, the duties of Employee are
increased, then the compensation of Employee provided for in paragraph 5 of this
Agreement shall be reasonably adjusted upward for the additional duties and
responsibilities assumed.
14. Termination Payments. In the event the Employee's employment is
terminated by the Employer during the term hereof for reasons other than Cause,
as defined herein, Employee shall be paid any sums owed under this Agreement,
including but not limited to any salary, any deferred compensation, accrued
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 10
benefits, bonuses and options, and for any potential actions for breach of this
Agreement by Employer. Other than any payments set forth in this Section 14,
Employment shall be entitled to no further compensation nor any other payments
after termination. Employee shall receive no further payments if terminated for
Cause other than Accrued Benefits.
15. Death During Employment. If Employee dies during the term of this
Agreement, Employer shall have no further obligations to pay Employee other than
any Accrued Benefits.
16. Illness or Incapacity. If Employee is unable to perform Employee's
services by reason of illness or incapacity for a period of more than two (2)
consecutive months, the compensation thereafter payable to Employee during the
next two (2) consecutive months shall be 50% of the compensation provided for
herein. During such period of illness or incapacity, Employee shall be entitles
to receive incentive compensation if any. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within a four (4) consecutive
month period, Employee shall not be entitled to receive any further compensation
nor any payments for such illness or incapacity, and Employer may terminate this
Agreement without further liability to Employee. Any existing options to
purchase Employer's common stock held by Employee at the time termination shall
be governed by the terms of the option and not affected by this provision. At
the termination of such illness or incapacity, Employee shall be entitled to
receive Employee's full compensation payable pursuant to the terms of this
Agreement.
17. Nontransferability. Neither Employee, Employee's spouse, Employee's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement. Such
payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
18. Indemnification. Employer shall indemnify Employee and hold Employee
harmless from liability for acts or decisions made by Employee while performing
services for Employer to the greatest extent permitted by applicable law.
Employer shall use its best efforts to obtain coverage for Employee under any
insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer against such liability.
19. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
20. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of employee by employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 11
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by the
parties to this Agreement.
21. Enforcement. Each of the parties to this Agreement shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party. Employee hereby specifically
acknowledges and agrees that a breach of the agreements, covenants and
conditions of this Agreement will cause irreparable harm and damage to the
Employer, that the remedy at law, for the breach or threatened breach of this
Agreement will be adequate, and that, in addition to all other remedies
available to the Employer for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be entitled
to injunctive relief for any breach or threatened breach of this Agreement.
22. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
23. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
24. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
25. Litigation Expenses. In the event that it shall be necessary or
desirable for the Employee or Employer to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
provisions of this Agreement, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees, costs, and expenses incurred by
the prevailing party in connection with the enforcement of this Agreement.
Payment shall be made upon the conclusion of such action.
26. Survivability. The provisions of Section 8, 9, 10, 11 and 12 shall
survive termination of this Agreement.
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 12
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER: EMPLOYEE:
Reliant Interactive Media Corp.
By: /s/ By: \s\
- ---------------------------------- --------------------------------
Duly Authorized Officer Mel Arthur
