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Tim Harrington
PRESIDENT
Reliant Interactive Media Corporation
2701 North Rocky Point Dr., Suite 200, Tampa FL 33607
(Name and Address of Person Authorized to Receive Notices
and Communications on Behalf of the Person Filing Statement)
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WITH A COPY TO:
KARL E. RODRIGUEZ, ESQ
34700 Pacific Coast Highway, Suite 303
Capistrano Beach, CA 92624
(949) 248-9561
fax (949) 248-1688
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14C OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary information statement
[_] Confidential, for use of the Commission only (as permitted by Rule
14c-6(d)(2))
[X] Definitive information statement
Reliant Interactive Media Corporation
(Name of Registrant as specified in Its Charter)
Payment of filing fee (check the appropriate box):
[_] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number or the
form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) date filed:
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TABLE OF CONTENTS
I. LETTER TO RELIANT SHAREHOLDERS 3
II. SUMMARY TERM SHEET 4
A. Parties Involved 4
B. Key Terms of the Transaction 4
C. Reasons For Engaging in This Transaction 6
D. Consideration Offered to Security Holders 7
E. Vote Required For Approval of the Transaction 8
F. Federal Tax Consequences of the Transaction 8
III. THE PLAN OF REORGANIZATION 9
A. Background Of The Offer And The Plan Of Reorganization 9
B. The Parties to the Agreement and Plan of Reorganization 11
C. Mergers, Consolidation, Acquisitions and Similar Matters 12
- Material Terms of Agreement and Plan of Reorganization 12
D. Recommendation And Reasons of the Reliant Board For Engaging in the
Transaction. 13
E. Material Terms of Agreement and Plan of Reorganization 16
F. Regulatory Approvals Required 20
G. Federal Tax Consequences of the Transaction 20
H. Consideration Offered To Security Holders 21
IV. GENERAL INFORMATION 22
A. Date, Time, and Place Information 22
B. Dissenter's Rights of Appraisal 22
C. Voting Securities and Principal Holders thereof 23
D. Stock Ownership and Certain Beneficial Owners and Management 24
E. Directors and Executive Officers 25
F. Compensation of Directors and Executive Officers 27
G. Ratification of Independent Public Accountants 31
H. Compensation Plan 31
I. Amendments of Charter, Bylaws or Other Documents 31
V. EXHIBITS 33
Annex A. Plan of Reorganization Agreement between Reliant,
AsSeenOnTVpc.com, Inc., the Shareholders of AsSeenOnTVpc.com, and TSIG 34
Annex B. Nevada State Statutes - Dissenter's Rights 64
Annex C. 1999 Annual Report for Reliant on Form 10-KSB 72
Annex D. June 30, 2000 Quarterly Report for Reliant on Form 10-QSB 129
Annex E. August 31, 2000 Unaudited Financial
Statements for AsSeenOnTVpc.com 156
Annex F. Employment Agreement with Kevin Harrington 165
Annex G. Employment Agreement with Tim Harrington 175
Annex H. Employment Agreement with Mel Arthur 185
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Reliant Interactive Media Corp.
2701 N. Rocky Pointe Dr., Suite 200,
Tampa, FL 33607
October 2, 2000
Dear Shareholder:
The enclosed information statement is being furnished to shareholders of record
on June 26, 2000, of Reliant Interactive Media Corp. ("We", "Our"), a Nevada
corporation in connection with the following actions taken by written consent of
holders of a majority of the outstanding shares of our common stock entitled to
vote on the following proposals:
1. To transfer all of our property and assets to As SeenOnTVpc.com, Inc.
("ASOT"), a majority owned subsidiary, subject to satisfaction of the terms and
conditions set forth in the attached Agreement and Plan of Reorganization (see
Annex A of Information Statement).
2. To change our corporate name to Interactive Holding Corp.
3. To cancel executive management's 1999 Compensatory Stock Option Plan.
4. To elect Kevin Harrington, Tim Harrington, Mel Arthur and Karl Rodriguez
to serve as our board of directors until our next annual meeting.
5. To ratify the appointment of H.J. & Associates, LLC. (formerly known as
"Jones, Jensen Co. LLC") as our auditors.
WE ARE NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Our board of directors has fully reviewed and unanimously approved the
actions in connection with the above referenced Agreement and Plan of
Reorganization and has determined that the consideration to our shareholders is
fair for our transfer of assets to ASOT.
Holders of approximately 50.5% of our common stock have executed a written
consent in favor of the proposals described herein. However, under federal law
these proposals will not be effected until at least 20 days after this
Information Statement has first been sent to stockholders.
By Order of the Board of Directors,
/s/Kevin Harrington
Kevin Harrington, Chairman and CEO
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The date of this Information Statement is October 2, 2000.
II. SUMMARY TERM SHEET
This Summary Term sheet highlights selected information from this
Information Statement and may not contain all the information that is important
to you. If you wish to understand the transaction fully, you should carefully
read this entire Information Statement and the documents to which it refers. An
Agreement and Plan of Reorganization ("POR") is attached as Annex A to this
Information Statement. It is the definitive legal document that governs the
transaction.
A. THE PARTIES:
Reliant Interactive
Media Corp ("Reliant",
"We", "Our", "Us"): We are a Nevada Corporation engaged in direct
marketing of various consumer products. We market
these products primarily through long-form
commercials that we produce and air on
television, through our web sites and in-store
retail outlets.
AsSeenOnTVpc.com, Inc.
("ASOT"): This is a private Nevada corporation to which the
assets and business of Reliant will be
transferred in connection with the POR.
TeleServices Internet Group,
Inc. ("TSIG"): This company ("TSIG") is a Florida corporation
engaged in the business of developing customized
marketing programs. They have various partnership
agreements utilizing their proprietary "my Card"
programs. TSIG is a public company whose
securities trade on the Over the Counter Bulletin
Board (OTCBB: TIGI). TSIG has also entered
Into a definitive agreement to acquire The
Affinity Group, Inc., an affinity marketing and
sales company. On August 24, 200, TSIG acquired
a controlling interest in GeneralSearch.com, Inc,
a private company that operates an internet
search engine/portal.
(See Section III, Item B)
B. KEY TERMS OF THE PLAN OF REORGANIZATION
Overview: o The assets, liabilities and business
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operations of Reliant will be transferred to ASOT
in exchange for 7,448,821 shares of TSIG stock.
o TSIG will acquire 10,448,821 shares of ASOT stock in
exchange for 8,000,000 shares of TSIG common stock.
7,448,821 shares of the ASOT stock are owned by
Reliant. Reliant's four officers and directors, who
are also the officers and directors of ASOT, own the
remaining 3,000,000 shares of ASOT stock.
o Our shareholders of record on June 26, 2000, the date
of the first public announcement of the proposed
transaction, will receive a pro-rata distribution of
TSIG stock. For each share of Reliant stock owned on
that date, there will be a distribution of 7656366
shares of TSIG stock. The number of TSIG shares
distributed to each shareholder will be rounded
down to the nearest whole number, and the aggregate
of the fractional shares will be held by Reliant.
o TSIG has agreed to registration rights for the
exchange shares issued for the acquisition of ASOT.
A registration statement will be filed with the SEC
as soon as practicable after the closing of the
transaction to register these shares.
o Shareholders of Reliant will retain their same equity
in Reliant and will not be required to surrender
these shares in exchange for the TSIG shares
received. It is expected, but is not a certainty,
that Reliant may enter into another business
combination in the future with a private company
seeking to become a public company.
Other Material
Considerations: o ASOT will operate as a wholly owned subsidiary of
TSIG and will be provided funding by TSIG of up
to $10,000,000. Pursuant to the signing of an amended
POR on September 7, 2000, we received a bridge loan
of $679,092 from GeneralSearch.com, Inc. and will
receive an additional loan of $800,000 from TSIG
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upon effectuation of the POR. The remaining funding
will be made pursuant to an agreed upon funding
schedule.
o Kevin Harrington, Tim Harrington and Mel Arthur have
agreed to enter into employment agreements with ASOT
and TSIG for three years.
Additional Conditions
for Closing: o The closing of the acquisition of ASOT was contingent
upon the closing of the acquisitions of GeneralSearch
com, Inc. and The Affinity Group, Inc. The
acquisition of control of GeneralSearch.com, Inc.
has been completed, and it is expected that the
closing of The Affinity Group, Inc.acquisition will
be made upon the completion of its audit.
Registration Rights: o As soon as practicable a registration statement
will be filed with the SEC to register the TSIG
shares that are received in exchange for the
ASOT shares.
(See Section III, Item E)
C. REASONS FOR ENGAGING IN THIS TRANSACTION
o On June 21, 2000, the date of signing the Agreement
and Plan of Reorganization with TSIG, our stock price
was approximately $1.31 per share and on September 7,
2000, the date of the amended POR,the stock price was
$0.87. On June 21 and September 7, 2000, TSIG's
stock closed at $2.12 and $1.22 respectively. Our
average daily trading volume for the three-month
period prior to signing the POR on June 21 was
approximately 25,000 shares per day, compared to
approximately 750,000 shares per day for TSIG for
this same period. It is the belief of our Board of
Directors that the TSIG stock represents fair value
to the Reliant shareholders and will be more liquid
in the market because of its trading volume than is
our "thinly-traded" stock. No third party evaluation
or fairness opinion has been obtained to support
these reasons.
o We have had limited success in raising additional
capital for our operations. It has been previously
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reported that we entered into agreements with an
investment banking firm to provide a $2,000,000
private placement and a $10,000,000 secondary
offering of our stock. In six months only $1,000,000
was raised in that private placement. The Board was
doubtful that additional capital could be raised in
the private placement or secondary offering. TSIG
has committed a minimum of $10 million
to fund the operations of ASOT upon effectiveness of a
registration statement relating to a $125 million
equity line of credit to be secured by TSIG. TSIG has
entered into an agreement with an investment banking
firm that will serve as a placement agent for the $125
million line of credit on a best effort basis. We do
not believe that we can adequately grow our business
without this additional capital.
o The Board is further of the opinion that the
potential of the combined entities that are to be
acquired by TSIG represents a greater opportunity for
growth, profitability and shareholder value than we
can realize independently. This opinion is based
upon (i) Our dependence on costly external capital
that prevents our profits and growth from being
maximized; (ii) A belief that TSIG has constructed
a sufficiently capitalized business model for a
successful and profitable internet company; (iii)
A belief that our marketing ability can greatly
enhance the growth of TSIG to the ultimate benefit of
our shareholders. (for a successful and profitable
internet company); and (iv) A determination that the
multiples for public internet search engine stocks is
significantly in excess of the multiples for public
companies that produce long-form commercial
programming.
(See Section III, Item D)
D. CONSIDERATION OFFERED TO SECURITY HOLDERS
o Reliant shareholders who own shares at the record
date of June 26, 2000, will receive .7656366
shares of TSIG stock for each Reliant share
owned, or they may exercise dissenter's rights
under Nevada law and receive the fair cash value for
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their Reliant shares.
(See Section III, Item H)
E. VOTE REQUIRED FOR APPROVAL OF TRANSACTION
o Nevada Rev. Stat. Ann. Section 78.565 provides
that the sale of all of the assets of a corporation
may be approved upon such terms and conditions as its
board of directors may deem expedient and for the
best interests of the corporation when authorized
by a vote of the holders of a majority of the stock.
Section 78.320 of the Nevada law permits stockholders
To approve such an action by written consent
without the necessity of a shareholders meeting.
Both approvals have been made.
(See Section IV, Item B)
F. FEDERAL TAX CONSEQUENCES OF THE TRANSACTION
o The transaction between Reliant, ASOT and TSIG
appears to meet the Internal Revenue Code
requirements for a tax free reorganization. The
transaction is considered to be a forward triangular
merger in which there is no gain or loss recognized
for the parties. In addition, there should be no
taxable gain for our shareholders, but each
shareholder should rely upon independent tax advice.
(See Section III, Item G)
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RELIANT INTERACTIVE MEDIA CORP.
2701 North Rocky Point Drive, Suite 200, Tampa, FL 33607
INFORMATION STATEMENT PURSUANT TO
SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND
RULE 14C PROMULGATED THERETO
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE NOT REQUESTED TO SEND US A PROXY.
III. THE PLAN OF REORGANIZATION
A. BACKGROUND OF THE OFFER AND THE PLAN OF REORGANIZATION
Over the course of the first part of the year 2000 we were in discussions
with two groups ("Group 1" and "Group 2") that expressed an interest in a
business combination with our company. Both of these groups required that we
keep our discussions confidential. We were open to these discussions because
our efforts to raise funds in a private placement by Institutional Equity
Corporation ("IEQ") were not proceeding as quickly as we had expected.
In November of 1999 we had signed engagement letters with IEQ for a $2,000,000
private placement of our common stock and a firm commitment to raise an
additional $10,000,000. Because it took nearly six months to raise $1,000,000
in our private placement, the Board of Directors had serious reservations as to
whether we could be successful in raising the $10,000,000.
Group 1 with whom we met had an interest in acquiring our company to be the
marketing arm of a proposed e-commerce based company. This group was in
negotiations to form an alliance initially in India and China to conduct various
marketing efforts via television and the Internet. This group was in the
formative stages and intended to take our company private and then proposed to
proceed with an initial public offering. While we liked the potential of the
business plan of Group 1, we never received a written offer from them for
consideration.
Group 2 proposed a business combination with a private company that operated in
our same industry. The business combination also involved several other related
businesses involved in marketing products to consumers. A private investment
company had previously acquired a substantial interest in this private company.
This private investment company proposed to provide financing to Reliant if this
business combination ware completed.
Our initial discussions with Group 2 again involved taking our company private
and eventually doing an initial public offering. The discussions then evolved
to the concept of doing what is known as a "reverse merger". The discussions
were such that we would issue to the shareholders of Group 2's private company
enough stock that they would own approximately 80% of our company. There were
discussions that this ownership split might be adjusted slightly based upon our
relative performance with the private company.
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Our management team was very familiar with the management and operations of
Group 2's private company. We were seriously evaluating the advantages of this
business combination but had concerns as to the relative valuations of our two
companies. We also had concerns as to several post-combination management
issues.
About the time we were considering signing an agreement with Group 2's private
company in early June of this year, our executive management had a meeting with
Scott Roix and Vance Vogel, the principals of The Affinity Group, Inc.
("Affinity Group"). The Affinity Group was based in St. Petersburg, Florida,
only minutes from our Tampa office. Kevin Harrington, Tim Harrington and Mel
Arthur, our management team, met with the principals of the Affinity Group at
their offices to consider doing business with them. The Affinity Group has an
operation that handles outbound and inbound telephone calls for sales and
customer service of various products and services. As part of the inbound call
operations, The Affinity Group has a "Buying Club" that features the sales of
vacation packages. We had been using the services of a similar company in
Arizona, and it was appealing to do business with a local company.
In the course of this meeting we learned that the Affinity Group had entered
into an agreement to be acquired by TSIG, another St. Petersburg company. We
mentioned that we were in serious negotiations for a possible reverse
acquisition. The principals of the Affinity Group related to us that TSIG had
also agreed to acquire GeneralSearch.com, Inc., a search engine/portal, and that
TSIG had secured a commitment for $125,000,000 in financing from a major
investment banking firm. On learning more about what we did and the growth that
we were experiencing, the principals of the Affinity Group encouraged us to meet
with Rob Gordon, the Chairman of the Board of TSIG. These gentlemen from the
Affinity Group spoke with Mr. Gordon about our business and arranged a meeting
for the next day at the offices of TSIG between him and our management team.
In the course of the meeting at TSIG's offices, Mr. Gordon discussed TSIG's
business plan. It was TSIG's vision to make GeneralSearch.com a leading search
engine/portal by bringing to them users at virtually no acquisition costs
through various affinity relationships that they had established. This closely
paralleled our concept of driving customers to our websites at very little cost
through the promotion of our websites in the long-form commercials that we
produced.
GeneralSearch.com was represented to have over 100,000,000 links and to be one
of the most accurate search engines in the industry after several years of
development. In addition to offering free Internet access, free e-mail and free
fax services through a contract with First-up, GeneralSearch.com also filters
out virtually all adult-oriented pornographic content. GeneralSearch.com also
had over 900 alliances (now 1100) with various e-commerce businesses that
provided revenue sharing arrangements.
TSIG's concept was to bring users to GeneralSearch.com through various alliances
that they had developed along with the marketing efforts of the Affinity Group.
TSIG, for example, had been chosen as the technology partner by UCP, a
charitable organization that had one of the largest memberships in the country.
TSIG had developed similar relationships with many school-based organizations.
TSIG's concept was to bring GeneralSearch.com's family oriented search engine
with its various free Internet services to the members of these affinity groups.
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Mr. Gordon related that public search engine/portal companies were generally
valued as a multiple of their registered users, and that the public companies in
this business all had a market capitalization in excess of $1 billion at that
time.
After Mr. Gordon learned more about our business, particularly with respect to
the growth we were experiencing in selling computers through our long-form
commercial productions, he asked that we hold off making any commitments for a
business combination with other parties. Mr. Gordon expressed to our management
team that he believed there were many synergies between our company and the
business combination that TSIG was putting together. Within two days of this
meeting, we were presented with a non-binding letter of intent whereby our
assets would be acquired by TSIG. This letter of intent was subject to mutually
satisfactory due diligence examinations.
We commenced our due diligence immediately by reviewing the public filings of
TSIG via the EDGAR system. In addition, meetings were conducted within the week
between our management and our legal counsel and representatives of TSIG and
GeneralSearch.com. These meetings were conducted over several days at the
offices of TSIG and Reliant and included the presence of Rob Gordon and Jeff
Bruss, the Chairman of the Board of GeneralSearch.com.
Upon completion of these meetings our general legal counsel prepared a
Definitive Agreement and Plan of Reorganization ("POR") that was executed by
facsimile copy on June 21, 2000. The POR was amended on September 7, 2000 to
increase from 3,500,000 to 8,000,000 the number of shares of TSIG stock being
issued for the acquisition of ASOT. TSIG agreed to issue the additional shares
of TSIG stock due to its lower market price.
B. PARTIES TO THE AGREEMENT AND PLAN OF REORGANIZATION
Reliant Interactive Media Corp.
----------------------------------
Additional information about our company can be found in our annual report
filed on Form 10-KSB and our interim report for the period ending June 30, 2000
filed on Form 10-QSB. These reports are attached as Annex C and Annex D
respectively.
AsSeenOnTVpc.com, Inc. ("ASOT")
---------------------------------
ASOT is a private Nevada corporation formed on February 10, 2000. Its
shareholders are Kevin Harrington, Tim Harrington and Mel Arthur, each of who
own 900,000 shares, and Karl Rodriguez, who owns 300,000 shares. These shares
were issued for services rendered and other considerations. ASOT has no other
assets and liabilities.
TeleServices Internet Group, Inc. ("TSIG")
----------------------------------------------
TSIG is a full reporting public company whose securities trade on the Over
the Counter Bulletin Board ("OTCBB") un the symbol: TIGI. Attached as Annex D
are TSIG's audited financial statements for the years ending December 31, 1999
and 1998 and as Annex E is a copy of TSIG's most recently filed periodic report
for the quarter ending June 30, 2000. Additional information on TSIG can be
found in its public filings that can be accessed electronically by means of the
SEC's home page on the Internet at http://www.sec.gov or at other Internet sites
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such as http://www.freeedgar.com, as well as by such other means from the
offices of the SEC as detailed herein with respect to Reliant's public filings
C. MERGERS, CONSOLIDATION, ACQUISITIONS AND SIMILAR MATTERS
- MATERIAL TERMS OF AGREEMENT AND PLAN OF REORGANIZATION
The Agreement and Plan of Reorganization ("POR") among TSIG, ASOT, and the
stockholders of ASOT, attached hereto as Annex A, is the governing document for
this transaction. To understand this transaction completely the POR should be
read in its entirety. Information about Reliant is provided in its annual
report for 1999 filed on Form 10-KSB and in its Form 10-QSB for the period
through June 30, 2000, copies of which are attached as Annex C and Annex D
respectively.
1. EXECUTIVE OFFICES OF PARTIES
RELIANT AND ASOT share the same executive offices at 2701 Rocky Point
Drive, Suite 200, Tampa, FL 33607, telephone 813-282-1717, and fax 813-282-0045.
TSIG'S executive offices are located at 100 2nd Avenue South, Suite 1000, St.
Petersburg, FL 33701, telephone 727-894-4000.
2. ABOUT TSIG'S BUSINESS
Headquartered in St. Petersburg, Florida, TeleServices Internet Group Inc.,
known as TSIG.com, has recently acquired GeneralSearch.com, an Internet search
engine and portal, and has entered into agreements to acquire The Affinity
Group, an affinity marketing and sales company, and Reliant Interactive Media, a
direct marketing company that drives retail sales via television and the
Internet. TSIG.com forms myCard partnership agreements with national
corporations and non-profit organizations, and then works with those partners to
design revenue-generating programs that attract consumers to their Web sites.
One such national corporation that is sponsoring the myCard program in a college
football promotion is Coca Cola. The first myCard program was myMusicCard, which
enables consumers to purchase CDs and cassettes at the lowest available prices.
Similarly TSIG.com's myPhotoCard programs provide low-cost film processing and
Kodak Film, and the myPhoneCard programs provide low-cost prepaid long-distance
calling card services. These customized marketing programs are intended to
provide recurring revenues to TSIG.com and its partners, and help develop strong
brand loyalty and awareness within target communities. TSIG.com further
enhances its myCard programs by providing customer service and support with its
Web-based call center and related services. With non-profits, TSIG.com is
engaged in "cause-related marketing" and has a "volunteer sales force" of
millions generating sales and driving traffic to Internet sites for the lowest
customer acquisition cost in the business. TSIG.com is the national marketing
partner of UCP, the nation's largest non-profit health care organization and
leader in the disability field, which each year serves over 1 million people
with disabilities in the United States. TSIG.com's corporate web site is at
www.tsig.com and the myMusicCard web site is at www.mymusiccard.com.
--------- --------------------
ABOUT GENERALSEARCH.COM, INC.
GeneralSearch.com, Inc., is a private company that was formed in 1998 to
enhance the individual's Internet experience. GeneralSearch.Com is an Internet
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portal with one of the most powerful and accurate search engines on the
Internet, with access to a database of more than 100 million links. The search
engine is family-oriented, with filters that eliminate virtually all
adult-oriented content, while still providing the most accurate search results
available on the Internet.
GeneralSearch.com also has more than 1000 Internet-based affiliates, including
Office Max, Stamps.com and other popular sites. GeneralSearch.com offers free
Internet access for life, free e-mail, fax, integrated messaging and other
services. GeneralSearch.com is located in West Chicago, IL. The company can be
reached by e-mail at [email protected]. The company's website is at
www.GeneralSearch.Com.
3. SUMMARY OF TRANSACTION
a. Terms of Transaction.
Twenty days after the mailing of this information statement to our
shareholders, all of the assets, liabilities and business operations of Reliant
will be transferred to ASOT for 7,448,821 shares of ASOT stock. After this
transfer all of the issued and outstanding shares of ASOT will be transferred to
TSIG in exchanges for 8,000,000 shares of TSIG stock. ASOT will continue the
business operations of Reliant as a wholly owned subsidiary of TSIG. The share
ownership of ASOT prior to this transfer will be as follows:
Reliant 7,448,821
Kevin Harrington 900,000
Tim Harrington 900,000
Mel Arthur 900,000
Karl Rodriguez 300,000
--------------- -------
TOTAL 10,448,821
Details of the POR are set forth in Section E that follows. The following
is a summary of the key provisions of this transaction:
o TSIG has agreed to provide funding of up to
$10,000,000 to ASOT pursuant to a budget mutually
agreed upon by the parties. Upon effectiveness
of a registration statement relating to a $125
million equity line of credit to be secured by
TSIG, TSIG shall fund to ASOT the sum of $5,000,000
for the uses provided in the budget that has been
provided and approved by the parties. TSIG shall use
its commercially reasonable best efforts to cause such
a registration statement to become effective as soon
as practicable and to provide $2,500,000 of this
funding to ASOT within thirty (30) days after the
registration statement related to such equity line
of credit becomes effective, and to provide the
remaining $2,500,000 of this funding to ASOT within
sixty (60) days after the registration statement
becomes effective. The budget for the remaining
$5,000,000 in funding has not yet been developed.
o Additionally, GeneralSearch.com, Inc has funded a loan
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of $679,092 to Reliant. This loan is secured by the
inventory of products to be manufactured for sale on
the QVC Shopping Network. $800,000 will be loaned to
ASOT by TSIG upon effectuation of the POR and is to
be repaid from funding received as per the commitment
to provide up to $10,000,000 to ASOT.
o Kevin Harrington will be elected to the Board of
Directors of TSIG.
o The Board of Directors of ASOT cannot be changed by
TSIG for three years.
o Kevin Harrington, Tim Harrington and Mel Arthur
will have three-year employment agreements with TSIG
and ASOT.
o TSIG shall not dispose of, liquidate or merge ASOT for
at least six months after closing.
o TSIG will assist in filing a registration statement
with the SEC to register the 8,000,000 TSIG shares
received in the exchange.
In connection with this transaction our name will be changed to Reliant
Holding Corp. It is anticipated that the name of ASOT will be changed to
Reliant Interactive Media Corp. Shareholders of Reliant will continue to be
shareholders of the company after the transfer of assets to ASOT and will not be
required to surrender their shares when a distribution of TSIG shares is made.
Reliant shareholders will receive .765366 shares of TSIG stock for each share of
Reliant stock owned on the record date of June 26, 2000. The 3,000,000 shares
of ASOT stock were issued to its founders, who also comprise our Board of
Directors, for services and other considerations. As previously disclosed in
the section entitled "Compensation of Directors and Executive Officers", the
executive officers of Reliant have deferred certain compensation and the
exercise of stock options. A total of $970,770 of executive compensation has
been deferred. Through June 30, 2000, executive management had the right to
exercise options on 210,000 shares of Reliant stock. In addition executive
management had stock grants for approximately 1,168,000 shares due to them based
upon company revenues for the first six months of the year. Further stock grants
have continued to accrue based on revenues since the end of Reliant's second
fiscal quarter. The Board of Reliant determined to issue the 3,000,000 shares in
ASOT in lieu of executive management agreeing not to take the deferred
compensation and other stock awards referenced above. Executive management of
Reliant has also agreed to cancel their employment agreements and to forfeit
their benefits under the 19999 Compensatory Stock Option Plan in connection with
the closing of the POR. The 3,000,000 shares of ASOT stock would convert to
2,296,909 shares of TSIG stock. The Board of Directors of ASOT determined to
take this one-time issuance of shares in lieu of additional and on-going
dilution of Reliant shareholders.
D. RECOMMENDATION AND REASONS OF THE RELIANT BOARD FOR ENGAGING IN THE
TRANSACTION.
The Board has approved the adoption of the POR and recommended it for
approval by majority consent of shareholders for the following reasons.
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<PAGE>
1. POTENTIAL FOR STOCK GROWTH
The Board of Directors of Reliant believes that its stockholders can
realize more growth in TSIG stock post this business combination than could be
realized in their Reliant stock. The stock prices and market capitalization or
"market cap" (number of shares issued and outstanding multiplied by the market
price of the shares) for public companies that are considered infomercial
production companies such as Reliant are significantly lower than public
companies that are Internet search engines/portals.
In our industry there are two other public companies primarily engaged in
infomercial production. The company with the highest market cap in our industry
is K Tel International, Inc. Their market cap at September 19, 2000, based upon
the number of shares outstanding as of their latest public filing was
$15,480,607 with a per share price of $1 1/2. E 4 L Inc. had a market cap of
$10,998,933 using the same parameters with a stock price of $0.25 on that date.
Our market cap is less than $4,500,000 on that date.
Our stock price has continued to fall over the course of the past year. On
September 22, 1999, our stock reached a high of $6.25 per share and it fell to a
low of $0.50 per share in September of 2000. This fall in stock price has
occurred in spite of an overall growth in revenues and profitability. Our "book
value per share" (number of shares issued and outstanding divided by
stockholders equity) at June 30, 2000 was approximately thirty-one cents
($0.31).
In contrast to our company and industry the top public Internet search
engines/portals have significantly higher market caps and stock prices. The
market caps of these companies range up to approximately $59.3 billion for
Yahoo, Inc. based on Yahoo's stock price at September 19, 2000, of $108 1/16 per
share. Market caps and stock prices on that date for other such public companies
that operate search engines/portals were respectively: Lycos,
Inc.-$7,666,233,161 and $69 7/16 per share; Excite, Inc.-$6,511,846,586 and $16
3/16 per share; CMGI, Inc.-$11,100,000,000 and $37.50 per share; and Ask Jeeves,
Inc.-$856,200,000 and $24 9/16 per share. It is the plan of TSIG for its core
business to be an Internet search engine/portal through its acquisition of
GeneralSearch.com. It is planned that TSIG, The Affinity Group, Inc. and Reliant
will market this search engine/portal. It is the belief of our Board of
Directors that TSIG has constructed a sound business plan that can develop users
for this search engine/portal at a very low acquisition cost. We believe that
we can add significant marketing expertise to facilitate the growth of this
business combination.
Our average daily trading volume over the past three months is reported at
approximately 30,900 shares. The actual shares traded in an Over the Counter
Bulletin Board stock is less than one-half of the reported volume because of the
practice of what is known in the industry as "double prints" and "triple
prints". Historically it has been evidenced that a relatively small number of
shares sold into in a "thinly - traded" market can dramatically affect the stock
price. In contrast to our trading volume, TSIG's shares have had considerable
market support. Their average daily trading volume for the past three months
has been approximately 516,00 shares per day. We have approximately 300
shareholders and TSIG has approximately 35,000. It is the belief of our Board
that the market support for TSIG stock facilitates a more orderly and less
volatile trading market.
15
<PAGE>
Although it is not a certainty, our Board believes that all of these factors
combined provide the potential for our shareholders to realize more growth as
TSIG shareholders than will be experienced as Reliant shareholders. And while
there is virtually no market for the sale of Reliant shares, TSIG has developed
a significant market for the trading of its shares.
2. LACK OF CAPITAL FOR GROWTH
Our potential for profitability and growth is limited by our dependence on
outside capital. Our primary needs for capital have been for media, inventory
and credit card processing. We have had to pay an interest rate of 3% per week
for funds to purchase media. We have had to pay a premium of approximately an
additional 40% on the manufacturing costs of many of the products that we sell.
The credit card processing fees that we pay are approximately one and one-half
percent above the industry average. For example, in the first quarter of this
year we would have had a net profit of approximately an additional $1 million if
we had sufficient internal capital and the financial strength to not be
dependent on costly outside capital.
TSIG has secured a commitment for up to $125,000,000 of equity financing. Our
POR with TSIG provides for up to $10,000,000 in funding. The amount that we
receive upon closing is adequate to cover our present needs for media and
inventory financing. It is the belief of the Board of Directors that as a part
of this business combination, we will also have access to substantially lower
credit card rates. These savings will in turn accrue to the benefit of the
combined companies.
We had attempted to secure additional equity funding prior to entering into the
POR with TISG and ASOT. We had agreements with Institutional Equity Corp. for a
$2 million private placement of our stock and a $10,000,000 secondary
underwriting. In six months a total of $1,000,000 was raised in an offering at
$2.00 per share. This occurred during a period in which our stock price fell
from approximately $3 per share to less the $1.50. The Board determined that we
would be unsuccessful in the current market from raising additional funds.
Although the Board believes that we may have sustained some moderate growth
without additional outside capital they believed that any significant
redirections in sales could have threatened the survival of our business. For
these reasons, the Board determined that a business combination with an adequate
financed company, was in the best interest of our company and its shareholders.
E. MATERIAL TERMS OF AGREEMENT AND PLAN OF REORGANIZATION
1. BASIC TRANSACTION.
a. The Reorganization and Acquisition.
Contemporaneously with the effectuation of the POR, substantially all of the
assets, liabilities and business operations of Reliant shall be transferred to
ASOT in exchange for 7,448,821 shares of ASOT stock being issued to Reliant.
This transaction shall be subject to shareholder approval by Reliant
16
<PAGE>
shareholders. Subject to the terms and conditions of this Agreement, at the
effectuation of the POR (which shall be 20 days after the first mailing of this
Information Statement to Shareholders of Reliant), the ASOT stockholders shall
surrender to the TSIG all of the ASOT shares representing 100% of the ownership
interest in ASOT in exchange for 8,000,000 TSIG shares in a stock-for-stock,
tax-free acquisitive reorganization of ASOT by the TSIG pursuant to Code
368(a)(1)(B) and (C). Reliant shall distribute its pro-rata amount of the TSIG
shares, that are received as a shareholder of ASOT pursuant to the acquisition
of ASOT, to each of the Reliant shareholders pro-rata to their ownership
interest in Reliant at the record date of June 26, 2000, on a fully diluted
basis pursuant to Code 354, 355 or 356.
b. Loan Prior to Closing.
GeneralSearch.com, Inc., a subsidiary of TSIG, funded to Reliant on August 11,
2000, a loan in the principal amount of $679,092.00, pursuant to the terms of a
secured promissory note and a security agreement.
2. CONDITIONS TO OBLIGATION TO CLOSE.
a. Conditions to Obligation of TSIG.
The obligation of TSIG to consummate the transactions to be performed by it in
connection with the closing of the POR is subject to satisfaction of the
following conditions:
(i) The representations and warranties set forth in the POR shall be true and
correct in all material respects at and as of the closing date;
(ii) ASOT shall have performed and complied with all of its covenants in the POR
in all material respects through the closing;
(iii) There shall not be any judgment, order, decree, stipulation, injunction,
or charge in effect preventing consummation of any of the transactions
contemplated by the POR;
(iv) TSIG's successful closing of its acquisition of The Affinity Group, Inc.
(v) ASOT and the ASOT stockholders shall have delivered to TSIG a certificate to
the effect that each of the conditions are satisfied in all respects;
(vi) All actions to be taken by the ASOT in connection with consummation of the
transactions contemplated in the POR and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated will be reasonably satisfactory in form and substance to TSIG; and
(vii) TSIG shall be reasonably satisfied with the opinion expressed in the
completed audit of ASOT by TSIG's auditors at TSIG's expense, that the results
17
<PAGE>
are not materially adversely at variance with the unaudited financial
information provided to the TSIG by ASOT and that the audit meets the
requirements of Regulation S-X of the Securities Act and the Securities Exchange
Act.
(viii) Reliant shall simultaneously at closing distribute substantially all of
the assets comprising the business of Reliant to ASOT, and Reliant shall have
obtained the approval of its shareholders for all transactions contemplated by
this Agreement, in full compliance with Nevada Corporate Law and the rules and
regulations of the Securities and Exchange Commission.
b. Conditions to Obligation of ASOT.
The obligation of ASOT to consummate the transactions to be performed by it in
connection with the closing of the POR is subject to satisfaction of the
following conditions:
(i) the representations and warranties set forth in the POR shall be true
and correct in all material respects at and as of the closing date;
(ii) TSIG shall have performed and complied with all of its covenants in the POR
in all material respects through the closing;
(iii) There shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by the POR;
(iv) TSIG shall have delivered to ASOT and the ASOT stockholders a
certificate to the effect that each of the conditions specified in the POR is
satisfied in all respects;
(v) all actions to be taken by TSIG in connection with consummation of the
transactions contemplated in the POR and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated thereby will be reasonably satisfactory in form and substance to
ASOT and the ASOT stockholders.
Either TSIG or ASOT may waive any condition to the obligation of the other to
close the POR if it executes a writing so stating at or prior to the closing.
3. TERMINATION OF POR.
a. Specific Performance.
Subject to (b), (c) and (d), below, TSIG, ASOT and Reliant each acknowledged and
agreed that the other parties would be damaged irreparably in the event any of
18
<PAGE>
the provisions of the POR are not performed in accordance with their specific
terms or otherwise are breached, and each of TSIG, ASOT and Reliant shall be
entitled to enforce specifically the POR and the terms and provisions thereof in
any action instituted, in addition to any other remedy to which they may be
entitled, at law or in equity.
b. Mutual Consent.
The parties to the POR may terminate it by mutual written consent at any time
prior to the effective time of the closing.
c. TSIG Termination
TSIG may terminate the POR by giving written notice to the ASOT at any time
prior to the effective time of the closing: (i) in the event ASOT or the ASOT
stockholders has breached any material representation, warranty, or covenant
contained in the POR in any material respect, TSIG has notified ASOT of the
breach, and the breach has continued without cure for a period of 30 days after
the notice of breach or (ii) if the Closing shall not have occurred on or before
December 31, 2000, by reason of the failure of any condition precedent (unless
the failure results primarily from TSIG breaching any representation, warranty,
or covenant contained in the POR).
d. ASOT Termination.
ASOT may terminate the POR by giving written notice to TSIG at any time prior to
the effective time (i) in the event TSIG has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, ASOT has notified TSIG of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach or
(ii) if the Closing shall not have occurred on or before December 31, 2000, by
reason of the failure of any condition precedent under 7(b) hereof (unless the
failure results primarily from ASOT breaching any representation, warranty, or
covenant contained in the POR).
4. POST-CLOSING COVENANTS OF TSIG.
a. After Closing, TSIG shall use its best efforts to assist Reliant in
filing a Registration Statement with the SEC and all other applicable
authorities whereby Reliant would distribute TSIG Shares it receives at Closing
to Reliant's shareholders as a dividend; provided, however, that TSIG shall not
be responsible for any of the costs of said Registration Statement or the tax
consequences of any such distribution by Reliant.
b. TSIG agreed to work with their investment bankers and ASOT to develop
budgets on an ongoing basis and to provide ASOT with up to $10,000,000.
c. Upon closing, TSIG shall fund to ASOT a loan in the amount of
$800,000. Repayment of this loan shall be made on a non-interest bearing basis
from the cash that is to be funded pursuant to this Section 4(d), below.
19
<PAGE>
d. Upon effectiveness of a registration statement relating to a $125 million
equity line of credit to be secured by Buyer, Buyer shall fund to ASOT the sum
of $5,000,000 for the uses provided in the budget that has been provided and
approved by the parties. Buyer shall use its commercially reasonable best
efforts to cause such a registration statement to become effective as soon as
practicable and to provide $2,500,000 of this funding to ASOT within thirty (30)
days after the registration statement related to such equity line of credit
becomes effective, and to provide the remaining $2,500,000 of this funding to
ASOT within sixty (60) days after the registration statement becomes effective.
e. Each of the three executives of the ASOT will be treated fairly relative
to TSIG's other executives at the comparable level of employment with respect to
salaries, benefits and stock options.
f. Upon Closing, TSIG's board of directors shall elect Kevin Harrington to
TSIG's board of directors.
g. TSIG shall not merge or liquidate or dispose of the ASOT during the first
6 months after the Closing.
h. Buyer shall not change the board of directors of ASOT as it existed
immediately prior to the Closing Date during the first 36 months after the
Closing without the prior written consent of the ASOT Stockholders.
5. EMPLOYMENT AGREEMENTS. Contemporaneously with the execution of this
-
Agreement, Buyer has executed employment agreements with Kevin Harrington, Tim
Harrington and Mel Arthur. Copies of such agreements are attached hereto as
Annexes F, G and H respectively and shall become effective upon Closing.
6. CONVERSION OF ASOT SHARES.
At the closing each of the 10,448,821 ASOT shares shall be exchanged for
approximately .7656366 TSIG Shares (the "Conversion Ratio"). The Conversion
------------------
Ratio shall also be subject to equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the number of
ASOT Shares outstanding.
F. REGULATORY APPROVALS REQUIRED
No Federal or State Regulatory requirements must be complied with expect
for compliance with the Federal Proxy Rules of the Securities Exchange Act of
1934. Approval must be obtained from the shareholders of Reliant that own a
majority of the outstanding shares under Nevada Law.
G. FEDERAL TAX CONSEQUENCES OF THE TRANSACTION
Internal Revenue Code (IRC) sections 351 and 368 states that no gain or
loss shall be recognized (by the corporations) if the acquiring corporation
20
<PAGE>
acquires the target's stock solely in exchange for its own voting stock and the
acquiring corporation is in control of the target immediately after the
acquisition. IRC section 368(c) defines control to represent 80% of the total
combined voting power of all classes of stock. The acquisition of Reliant's
assets into ASOT in exchange for stock is considered to be a forward triangular
merger in which TSIG will acquire control of Reliant. The shares issued by TSIG
to be distributed to the Reliant stockholders will be equivalent voting shares.
The POR appears to satisfy these IRC sections.
In addition to the formal requirements of the Code, the transaction must
meet certain substantive non-statutory requirements developed through case law
and IRS regulations. These non-statutory rules may change what is in form a
reorganization into a taxable transaction. These two requirements are
Continuity of Interest and Continuity of Business Enterprise. The Continuity of
Interest requires that a substantial part of the value of the proprietary
interest in the target must be preserved. Again the POR appears to satisfy this
requirement. The Continuity of Business Enterprise requires the acquiring
corporation to continue to use the target's historic business or a significant
portion of the target's historic business assets in the business- TSIG will
preserve Reliant's business or continue to use their assets in the wholly-owned
ASOT subsidiary.
The shareholders of Reliant will receive no other consideration than shares
of TSIG stock. Based upon this assumption the transaction will not be taxable to
the shareholders. Any other transaction entered into between any of the
shareholders or debtors of Reliant with TSIG or its shareholders, if determined
to be part of the exchange, may disqualify the nontaxable status of the
exchange.
H. CONSIDERATION OFFERED TO SECURITY HOLDERS
Reliant shareholders who own shares at the record date of June 26, 2000,
will receive .7656366 shares of TSIG stock for each Reliant share owned, or they
may exercise dissenter's rights under Nevada law and receive the fair cash value
for their Reliant shares. The ratio of TSIG shares that are being distributed to
Reliant shareholders has been calculated by dividing the 8 million shares
received from TSIG for the acquisition of ASOT by 10,448,821, which is the
number of shares issued and outstanding for ASOT. 7,448,821 of these shares are
owned by ASOT, and this number corresponds to the fully diluted outstanding
shares of Reliant.
THE REMAINDER OF THIS PAGE INTENTIONALLY BLANK
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<PAGE>
IV. GENERAL INFORMATION
This Information Statement is furnished by our Board of Directors in
connection with the following actions taken by written consent of holders of a
majority of the outstanding shares of our common stock entitled to vote on the
actions:
1. To transfer all of our property and assets to AsSeenOnTVpc.com, Inc.
("ASOT"), our majority owned subsidiary, subject to satisfaction of the
conditions of the Agreement and Plan of Reorganization (see Annex A).
2. To change our corporate name to Reliant Holdings Corp.
3. To cancel executive management's 1999 Compensatory Stock Option Plan.
4. To elect Kevin Harrington, Tim Harrington, Mel Arthur and Karl Rodriguez
to serve as our board of directors until our next annual meeting.
5. To ratify the appointment of H.J. & Associates, LLC. (formerly known as
"Jones Jensen) as our auditors.
A. DATE, TIME AND PLACE INFORMATION
There will not be a meeting of shareholders and none is required under
Nevada General Corporation Law when an action has been approved by written
consent by holders of a majority of the outstanding shares of our common stock.
This information statement is first being mailed on or about October 2, 2000
to the holders of Common Stock as of the Record Date, June 26, 2000. Under
Federal law the record date was determined as the date that the first public
announcement was made of the Agreement and Plan of Reorganization.
PLEASE READ THE ENTIRE DOCUMENT. Further information is available by request or
can be accessed on the Internet. Reliant is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities Exchange Commission (the "SEC"). Reports, proxy
statements and other information filed by Reliant Interactive Media Corp. can be
accessed electronically by means of the SEC's home page on the Internet at
http://www.sec.gov or at other Internet sites such as http://www.freeedgar.com.
------------- ------------------------
A copy of any public filing is also available, at no charge, by contacting our
legal counsel, Karl Rodriguez, at 949-248-9561.
B. DISSENTERS' RIGHTS
Under the Nevada law our shareholders have certain dissenters' rights in
connection with the transfer of all of our property and assets to ASOT. The
following is a summary of the provisions of the Nevada law relating to these
dissenters' rights. A copy of the applicable Nevada law provisions are attached
hereto as Annex B. Shareholders are urged to read Annex B in its entirety.
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<PAGE>
This transfer of all of our property and assets is subject to certain
conditions that are described in more detail in the section entitled "IV. The
Plan of Reorganization". If these conditions are satisfied, then under Federal
law this transfer will not be effective until at least 20 days after this
information statement was mailed to you. Nevada Revised Statute section 92A.430
requires that if this transfer of property and assets is effectuated, then a
dissenter's notice must be sent to you. This notice must be sent on or before
10 days from the date the transaction is effectuated and shall:
(i) State where a demand for payment must be sent, and where and when
certificates, if any, for shares must be deposited;
(ii) Inform holders of shares not represented by certificates to what extent
the transfer of the shares will be restricted after the demand for payment is
received;
(iii) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(iv) Set a date by which the subject corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the
notice is delivered;
(v) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive, which set
forth the rights of dissenters.
OUR SHAREHOLDERS WHO FAIL TO DEMAND PAYMENT, OR FAIL TO DEPOSIT
CERTIFICATES, IN THE MANNER REQUIRED BY THE COMPANY NOTICE PURSUANT TO NEVADA
LAW, WILL HAVE NO RIGHT TO RECEIVE PAYMENT FOR THEIR SHARES OF OUR COMMON STOCK.
A dissenter shall retain all other rights of a shareholder until these rights
are modified by effectuation of the proposed corporate action.
Within thirty (30) days after receipt of demand for payment, we shall remit to
dissenters who have made demand and have deposited their certificates, the
amount which we estimate to be the fair value of the shares, with interest, if
any has accrued. If we fail to remit, of if the dissenter believes that the
amount remitted is less than the fair value of the shares of our Common Stock, a
dissenter may send the us their own estimate of the value of the our Common
Stock and demand payment for the deficiency. IF A DISSENTER DOES NOT FILE SUCH
ESTIMATE WITHIN THIRTY (30) DAYS AFTER OUR MAILING OF OUR REMITTANCE, SUCH
DISSENTER SHALL BE ENTITLED TO NO MORE THAN THE AMOUNT REMITTED. Within sixty
(60) days of the receipt of a demand payment for the deficiency, we shall
commence a proceeding and petition the court to determine the fair value of our
Common Stock and accrued interest. If we do not commence the proceeding within
the 60-day period, we shall pay each dissenter whose demand remains unsettled
the amount demanded.
C. VOTING SECURITIES
Reliant presently has only one class of voting stock outstanding, namely
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<PAGE>
its common stock. This Company's Common Voting Stock of par value $0.001 per
share, of which 50,000,000 shares are authorized and 7,348,821 shares were
issued and outstanding as of the Record Date, June 26, 2000. Each outstanding
share is entitled to one vote. Only shareholders of record at the close of
business on the Record Date are entitled to notice and to receive a pro-rata
distribution of TSIG stock. In connection with a $1,000,000 private placement by
Institutional Equity Corporation 100,000 shares have been reserved to satisfy
option rights earned in connection with this private placement. In the event any
of these options are exercised a .7656366 TSIG shares will be distributed for
each Reliant share optioned.
Nevada Rev. Stat. Ann. Section 78.565 provides that the sale of all of the
assets of a corporation may be approved upon such terms and conditions as its
board of directors may deem expedient and for the best interests of the
corporation when authorized by a vote of the holders of a majority of the stock.
Section 78.320 of the Nevada law permits stockholders to approve such an action
by written consent without the necessity of a shareholders meeting. Both
approvals have been made.
D. STOCK OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
1. 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.
2. 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.
Please refer to "Compensation of Directors and Executive Officers" 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
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address of Beneficial Owner Actual %
Ownership
---------------------------------------------------------
Kevin Harrington Chairman and CEO
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<PAGE>
80 Gulf Blvd. . . . . . . . . . . . . 2,156,101 30.73
Belleair Beach FL 33786
---------------------------------------------------------
Tim Harrington President and COO. . . 1,100,000 15.68
531 Rafael Blvd NE
St. Petersburg FL 33704
---------------------------------------------------------
Mel Arthur, Executive Vice President 105,000 1.50
12001 9th St N #2509
St. Petersburg FL 33716
---------------------------------------------------------
Karl Rodriguez Secretary . . . . . . 100,000 1.44
23592 Windsong #19E
Aliso Viejo CA 92656
---------------------------------------------------------
All Officers and Directors as a Group 3,462,101 49.35
---------------------------------------------------------
Total Shares Issued and Outstanding . 7,015,971 100.00
---------------------------------------------------------
</TABLE>
3. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities, to file reports of
ownership of, and transactions in, the Company's securities with the Securities
and Exchange Commission. Such directors, executive officers and 10% stockholders
are also required to furnish the Company with copies of all Section 16(a) forms
they file.
To our knowledge, the following table sets forth the directors, executive
officers and beneficial owners of more than 10% of any class of the Company's
equity securities registered pursuant to Section 12 of the Exchange Act that
failed to file on a timely basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Individual . . . No. of Late Reports No. of Transactions
not reported
----------------------------------------------------------
Kevin Harrington 1 -0-
---------------- ----------------------------------------
Tim Harrington . 1 -0-
---------------- ----------------------------------------
Mel Arthur . . . 1 -0-
---------------- ----------------------------------------
Karl Rodriguez . 2 -0-
---------------- ----------------------------------------
</TABLE>
E. DIRECTORS AND EXECUTIVE OFFICERS
By majority consent, proposal 4 was approved for the re-election of the
existing board of directors of Reliant; Kevin Harrington, Tim Harrington, Mel
Arthur and Karl Rodriguez, to serve until the next meeting of shareholders. The
business experience and biographies of the Directors are as follows:
Kevin Harrington, 43, 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
President of Quantum, Harrington launched a string of highly-profitable shows
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<PAGE>
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 became executive vice president of
National and remained as president of Quantum, 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 a 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 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, 34, 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
vice-president of product development for 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, 57, 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,
26
<PAGE>
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, 53, 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 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.
F. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Reliant has Employment Agreements with Kevin Harrington, Tim Harrington,
and Mel Arthur and these officers are also the beneficiaries of a 1999
Compensatory Stock Option Plan. When the POR, attached as Annex A, is
effectuated these officers have agreed to cancel their employment agreements, to
forfeit their deferred compensation, to not accept stock awards earned and to
not exercise any additional stock options to which they are entitled in the 1999
Compensatory Stock Option Plan. However, the following information is provided
with respect to existing compensation and stock benefits. The Summary
Compensation Table on the following page is as of December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
a b c d e f g h i
Securities
Name Other Restric- Under- All Other
and Annual ted lying Compen-
Principal Compen- Stock Options LTIP sation
Position Salary Bonus sation($) Awards SARs(#) Payouts ($)
Year ($) ($) ($) ($)
--------------------------------------------------------------------------------------------------------------
Kevin Harrington. 1999 120,000 192,978 0 350,000 200,000 0 0
CEO (1) . . . . . 1998 10,000 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
Tim Harrington. . 1999 96,000 128,652 0 350,000 200,000 0 0
COO (2) . . . . . 1998 8,000 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
Mel Arthur. . . . 1999 41,500 0 0 525,000 300,000 0 0
VP (3). . . . . . 1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
NOTES TO SUMMARY COMPENSATION TABLE:
(d)(1)(2)(3) Bonuses are based on 0.9% (Kevin Harrington), and 0.6% (Tim
Harrington) of Adjusted Gross Revenues for 1999 in excess of $10,000,000.
Payment of the bonuses has been deferred. Information respecting Mr. Arthur is
included voluntarily.
(d)(2)(3) Effective January 1, 2000, the base salary of Tim Harrington and Mel
Arthur was increased to $120,000 per annum.
(g)(1)(2)(3) The only shares shown in this table that have been issued are
100,000 shares to Mel Arthur.
ADDITIONAL DISCUSSION.
The Company also pays 100% of a medical insurance plan for the three
executive officers above mentioned, and life insurance for Kevin Harrington.
Karl Rodriguez serves without compensation from the Issuer. However, in the
year 2000, Karl Rodriguez was granted 100,000 shares of our common stock for
continued service as a director and corporate secretary. The executive officers
have deferred and are deferring a substantial portion of their accrued
compensation as shown in the following table.
DEFERRED COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1/1/00-7/31/00 TOTAL DEFERRED
---------------------------------------------------------------
Kevin Harrington $222,978.00 $ 381,122.00 $ 561,100.00
---------------------------------------------------------------
Tim Harrington . 159,652.00 210,690.00 370,342.00
---------------------------------------------------------------
Mel Arthur . . . 33,375.00 5,953.00 39,328.00
---------------------------------------------------------------
Total. . . . . . 416,000.00 597,765.00 970,770.00
---------------------------------------------------------------
</TABLE>
OUTSTANDING STOCK OPTIONS
The Company has provided certain additional bonuses, incentives and
benefits for Kevin Harrington, Tim Harrington and Mel Arthur, all pursuant to
Sec. 4(2) of the 1933 Securities
Act, as follows. No options have been exercised.
The Company applies Accounting Principles Board ("APB") Option 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
all stock option plans. Under APB Option 25, compensation cost is recognized for
stock options granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Related Compensation" ("SFAS No. 123")
:TR 10 requires the Company to provide proforma information regarding
net income and net income per share as if compensation costs for the Company's
stock option plans and other stock awards had been determined in accordance with
28
<PAGE>
the fair value based method prescribed in SFAS No. 123. The Company estimates
the fair value of each stock award at the grant date by using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants respectively; dividend yield of zero percent for all years; expected
volatility of 32 percent for all years; risk-free interest rates of 10.0 percent
and expected lives of 4.0 years.
A summary of the status of the Company's stock option plans as of June 30, 2000
and changes during the year is presented on the following page.
THE REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK
29
<PAGE>
JUNE 30, 2000 STATUS
OF
STOCK OPTION PLAN
<TABLE>
<CAPTION>
<S> <C> <C>
June 30,
2000
----------------------------------------------------------------------------------------------
Weighted
Average
Shares. Exercise Price
Outstanding, December 31, 1999
Granted. . . . . . . . . . . . . . . 420,000 $5.00
Canceled . . . . . . . . . . . . . . 0 $ 0
Exercised. . . . . . . . . . . . . . 0 $ 0
------- -----
Outstanding, June 30, 2000 . . . . . . 420,000 $5.00
------- -----
Exercisable, June 30, 2000 . . . . . . 210,000 $3.25
------- -----
Weighted Average Fair Value of Options $2.12
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Outstanding Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 6/30/00 Life Price at 6/30/00 Price
--------------------------------------------------------------------------------------------------------------------
$2.50. . . . . 105,000 4.00 $ 2.50 105,000 $ 2.50
$4.00. . . . . 105,000 4.00 $ 4.00 105,000 $ 4.00
$6.00. . . . . 105,000 4.00 $ 6.00 0 $ 0
$7.50. . . . . 105,000 4.00 $ 7.50 0 $ 0
$2.50-7.50 . . 420,000 4.00 $ 5.00 210,000 $ 3.25
====================================================================================================================
</TABLE>
The options were granted as compensation and additional bonuses to certain
officers of the Company. These options were issued with an exercise price above
the market value of the stock at the date of issuance.
Additional stock options are available to Kevin Harrington, Tim Harrington and
Mel Arthur based on the stock trading performance of the Company's common stock.
If the Company's shares are trading at a price of $15.00 per share, 256,500
options will be granted at an exercise price of $7.50 per share. If the
Company's shares are trading at a price of $20.00 per share, 256,500 options
will be granted at an exercise price of $7.50 per share. If the Company's shares
are trading at a price of $25.00 per share, 327,000 options will be granted at
an exercise price of $7.50 per share. As of June 30, 2000, the Company's common
stock has not reached any of the performance measurements mentioned above.
The table on the following page is provided additionally to summarize the
benefits of our executive management under the 1999 Compensatory Stock Option
Plan and their respective employment agreements.
30
<PAGE>
SUMMARY OF BENEFITS TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Additional Bonuses,. . . . . . Kevin Harrington Tim Harrington Mel Arthur
Incentives/Benefits
--------------------------------------------------------------------------------------------------------------
6 months: 60,000 6 months: 40,000 6 months: 5,000
COMPENSATORY STOCK . . . . . . shares @ $2.50 shares @ $2.50 shares @ $2.50
OPTION PLAN. . . . . . . . . . 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 PERFORMANCE. . . . . For each $10,000,000 For each $10,000,000 For each $10,000,000
STOCK BONUS. . . . . . . . . in gross revenues, in gross revenues, in gross revenues,
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 month
period). . . . . . . . . . period) period)
--------------------------------------------------------------------------------------------------------------
STOCK TRADING. . . . . . . . Purchase 144,000 Purchase 100,000 Purchase 12,500 shares
PERFORMANCE STOCK. . . . . . shares if trading at $15; shares if trading at $15; if trading at $15;
OPTIONS @ $7.50 PER. 144,000 shares if 100,000 shares if 12,500 shares if trading
SHARE. Trading at $20; 192,000 trading at $20; 120,000 at $20; 15,000 shares if
Shares if trading at $25 shares if trading at $25 shares if trading at $25
--------------------------------------------------------------------------------------------------------------
LIFE, HEALTH & DISABILITY. . . Yes Yes Yes
--------------------------------------------------------------------------------------------------------------
INSURANCE
AUTOMOBILE . . . . . . . . . . $1,000/month $750/month $500/month
--------------------------------------------------------------------------------------------------------------
</TABLE>
G. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
By majority shareholder consent the ratification of H.J. & Associates, LLC,
(formerly "Jones, Jensen Co., LLC") as our auditors has been approved.
H.J. & Associates, LLC, (formerly "Jones, Jensen Co., LLC") prepared the audited
financial statements for the fiscal years ending December 31, 1999 and 1998.
During the past two years there have been no changes in, or disagreements with,
Accounts on accounting and/or financial disclosure.
H. COMPENSATION PLAN
Upon effectuation of the Agreement and Plan of Reorganization to be
approved in Proposal Number 1, the 1999 Compensatory Stock Option Plan and
Employment Agreements for Kevin Harrington, Tim Harrington, and Mel Arthur will
be terminated. Please see Item F. Compensation of Executive Officers and
Directors.
I. AMENDMENTS OF CHARTER, BYLAWS OR OTHER DOCUMENTS
By majority shareholder consent proposal number 2 has been approved such
that our Articles of Incorporation will be amended to change our corporate name
to Interactive Holding Corp. or a substantially similar name upon effectuation
31
<PAGE>
SIGNATURES
October 2, 2000
/s/Kevin Harrington /s/Tim Harrington
Kevin Harrington Tim Harrington
Chairman and CEO/Director President and COO/Director
/s/Mel Arthur /s/Karl E. Rodriguez
Mel Arthur Karl E. Rodriguez
President/Director Secretary/Director
32
<PAGE>
of the Agreement and Plan of Reorganization.
EXHIBITS INDEX
Page No.
Annex A. Agreement and Plan of Reorganization 34
Annex B. Dissenters' Rights Statute 64
Annex C. 1999 Annual Report for Reliant on Form 10-KSB 72
Annex D. June 30, 2000 Quarterly Report for Reliant on Form 10-QSB 129
Annex E. August 31, 2000 Unaudited Financial Statements for
AsSeenOnTVpc.com 156
Annex F. Employment Agreement - Kevin Harrington 166
Annex G. Employment Agreement - Tim Harrington 175
Annex H. Employment Agreement - Mel Arthur 185
33
<PAGE>
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
34
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
TELESERVICES INTERNET GROUP INC.
AND
RELIANT INTERACTIVE MEDIA CORP.
and
ASSEENONTVPC.COM, INC.
AND
THE STOCKHOLDERS OF ASSEENONTVPC.COM, INC.
LISTED ON THE SIGNATURE PAGE HEREOF
AND
GENERALSEARCH.COM, INC.
35
<PAGE>
TABLE OF CONTENTS
-----------------
Definitions 39
Basic Transaction. 42
The Acquisition 42
The Closing 42
Actions Prior to Closing 42
Actions at the Closing 42
Effect of Acquisition 42
Procedure for Transfer 43
Representations and Warranties of the Target 43
Organization, Qualification, and Corporate Power 43
Organization, Qualification, and Corporate Power as of the Closing 43
Capitalization on the Closing Date 44
Authorization of Transaction 44
Noncontravention 44
Brokers' Fees 44
Title to Tangible Assets 44
Subsidiaries 45
Financial Statements 45
Events Subsequent to Most Recent Fiscal Period 45
Legal Compliance 45
Tax Matters 45
Real Property 46
Intellectual Property 46
Contracts 46
Powers of Attorney 46
No Undisclosed Liabilities 46
Litigation 46
Employee Benefits 47
Environmental, Health, and Safety Matters 47
Target Shares 48
Certain Securities Matters 49
Disclaimer of other Representations and Warranties 50
Representations and Warranties of Reliant 50
Representations and Warranties of the Buyer 50
Organization 51
Capitalization 51
Authorization of Transaction 51
Noncontravention 51
Brokers' Fees 51
36
<PAGE>
Filings with the SEC 51
Financial Statements 52
Events Subsequent to Most Recent Fiscal Quarter End 52
No Undisclosed Liabilities 52
Litigation 52
Compliance with Laws 52
No Default 52
Certain Securities Matters 52
Market Manipulation 53
Covenants 53
General 53
Notices and Consents 53
Regulatory Matters and Approvals 54
Listing of Buyer Shares 54
Operation of Business 54
Full Access 54
Notice of Developments 55
Interest from Others 55
Insurance and Release 55
Release of Target Stockholders' Personal Guarantees 56
Post-Closing Covenants of the Buyer 56
Conditions to Obligation to Close 57
Conditions to Obligation of the Buyer 57
Conditions to Obligation of the Target 57
Termination 58
Specific Performance 58
Mutual Consent 58
Buyer Termination 58
Target Termination 58
Miscellaneous 59
Employment Agreements 59
Survival 59
Press Releases and Public Announcements 59
No Third Party Beneficiaries 59
Entire Agreement 59
Succession and Assignment 59
Counterparts 59
Headings 59
Notices 59
Governing Law 60
Amendments and Waivers 60
Severability 61
Expenses 61
37
<PAGE>
Construction 61
Incorporation of Exhibits and Schedules
Facsimile Signatures 61
38
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Agreement entered into on September 22, 2000 by and among TELESERVICES
INTERNET GROUP INC., a Florida corporation (the "Buyer"), and RELIANT
INTERACTIVE MEDIA, INC., a Nevada corporation ("Reliant") and ASSEENONTVPC.COM,
INC., a Nevada corporation (the "Target") and the Target Stockholders and
GeneralSearch.com, Inc. ("GSCI"). The Buyer, Reliant, the Target and the Target
Stockholders are referred to collectively herein as the "Parties."
WHEREAS, This Agreement contemplates a stock-for-stock tax-free acquisitive
reorganization of the Target by the Buyer and a simultaneous transfer of assets
comprising the business of Reliant from Reliant to the Target pursuant to Code
368(a)(1)(B), (C) and (D).
WHEREAS, The Target Stockholders will receive common capital stock in the
Buyer in exchange for all of their common capital stock in the Target.
WHEREAS, The Parties expect that the acquisition will further certain of
their business objectives (including, without limitation, significantly expanded
markets for both Parties).
WHEREAS, The parties desire that this Agreement replace and supercede any
prior agreement or amendment thereto between the parties related to the subject
of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
-----------
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
----------
promulgated under the Securities Exchange Act.
"Acquisition" means the stock-for-stock, tax-free acquisitive
------------
reorganization of the Target by the Buyer and a contemporaneous transfer of
-------
assets comprising the business of Reliant from Reliant to the Target pursuant to
Code 368(a)(1)(B), (C) and (D) as described in 2(a) below.
"Buyer" has the meaning set forth in the preface above.
------
"Buyer Exchange Shares" have the meaning set forth in 2(a) below.
------------------------
"Buyer Share" means any share of the Common Stock, $0.0001 par value per
-------------
share, of the Buyer
"Closing" has the meaning set forth in 2(b) below.
--------
"Closing Date" has the meaning set forth in 2(b) below.
---------------
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
------
and Code 4980B.
39
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
-----
"Confidential Information" means any information concerning the businesses
--------------------------
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in 2(d)(ii) below.
------------------
"Florida General Corporation Law" means the Florida Business Corporation
-----------------------------------
Act, as amended as of the date of the full execution of this Agreement by the
Parties.
"Disclosure Schedule" has the meaning set forth in 3 below.
---------------------
"Effective Time" has the meaning set forth in 2(d)(i) below.
----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
----------------------
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit or other retirement, bonus, or incentive plan
or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA 3(2).
-------------------------------
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA 3(1).
-------------------------------
"Environmental, Health, and Safety Requirements" shall mean all federal,
--------------------------------------------------
state, local and foreign statutes, regulations, and ordinances concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, as such requirements are enacted and in effect on or prior to the
Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
------
amended.
"ERISA Affiliate" means each entity that is treated as a single employer
-----------------
with Seller for purposes of Code 414.
"Exchange Agent" has the meaning set forth in 2(e) below.
----------------
"Financial Statement" has the meaning set forth in 3(i) below.
----------------------
"GAAP" means United States generally accepted accounting principles as in
-----
effect from time to time.
"Income Tax" means any federal, state, local, or foreign income tax,
------------
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
--------------------
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"IRS" means the Internal Revenue Service.
----
40
<PAGE>
"Knowledge" means actual knowledge without independent investigation.
----------
"Most Recent Financial Statements" has the meaning set forth in 3(i)
------------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in 3(i) below.
-------------------------------
"Most Recent Fiscal Quarter End" has the meaning set forth in 3(i) below.
-------------------------------
"Multiemployer Plan" has the meaning set forth in ERISA 3(37).
--------------------
"Ordinary Course of Business" means the ordinary course of business
-------------------------------
consistent with past custom and practice (including with respect to quantity and
-
frequency).
"Party" has the meaning set forth in the preface on page 1 above.
------
"PBGC" means the Pension Benefit Guaranty Corporation.
-----
"Person" means an individual, a partnership, a corporation, an association,
-------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Public Report" has the meaning set forth in 5(f) below.
---------------
"Registration Statement" has the meaning set forth in 6(l) below.
-------------------------
"Reportable Event" has the meaning set forth in ERISA 4043.
------------------
"Requisite Target Stockholder Approval" means the affirmative vote of the
----------------------------------------
holders of a majority of the Target Shares (voting and nonvoting) in favor of
this Agreement.
"SEC" means the Securities and Exchange Commission.
----
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
--------------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-------------------
or other security interest, other than (a) mechanic's, materialmen's, and
-----------
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified Person
-----------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Target" has the meaning set forth in the preface on page 1 above.
-------
41
<PAGE>
"Target's Key Employees" means Kevin Harrington, Tim Harrington and Mel
-------------------------
Arthur.
"Target Share" means any share of the Common Stock of Target.
--------------
"Target Shares" means the total number of issued and outstanding shares,
---------------
all of which are to be acquired by the Buyer pursuant to this Agreement.
"Target Stockholders" means Reliant Interactive Media Corp., Kevin
---------------------
Harrington, Tim Harrington, Mel Arthur and Karl Rodriguez, which shareholders
--
collectively own all of the issued and outstanding Target Shares.
2. Basic Transaction.
------------------
(a) The Reorganization and Acquisition. Contemporaneously with the
--------------------------------------
execution of this Agreement, all of the assets, liabilities and business
operations of Reliant shall be transferred to Target in exchange for certain
shares of Target being issued to Reliant, which number of shares is shown on the
signature page hereof. This transaction shall be subject to shareholder
approval by Reliant shareholders. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Target Stockholders shall surrender to the
Buyer all of the Target Shares representing 100% of the ownership interest in
the Target in exchange for 8,000,000 Buyer Shares (the "Buyer Exchange Shares")
at the Effective Time in a stock-for-stock, tax-free acquisitive reorganization
of the Target by the Buyer pursuant to Code 368(a)(1)(B) and (C). Reliant
shall distribute its pro-rata amount of the Buyer Exchange Shares, that are
received as a shareholder of Target pursuant to the acquisition of Target, to
each of the Reliant shareholders pro-rata to their ownership interest in Reliant
on a fully diluted basis pursuant to Code 354, 355 or 356. At the Effective
Time, the Target Stockholders shall be released from all personal guarantees of
actual and contingent liabilities of the Target.
(b) The Closing. The closing of the transactions contemplated by this
-------------
Agreement (the "Closing") shall take place at the offices of the Buyer in St.
--------
Petersburg, Florida, commencing at 9:00 a.m. local time on the second business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date and/or time as the Parties may mutually
determine (the "Closing Date"); provided, however, that the Closing Date shall
-------------
be no earlier than twenty (20) days after Reliant mails an appropriate
information statement to its shareholders regarding the transaction.
(c) Actions Prior to Closing. Upon execution of this Agreement by all
---------------------------
parties hereto, GSCI shall fund to Reliant a loan in the principal amount of
$679,092.00, pursuant to the terms of a secured promissory note and a security
agreement attached hereto.
(d) Actions at the Closing. At the Closing: (i) Target will deliver to
--------------------------
Buyer the various certificates, instruments, and documents referred to in 7(a)
below; (ii) Buyer will deliver to Target the various certificates, instruments,
and documents referred to in 7(b) below; and (iii) Buyer will deliver to the
Exchange Agent in the manner provided below in this 2 the certificate
evidencing the Buyer Exchange Shares.
(e) Effect of Acquisition.
------------------------
42
<PAGE>
(i) General. The Acquisition shall become effective at the time (the
--------
"Effective Time") that the Target Stockholders deliver to the Buyer all of the
----------------
Target Shares, properly endorsed to effectively assign said shares to the Buyer,
and the Buyer delivers to the Target Stockholders the Buyer Exchange Shares,
properly endorsed to effectively assign said shares to the Target Stockholders.
(ii) Conversion of Target Shares. At and as of the Effective Time and
----------------------------
assuming that the total number of issued and outstanding Target Shares on a
fully diluted basis at such time is 10,448,821 each Target Share shall be
exchanged for approximately .7656366 Buyer Shares ( the "Conversion Ratio"). The
------------------
Conversion Ratio shall also be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split, or other change in the
number of Target Shares outstanding. Immediately after the Closing, no Target
Share shall be deemed to be outstanding or to have any rights other than those
set forth above in this 2(d)(ii) after the Effective Time.
(iii) Buyer Shares. Each Buyer Share issued and outstanding at and as
-------------
of the Effective Time will remain issued and outstanding.
(f) Procedure for Transfer.
-------------------------
(i) The transfer and exchange of the Target Shares for the Buyer
Exchange Shares may be effected through an Exchange Agent upon the mutual
consent of the Parties and pursuant to an agreement with such Exchange Agent and
the Parties.
(ii) The Buyer shall pay all charges and expenses of the Exchange
Agent.
3. Representations and Warranties of the Target and the Target
-------------------------------------------------------------------
Stockholders. The Target and the Target Stockholders represent and warrant to
-----
the Buyer that the statements contained in this 3 are correct and complete as
of the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this 3), except as set forth in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
---------------------
paragraphs corresponding to the lettered and numbered paragraphs contained in
-
this 3. For purposes of this 3, the representations and warranties regarding
the Target shall be deemed to apply equally to Reliant as the predecessor in
interest to the business of the Target.
(a) Organization, Qualification, and Corporate Power. The Target is a
-----------------------------------------------------
privately-held, corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada. The Target is duly authorized
to conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the lack of such
qualification would not have a material adverse effect on the financial
condition of the Target taken as a whole. The Target has corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. 3(a) of the Disclosure Schedule lists the
stockholders, directors and officers of the Target. By signing this Agreement,
Buyer acknowledges receipt of a copy of Target's Articles of Incorporation,
bylaws, and minutes, certified by Target's secretary to be a true copy of
Target's Articles of Incorporation, bylaws, and minutes.
(b) Organization, Qualification, and Corporate Power as of the Closing. As
-------------------------------------------------------------------
43
<PAGE>
of the Closing: (i) the Target shall be a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada; (ii) the
Target shall be duly authorized to conduct business and shall be in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the financial condition of the Target taken as a whole; (iii)
the Target shall have full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it; and (iv) 3(b) of the Disclosure Schedule shall be amended to list
the directors and officers of each of the Target.
(c) Capitalization on the Closing Date. As of the Closing, the entire
---------------------------------------
authorized capital stock of the Target shall consist of 100,000,000 Target
Shares, of which 10,448,821 Target Shares shall be issued and outstanding and no
Target Shares shall be held in treasury. All of the issued and outstanding
Target Shares shall have been duly authorized, validly issued, fully paid, and
nonassessable, and shall be held of record by the respective Target Stockholders
as set forth in 3(b) of the Disclosure Schedule. There shall be no outstanding
or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require the Target to issue, sell, or otherwise cause to become outstanding any
of its capital stock. There shall be no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Target.
(d) Authorization of Transaction. The Target has full power and authority
------------------------------
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Target, enforceable in
accordance with its terms and conditions.
(e) Noncontravention. To the Knowledge of any of the Target Stockholders,
-----------------
neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which any of the
Target and its Subsidiaries is subject or any provision of the charter or bylaws
of any of the Target and its Subsidiaries. To the Knowledge of any of the
Target Stockholders, none of the Target and its Subsidiaries needs to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the financial condition of
the Target and its Subsidiaries taken as a whole or on the ability of the
Parties to consummate the transactions contemplated by this Agreement. To the
Knowledge of any of the Target Stockholders, except as set forth in 3(e) of the
Disclosure Schedule, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Target is a party or by which it is
bound or to which any of its assets is subject.
(f) Brokers' Fees. None of the Target or the Target Stockholders have any
---------------
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(g) Title to Tangible Assets. The Target has good title to, or a valid
----------------------------
44
<PAGE>
leasehold interest in, the material tangible assets they use regularly in the
conduct of their businesses.
(h) Subsidiaries. 3(h) of the Disclosure Schedule sets forth for each
-------------
Subsidiary of the Target (i) its name and jurisdiction of incorporation, (ii)
the number of shares of authorized capital stock of each class of its capital
stock, (iii) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof, and the number of shares held
by each such holder, and (iv) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of each
Subsidiary of the Target have been duly authorized and are validly issued, fully
paid, and nonassessable.
(i) Financial Statements. Attached hereto as Exhibit B are the following
----------------------
financial statements (collectively the "Financial Statements"): (i) audited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow for the two fiscal years ended December 31, 1998 and
December 31, 1999, and unaudited financial statement for the fiscal quarter
ended June 30, 2000 for Reliant; and (ii) unaudited consolidated balance sheets
and statements of income, changes in stockholders' equity, and cash flow (the
"Most Recent Financial Statements") for the period from inception through the
---------------------------------
period ended June 30, 2000 (the "Most Recent Fiscal Period ") for the Target.
----------------------------
The Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby and present fairly the financial condition of the Target as of
such dates and the results of operations of the Target for such periods;
provided, however, that the Most Recent Financial Statements are subject to
-----------
normal year-end adjustments and lack footnotes and other presentation items.
(j) Events Subsequent to Most Recent Fiscal Period . Since the Most Recent
------------------------------------------------
Fiscal Period, there has not been any material adverse change in the financial
condition of the Target taken as a whole. Without limiting the generality of the
foregoing, since that date the Target has not engaged in any practice, taken
any action, or entered into any transaction outside the Ordinary Course of
Business the primary purpose or effect of which has been to generate or preserve
Cash.
(k) Legal Compliance. To the Knowledge of any of the Sellers, the Target
------------------
has complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to comply would not have a material adverse effect upon
the financial condition of the Target taken as a whole.
(l) Tax Matters.
-------------
(i) The Target has filed all Income Tax Returns that it was required
to file, and has paid all Income Taxes shown thereon as owing, except where the
failure to file Income Tax Returns or to pay Income Taxes would not have a
material adverse effect on the financial condition of the Target taken as a
whole.
(ii) 3(l) of the Disclosure Schedule lists all Income Tax Returns
filed with respect to the Target for taxable periods ended on or before December
31, 1999, indicates whether those Income Tax Returns have been audited, and
indicates those Income Tax Returns that currently are the subject of audit. The
Sellers have delivered to the Buyer correct and complete copies of all Federal
Income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Target since December 31, 1998.
45
<PAGE>
(iii) The Target has not waived any statute of limitations in respect
of Income Taxes or agreed to any extension of time with respect to an Income Tax
assessment or deficiency.
(iv) The Target is not a party to any Income Tax allocation or sharing
agreement.
(v) To the Knowledge of any of the Sellers, the Target has not been a
member of an Affiliated Group filing a consolidated federal Income Tax Return
(other than a group the common parent of which was the Target).
(m) Real Property.
---------------
(i) 3(m)(i) of the Disclosure Schedule lists all real property that
the Target owns, which is none.
(ii) 3(m)(ii) of the Disclosure Schedule lists all real property
leased or subleased to the Target. The Sellers have delivered to the Buyer
correct and complete copies of the leases and subleases listed in 3(m)(ii) of
the Disclosure Schedule (as amended to date). To the Knowledge of any of the
Sellers, each lease and sublease listed in 3(m)(ii) of the Disclosure Schedule
is legal, valid, binding, enforceable, and in full force and effect, except
where the illegality, invalidity, nonbonding nature, unenforceability, or
ineffectiveness would not have a material adverse effect on the financial
condition of the Target taken as a whole.
(n) Intellectual Property. Section 3(n) of the Disclosure Schedule
-----------------------
identifies each patent or trademark registration which has been issued to any of
the Target with respect to any of its intellectual property, identifies each
pending patent application or application for registration which the Target has
made with respect to any of its intellectual property, and identifies each
license, agreement, or other permission which any of the Target has granted to
any third party with respect to any of its intellectual property.
(o) Contracts. Section 3(o) of the Disclosure Schedule lists all written
----------
contracts and other written agreements to which the Target is a party, the
performance of which will involve consideration in excess of $10,000. The
Sellers have delivered to the Buyer a correct and complete copy of each contract
or other agreement listed in Section 3(o) of the Disclosure Schedule (as amended
to date).
(p) Powers of Attorney. To the Knowledge of any of the Target Stockholders,
-------------------
there are no outstanding powers of attorney executed on behalf of the Target.
(q) No Undisclosed Liabilities. Except (i) to the extent disclosed in the
--------------------------
Disclosure Schedule and (ii) for liabilities and obligations incurred in the
ordinary course of business consistent with past practice, the Target has not
incurred any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to have,
individually or in the aggregate, a material adverse effect on the Target.
(r) Litigation. Section 3(r)(1) of the Disclosure Schedule sets forth each
-----------
instance in which any of the Target (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction, except where the injunction, judgment, order, decree,
ruling, action, suit, proceeding, hearing, or investigation would not have a
material adverse effect on the financial condition of the Target taken as a
whole.
46
<PAGE>
(s) Employee Benefits.
-------------------
(i) Section 3(s) of the Disclosure Schedule lists each Employee
Benefit Plan that the Target maintains or to which the Target contributes.
(A) To the Knowledge of any of the Parties , each such Employee
Benefit Plan (and each related trust, insurance contract, or fund), if any,
complies in form and in operation in all respects with the applicable
requirements of ERISA and the Code, except where the failure to comply would not
have a material adverse effect on the financial condition of the Target taken as
a whole.
(B) All contributions (including all employer contributions and
employee salary reduction contributions), if any, which are due have been paid
to each such Employee Benefit Plan, if any, that is an Employee Pension Benefit
Plan.
(C) Each such Employee Benefit Plan that is an Employee Pension
Benefit Plan, if any, has received a determination letter from the Internal
Revenue Service to the effect that it meets the requirements of Code Section
401(a).
(D) As of the last day of the most recent prior plan year, the
market value of assets under each such Employee Benefit Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan), if any,
equaled or exceeded the present value of liabilities thereunder (determined in
accordance with then current funding assumptions).
(E) With respect to each Employee Benefit Plan that is an
Employee Pension Benefit Plan, if any, the Target has delivered to the Buyer
correct and complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Target or
any ERISA Affiliate, if any, maintains or has maintained during the prior six
years or to which any of them contributes, or has been required to contribute
during the prior six years:
(A) No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending,
except where the action, suit, proceeding, hearing, or investigation would not
have a material adverse effect on the financial condition of the Target taken as
a whole.
(B) The Target has not incurred any liability to the PBGC (other
than PBGC premium payments) or otherwise under Title IV of ERISA (including any
withdrawal liability) with respect to any such Employee Benefit Plan which is an
Employee Pension Benefit Plan.
47
<PAGE>
(t) Environmental, Health, and Safety Matters.
----------------------------------------------
(i) To the Knowledge of any of the Target Stockholders, the Target is
in compliance with Environmental, Health, and Safety Requirements, except for
such noncompliance as would not have a material adverse effect on the financial
condition of the Target taken as a whole.
(ii) To the Knowledge of any of the Target Stockholders, the Target
has not received any written notice, report or other information regarding any
actual or alleged material violation of Environmental, Health, and Safety
Requirements, or any material liabilities or potential material liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise), including
any investigatory, remedial or corrective obligations, relating to the Target or
its Subsidiaries or their facilities arising under Environmental, Health, and
Safety Requirements, the subject of which would have a material adverse effect
on the financial condition of the Target taken as a whole.
(iii) This Section 3(t) contains the sole and exclusive
representations and warranties of the Target Stockholders with respect to any
environmental, health, or safety matters, including without limitation any
arising under any Environmental, Health, and Safety Requirements.
(u) Target Shares. Each of the Target Stockholders hereby represent and
---------------
warrant to the Buyer as follows:
(i) Authorization. Each Target Stockholder has all requisite right,
-------------
power and authority and full legal capacity to execute and deliver this
Agreement and to perform his or her obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by such Target Stockholder, and this Agreement
constitutes a legal, valid and binding obligation enforceable against such
Target Stockholder in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency and similar laws of general application
relating to or affecting the enforcement of rights of creditors. The failure of
the spouse of any Target Stockholder to be a party or signatory to this
Agreement shall not (A) prevent any such Target Stockholder from performing his
or her obligations and from consummating the transactions contemplated hereunder
and thereunder or (B) prevent this Agreement from constituting the legal, valid
and binding obligation of any such Target Stockholder enforceable against any
such Target Stockholder in accordance with its terms.
(ii) No Conflict. The execution, delivery and performance of this Agreement
-----------
by each of the Target Stockholders does not and will not conflict with or
violate any law or governmental order, applicable to such Target Stockholder, or
conflict with, result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
48
<PAGE>
amendment, acceleration, suspension, revocation or cancellation of, or result in
the creation of any encumbrance on any of the Target Shares or on any of the
assets or properties of such Target Stockholder pursuant to, any note, bond,
mortgage or indenture, contract, agreement, lease, sublease, license, permit,
franchise or other instrument, obligation or arrangement to which such Target
Stockholder is a party or by which any of the Target Shares or any of such
assets or properties is bound or affected.
(iii) Governmental Consents and Approvals. Except as may required by laws
-------------------------------------
applicable because the Buyer is a public company, the execution, delivery and
performance of this Agreement by each of the Target Stockholders does not and
will not require any consent, approval, authorization or other order of, action
by, filing with or notification to any governmental authority.
(iv) Accuracy of Representations and Warranties of the Company. Each of the
---------------------------------------------------------
Target Stockholders has reviewed the representations and warranties of the
Target contained in this Agreement, and, to the best knowledge of each such
Target Stockholder, such representations and warranties of the Target are true
and correct.
(v) Ownership. Each of the Target Stockholders owns the number of Target
---------
Shares set forth next to such Target Stockholder's name on the signature page
hereof and such Target Stockholder has good and marketable title to such Target
Shares, free and clear of any encumbrance of any kind. All of the Target Shares
set forth next to each Target Stockholder's name on the signature page hereof
have been duly authorized, validly issued, and are fully paid and nonassessable
and have been accorded full voting rights. There are no voting trusts,
stockholder agreements, proxies or other agreements or understandings in effect
with respect to the voting or transfer of any of the Target Shares, or if there
are, all votes and consents necessary to authorize all of the Target
Stockholders to enter into and to perform this Agreement have been given, and
all restrictions encumbering the power and authority of the Target Stockholders
to enter into and to perform this Agreement have been waived, and upon delivery
of such Target Shares at Closing as contemplated herein, the Buyer will own the
Target Shares free and clear of all encumbrances.
(v) Certain Securities Matters. Each of the Target Stockholders hereby
---------------------------
represents and warrants to the Buyer as follows:
(i) Except for the Target Stockholder's registration rights and resale
rights as set forth in herein, the right of the Target Stockholder to exercise
such rights to their fullest extent and as otherwise provided in this Agreement,
the Target Stockholder: (A) is acquiring the Buyer Shares for the Target
Stockholder's own account and not with a view to, or for offer or sale in
connection with, any distribution thereof, and the Target Stockholderis not
participating and does not have a participation in any such distribution or the
underwriting of any such distribution; (B) the Target Stockholder has sufficient
knowledge and experience in financial and business matters and is fully capable
of evaluating the merits and risks of purchasing the Buyer Shares; and (C) the
Target Stockholder has not been solicited to acquire the Buyer Shares by means
of general advertising or general solicitation.
(ii) The Target Stockholder has been furnished with information about
and allowed access to Buyer's business and has had the opportunity to
investigate Buyer's business and to ask questions of and receive answers from
Buyer sufficient to satisfy the Target Stockholderthat Buyer's business is
reasonably as described by Buyer.
49
<PAGE>
(iii) The Target Stockholder understands that at Closing: (A) the Buyer
Shares are not registered under any applicable federal or state securities law
in reliance upon certain exemptions thereunder; (B) the Buyer Shares may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act and compliance with applicable state securities laws or the
availability of an exemption therefrom; and (C) in the absence of registration
under the Securities Act and compliance with applicable state securities laws or
an exemption therefrom, the Buyer Shares must be held indefinitely. The Target
Stockholderacknowledges that the reliance of the Buyer upon such exemption from
registration is predicated upon the foregoing representations.
(iv) The Target Stockholder acknowledges receipt of a copy of: (a) the
Agreement and Plan of Reorganization by and among Buyer, GeneralSearch.com,
Inc., and individual shareholders of GeneralSearch.com, Inc, dated August 23,
2000; and (b) a Stock-for-Stock Acquisition Agreement dated June 13, 2000, among
the Buyer, The Affinity Group, Inc, and the Stockholder of The Affinity Group,
Inc., which agreement contemplates the issuance of 5 million Buyer Shares to the
Stockholders of The Affinity Group, Inc.
(v) Action as Majority Shareholders of Reliant. The execution of this
------------------------------------------------
Agreement by Kevin Harrington, Tim Harrington, Mel Arthur and Karl Rodriguez
shall constitute the irrevocable written consent by holders of 3,461,101 of the
outstanding shares of Reliant to approve this transaction; specifically the
transfer of Reliant of its interest in Target to Buyer in exchange for Buyer
shares, and their undertaking to cause Reliant to deliver to its shareholders an
information statement meeting the requirements of Section 14 of the Securities
Exchange Act, as promptly as commercially reasonable. In addition, the written
consent by other shareholders of Reliant is provided herewith to evidence that
the transaction described in this Section has been approved by the majority of
the outstanding shares of Reliant
(w) Disclaimer of other Representations and Warranties. Except as expressly
---------------------------------------------------
set forth in Section 2 and this Section 3, the Target Stockholders make no
representation or warranty, express or implied, at law or in equity, in respect
of the Target, its Subsidiaries, or any of their respective assets, liabilities
or operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed.
4. Representations and Warranties of Reliant. Reliant expressly warrants
-------------------------------------------
that it will transfer all or substantially all of its assets and business to the
Target at Closing. If any assets of Reliant are not transferred to Target, then
the written approval of Buyer must be obtained with respect to any assets not
being transferred. Reliant represents and covenants that it will not compete
with Target or Buyer in any similar businesses after the Closing. Reliant
further represents that none of the representations and warranties that it has
made in its public filings with the SEC or in this Agreement, when read in its
entirety, contain or will contain any untrue or misleading statement, or omit or
will omit to state any material fact at the Effective Time, or omit or will omit
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made. Reliant further
warrants that, with respect to its obligations herein, it is acting under
majority shareholder consent.
50
<PAGE>
5. Representations and Warranties of the Buyer. The Buyer represents and
----------------------------------------------
warrants to the Target that the statements contained in this Section 5 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this 5), except
as set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 5.
(a) Organization. The Buyer is a public corporation that trades on the
-------------
over-the-counter market and is duly organized, validly existing, and in good
standing under the laws of the State of Florida. Each of the Buyer and its
Subsidiaries is duly authorized to conduct its business and is in good standing
under the laws of each jurisdiction where such qualification is required, except
where the lack of such qualification would not have a material adverse effect on
the financial condition of the Buyer and its Subsidiaries taken as a whole.
Each of the Buyer and its Subsidiaries has full corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Section 5(a) of the Disclosure Schedule lists the
directors and officers of each of the Buyer and its Subsidiaries.
(b) Capitalization. The authorized capital stock of the Buyer consists of
---------------
300 million common shares and 10 million shares of $0.001 par value preferred
stock. Approximately 76 million common shares are currently issued and
outstanding. Buyer has also reserved approximately 14,500,000 shares of common
stock to officers, directors, employees and consultants of Buyer and its
subsidiaries. Buyer also has additional non-plan options and other continent
commitments to issue approximately 5,200,000 shares of common stock. All of the
Buyer Shares to be issued pursuant to the Closing of this Agreement will be duly
authorized and, upon Closing, will be validly issued, fully paid, and
nonassessable.
(c) Authorization of Transaction. The Buyer has full power and authority
-------------------------------
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
the charter or bylaws of the Buyer or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject other than in connection with the provisions of the Hart Scott
Rodino Act, the Florida General Corporation Law, the Securities Exchange Act,
the Securities Act, and the state securities laws, the Buyer does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Brokers' Fees. The Buyer does not have any liability or obligation to
---------------
pay any fees or commissions to any broker, finder, or agent with respect to the
51
<PAGE>
transactions contemplated by this Agreement, except for: (i) a finder's fee of
320,000 shares of Buyer's common stock payable to Imperial Holidays; and (ii) a
finder's fee of 300,000 shares of Buyer's common stock payable to Franchise
America. In no event shall the Target, its Subsidiaries or any of the Target
Stockholders be liable or obligated to pay any fees or commissions to any
advisor, broker, finder, or agent with respect to the transactions contemplated
by this Agreement arising from any liability or obligation of the Buyer with
respect to same.
(f) Filings with the SEC. The Buyer has made all filings with the SEC that
---------------------
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Public Reports"). Each of the Public Reports has
---------------
complied with the Securities Act and the Securities Exchange Act in all material
respects. None of the Public Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Buyer has
delivered to the Target a correct and complete copy of each Public Report
(together with all exhibits and schedules thereto and as amended to date).
(g) Financial Statements. The Buyer has filed Quarterly Reports on Form
----------------------
10-QSB for the fiscal quarters ended June 30, 2000 (the "Most Recent Fiscal
------------------
Quarter End"), and an Annual Report on Form 10-KSB for the fiscal year ended
---------
December 31, 1999. The financial statements included in or incorporated by
reference into these Public Reports (including the related notes and schedules)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby and present fairly the financial
condition of the Buyer as of the indicated dates and the results of operations
of the Buyer for the indicated periods.
(h) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
-------------------------------------------------------
Recent Fiscal Quarter End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects material adverse change in the financial condition of the Buyer and
its Subsidiaries taken as a whole.
(i) No Undisclosed Liabilities. Except (i) to the extent disclosed in the
--------------------------
Public Reports and (ii) for liabilities and obligations incurred in the ordinary
course of business consistent with past practice, the Buyer has not incurred any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that have, or would be reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Buyer.
(j) Litigation. Except as disclosed to the contrary in the Public
----------
Reports, there is no suit, claim, action, proceeding, review or investigation
pending or, to the knowledge of the Buyer, threatened against or affecting the
Buyer which, individually or in the aggregate, is reasonably likely to have a
material adverse effect on the Buyer or would, or would be reasonably likely to,
materially impair the ability of the Buyer to consummate the transaction
contemplated by this Agreement.
(k) Compliance with Laws. Except as disclosed to the contrary in the
----------------------
Public Reports, the Buyer has complied with all laws, statutes, regulations,
rules, ordinances and judgments, decrees, orders, writs and injunctions, of any
court or governmental entity relating to any of the property owned, leased or
used by them, or applicable to their business, including, but not limited to,
equal employment opportunity, discrimination, occupational safety and health,
environmental, insurance, regulatory, antitrust laws, ERISA and laws relating to
taxes, except to the extent that any such non-compliance would not have a
material adverse effect on the Buyer.
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<PAGE>
(l) No Default. The business of the Buyer is not being conducted in
-----------
default or violation of any term, condition or provision of (i) its certificate
of incorporation or bylaws or similar organizational documents, or (ii)
agreements to which the Buyer is a party, excluding from the foregoing clause
(iii) defaults or violations that would not have a material adverse effect on
the Buyer and would not, or would not be reasonably likely to, materially impair
the ability of the Buyer to consummate transactions contemplated by this
Agreement.
(m) Certain Securities Matters.
----------------------------
(i) The Buyer represents and warrants that (A) the Target Shares are
being acquired by the Buyer for its own account and not with a view to, or for
offer or sale in connection with, any distribution thereof, and it is not
participating and does not have a participation in any such distribution or the
underwriting of any such distribution; (B) the Buyer has sufficient knowledge
and experience in financial and business matters and is fully capable of
evaluating the merits and risks of purchasing the Target Shares; and (C) the
Buyer has not been solicited to acquire the Target Shares by means of general
advertising or general solicitation.
(ii) The Buyer has been furnished with information about and allowed access
to Target's business, books, records, files, and properties and properties and
has had the opportunity to investigate Target's business and assets and to ask
questions of and receive answers from Target sufficient to satisfy the Buyer
that Target's business is reasonably as described by Target.
(iii) Buyer understands that (A) the Target Shares are not registered
under any applicable federal or state securities law in reliance upon certain
exemptions thereunder, (B) the Target Shares may not be sold, transferred or
otherwise disposed of without registration under the Securities Act and
compliance with applicable state securities laws or the availability of an
exemption therefrom; and (C) in the absence of registration under the Securities
Act and compliance with applicable state securities laws or an exemption
therefrom, the Target Shares must be held indefinitely. The Buyer acknowledges
that the reliance of the Target upon such exemption from registration is
predicated upon the foregoing representations.
(iv) Pending Acquisition.The Buyer has provided the Target Stockholders
--------------------
with a copy of a Stock-for-Stock Acquisition Agreement dated June 13, 2000,
among the Buyer, The Affinity Group, Inc, and the Stockholder of The Affinity
Group, Inc., which agreement contemplates the issuance of 5 million Buyer Shares
to the Stockholders of The Affinity Group, Inc.
(n) Market Manipulation. The Buyer has not, directly or indirectly,
--------------------
taken any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of its common stock to facilitate the sale or resale
of its common stock, in any case in violation of any federal or state securities
laws.
6. Covenants. The Parties agree as follows with respect to the period from
----------
and after the execution of this Agreement.
53
<PAGE>
(a) General. Each of the Parties will use its reasonable best efforts to
--------
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below).
(b) Notices and Consents. The Target will give any notices (and will cause
---------------------
each of its Subsidiaries to give any notices) to third parties, and will use its
reasonable best efforts to obtain (and will cause each of its Subsidiaries to
use its reasonable best efforts to obtain) any third party consents, that the
Buyer reasonably may request in connection with the matters referred to in
Section 3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and the
------------------------------------
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3(d) and Section 5(d) above.
(d) Public Market for Buyer Shares. The Buyer will use its best efforts to
-------------------------------
remain current in its periodic reports required to be filed with the SEC, so
that the Buyer Shares (including without limitation, the Buyer Exchange Shares
and underlying shares with respect to warrants and options to be issued pursuant
to this Agreement) remain eligible for quotation on the National Association of
Securities Dealer's Over the Counter Electronic Bulletin Board (the "OTC-BB").
(e) Operation of Business. The Target will not (and will not cause or
------------------------
permit any of its Subsidiaries to) engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Target and its Subsidiaries will authorize or effect
any change in its charter or bylaws, except with respect to the conversion of
the Target from a limited liability company to a corporation as provided in
Section 3(b), (c) and (d) above.
(ii) none of the Target and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Target and its Subsidiaries will declare, set aside,
or pay any dividend or distribution with respect to its capital stock (whether
in cash or in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock, in either case outside the Ordinary Course of Business.
(iv) none of the Target and its Subsidiaries will issue any note,
bond, or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
54
<PAGE>
(vi) none of the Target and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business; and
(vii) none of the Target and its Subsidiaries will commit to any of the
foregoing.
(f) Full Access. The Target will (and will cause each of its Subsidiaries
-------------
to) permit representatives of the Buyer to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Target and its Subsidiaries, to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to each of the Target and its Subsidiaries. The Buyer will treat
and hold as such any Confidential Information it receives from any of the Target
and its Subsidiaries in the course of the reviews contemplated by this section
6(f), will not use any of the Confidential Information except in connection with
this Agreement, and, if this Agreement is terminated for any reason whatsoever,
agrees to return to the Target all tangible embodiments (and all copies) thereof
which are in its possession.
(g) Notice of Developments. Each Party will give prompt written notice to
------------------------
the other of any material adverse development causing a breach of any of its own
representations and warranties in Section 3 and Section 4 above. No disclosure
by any Party pursuant to this Section 6(g), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
(h) Interest from Others. Prior to the satisfaction by the Buyer of the
-----------------------
conditions to the Target's obligations to close this transaction, the Target,
its Subsidiaries, and their directors and officers will remain free to
participate in any discussions or negotiations regarding any proposal or offer
from any Person relating to the acquisition of all or substantially all of the
capital stock or assets of any of the Target and its Subsidiaries (including any
acquisition structured as a merger, consolidation, or share exchange) and to
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing; provided, however, that the Target, its Subsidiaries and the Target
-------------------
Stockholders shall not enter into any agreement with any Person other than the
Buyer for the acquisition of the Target and/or its Subsidiaries or any part
thereof unless such agreement is clearly designated as a "back-up contract,"
subordinated to this Agreement and to be activated only in the event that this
Agreement is canceled without Closing by one or both Parties for failure to
fulfill the conditions of Closing within the time allowed hereunder.
(i) Insurance and Release.
------------------------
(i) The Buyer will provide each individual who served as a member,
director or officer of the Target at any time prior to the Effective Time with
liability insurance for a period of 48 months after the Effective Time no less
favorable in coverage and amount than any applicable insurance in effect
immediately prior to the Effective Time, unless the premium cost of such
coverage is not available at all or is available only at a premium cost (after
any applicable dividends) in excess of $25,000. If such coverage is only
available at a premium cost in excess of $25,000 (after any applicable
dividends), then the period of months after the Effective Time that such
coverage is to be enforced shall be reduced, if possible, to a period of months
for which the premium cost of such coverage is $25,000 (after any applicable
dividends).
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(ii) During the term of the Employment Agreements with the Key
Executives of the Target, the Buyer will observe any indemnification provisions
now existing in the certificate of incorporation or bylaws of the Target and/or
its Subsidiaries for the benefit of any Key Executive who served as a member,
director or officer of the Target and/or its Subsidiaries at any time prior to
the Effective Time.
(iii) The Buyer will release and forever discharge each of the Target
Stockholders who served as a director or officer of the Target at any time prior
to the Effective Time from any and all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including all court costs and attorneys' fees and expenses, resulting
from, arising out of, relating to, in the nature of, or caused by this Agreement
or any of the transactions contemplated herein, except that the Buyer will not
release any of the foregoing individuals from any of the foregoing to the extent
that same also constitutes a breach of such individual's representations and
warranties under Section 3.
(j) Release of Target Stockholders' Personal Guarantees. Prior to Closing,
----------------------------------------------------
Buyer shall secure the release of the Target Stockholders' personal guarantees
of any and all liabilities of the Target and its Subsidiaries, such releases to
be effective at the Effective Time. Personal guaranties of the Target
Stockholders existing on or about the date of execution of this Agreement will
be listed in Exhibit 6(k), and the Target Stockholders will provide a written
"bring-down" of such personal guaranties on the Closing Date.
(k) Post-Closing Covenants of the Buyer.
----------------------------------------
(i) After Closing, the Buyer shall use its best efforts to assist
Reliant in filing a Registration Statement with the SEC and all other applicable
authorities whereby Reliant would distribute the Buyer Shares it receives at
Closing to Reliant's shareholders as a dividend; provided, however, that the
Buyer shall not be responsible for any of the costs of said Registration
Statement or the tax consequences of any such distribution by Reliant.
(ii) The Buyer recognizes that the Target needs adequate financial
resources to achieve its objectives, and agrees to work with Buyer's investment
bankers and Target to develop budgets on an ongoing basis and to provide Target
with up to $10,000,000.
(iii) Upon Closing, Buyer shall fund to Target a loan in the amount
of $800,000. Repayment of this loan shall be made on a non-interest bearing
basis from the cash that is to be funded pursuant to Section 6(k)(iv), below.
(iv) Upon effectiveness of a registration statement relating to a
$125 million equity line of credit to be secured by Buyer, Buyer shall fund to
Target the sum of $5,000,000 for the uses provided in the budget that has been
provided and approved by the parties. Buyer shall use its commercially
reasonable best efforts to cause such a registration statement to become
effective as soon as practicable and to provide $2,500,000 of this funding to
Target within thirty (30) days after the registration statement related to such
equity line of credit becomes effective, and to provide the remaining $2,500,000
of this funding to Target within sixty (60) days after the registration
statement becomes effective.
56
<PAGE>
(v) Each of the three executives of the Target will be treated fairly
relative to the Buyer's other executives at the comparable level of employment
with respect to salaries, benefits and stock options.
(vi) Upon Closing, the Buyer's board of directors shall elect Kevin
Harrington to the Buyer's board of directors.
(vii) The Buyer shall not merge or liquidate or dispose of the Target
during the first 6 months after the Closing.
(viii) Buyer shall not change the board of directors of the Target as it
existed immediately prior to the Closing Date during the first 36 months after
the Closing without the prior written consent of the Target Stockholders.
7. Conditions to Obligation to Close.
--------------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
---------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 3 and
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) The Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) There shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) Buyer's successful closing of its acquisition of The Affinity
Group, Inc.
(v) The Target and the Target Stockholders shall have delivered to the
Buyer a certificate to the effect that each of the conditions specified above in
7(a)(i)-(iv) is satisfied in all respects;
(vi) All actions to be taken by the Target in connection with consummation
of the transactions contemplated in this Agreement and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer; and
(vii) The Buyer shall be reasonably satisfied with the opinion expressed in
the completed audit of Target by the Buyer's auditors at the Buyer's expense,
that the results are not materially adversely at variance with the unaudited
financial information provided to the Buyer by the Target and that the audit
meets the requirements of Regulation S-X of the Securities Act and the
Securities Exchange Act.
57
<PAGE>
(viii) Reliant shall simultaneously at Closing distribute substantially all
of the assets comprising the business of Reliant to the Target as provided in
this 4, and Reliant shall have obtained the approval of its shareholders for
all transactions contemplated by this Agreement, in full compliance with Nevada
Corporate Law and the rules and regulations of the Securities and Exchange
Commission.
The Buyer may waive any condition specified in this 7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
---------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in 5 above shall be
true and correct in all material respects at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) there shall not be any judgment, order, decree, stipulation,
injunction, or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Target and the Target
Stockholders a certificate to the effect that each of the conditions specified
above in 7(b)(i)-(iii) is satisfied in all respects;
v) all actions to be taken by the Buyer in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Target and the Target Stockholders.
The Target may waive any condition specified in this 7(b) if it executes a
writing so stating at or prior to the Closing.
8. Termination.
------------
(a) Specific Performance Subject to (b), (c) and (d), below, Buyer,
---------------------
Target and Reliant each acknowledge and agree that the other parties other would
be damaged irreparably in the event any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are breached,
and each of Buyer, Target and Reliant shall be entitled to enforce specifically
this Agreement and the terms and provisions thereof in any action instituted, in
addition to any other remedy to which they may be entitled, at law or in equity.
(b) Mutual Consent the Parties may terminate this Agreement by mutual
---------------
written consent at any time prior to the Effective Time.
(c) Buyer Termination the Buyer may terminate this Agreement by giving
------------------
58
<PAGE>
written notice to the Target at any time prior to the Effective Time: (i) in the
event the Target or the Target Stockholders has breached any material
representation, warranty, or covenant contained in this Agreement in any
material respect, the Buyer has notified the Target of the breach, and the
breach has continued without cure for a period of 30 days after the notice of
breach or (ii) if the Closing shall not have occurred on or before December 31,
2000, by reason of the failure of any condition precedent under Section 7(a)
hereof (unless the failure results primarily from the Buyer breaching any
representation, warranty, or covenant contained in this Agreement).
(d) Target Termination the Target may terminate this Agreement
-------------------
by giving written notice to the Buyer at any time prior to the Effective Time
(i) in the event the Buyer has breached any material representation, warranty,
or covenant contained in this Agreement in any material respect, the Target has
notified the Buyer of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach or (ii) if the Closing shall not
have occurred on or before December 31, 2000, by reason of the failure of any
condition precedent under Section 7(b) hereof (unless the failure results
primarily from the Target breaching any representation, warranty, or covenant
contained in this Agreement).
9. Miscellaneous.
--------------
(a) Employment Agreements. Contemporaneously with the execution of this
-----------------------
Agreement, Buyer has executed employment agreements with Kevin Harrington, Tim
Harrington and Mel Arthur. Such agreements are attached hereto and shall become
effective upon Closing.
(b) Survival. The representations and warranties of the Parties will
---------
survive the Effective Time for a period of two years. The covenants of the
Parties shall survive the Effective Time for two years, unless a longer period
is required by the terms of the particular covenant for it to be fully
performed, in which case the covenant shall survive for such period plus 6
months.
(c) Press Releases and Public Announcements. No Party shall issue any press
----------------------------------------
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the
disclosure).
(d) No Third Party Beneficiaries. This Agreement shall not confer any
--------------------------------
rights or remedies upon any Person other than the Parties and the Target
Stockholders and their respective successors and permitted assigns; provided,
---------
however, that (i) the provisions in Section 2 above concerning issuance of the
-----
Buyer Shares and certain other provisions concerning certain requirements for a
tax-free reorganization are intended for the benefit of the Target Stockholders
and (ii) the provisions in Section 6(i) above concerning insurance and release
are intended for the benefit of the individuals specified therein and their
respective legal representatives.
(e) Entire Agreement. This Agreement (including the documents referred to
------------------
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(f) Succession and Assignment. This Agreement shall be binding upon and
----------------------------
59
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inure to the benefit of the Parties named herein and the Target Stockholders and
their respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other Party.
(g) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
--
together will constitute one and the same instrument.
(h) Headings. The section headings contained in this Agreement are inserted
---------
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing and will be effective when
---
hand-delivered or upon delivery if sent by commercial courier service such as
Federal Express or Airborne or on the day of delivery or first attempted
delivery if sent by first class, postage prepaid, certified United States mail,
return receipt requested (whether or not the return receipt is subsequently
received), and addressed by the sender:
If to the Target: Copy to:
-------------------- ---------
Kevin Harrington, Chairman and CEO Karl E. Rodriguez, Esq.
2701 N. Rocky Point Drive, Suite 200 34700 Pacific Coast Hwy,
Tampa, FL 33607 Suite 303
Dana Point, CA 92624
If to the Buyer: Copy to:
Robert P. Gordon Peter Futro, Esq.
Chairman and CEO Futro & Trauenernicht, Inc.
TeleServices Internet Group Inc. 1401 - 17th Street, 11th Floor
100 2nd Avenue South, Suite 1000 Denver, CO 80202
St. Petersburg, FL 33701
If to the Target Stockholders:
----------------------------------
At the address for each as set forth next to the name of each on the signature
page hereof.
If to GSCI: Copy to:
------------- ---------
GeneralSearch.com, Inc. Raice Paykin Krieg & Schrader LLP
33W480 Fabyan Parkway, Suite 105 185 Madison Avenue
West Chicago, Illinois 60185 New York, NY 10016
Attn: Jeffrey Bruss Attn: David C. Thomas, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient.
60
<PAGE>
Regardless of the method of delivery, any written notice, request, demand,
claim, or other communication actually received by a party hereto shall be
effective on the date of receipt. Any party hereto, from time to time, may
change his or her or its address to which notice is to be sent pursuant hereto
by sending a notice of such change in conformity with the fore-going
requirements to the other parties to the other parties to this Agreement.
(j) Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the domestic laws of the State of Florida without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Florida or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Florida.
(k) Amendments and Waivers. The Parties may mutually amend any provision of
-----------------------
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
-----------------
any amendment effected subsequent to stockholder approval will be subject to the
restrictions contained in the Florida General Corporation Law. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by both of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(l) Severability. Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(m) Expenses. Each of the Parties will bear its own costs and expenses
---------
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(n) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(o) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
-------------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(p) Facsimile Signatures. Execution and delivery of this Agreement by exchange
--------------------
of facsimile copies bearing the facsimile signature of a party hereto shall
constitute a valid and binding execution and delivery of this Agreement by such
party. Such facsimile copies shall constitute enforceable original documents.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
61
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TELESERVICES INTERNET GROUP INC.
By:/s/Robert P. Gordon
Robert P. Gordon, Chairman and CEO
ASSEENONTVPC.COM, INC.
By:/s/Kevin Harrington
Kevin Harrington, Chairman and CEO
RELIANT INTERACTIVE MEDIA CORP.
By:/s/Kevin Harrington
Kevin Harrington, Chairman and CEO
TARGET STOCKHOLDERS
Reliant Interactive Media Corp.
By:/s/Kevin Harrington
Kevin Harrington, Chairman and CEO
No: of Target Shares Owned: 7,448,821
Address: 2701 N. Rocky Point Drive, Suite 200
Tampa, FL 33607
62
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/s/Kevin Harrington
Kevin Harrington
No: of Target Shares Owned: 900,000
Address: 2701 N. Rocky Point Drive, Suite 200
Tampa, FL 33607
/s/Tim Harrington
Tim Harrington
No: of Target Shares Owned: 900,000
Address: 2701 N. Rocky Point Drive, Suite 200
Tampa, FL 33607
/s/Mel Arthur
Mel Arthur
No: of Target Shares Owned: 900,000
Address: 2701 N. Rocky Point Drive, Suite 200
Tampa, FL 33607
/s/Karl Rodriguez
Karl Rodriguez
No: of Target Shares Owned: 300,000
Address: 34700 Pacific Coast Hwy, Suite 303
Dana Point, CA 92624
GENERALSEARCH.COM, INC.
By:/s/Jeffrey Bruss
Jeffrey Bruss, CEO
63
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--------------------------------------------------------------------------------
Annex B
DISSENTERS' RIGHTS STATUTE
--------------------------------------------------------------------------------
64
<PAGE>
PROVISIONS FOR DISSENTERS' RIGHTS
UNDER NEVADA REVISED STATUTES
92A.380
RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND TO
OBTAIN PAYMENT FOR SHARES. -
1. Except as otherwise provided in NRS 92A.370 to 92A.390, a stockholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of any of the following corporate actions:
(a) Consummation of a plan of Plan of Reorganization to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the Plan of Reorganization
by NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the Plan of Reorganization; or
(2) If the domestic corporation is a subsidiary and is merged with its parent
under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation is a
party as the corporation whose subject owner's interests will be acquired, if he
is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to the
event that the articles of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting stockholders are entitled to dissent
and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS 92A.300
to 92A.500, inclusive, may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to him or
the domestic corporation.
92A.400
LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO SHARES
REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER. -
1. A stockholder of record may assert dissenter's rights as to fewer than all of
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
65
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2. A beneficial stockholder may assert dissenter's rights as to shares held on
his behalf only if:
(a) He submits to the subject corporation the written consent of the stockholder
of record to the dissent not later than the time the beneficial stockholder
asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
92A.410
NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT. -
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to asset
dissenters' rights that the action was taken and send the dissenter's notice
described in NRS 92A.430.
92A.420
PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES. -
1. If a proposed corporate action creating dissenters' rights is submitted to a
vote at a stockholders' meeting, a stockholder who wishes to assert dissenter's
rights:
(a) Must deliver to the subject corporation, before the vote is taken, written
notice of his intent to demand payment for his shares if the proposed action is
effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and NRS
92A.400 is not entitled to payment for his shares under this chapter.
92A.430
DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT RIGHTS;
CONTENTS. -
1. If a proposed corporate action creating dissenters' rights is authorized at a
stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
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2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what extent
the transfer of the shares will be restricted after the demand for payment is
received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the
notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440
DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF RIGHTS OF
STOCKHOLDERS -
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before the
date required to be set forth in the dissenter's notice for this certification;
and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if any,
before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates where
required, each by the date set forth in the dissenter's notice, is not entitled
to payment for his shares under this chapter.
92A.450
UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND FOR
PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER. -
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1. The subject corporation may restrict the transfer of shares not represented
by a certificate from the date the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
92A.460
PAYMENT FOR SHARES: GENERAL REQUIREMENTS. -
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of
a demand for payment, the subject corporation shall pay each dissenter who
complied with NRS 92A.440 the amount the subject corporation estimates to be the
fair value of his shares, plus accrued interest. The obligation of the subject
corporation under this subsection may be enforced by the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered office in
this state, of the country where the dissenter resides or has its registered
office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of income
for that year, a statement of changes in the stockholders' equity for that year
and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS 92A.480;
and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470
PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF DISSENTER'S
NOTICE. -
1. A subject corporation may elect to withhold payment from a dissenter unless
he was the beneficial owner of the shares before the date set forth in the
dissenter's notice as the date of the first announcement to the news media or to
the stockholders of the terms of the proposed action.
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2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
92A.480
DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT CORPORATION;
DEMAND FOR PAYMENT OF ESTIMATE. -
1. A dissenter may notify the subject corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate, less any payment pursuant to NRS 92A.460, or reject the
offer pursuant to NRS 92A.470 and demand payment of the fair value of his shares
and interest due, if he believes that the amount paid pursuant to NRS 92A.460 or
offered pursuant to NRS 92A.470 is less than the fair value of his shares or
that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
92A.490
LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT CORPORATION;
POWERS OF COURT; RIGHTS OF DISSENTER. -
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district court of
the country where its registered office is located. If the subject corporation
is a foreign entity without a resident agent in the state, it shall commence the
proceeding in the country where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign entity was
located.
3. The subject corporation shall make all dissenters, whether or not residents
of Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
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4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired shares for
which the subject corporation elected to withhold payment pursuant to NRS
92A.470.
92A.500
LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND FEES. -
1. The court in a proceeding to determine fair value shall determine all of the
costs of the proceeding, including the reasonable compensation and expenses of
any appraisers appointed by the court. The court shall assess the costs against
the subject corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously or not in good faith
in demanding payment.
2. The court may also assess the fees and expenses of the counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the court
finds the subject corporation did not substantially comply with the requirements
of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to
the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters who are parties to the proceeding, in
amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
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5. This section does not preclude any party in a proceeding commenced pursuant
to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68 or NRS
17.115.
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--------------------------------------------------------------------------------
Annex C
1999 ANNUAL REPORT FOR RELIANT
ON FORM 10-KSB
--------------------------------------------------------------------------------
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FORM 10-K-SB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934)
Commission File Number: 0-26699
Reliant Interactive Media Corp.
formerly Reliant Corporation
Nevada 87-0411941
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
2701 N. Rocky Point Dr., Suite 200, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 282-1717
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 6,310,271
Yes[x] No[] (Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.)
[] (Indicate by check mark whether if disclosure of delinquent filers
('229.405) is not and will not to the best of Registrant's knowledge be
contained herein, in definitive proxy or information statements incorporated
herein by reference or any amendment hereto.)
As of 12/31/99
the aggregate number of shares held by non-affiliates was approximately
5,948,170 shares.
the number of shares outstanding of the Registrant's Common Stock was
6,310,271
Exhibit Index is found on page
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PART I
INTRODUCTION
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.
Our 1934 Securities and Exchange Act Registration, on Form 10-SB-A4, is our
initial public financial report filing with the Securities and Exchange
Commission.
ITEM 1. DESCRIPTION OF BUSINESS.
(A) HISTORICAL INFORMATION. This Corporation Reliant Interactive Media Corp.
(of Nevada) ("the Registrant")(also "We" "Us" and "Our") 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
we acquired our present name, Reliant Interactive Media Corp. On or about March
18, 1999, we moved our place of incorporation from Utah to Nevada without other
changes in its corporate organization.
Our common stock has experienced two reverse-splits, each time, five shares
becoming one share. The numbers we will use are those which give effect to both.
See Item 4, of Part II, Recent Sales of Unregistered Securities for more
information.
BEFORE 1998
In July of 1984, we issued 400,000 shares to the then officers and
directors for cash, at $0.005 per share. In July of 1895, we became a public
company by completing an offering of 2,000,000 shares of common stock, at $0.01,
for $20,000.00, net of offering costs of $5,975, pursuant to Rule 504 of
Regulation D. Our original operating business is somewhat different from its
present business. In June of 1991 we 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, we sought other potential profitable programs, in
the same general industrial area, namely audio-visual marketing, and/or
marketing of audio-visual products.
We ceased business operations and had no significant revenues from business
operations for the period beginning in early 1993 through December of 1998. We
had some slight revenues in 1998, as a carry-over from business operations
unrelated to our current business and products.
In an effort to provide working capital, we engaged in certain limited
offerings and/or private placements of its common stock, selling 300,000 shares
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at $0.10, and selling 1,960,000 for $196,000.00, in 1995. The result of these
transactions was a total issued and outstanding 14,260,000, before giving effect
to two successive reverse-splits. Giving effect to those two reverses, that
amount is now recapitalized at 570,400, and is so identified in our financial
statements.
1998
During the second quarter of 1998, we issued 11,848,000 shares (giving
effect to the first 5 to 1 reverse) for the acquisition of both Kevin Harrington
Enterprises, Inc., a Florida corporation ("Harrington Enterprises"), and Cigar
Television Network ("Cigar TV"), a Florida corporation, both becoming
wholly-owned subsidiaries, and changed our corporate name to Reliant Interactive
Media Corp. These two acquisitions were related-party transactions, by which the
Kevin Harrington and Tim Harrington, brothers, acquired control of his
Registrant Corporation. For more information see Item 7 of this Part I, Certain
Relationships and Related Transactions.
These two acquisitions were as wholly-owned subsidiaries, and not by
merger, such that all three corporations are surviving legal entities. The two
Harrington companies acquired as (2) and (3) above were under common control
when acquired. Giving effect to the second 5 to 1 reverse split, the 11,848,000
became 2,369,600.
We also placed 570,400 shares for cash, at $1.56, and we issued 103,800 for
services valued at $1.25 per share, in 1998.
1999
On or about February 23, 1999, we placed an additional 1,000,000 new
investment shares of common stock to six highly sophisticated investors, for
$330,000.00. These investors received certain special royalty rights in addition
to their stock. These special royalty rights are described in Item 2 of this
Part, Management's Discussion and Analysis.
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 the second
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 Harrington 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.
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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.
In 1999, we placed 1,098,000 shares of common stock for cash at an average
price of $0.86 per share; 43,700 shares for services, valued at $1.15 per share;
100,000 shares for services valued at $0.50 per share; 20,000 shares for
investment in Tony Little Web site at $0.50; and 1,500,000 shares for
acquisition of TPH Marketing Inc., valued at $0.50 per share. We issued 1 share
as a technical adjustment for fractional shares, in connection with our most
recent reverse split.
About March 23, 1999, we acquired 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
Harrington having received 700,000 shares. The shares were valued at the most
recent cash price of the stock which was $0.50 per share. There were no
operations by TPH Marketing Inc., prior to the acquisition, the Company was
mainly purchasing the services of the President and that is why the excess of
the purchase price over the net book value of the TPH is being charged to
operation expense, as compensation to those Officers. The business acquired in
1999, TPH Marketing, Inc., does not qualify as a "significant subsidiary"
because it had no revenues or assets prior to acquisition. Shares issued for
acquisition were issued pursuant to Rule 145, and Section 4(2) of the Securities
Act of 1933.
On or about April 1, 1999, the Issuer compensated Lifestyle Marketing with
40,000 shares of common stock, pursuant to Section 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. On or about April 28, 1999, 4,000 new investment shares
of common stock were issued to Coffin 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 for miscellaneous Y2K
infomercial services valued at $1.00 per share. On December 9, we issued 25,000
restricted common shares to Bruce Dworsky, as additional compensation, and
100,000 restricted common shares, valued at $0.50 per share, to Member Services
of America as consideration for customer referrals. On December 14, 1999, we
issued 50,000 restricted common shares to Eddie Mishan for services rendered
relating to the steam iron project.
All of the foregoing "New Investment Shares" were issued pursuant to
Section 4(2) as restricted securities.
(B) THE BUSINESS OF REGISTRANT AND ITS SUBSIDIARIES. We 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.
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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 Harrington, 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 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.
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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".
We have 30 infomercial programs in our library. There are an additional 7
programs in various stages of development.
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, 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.
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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. Web
site activities are presently operational. We are now displaying our web site
address in all new infomercials produced, in an effort to attract users to the
www.rimc.com site. There users will be able to order products via the Internet,
and would also be exposed to our other products being offered. This concept is
in its early implementation stage. We are just beginning to employ it, and for
that reason, we have no results or statistical information to report or disclose
other than the following.
Revenues from web site activities were insignificant in 1999, and for that
reason no statistical information was formulated for the limited period that web
sites have been operational, other than provided in the following table. For
year the 2000, we will have more detailed statistical information concerning web
site sales of products as well as the information presented as follows:
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
lifestylemall.com cigar.com rimc.com
------------------------------------------------------------
Users/6 months 19,545 8,875 133,348
Average Users Daily 107 48 732
Hits/6 months 187,086 120,005 1,404,238
Average Hits Daily 1,031 659 7,715
=================== ================= ========= =========
</TABLE>
The Cigar Television Network is a wholly-owned subsidiary of Reliant. This
subsidiary has transferred its two primary business activities to us to operate.
We are now responsible for the marketing and sales of a line of cigar lighters
and the CigarNow.com web site. We are now selling a line of Cobee lighters/cigar
cutters, including dual-flame and triple-flame lighters. CigarNow.com was our
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.
Reliant 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 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
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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 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.
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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
Asmall 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 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.
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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 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.
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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. We have 30 infomercial
programs in our library. There are an additional 7 programs in various stages of
development.
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 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 light-weight 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.
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ENDURO BITS. Enduro Bits utilize a high-tech metallurgical 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 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.
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
OUR 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.
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(C) FINANCING PLANS. For more information, please see Item 6 of Part II,
Management's Discussion and Analysis.
(D) GOVERNMENT REGULATION. There are no issues of government regulation unique
to this Registrant or its business.
(E) COMPETITION. Our business is a highly competitive field. Many competitors,
some older and better capitalized firms engage in our business. Market share in
our business fluctuates constantly. No one has or can claim any stable market
share.
(F) PLANNED ACQUISITIONS. There are no planned acquisitions.
(G) EMPLOYEES. See Item 2, following.
ITEM 2. DESCRIPTION OF PROPERTY.
Our principal offices and rent are described in Item 3 of this Part. are
located at 2701 N. Rocky Point Drive, Suite 200, Tampa, Florida, 33607
Telephone: (813) 282-1717 Facsimile: (813) 282-0045. The Company currently
leases approximately four thousand (4,000) square feet of office space pursuant
to a year lease for its Clearwater, Florida, principal executive offices. The
lease, which commenced in 1999, provides for monthly rent of $6,750.42 or annual
rent payments of $81,005.04. The facility encompasses 25 separate offices and a
board room. We have 7 full-time employees and 3 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.
We had leased initially approximately four thousand (4,000) square feet of
office space pursuant to a year lease for our 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. Some additional space was later taken at a
monthly rent of $16,400.00, which annualized to $196,800.00. We have entered
into a new lease for Suite 200, Island Center, 2701 N. Rocky Point Drive, Tampa
Florida 33607, dated January 13, 2000, and commenced February 25, 2000. The
premises leased constitutes 5,923 square feet on the second floor, and an
additional 1,080 square feet of unallocated space in the building. We estimate
that rent expenses will be about $40,000 per quarter, for the next year and
increase approximately 4% per year over the five year term of the lease, net of
subleases, and will continue to decrease as a percentage of sales.
ITEM 3. LEGAL PROCEEDINGS.
There are no proceedings, legal, enforcement or administrative, pending,
threatened or anticipated involving or affecting this Issuer, except as
disclosed herein. The Registrant has been named as a defendant in California
state court action seeking damages for rent based upon an oral lease/agreement.
Management has cross-complained against certain third parties believed to be
responsible. Management intends to defend this action vigorously and does not
consider this action to be meritorious, as against it, or a significant
financial exposure to it in any case.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND STOCKHOLDER MATTERS.
(A) MARKET INFORMATION. The Company, has one class of securities, Common
Voting Equity Shares ("Common Stock"). The Company's Securities may be quoted in
the over-the-counter market on the OTCBB, but there is a young, sporadic and
potentially volatile trading market for them. Quotations for, and transactions
in the Securities, and transactions are capable of rapid fluctuations, resulting
from the influence of supply and demand on relatively thin volume. There may be
buyers at a time when there are no sellers, and sellers when there are no
buyers, resulting in significant variations of bid and ask quotations by
market-making dealers, attempting to adjust changes in demand and supply. A
young market is also particularly vulnerable to short selling, sell orders by
persons owning no shares of stock, but intending to drive down the market price
so as to purchase the shares to be delivered at a price below the price at which
the shares were sold short. There was no substantial market activity before
December 1998. Based upon standard reporting sources, the following information
is provided:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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 4th 1999 5.875 2.75
======== ======== ======= ============ ======== =======
</TABLE>
(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, mark-down 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.
(D) SALES OF UNREGISTERED COMMON STOCK 1999.
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,
addition to acquiring those shares, the investors will receive certain special
royalties described in Management's Discussion and Analysis. The circumstances
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of the special investment are described as follows. Kevin Harrington, the
President of this Registrant, knowing of the Registrant's need for funds
approached the former President, Kent Rainey, as one somewhat familiar with the
Registrant Company, to provide information about the Registrants current plan
and operations, and to solicit his interest in interesting a small group of
investors to help out. The other five investors were introduced by Kent Rainey.
Three of the investors were already non-affiliate shareholders of the
Registrant. The Registrant is aware of no facts to suggest that these investors
are affiliates of each other in any material way, other than as mentioned.
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 '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 '4(2) of the 1933 Act, for $25,000.00. Kevin Harrington having been
associated with that association, the purchaser had a pre-existing relationship
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 Realty of Cincinnati, Ohio, as a personal friend of Kevin
Harrington, purchased 40,000 new investment shares of common stock, pursuant to
'4(2) of the 1933 Act, for $25,000.00. The purchaser had a pre-existing
relationship with the Company, and had access, by virtue of that relationship to
the kind of information which registration would have provided.
About March 23, 1999, we acquired 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
Harrington having received 700,000 shares. The shares were valued at the most
recent cash price of the stock which was $0.50 per share. There were no
operations by TPH Marketing Inc., prior to the acquisition, the Company was
mainly purchasing the services of the President and that is why the excess of
the purchase price over the net book value of the TPH is being charged to
operation expense. The business acquired in 1999, TPH Marketing, Inc., does not
qualify as a Asignificant subsidiary@ because it had no revenues or assets prior
to acquisition. Shares issued for acquisition were issued pursuant to Rule 145,
and '4(2) of the Securities Act of 1933; however we have since determined to
treat the issuance of these shares as compensation to our officers.
On or about April 1, 1999, the Issuer compensated Lifestyle Marketing with
40,000 shares of common stock, pursuant to Section 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.
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On or about April 28, 1999, 4,000 new investment shares of common stock
were issued to Coffin 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 for miscellaneous Y2K infomercial services valued at $1.00 per share.
On December 9, 1999, we issued 25,000 restricted common shares to Bruce
Dworsky, an employee, as additional compensation.
Also on December 9, 1999, we issued 100,000 restricted common shares,
valued at $0.50 per share, to Member Services of America as consideration for a
referral program to its discount buyer's club for the referrals of our customers
made to the buyer's club. We generated revenues of $1,000,000 by reason of these
referrals.
On December 14, 1999, we issued 50,000 restricted common shares to Eddie
Mishan for services rendered relating to the steam iron project.
All of the foregoing "New Investment Shares" were issued pursuant to
Section 4(2) as restricted securities.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(A) PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
CASH REQUIREMENTS AND OF NEED FOR ADDITIONAL FUNDS.
We are "a development stage Company" and have only limited capital
resources. While revenues are increasing significantly, it is necessary for the
Company to seek additional capital over time to optimize the accomplishment of
its business plan. The following disclosure treats our interim funding for the
year now past, and our plans and arrangements for future funding.
On or about February 23, 1999, the Company received $330,000.00 for the
sale of 1,000,000 new investment shares of common stock (before the second
reverse split) from six highly sophisticated investors. For information about
these investors, please refer to Item 4 of Part II, Recent Sales of Unregistered
Securities. This special investment program was specifically targeted to
infomercial production, by means of a special royalty arrangement with the
investors: the investors will receive an aggregate of 5% of the gross revenues
(as defined by agreement) from sales generated by four specified 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%. The price was arrived at in arms-length negotiations in the
context of the entire transaction. The Company expects to value the 1,000,000
shares at the investment price of $330,000.00 and to treat royalty payments to
investors as expenses, in the same manner as if royalty payments were not
connected with the purchase of shares.
These 1,000,000 shares are included in the earnings per share analysis,
found in the financial statements of this Registrant.
About March 23, 1999, we acquired 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
Harrington having received 700,000 shares. The shares were valued at the most
recent cash price of the stock which was $0.50 per share. The business acquired
in 1999, TPH Marketing, Inc., does not qualify as a "significant subsidiary"
because it had no revenues or assets prior to acquisition. There were no
operations by TPH Marketing Inc., prior to the acquisition, the Company was
mainly purchasing the services of the President. For that reason, the excess of
the purchase price over the net book value of the TPH is being charged to
operation expense, as compensation to those Officers. This was an extraordinary
charge against income is not a recurring or normal expense.
On or about March 24, 1999, the Company 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 received 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 were
authorized in March and issued in May of 1999, with all legal rights, but, due
to inadvertence and oversight only, the printing and delivery of the certificate
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were delayed. These shares are included in our income per share calculations.
The Company expects to value the shares at $250,000.00. We will treat royalty
payments to investors as expenses, in the same manner as if royalty payments
were not related to purchase of shares.
Although Mr. Rodriguez is a director of both our corporation and Oasis
Entertainment's Fourth Movie Project, Inc., and although the transaction is
deemed a related-party transaction for that reason, Mr. Rodriguez has no
financial interest in the Oasis funding arrangement and is not a shareholder of
Oasis. He serves as its Secretary and General Counsel only.
We were able to generate enough sales revenues to satisfy our cash
requirements through the end of 1999. Our evaluation of the next twelve months
is different.
Without regard to whether current revenues might be sufficient to maintain
liquidity, new projects must be undertaken to generate future revenues. Every
media-marketing project has a useful life, some longer or shorter than others,
but all eventually run their course. We do not consider it prudent to be passive
about generating new projects, and we have determined that significant new funds
are highly desirable, and possibly necessary to aggressively approach operations
in year 2000.
The Registrant has entered into two letter agreements with Institutional
Equity Corporation ("IEC"):
First, an engagement letter for IEC to conduct a private placement for us,
to raise a minimum of $500,000 and a maximum of $2,000,000 (to be in reliance on
Regulation D, Rule 506, and section 4(2) of the Securities Act of 1933). Units
consisting of 10,000 shares each are to be sold for $20,000 each. This placement
has been opened and was to be completed by March 31, 2000, but has been extended
by a maximum of 90 additional days. IEC is to be paid a fee equal to 10% of the
proceeds and has the right to acquire up to 100,000 shares of common stock, at
$3.00 per share, for every million dollars raised, or a proportional fractional
adjustment. This right to acquire shares lasts until 18 months from the closing
of the placement. The placement is on a best efforts basis. There is no guaranty
that any shares will be placed.
Second, a firm commitment has been received from IEC to raise $10,000,000
in a registered offering of securities. The structure of this offering has not
been determined. Gross underwriting discounts of approximately 10% of the
offering price and a 2% non-accountable expense allowance is to be paid to IEC
from these offering proceeds. A $50,000 fee has been paid towards an advance of
$100,000 to be applied against the gross underwriting commissions. This $50,000
fee was funded by a loan of that amount for Reliant from Oasis Entertainment's
Fourth Movie Project, Inc., a shareholder of Reliant. The loan is payable in six
months from December 1, 1999, and bears 10% interest per annum. The expenses of
IEC in connection with this offering will also be reimbursed from the offering
proceeds and are estimated to be $650,000. IEC will also receive warrants for
10% of the securities purchased by underwriters, good for four years, at an
exercise price of 120% of the offering price.
Third, as of the date of this filing, the private placement is still open,
and at this date a total of $360,000.00 has been placed in escrow. A minimum of
$500,000.00 must be raised in order to satisfy the escrow and release funds. The
Reliant has no control over the escrow, and no shares are sold or placed, or can
be sold or placed until the minimum is reached. If the minimum is not reached,
there will be no placement. For the reason that no final transactions have taken
place, the tentative deposits in escrow are not deemed to be assets of or
capital of Reliant and are not reflected in our financial statements.
While there is no guaranty that funding plans will materialize as expected,
we believe that our present arrangements will provide sufficient working capital
to optimize operations for the next twelve months.
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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.
EXPECTED PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT. None.
EXPECTED SIGNIFICANT CHANGE IN THE NUMBER OF EMPLOYEES. None.
(B) DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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, with continued
improvement throughout that year. 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.
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. Revenues increased significantly in 1999; however such
increase should not be considered dramatic, for 1999 was the first real year of
operation under our present business plan. The first quarter was one in which
the Harringtons put in place personnel and selected the first products to
produce.
The second quarter was one in which we aired two successful shows (Trash or
Treasure and Sobakawa Insoles). We also aired other shows which were not so
successful in that quarter. It is not to be expected that every project would be
a stellar success, and two successes in a single quarter is considered a good
result by us.
During the third quarter, we increased staff with a producer and associate
producer for our infomercials, to have better continuity and control of the
details of our production activities. These are two new salaried individuals.
Several other shows were tested during this period. Two of them became
successful (Wonder Steamer and Pest Offense). We also developed our successful
computer infomercial.
During the final quarter of 1999, sales continued to grow from projects in
place, led by those developed in the previous quarters and the new computer
infomercial. Management believes that revenues and growth will continue to
increase, but to achieve the continued growth of the Company's 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 in
proportion to the rate of growth achieved in 1999.
REVENUES ARE INCREASING. There were no revenues in 1997. Sales in 1998 were
$120,234. In 1998, costs of sales were 66,664, and gross profit was 53,580.
Annual and quarterly comparison of 1999 and 1998 show the following
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Net Sales 21,442,009 120,234
Cost of Sales -15,666,658 -66,654
Gross Profit 5,775,351 53,580
============= =========== =======
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
------------------------------------------------
March 31 Net Sales 352,477 30,059
Cost of Sales -284,523 -16,664
Gross Profit 67,954 13,359
June 30 Net Sales 2,885,013 30,059
Cost of Sales -1,602,622 -16,664
Gross Profit 1,282,391 13,395
September 30 Net Sales 5,918,342 31,125
Cost of Sales -3,818,734 -17,223
Gross Profit 2,099,608 13,902
December 31 Net Sales 12,286,177 28,991
Cost of Sales -9,958,780 -14,105
Gross Profit 2,327,397 14,886
============= ========== =======
</TABLE>
Our Sales continue to improve along with our Gross Profit from Sales, after
Cost of Sales. This improvement is largely due to the difference between
limited operations, and the economy and efficiency of unlimited operations,
beginning in 1999, and especially in April of 1999. It is also attributable to
the marketing of different products from those currently offered by the Company.
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. Our business in 1998 was not the same as our business beginning in 1999.
Revenues have improved in every quarter of operations in 1999. We expect them to
continue to improve in the next twelve months. Certain expenses, such as
production and media costs are related to revenue creation and would be expected
to rise in some proportion to revenues.
We have new products to sell each period, in additions to others, so that
the number of products increase from period to period. For the first quarter
there were 5, for the second 8, the third 8, and the fourth 10 products for
sale. We just recently initiated marketing of products on the QVC home shopping
channel. On QVC we are beginning to sell some products in the traditional
short-form live segments that are seen on television shopping networks. These
new revenues are insubstantial as of the end of 1999, but are expected to become
a significant component of total revenues as more products are sold and exposure
increases on the shopping network.
Product sales are expected to increase in direct proportion to our ability
to acquire media time to promote them. Promotional advertising drives sales in
our business. It is for this reason that increasing revenues do not provide
assurance that markets have been saturated with as much advertising as would be
productive. For this reason, additional capital, whether or not necessary for
fundamental survival, is desired and important for optimum growth.
Cost of goods sold included the total cost of acquiring actual products
acquired for resale and costs and expenses related to sales. Returns and
allowances are deducted from sales. The largest single segment and most material
factor is infomercial production and media costs. These operations are not only
the major area of expense, but it is these activities which drive sales. It is
generally reliable in this industry that higher media costs are required for
increased sales.
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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. These figures reflect
a continuing improvement in this relationship, due to expanding operations,
additional products and customers. These expenses do not rise proportionally as
revenues increase.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
March 31 Operating Expenses 699,101 228,027
Operating Income/(Loss) (631,147) (214,632)
June 30 Operating Expenses 1,907,567 228,027
Operating Income/(Loss) (625,170) (214,632)
September 30 Operating Expenses 1,690,604 326,102
Operating Income/(Loss) 409,004 (312,200)
December 31 Operating Expenses 2,775,036 446,558
Operating Income/(Loss) (449,644) (433,670)
Annual Operating Expenses 7,072,308 1,228,714
December 31 Operating Income/(Loss) (1,296,957) (1,175,134)
============ ======================= =========== ===========
</TABLE>
Total operating expenses are declining as a percentage of sales, even as
total expenses are increasing with expanded operations. In 1999 operating
expenses were 33% of gross sales, while in 1998, they were more than 1000%. A
more meaningful comparison by quarters of 1999 shows the following.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
----------------------------------------------------------------
March 31 Operating Expenses as % of sales 198.34 758.60
June 30 Operating Expenses as % of sales 66.12 758.60
September 30 Operating Expenses as % of sales 28.57 1,047.72
December 31 Operating Expenses as % of sales 22.59 1,540.33
Annual Operating Expenses as % of sales 32.98 1,021.94
============ ================================ ====== ========
</TABLE>
We achieved marginal profitability in the third quarter, but certain
expenses incurred in the fourth quarter have offset our profitability for that
quarter and the year 1999. In the fourth quarter we incurred Royalty expenses of
$287,724. No Royalty expenses were incurred in the previous three quarters. In
addition, cost of sales increased disproportionately in the fourth quarter, due
to two principal factors. We incurred costs of sales in the fourth quarter for
projects to marketed in the following quarter. It is chiefly our investment in
media costs for the next quarter which we feel accounts for our fourth quarter
total profitability decrease from the third quarter. We would expect to profit
in year 2000 from our increased productivity in this most recent quarter. Of
course, there can be assurance that our new projects will achieve the
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anticipated results. We do not and cannot expect success in every project.
During the fourth quarter some of our projects have not shown the success hoped
for, even as our total sales and gross profit increased in gross amounts.
There are other expenses that are not expected to rise proportionally.
General and administrative expenses would not rise proportionally as projects
increase and revenues improve. We are able to generate increasing revenues
without significant increase in employees, as production and fulfillment
activities are generally out-sourced. General & Administrative expenses include
the following: fulfillment costs; automobile expense; banking fees; consulting
fees; insurance; office supplies; postage & delivery; professional fees;
salaries and wages; telephone; and travel & entertainment.
Research and Development is trending downward as a decreasing percentage of
sales. Research and Development costs should remain constant as they represent
costs associated with development of new infomercial promotional projects,
rather than new technologies. It does not include royalties on rights acquired.
It does not include the cost of acquiring products for resale. It does not
include production and media costs or marketing. It involves searching for new
products, obtaining rights to sell them, and possible refinement in the
products, to achieve more economic manufacture and resale at attractive pricing.
At any given time, there would normally be at least one or two products/projects
under development. At the present time, however, there are seven infomercials in
various stages of development. The number in development will decrease, while
the number in media, producing revenues will increase. While the costs are
expected to remain substantially constant, they would be expected to decrease as
a percentage of sales.
Production and Media Costs expenses were not a factor in 1998, due to the
differing nature of products marketed. These expenses reflect an improvement in
the ratio of these expenses to sales, even as total costs increase with
expanding operations. Production and media costs, consisting of the cost of
producing media productions and the costs of buying media slots, are estimated
to settle in the range of 40% to 50% of sales, overall. This average allows for
less successful or unsuccessful projects. Media expenses for successful projects
will be between 35% and 46% of sales, proportionally.
Marketing costs reflect an improvement in the ratio of these expenses to
sales, even as total costs increase with expanding operations. Marketing,
consisting of consumer relations and internet promotion is expected to decrease,
as a percent of sales over time. Marketing includes participation in various
trade shows, telemarketing expenses, other marketing expenses and prepaid
advertising. It does not include media buys in direct infomercial advertising
for immediate product fulfillment. Those items are production and media expenses
which are a part of the Cost of Sales.
We had leased initially approximately four thousand (4,000) square feet of
office space pursuant to a year lease for our 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. Some additional space was later taken at a
monthly rent of $16,400.00, which annualized to $196,800.00. We have entered
into a new lease for Suite 200, Island Center, 2701 N. Rocky Point Drive, Tampa
Florida 33607, dated January 13, 2000, and commenced February 25, 2000. The
premises leased constitutes 5,923 square feet on the second floor, and an
additional 1,080 square feet of unallocated space in the building. We estimate
that rent expenses will be about $40,000 per quarter, for the next year and
increase approximately 4% per year over the five year term of the lease, net of
subleases, and will continue to decrease as a percentage of sales.
PROFITABILITY, as indicated previously, appeared in the third quarter of
1999. It is expected to continue to improve, notwithstanding our increased
investment during the fourth quarter. The achievement of marginal profitability
in the third quarter does not guaranty that the trend to increasing
profitability will follow. However, it appears to management that operations are
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expanding in an orderly and promising manner, and that expenses are being
managed appropriately. Gross Profit has improved with sales. As most other costs
remain constant, or decrease, as percent of sales, total profitability, as such
a percentage, will fluctuate inversely with the cost of goods sold. Product
costs, as distinguished from infomercial production and media costs, must be
kept under control to maintain real profitability. While higher media profile
and quality of infomercial production tend to increase sales, increased cost of
products sold would have a depressing effect upon profitability. On the one
hand, Infomercial products need to be attractively priced. On the other, the
cost of producing the products must be controlled and managed well.
BALANCE SHEET. As previously stated the dramatic increase in corporate
financial condition during 1999, as compared to 1998, is not considered
instructive. The 1999 activities should be viewed as the start-up of a new mode
of business activity in 1999, with some apparent success and improvement in the
financial condition of the Registrant, due particularly to increasingly
successful operations. Fortunes may change, however, and no assurance ever
exists that profitable trends will continue, or that the future will be like the
past. A company's initial growth may not be indicative of a sustainable rate of
continued growth. While the Registrant has not yet achieved its potential, there
can be no certain prediction at what level its growth may slow, or when, if at
all, it may reach an optimum level of operations.
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.
CONCLUSION. While this Company is presently able to manage its present
phase of development, for an 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 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. Additional infusion of capital is a factor of
importance in managing our growth optimally.
ITEM 7. FINANCIAL STATEMENTS.
Please see the Exhibit Index found on page 34 of this Report. The financial
statements listed therein, attached hereto and filed herewith are incorporated
herein by this reference as though fully set forth herein.
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9.
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
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, 43, 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 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, 34, 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.
99
<PAGE>
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 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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Based solely upon a review of
Forms 3, 4 and 5 furnished to the Company, the Company is not aware of any
person who at any time during the fiscal year ended December 31, 1999 was a
director, officer, or beneficial owner of more than ten percent of the Common
Stock of the Company, and who failed to file, on a timely basis, reports
required by Section 16(a) of the Securities Exchange Act of 1934 during such
fiscal year.
ITEM 10. 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. The Company's
Officers and Directors serve with the following elements of compensation at this
time.
SUMMARY COMPENSATION, TABLE A. the disclosure of Executive compensation is
now provided in the tabular form required by the Securities and Exchange
Commission, pursuant to Regulation ' 228.402.
The Remainder of this Page is Intentionally left Blank
100
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
a b c d e f g h i
Securi-
Restric- ties
Name Other ted Under- All Other
and Salary Bonus Annual Stock lying LTIP Compen-
Principal Year ($) ($) Compen- Awards Options Payouts sation
Position sation ($) ($) SARs (#) ($) ($)
Kevin Harrington 1999 120,000 (d)(1) 0 (f)(1) (g)(1) (h)(1) 0
CEO (1)
1998 10,000 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Tim Harrington 1999 96,000 (d)(2) 0 (f)(2) (g)(2) (h)(2) 0
COO (2)
1998 8,000 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Mel Arthur 1999 41,500 0 0 175.000 100,000 (h)(3) 0
(f)(3) (g)(3)
VP (3)
1998 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
==== ==================== ======================= ========== ========= ======== ======== ==========
</TABLE>
NOTES TO TABLE A:
(d)(1)(2)(3) Bonuses are based on 0.009% (Kevin Harrington), 0.006% (Tim
Harrington) and none (Mel Arthur), all of Adjusted Gross Revenues for 1999.
These year end figures have not yet been calculated. The amount of bonuses is
expected to take Tim Harrington (2) over $100,000. It is not expected to take
Mel Arthur (3) to that level. Information respecting Mr. Arthur is included
voluntarily for the reason that these three are the only highly compensated
employees expected to remain so in the future.
(f)(1)(2)(3) / (g)(1)(2)(3) / (h)(1)(2)(3) Again, these restricted stock awards
for 1999 cannot be determined until completion of 1999 audit. Mel Arthur was
awarded restricted stock in advance, but may be entitled to further award, based
on final 1999 results.
ADDITIONAL DISCUSSION.
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
AADJUSTED GROSS REVENUES@ as hereinafter defined. Mel Arthur is scheduled to
receive $3,500 per month.
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 medical 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.
101
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 through Dec 31 Accrued $ Paid $ Deferred $
Kevin Harrington 120,000.00 0 120,000.00
Tim Harrington 96,000.00 5,000 91,000.00
Mel Arthur 41,500.00 8,125 33,375.00
Karl Rodriguez 0 0 0
=================== ========== ====== ==========
</TABLE>
As previously indicated, certain unexercised options and bonuses, are
disclosed in detail in Tables.
TABLES B AND C
OPTIONS, AWARDS AND BENEFITS
The Company has provided certain additional bonuses, incentives and
benefits for Kevin Harrington, Tim Harrington and Mel Arthur, all pursuant to
'4(2) of the 1933 Securities Act, as follows. First the compensatory option
plan. No options have been exercised.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Optionee DateofGrant Date Exercisable Expiration Date Exercise Price NumberofOptions
Kevin Harrington 60,000
Tim Harrington 30 June 99 30 Dec 99 30 June 04 $ 2.50 40,000
Mel Arthur 5,000
Kevin Harrington 60,000
Tim Harrington 30 June 99 30 June 00 30 June 04 $ 4.00 40,000
Mel Arthur 5,000
Kevin Harrington 60,000
Tim Harrington 30 June 99 30 Dec 00 30 June 04 $ 6.00 40,000
Mel Arthur 5,000
Kevin Harrington 60,000
Tim Harrington 30 June 99 30 June 01 30 June 04 $ 7.50 40,000
Mel Arthur 5,000
================ ===============
</TABLE>
" The Remainder of this Page is Intentionally left Blank
102
<PAGE>
The foregoing options are carried in the
following table as "Compensatory Option Plan".
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Additional Kevin Harrington Tim Harrington Mel Arthur
Bonuses,
Incentives/Benefits
COMPENSATORY STOCK 6 months: 60,000 6 months: 40,000 6 months: 5,000
OPTION PLAN shares @ $2.50 shares @ $2.50 shares @ $2.50
(SEE PREVIOUS TABLE)
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 PERFORMANCE For each $10,000,000 For each $10,000,000 For each $10,000,000
STOCK BONUS in gross revenues, in gross revenues, in gross revenues,
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 month
period) period) period)
STOCK TRADING Purchase 144,000 Purchase 100,000 Purchase 12,500 shares
shares if trading at $15; shares if trading at $15; if trading at $15;
PERFORMANCE STOCK 144,000 shares if 100,000 shares if 12,500 shares if trading
OPTIONS @ $7.50 PER trading at $20; 192,000 trading at $20; 120,000 at $20; 15,000 shares if
SHARE shares if trading at $25. shares if trading at $25. trading at $25.
LIFE, HEALTH & Yes Yes Yes
DISABILITY INSURANCE
AUTOMOBILE $ 1,000/month $ 750/month $ 500/month
===================== =========================== =========================== ==========================
</TABLE>
The first group of Options exercisable December 31, 1999 have vested. None
of the options have been exercised. Revenue Performance Stock Bonuses are
believed to have been earned or will be earned in early 2000. No Stock Trading
Performance Options have been earned, or are likely to be earned in the next six
months; however options based on market performance are speculative and subject
to uncontrollable market forces. No one can predict nor should predict how the
market will respond to our common stock.
ITEM 11. 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.
103
<PAGE>
(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 D 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 10 of
this Part, for details as to entitlement, terms of exercise and prices for the
Options disclosed.
The Remainder of this Page is Intentionally left Blank
104
<PAGE>
TABLE D
COMMON STOCK
OFFICERS AND DIRECTORS AND OWNERS OF 5% OR MORE
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address of Beneficial Owner Actual
Ownership %
Kevin Harrington Chairman and CEO 2,156,101 34.17
80 Gulf Blvd
Belleair Beach FL 33786
Tim Harrington President and COO 1,100,000 17.43
531 Rafael Blvd NE
St. Petersburg FL 33704
Mel Arthur, Executive Vice President 105,000 1.66
12001 9th St N #2509
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 53.28
Total Shares Issued and Outstanding 6,310,271 100.00
===================================== ========= =======
</TABLE>
As more fully developed, discussed and disclosed hereinafter, the following
discloses the amount of shares which each beneficial owner shown in Table D 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.
The following table, 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 10 of this Part, for details as to entitlement,
terms of exercise and prices for the Options disclosed.
TABLE E
60 day Exercisable Option/Bonus Rights
--------------------------------------------------------------------------------
Compensatory Stock Option Plan (See Exhibit 6.2):
Kevin Harrington - 6 months: 60,000 shares @ $2.50
Tim Harrington - 6 months: 40,000 shares @ $2.50
Mel Arthur - 6 months: 5,000 shares @ $2.50
Revenue Performance Stock Bonus
--------------------------------------------------------------------------------
Kevin Harrington - For each $10,000,000 in gross revenues, issuance of 100,000
shares up to a total of 3,000,000 shares (no more than 1/6 of
total to vest in any 6 month period).
--------------------------------------------------------------------------------
Tim Harrington - For each $10,000,000 in gross revenues, issuance of 100,000
shares up to a total of 2,000,000 shares (no more than 1/6 of
total to vest in any 6 month period).
--------------------------------------------------------------------------------
Mel Arthur - For each $10,000,000 in gross revenues, issuance of 100,000
shares up to a total of 900,000 shares (no more than 1/6 of
total to vest in any 6 month period).
===============================================================================
105
<PAGE>
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 F discloses the effect of share ownership as if all of
the those 60 vestings and rights were exercised. 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 F
EFFECT OF OPTION EXERCISE ON SHARE OWNERSHIP
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shares Actual and as Attributed
Options Total if
Option Owner % and awards Options %
Exercised
----------------------------------------------------------------------------------------------
Kevin Harrington 2,156,101 34.17 160,000 2,316,101 34.49
Tim Harrington 1,100,000 17.43 140,000 1,240,000 18.47
Mel Arthur 105,000 1.66 105,000 210,000 3.13
Total Shares/Options 6,310,271 100.00 405,000 6,715,271 100.00
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
Areverse 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 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Kevin and Tim Harrington are brothers and officers and directors of our
Company. Both of them are the owners of business interests acquired by this
Company; namely, Kevin Harrington Enterprises (Kevin Harrington), and Cigar
Television Network (Tim Harrington).
We 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 Harrington having received 700,000
shares.
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.
106
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS PAGE
--------------------------------------------------------------------------------
F-1 Audited Financial Statements: for the
Years Ended December 31, 1999 and 1998 34
================================================================================
(B) FORM 8-K REPORTS. None.
(C) EXHIBITS. None other filed with this Report.
107
<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
<TABLE>
<CAPTION>
<S> <C>
/s/ /s/
Kevin Harrington Tim Harrington
chairman and ceo/director president and coo/director
/s/ /s/
Mel Arthur Karl E. Rodriguez
executive vice president/director secretary/director
--------------------------------- --------------------------
</TABLE>
108
<PAGE>
--------------------------------------------------------------------------------
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
--------------------------------------------------------------------------------
109
<PAGE>
C O N T E N T S
Independent Auditors Report 111
Consolidated Balance Sheet 112
Consolidated Statements of Operations 114
Consolidated Statements of Stockholders Equity 116
Consolidated Statements of Cash Flows 117
Notes to the Consolidated Financial Statements 119
110
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS REPORT
--------------------------------------------------------------------------------
Board of Directors
Reliant Interactive Media Corporation
and Subsidiaries
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Reliant
Interactive Media Corporation and Subsidiaries at December 31, 1999 and the
related consolidated statements of operations, stockholders equity and cash
flows for the years ended December 31, 1999 and 1998. 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 as of December 31, 1999 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
__________/s/____________
Jones, Jensen & Company
Salt Lake City, Utah
April 7, 2000
111
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
December 31,
1999
--------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 26,404
Restricted cash (Note 1) 983,795
Receivables - other (Note 4) 800,076
Inventory (Note 1) 57,762
Employee advances 10,923
Prepaid expenses 229,128
Total Current Assets 2,108,088
PROPERTY AND EQUIPMENT (Note 1)
Machinery and equipment 36,625
Office furniture and equipment 45,292
Total Property and Equipment 81,917
Less: Accumulated depreciation (24,092)
Net Property and Equipment 57,825
OTHER ASSETS
Deferred stock offering costs (Note 1) 50,000
Deposits 12,773
Prepaid advertising (Note 1) 607,166
Patent costs (Note 1) 26,668
Total Other Assets 696,607
TOTAL ASSETS $ 2,862,520
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
112
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS EQUITY
December 31,
1999
--------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 944,926
Accrued expenses 166,793
Allowance for sales returns (Note 1) 462,677
Notes payable - current portion (Note 7) 112,439
Notes payable - related parties (Note 6) 360,156
Line of credit (Note 8) 132,148
Total Liabilities 2,179,139
COMMITMENTS AND CONTINGENCIES (Note 3 and 11)
STOCKHOLDERS EQUITY
Common stock: 50,000,000 shares authorized
of $0.001 par value,
6,310,271 shares issued and outstanding 6,310
Additional paid-in capital 3,245,049
Accumulated deficit (2,567,978)
Total Stockholders Equity 683,381
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 2,862,520
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
113
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
--------------------------------------------------------------------------------
1999 1998
NET SALES $ 21,442,009 $ 120,234
COST OF SALES 15,666,658 66,654
GROSS PROFIT 5,775,351 53,580
OPERATING EXPENSES
Depreciation 13,834 6,629
Bad debt expense 64,967 0
General and administrative 4,536,760 833,982
Selling and marketing 2,083,433 339,877
Royalties 287,724 0
Rent 85,590 48,226
Total Operating Expenses 7,072,308 1,228,714
OPERATING LOSS (1,296,957) (1,175,134)
OTHER INCOME (EXPENSES)
Interest expense (37,377) (9,033)
Interest income 491 296
Other income 33 48,958
Total Other Income (Expenses) (36,853) 40,221
LOSS BEFORE INCOME TAXES (1,333,810) (1,134,913)
INCOME TAXES 0 0
NET LOSS $ (1,333,810) $ (1,134,913)
BASIC LOSS PER SHARE (Note 1) $ (0.25) $ (0.42)
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
114
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
1999 1998
--------------------------------------------------------------------------------
NET SALES $ 21,442,009 $ 120,234
COST OF SALES 15,666,658 66,654
GROSS PROFIT 5,775,351 53,580
OPERATING EXPENSES
Depreciation 13,834 6,629
Bad debt expense 64,967 0
General and administrative 4,536,760 833,982
Selling and marketing 2,083,433 339,877
Royalties 287,724 0
Rent 85,590 48,226
Total Operating Expenses 7,072,308 1,228,714
OPERATING LOSS (1,296,957) (1,175,134)
OTHER INCOME (EXPENSES)
Interest expense (37,377) (9,033)
Interest income 491 296
Other income 33 48,958
Total Other Income (Expenses) (36,853) 40,221
LOSS BEFORE INCOME TAXES (1,333,810) (1,134,913)
INCOME TAXES 0- 0
NET LOSS $ (1,333,810) $ (1,134,913)
BASIC LOSS PER SHARE (Note 1) $ (0.25) $ (0.42)
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
115
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------------------------------------------------------------------------------
Balance, December 31,
1997 2,369,600 $2,370 $377,719 $(99,255)
Capital contributions 0 0 340,020 0
Common stock issued to acquire
Reliant Corporation 570,400 570 (570) 0
Common stock
issued for cash 329,770 330 513,170 0
Common stock
issued for services 103,800 104 129,646 0
Net loss for the year ended
December 31, 1998 0 0 0 (1,134,913)
Balance, December 31,
1998 3,373,570 3,374 1,359,985 (1,234,168)
Common stock issued
for cash 1,098,000 1,098 938,902 0
Common stock issued
for services 338,700 338 197,662 0
Fractional shares issued in the
reverse stock split 1 0 0 0
Common stock issued for
acquisition of TPH
Marketing, Inc. 1,500,000 1,500 748,500 0
Net loss for the year ended
December 31, 1999 0 0 0 (1,333,810)
Balance, December 31,
1999 6,310,271 $ 6,310 $3,245,049 $(2,567,978)
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
116
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1999 1998
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,333,810) $ (1,134,913)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 13,834 6,629
Amortization of prepaid advertising 458,934 11,651
Bad debt expense 64,967 0
Allowance for sales returns 462,677 0
Loss on purchase of subsidiary 750,000 0
Common stock issued for services 198,000 129,750
Changes in assets and liabilities:
Restricted cash (983,795) 0
Accounts receivable (64,967) 0
Accounts receivable - other (800,076) 0
Inventory (30,420) (27,342)
Deposits 0 19,727
Prepaids and advances (290,051) 15,331
Prepaid advertising (980,798) (96,952)
Accounts payable 871,734 73,159
Accrued expenses 161,375 5,318
Net Cash Used in Operating Activities (1,502,396) (997,642)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (10,700) (51,343)
Patent and trademark costs 0 (19,783)
Net Cash Used in Investing Activities (10,700) (71,126)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable
- related parties 475,000 87,500
Payments on notes payable - related parties (202,344) 0
Proceeds from notes payable 200,000 40,000
Payments on notes payable (127,561) 0
Proceeds from the line of credit 142,825 0
Payments on line of credit (10,677) 0
Proceeds from issuance of common stock 940,000 513,500
Proceeds from additional capital contribution 0 340,020
Net Cash Provided by Financing Activities $1,417,243 $ 981,020
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
117
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1999 1998
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $(95,853) $(87,748)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 122,257 210,005
CASH AND CASH EQUIVALENTS, END OF YEAR $26,404 $122,257
Cash payments for:
Income taxes $ 0 $ 0
Interest $22,439 $ 3,615
Non-cash financing activities:
Common stock issued for services $198,000 $129,750
Common stock issued for subsidiary $750,000 $0
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
118
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
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 until January 1, 1999. 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. Kevin Harrington, Chairman
and CEO of the Company, was the controlling shareholder of both KHE and Cigar TV
at the time of the reorganization. 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.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities which requires companies to record
derivatives as assets and liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes in
fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The adoption of this statement had
no material impact on the Company s financial statements.
119
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basic Loss Per Share
The computation of basic loss per share of common stock is based on the weighted
average number of shares outstanding during the period of the financial
statements as follows:
Loss Shares Per Share
(Numerator) (Denominator) Amount
--------------------------------------------------------------------------------
For the year ended
December 31, 1999 $ (1,333,810) 5,418,627 $(0.25)
For the year ended
December 31, 1998 $ (1,134,913) 2,673,410 $(0.42)
Fully diluted earnings (loss) per share is not presented, as any common stock
equivalents are antidilutive in nature.
Accounting Method
The Company s financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
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. Inventory is made up of finished goods held for sale by the
Company.
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, 1999 was $13,834.
120
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Patent Costs
These costs will be amortized on the straight-line method over their remaining
lives beginning when the patents are received in 2000.
Prepaid Advertising
Prepaid advertising consisted of the following at December 31, 1999:
Production costs of infomercials $810,979
Production costs of tv shows 52,430
Subtotal 863,404
Less: accumulated amortization (256,243)
Net prepaid advertising $607,166
These advertising costs are amortized over the useful life of the infomercials
and tv shows which is estimated at 18 months. The production costs begin
amortizing when they begin broadcasting. Each product that has production costs
is evaluated at year end for the recoverability of those costs. Production
costs of products that are no longer being sold are fully expensed in the year
that sales cease. Amortization expense relating to prepaid advertising was
$458,934 for the year ended December 31, 1999 and is included in selling and
marketing expense.
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-owed subsidiary), TPH Marketing, Inc. (TPH) (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.
121
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Under the provisions of SFAS No. 109, the Company s policy is to provide
deferred income taxes related to property and equipment, inventories, net
operating losses and other items that result in differences between the
financial reporting and tax basis of assets and liabilities.
No provision for federal income taxes has been made at December 31, 1999 due to
accumulated operating losses. The Company has accumulated approximately
$2,100,000 of net operating losses as of December 31, 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.
Accordingly, a valuation allowance has been provided for the net operating
losses in full. The carryforwards expire in 2019. KHE and Cigar TV operated as
S corporations prior to their acquisition in 1998. The results of their
operations since acquisition have been included in the net operating loss at
December 31, 1999 and 1998.
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. The Company makes an allowance for
returns based on past history and experience. At December 31, 1999, the
allowance was $462,677.
Restricted Cash
The Company uses the services of an independent fulfillment center (the Center)
to receive and process orders for the Company. The Center collects payments
from charge cards or checks. The Center has set up a cash reserve for potential
charge card chargebacks and returns of product for refund. The chargeback
reserve is 3% of all charge card sales and any chargebacks are credited out of
this reserve. The reserve for returns is 7% on all sales and any returns are
refunded out of this reserve. The total cash reserved at December 31, 1999 was
$983,795 and has been classified as restricted cash.
Deferred Stock Offering Costs
Deferred stock offering costs are recorded at cost. The costs will be charged
to paid-in capital upon completion of the offering.
NOTE 2 - REVERSE STOCK SPLIT
On March 23, 1999, the Company completed a reverse stock split on a 1 share for
5 share basis. No shareholder was reduced to less than 100 shares. All
references to shares issued and outstanding have been restated to reflect the
reverse stock split.
122
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into an employment agreement with Kevin Harrington, CEO
of the Company. Mr. Harrington will receive an annual salary of $120,000 and it
will increase by $12,000 each year over the life of the agreement. In addition,
Mr. Harrington shall receive 100,000 shares of the Company s common stock for
each $10,000,000 in gross revenues of the Company with a maximum of 3,000,000
shares to be issued. No shares have been issued at December 31, 1999 as a
result of this revenue performance bonus. The employment agreement ends on
December 1, 2003.
The Company has entered into an employment agreement with Tim Harrington,
President of the Company. Mr. Harrington will receive an annual salary of
$96,000 and it will increase by $12,000 each year over the life of the
agreement. In addition, Mr. Harrington shall receive 100,000 shares of the
Company s common stock for each $10,000,000 in gross revenues of the Company
with a maximum of 2,000,000 shares to be issued. No shares have been issued at
December 31, 1999 as a result of this revenue performance bonus. The employment
agreement ends on December 1, 2003.
The Company has entered into an employment agreement with Mel Arthur, Executive
Vice President of the Company. Mr. Arthur will receive an annual salary of
$42,000. In addition, Mr. Arthur shall receive 100,000 shares of the Company s
common stock for each $10,000,000 in gross revenues of the Company with a
maximum of 900,000 shares to be issued. No shares have been issued at December
31, 1999 as a result of this revenue performance bonus. The employment
agreement ends on December 31, 2003.
Operating Leases
The Company leases its office space in Clearwater, Florida on a month-to-month
basis. The lease obligation was $9,406 per month. Subsequent to year end, the
Company moved to a new office located in Tampa, Florida (see Note 11).
NOTE 4 - RECEIVABLES - OTHER
The Company uses the services of a fulfillment center (Center) located in
Dallas, Texas. The Center receives, processes and ships orders on behalf of the
Company. The Center also collects payment on the products it sells for the
Company. At December 31, 1999, the Center owed the Company $800,076 resulting
from payments received less amounts due the Center for the services it rendered
to the Company.
123
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 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 the first quarter of 1999, the Company sold 248,000 post-split shares of
its common stock for $390,000 or an average price of $1.57 per share. The
Company also issued 38,200 post-split shares of its common stock for services
rendered, valued at $47,750 or $1.25 per share. The shares were valued at the
market price of the stock at the time of issuance.
During the second quarter of 1999, the Company sold 600,000 shares of its common
stock for $300,000 or $0.50 per share. In addition, the Company sold 250,000
shares of its common stock to a related company for $250,000 or $1.00 per share.
The Company also issued 25,500 shares of its common stock for services rendered,
valued at $12,750 or $0.50 per share, the market price of the stock at the time
of issuance.
During the third quarter of 1999, the Company issued 100,000 shares of its
common stock for services rendered, valued at $50,000 or $0.50 per share, the
market price of the stock at the time of issuance.
During the fourth quarter of 1999, the Company issued 175,000 shares of its
common stock for services rendered, valued at $87,500 or $0.50 per share, the
market price of the stock at the time of issuance.
On May 3, 1999, the Company acquired TPH Marketing, Inc. (TPH). TPH s two (2)
shareholders are the Company s CEO and his brother, making this a related party
transaction. The Company acquired 100% of TPH and TPH became a wholly-owned
subsidiary. The Company issued 1,500,000 post-split shares of its common stock
in the acquisition. The shares were valued at $750,000 or $0.50 per share, the
market price of the stock at the time of the acquisition. TPH had no financial
statements or assets and liabilities at the time of acquisition. The essence of
the arrangement was to provide Kevin Harrington and Tim Harrington additional
compensation in the form of common stock through the purchase of TPH. As a
result, the shares are being shown as issued for compensation expense with a
charge to operating expenses in the amount of $750,000.
124
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following:
December 31,
1999
--------------------------------------------------------------------------------
Note payable to a shareholder, unsecured, interest
at 8.0%, interest payments due quarterly beginning
March 31, 1999, principal balance due December 31, 2000. $ 35,156
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
Note payable to a related company, unsecured,
interest at 10%, principal and interest balance
due on demand. 125,000
Note payable to a related company, unsecured,
interest at 10%, principal and interest balance
due on demand. 100,000
Note payable to a related company, unsecured,
interest at 10%, principal and interest balance
due June 1, 2000. 50,000
================================================================================
Total notes payable - related parties 360,156
Less: current portion (360,156)
Long-term notes payable - related parties $ 0
Maturities of notes payable - related parties are as follows:
Year Ending
December 31,
2000 $360,156
Thereafter 0
Total $360,156
125
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
1999
--------------------------------------------------------------------------------
Note payable to Nations Bank, secured by stock,
interest at 10%, interest payments due monthly,
principal balance due on demand. $ 39,724
Note payable to a company, unsecured, interest
at 8.0%, interest payments due monthly, principal
balance due July 8, 2000. 72,715
Total notes payable 112,439
Less: current portion (112,439)
Long-term notes payable $ 0
Maturities of notes payable are as follows:
Year Ending
December 31,
2000 $ 112,439
Thereafter 0
Total $ 112,439
NOTE 8 - LINE OF CREDIT
The Company has a line of credit with Nations Bank of $150,000. As of December
31, 1999, the balance owed was $132,148. Borrowings under the line of credit
are guaranteed by the Company and bear interest at 9.5%.
NOTE 9 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107), Disclosures
About Fair Value of Financial Instruments requires disclosure of the fair value
of financial instruments held by the Company. SFAS 107 defines the fair value
of a financial instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The following
methods and assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short-term nature. The carrying
amount of long-term debt approximates fair value based on the borrowing rate
(10.0%) currently held by the Company for a bank loan.
126
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 10 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ( APB ) Option 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
all stock option plans. Under APB Option 25, compensation cost is recognized
for stock options granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant.
FASB Statement 123, Accounting for Stock-Based Compensation ( SFAS No. 123 ),
requires the Company to provide proforma information regarding net income and
net income per share as if compensation costs for the Company s stock option
plans and other stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock award at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants,
respectively; dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 10.0 percent and
expected lives of 4.5 years.
Under the accounting provisions of SFAS No. 123, the Company s net loss would
have been increased by the pro forma amounts indicated below:
1999 1998
Net loss:
As reported $ (1,333,810) $ (1,134,913)
Pro forma (1,496,455) (1,134,913)
Net loss per share:
As reported $ (0.25) $ (0.42)
Pro forma (0.28) (0.42)
During the initial phase-in period of SFAS 123, the effect on pro forma results
are not likely to be representative of the effects on pro forma results in
future years since options vest over several years and additional awards could
be made each year.
A summary of the status of the Company s stock option plans as of December 31,
1999 and changes during the year is presented below:
December 31,
1999
Weighted
Average
Exercise
Shares Price
Outstanding, beginning of period 0 $ 0
Granted 420,000 5.00
Canceled 0 0
Exercised 0 0
Outstanding, end of period 420,000 $ 5.00
Exercisable, end of period 105,000 $ 2.50
Weighted average fair value of options and warrants
granted during the year $2.12
127
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 10 - OUTSTANDING STOCK OPTIONS (Continued)
Outstanding Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
$2.50 105,000 4.50 $2.50 105,000 $2.50
4.00 105,000 4.50 4.00 0 0
6.00 105,000 4.50 6.00 0 0
7.50 105,000 4.50 7.50 0 0
$2.50 - 7.50 420,000 4.50 $5.00 105,000 $2.50
The options were granted as compensation and additional bonuses to certain
officers of the Company. These options were issued with an exercise price above
the market value of the stock at the date of issuance.
Additional stock options are available to Kevin Harrington, Tim Harrington and
Mel Arthur based on the stock trading performance of the Company s common stock.
If the Company s shares are trading at a price of $15.00 per share, 256,500
options will be granted at an exercise price of $7.50 per share. If the Company
s shares are trading at a price of $20.00 per share, 256,500 options will be
granted at an exercise price of $7.50 per share. If the Company s shares are
trading at a price of $25.00 per share, 327,000 options will be granted at an
exercise price of $7.50 per share. As of December 31, 1999, the Company s
common stock has not reached any of the performance measurements mentioned
above.
NOTE 11 - SUBSEQUENT EVENTS
Office Lease
The Company entered into a five (5) year non-cancelable office lease beginning
March 1, 2000. Payments are currently $13,422 per month through August 2000 and
increase to $14,902 in September 2000. Future minimum lease payments under the
lease are as follows:
Year ending Operating
December 31, Lease
2000 $140,143
2001 185,304
2002 193,079
2003 200,854
2004 208,629
2005 and thereafter 34,988
Total lease payments $962,997
128
<PAGE>
--------------------------------------------------------------------------------
Annex D
JUNE 30, 2000 QUARTERLY REPORT FOR RELIANT
ON FORM 10-QSB
--------------------------------------------------------------------------------
129
<PAGE>
FORM 10-Q-SB-A1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2000
Commission File Number: 0-26699
Reliant Interactive Media Corp.
formerly Reliant Corporation
Nevada 87-0411941
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
2701 N. Rocky Point Dr., Suite 200, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 282-1717
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 7,015,971
Yes [X] No [ ] (Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.)
As of June 30, 2000 the number of shares outstanding of the Registrant's Common
Stock was 7,015,971.
130
<PAGE>
PART I: FINANCIAL INFORMATION
Attached hereto and incorporated herein by this reference are the following
financial statements:
--------------------------------------------------------------------------------
Exhibit FINANCIAL STATEMENTS
00QF-2 Un-Audited Financial Statements for the six months ended June 30,
2000 136
--------------------------------------------------------------------------------
ITEM 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
(A) PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.
CASH REQUIREMENTS AND OF NEED FOR ADDITIONAL FUNDS. We are a development
stage company with operations and revenues. We are in the zone of marginal
profitability, but have only limited capital resources. While revenues are
increasing significantly, it may be necessary for us to seek additional capital
over time to optimize the accomplishment of our business plan. The following
disclosure treats our interim funding for the year now past, and our plans and
arrangements for future funding. Without regard to whether current revenues
might be sufficient to maintain liquidity, new projects must be undertaken to
generate future revenues. Every media-marketing project has a useful life, some
longer or shorter than others, but all eventually run their course. We do not
consider it prudent to be passive about generating new projects, and we have
determined that significant new funds are highly desirable, and possibly
necessary to aggressively approach operations in the second half of year 2000.
We have entered into two letter agreements with Institutional Equity
Corporation ( IEC ):
First, an engagement letter for IEC to conduct a private placement for us,
to raise a minimum of $500,000 and a maximum of $2,000,000 (to be in reliance on
Regulation D, Rule 506, and section 4(2) of the Securities Act of 1933). Units
consisting of 10,000 shares each are to be sold for $20,000 each. The sum of
$1,000,000 was raised in this private placement, and it has been closed. IEC is
to be paid a fee equal to 10% of the proceeds and has the right to acquire up
to 100,000 shares of common stock, at $3.00 per share, for every million dollars
raised, or a proportional fractional adjustment. This right to acquire shares
lasts until 18 months from the closing of the placement. The placement is on a
best efforts basis. There is no guaranty that any shares will be placed.
Second, a firm commitment has been received from IEC to raise $10,000,000
in a registered offering of securities. The structure of this offering has not
been determined. Gross underwriting discounts of approximately 10% of the
offering price and a 2% non-accountable expense allowance is to be paid to IEC
from these offering proceeds. A $50,000 fee has been paid towards an advance of
$100,000 to be applied against the gross underwriting commissions. This $50,000
fee was funded by a loan of that amount from Oasis Entertainment's Fourth Movie
Project, Inc., a shareholder of Reliant. The loan is payable in six months from
December 1, 1999, and bears 10% interest per annum. The expenses of IEC in
connection with this offering will also be reimbursed from the offering proceeds
and are estimated to be $650,000. IEC will also receive warrants for 10% of the
securities purchased by underwriters, good for four years, at an exercise price
of 120% of the offering price. It is doubtful, however , that we will
proceed with this underwriting.
131
<PAGE>
has been received in the year 2000. A minimum of $500,000.00 was required in
order to satisfy the escrow and release funds. The funds have now been disbursed
and the 10% commission paid.
We believe that our present arrangements will provide sufficient working
capital to continue operations for the next twelve months. There can be no
guaranty that unrealized funding will be realized.
SUMMARY OF PRODUCT RESEARCH AND DEVELOPMENT
Our product development/marketing department is our most vital component.
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 our 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,
we evaluate 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 our criteria.
We are devoting attention to the development and products specifically
targeted at markets outside of North America. We 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. Our licensed distributor
then begins airing the infomercial internationally. We also air shows and
distributes products of other independent domestic infomercial companies.
We obtain 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. We generally pay the smallest royalty to a third party that only
provides a product concept. A somewhat higher royalty is paid to a third party
that has fully developed and manufactured a product. We also obtain the rights
to sell products which have already been developed, manufactured and marketed
through infomercials produced by other companies. In such cases, we generally
pay a higher royalty rate to the third party because of the relatively small
amount of our resources required to develop the product. We generally seek
exclusive worldwide rights to all products in all means of distribution. In some
cases, we do not obtain all marketing and distribution rights, but seek to
receive a royalty on sales made by the licensor pursuant to the rights retained
by the licensor.
EXPECTED PURCHASE OR SALE OF PLANT AND SIGNIFICANT EQUIPMENT. None.
EXPECTED SIGNIFICANT CHANGE IN THE NUMBER OF EMPLOYEES. None.
132
<PAGE>
(B) DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
During the final quarter of 1999, sales continued to grow from projects in
place, led by those developed in the previous quarters and the new computer
infomercial. In the first quarter of the current year 2000, the increase in
revenues and profitability has been demonstrated.
RESULTS OF OPERATIONS. Sales in the first quarter of 1999 were $352,477,
rising to $20,131,204 in the current quarter. In 1998, costs of sales were
$66,664, and gross profit was $53,580. First Quarter comparisons for 1999/2000
quarters show the following:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31. . . 1999 2000
------------------------------------
Net Sales . . 352,477 20,131,204
--------- ----------
Cost of Sales 284,523 16,354,755
Gross Profit. 67,954 3,785,449
--------- ----------
Operating
Expenses. . . 699,101 3,663,584
--------- ----------
Result of
Operations. . (631,147) 121,865
====================================
</TABLE>
It is apparent that the cost of sales has remained virtually constant at
81% of sales, and that a 19% margin of gross profit has been maintained. It is
also apparent that operating expenses have improved from 198% of sales in the
1999 quarter down to 18% in the current quarter, with resulting profitability
indicated.
Second Quarter comparisons for 1999/2000 quarters show the following:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30 . . . 1999 2000
-------------------------------------
Net Sales . . 2,885,013 18,804,606
---------- ----------
Cost of Sales 1,602,622 15,604,612
Gross Profit. 1,282,391 3,199,994
---------- ----------
Operating
Expenses. . . 1,907,561 2,926,015
---------- ----------
Result of
Operations. . (625,170) 273,979
</TABLE>
133
<PAGE>
Second Quarter six month comparisons for 1999/2000 quarters show the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30 . . . 1999 2000
--------------------------------------
Net Sales . . 3,237,490 38,935,810
----------- ----------
Cost of Sales 1,887,145 31,950,367
Gross Profit. 1,350,345 6,985,443
----------- ----------
Operating
Expenses. . . 2,606,662 6,589,599
----------- ----------
Result of
Operations. . (1,256,317) 395,844
</TABLE>
The trend toward profitability has continued in the six months ended June
30, 2000. Operating income (shown in the tables as results of operations)
expressed as a percentage of Net sales shows: (three months) 273,979/18,804,606
= 1.5%; (six months) 395,844/38,935,810 = 1.0%. These compare to net losses in
1999 periods. While profitability has been achieved, the margin of profitability
of less than 2% is not so substantial as to give lasting comfort to our
management. We have not yet approached our potential profitability in the
opinion of management. We have not achieved a sufficient momentum of successes
to assure future profitability. One very successful program may defer the
expenses of several failures. The number of attempts is therefore material to
the probability of significant improvement in the ultimate margin of
profitability. This analysis leads to conclusion that we will require
supplemental capital to maintain and increase the number of its projects, in
order to continue our improvement beyond its present marginal profitability, or
that we will have to find ways to increase its margin of profitability.
Product sales are expected to increase in direct proportion to our ability
to acquire media time to promote them. Promotional advertising drives sales in
our business. It is for this reason that increasing revenues do not provide
assurance that markets have been saturated with as much advertising as would be
productive. For this reason, additional capital, whether or not necessary for
fundamental survival, is desired and important for optimum growth. Management is
of the opinion that additional internal capital would relieve the burden of
debt service and materially improve profitability.
Cost of goods sold included the total cost of acquiring actual products for
resale and costs and expenses related to sales. Returns and allowances are
deducted from sales.
It follows that a mature analysis requires the cautionary statement, that
there is no assurance that we will achieve substantially greater profitability,
and that to do so, we must expand our operations with more projects (some of
which may succeed, some may not); and to expand operations, we must augment our
capital resources.
Management believes that revenues and growth will continue to increase,
but to achieve the continued growth of our 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 in proportion to the rate of growth achieved
by this quarterly comparison.
134
<PAGE>
There can be no assurance that we will be successful in raising capital
through private placements or otherwise. Even if we are successful in raising
capital through the sources specified, there can be no assurances that any such
financing would be available in a timely manner or on terms acceptable to us and
our current shareholders. Additional equity financing could be dilutive to our
then existing shareholders, and any debt financing could involve restrictive
covenants with respect to future capital raising activities and other financial
and operational matters.
Please see Part II, Item 6 for preliminary information concerning the
probable acquisition of Reliant Interactive Media Corp. (us) by TeleServices
Internet Group, Inc. ("TSIG") (OTCBB:TSIG)
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no proceedings, legal, enforcement or administrative, pending,
threatened or anticipated involving or affecting this Issuer, except as
disclosed herein. We had been named as a defendant in California state court
action seeking damages for rent based upon an oral lease/agreement. Management
has cross-complained against certain third parties believed to be responsible.
Management has settled the claim against it for the nominal sum of $4,750. As of
this date our cross-complaint is still pending. As of this date, this matter is
not deemed to have any material impact upon us or our financial condition.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
We have not changed Auditors, but our Auditors have changed the name of
their firm, from Jones & Jensen to HJ & Associates, LLC. There has been no
disagreement with any auditor as to any item or matter relating to our audit or
audit procedure.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On June 26, 2000, TeleServices Internet Group, Inc., known as TSIG.com,
announced that it has entered into a definitive agreement to acquire the
assets of Reliant interactive Media Corporation, subject to approval by
Reliant Shareholders. A copy of that News Release was attached and filed as an
Exhibit to a Form 8-KSB filed on June 26, 2000.
At the time of this report certain material terms of the agreement with
TSIG.com have been re-negotiated. An information statement will be filed with
The Securities and Exchange Commission and mailed to our shareholders as soon
As practicable to disclose the complete terms of this proposed transaction.
EXHIBIT INDEX
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Exhibit FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
00QF-2 Un-Audited Financial Statements for the six months ended June 30,
2000 136
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-Q Report for the Quarter ended June 30, 2000 has been signed below by
the following persons on behalf of the Registrant and in the capacity and on the
date indicated.
Dated: June 30, 2000
RELIANT INTERACTIVE MEDIA CORP.
formerly Reliant Corporation
by
/s/Kevin Harrington /s/Tim Harrington
Kevin Harrington Tim Harrington
chairman and ceo/director president and coo/director
/s/Mel Arthur /s/Karl E. Rodriguez
Mel Arthur Karl E. Rodriguez
executive vice president/director secretary/director
135
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT 00FQ-2
UN-AUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
136
<PAGE>
--------------------------------------------------------------------------------
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
137
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
June 30, December 31,
2000 1999
(Unaudited)
--------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents (Note 1) . . $ 23,480 $ 26,404
Restricted cash (Note 1) . . . . . . . . 2,497,213 983,795
Accounts receivable - net (Note 1) . . . 277,120 0
Receivables - other (Note 4) . . . . . . . . . 0 800,076
Inventory (Note 1) . . . . . . . . . . . . . 48,479 57,762
Employee advances . . . . . . . . . . . . . . 18,066 10,923
Prepaid expenses . . . . . . . . . . . . . . 418,750 229,128
--------- ------------
Total Current Assets . . . . . . $ 3,283,108 $ 2,108,088
============ ============
PROPERTY AND EQUIPMENT (Note 1)
Machinery and equipment . . . . . . . . . . 36,625 36,625
Office furniture and equipment . . . . . . 45,292 45,292
Leasehold improvements . . . . . . . . . . . 37,239 0
--------- ------------
Total Property and Equipment . . . . 119,156 81,917
Less: Accumulated depreciation . . . . . (34,304) (24,092)
--------- ------------
Net Property and Equipment . . . . . . 84,852 57,825
--------- ------------
OTHER ASSETS
Deferred stock offering costs (Note 1) . . . . 50,000 50,000
Deposits . . . . . . . . . . . . . . . . . . . 79,885 12,773
Prepaid advertising (Note 1) . . . . . . . 966,282 607,166
Patent costs (Note 1) . . . . . . . . . . . 26,668 26,668
--------- ------------
Total Other Assets . . . . . . . . . 1,122,835 696,607
--------- ------------
TOTAL ASSETS . . . . . . . . . $ 4,490,795 $ 2,862,520
============ ============
The accompanying notes are an integral part of these financial statements.
138
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2000 1999
(Unaudited)
--------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . $ 760,643 $ 944,926
Accrued expenses . . . . . . . . . . . . . . 166,022 166,793
Payables - other (Note 4) . . . . . . . . 92,034 0
Allowance for sales returns (Note 1) . . . . 595,368 462,677
Notes payable-current portion (Note 7) . . . 318,474 112,439
Notes payable-related parties (Note 6) . . . 360,156 360,156
Line of credit (Note 8) . . . . . . . . . . . . 0 132,148
--------- ------------
Total Liabilities . . . . . . . . . . 2,292,697 2,179,139
============ ============
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $0.001
par value, 7,015,971 and 6,310,271 shares issued
and outstanding, respectively . . . . . . . 7,016 6,310
Additional paid-in capital . . . . . . . 4,377,393 3,245,049
Accumulated deficit . . . . . . . . . . (2,186,311) (2,567,978)
--------- ------------
Total Stockholders' Equity 2,198,098 683,381
--------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,490,795 $ 2,862,520
============ ============
The accompanying notes are an integral part of these financial statements.
139
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended For the SixMonths Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
NET SALES . . . . . . $ 18,804,606 $ 2,885,013 $ 38,935,810 $ 3,237,490
COST OF SALES . . . . 15,604,612 1,602,622 31,950,367 1,887,145
------------ ------------ ------------ ------------
GROSS PROFIT . . . . . . 3,199,994 1,282,391 6,985,443 1,350,345
------------ ------------ ------------ ------------
OPERATING EXPENSES
Depreciation . . . . . . . . 5,727 2,676 10,212 5,352
General and administrative 2,009,958 1,815,485 3,948,251 2,296,363
Selling and marketing . . 668,033 72,399 2,142,012 274,995
Royalties . . . . . . . . . 184,196 0 398,811 0
Rent . . . . . . . . . . . . 58,101 17,001 90,313 29,952
------------ ------------ ------------ ------------
Total Operating Expenses 2,926,015 1,907,561 6,589,599 2,606,662
============ ============ ============ ============
OPERATING INCOME (LOSS) . . 273,979 (625,170) 395,844 (1,256,317)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest expense . . (4,055) (14,941) (16,122) (20,061)
Interest income . . . 1,775 95 1,945 95
------------ ------------ ------------ ------------
Total Other
Income (Expenses) . . . . . (2,280) (14,846) (14,177) (19,966)
============ ============ ============ ============
INCOME (LOSS) BEFORE
INCOME TAXES . . . . . . . 271,699 (640,016) 381,667 (1,276,283)
INCOME TAXES . . . . . . . . . 0 0 0 0
------------ ------------ ------------ ------------
NET INCOME (LOSS) . . $ 271,699 $ (640,016) $ 381,667 $(1,276,283)
============ ============ ============ ============
BASIC INCOME (LOSS) PER
SHARE (Note 11). . . . . $ 0.04 $ (0.13) $ 0.06 $ (0.29)
FULLY DILUTED INCOME (LOSS) PER
SHARE (Note 11) . . . $ 0.04 $ (0.13) $ 0.06 $ (0.29)
The accompanying notes are an integral part of these financial statements.
140
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------------------------------------------------------------------------------
Balance, December
31, 1998 . . . . . . . 3,373,570 $ 3,374 $ 1,359,985 $(1,234,168)
Common stock issue
for cash . . . . . . . . 1,098,000 1,098 938,902 0
Common stock issued
for services . . . . . . . 338,700 338 197,662 0
Fractional shares issued in the
reverse stock split . . . . . . 1 0 0 0
Common stock issued for acquisition
of TPH Marketing, Inc. 1,500,000 1,500 748,500 0
Net loss for the year ended
December 31, 1999 . . . . . . . . 0 0 0 (1,333,810)
------------ ------------ ------------ ------------
Balance,
December 31, 1999 . . . . 6,310,271 6,310 3,245,049 (2,567,978)
Capital withdrawals
(unaudited) . . . . . . . . . . . 0 0 (166,100) 0
Common stock issued for services
(unaudited) . . . . . . . . 205,700 206 398,944 0
Common stock issued for cash
(unaudited) . . . . . . . 500,000 500 999,500 0
Stock offering costs
(unaudited) . . . . . . . . . . . 0 0 (100,000) 0
Net income for the six months
ended June 30, 2000
(unaudited) . . . . . . . . . . . 0 0 0 381,667
------------ ------------ ------------ ------------
Balance, June 30, 2000
(unaudited) . . . . . . 7,015,971 $ 7,016 $ 4,377,393 $(2,186,311)
============= ========== ============ ============
The accompanying notes are an integral part of these financial statements.
141
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . $ 271,699 $ (640,016) $ 381,667 $(1,276,283)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation . . . . . . . . 5,727 2,676 10,212 5,352
Bad debts . . . . . . . . . . . 0 17,410 0 17,410
Amortization of
prepaid advertising . . . 173,045 0 367,655 0
Allowance for
sales returns . . . . . (112,431) 0 132,691 0
Common stock issued
for services . . . . . . 341,400 752,750 399,150 800,500
Changes in assets and liabilities:
Restricted cash .,.,., (1,384,498) 0 (1,513,418) 0
Receivables . . . . . . 1,071,403 (799,855) 522,956 (1,065,085)
Inventory . . . . . . . . . 2,962 (64,313) 9,283 (36,971)
Deposits . . . . . . . . . . . 0 0 (67,112) 12,773
Prepaids and advances . (196,808) 20,396 (196,765) (1,050)
Prepaid advertising . . (303,286) (378,647) (726,771) (366,710)
Other assets . . . . . . . . . 0 (10,000) 0 (10,000)
Cash overdraft . . . . . . . . 0 91,647 0 91,647
Accounts payable . . . (1,000,085) 410,408 (92,249) 488,783
Accrued expenses . . . . . . (483) (321) (771) 38,479
------------ ------------ ------------ ------------
Net Cash Used in
Operating Activities . (1,131,355) (597,865) (773,472) (1,301,155)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of
property and equipment . . . . 0 0 (37,239) 0
------------ ------------ ------------ ------------
Net Cash Used in
Investing Activities . . . . . 0 0 (37,239) 0
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
------------ ------------ ------------ ------------
Proceeds from notes
payable . . . . . . . . 278,750 0 278,750 0
Capital withdrawals . . (27,600) 0 (166,100) 0
Proceeds from notes
payable-related parties . . . 0 0 0 247,177
Payments on notes
payable-related parties .(72,715) (8,279) (72,715) (8,279)
Payments on line of credit. . 0 0 (132,148) 0
Proceeds from issuance
of common stock. . . . 1,000,000 550,000 1,000,000 940,000
Stock offering costs (100,000) 0 (100,000) 0
------------ ------------ ------------ ------------
Net Cash Provided by Financing
Activities $ 1,078,435 $ 541,721 $ 807,787 $ 1,178,898
------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
142
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . $ (52,920) $ (56,144) $ (2,924) $ (122,257)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD . . 76,400 56,144 26,404 122,257
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD . . $ 23,480 $ 0 $ 23,480 $ 0
============ ============ ============ ============
Cash payments for:
Income taxes . $ 0 $ 0 $ 0 $ 0
Interest . . . $ 4,055 $ 14,941 $ 16,122 $ 20,061
Non-cash financing activities:
Common stock issued
for services . . . . $ 341,400 $ 752,750 $ 399,150 $ 800,500
Common stock issued
for other assets . . $ 0 $ 10,000 $ 0 $ 10,000
The accompanying notes are an integral part of these financial statements.
143
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
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 until January 1, 1999. 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.
Cigar Television Network, Inc. (CTN) was organized under the laws of the State
of Florida on April 1, 1998.
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 CTN. Kevin Harrington, Chairman and
CEO of the Company, was the controlling shareholder of both KHE and CTN at the
time of the reorganization. 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 CTN because the shareholders of KHE and CTN controlled the Company
immediately after the acquisition. Therefore, KHE and CTN are treated as the
acquiring entities. Accordingly, there was no adjustment to the carrying value
of the assets or liabilities of KHE and CTN. Reliant is the acquiring entity
for legal purposes and KHE and CTN 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.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets and liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes in
fair value or cash flows. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The adoption of this statement had
no material impact on the Company's financial statements.
144
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
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 or market determined by the first-in,
first-out method or market. Inventory is made up of finished goods held for
sale by the Company.
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:
Leasehold improvement 5 years
Office furniture and equipment 5 to 7 years
Machinery and equipment 5 to 7 years
Depreciation expense for the six months ended June 30, 2000 and 1999 was $10,212
and $5,352, respectively.
Patent Costs
These costs will be amortized on the straight-line method over their remaining
lives beginning when the patents are received which is expected to be in 2000.
Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$14,019 at June 30, 2000 and December 31, 1999.
145
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Prepaid Advertising
Prepaid advertising consisted of the following:
June 30, December 31,
2000 1999
(Unaudited)
--------------------------------------------------------------------------------
Production costs of infomercials $ 1,537,750 $ 810,979
Production costs of tv shows 52,430 52,430
Subtotal 1,590,180 863,404
Less: accumulated amortization (623,898) (256,243)
------------- -----------
Net prepaid advertising $ 966,282 $ 607,166
============= ===========
These advertising costs are amortized over the useful life of the
infomercials and tv shows which is estimated at 18 months. The production costs
begin amortizing when they begin broadcasting. Each product that has production
costs is evaluated at year end for the recoverability of those costs.
Production costs of products that are no longer being sold are fully expensed in
the year that sales cease. Amortization expense relating to prepaid advertising
was $367,655 for the six months ended June 30, 2000 and is included in selling
and marketing expense.
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-owed subsidiary), TPH Marketing, Inc. (TPH) (a wholly-owned
subsidiary), and Cigar Television Network, Inc. (CTN) (a wholly-owned
subsidiary). All significant intercompany accounts and transactions have been
eliminated in the consolidation.
146
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Under the provisions of SFAS No. 109, the Company's policy is to provide
deferred income taxes related to property and equipment, inventories, net
operating losses and other items that result in differences between the
financial reporting and tax basis of assets and liabilities.
No provision for federal income taxes has been made at June 30, 2000 due to
accumulated operating losses. The Company has accumulated approximately
$2,100,000 of net operating losses as of June 30, 2000, 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.
Accordingly, a valuation allowance has been provided for the net operating
losses in full. The carryforwards expire in 2019. KHE and CTN operated as S
corporations prior to their acquisition in 1998. The results of their
operations since acquisition have been included in the net operating income at
June 30, 2000.
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. The Company makes an allowance for
returns based on past history and experience. At June 30, 2000 and December 31,
1999, the allowance was $595,368 and $462,677, respectively.
Restricted Cash
The Company uses the services of an independent fulfillment center (the Center)
to receive and process orders for the Company. The Center collects payments
from charge cards or checks. The Center has set up a cash reserve for potential
charge card chargebacks and returns of product for refund. The chargeback
reserve is 3% of all charge card sales and any chargebacks are credited out of
this reserve. The reserve for returns is 7% on all sales and any returns are
refunded out of this reserve. The total cash reserved at June 30, 2000 and
December 31, 1999 was $2,497,213 and $983,795, respectively, and has been
classified as restricted cash.
Deferred Stock Offering Costs
Deferred stock offering costs are recorded at cost. The costs will be charged
to paid-in capital upon completion of the specific offering.
Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated 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.
147
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - REVERSE STOCK SPLIT
On March 23, 1999, the Company completed a reverse stock split on a 1 share for
5 share basis. No shareholder was reduced to less than 100 shares. All
references to shares issued and outstanding have been restated to reflect the
reverse stock split.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into an employment agreement with Kevin Harrington, CEO
of the Company. Mr. Harrington will receive an annual salary of $120,000 and it
will increase by $12,000 each year over the life of the agreement. In addition,
Mr. Harrington shall receive 100,000 shares of the Company's common stock for
each $10,000,000 in gross revenues of the Company with a maximum of 3,000,000
shares to be issued. No shares have been issued at June 30, 2000 as a result of
this revenue performance bonus. The employment agreement ends on December 1,
2003.
The Company has entered into an employment agreement with Tim Harrington,
President of the Company. Mr. Harrington will receive an annual salary of
$120,000 and it will increase by $12,000 each year over the life of the
agreement. In addition, Mr. Harrington shall receive 100,000 shares of the
Company's common stock for each $10,000,000 in gross revenues of the Company
with a maximum of 2,000,000 shares to be issued. No shares have been issued at
June 30, 2000 as a result of this revenue performance bonus. The employment
agreement ends on December 1, 2003.
The Company has entered into an employment agreement with Mel Arthur, Executive
Vice President of the Company. Mr. Arthur will receive an annual salary of
$120,000. In addition, Mr. Arthur shall receive 100,000 shares of the Company's
common stock for each $10,000,000 in gross revenues of the Company with a
maximum of 900,000 shares to be issued. No shares have been issued at June 30,
2000 as a result of this revenue performance bonus. The employment agreement
ends on December 31, 2003.
Office Lease
The Company entered into a five (5) year non-cancelable office lease beginning
March 1, 2000. Payments are currently $13,422 per month through August 2000 and
increase to $14,902 in September 2000. Future minimum lease payments under the
lease are as follows:
Year ending Operating
December 31, Lease
-------------------------------------
2000 $ 140,143
2001 185,304
2002 193,079
2003 200,854
2004 208,629
2005 and thereafter 34,988
-------------------------------------
Total lease payments $ 962,997
=====================================
148
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 4 - RECEIVABLES (PAYABLES) - OTHER
The Company uses the services of a fulfillment center (Center) located in
Dallas, Texas. The Center receives, processes and ships orders on behalf of the
Company. The Center also collects payment on the products it sells for the
Company. At June 30, 2000, the Company owed the Center $92,034 and at December
31, 1999, the Center owed the Company $800,076. These amounts result from
payments received less amounts due the Center for the services it rendered to
the Company.
NOTE 5 - EQUITY TRANSACTIONS
During the first quarter of 1999, the Company sold 248,000 post-split shares of
its common stock for $390,000 or an average price of $1.57 per share. The
Company also issued 38,200 post-split shares of its common stock for services
rendered, valued at $47,750 or $1.25 per share. The shares were valued at the
market price of the stock at the time of issuance.
During the second quarter of 1999, the Company sold 600,000 shares of its common
stock for $300,000 or $0.50 per share. In addition, the Company sold 250,000
shares of its common stock to a related company for $250,000 or $1.00 per share.
The Company also issued 25,500 shares of its common stock for services rendered,
valued at $12,750 or $0.50 per share, the market price of the stock at the time
of issuance.
During the third quarter of 1999, the Company issued 100,000 shares of its
common stock for services rendered, valued at $50,000 or $0.50 per share, the
market price of the stock at the time of issuance.
During the fourth quarter of 1999, the Company issued 175,000 shares of its
common stock for services rendered, valued at $87,500 or $0.50 per share, the
market price of the stock at the time of issuance.
On May 3, 1999, the Company acquired TPH Marketing, Inc. (TPH). TPH's two (2)
shareholders are the Company's CEO and his brother, making this a related party
transaction. The Company acquired 100% of TPH and TPH became a wholly-owned
subsidiary. The Company issued 1,500,000 post-split shares of its common stock
in the acquisition. The shares were valued at $750,000 or $0.50 per share, the
market price of the stock at the time of the acquisition. TPH had no financial
statements or assets and liabilities at the time of acquisition. The essence of
the arrangement was to provide Kevin Harrington and Tim Harrington additional
compensation in the form of common stock through the purchase of TPH. As a
result, the shares are being shown as issued for compensation expense with a
charge to operating expenses in the amount of $750,000.
149
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 5 - EQUITY TRANSACTIONS (Continued)
During the first quarter of 2000, the Company issued 35,000 shares of its common
stock for services rendered, valued at $57,750 or $1.65 per share, the market
price of the stock at the time of issuance. In addition, three shareholders of
the Company withdrew $138,500 against capital previously contributed by them to
the Company. The original contributions were recorded as additional paid-in
capital and the withdrawals are a reduction in the same account.
During the second quarter of 2000, the Company issued 500,000 shares of its
common stock for cash of $1,000,000 or $2.00 per share. The Company paid
$100,000 in stock offering costs as a result of the stock offering. The Company
also issued 170,700 shares of its common stock for services rendered, valued at
$341,400 or $2.00 per share, the market price of the stock at the time of
issuance. In addition, shareholders of the Company withdrew $27,600 against
capital previously contributed by them to the Company. The original
contributions were recorded as additional paid-in capital and the withdrawals
are a reduction in the same account.
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following:
June30, December 31,
2000 1999
(Unaudited)
--------------------------------------------------------------------------------
Note payable to a shareholder, unsecured,
interest at 8.0%, interest payments due quarterly
beginning March 31, 1999, principal balance due
December 31, 2000. $ 35,156 $ 35,156
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 10%, principal and interest balance
due on demand. 125,000 125,000
Note payable to a related company, unsecured,
interest at 10%, principal and interest balance
due on demand. 100,000 100,000
Note payable to a related company, unsecured,
interest at 10%, principal and interest balance
due June 1, 2000. 50,000 50,000
--------- ---------
Total notes payable - related parties 360,156 360,156
Less: current portion (360,156) (360,156)
--------- ---------
Long-term notes payable - related parties $ 0 $ 0
150
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 6 - NOTES PAYABLE - RELATED PARTIES (Continued)
Maturities of notes payable - related parties are as follows:
Period Ending
June 30,
---------------
2001 . . . . . . . . . . . . . . . . . . . . . . . . . $ 360,156
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
-------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 360,156
=============
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
June 30, December 31,
2000 1999
(Unaudited)
--------------------------------------------------------------------------------
Note payable to Nations Bank, secured by stock,
interest at 10%, interest payments due monthly,
principal balance due on demand. . . . . . $ 39,724 $ 39,724
Note payable to a company, unsecured, interest
at 8.0%, interest payments due monthly, principal
balance due July 8, 2000. . . . . . . . . . . . . . 0 72,715
Note payable to an individual, secured by inventory
of the Company, interest at 3.0% per month until
paid, balance due on demand. . . . . . . . . . 278,750 0
----------- -----------
Total notes payable . . . . . . . . . . . . . . 318,474 112,439
Less: current portion . . . . . . . . . . . . . (318,474) (112,439)
----------- -----------
Long-term notes payable . . . . . . . . . . $ 0 $ 0
=========== ===========
Maturities of notes payable are as follows:
Period Ending
June 30,
---------------
2001 . . . . . . . . . . . . . . . . . . . . . . . . . $ 318,474
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
-------------
Total $ 318,474
=============
NOTE 8 - LINE OF CREDIT
The Company has a line of credit with Nations Bank of $150,000. As of June 30,
2000 and December 31, 1999, the balance owed was $-0- and $132,148,
respectively. Borrowings under the line of credit are guaranteed by the Company
and bear interest at 9.5%.
151
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 9 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107), "Disclosures
About Fair Value of Financial Instruments" requires disclosure of the fair value
of financial instruments held by the Company. SFAS 107 defines the fair value
of a financial instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The following
methods and assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short-term nature. The carrying
amount of long-term debt approximates fair value based on the borrowing rate
(10.0%) currently held by the Company for a bank loan.
NOTE 10 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ("APB") Option 25, "Accounting
for Stock Issued to Employees," and related Interpretations in accounting for
all stock option plans. Under APB Option 25, compensation cost is recognized
for stock options granted to employees when the option price is less than the
market price of the underlying common stock on the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
requires the Company to provide proforma information regarding net income and
net income per share as if compensation costs for the Company's stock option
plans and other stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock award at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants,
respectively; dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 10.0 percent and
expected lives of 4.0 years.
Under the accounting provisions of SFAS No. 123, the Company's net income (loss)
would have been changed by the pro forma amounts indicated below:
June30,
2000 1999
--------------------------------------------------------------------------------
Net income (loss):
As reported $ 381,667 $ (1,276,283)
Pro forma $ 328,195 $ (1,276,283)
Basic income (loss) per share:
As reported $ 0.06 $ (0.29)
Pro forma $ 0.05 $ (0.29)
During the initial phase-in period of SFAS 123, the effect on pro forma results
are not likely to be representative of the effects on pro forma results in
future years since options vest over several years and additional awards could
be made each year.
152
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - OUTSTANDING STOCK OPTIONS (Continued)
A summary of the status of the Company's stock option plans as of June 30, 2000
and changes during the year is presented below:
June 30,
2000
--------------------------------------------------------------------------------
Weighted
Average
Shares Exercise
Price
--------------------------------------------------------------------------------
Outstanding, December 31, 1999
Granted 420,000 5.00
Canceled 0 0
Exercised 0 0
-----------------------
Outstanding, June 30, 2000 420,000 $ 5.00
-----------------------
Exercisable, June 30, 2000 210,000 $ 3.25
-----------------------
Weighted average fair value of options $ 2.12
==========
Outstanding Exercisable
--------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 6/30/00 Life Price at 6/30/00 Price
--------------------------------------------------------------------------------
$ 2.50 105,000 4.00 $ 2.50 105,000 $ 2.50
4.00 105,000 4.00 4.00 105,000 4.00
6.00 105,000 4.00 6.00 0 0
7.50 105,000 4.00 7.50 0 0
$ 2.50-7.50 420,000 4.00 $ 5.00 210,000 $ 3.25
The options were granted as compensation and additional bonuses to certain
officers of the Company. These options were issued with an exercise price above
the market value of the stock at the date of issuance.
Additional stock options are available to Kevin Harrington, Tim Harrington and
Mel Arthur based on the stock trading performance of the Company's common stock.
If the Company's shares are trading at a price of $15.00 per share, 256,500
options will be granted at an exercise price of $7.50 per share. If the
Company's shares are trading at a price of $20.00 per share, 256,500 options
will be granted at an exercise price of $7.50 per share. If the Company's
shares are trading at a price of $25.00 per share, 327,000 options will be
granted at an exercise price of $7.50 per share. As of June 30, 2000, the
Company's common stock has not reached any of the performance measurements
mentioned above.
153
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 11 - BASIC AND DILUTED EARNINGS PER SHARE
The computation of basic and diluted income per share of common stock is based
on the weighted average number of shares outstanding during the period of the
financial statements as follows:
For the Six Months Ended For the Six Months Ended
June 30, 2000 June 30, 1999
Income Shares Per-Share Loss Shares Per-Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
--------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share
Income available to
common stockholders
$ 381,667 6,500,548 $ 0.06 $ (1,276,283) 4,434,995 $ (0.29)
Effect of Dilutive Securities
Common stock options
0 420,000 0 0 0 0
--------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share
Income available to
common stockholders
plus assumed conversions
$ 381,667 6,920,548 $ 0.06 $ (1,276,283) 4,434,995 $ (0.29)
================================================================================
For the Three Months Ended For the Three Months Ended
June 30, 2000 June 30, 1999
Income Shares Per-Share Loss Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic Earnings (Loss) Per Share
Income available to
common stockholders
$ 271,699 6,684,778 $ 0.04 $ (640,016) 5,095,192 $ (0.13)
======= ========
Effect of Dilutive Securities
Common stock options
0 420,000 0 0 0 0
--------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share
Income available to
common stockholders
plus assumed conversions
$ 271,699 7,104,778 $ 0.04 $ (640,016) 5,095,192 $ (0.13)
Options to purchase 420,000 shares of commonstock were outstanding at
June30,2000 (see Note 10). These options expire on June 30, 2004 and were
issued with an exercise price equal to or above the market value of the stock
at the date ofissuance and have been included in the computation of diluted
earnings per share.
154
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 12 - SUBSEQUENT EVENTS
The Company has entered into an Agreement and Plan or Reorganization (Agreement)
with TeleServices Internet Group, Inc. (TSIG). As part of the Agreement, the
Company will transfer its assets, liabilities and business operations to As Seen
On Tv pc.com, Inc. (ASOT) in exchange for shares of stock of this private
company. TSIG will then acquire 100% of the stock of ASOT in exchange for
shares of TSIG common stock. The Agreement is subject to majority shareholder
approval and can be canceled by either party involved if TSIG's stock is trading
below a certain price level at the time the Agreement is finalized.
155
<PAGE>
--------------------------------------------------------------------------------
Annex E
August 31, 2000 UNAUDITED FINANCIAL STATEMENTS FOR AsSeenOnTVpc.com
--------------------------------------------------------------------------------
156
<PAGE>
AsSeenOnTVPC.com
(a Development Stage Company)
Financial Statements
August 31, 2000
157
<PAGE>
ASSEENONTVPC.COM
INDEX TO FINANCIAL STATEMENTS
Balance Sheet for the period ended August 31, 2000 (unaudited)
162
Statements of Operations for the period ended August 31,
2000 (unaudited)
163
Statements of Stockholders' (Deficit) Equity for the period from
Inception (February 10, 2000) through August 31, 2000 (unaudited)
164
Statements of Cash Flows for the period ended August 31,
2000 (unaudited)
165
Notes to Financial Statements
166
158
<PAGE>
ASSENONTVPC.COM
BALANCE SHEET (UNAUDITED)
August 31, 2000
<TABLE>
<CAPTION>
<S> <C>
August 31,
2000
------------------------------------------------------------------
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 0
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . 0
------------------------------------------------------------------
OTHER ASSETS
Domain Name and Website. . . . . . . . . . . . . . . 7,449
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . 7,449
------------------------------------------------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . $ 7,449
==================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
shares; issued and outstanding, 10,448,821 shares 10,449
Accumulated Deficit. . . . . . . . . . . . . . . . . (3,000)
Total Stockholders' Equity . . . . . . . . . . . . . 7,449
------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . $ 7,449
==================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
159
<PAGE>
ASSENONTVPC.COM
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT(UNAUDITED)
August 31, 2000
<TABLE>
<CAPTION>
<S> <C>
August 31,
2000
------------------------------------------
Revenues. . . . . . . . . $ 0
---------------------------------------
Organizational costs. . . 3,000
---------------------------------------
Net Loss from Operations. (3,000)
=======================================
Net Income (Loss) . . . . ($3,000)
Loss per Share. . . . . . ($0.00002)
=======================================
Weighted Average
Shares Outstanding. . 7,609,419
=======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
160
<PAGE>
ASSENONTVPC.COM
STATEMENTS OF CASH FLOW (UNAUDITED)
August 31, 2000
<TABLE>
<CAPTION>
<S> <C>
August 31,
2000
Operating Activities
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($3,000)
-----------------------------------------------------------------------------------------
Add income from financing activities:
issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Net Cash from Operations. . . . . . . . . . . . . . . . . . . . . . . . . . 0
Cash Increase (Decrease). . . . . . . . . . . . . . . . . . . . . . . . . . 0
Beginning Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Cash as of Statement Date . . . . . . . . . . . . . . . . . . . . . . . . . $ 0
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
161
<PAGE>
ASSENONTVPC.COM
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)(UNAUDITED)
For the period from inception of the Development Stage
On February 10, 2000, through August 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Accumulated Total Stock-
Common Par Paid-In Equity holders' Equity
Stock Value Capital (Deficit) (Deficit)
--------------------------------------------------------------------------------------------------------
Common Stock issued at inception 3,000,000 $ 3,000 $ 0 $ 0 $ 3,000
Common Stock issued for
asset acquisition. . . . . . 7,448,821 7,449 0 0 0
Net Loss for the period. . . . . 0 0 0 (3,000) 0
Balance at August 31, 2000 . . . 10,448,821 $ 10,449 $ 0 ($3,000) $ 7,449
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
162
<PAGE>
ASSEENONTVPC.COM
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
1-FORMATION AND OPERATIONS OF THE COMPANY
AsSeenOnTVPC.com (the Company) was incorporated in the state of Nevada on
February 10, 2000. The Company is authorized to issue 100,000,000 Common Shares
each with a par value of $0.001. The Board of Directors and Shareholders of the
Company have authorized the issuance of a maximum of 7,500,000 of its Common
Shares for the acquisition of a domain name and website. As of the date of
these statements 7,448,821 shares have been issued in the acquisition of assets.
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING
Accounting records of the Company and financial statements are maintained
and prepared on an accrual basis.
(b) FISCAL YEAR
The Company's proposed fiscal year for accounting and tax purposes is
December 31.
(c) ORGANIZATION COSTS
The Company incurred $3,000 of organization costs in 2000. These costs,
which were paid by shareholders of the Company and which were exchanged for
3,000,000 shares of common stock having a par value of $3,000, have been
expensed. The organization costs are detailed as follows:
Legal services in connection with preparation
and filing of state and federal documents for
incorporation, $ 1,475,
Preparation of financial statements, 1,200,
State filing fees, 325.
---
Total $ 3,000.
(d) CASH EQUIVALENTS
For Financial Accounting Standards purposes, the Statement of Cash Flows,
Cash Equivalents include time deposits, certificates of deposit, and all highly
liquid debt instruments with original maturities of three months or less.
Whenever cash amount are to be included on the Company's Statements of Cash
Flow, however, they will be comprised exclusively of cash.
163
<PAGE>
AsSeenOnTVPC.com
Notes to Financial Statements
August 31, 2000
continued
3-PROPERTY AND EXECUTIVE COMPENSATION
(a) OFFICE AND RECORDS:
The Company's offices and all of its records are located at 2701 North
Rocky Point Drive,, Suite 200,Tampa, Florida 33607 where it occupies desk and
storage space at no cost to the Company. The Company has no tangible property as
of the date of this report.
(b) EXECUTIVE COMPENSATION:
Since inception, the Company has incurred no executive compensation costs.
The Company has paid no cash compensation to its officers or directors.
Officers of the Company will be reimbursed for out-of-pocket expenses and may be
compensated in the future for the time they devote to the Company.
4-STOCKHOLDERS' EQUITY.
The Company is authorized to issue 100,000,000 shares of common stock having a
par value of $0.001. In February 2000, 3,000,000 shares of Common Stock, were
issued in exchange for organizational costs which were valued by management at a
total of $3,000. Organizational costs were determined on a negotiated basis and
include incorporation of the Company and preparation of financial statements.
Also in April 2000, 7,448,821 shares of Common Stock, were issued in exchange
for a domain name and website which were valued by management at a total of
$7,449.
164
<PAGE>
--------------------------------------------------------------------------------
Annex F
EMPLOYMENT AGREEMENT
KEVIN HARRINGTON
--------------------------------------------------------------------------------
165
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made as of this 7th day
of September 2000 by and among KEVIN HARRINGTON, an individual (the
"Executive"), ASSEENONTVPC.COM, INC. (the "Company") and TELESERVICES INTERNET
GROUP INC., a Florida corporation ("TIGI").
RECITALS
--------
WHEREAS, the Company desires to retain and employ the Executive for the
purpose of securing to the Company the experience, ability and services of the
Executive as Chief Executive Officer; and
WHEREAS, the Executive desires to be employed by the Company;
NOW, THEREFORE, it is mutually agreed by and between the parties as
follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, effective upon Closing of the
Agreement and Plan of Reorganization by and among TeleServices Internet Group
Inc, Reliant Interactive Media Corporation, the Company and certain stockholders
of the Company, dated September 7, 2000 (as defined therein) (the "Effective
Date"), as Chief Executive Officer of the Company and the Executive hereby
accepts such employment and shall serve as an executive officer of the Company,
subject to and upon the terms and conditions set forth in this Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with the
Company and subject to the direction and control of the Company's Board of
Directors (the "Board" or the "Board of Directors"), perform such executive
duties and functions as he may be called upon to perform consistent with his
employment hereunder.
(B) The Executive shall devote most of his time and best efforts to the
performance of his duties for the Company, including the following:
(i) Develop, implement, and monitor strategy and business plans, for
the Company and any subsidiaries;
(ii) Make recommendations to the Board of Directors as to appropriate
staffing levels, and monitor and evaluate performance of staff relative to
compliance with established policies and objectives of the Company and
contributions towards attaining objectives;
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(iii) Render services to any parent, subsidiary, joint venture or
affiliated business of the Company as requested by the Board of Directors,
provided that indemnification equivalent to that referred to in Article IV (D)
is provided to Executive in connection with those services;
(iv) Seek to enhance and develop the Company's relationships with its
employees, customers, shareholders and others in the business community;
(v) Confer on a regular basis with the Company's top management and,
from time to time, its Board of Directors, regarding the company's vision,
long-term strategy, employee issues, and customer policies; and
(vii) Perform such other duties consistent with his position as may be
assigned to him by the Board of Directors.
(C) The Executive represents and warrants to the Company that, to the
best of his knowledge, he is under no professional obligation or commitment,
whether contractual or otherwise, that is inconsistent with his obligations
under this Agreement. The Executive represents and warrants that he will not
knowingly use or disclose, in connection with his employment by the Company, any
trade secrets or other proprietary information or intellectual property in which
the Executive or any other person has any right, title or interest. To the best
of his knowledge, the Executive's employment by the Company as contemplated by
this Agreement will not infringe or violate the rights of any other person. The
Executive represents and warrants to the Company that he has returned all
property and confidential information belonging to his most recent prior
employer.
(D) The Executive discloses to the Company, and the Company
acknowledges that the Executive's involvement in the following does not
constitute a conflict of interest to the business of the Company:
(i) An equity interest in a non-infomercial tool project with Mike
Harrington, Lanier Marketing and Stanley Tools for a line of tools. Executive
represents that if such products are to be sold via infomercials, Company will
be granted the exclusive right to sell same.
(ii) A 1.66% equity interest in Ideal Health, Inc., a multi-level
marketing company.
(iii) The right to acquire 100,000 shares of "Planet E-Shop."
(iv) A 5% equity interest in "The Grill Restaurant."
(v) The right to receive proceeds in connection with litigation
financed by Executive against Bear Wolf, Inc. and on behalf of Cobee Lighters.
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ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive $250,000 per year for all
services to be rendered pursuant to the terms of this Agreement. Such salary is
payable bi-weekly and in accordance with the Company's normal payroll
procedures. The Board may increase Executive's base salary from time to time in
its discretion.
(B) The Executive may be eligible to receive bonuses, based on the
extent to which he achieves certain defined goals and objectives, to be
determined by mutual agreement between him and the Board of Directors.
ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) The Executive shall be entitled to paid vacations during each year
of his employment with the Company in accordance with Company practice in that
year. The Executive shall also be entitled to leave for illness or temporary
disability, which may be paid or unpaid, in accordance with the policies of the
Company in effect at that time.
(B) The Executive shall work out of the Company's executive offices in
Tampa, Florida. The Executive shall travel on the Company's behalf to the
extent reasonably necessary and be reimbursed for such travel.
(C) The Company shall reimburse the Executive for all reasonable and
necessary business travel and entertainment expenses, upon presentation by the
Executive of an itemized accounting of all expenditures.
(D) The Company shall provide to the Executive, to the full extent
provided for under the laws of the Company's State of Incorporation and the
Company's Bylaws, indemnification for any claim or lawsuit which may be
threatened, asserted or commenced against the Executive by reason of the fact
that he is or was a director, officer, employee or other agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, or other enterprise or employee benefit plan, provided that
indemnification shall not be provided in violation of applicable law. The
indemnification to be provided to Executive shall include coverage of him by
officer and director insurance. The Company shall also provide the Executive
with mandatory advancement of expenses upon receipt by the Company only of
Executive's written undertaking to repay any such amount advanced if he is
ultimately found not to be entitled to indemnification under applicable law.
ARTICLE V
OTHER BENEFITS
(A) Upon execution of this Agreement, TIGI shall grant the Executive
options to acquire 1,000,000 shares of TIGI's common stock at an exercise price
per share equal to $1.30. The
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options shall vest over a three (3) year period (and shall become exercisable at
the time they vest), subject to continued employment, at a rate of 83,333
options per quarter on the first day following the end of the quarter,
commencing on the Effective Date. All options shall expire the earlier of five
(5) years from the Effective Date of this Agreement, or one year following the
termination of employment with the Company. However, if Employee is terminated
without cause, then all options expire five (5) years from the Effective Date of
this Agreement. Options may be exercised on a cashless basis as available to
other members of the Company's senior executive management.
The following terms and conditions apply to the options: (i) both the
number of options and the exercise price are subject to appropriate adjustments
in the event of any stock split, stock dividend or other change in capital
structure affecting TIGI's common stock, (ii) the options and the shares of
common stock issuable upon exercise of the options are subject to restrictions
on transfer, as required by applicable federal and state securities laws; (iii)
options which have not vested on or before the date of termination of
Executive's employment shall terminate on such date, and (iv) notwithstanding
the expiration date, all vested options must be exercised within the earlier of
the expiration date of the options or one year after termination of Executive's
employment. The Executive acknowledges that he is subject to compliance with
the rules and regulations of the Securities and Exchange Commission.
(B) During the term hereof, the Executive shall be entitled to receive
such of the following other benefits of employment that are or may become
available to other members of the Company's senior executive management: health
and life insurance benefits, pension, profit sharing and income protection or
disability plans, in each instance consistent with his position. Executive
shall be entitled to receive an automobile allowance up to $1000 per month.
(C) Stock options in addition to those described above may be granted
from time to time in the discretion of TIGI.
ARTICLE VI
TERM
Subject to the terms and conditions of this Agreement, the term of this
Agreement shall commence from the Effective Date for a period of three years.
ARTICLE VII
TERMINATION
(A) The Executive may voluntarily terminate this Agreement at any time
upon written notice to the Company. The Executive shall provide at least one
month advance notice to the Company of his election to voluntarily terminate
this Agreement.
(B) The Company may terminate this Agreement for Cause at any time by
giving the Executive written notice thereof specifying with particularity the
grounds for such termination. In such event, this Agreement and the employment
relationship hereunder shall be terminated as of the date of such written notice
and the Executive will be entitled to no further salary from the Company. The
Company shall continue, however, to provide Executive with the indemnification
referred to in Article IV (D), but shall not be required to provide such
indemnification for or in
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connection with any matter in which a cause of action is asserted against the
Executive for any act which constitutes grounds for termination for Cause
hereunder. For purposes of this Agreement, "Cause" shall mean (i) a material
violation of the terms of this Agreement that has not been cured by Executive
within 10 days of his receipt of notice particularly describing each such
violation; (ii) a breach of trust, defined as acts of dishonesty, moral
turpitude, theft, embezzlement and self-dealing which results (or can reasonably
be expected to result) in material harm to the Company; (iii) the disclosure of
confidential information prohibited hereunder (except disclosure in the
good-faith belief that the same is for the benefit of the Company) which results
(or can reasonably be expected to result) in material harm to the Company; or
(iv) negligence or willful misconduct, either of which results (or can
reasonably be expected to result) in material harm to the Company. Notice of
termination for Cause shall be forwarded to the Executive by the Company only
upon and after a resolution of the Board authorizing such notification and shall
be effective immediately; provided, however, that the Executive may be
reinstated retroactively, in the discretion of the Board, in the event that
within ten days the Executive establishes to the satisfaction of the Board that
Cause did not exist.
(C) The Company may terminate this Agreement without Cause at any time
upon at least two months advance notice to the Executive; such notice shall be
forwarded to the Executive by the Company only upon and after a resolution of
the Board authorizing such notification and shall be deemed a termination
without Cause. If the Executive's employment is terminated pursuant to this
paragraph, Executive shall be entitled to: (i) all remaining salary payable
during the term of this Agreement; (ii) any deferred or accrued salary not yet
paid; (iii) any bonuses declared and earned but not yet paid; (iv) reimbursement
for any and all monies advanced in connection with Executive's employment for
reasonable and necessary expenses incurred by Executive and approved by the
Executive; and (v) all remaining options, which shall continue to vest pursuant
to Article V of this Agreement. Other than as set forth in this paragraph,
Executive shall be entitled to no other payments or compensation for termination
without Cause.
(D) The Executive's employment with the Company shall be "at will."
Any contrary representations which may have been made to the Executive shall be
superseded by this Agreement, which may only be changed in an express written
agreement signed by the Executive and a duly authorized officer of the Company.
No options shall vest after the date of termination, but the Executive shall be
entitled to any options already vested, subject to the provisions of Article V
(A).
ARTICLE VIII
CONFIDENTIALITY AND NON-COMPETITION
The Executive and the Company recognize that due to the nature of the
Executive's engagement hereunder, and the relationship of the Executive to the
Company, the Executive will have access to, will acquire, and may assist in
developing confidential proprietary information relating to the business and
operations of the Company and its affiliates, including information with respect
to their present and prospective products, systems, customers, agents, processes
and sales and marketing methods. The Executive acknowledges that such
information has been and will continue to be of central importance to the
business of the Company and its affiliates and that
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disclosure of it or its use by others could cause substantial loss to the
Company. The Executive and the Company also recognize that an important part of
the Executive's duties shall be to develop good will for the Company and its
affiliates through his personal contact with customers, agents and others having
business relationships with the Company and its affiliates, and that there is a
danger that this good will, a proprietary asset of the Company and its
affiliates, may follow the Executive if and when his relationship with the
Company is terminated. Therefore, the Executive hereby agrees as follows:
(A) All Company trade secrets, proprietary information, software,
software codes, advertising, sales, marketing and other materials or articles of
information, including customer and supplier lists, data, reports, customer
sales analyses, invoices, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or after the termination of the Executive's employment, the
Executive shall immediately deliver the same to the Company.
(B) During the term of Executive's employment and during any period in
which the Executive may receive severance pay (or would be receiving severance
pay if he receives a lump sum rather than installments), the Executive shall
not, directly or indirectly, own, manage, operate, join or control, or
participate in the ownership, management, operation or control of, or be a
director, stockholder or an employee of, or a consultant to, any business, firm,
corporation or entity which (i) is conducting any business which competes with
the business, as conducted at any time during the term of employment with the
Company, of the Company or any of its affiliates with which Executive had any
substantial management involvement, or (ii) is or was at any time during the
term of employment with the Company a vendor, supplier, customer or distributor
of the Company or any of its affiliates with which Executive had any substantial
management involvement. During the same period of time specified in the
preceding sentence, the Executive shall not solicit, directly or indirectly, for
his own account or for the account of others, orders for merchandise, products
or services of a kind and nature like or similar to merchandise, products and
services sold or rendered by the Company during his employment with the Company
from any person or entity which was a customer of the Company or which the
Company was actively soliciting through personal contact to be a customer during
the 12 month period immediately preceding that date upon which his employment
relationship with the Company shall have terminated. However, the Executive
shall not be governed by the terms of this Article IX (B) if he is terminated
without cause.
(C) During the term of this Agreement and for a period of one year
thereafter, the Executive shall not at any time, directly or indirectly, urge
any customer, or any person or entity which the Company was actively soliciting
to be a customer during the 12 month period immediately preceding that date upon
which his employment relationship with the Company shall have terminated, to
discontinue, in whole or in part, business, or not to do business with, the
Company; nor shall he directly or indirectly induce or attempt to influence any
employee of the Company to terminate his or her employment with the Company.
However, the Executive shall not be governed by the terms of this Article IX (C)
if he is terminated without cause.
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(D) During the term of this Agreement and at all times thereafter, the
Executive shall not knowingly use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or entity other than the Company, any material
referred to in Paragraph (A) above or any information regarding the business
methods, business policies, procedures, techniques, research or development
projects or results, trade secrets, or other knowledge or processes used or
developed by the Company or any names and addresses of customers or clients or
any other confidential information relating to or dealing with the business
operations or activities of the Company, first made known to the Executive or
first learned or acquired by the Executive while in the employ of the Company.
(E) The foregoing provisions of this Article shall not: (i) prevent
Executive from owning five percent or less of the outstanding stock of any
publicly traded entity; (ii) apply to information of any type that is publicly
disclosed, or is or becomes publicly available, in each instance without a
violation by Executive of the provisions of this Article; and (iii) be construed
to prevent disclosure by Executive pursuant to legal process, provided that
Executive shall endeavor to give reasonable advance notice to the Company of any
such legal process involving him that may result in otherwise prohibited
disclosure, except that no advance notice is required if Executive has
instituted legal process against the Company as a result of being terminated
without Cause.
(F) It is recognized that damages in the event of breach by the
Executive of this Article would be difficult, if not impossible, to ascertain.
It is, therefore, agreed that the Company shall have the right to an injunction
or other equitable relief in any court of competent jurisdiction, enjoining any
breach, and the Executive hereby waives any and all defenses specifically
related to the ground of lack of jurisdiction or competence of the court to
grant such injunction or other equitable relief. The existence of this right
shall not preclude any other rights and remedies at law or in equity which the
Company may have.
ARTICLE IX
CONSTRUCTION, ENFORCEABILITY AND SEVERABILITY
(A) The descriptive headings of Articles are inserted for convenience
only and are not a part of this Agreement. Unless otherwise qualified,
references in this Agreement to "Article" are to provisions of this Agreement
and a reference thereto includes any subparts. As used herein, the singular
includes the plural, the plural includes the singular, and words in one gender
include the others, the terms "party" and "parties" are references to the
Company and/or the Executive as permitted or required by the context, "herein",
"hereunder", "hereof" and similar references refer to the whole of this
Agreement, "include", "including" and similar terms are not words of limitation,
and any examples are not limiting. The failure of an incorporated party to
affix its corporate seal to this Agreement shall not impair the validity of the
signature of that party but shall, instead, be the adoption by that party of the
phrase "(CORPORATE SEAL)" as the corporate seal of that party for the purposes
of this Agreement. In the event any date specified herein or determined
hereunder shall be on a Saturday, Sunday or nationally declared holiday, then
that date so specified or determined shall be deemed to be the next business day
following such date and compliance by or on that day shall be deemed to be
compliance with the terms of this Agreement.
(B) If any provision or portion of this Agreement shall be held invalid
or unenforceable,
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the remainder of this Agreement shall remain in full force and effect. If any
provision or portion of this Agreement is held invalid or unenforceable with
respect to particular circumstances, it shall remain in full force and effect in
all other circumstances.
(C) The Company represents and warrants to the Executive that, to the
best of its knowledge, it has been duly authorized to execute, deliver and
perform this Agreement and each related agreement, and that execution, delivery
and performance hereof and thereof is not and will not be a breach or violation
of any obligation or commitment, whether contractual or otherwise, to which the
Company is subject or by which it is bound.
ARTICLE X
ARBITRATION
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof, or the Executive's employment or the termination thereof,
shall be settled by arbitration in St. Petersburg, Florida in accordance with
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding on the parties, and judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrator shall be
empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Executive shall share equally all
fees and expenses of the arbitrator; provided, however, that the Company or the
Executive, as the case may be, shall bear all fees and expenses of the
arbitrator and all of the legal fees and out-of-pocket expenses of the other
party if the arbitrator determines that the claim or position of the Company or
the Executive, as the case may be, was without reasonable foundation. The
Executive and the Company each hereby consent to personal jurisdiction of the
state and federal courts located within the territorial limits of the above
venue for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants, and waive all
venue objections with respect to such arbitration, actions or proceedings.
ARTICLE XI
NOTICE
Any notice, request, demand or other communication required to be given
under the terms of this Agreement shall be in writing and shall be deemed to
have been duly given if delivered to the addressee in person or mailed by
certified mail, return receipt requested, to the Executive at the last resident
address he has provided to the Company, or in the case of the Company, at its
principal executive offices.
ARTICLE XII
BENEFIT
This Agreement shall inure to and shall be binding upon the parties, the
successors and assigns of the Company, and the heirs and personal
representatives of the Executive.
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ARTICLE XIII
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
ARTICLE XIV
GOVERNING LAW
The law of the State of Florida (except its provisions governing the choice
of law) shall govern the construction, enforcement and validity of this
Agreement.
ARTICLE XV
ENTIRE AGREEMENT
This Agreement constitutes or refers to the entire understanding of the
Executive and the Company with respect to the subject matter hereof and
supersedes any and all prior understandings written or oral. This Agreement may
not be changed, modified or discharged orally, but only by an instrument in
writing signed by the parties.
ARTICLE XVI
COUNTERPARTS AND FACSIMILE SIGNATURES
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
IN WITNESS WHEREOF, the parties have executed this Agreement and affixed
their hands and seal the day and year first above written.
EXECUTIVE
/s/Kevin Harrington
Kevin Harrington
COMPANY TIGI
By: ______/S/__________________________ By: _____/S/_______________________
Tim Harrington Robert P. Gordon, Chairman
Its: President
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Annex G
EMPLOYMENT AGREEMENT
TIM HARRINGTON
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made as of this 7th day
of September 2000 by and among TIM HARRINGTON, an individual (the "Executive"),
ASSEENONTVPC.COM, INC. (the "Company") and TELESERVICES INTERNET GROUP INC., a
Florida corporation ("TIGI").
RECITALS
--------
WHEREAS, the Company desires to retain and employ the Executive for the
purpose of securing to the Company the experience, ability and services of the
Executive as President; and
WHEREAS, the Executive desires to be employed by the Company;
NOW, THEREFORE, it is mutually agreed by and between the parties as
follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, effective upon Closing of the
Agreement and Plan of Reorganization by and among TeleServices Internet Group
Inc, Reliant Interactive Media Corporation, the Company and certain stockholders
of the Company, dated September 7, 2000 (as defined therein) (the "Effective
Date"), as President of the Company and the Executive hereby accepts such
employment and shall serve as an executive officer of the Company, subject to
and upon the terms and conditions set forth in this Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with the
Company and subject to the direction and control of the Company's Board of
Directors (the "Board" or the "Board of Directors"), perform such executive
duties and functions as he may be called upon to perform consistent with his
employment hereunder.
(B) The Executive shall devote most of his time and best efforts to the
performance of his duties for the Company, including the following:
(i) Develop, implement, and monitor strategy and business plans, for
the Company and any subsidiaries;
(ii) Make recommendations to the Board of Directors as to appropriate
staffing levels, and monitor and evaluate performance of staff relative to
compliance with established policies and objectives of the Company and
contributions towards attaining objectives;
(iii) Render services to any parent, subsidiary, joint venture or affiliated
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business of the Company as requested by the Board of Directors, provided
that indemnification equivalent to that referred to in Article IV (D) is
provided to Executive in connection with those services;
(iv) Seek to enhance and develop the Company's relationships with its
employees, customers, shareholders and others in the business community;
(v) Confer on a regular basis with the Company's top management and,
from time to time, its Board of Directors, regarding the company's vision,
long-term strategy, employee issues, and customer policies; and
(vii) Perform such other duties consistent with his position as may be
assigned to him by the Board of Directors.
(C) The Executive represents and warrants to the Company that, to the
best of his knowledge, he is under no professional obligation or commitment,
whether contractual or otherwise, that is inconsistent with his obligations
under this Agreement. The Executive represents and warrants that he will not
knowingly use or disclose, in connection with his employment by the Company, any
trade secrets or other proprietary information or intellectual property in which
the Executive or any other person has any right, title or interest. To the best
of his knowledge, the Executive's employment by the Company as contemplated by
this Agreement will not infringe or violate the rights of any other person. The
Executive represents and warrants to the Company that he has returned all
property and confidential information belonging to his most recent prior
employer.
(D) The Executive discloses to the Company, and the Company
acknowledges that the Executive's involvement in the following does not
constitute a conflict of interest to the business of the Company:
(i) An equity interest in a non-infomercial tool project with Mike
Harrington, Lanier Marketing and Stanley Tools for a line of tools. Executive
represents that if such products are to be sold via infomercials, Company will
be granted the exclusive right to sell same.
(ii) A 1.66% equity interest in Ideal Health, Inc., a multi-level
marketing company.
(iii) The right to acquire 100,000 shares of "Planet E-Shop."
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ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive $250,000 per year for all
services to be rendered pursuant to the terms of this Agreement. Such salary is
payable bi-weekly and in accordance with the Company's normal payroll
procedures. The Board may increase Executive's base salary from time to time in
its discretion.
(B) The Executive may be eligible to receive bonuses, based on the
extent to which he achieves certain defined goals and objectives, to be
determined by mutual agreement between him and the Board of Directors.
ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) The Executive shall be entitled to paid vacations during each year
of his employment with the Company in accordance with Company practice in that
year. The Executive shall also be entitled to leave for illness or temporary
disability, which may be paid or unpaid, in accordance with the policies of the
Company in effect at that time.
(B) The Executive shall work out of the Company's executive offices in
Tampa, Florida. The Executive shall travel on the Company's behalf to the
extent reasonably necessary and be reimbursed for such travel.
(C) The Company shall reimburse the Executive for all reasonable and
necessary business travel and entertainment expenses, upon presentation by the
Executive of an itemized accounting of all expenditures.
(D) The Company shall provide to the Executive, to the full extent
provided for under the laws of the Company's State of Incorporation and the
Company's Bylaws, indemnification for any claim or lawsuit which may be
threatened, asserted or commenced against the Executive by reason of the fact
that he is or was a director, officer, employee or other agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, or other enterprise or employee benefit plan, provided that
indemnification shall not be provided in violation of applicable law. The
indemnification to be provided to Executive shall include coverage of him by
officer and director insurance. The Company shall also provide the Executive
with mandatory advancement of expenses upon receipt by the Company only of
Executive's written undertaking to repay any such amount advanced if he is
ultimately found not to be entitled to indemnification under applicable law.
ARTICLE V
OTHER BENEFITS
(A) Upon execution of this Agreement, TIGI shall grant the Executive
options to acquire 1,000,000 shares of TIGI's common stock at an exercise price
per share equal to $1.30. The
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options shall vest over a three (3) year period (and shall become exercisable at
the time they vest), subject to continued employment, at a rate of 83,333
options per quarter on the first day following the end of the quarter,
commencing on the Effective Date. All options shall expire the earlier of five
(5) years from the Effective Date of this Agreement, or one year following the
termination of employment with the Company. However, if Employee is terminated
without cause, then all options expire five (5) years from the Effective Date of
this Agreement. Options may be exercised on a cashless basis as available to
other members of the Company's senior executive management.
The following terms and conditions apply to the options: (i) both the
number of options and the exercise price are subject to appropriate adjustments
in the event of any stock split, stock dividend or other change in capital
structure affecting TIGI's common stock, (ii) the options and the shares of
common stock issuable upon exercise of the options are subject to restrictions
on transfer, as required by applicable federal and state securities laws; (iii)
options which have not vested on or before the date of termination of
Executive's employment shall terminate on such date, and (iv) notwithstanding
the expiration date, all vested options must be exercised within the earlier of
the expiration date of the options or one year after termination of Executive's
employment. The Executive acknowledges that he is subject to compliance with
the rules and regulations of the Securities and Exchange Commission.
(B) During the term hereof, the Executive shall be entitled to receive
such of the following other benefits of employment that are or may become
available to other members of the Company's senior executive management: health
and life insurance benefits, pension, profit sharing and income protection or
disability plans, in each instance consistent with his position. Executive
shall be entitled to receive an automobile allowance up to $1000 per month.
(C) Stock options in addition to those described above may be granted
from time to time in the discretion of TIGI.
ARTICLE VI
TERM
Subject to the terms and conditions of this Agreement, the term of this
Agreement shall commence from the Effective Date for a period of three years.
ARTICLE VII
TERMINATION
(A) The Executive may voluntarily terminate this Agreement at any time
upon written notice to the Company. The Executive shall provide at least one
month advance notice to the Company of his election to voluntarily terminate
this Agreement.
(B) The Company may terminate this Agreement for Cause at any time by
giving the Executive written notice thereof specifying with particularity the
grounds for such termination. In such event, this Agreement and the employment
relationship hereunder shall be terminated as of the date of such written notice
and the Executive will be entitled to no further salary from the Company. The
Company shall continue, however, to provide Executive with the indemnification
referred to in Article IV (D), but shall not be required to provide such
indemnification for or in
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connection with any matter in which a cause of action is asserted against the
Executive for any act which constitutes grounds for termination for Cause
hereunder. For purposes of this Agreement, "Cause" shall mean (i) a material
violation of the terms of this Agreement that has not been cured by Executive
within 10 days of his receipt of notice particularly describing each such
violation; (ii) a breach of trust, defined as acts of dishonesty, moral
turpitude, theft, embezzlement and self-dealing which results (or can reasonably
be expected to result) in material harm to the Company; (iii) the disclosure of
confidential information prohibited hereunder (except disclosure in the
good-faith belief that the same is for the benefit of the Company) which results
(or can reasonably be expected to result) in material harm to the Company; or
(iv) negligence or willful misconduct, either of which results (or can
reasonably be expected to result) in material harm to the Company. Notice of
termination for Cause shall be forwarded to the Executive by the Company only
upon and after a resolution of the Board authorizing such notification and shall
be effective immediately; provided, however, that the Executive may be
reinstated retroactively, in the discretion of the Board, in the event that
within ten days the Executive establishes to the satisfaction of the Board that
Cause did not exist.
(C) The Company may terminate this Agreement without Cause at any time
upon at least two months advance notice to the Executive; such notice shall be
forwarded to the Executive by the Company only upon and after a resolution of
the Board authorizing such notification and shall be deemed a termination
without Cause. If the Executive's employment is terminated pursuant to this
paragraph, Executive shall be entitled to: (i) all remaining salary payable
during the term of this Agreement; (ii) any deferred or accrued salary not yet
paid; (iii) any bonuses declared and earned but not yet paid; (iv) reimbursement
for any and all monies advanced in connection with Executive's employment for
reasonable and necessary expenses incurred by Executive and approved by the
Executive; and (v) all remaining options, which shall continue to vest pursuant
to Article V of this Agreement. Other than as set forth in this paragraph,
Executive shall be entitled to no other payments or compensation for termination
without Cause.
(D) The Executive's employment with the Company shall be "at will."
Any contrary representations which may have been made to the Executive shall be
superseded by this Agreement, which may only be changed in an express written
agreement signed by the Executive and a duly authorized officer of the Company.
No options shall vest after the date of termination, but the Executive shall be
entitled to any options already vested, subject to the provisions of Article V
(A).
ARTICLE VIII
CONFIDENTIALITY AND NON-COMPETITION
The Executive and the Company recognize that due to the nature of the
Executive's engagement hereunder, and the relationship of the Executive to the
Company, the Executive will have access to, will acquire, and may assist in
developing confidential proprietary information relating to the business and
operations of the Company and its affiliates, including information with respect
to their present and prospective products, systems, customers, agents, processes
and sales and marketing methods. The Executive acknowledges that such
information has been and will continue to be of central importance to the
business of the Company and its affiliates and that
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disclosure of it or its use by others could cause substantial loss to the
Company. The Executive and the Company also recognize that an important part of
the Executive's duties shall be to develop good will for the Company and its
affiliates through his personal contact with customers, agents and others having
business relationships with the Company and its affiliates, and that there is a
danger that this good will, a proprietary asset of the Company and its
affiliates, may follow the Executive if and when his relationship with the
Company is terminated. Therefore, the Executive hereby agrees as follows:
(A) All Company trade secrets, proprietary information, software,
software codes, advertising, sales, marketing and other materials or articles of
information, including customer and supplier lists, data, reports, customer
sales analyses, invoices, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or after the termination of the Executive's employment, the
Executive shall immediately deliver the same to the Company.
(B) During the term of Executive's employment and during any period in
which the Executive may receive severance pay (or would be receiving severance
pay if he receives a lump sum rather than installments), the Executive shall
not, directly or indirectly, own, manage, operate, join or control, or
participate in the ownership, management, operation or control of, or be a
director, stockholder or an employee of, or a consultant to, any business, firm,
corporation or entity which (i) is conducting any business which competes with
the business, as conducted at any time during the term of employment with the
Company, of the Company or any of its affiliates with which Executive had any
substantial management involvement, or (ii) is or was at any time during the
term of employment with the Company a vendor, supplier, customer or distributor
of the Company or any of its affiliates with which Executive had any substantial
management involvement. During the same period of time specified in the
preceding sentence, the Executive shall not solicit, directly or indirectly, for
his own account or for the account of others, orders for merchandise, products
or services of a kind and nature like or similar to merchandise, products and
services sold or rendered by the Company during his employment with the Company
from any person or entity which was a customer of the Company or which the
Company was actively soliciting through personal contact to be a customer during
the 12 month period immediately preceding that date upon which his employment
relationship with the Company shall have terminated. However, the Executive
shall not be governed by the terms of this Article IX (B) if he is terminated
without cause.
(C) During the term of this Agreement and for a period of one year
thereafter, the Executive shall not at any time, directly or indirectly, urge
any customer, or any person or entity which the Company was actively soliciting
to be a customer during the 12 month period immediately preceding that date upon
which his employment relationship with the Company shall have terminated, to
discontinue, in whole or in part, business, or not to do business with, the
Company; nor shall he directly or indirectly induce or attempt to influence any
employee of the Company to terminate his or her employment with the Company.
However, the Executive shall not be governed by the terms of this Article IX (C)
if he is terminated without cause.
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(D) During the term of this Agreement and at all times thereafter, the
Executive shall not knowingly use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or entity other than the Company, any material
referred to in Paragraph (A) above or any information regarding the business
methods, business policies, procedures, techniques, research or development
projects or results, trade secrets, or other knowledge or processes used or
developed by the Company or any names and addresses of customers or clients or
any other confidential information relating to or dealing with the business
operations or activities of the Company, first made known to the Executive or
first learned or acquired by the Executive while in the employ of the Company.
(E) The foregoing provisions of this Article shall not: (i) prevent
Executive from owning five percent or less of the outstanding stock of any
publicly traded entity; (ii) apply to information of any type that is publicly
disclosed, or is or becomes publicly available, in each instance without a
violation by Executive of the provisions of this Article; and (iii) be construed
to prevent disclosure by Executive pursuant to legal process, provided that
Executive shall endeavor to give reasonable advance notice to the Company of any
such legal process involving him that may result in otherwise prohibited
disclosure, except that no advance notice is required if Executive has
instituted legal process against the Company as a result of being terminated
without Cause.
(F) It is recognized that damages in the event of breach by the
Executive of this Article would be difficult, if not impossible, to ascertain.
It is, therefore, agreed that the Company shall have the right to an injunction
or other equitable relief in any court of competent jurisdiction, enjoining any
breach, and the Executive hereby waives any and all defenses specifically
related to the ground of lack of jurisdiction or competence of the court to
grant such injunction or other equitable relief. The existence of this right
shall not preclude any other rights and remedies at law or in equity which the
Company may have.
ARTICLE IX
CONSTRUCTION, ENFORCEABILITY AND SEVERABILITY
(A) The descriptive headings of Articles are inserted for convenience
only and are not a part of this Agreement. Unless otherwise qualified,
references in this Agreement to "Article" are to provisions of this Agreement
and a reference thereto includes any subparts. As used herein, the singular
includes the plural, the plural includes the singular, and words in one gender
include the others, the terms "party" and "parties" are references to the
Company and/or the Executive as permitted or required by the context, "herein",
"hereunder", "hereof" and similar references refer to the whole of this
Agreement, "include", "including" and similar terms are not words of limitation,
and any examples are not limiting. The failure of an incorporated party to
affix its corporate seal to this Agreement shall not impair the validity of the
signature of that party but shall, instead, be the adoption by that party of the
phrase "(CORPORATE SEAL)" as the corporate seal of that party for the purposes
of this Agreement. In the event any date specified herein or determined
hereunder shall be on a Saturday, Sunday or nationally declared holiday, then
that date so specified or determined shall be deemed to be the next business day
following such date and compliance by or on that day shall be deemed to be
compliance with the terms of this Agreement.
(B) If any provision or portion of this Agreement shall be held invalid
or unenforceable,
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the remainder of this Agreement shall remain in full force and effect. If any
provision or portion of this Agreement is held invalid or unenforceable with
respect to particular circumstances, it shall remain in full force and effect in
all other circumstances.
(C) The Company represents and warrants to the Executive that, to the
best of its knowledge, it has been duly authorized to execute, deliver and
perform this Agreement and each related agreement, and that execution, delivery
and performance hereof and thereof is not and will not be a breach or violation
of any obligation or commitment, whether contractual or otherwise, to which the
Company is subject or by which it is bound.
ARTICLE X
ARBITRATION
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof, or the Executive's employment or the termination thereof,
shall be settled by arbitration in St. Petersburg, Florida in accordance with
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding on the parties, and judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrator shall be
empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Executive shall share equally all
fees and expenses of the arbitrator; provided, however, that the Company or the
Executive, as the case may be, shall bear all fees and expenses of the
arbitrator and all of the legal fees and out-of-pocket expenses of the other
party if the arbitrator determines that the claim or position of the Company or
the Executive, as the case may be, was without reasonable foundation. The
Executive and the Company each hereby consent to personal jurisdiction of the
state and federal courts located within the territorial limits of the above
venue for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants, and waive all
venue objections with respect to such arbitration, actions or proceedings.
ARTICLE XI
NOTICE
Any notice, request, demand or other communication required to be given
under the terms of this Agreement shall be in writing and shall be deemed to
have been duly given if delivered to the addressee in person or mailed by
certified mail, return receipt requested, to the Executive at the last resident
address he has provided to the Company, or in the case of the Company, at its
principal executive offices.
ARTICLE XII
BENEFIT
This Agreement shall inure to and shall be binding upon the parties, the
successors and assigns of the Company, and the heirs and personal
representatives of the Executive.
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ARTICLE XIII
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
ARTICLE XIV
GOVERNING LAW
The law of the State of Florida (except its provisions governing the choice
of law) shall govern the construction, enforcement and validity of this
Agreement.
ARTICLE XV
ENTIRE AGREEMENT
This Agreement constitutes or refers to the entire understanding of the
Executive and the Company with respect to the subject matter hereof and
supersedes any and all prior understandings written or oral. This Agreement may
not be changed, modified or discharged orally, but only by an instrument in
writing signed by the parties.
ARTICLE XVI
COUNTERPARTS AND FACSIMILE SIGNATURES
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
IN WITNESS WHEREOF, the parties have executed this Agreement and affixed
their hands and seal the day and year first above written.
EXECUTIVE
/s/Tim Harrintong
Tim Harrington
COMPANY TIGI
By: ______/S/__________________________ By: _____/S/_______________________
Tim Harrington Robert P. Gordon, Chairman
Its: President
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Annex H
EMPLOYMENT AGREEMENT
MEL ARTHUR
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EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made as of this 7th day
of September 2000 by and among MEL ARTHUR, an individual (the "Executive"),
ASSEENONTVPC.COM, INC. (the "Company") and TELESERVICES INTERNET GROUP INC., a
Florida corporation ("TIGI").
RECITALS
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WHEREAS, the Company desires to retain and employ the Executive for the
purpose of securing to the Company the experience, ability and services of the
Executive as Executive Vice President; and
WHEREAS, the Executive desires to be employed by the Company;
NOW, THEREFORE, it is mutually agreed by and between the parties as
follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive, effective upon Closing of the
Agreement and Plan of Reorganization by and among TeleServices Internet Group
Inc, Reliant Interactive Media Corporation, the Company and certain stockholders
of the Company, dated September 7, 2000 (as defined therein) (the "Effective
Date"), as Executive Vice President of the Company and the Executive hereby
accepts such employment and shall serve as an executive officer of the Company,
subject to and upon the terms and conditions set forth in this Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with the
Company and subject to the direction and control of the Company's Board of
Directors (the "Board" or the "Board of Directors"), perform such executive
duties and functions as he may be called upon to perform consistent with his
employment hereunder.
(B) The Executive shall devote most of his time and best efforts to the
performance of his duties for the Company, including the following:
(i) Develop, implement, and monitor strategy and business plans, for
the Company and any subsidiaries;
(ii) Make recommendations to the Board of Directors as to appropriate
staffing levels, and monitor and evaluate performance of staff relative to
compliance with established policies and objectives of the Company and
contributions towards attaining objectives;
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(iii) Render services to any parent, subsidiary, joint venture or
affiliated business of the Company as requested by the Board of Directors,
provided that indemnification equivalent to that referred to in Article IV (D)
is provided to Executive in connection with those services;
(iv) Seek to enhance and develop the Company's relationships with its
employees, customers, shareholders and others in the business community;
(v) Confer on a regular basis with the Company's top management and,
from time to time, its Board of Directors, regarding the company's vision,
long-term strategy, employee issues, and customer policies; and
(vii) Perform such other duties consistent with his position as may be
assigned to him by the Board of Directors.
(C) The Executive represents and warrants to the Company that, to the
best of his knowledge, he is under no professional obligation or commitment,
whether contractual or otherwise, that is inconsistent with his obligations
under this Agreement. The Executive represents and warrants that he will not
knowingly use or disclose, in connection with his employment by the Company, any
trade secrets or other proprietary information or intellectual property in which
the Executive or any other person has any right, title or interest. To the best
of his knowledge, the Executive's employment by the Company as contemplated by
this Agreement will not infringe or violate the rights of any other person. The
Executive represents and warrants to the Company that he has returned all
property and confidential information belonging to his most recent prior
employer.
(D) The Executive discloses to the Company, and the Company
acknowledges that the Executive's involvement in the following does not
constitute a conflict of interest to the business of the Company:
(i) An equity interest in a non-infomercial tool project with Mike
Harrington, Lanier Marketing and Stanley Tools for a line of tools. Executive
represents that if such products are to be sold via infomercials, Company will
be granted the exclusive right to sell same.
(ii) A 1.66% equity interest in Ideal Health, Inc., a multi-level
marketing company.
(iii) The right to acquire 100,000 shares of "Planet E-Shop."
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ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive $250,000 per year for all
services to be rendered pursuant to the terms of this Agreement. Such salary is
payable bi-weekly and in accordance with the Company's normal payroll
procedures. The Board may increase Executive's base salary from time to time in
its discretion.
(B) The Executive may be eligible to receive bonuses, based on the
extent to which he achieves certain defined goals and objectives, to be
determined by mutual agreement between him and the Board of Directors.
ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) The Executive shall be entitled to paid vacations during each year
of his employment with the Company in accordance with Company practice in that
year. The Executive shall also be entitled to leave for illness or temporary
disability, which may be paid or unpaid, in accordance with the policies of the
Company in effect at that time.
(B) The Executive shall work out of the Company's executive offices in
Tampa, Florida. The Executive shall travel on the Company's behalf to the
extent reasonably necessary and be reimbursed for such travel.
(C) The Company shall reimburse the Executive for all reasonable and
necessary business travel and entertainment expenses, upon presentation by the
Executive of an itemized accounting of all expenditures.
(D) The Company shall provide to the Executive, to the full extent
provided for under the laws of the Company's State of Incorporation and the
Company's Bylaws, indemnification for any claim or lawsuit which may be
threatened, asserted or commenced against the Executive by reason of the fact
that he is or was a director, officer, employee or other agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, or other enterprise or employee benefit plan, provided that
indemnification shall not be provided in violation of applicable law. The
indemnification to be provided to Executive shall include coverage of him by
officer and director insurance. The Company shall also provide the Executive
with mandatory advancement of expenses upon receipt by the Company only of
Executive's written undertaking to repay any such amount advanced if he is
ultimately found not to be entitled to indemnification under applicable law.
ARTICLE V
OTHER BENEFITS
(A) Upon execution of this Agreement, TIGI shall grant the Executive
options to acquire 1,000,000 shares of TIGI's common stock at an exercise price
per share equal to $1.30. The
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options shall vest over a three (3) year period (and shall become exercisable at
the time they vest), subject to continued employment, at a rate of 83,333
options per quarter on the first day following the end of the quarter,
commencing on the Effective Date. All options shall expire the earlier of five
(5) years from the Effective Date of this Agreement, or one year following the
termination of employment with the Company. However, if Employee is terminated
without cause, then all options expire five (5) years from the Effective Date of
this Agreement. Options may be exercised on a cashless basis as available to
other members of the Company's senior executive management.
The following terms and conditions apply to the options: (i) both the
number of options and the exercise price are subject to appropriate adjustments
in the event of any stock split, stock dividend or other change in capital
structure affecting TIGI's common stock, (ii) the options and the shares of
common stock issuable upon exercise of the options are subject to restrictions
on transfer, as required by applicable federal and state securities laws; (iii)
options which have not vested on or before the date of termination of
Executive's employment shall terminate on such date, and (iv) notwithstanding
the expiration date, all vested options must be exercised within the earlier of
the expiration date of the options or one year after termination of Executive's
employment. The Executive acknowledges that he is subject to compliance with
the rules and regulations of the Securities and Exchange Commission.
(B) During the term hereof, the Executive shall be entitled to receive
such of the following other benefits of employment that are or may become
available to other members of the Company's senior executive management: health
and life insurance benefits, pension, profit sharing and income protection or
disability plans, in each instance consistent with his position. Executive
shall be entitled to receive an automobile allowance up to $1000 per month.
(C) Stock options in addition to those described above may be granted
from time to time in the discretion of TIGI.
ARTICLE VI
TERM
Subject to the terms and conditions of this Agreement, the term of this
Agreement shall commence from the Effective Date for a period of three years.
ARTICLE VII
TERMINATION
(A) The Executive may voluntarily terminate this Agreement at any time
upon written notice to the Company. The Executive shall provide at least one
month advance notice to the Company of his election to voluntarily terminate
this Agreement.
(B) The Company may terminate this Agreement for Cause at any time by
giving the Executive written notice thereof specifying with particularity the
grounds for such termination. In such event, this Agreement and the employment
relationship hereunder shall be terminated as of the date of such written notice
and the Executive will be entitled to no further salary from the Company. The
Company shall continue, however, to provide Executive with the indemnification
referred to in Article IV (D), but shall not be required to provide such
indemnification for or in
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connection with any matter in which a cause of action is asserted against the
Executive for any act which constitutes grounds for termination for Cause
hereunder. For purposes of this Agreement, "Cause" shall mean (i) a material
violation of the terms of this Agreement that has not been cured by Executive
within 10 days of his receipt of notice particularly describing each such
violation; (ii) a breach of trust, defined as acts of dishonesty, moral
turpitude, theft, embezzlement and self-dealing which results (or can reasonably
be expected to result) in material harm to the Company; (iii) the disclosure of
confidential information prohibited hereunder (except disclosure in the
good-faith belief that the same is for the benefit of the Company) which results
(or can reasonably be expected to result) in material harm to the Company; or
(iv) negligence or willful misconduct, either of which results (or can
reasonably be expected to result) in material harm to the Company. Notice of
termination for Cause shall be forwarded to the Executive by the Company only
upon and after a resolution of the Board authorizing such notification and shall
be effective immediately; provided, however, that the Executive may be
reinstated retroactively, in the discretion of the Board, in the event that
within ten days the Executive establishes to the satisfaction of the Board that
Cause did not exist.
(C) The Company may terminate this Agreement without Cause at any time
upon at least two months advance notice to the Executive; such notice shall be
forwarded to the Executive by the Company only upon and after a resolution of
the Board authorizing such notification and shall be deemed a termination
without Cause. If the Executive's employment is terminated pursuant to this
paragraph, Executive shall be entitled to: (i) all remaining salary payable
during the term of this Agreement; (ii) any deferred or accrued salary not yet
paid; (iii) any bonuses declared and earned but not yet paid; (iv) reimbursement
for any and all monies advanced in connection with Executive's employment for
reasonable and necessary expenses incurred by Executive and approved by the
Executive; and (v) all remaining options, which shall continue to vest pursuant
to Article V of this Agreement. Other than as set forth in this paragraph,
Executive shall be entitled to no other payments or compensation for termination
without Cause.
(D) The Executive's employment with the Company shall be "at will."
Any contrary representations which may have been made to the Executive shall be
superseded by this Agreement, which may only be changed in an express written
agreement signed by the Executive and a duly authorized officer of the Company.
No options shall vest after the date of termination, but the Executive shall be
entitled to any options already vested, subject to the provisions of Article V
(A).
ARTICLE VIII
CONFIDENTIALITY AND NON-COMPETITION
The Executive and the Company recognize that due to the nature of the
Executive's engagement hereunder, and the relationship of the Executive to the
Company, the Executive will have access to, will acquire, and may assist in
developing confidential proprietary information relating to the business and
operations of the Company and its affiliates, including information with respect
to their present and prospective products, systems, customers, agents, processes
and sales and marketing methods. The Executive acknowledges that such
information has been and will continue to be of central importance to the
business of the Company and its affiliates and that
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disclosure of it or its use by others could cause substantial loss to the
Company. The Executive and the Company also recognize that an important part of
the Executive's duties shall be to develop good will for the Company and its
affiliates through his personal contact with customers, agents and others having
business relationships with the Company and its affiliates, and that there is a
danger that this good will, a proprietary asset of the Company and its
affiliates, may follow the Executive if and when his relationship with the
Company is terminated. Therefore, the Executive hereby agrees as follows:
(A) All Company trade secrets, proprietary information, software,
software codes, advertising, sales, marketing and other materials or articles of
information, including customer and supplier lists, data, reports, customer
sales analyses, invoices, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or after the termination of the Executive's employment, the
Executive shall immediately deliver the same to the Company.
(B) During the term of Executive's employment and during any period in
which the Executive may receive severance pay (or would be receiving severance
pay if he receives a lump sum rather than installments), the Executive shall
not, directly or indirectly, own, manage, operate, join or control, or
participate in the ownership, management, operation or control of, or be a
director, stockholder or an employee of, or a consultant to, any business, firm,
corporation or entity which (i) is conducting any business which competes with
the business, as conducted at any time during the term of employment with the
Company, of the Company or any of its affiliates with which Executive had any
substantial management involvement, or (ii) is or was at any time during the
term of employment with the Company a vendor, supplier, customer or distributor
of the Company or any of its affiliates with which Executive had any substantial
management involvement. During the same period of time specified in the
preceding sentence, the Executive shall not solicit, directly or indirectly, for
his own account or for the account of others, orders for merchandise, products
or services of a kind and nature like or similar to merchandise, products and
services sold or rendered by the Company during his employment with the Company
from any person or entity which was a customer of the Company or which the
Company was actively soliciting through personal contact to be a customer during
the 12 month period immediately preceding that date upon which his employment
relationship with the Company shall have terminated. However, the Executive
shall not be governed by the terms of this Article IX (B) if he is terminated
without cause.
(C) During the term of this Agreement and for a period of one year
thereafter, the Executive shall not at any time, directly or indirectly, urge
any customer, or any person or entity which the Company was actively soliciting
to be a customer during the 12 month period immediately preceding that date upon
which his employment relationship with the Company shall have terminated, to
discontinue, in whole or in part, business, or not to do business with, the
Company; nor shall he directly or indirectly induce or attempt to influence any
employee of the Company to terminate his or her employment with the Company.
However, the Executive shall not be governed by the terms of this Article IX (C)
if he is terminated without cause.
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(D) During the term of this Agreement and at all times thereafter, the
Executive shall not knowingly use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or entity other than the Company, any material
referred to in Paragraph (A) above or any information regarding the business
methods, business policies, procedures, techniques, research or development
projects or results, trade secrets, or other knowledge or processes used or
developed by the Company or any names and addresses of customers or clients or
any other confidential information relating to or dealing with the business
operations or activities of the Company, first made known to the Executive or
first learned or acquired by the Executive while in the employ of the Company.
(E) The foregoing provisions of this Article shall not: (i) prevent
Executive from owning five percent or less of the outstanding stock of any
publicly traded entity; (ii) apply to information of any type that is publicly
disclosed, or is or becomes publicly available, in each instance without a
violation by Executive of the provisions of this Article; and (iii) be construed
to prevent disclosure by Executive pursuant to legal process, provided that
Executive shall endeavor to give reasonable advance notice to the Company of any
such legal process involving him that may result in otherwise prohibited
disclosure, except that no advance notice is required if Executive has
instituted legal process against the Company as a result of being terminated
without Cause.
(F) It is recognized that damages in the event of breach by the
Executive of this Article would be difficult, if not impossible, to ascertain.
It is, therefore, agreed that the Company shall have the right to an injunction
or other equitable relief in any court of competent jurisdiction, enjoining any
breach, and the Executive hereby waives any and all defenses specifically
related to the ground of lack of jurisdiction or competence of the court to
grant such injunction or other equitable relief. The existence of this right
shall not preclude any other rights and remedies at law or in equity which the
Company may have.
ARTICLE IX
CONSTRUCTION, ENFORCEABILITY AND SEVERABILITY
(A) The descriptive headings of Articles are inserted for convenience
only and are not a part of this Agreement. Unless otherwise qualified,
references in this Agreement to "Article" are to provisions of this Agreement
and a reference thereto includes any subparts. As used herein, the singular
includes the plural, the plural includes the singular, and words in one gender
include the others, the terms "party" and "parties" are references to the
Company and/or the Executive as permitted or required by the context, "herein",
"hereunder", "hereof" and similar references refer to the whole of this
Agreement, "include", "including" and similar terms are not words of limitation,
and any examples are not limiting. The failure of an incorporated party to
affix its corporate seal to this Agreement shall not impair the validity of the
signature of that party but shall, instead, be the adoption by that party of the
phrase "(CORPORATE SEAL)" as the corporate seal of that party for the purposes
of this Agreement. In the event any date specified herein or determined
hereunder shall be on a Saturday, Sunday or nationally declared holiday, then
that date so specified or determined shall be deemed to be the next business day
following such date and compliance by or on that day shall be deemed to be
compliance with the terms of this Agreement.
(B) If any provision or portion of this Agreement shall be held invalid
or unenforceable,
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the remainder of this Agreement shall remain in full force and effect. If any
provision or portion of this Agreement is held invalid or unenforceable with
respect to particular circumstances, it shall remain in full force and effect in
all other circumstances.
(C) The Company represents and warrants to the Executive that, to the
best of its knowledge, it has been duly authorized to execute, deliver and
perform this Agreement and each related agreement, and that execution, delivery
and performance hereof and thereof is not and will not be a breach or violation
of any obligation or commitment, whether contractual or otherwise, to which the
Company is subject or by which it is bound.
ARTICLE X
ARBITRATION
Any controversy or claim arising out of or relating to this Agreement or
the breach thereof, or the Executive's employment or the termination thereof,
shall be settled by arbitration in St. Petersburg, Florida in accordance with
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding on the parties, and judgment on the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitrator shall be
empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Executive shall share equally all
fees and expenses of the arbitrator; provided, however, that the Company or the
Executive, as the case may be, shall bear all fees and expenses of the
arbitrator and all of the legal fees and out-of-pocket expenses of the other
party if the arbitrator determines that the claim or position of the Company or
the Executive, as the case may be, was without reasonable foundation. The
Executive and the Company each hereby consent to personal jurisdiction of the
state and federal courts located within the territorial limits of the above
venue for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants, and waive all
venue objections with respect to such arbitration, actions or proceedings.
ARTICLE XI
NOTICE
Any notice, request, demand or other communication required to be given
under the terms of this Agreement shall be in writing and shall be deemed to
have been duly given if delivered to the addressee in person or mailed by
certified mail, return receipt requested, to the Executive at the last resident
address he has provided to the Company, or in the case of the Company, at its
principal executive offices.
ARTICLE XII
BENEFIT
This Agreement shall inure to and shall be binding upon the parties, the
successors and assigns of the Company, and the heirs and personal
representatives of the Executive.
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ARTICLE XIII
WAIVER
The waiver by either party of any breach or violation of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
ARTICLE XIV
GOVERNING LAW
The law of the State of Florida (except its provisions governing the choice
of law) shall govern the construction, enforcement and validity of this
Agreement.
ARTICLE XV
ENTIRE AGREEMENT
This Agreement constitutes or refers to the entire understanding of the
Executive and the Company with respect to the subject matter hereof and
supersedes any and all prior understandings written or oral. This Agreement may
not be changed, modified or discharged orally, but only by an instrument in
writing signed by the parties.
ARTICLE XVI
COUNTERPARTS AND FACSIMILE SIGNATURES
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
IN WITNESS WHEREOF, the parties have executed this Agreement and affixed
their hands and seal the day and year first above written.
M. Arthur Employment Agreement Page 10 of 10
EXECUTIVE
/s/Mel Arthur
Mel Arthur
COMPANY TIGI
By: ______/S/__________________________ By: _____/S/_______________________
Tim Harrington Robert P. Gordon, Chairman
Its: President
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