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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
GENIUS PRODUCTS, INC.
A NEVADA CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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NEVADA 88-0363979
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
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11250 EL CAMINO REAL #100
SAN DIEGO, CALIFORNIA 92130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(858) 793-8840
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS TO NAME OF EACH EXCHANGE ON WHICH
BE SO REGISTERED: EACH CLASS IS TO BE REGISTERED:
NONE NONE
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SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001
(TITLE OF CLASS)
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TABLE OF CONTENTS
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PART I
DESCRIPTION OF BUSINESS
Overview.................................................. 1
Baby Genius(TM) Products.................................. 1
Pet Tunes Products........................................ 2
Product Fulfillment and Sales of CDs, Cassettes and
Videos................................................. 2
Markets................................................... 3
Licenses and Trademarks................................... 3
Jewelry Products.......................................... 3
Other Products............................................ 4
Our Retail Strategy in the United States.................. 4
Our Retail Marketing Plan................................. 4
Our Overseas Retail Strategy.............................. 5
Our Internet Strategy..................................... 5
Our Internet Marketing Strategy........................... 5
Retail and Internet Competitors........................... 6
Risks Related to Our Business............................. 7
Impact of the Year 2000................................... 9
Employees................................................. 9
Additional Information.................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 11
Results of Operations -- Nine Months Ended September 30,
1999 and 1998.......................................... 11
Results of Operations -- 1998 Compared to 1997............ 12
Results of Operations -- 1997 Compared to 1996............ 12
Liquidity and Capital Resources........................... 13
DESCRIPTION OF PROPERTY..................................... 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 14
MANAGEMENT.................................................. 15
Directors, Executive Officers, Promoters and Control
Persons................................................ 15
EXECUTIVE COMPENSATION -- REMUNERATION OF DIRECTORS AND
OFFICERS.................................................. 16
Employment Agreements..................................... 16
Director Compensation..................................... 17
Non-Qualified Stock Option Plan........................... 17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 17
LEGAL PROCEEDINGS........................................... 18
PART II
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.... 19
Dividend Policy........................................... 19
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RECENT SALES OF UNREGISTERED SECURITIES..................... 20
1997: Formation, Acquisition and Initial Issuance of
Common Stock........................................... 20
1998: Issuance of Common Stock............................ 20
1999: Issuance of Common Stock............................ 20
DESCRIPTION OF SECURITIES................................... 21
Common Stock.............................................. 21
INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 21
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 22
INDEX TO FINANCIAL STATEMENTS............................... F-1
PART III
INDEX TO EXHIBITS
SIGNATURE
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PART I
DESCRIPTION OF BUSINESS
OVERVIEW
Genius Products, Inc. (the "Company") was incorporated in the State of
Nevada on January 6, 1996 under the name Salutations, Inc. ("Salutations"). In
September 1997 Salutations acquired all of the outstanding shares of a company
called International Trade & Manufacturing Corporation ("ITM"), a Nevada
corporation founded in 1992 by Klaus Moeller, our current Chairman and Chief
Executive Officer, and Gerald Edick. At the time of the acquisition, Salutations
was a public company with shares quoted on the Over the Counter ("OTC") Bulletin
Board. Immediately after the acquisition, Salutations assumed all of the
operations and businesses of ITM and changed its name to International Trading &
Manufacturing Corporation ("ITMC"). In October 1999 we changed the name of the
Company again from International Trading & Manufacturing Corporation to Genius
Products, Inc., to reflect what has become our core business of publishing and
distributing music compact discs, cassettes and videos under the Baby Genius(TM)
and other Genius brand names. Our shares currently trade on the OTC Bulletin
Board under the symbol ITMH.
The original business of ITM involved the design, development and
distribution of semi-precious and precious gemstone and costume jewelry. Over
the last three years, however, the jewelry business has experienced increased
competition, an erosion of profit margins and a decline in sales. As a result,
in September 1998 we shifted our focus to more profitable lines of business
involving the Genius-branded product lines discussed below.
We have significant experience in product development and marketing through
both wholesale and retail distribution channels, and through national and
regional media campaigns. We use innovative and original marketing techniques to
sell our products to targeted audiences, such as parents and pet owners. We have
strong contacts in both the music and book distribution business and have
considerable experience in the building of membership programs.
BABY GENIUS(TM) PRODUCTS
In September 1998, we decided to launch a line of classical music compact
discs ("CDs") and cassettes for children. This was inspired by a proclamation by
the governor of Georgia, Zell Miller, who stated that all newborn children would
receive a free classical CD or cassette as a gift from the state, to enhance the
child's intellectual development and well-being. We were also attracted by the
high gross margins associated with the sale of CDs, cassettes and videos.
Accordingly, we recruited people with experience in the production, development,
distribution and marketing of CDs, cassettes, videos and other products.
We started to develop the Baby Genius line of products and become a music
publisher in September 1998. As a result, our business has changed significantly
over the last 12 months. We now publish, distribute and license a line of
musical CDs, cassettes and videos for children under the Baby Genius(TM) brand
name.
The Baby Genius(TM) product line currently comprises 20 CDs and cassettes
and two videos. There are 11 music titles in our Classical Series: Bedtime
Beethoven, Best of . . . The IQ Builder!, Brain Power, Breakfast with Bach,
Classics for Intelligence, Classical Vitamins, It's a Boy!, It's a Girl!, Learn
with Vivaldi, Magic Mozart and one sampler title. Our Instrumental Relaxation
Series comprises five titles: Lulla-Drive for the Car, Nature Experience, Sweet
Dreams Lullabies, Up all Night and a sampler title. There are two titles in our
Vocal Series: Children's Songs and Favorite Nursery Rhymes, and two titles in
our Christmas Series: Classical Christmas and Christmas Sleighride. We have
produced two videos: Mozart & Friends Vol. 1 and Mozart & Friends Sleepytime
Vol. 2.
We have also established a website on the Internet, located at
WWW.BABYGENIUS.COM, at which visitors can buy Baby Genius(TM) products, and also
obtain access to information and content on pregnancy, child care and other
subject matters related to child development.
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Our business plan is to develop a line of music, video and other
Genius-branded products that are stimulating, educational and beneficial to the
intellectual development and well-being of children and their families.
We have had significant success in the creation of the Baby Genius(TM)
product line. We produced and brought to market 22 titles in 10 months. Our
music and video sales went from zero in December 1998 to almost $900,000 by the
end of September 1999. We attribute this success to the highly marketable Baby
Genius(TM) brand name, effective marketing techniques, a national media
campaign, and endorsements by our celebrity spokesperson, Deidre Hall, and by
Minnesota Public Radio. We believe that if current market conditions continue,
our retail distribution and net sales will continue to grow, although we will
need additional financing to fund the increase in fulfillment and other costs
resulting from higher sales. No assurance can be given that current market
conditions will continue, that we will obtain the financing to implement our
business plan or that even if we implement our plan, that we will succeed in
sustaining high growth rates.
Baby Genius(TM) CDs, cassettes and videos are endorsed by our celebrity
spokesperson, Deidre Hall. We entered into an agreement in February of 1999 with
Panache, Inc. which provides for Ms. Hall to act as a spokesperson for our Baby
Genius(TM) products. The agreement has a one year term, and requires us to pay
Panache $100,000 and issue Panache 200,000 shares of our common stock. Of these
200,000 shares, 80,000 shares were issued in March 1999, 60,000 shares are to be
issued in November 1999, and 60,000 shares are to be issued on or before March
1, 2000.
Ms. Hall has for over 20 years played the role of a pediatrician, Dr.
Marlena Evans, in the television program Days of Our Lives. Ms. Hall has
promoted our Baby Genius(TM) products through the following media: Soap Opera
Digest Magazine, CBS This Morning, The TV Channel Guide, Live with Regis and
Kathie Lee, Access Hollywood, The Rosie O'Donnell Show, E! "Out to Lunch", Later
Today and E! "News Daily". After Ms. Hall appeared on The Rosie O'Donnell Show
in September 1999 to promote one of our Baby Genius(TM) CD special offers, we
received over 20,000 orders.
The Baby Genius(TM) product line is also endorsed by Minnesota Public Radio
("MPR"), a subsidiary of Minnesota Communications Group ("MCG"). MPR and MCG
funded a portion of the Baby Genius(TM) development costs and have been
instrumental in assisting us to obtain classical music licenses. MPR and MCG are
both shareholders of the Company.
Our success has been recognized by others. In March 1999, CBS This Morning
chose the Baby Genius(TM) line of CDs as one of the "Best Products for Mother's
Day." In September 1999, the Baby Genius(TM) CD Nature Experience received the
1999 National Association of Parenting Publications "Gold Award."
PET TUNES PRODUCTS
In October 1999, we began developing a classical and instrumental series of
CDs and cassettes under the name Pet Tunes, comprising four titles: Delighted
Doggy, Calming Kitty, Blissful Birdy and Happy Horsy. These titles are designed
to be played to pet animals and will be marketed on the basis that music may
have beneficial effects on animals, for example, by reducing "separation
anxiety" that a pet may experience when separated from its owner.
PRODUCT FULFILLMENT AND SALES OF CDS, CASSETTES AND VIDEOS
We are the sole producers of the CDs and cassettes for our Baby Genius(TM)
Instrumental Relaxation Series and our Baby Genius(TM) Vocal Series. We
co-produce with MPR the CDs and cassettes for the Baby Genius(TM) Classical
Series. Our CDs and cassettes are manufactured by Zomax, Inc. We are the sole
producers of our two Baby Genius(TM) videos. Our videos are manufactured by
Allied Digital Technology, Inc.
Our Baby Genius(TM) product line is distributed through our own
distribution center in Iowa and also through Rounder Kids, Valley Media, The
Children's Bookstore, Newsound, Tapeworm, Advanced Marketing and Ventura
Distribution.
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Baby Genius(TM) products are sold in the following outlets:
- Mass retail: Target, ShopKo and Costco. We also have commitments from the
following outlets: Baby's R' Us, Pamida, Sears, Federated, Robinson May
and Musicland.
- Toy and children's stores: Zany Brainy, Learningsmith, Noodle Kidoodle,
Imaginarium, Learning Center and Party World.
- Others: 1-800-Flowers, J&R Music, Carter's Children's Wear, Transworld,
Rivertown Catalog, Hastings and SkanDisk.
- Internet websites on the World Wide Web: ibaby.com, Smarterkids.com,
Toytime.com, Americanbaby.com, Babycenter.com, Amazon.com, Borders.com,
Therightstart.com, Infantelligence.com and eToys.com.
By October 31, 1999, Baby Genius(TM) products were available in
approximately 2,000 outlets. Credit card transactions for sales of Baby
Genius(TM) products from our website are processed by National Payment Systems,
Inc.
MARKETS
According to the US Census Bureau, approximately 3.9 million babies were
born in the United States in each of the last five years. With respect to the
Baby Genius(TM) and related product lines, our targeted markets are the parents,
family and friends of all new born children from birth through the age of 12 and
beyond.
According to the American Veterinary Medical Association ("AVMA"), in 1996
approximately 31% of US households owned a dog, 27% owned a cat, just under 5%
owned a pet bird and just under 2% owned a horse. The AVMA also estimates that
in 1996 households collectively spent approximately $5.8 billion on their dogs,
$3 billion on their cats, $50 million on their pet birds and $339 million on
their horses. We will target sales of our Pet Tunes series at these markets.
LICENSES AND TRADEMARKS
We license our classical music from Naxos of America, Inc. Under the terms
of our non-exclusive worldwide license agreements with Naxos, we pay an advance
payment to Naxos of $6,000 for the first 150,000 copies of manufactured CDs and
cassettes which are the subject of the license and $1,000 for each additional
50,000 copies of manufactured CDs and cassettes. The license agreements
terminate upon the expiration of the copyright of the music which is held by
Naxos or upon our discontinuation of the product line.
MCG has granted us a license to use the names Public Radio MusicSource,
PRMS, and PRMS designs. MPR has granted us a license to use the names Minnesota
Public Radio, MPR, and MPR designs. The MPR licenses are more fully described in
the "Certain Relationships and Related Transactions" section of this
registration statement.
We own all intellectual property rights relating to the Baby Genius(TM)
Instrumental Relaxation Series, the Vocal Series, and the video series.
We own the trademark Baby Genius(TM) for music and video products, and we
have an application pending on the Baby Genius(TM) trademark for books. We also
have trademark applications pending on the following trade names that we intend
to use to develop additional product lines: Little Genius, Kid Genius and Child
Genius.
JEWELRY PRODUCTS
Although jewelry sales and profit margins have declined since ITM started
the business, we continue to design, develop and distribute semi-precious and
precious gemstone and costume jewelry under ITM's original jewelry brand name
"Sanuk." Our jewelry is manufactured in Thailand and India and marketed through
the Home Shopping Network in the United States. Our jewelry business is operated
through our wholly-owned
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subsidiary Sanuk, Inc., a Nevada corporation. In order to concentrate on our
core business and implement our business plan for Genius-branded products, we
plan to sell our jewelry business in the first quarter of 2000. We are in
discussions regarding this sale with Gemstones of Montana, a company with which
we have conducted business for several years and which we believe will continue
to operate the business successfully. There can be no assurance, however, that
we will be able to sell our jewelry business to Gemstones of Montana, or any
other potential buyer, or that if such a sale were to occur, that it would be
completed in the first quarter of 2000.
OTHER PRODUCTS
We have entered into a license agreement with Sasha St. Clair to market and
sell a fishing device for de-boning fish, called the "Downunder Spineless Wunder
Boner". Under the terms of the license agreement, we have agreed to pay Mr. St.
Clair $1.00 for every unit sold from TV sales and $3.00 per unit sold from all
other sales, subject to certain guaranteed minimum and advance royalties. The
license agreement expires in August of 2003. We intend to market the product
principally through the Danielson Company, which would be responsible for all
fulfillment relating to manufacturing, distribution and sales. We also intend to
market this product on TV by way of a direct-response commercial aired on
national and regional cable channels. Fulfillment of direct sales made by us
would be processed through Professional Marketing Associates, Inc. We do not
anticipate revenues from sales of the product to have a material impact on the
Company's short-term financial results.
In 1998 and 1997, we considered developing two additional product lines,
The Astrology Network and The America Value Network. We decided not to pursue
these product lines after receiving unsatisfactory results from test marketing.
We created a wholly-owned subsidiary to operate The Astrology Network business
which we intend to dissolve in due course.
OUR RETAIL STRATEGY IN THE UNITED STATES
Our principal objective over the next 18 months is to continue the growth
of our core business centered on the development and marketing of Genius-branded
products, with particular emphasis on the Baby Genius(TM) product line.
We intend to develop new products under the Baby Genius(TM) brand name,
including additional music CDs, cassettes and videos, books, educational toys,
educational tools and materials, and clothing. We also intend to produce
animations and cartoons featuring our Baby Genius(TM) characters. These Baby
Genius(TM) products will be marketed as tools that can help in the development
and well-being of babies and children as well as their families. We also intend
to license the brand name to suitable licensees.
We plan to aggressively build our Baby Genius(TM) brand name as well as our
retail business by increasing the number of distribution and retail outlets in
the United States and overseas through which our Baby Genius(TM) products are
sold.
We will also test and develop new product lines based on other "Genius"
brand names for which trademark registration applications are pending, including
Kid Genius, Little Genius and Child Genius. New products under these brand names
would be similar in application and objectives to the Baby Genius(TM) line. The
overall aim of Genius-branded product lines will be to secure the loyalty and
continuity of our targeted audience, such that these different but related
products will eventually be seen as an integrated series spanning the
development of children from birth to age 12 and beyond.
OUR RETAIL MARKETING PLAN
We believe our retail success is due to excellent contacts in the music
distribution business, and with wholesale and retail outlets. We have also
succeeded in creating high product visibility. We have produced 18 retail titles
resulting in 36 retail shelf spaces for CDs and cassettes, an amount of space
which we believe is significantly large for this product line category. This
retail presence is enhanced by our participation in programs to secure prime
shelf space and fixtures, including listening stations and "end-caps". We also
actively market Baby Genius(TM) counter and floor displays, blister packs, and
interactive kiosks where
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customers can listen to our music. In addition, we participate in co-op
advertising campaigns with Zany Brainy, Target and Rounderkids in which Baby
Genius(TM) products are featured items. We intend to continue these retail
strategies.
We also will seek to continue with endorsements of the Baby Genius(TM) line
of products by MPR and MCG, as well as by Deidre Hall or other celebrities who
are willing to participate in national media campaigns. These campaigns promote
both our retail products and our Baby Genius(TM) website.
We have exhibited the Baby Genius(TM) product line at national shows and
exhibitions including the East Coast Video Show in Atlantic City, Investment
Expo, Inc. in New York City, and the Juvenile Products Manufacturers Association
in Dallas. We intend to continue exhibiting the Baby Genius(TM) product line and
are scheduled to exhibit at Toy Fair 2000 in New York City in February 2000. We
will also continue to pursue non-traditional marketing strategies by selling
products through outlets such as 1-800-Flowers and Carter's Children Wear.
OUR OVERSEAS RETAIL STRATEGY
The Baby Genius(TM) brand name has universal appeal and we believe the name
and product line can be repackaged and marketed for distribution and sales in
many countries.
In August 1999 we produced a Spanish version of the Baby Genius(TM) Mozart
and Friends videos for distribution in Mexico, and in October 1999 we received a
commitment for trial sales from Calimex, a chain of supermarkets in Tijuana and
surrounding areas.
We have also been approached by a number of distributors, including Koch
International, wishing to distribute Baby Genius(TM) products in overseas
markets including Canada, the United Kingdom, Europe and South East Asia. While
we hope to enter into a relationship with Koch International or another
international distributor, there can be no assurance that any such relationship
will be entered into or, if we enter into such a distribution relationship, that
it will result in profitable international sales.
OUR INTERNET STRATEGY
We believe that an Internet presence will complement our retail business by
providing additional exposure for the Baby Genius(TM) brand name to our target
audience. With continued growth in electronic commerce over the Internet
("e-commerce"), we anticipate a strong Internet presence will be necessary to
maintain brand name recognition, maximize sales, and keep up with our
competitors who sell their products over the Internet. We also believe that a
strong brand name that is recognized in the retail sector will provide a base
for a complementary e-commerce business. In addition, we believe that customer
satisfaction obtained by providing content, information, products, services and
features through our website will increase brand recognition, customer goodwill
and higher retail sales.
In the short term we intend to focus on the retail business and maintain
our website to sell Baby Genius(TM) products, provide content that we consider
useful for expectant mothers and parents, and build a database of members to
whom we can provide goods, services and related promotions.
In the medium term we will evaluate the commercial feasibility of
developing our website internally and through strategic partnerships with other
established websites, to provide a full range of content, information, products,
services and features.
We believe a fully-developed website could generate multi-source e-commerce
revenues from the sale of Genius-branded products and services, membership fees,
commissions on sales of third party products, and targeted advertising.
OUR INTERNET MARKETING STRATEGY
Our short term objective is to increase at the lowest possible cost our
membership base of persons who visit our website. We define a "member" as any
visitor to our website who provides us with their credit card number and e-mail
address. To minimize the cost of signing-up members, we will evaluate the
feasibility of
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entering into strategic relationships with companies that already have an
existing customer base. We will also look at participating in membership
programs operated by third parties.
One proven method whereby we obtained very high traffic over a limited time
is the airing of Baby Genius(TM) product promotions on national TV. In September
1999, in connection with Deidre Hall's appearance on the Rosie O'Donnell Show
promoting the Baby Genius(TM) product line, we offered two Baby Genius(TM)
classical music CDs/cassettes for a nominal charge of $4.95 shipping and
handling. As a result of this promotion, in the 48-hour period immediately
following the broadcast we received over 20,000 orders for this special offer.
This type of exposure benefits both retail sales as well as our Internet
presence.
We will continue with national media campaigns that promote both our
website and the Baby Genius(TM) product line.
RETAIL AND INTERNET COMPETITORS
The retail and Internet markets for baby development, educational and
entertainment products, including CDs, cassettes and videos, is highly
competitive. We face significant competition with respect to the number of
products currently available, as well as in securing distribution and retail
outlets. The costs of entry into the retail and Internet markets for products
competitive to our Baby Genius(TM) products are low, and there are no
significant barriers to entry. There are many companies who could introduce
directly competitive products in the short term that have established brand
names, are better funded, have established distribution channels, and have
greater resources than the Company. These established companies include Disney,
Fox, Paramount, Sony and Time-Warner.
Within the category of classical music CDs and cassettes for children,
established competitors include:
- Bach & Baby: Playtime by Bach & Baby
- Baby Bach by Baby Einstein
- Baby Tunes series by Baby Tunes
- Classical Kids by The Children's Group
- Mozart for Mothers-to-Be by Mozart
- Smart Music: Classical Music series
- The Classical Child series by Metromusic, Inc.
- The Mozart Effect Vols. 1-3 by Classical Productions for Children
Ltd./The Children's Group Inc., and BMG
- The Kids Collection of Greatest Classics by The Kids Collection
Baby Genius(TM) classical music CDs and cassettes also compete with other
non-classical titles for children such as:
- Baby, It's You: Giggles & Gurgles by Sony
- Baby Sounds by various artists
- Baby Tunes series
- Teletubbies series
- KidRhino series
- Music for Little People series
Within the category of classical music videos for children, established
competitors include:
- The Baby Einstein series by Baby Einstein
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Baby Genius(TM) classical music videos also compete with other
non-classical titles for children such as:
- Barney series by Lyrick Studios
- Dr. Seuss series by Fox Home Entertainment
- Little Bear series by Paramount Home Video
- Madeleine, The Jungle Book, The Little Mermaid, Winnie-the-Pooh by Disney
Home Video
- Paddington Bear series by Time-Life
- Sesame Street series by Sony Wonder
- Teletubbies series by PBS HomeVideo/Warner
With respect to Internet websites, there are numerous websites that are
devoted exclusively to the delivery of content, products, services and features
within the baby sector, including Babycenter.com, iBaby.com (iVillage),
BabyData.com, BabyServ.com, Babystyle.com and Parenthoodweb.com. These websites
have a competitive advantage over our website as they are now established as the
leading websites with the highest traffic in the baby/parent Internet sector. In
addition, the companies operating these websites have greater financial
resources which can be used exclusively for the development of their e-commerce
business.
RISKS RELATED TO OUR BUSINESS
Forward-Looking Statements. Some of the information in this registration
statement contains forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "estimate," and "continue"
or similar words. You should read statements that contain these words carefully
because they:
- discuss our future expectations;
- contain projections of our future results of operations or of our
financial condition; and
- state other "forward-looking" information.
We believe it is important to communicate our expectations. There may be
events in the future, however, that we are not able to accurately predict or
over which we have no control. The risk factors listed in this section, as well
as any cautionary language in this registration statement, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
You should be aware that the occurrence of the events described in these risk
factors and elsewhere in this registration statement could have an adverse
effect on our business, results of operations and financial condition.
Dependence on Key Personnel. We are dependent on our executive officers,
the loss of any one of whom would have an adverse effect on the Company. While
we have employment agreements with our executive officers, unforeseen
circumstances could cause these persons to no longer be able to render their
services to us.
Dependence on New Products. Our future growth will be dependent on our
ability to identify and develop Genius-branded products which can be sold at
acceptable margins through wholesale and retail outlets as well as on the
Internet, and on our ability to acquire the necessary rights to market and
distribute such products, and to enter into arrangements with third-party
manufacturers and distributors to produce and distribute such products. There
can be no assurance that we will be successful in identifying and developing
quality products that may be successfully marketed through these channels or in
entering into relationships with third-party manufacturers and distributors. A
failure to identify and develop new products would have a detrimental impact on
our future performance.
Exposure of Significant Spokesperson. Deidre Hall currently serves as the
celebrity spokesperson for our products. Our continued success is dependent on
our ability to retain Ms. Hall or attract other celebrity
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spokespersons. There can be no assurance that we will be able to recruit and
retain such celebrity spokespersons.
Industry Trends. Our recent growth in sales has been based in part on both
the evolution of consumer tastes and preferences towards educational products
for babies and children. We believe it is also based on recent publicity on the
effect of classical music on child development. There are differences of
opinion, however, in the scientific community regarding the efficacy of
classical music on child development. A change in consumer tastes and
preferences regarding our products may have an adverse effect on our results of
operations. There can be no assurance that consumer tastes and preferences will
continue to favor our products and marketing segments.
Need For Strong Brand Identity. We believe that our growth in sales and
the recognition of the Baby Genius(TM) brand name have been largely attributable
to Deidre Hall participating in a successful national media campaign and the
endorsement of the Baby Genius(TM) music titles by Ms. Hall, Minnesota Public
Radio and Public Radio MusicSource. We have benefited from frequent and visible
national and local media exposure from Ms. Hall in particular. The frequency or
quality of this media exposure and these endorsements may not continue. We
believe that continuing to strengthen the Baby Genius(TM) brand name will be
critical to achieve widespread acceptance of our products. Favorable public
perception of our Genius-branded products will depend largely on our ability to
continue providing users with high quality products and the success of our
marketing efforts. We plan to increase our marketing expenditures to create and
maintain brand recognition. However, brand promotion activities may not yield
increased revenues and, even if they do, any increased revenues may not offset
the expenses we incur in building our brand.
Trademark Infringement Claims. We may be held liable for copyright or
trademark infringement if the content or packaging of our CDs, cassettes, videos
or other products infringes upon the copyrights or trademarks of others. Such
claims of infringement, if brought, could materially adversely affect our
business or financial condition.
Acceptance and Effectiveness of Internet Electronic Commerce. Our success
in establishing an e-commerce business through our Baby Genius(TM) web site will
be dependent on an increase in the use of the Internet for e-commerce. If the
markets for e-commerce do not develop or develop more slowly than we expect, our
e-commerce business may be harmed. If Internet usage does not grow, we may not
be able to increase revenues from Internet advertising and sponsorships which
also may harm both our retail and e-commerce business. Internet use by consumers
is in an early stage of development, and market acceptance of the Internet as a
medium for content, advertising and e-commerce is highly uncertain. A number of
factors may inhibit the growth of Internet usage, including inadequate network
infrastructure, security concerns, inconsistent quality of service, and limited
availability of cost-effective, high-speed access. If these or any other factors
cause use of the Internet to slow or decline, our results of operations could be
adversely affected.
Competition In Internet Commerce. Increased competition from e-commerce
could result in reduced margins or loss of market share, any of which could harm
both our retail and e-commerce businesses. Competition is likely to increase
significantly as new companies enter the market and current competitors expand
their services. Many of our present and potential competitors are likely to
enjoy substantial competitive advantages, including larger numbers of users,
more fully-developed e-commerce opportunities, larger technical, production and
editorial staffs, and substantially greater financial, marketing, technical and
other resources. If we do not compete effectively or if we experience any
pricing pressures, reduced margins or loss of market share resulting from
increased competition, our business could be adversely affected.
Unreliability of Internet Infrastructure. The Internet has experienced,
and is expected to continue to experience, significant growth in number of users
and amount of traffic. If the Internet continues to experience increased numbers
of users, frequency of use or increased bandwidth requirements, the Internet
infrastructure may not be able to support these increased demands or perform
reliably. The Internet has experienced a variety of outages and other delays as
a result of damage to portions of its infrastructure, and could face additional
outages and delays in the future. These outages and delays could reduce the
level of Internet usage and traffic on our website. In addition, the Internet
could lose its viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity. If the Internet
infrastructure is
8
<PAGE> 12
not adequately developed or maintained, use of our website may be reduced. Even
if the Internet infrastructure is adequately developed, and maintained, we may
incur substantial expenditures in order to adapt our services and products to
changing Internet technologies. Such additional expenses could severely harm our
financial results.
Transactional Security Concerns. A significant barrier to Internet
e-commerce is the secure transmission of confidential information over public
networks. Any breach in our security could cause interruptions in the operation
of our website and have an adverse effect on our business.
Governmental Regulation of the Internet. There are currently few laws that
specifically regulate communications or commerce on the Internet. Laws and
regulations may be adopted in the future, however, that address issues including
user privacy, pricing, taxation and the characteristics and quality of products
and services sold over the Internet. An increase in regulation or the
application of existing laws to the Internet could significantly increase our
costs of operations and harm our business.
Technological Change. The market for CDs, cassettes and video technology
is subject to change. There can be no assurance that over time these
technologies will not be affected by competition from another form of
information storage and retrieval technology, such as on-line information
services. A further strong advance in the technology surrounding cable and
satellite that would give consumers access to information and entertainment may
limit the expansion of the market for applications based on CDs, cassettes and
video. In addition, existing CD technology may also be replaced by new CD
technologies such as digital video disc technology. The replacement of CD
technology by another information storage and retrieval technology, or the
replacement of existing CD technology by a new technology at a pace too rapid
for production adjustments, may also have a material adverse effect on our
business, financial condition and results of operations.
Change of Control Payments. We have entered into Change of Control
Executive Employment Agreements with six of our executive officers and key
employees. These Agreements provide that if any executive officer or key
employee is terminated after a change of control of the Company occurring on or
before December 31, 2001, the terminated officer or employee may receive, among
other things, a lump sum payment equal to ten times the highest annual
compensation paid by the Company to that officer or employee in the preceding
three years. If a change of control of the Company occurs on or before December
31, 2001, and any executive officer or key employee is terminated, we may incur
substantial expenditures to satisfy the payments due under the Change of Control
Executive Employment Agreements. These expenditures could adversely affect our
financial results and potentially discourage any hostile buyer from making an
unsolicited offer to purchase the Company.
IMPACT OF THE YEAR 2000
We do not expect that the Year 2000 computer problem (commonly referred to
as "Y2K") will have any significant effect on our business or operations. Our
use of computers is limited to personal computers manufactured by Dell and
Gateway that we bought in 1999 and 1998. We use basic operating and applications
software, including Microsoft Windows 95, Microsoft Office 2000, and Sage MAS90
accounting systems, all of which were factory-installed or purchased in the last
18 months from retail vendors. All hosting, maintenance and operations of our
website is outsourced. We believe that our internal computers are Y2K compliant
but we have not determined and we do not have the resources to determine whether
our systems are compliant. No assurance can be made that our systems are
compliant. Moreover, we have not investigated and nor do we have the resources
to investigate whether our vendors or customers are Y2K compliant. No assurance
can be given that they are Y2K compliant, and if they are not, our business may
be adversely affected.
EMPLOYEES
We currently have 10 full-time employees and one part-time employee. Our
employees are non-union and none are represented by an organized labor union. We
believe our relationship with our employees is very good and we have never
experienced an employee-related work stoppage. We will need to hire and retain
highly-qualified management personnel in order to execute our business plan. No
assurance can be given that
9
<PAGE> 13
we will be able to locate and hire such personnel, or that, if hired, we will
continue to be able to pay the higher salaries necessary to retain such skilled
employees.
ADDITIONAL INFORMATION
We intend to provide an annual report to our security holders, and to make
quarterly reports available for inspection by our security holders. The annual
report will include audited financial statements.
Upon this registration statement being declared effective by the Securities
and Exchange Commission (the "SEC"), we will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which will require us to file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected at public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade
Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles,
California 90036. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet
website that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address
of that website is www.sec.gov.
10
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Financial
Statements and the related notes. This discussion contains forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Our actual results
and the timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors," "Business" and elsewhere in this
prospectus. See "Forward-Looking Statements."
In 1999 we changed our core business to the Baby Genius(TM) product line
and started generating music sales immediately. The growth in revenues from
sales of Baby Genius(TM) products has been high, we went from zero in sales in
December 1998 to just under $900,000 by the end of September 1999.
Correspondingly, our expenses also rose in connection with the fulfillment of
such sales and the costs associated with the development of the Baby Genius(TM)
product line. In 1998 we experienced a significant drop in sales in our jewelry
business, mainly as result of increased competition and higher product returns.
While our revenues for the 9-month periods ending September 1999 and September
1998 can be compared on an aggregate basis, the results of operations for these
two periods reflect fundamentally different businesses, with different margins
and cost structures. Our change in business focus and introduction of the Baby
Genius(TM) line of products is more fully described in the "Business" section of
this registration statement.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
The interim year-to-date financial statements for the nine months ending
September 30, 1999 and September 30, 1998 have been prepared by management.
References in this section to 1999 or 1998 results means the 9-month periods
ending on September 30 of each of those years, and not our full fiscal
(calendar) year.
Net sales for the 9-month periods decreased by 28.5% ($634,099) to
$1,590,787 in 1999 from $2,224,886 in 1998. Sales in 1999 consist of $897,727 in
Baby Genius(TM)product sales and $693,060 in jewelry and other sales. There were
no Baby Genius(TM) sales in 1998, and the $1,531,826 (69%) decrease in jewelry
sales to $693,060 in 1999 from $2,224,886 in 1998 was due to market conditions
and the fact that our management has devoted a substantial amount of its efforts
and resources to developing the Baby Genius(TM) product line.
Cost of sales for the 9-month periods were $822,223 (52% of sales) in 1999
and $2,127,645 (96% of sales) in 1998. It should be noted, however, that the
cost of Baby Genius(TM) product sales in 1999 was $190,093 (12%) of sales. The
cost of jewelry and other sales was $632,129 in 1999 and $2,127,645 in 1998,
representing 91% of sales in both years. The cost of jewelry sales in 1999
included a significant increase in returned goods and was offset by a settlement
of amounts due suppliers.
Personnel costs increased by 15% ($80,250) to $614,837 in 1999 from
$534,587 in 1998. Most of this increase was for additional employees in
connection with the development of the Baby Genius(TM) product line.
Advertising and sales costs increased by 207% ($290,306) to $430,835 in
1999 from $140,529 in 1998. Again, most of these increased costs were related to
launching the Baby Genius(TM) product line, including costs of a national
spokesperson, an Internet media and publicity tour, advertising and Internet
expenses.
General and administrative costs increased by 5% ($18,088) to $357,490 in
1999 from $339,402 in 1998, resulting primarily from relocation to new offices
and a corresponding increase in rental expenses.
Legal, professional and consulting fees increased 672% ($347,128) to
$398,779 in 1999 from $51,651 in 1998, resulting from the following: trademarks
for and licensing of new Baby Genius(TM) products, costs associated with music
production licenses, the MCG Investment Agreement, the national spokesperson
arrangements entered into in 1999, and consultants hired for sales and
marketing. In addition, we are incurring, and will continue to incur, higher
professional fees because of our obligation to become a reporting company under
the Securities Exchange Act of 1934.
11
<PAGE> 15
Interest expenses were $11,247 in 1999 as opposed to interest income of
$1,005 for the same period in 1998. The increase in interest expense related to
an accounts receivable line of credit and the amortization of the deferred costs
incurred in connection with the issuance of debentures.
Net losses, however, improved 6% ($55,267) to $915,056 in 1999 from
$970,323, because of an extraordinary gain on the settlement of debt.
Development of the Baby Genius(TM) brand name and products has resulted in
high costs typically associated with a start-up business. We are currently
operating at a loss and we expect to continue do so over the short to medium
term.
RESULTS OF OPERATIONS -- 1998 COMPARED TO 1997
References in this section to results in 1998 and 1997 refer to our full
fiscal (calendar) year, and not to 9-month periods ending on September 30.
Net sales decreased 31% ($1,128,000) to $2,511,136 in 1998 from $3,639,468
in 1997. This sales decline was due principally to the decision by the Home
Shopping Network ("HSN") to reduce the volume of gemstone jewelry offered for
sale.
Cost of sales was $2,479,032 (99% of sales) in 1998 and $3,343,693 (92%) of
sales in 1997. This increase resulted principally from the design costs of new
jewelry products in 1998, lower gross profit margins on jade jewelry introduced
in 1998, and a significant increase in returned goods.
Personnel costs increased 185% ($397,215) to $611,100 in 1998 from $213,885
in 1997. We hired additional personnel to develop and launch new product lines,
including Astrology Network products although we eventually abandoned The
Astrology Network business.
Advertising and sales costs increased 472% ($603,249) to $730,859 in 1998
from $127,610 in 1997. Most of this increase related to the cost of producing
and airing an Astrology Network infomercial.
General and administrative expenses increased 37% ($107,129) to $397,096 in
1998 from $289,967 in 1997, principally as a result of increased overhead and
costs associated with development of The Astrology Network.
Legal and professional fees increased 204% ($58,795) to $87,615 in 1998
from $28,820 in 1997, which was primarily for legal costs associated with
contracts and copyright activities of new product lines.
Interest expense increased 122% ($131,906) to $240,233 in 1998 from
$108,327 in 1997, which consisted of $200,000 arising from the beneficial
conversion feature relating to convertible debentures issued during the year and
a $68,000 increase in factoring costs.
Our net loss increased $1,561,965 to $2,035,599 in 1998 from $473,634 in
1997. The 1998 loss includes the value of options issued at below market value
to non-employees of $258,000 and the $200,000 beneficial conversion feature
described above.
RESULTS OF OPERATIONS -- 1997 COMPARED TO 1996
Net sales increased 16% ($512,576) to $3,639,468 in 1997 from $3,126,892 in
1996, which was due to expanded product lines in the jewelry business. Sales to
HSN were approximately 95% of total sales in both 1997 and 1996. Jewelry sales
amounted to 99% of total sales in each year. We did not increase prices in 1997,
and, therefore, the entire sales increase was due to an increase in the volume
of products sold.
Cost of sales were $3,343,693 (92% of sales) in 1997 and $2,716,692 (87% of
sales) in 1996, reflecting a $627,001 (23%) increase. This change occurred
because of the increase in sales and reduction of the gross profit margin to 8%
in 1997 from 13% in 1996. Increased cost of sales reflected increased costs in
the jewelry market in which we operate, in a period when wholesale and retail
prices were stagnant due to increased competition.
12
<PAGE> 16
Operating expenses increased 102% ($322,771) to $660,282 in 1997 from
$327,511 in 1996. Costs incurred in 1997 included $97,000 related to the
production costs of the infomercial for The Astrology Network and an outbound
telemarketing campaign for the American Value Network. There were no similar
costs in 1996.
Interest expenses increased 203% ($72,598) to $108,327 in 1997 from $35,729
in 1996. Higher interest expenses were incurred during 1997 because of
management's decision to factor (borrow against) the Company's accounts
receivable. Long term debt and interest payable totaling $418,813 was settled in
full through the issuance of common stock at the end of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations and development of new
products primarily through the sale of shares of our common stock and factoring
(borrowing against) accounts receivable. We do not have any factoring
arrangements in place although we are currently negotiating for such an
arrangement.
We need financing to sustain operations. Currently the credit terms we
offer our customers are more favorable than the credit terms we receive from our
vendors. As a result, we have to pay manufacturing and other costs to fulfill
purchase orders before we receive cash from sales relating to those orders, and
our cash balances are insufficient to finance such costs. The manufacturer of
our CDs and cassettes requires us to provide collateral for manufacturing costs.
Until November 1, 1999 this was met by a guaranty provided by Minnesota
Communications Group ("MCG") and we are negotiating with MCG to renew the
guaranty. We are also negotiating for one or more short-term factoring
arrangements (borrowing against our accounts receivable) and we are considering
obtaining credit secured by purchase orders placed by our customers.
We need a significant capital investment to provide the funds needed for us
to grow. We are searching for financial and/or strategic business partners
willing to invest at least $5 million in the Company. The use of funds of any
such investment would be applied, among things, to recruit highly qualified
senior management, increase the number of retail outlets in which Baby
Genius(TM) and other products are sold, build up the Baby Genius(TM) brand name,
develop new products, launch a national and regional marketing, advertising and
public relations campaign, organize our back-office operations, refine and
develop our website, pay professional fees associated with being a reporting
company under the Securities Exchange Act of 1934, and cover such other
expenditures that the Board of Directors may deem to be in the best interests of
the Company.
There can be no assurance, however, that we will be able to secure
short-term financing or a capital investment, and that even if we do, there is
no assurance that our business plan can be implemented, or if implemented, that
it will be successful. The continued growth of the Company is conditional on
obtaining financing on a timely basis.
DESCRIPTION OF PROPERTY
In September 1998, we entered into a sublease agreement for a 3,928 square
foot facility located in San Diego, California, which we use as our principal
executive offices. The sublease has a five year term which commenced in December
1998. Our monthly rent for this space is as follows:
<TABLE>
<CAPTION>
MONTH OF TERM AMOUNT
- ------------- ---------
<S> <C>
1-12............................................ $9,034.40
13-24........................................... $9,230.80
25-36........................................... $9,427.20
37-48........................................... $9,623.60
49-60........................................... $9,820.00
</TABLE>
13
<PAGE> 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 11, 1999, certain information
with respect to our equity securities owned of record or beneficially by (i) our
sole directors, (ii) each person who owns beneficially more than 5% of our
common stock; and (iii) all of our executive officers and sole director as a
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNER COMMON STOCK(1)
- ------------------- ------------------- ---------------
<S> <C> <C>
Gerald R. Edick.................................... 2,351,104 16.73%(2)(7)
1888 Viking Way
La Jolla, CA 92037
Klaus Moeller...................................... 1,590,000 11.32%(3)(4)(5)(7)
1014 Doheny
Los Angeles, CA 90069
Michael Meader..................................... 1,100,000 7.83%(6)(7)
14955 Rancho Santa Fe Farms Road
Rancho Santa Fe, CA 92067-6341
All officers and sole director as a group (3
persons)......................................... 2,845,700 20.25%
Isabel Moeller..................................... 1,151,021 8.19%
P.O. Box 1289
P. 8400 Praia do Carvoiero
Algarve, Portugal
Minnesota Communications Group..................... 1,239,626 8.82%(8)(9)
45 East Seventh Street
Saint Paul, Minnesota 55101
</TABLE>
- ---------------
(1) Percentages are based on a total of 14,050,619 shares of common stock, of
which 10,148,119 shares were outstanding as of October 11, 1999; 2,902,500
shares are underlying options which are currently exercisable within 60
days; 600,000 shares may be purchased by Minnesota Communications Group
("MCG") within the next 60 days pursuant to our investment agreement with
MCG, and 400,000 shares are underlying convertible debentures which are
convertible within 60 days.
(2) Includes 761,104 shares held by Gulfstream Capital Holding, Ltd., which are
owned beneficially by Mr. Edick.
(3) Includes 360,000 shares held by Shelly Moeller (as her sole property), who
is the wife of Klaus Moeller. Mr. Moeller disclaims all beneficial ownership
of such shares, including all voting, transfer and investment powers
relating thereto.
(4) Includes 150,000 shares held by Dorian Lowell as custodian for Tia Moeller,
who is the daughter of Klaus Moeller. Mr. Moeller disclaims all beneficial
ownership of such shares, including all voting, transfer and investment
powers relating thereto.
(5) Includes 150,000 shares held by Dorian Lowell as custodian for Hayden
Moeller, who is the son of Klaus Moeller. Mr. Moeller disclaims all
beneficial ownership of such shares, including all voting, transfer and
investment powers relating thereto.
(6) Includes 100,000 shares held by Suzanne Meader, who is the wife of Michael
Meader.
(7) Includes options to purchase 750,000 common shares as they are currently
exercisable or are exercisable within 60 days.
(8) Includes 32,126 shares held by MCG's subsidiary MPR, which are owned
beneficially by MCG.
(9) Includes 600,000 shares which may be purchased by MCG within the next 60
days pursuant to our Investment Agreement with MCG.
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<PAGE> 18
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of our current sole
director and executive officers, the position held by each person and the date
such person became a director or executive officer. The executive officers are
selected annually by the Board of Directors. The directors serve one year terms
until their successors are elected. There is currently a vacancy on the Board of
Directors, following the resignation of Gerald Edick. The executive officers
serve until death, resignation or removal by the Board of Directors. There are
no family relationships between any of our directors and executive officers. The
shareholders agreement between Mr. Edick, Mr. Meader, Mr. Moeller and Minnesota
Communications Group ("MCG") provides that MCG has the right to designate one
person which Mr. Edick, Mr. Meader and Mr. Moeller will nominate and vote to
become a member of our Board of Directors. MCG has not exercised this right.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Klaus Moeller........................ 38 Chairman of the Board and Chief Executive
Officer
Dorian Lowell........................ 40 President
Michael Meader....................... 34 Executive Vice President
</TABLE>
Klaus Moeller has served as our Chief Executive Officer and as a director
of the Company since we acquired ITM in October 1997. Prior to the acquisition,
Mr. Moeller had been the Chairman and Chief Executive Officer of ITM since its
inception in 1992. Mr. Moeller has a background in marketing, advertising, real
estate and auditing.
Dorian Lowell was appointed President in October 1999. He previously had
served as our Chief Operating Officer since August 1999. Mr. Lowell is a
corporate attorney specializing in corporate finance, mergers and acquisitions,
bankruptcy law and project finance. Before joining the Company, he served as a
consultant to various businesses. From 1997 to 1999, he was General Counsel for
Caithness Corporation, a private investment firm located in New York City.
Before joining Caithness Corporation, Mr. Lowell practiced law in New York City
for seven years with the international Wall Street law firm Cleary, Gottlieb,
Steen & Hamilton. Mr. Lowell is a member of the New York Bar, and holds law
degrees from Oxford University and Harvard Law School.
Michael Meader was appointed our Executive Vice President in April of 1998.
Mr. Meader worked as an outside consultant to the Company for a number of years
prior to him joining the Company. He has played, and will continue to play, an
essential role in the development of the Company's Music Division. His expertise
encompasses distribution, category management and service for programs designed
for mass-market retailers. From 1994 to 1998, Mr. Meader served as Vice
President of Specialty Products at ARAMARK Corporation. While at ARAMARK, he
controlled all corporate operations related to ARAMARK's Music Division.
15
<PAGE> 19
EXECUTIVE COMPENSATION -- REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth compensation information for services
rendered to the Company by certain executive officers in all capacities during
each of the prior three fiscal years. Other than as set forth below, no
executive officer's salary and bonus exceeded $100,000 in any of the applicable
years. The following information includes the dollar value of base salaries,
bonus awards, the number of stock options granted and certain other
compensation, if any, whether paid or deferred.
<TABLE>
<CAPTION>
OTHER ANNUAL STOCK LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
- --------------------------- ---- ------- ----- ------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald Edick............. 1998 102,000 0 0 0 0 0 0
1997 66,000 0 0 0 750,000(1) 0 0
1996 30,000 0 0 0 0 0 0
Klaus Moeller............ 1998 102,000 0 0 0 0 0 0
1997 66,000 0 0 0 750,000(1) 0 0
1996 30,000 0 0 0 0 0 0
Michael Meader........... 1998 102,000 0 0 0 0 0 0
1997 0 0 0 0 750,000(1) 0 0
</TABLE>
- ---------------
(1) Represents options to purchase shares of our common stock at an exercise
price of $1.25 per share which vested on January 1, 1999.
EMPLOYMENT AGREEMENTS
We have entered into the following employment agreements:
Klaus Moeller. We entered into a three year employment agreement with Mr.
Moeller dated June 1, 1999 to serve as our Chief Executive Officer. The
employment agreement provides for annual base compensation in the amount of
$150,000 and a car allowance, as well as customary health insurance benefits.
Dorian Lowell. We entered into a three year employment agreement with Mr.
Lowell dated August 23, 1999 to serve as our President. The employment agreement
provides for annual base compensation in the amount of $150,000 and a housing
and car allowance, as well as customary health insurance benefits.
Michael Meader. We entered into a three year employment agreement with Mr.
Meader dated June 1, 1999 to serve as our Executive Vice President. The
employment agreement provides for annual base compensation in the amount of
$150,000 and a car allowance, as well as customary health insurance benefits.
Larry Balaban. We entered into a three year employment agreement with Mr.
Balaban dated January 1, 1999 to serve as one of our Senior Vice Presidents. The
employment agreement provides for annual base compensation in the amount of
$110,000, as well as customary health insurance benefits.
Howard Balaban. We entered into a three year employment agreement with Mr.
Balaban dated January 1, 1999 to serve as one of our Senior Vice Presidents. The
employment agreement provides for annual base compensation in the amount of
$110,000 plus certain commissions for sale of our products, as well as customary
health insurance benefits.
Vinko Kovac. We entered into a three year employment agreement with Mr.
Kovac dated January 1, 1999 to serve as one of our Vice Presidents. The
employment agreement provides for annual base compensation in the amount of
$45,000, as well as customary health insurance benefits.
Each of the six individuals listed above have also entered into a Change of
Control Executive Employment Agreement. Each Change of Control Executive
Employment Agreement provides that in the event such individual is terminated
after a change in control of the Company which occurs on or before December 31,
2001, and such termination was other than because of his death or disability or
cause, or such individual terminates his employment for good reasons, such
individual will receive his full salary through the date of his termination,
along with a lump sum payment equal to ten times the highest annual compensation
16
<PAGE> 20
(including base salary, incentive compensation and all monetary bonuses or
similar awards) paid or payable by us to him for any of the three fiscal years
preceding his termination. In addition, the Change of Control Executive
Employment Agreement provides that upon termination, any unvested or partially
vested options held by such individual will fully vest.
DIRECTOR COMPENSATION
None of our directors currently receive compensation for their services as
directors.
NON-QUALIFIED STOCK OPTION PLAN
Our Board of Directors adopted a Non-Qualified Stock Option Plan (the
"Stock Option Plan") on December 9, 1997. The Stock Option Plan authorizes us to
grant non-qualified stock options to purchase shares of our common stock to any
person who performs services of special importance to the Company. As of
September 30, 1999, 5,000,000 shares of common stock were reserved for issuance
under the Stock Option Plan, of which 4,370,000 shares were subject to
outstanding options and 630,000 shares remained available for future grants. A
committee of two members (the "Committee") appointed by our Board of Directors
administers the Stock Option Plan. The Committee or the Board of Directors may
select the recipients to whom options are granted and determines the number of
shares to be awarded. Options granted under the Stock Option Plan are
exercisable at a price determined by the Committee, but in no event will the
option price be lower than the fair market value for our common stock on the
date of the grant. Options become exercisable at such times and in such
installments as the Committee provides in the terms of each individual option
agreement. In general, the Committee is given broad discretion to issue options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1999, we entered into a ten year License Agreement with
Minnesota Communications Group ("MCG"), the beneficial owner of approximately
8.82% of our common stock. The License Agreement allows us to use certain
trademarks owned by MCG in connection with our promotion, marketing, sale and
distribution of CDs and cassettes. We paid MCG 7,500 shares of our common stock
for the first 500,000 CDs and cassettes we sold under the License Agreement, and
we pay MCG a royalty of $0.024 per each additional CD and cassette sold.
Also in January 1999, we entered into a ten year License Agreement with
Minnesota Public Radio ("MPR"), a subsidiary of MCG. The License Agreement
allows us to use certain trademarks owned by MPR in connection with our
promotion, marketing, sale and distribution of CDs. We paid MPR 17,500 shares of
our common stock for the first 500,000 CDs and cassettes we sold under the
License Agreement, and we pay MPR a royalty of $0.056 per each additional CD and
cassette sold.
In March 1999, we entered into an Investment Agreement with MCG which
grants MCG the right to purchase up to 1,500,000 shares of our common stock at a
purchase price of $1.00 per share. This agreement is effective until March 31,
2001. Pursuant to this agreement, MCG purchased 200,000 shares in March 1999 and
400,000 shares in April 1999.
In March 1999, MCG entered into a Shareholders Agreement with Gerald Edick,
Michael Meader and Klaus Moeller. The Shareholders Agreement provides that
Messrs. Edick, Meader and Moeller will take such actions as reasonably requested
by MCG to ensure the presence on our Board of Directors of one person designated
by MCG. In addition, except in certain circumstances, Mr. Edick, Mr. Meader and
Mr. Moeller may not transfer their shares of our common stock without MCG's
consent, nor may they sell their shares without extending MCG the right to
participate proportionately in the sale.
In September 1999, Gerald Edick, a co-founder of ITM, left the Company and
resigned as President and as a member of the Company's Board of Directors. In
consideration of his services we entered into a letter agreement with Mr. Edick
under which we will pay him a severance of $200,000 in equal installments over
one year, and continue his medical benefits until September 30, 2000, unless he
independently secures medical
17
<PAGE> 21
benefits before that date. Mr. Edick also retains all of his options to purchase
750,000 shares of our common stock which were granted to him on December 7, 1997
and which fully vested on January 1, 1999.
LEGAL PROCEEDINGS
In August 1999 we participated in a trade show in Seattle, Washington
called the Third Annual Seattle Money Show that provides an opportunity for
companies to provide information on their businesses to members of the public
and the business community. We retained a consultant to represent us and provide
information on the Company to interested persons. In September 1999, the
consultant and its principal were named as respondents to a Summary Order to
Cease and Desist from the Securities Administrator for the State of Washington
alleging that the consultant offered our common stock in Washington without
first registering as a securities broker-dealer or salesperson with the State of
Washington, as well as violating other Washington securities laws. Our Company
was also named as a respondent to the Summary Order in connection with the
alleged offers to sell our shares in Washington.
We have responsed to the Securities Administrator to request a hearing and
we intend to vigorously contest the Summary Order.
We are not a party to any other legal or administrative proceedings.
18
<PAGE> 22
PART II
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
After our acquisition of International Trade & Manufacturing Corporation,
our common stock traded on the OTC Bulletin Board under the trading symbol ITMH.
The market represented by the OTC Bulletin Board is extremely limited and the
price for our common stock quoted on the OTC Bulletin Board is not necessarily a
reliable indication of the value of our common stock. The following table sets
forth the high and low bid prices for shares of our common stock for the periods
noted, as reported on the OTC Bulletin Board. Quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
<TABLE>
<CAPTION>
YEAR PERIOD HIGH LOW
- ---- --------------- ----- -----
<S> <C> <C> <C>
Fiscal Year 1997................................... Fourth Quarter 4.000 2.000
Fiscal Year 1998................................... First Quarter 5.500 2.000
Second Quarter 5.125 1.812
Third Quarter 5.375 2.562
Fourth Quarter 3.375 1.312
Fiscal Year 1999................................... First Quarter 4.500 1.500
Second Quarter 4.375 2.000
Third Quarter 6.250 1.750
</TABLE>
We are submitting this registration statement to the Securities and
Exchange Commission ("SEC") in order to comply with NASD Rule 6530 (the
"Eligibility Rule").
In order to retain the listing of our common stock on the OTC Bulletin
Board, the Eligibility Rule requires us to make current filings pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. If we do not meet
the requirements of the Eligibility Rule by December 6, 1999, the NASD will
affix a modifier "E" to our symbol ITMH on such date and the "E" modifier will
become effective on December 12, 1999. If the SEC does not declare this
registration statement to be effective on or before January 12, 2000 we will not
meet the requirements of the Eligibility Rule and NASD broker-dealers will be
prohibited from quoting our ITMH symbol on the OTC Bulletin Board after such
date. Broker-dealers will, however, be permitted to quote our shares in other
quotation media, including the National Quotation Bureau's Pink Sheets. No
assurance can be given that the SEC will declare this registration statement to
be effective on or prior to January 12, 2000. If our shares are de-listed, then
at the time this registration statement is declared effective, we will
immediately request a NASD broker-dealer to apply for our shares to be re-listed
once again on the OTC Bulletin Board.
As of October 11, 1999, we had approximately 10,148,119 shares of common
stock issued and outstanding which were held by 255 shareholders of record, not
including the holders that have their shares held in a depository trust in
"street" name. The transfer agent for our common stock is Interwest Transfer
Company, 1981 East 4800 South, Salt Lake City, Utah 84117.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all future earnings for use in the
operation and expansion of our business, and we do not anticipate paying any
cash dividends in the foreseeable future.
19
<PAGE> 23
RECENT SALES OF UNREGISTERED SECURITIES
1997: FORMATION, ACQUISITION AND INITIAL ISSUANCE OF COMMON STOCK
In the third quarter of 1997, prior to our acquisition of International
Trade & Manufacturing Corporation ("ITM"), ITM sold 423,000 shares of its common
stock in a private placement pursuant to Rule 504 of Regulation D ("Rule 504")
under the Securities Act of 1933 (the "Act"). ITM received net proceeds of
$402,090 from this transaction.
In September 1997, we acquired ITM. At that time, we had 516,250 shares
issued and outstanding and we acquired 100% of ITM's issued and outstanding
shares of common stock, consisting of 4,700,000 shares originally issued and
outstanding, plus the 423,000 shares issued by ITM in the third quarter of 1997,
for a total of 5,123,000 shares. We issued 600,000 shares of our common stock to
WMA & Associates ("WMA"), pursuant to Section 4(2) of the Act, for services
related to the ITM private placement and our acquisition of ITM.
In the fourth quarter of 1997, we issued 468,813 shares of our common stock
in satisfaction of an obligation owed by us in the amount of $468,813, including
accrued interest.
1998: ISSUANCE OF COMMON STOCK
All shares of our common stock issued or sold by the Company in 1998 were
restricted securities within the meaning of Rule 144 of the Exchange Act.
During the first quarter of 1998, we sold 955,000 shares of our common
stock in a private placement pursuant to Section 3(b) of the Act and Rule 504.
After payment of $96,957 to WMA for services related to this private placement,
we received net proceeds of $902,928.
Also in 1998, we sold shares of our common stock pursuant to Sections 4(2)
and 4(6) of the Act at the following times and in the following amounts:
- In the second quarter of 1998, we issued 75,000 shares of our common
stock, and granted options to purchase 150,000 shares of our common stock
at an exercise price of $3.40 per share, to two accredited investors,
pursuant to an International Marketing and Distribution Agreement between
the Company and HSN Direct International Limited.
- In the fourth quarter of 1998, we sold 96,000 shares of our common stock
in a private placement to fourteen accredited investors. After payment of
$21,600 and $10,000 to G. Barton and G. Logan, respectively, for services
related to this private placement, we received net proceeds of
approximately $107,000.
- In the fourth quarter of 1998, we sold convertible debentures to two
accredited investors. The debentures are convertible into 400,000 shares
of our common stock at a price of $0.50 per share. We received net
proceeds of $180,000 from this transaction.
- In December 1998, we sold 475,000 shares of our common stock to three
individuals. We received net proceeds of $190,000 from this transaction.
1999: ISSUANCE OF COMMON STOCK
All shares of our common stock issued or sold by the Company in 1999 were
restricted securities within the meaning of Rule 144 of the Exchange Act.
Between January and June 1999, we sold 453,150 shares of our common stock
for gross proceeds of $566,437.50, less offering costs of $90,647.50, for net
proceeds of $475,790, pursuant to Section 4(2) of the Act.
20
<PAGE> 24
In January 1999, we issued 17,500 shares of our common stock to Minnesota
Public Radio ("MPR") and 7,500 shares to Minnesota Communications Group ("MCG"),
pursuant to two trademark licensing agreements between the Company and each of
MPR and MCG.
In February 1999, we issued 80,000 shares of our common stock to Deidre
Hall, our national spokesperson for Baby Genius(TM) pursuant to an agreement
between Ms. Hall and the Company.
In March and April 1999, we sold 200,000 and 400,000 shares, respectively,
of our common stock to MCG pursuant to an investment agreement between MCG and
the Company. We received net proceeds of $600,000 from these sales.
In June 1999 we:
- Sold 40,000 shares of our common stock for net proceeds of $40,000 to
three consultants to the Company;
- Issued 19,250 shares of our common stock to consultants to the Company
for professional services rendered; and
- Issued 16,250 shares of our common stock to two employees as partial
compensation for services rendered.
In July and August, 1999 we sold 478,780 shares to shares of common stock
for gross proceeds of $694,231, less offering costs of $121,977, for net
proceeds of $572,254, pursuant to Section 4(2) of the Act.
During the same period, we:
- Sold 90,000 shares of our common stock for net proceeds of $90,000 to two
accredited investors;
- Issued 22,000 shares of our common stock to consultants to the Company
for professional services rendered; and
- Issued 14,626 shares of our common stock to MPR in satisfaction of a
royalty due under the MPR Agreement. The value of the royalty was
$16,966.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our authorized capital stock consists of 25,000,000 shares of $0.001 par
value common stock, of which 10,148,119 shares were issued and outstanding as of
October 11, 1999. Each issued and outstanding share is fully paid and
non-assessable. No pre-emptive rights exist with respect to any of our common
stock. Holders of shares of our common stock are entitled to one vote for each
share on all matters to be voted on by the stockholders. Holders of shares of
our common stock have no cumulative voting rights. Holders of shares of our
common stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by our Board of Directors in its discretion, from
funds legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of shares of our common stock are
entitled to their pro rata share of all assets remaining after payment in full
of all liabilities.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation Law of the State of Nevada and our Bylaws provide for
indemnification of our directors for liabilities and expenses that they may
incur in such capacities. In general, our directors and officers are indemnified
with respect to actions taken in good faith and in a manner such person believed
to be in our best interests, and with respect to any criminal action or
proceedings, actions that such person has no reasonable cause to believe were
unlawful. Furthermore, the personal liability of our directors is limited as
provided in our Articles of Incorporation.
We maintain directors and officers liability insurance with an aggregate
coverage limit of $1,000,000.
21
<PAGE> 25
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, we have been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In 1997, we engaged Kelly & Company, Certified Public Accountants, as our
principal accountant to audit our financial statements. There have been no
changes in accountants or disagreements with Kelly & Company since their
engagement.
22
<PAGE> 26
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998 AND
FOR THE TWO NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<S> <C>
Accountants' Disclaimer Report.............................. F-2
Consolidated Financial Statements of Genius Products, Inc.
(formerly International Trading & Manufacturing
Corporation):
Consolidated Balance Sheet, September 30, 1999
(Unaudited)............................................ F-3
Consolidated Statements of Operations for the Two
Nine-Month Periods and Two Three-Month Periods Ended
September 30, 1999 and 1998 (Unaudited)................ F-4
Consolidated Statements of Shareholders' Equity for the
Period Ended September 30, 1999 (Unaudited)............ F-5
Consolidated Statements of Cash Flows for the Two
Nine-Month Periods Ended September 30, 1999 and 1998
(Unaudited)............................................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
AS OF DECEMBER 31, 1998 AND 1997 AND
FOR EACH OF THE TWO YEARS IN THE PERIOD THEN ENDED
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-9
Consolidated Financial Statements of Genius Products, Inc.
(formerly International Trading & Manufacturing
Corporation):
Consolidated Balance Sheets, December 31, 1998 and 1997... F-10
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997............................. F-11
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998 and 1997................. F-12
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997............................. F-13
Notes to Consolidated Financial Statements.................. F-14
</TABLE>
F-1
<PAGE> 27
ACCOUNTANTS' DISCLAIMER REPORT
To the Board of Directors
Genius Products, Inc. (formerly International Trading & Manufacturing
Corporation)
The accompanying balance sheet (unaudited) of Genius Products, Inc.
(formerly International Trading & Manufacturing Corporation) as of September 30,
1999, the related statements of operations for the two nine-month periods and
the two three-month periods ended September 30, 1999 and 1998, the related
statements of shareholders' equity for the period ended September 30, 1999, and
the related statements of cash flows for the two nine-month periods ended
September 30, 1999 and 1998 were not audited by us, and accordingly, we do not
express an opinion on them.
Kelly & Company
Kelly & Company
Newport Beach, California
October 29, 1999
F-2
<PAGE> 28
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and equivalents........................................ $ 104,087
Restricted cash........................................... --
Trade accounts receivable, net............................ 671,819
Due from officers......................................... 8,000
Inventory................................................. 138,400
Prepaid expenses.......................................... 10,741
Other assets.............................................. 6,357
----------
Total current assets.............................. 939,404
Property and equipment, net................................. 129,579
Deferred costs.............................................. 458,440
Deposits.................................................... 36,138
Intangible asset............................................ 37,000
Other asset................................................. 10,165
----------
TOTAL ASSETS................................................ $1,610,726
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 197,485
Accrued expenses.......................................... 47,425
Debentures payable........................................ 200,000
Accrued stock............................................. 120,000
----------
TOTAL LIABILITIES........................................... 562,267
----------
Commitments and contingencies
Shareholders' equity:
Common stock; $0.001 par value; 25,000,000 shares
authorized, 10,148,199 shares issued and outstanding at
September 30, 1999..................................... 10,148
Additional paid-in capital................................ 4,709,080
Accumulated deficit....................................... (3,670,769)
----------
TOTAL SHAREHOLDERS' EQUITY.................................. 1,048,459
==========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,610,726
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
See accountants' disclaimer report.
F-3
<PAGE> 29
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF SEPTEMBER 30, 1999 AND
FOR THE TWO NINE-MONTH AND TWO THREE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
NINE MONTHS NINE MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................... $1,590,787 $2,224,886 $ 747,462 $ 634,291
Cost of sales................................ 822,223 2,127,645 262,494 595,230
---------- ---------- --------- ---------
Gross profit............................... 768,564 97,241 484,968 39,061
---------- ---------- --------- ---------
Personnel costs.............................. 614,837 534,587 97,878 252,294
General and administrative costs............. 357,490 339,402 47,146 132,918
Advertising expense.......................... 430,835 140,529 321,642 93,891
Legal and professional fees.................. 398,779 51,651 342,084 34,684
---------- ---------- --------- ---------
1,801,941 1,066,169 808,750 513,787
---------- ---------- --------- ---------
Income (loss) from operations.............. (1,033,377) (968,928) (323,782) (474,726)
Interest income (expense).................... (11,247) 1,005 (2,625) 580
---------- ---------- --------- ---------
Loss before provision for income taxes and
extraordinary item......................... (1,044,624) (967,923) (326,407) (474,146)
Provision for income taxes................... (340) (800) (340) --
Extraordinary gain on settlement of debt..... 129,908 -- -- --
---------- ---------- --------- ---------
NET LOSS..................................... $ (915,056) $ (968,723) $(326,747) $(474,146)
========== ========== ========= =========
NET LOSS PER SHARE, BASIC AND DILUTED........ $ (0.10) $ (0.13) $ (.03) $ (.06)
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
See accountants' disclaimer report.
F-4
<PAGE> 30
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AS OF SEPTEMBER 30, 1999 AND 1998 AND
FOR THE TWO NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(FORMERLY INTERNATIONAL TRADING &
MANUFACTURING CORPORATION
[FORMERLY SALUTATIONS, INC.])
---------------------------------------------------------------
COMMON COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES STOCK CAPITAL DEFICIT EQUITY
---------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998............ 8,309,063 $ 8,309 $2,753,409 $(2,755,713) $ 6,005
Shares issued pursuant to investment
agreement............................. 600,000 600 599,400 -- 600,000
Shares issued in private placements,
net of offering costs............ 1,061,930 1,062 1,176,982 -- 1,178,044
Shares issued for services.......... 152,126 152 154,314 -- 154,466
Shares issued for licensing
agreements....................... 25,000 25 24,975 -- 25,000
Net loss............................ -- -- -- (915,056) (915,056)
---------- ------- ---------- ----------- ----------
Balance, September 30, 1999........... 10,148,119 $10,148 $4,709,080 $(3,670,769) $1,048,459
========== ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
See accountants' disclaimer report.
F-5
<PAGE> 31
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
AS OF SEPTEMBER 30, 1999 AND 1998 AND
FOR THE TWO NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTHS NINE-MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (915,056) $(968,723)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 10,829 6,241
Allowance for doubtful accounts........................... (143,925) --
Decrease (increase) in assets:
Accounts receivable....................................... (199,939) --
Inventories............................................... (1,504) 303,307
Prepaid expenses.......................................... 47,022 (31,414)
Other current assets...................................... 51,946 (21,307)
Due from officers......................................... -- (17,446)
Deferred costs............................................ (458,440) --
Deposits.................................................. (36,138) --
Other assets.............................................. (10,165) (10,000)
Increase (decrease) in liabilities:
Accounts payable.......................................... (315,341) (112,328)
Accrued stock............................................. 120,000 --
Accrued expenses.......................................... 14,511 71,546
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES....................... (1,790,057) (780,124)
----------- ---------
Cash flows used in investing activities:
Purchases of property and equipment....................... (111,380) (13,681)
Purchase of intangible assets............................. (37,000) --
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................... $ (148,380) (13,681)
----------- ---------
Cash flows provided by financing activities:
Proceeds from sale of common stock........................ $ 1,911,367 $ 902,978
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 1,911,367 902,978
----------- ---------
NET INCREASE IN CASH........................................ (27,070) 109,173
CASH AND EQUIVALENTS AT BEGINNING OF YEAR................... 131,157 8,348
----------- ---------
CASH AND EQUIVALENTS AT END OF YEAR......................... $ 104,087 $ 117,521
=========== =========
</TABLE>
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
Interest paid............................................... $39,398 --
Income taxes paid........................................... -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
See accountants' disclaimer report.
F-6
<PAGE> 32
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND 1998 AND
FOR THE TWO NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the Company's
consolidated financial statements for the year ended December 31, 1998. The
financial information presented reflects all adjustments, which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, consisting of only normal recurring
adjustments, except as noted elsewhere in the notes to the financial statements,
necessary to present fairly its financial position as of September 30, 1999 and
the results of its operations and cash flows for the nine-month periods in the
period ended September 30, 1999 and 1998.
2. NAME CHANGE
During 1999, International Trading & Manufacturing Corporation changed its
name to Genius Products, Inc. This change is a result of the Company's
introduction in 1999 of its Baby Genius line of music and video products. The
Company believes these products will represent the majority of its activities.
3. COMMITMENTS
During the nine months ended September 30, 1999, the Company entered into
employment agreements with six individuals (five of whom are officers) providing
for a combined annual base compensation aggregating $715,000. In addition, each
of these six individuals has entered into an employment agreement with the
Company which provides that in the event of a change in ownership control of the
Company on or before December 31, 2001, each individual will receive his full
salary through the date of his termination, along with a lump sum payment
equaling ten times the highest annual compensation paid for any of the three
fiscal years preceding his termination. In addition, any unvested or partially
vested options held by such individual will fully vest.
4. EXTRAORDINARY ITEM
In the first quarter of 1999, the Company settled amounts due to jewelry
suppliers for less than the amount due. These amounts related to sales made by
the Company in 1998 that were returned by the purchaser in 1998. The gain
realized by the Company upon satisfaction of this debt has been recorded as an
extraordinary item.
5. LOSS PER COMMON SHARE
The Company adopted Statements on Financial Accounting Standards No. 128,
Earnings Per Share. Loss per common share has been calculated in accordance with
this statement.
See accountants' disclaimer report.
F-7
<PAGE> 33
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF SEPTEMBER 30, 1999 AND 1998 AND
FOR THE TWO NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
The computations of basic and diluted loss per common share for the two
nine-month periods and the two three-month periods ended September 30, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
NINE-MONTH PERIODS
ENDED SEPTEMBER 30,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
Amounts available to common shareholders:
Loss before extraordinary item............................. $(1,044,964) $ (968,723)
Extraordinary item....................................... 129,908 --
----------- ----------
Net loss................................................. $ (915,056) $ (968,723)
=========== ==========
Weighted-average shares, basic and diluted................. 9,227,394 7,508,563
----------- ----------
Amounts per common share, basic and diluted:
Loss before extraordinary item........................... $ (0.11) $ (0.13)
Extraordinary item....................................... 0.01 --
----------- ----------
Net loss................................................. $ (0.10) $ (0.13)
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED SEPTEMBER 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Amounts available to common shareholders:
Net loss.................................................... $ (326,747) $ (474,146)
========== ==========
Weighted-average shares, basic and diluted.................. 9,969,750 7,414,396
---------- ----------
Loss per common share, basic and diluted.................... $ (0.03) $ (0.06)
========== ==========
</TABLE>
6. INVESTMENT AGREEMENT
In March 1999, the Company entered into an investment agreement with
Minnesota Communications Group ("MCG"), an affiliate of Minnesota Public Radio.
The investment agreement provides MCG the right to purchase up to 1.5 million
shares of the Company's common stock at a purchase price of $1.00 per share.
This agreement is effective until March 31, 2000. Pursuant to this agreement,
MCG purchased 600,000 shares of the Company's common stock in March and April
1999.
7. COMMON STOCK
During the period January 1, 1999 through August 31, 1999, the Company
sold, including the 600,000 shares of common stock sold to MCG described above,
1,661,930 shares of its common stock. The Company realized $1,778,044 from the
sale of these shares.
In addition, during this same period the Company issued 179,466 shares of
common stock for consulting and legal services and trademark license agreements.
See accountants' disclaimer report.
F-8
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Genius Products, Inc. (formerly International Trading & Manufacturing)
We have audited the accompanying consolidated balance sheets of Genius
Products, Inc. (formerly International Trading & Manufacturing Corporation) and
its subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Genius Products, Inc. (formerly International Trading & Manufacturing
Corporation) as of December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ KELLY & COMPANY
Kelly & Company
Newport Beach, California
September 16, 1999
F-9
<PAGE> 35
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- ---------
<S> <C> <C>
Current assets:
Cash and equivalents........................................ $ 131,157 $ 18,395
Restricted cash........................................... -- 14,195
Trade accounts receivable, net............................ 327,955 1,500
Due from officers......................................... 8,000 --
Inventory................................................. 136,896 454,318
Prepaid membership fees................................... 33,739 --
Other..................................................... 24,024 4,075
----------- ---------
Total current assets.............................. 661,771 492,483
Property and equipment, net................................. 29,028 5,735
Deposits.................................................... 36,138 --
Intangible asset............................................ 12,000 --
Other asset................................................. 10,165 --
----------- ---------
TOTAL ASSETS................................................ $ 749,102 $ 498,218
=========== =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable............................................ $ 510,183 $ 338,674
Convertible debentures payable............................ 200,000 --
Other..................................................... 32,914 --
----------- ---------
Total current liabilities......................... 743,097 338,674
----------- ---------
TOTAL LIABILITIES........................................... 743,097 338,674
----------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock; $0.001 par value; 25,000,000 shares
authorized; 8,309,063 and 6,708,063 shares issued and
outstanding at December 31, 1998 and 1997,
respectively .......................................... 8,309 6,708
Additional paid-in capital................................ 2,753,409 872,950
Accumulated deficit....................................... (2,755,713) (720,114)
----------- ---------
TOTAL SHAREHOLDERS' EQUITY.................................. 6,005 159,544
----------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 749,102 $ 498,218
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 36
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Net sales................................................... $ 2,511,136 $3,639,468
Cost of sales............................................... 2,479,032 3,343,693
----------- ----------
Gross profit.............................................. 32,104 295,775
----------- ----------
Personnel costs............................................. 611,100 213,885
Infomercial expense......................................... 556,125 95,058
General and administrative costs............................ 397,096 289,967
Advertising expense......................................... 174,734 32,552
Legal and professional fees................................. 87,615 28,820
----------- ----------
1,826,670 660,282
Loss from operations...................................... (1,794,566) (364,507)
Interest expense............................................ (240,233) (108,327)
Loss before provision for income taxes...................... (2,034,799) (472,834)
Provision for income taxes.................................. (800) (800)
----------- ----------
NET LOSS.................................................... $(2,035,599) $ (473,634)
=========== ==========
NET LOSS PER SHARE, BASIC AND DILUTED....................... $ (0.28) $ (0.09)
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 37
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
GENIUS PRODUCTS, INC.
INTERNATIONAL TRADE & (FORMERLY INTERNATIONAL
MANUFACTURING TRADING &
CORPORATION MANUFACTURING
(A NEVADA CORPORATION CORPORATION [FORMERLY
DOING BUSINESS IN SALUTATIONS, INC.])
CALIFORNIA) (A NEVADA CORPORATION)
---------------------- ------------------------ TOTAL
COMMON COMMON COMMON COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES STOCK SHARES STOCK CAPITAL DEFICIT EQUITY
----------- -------- ------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996..... 1,000 $ 1 -- -- $ 999 $ (246,480) $ (245,480)
Stock split prior to
reorganization................. (1,000) (1) -- -- -- -- (1)
4,700,000 4,700 -- -- (4,699) -- 1
Shares outstanding prior to
reorganization............. -- -- 406,500 $ 407 (407) -- --
Return of shares by a
shareholder and their
cancellation............... -- -- (200,000) (200) 200 -- --
Stock split in connection
with the business
combination................ -- -- (206,500) (207) 207 -- --
-- -- 516,250 516 (516) -- --
Shares issued for services in
connection with the
business combination....... -- -- 600,000 600 7,155 -- 7,155
Shares issued in a private
placement offering, net of
offering costs............. 423,000 423 -- -- 401,667 -- 402,090
Shares issued in the
acquisition of
International Trade &
Manufacturing Corporation
(a Nevada corporation doing
business in California).... (5,123,000) (5,123) 5,123,000 5,123 -- -- --
Shares issued in payment of
debt and related accrued
interest................... -- -- 468,813 469 468,344 -- 468,813
Net loss..................... -- -- -- -- -- (473,634) (473,634)
---------- ------- --------- ------ ---------- ----------- -----------
Balance, December 31, 1997..... -- $ -- 6,708,063 $6,708 $ 872,950 $ (720,114) $ 159,544
========== ======= ========= ====== ========== =========== ===========
Balance, December 31, 1997..... -- -- 6,708,063 $6,708 $ 872,950 $ (720,114) $ 159,544
Shares issued in private
placement, net of offering
costs...................... -- -- 955,000 955 901,973 -- 902,928
Shares issued in private
placement, net of offering
costs...................... -- -- 96,000 96 82,661 -- 82,757
Shares issued for services... -- -- 75,000 75 196,800 -- 196,875
Options to purchase common
stock granted to employees
as incentives.............. -- -- -- -- 51,500 -- 51,500
Value of options to purchase
common stock granted to
non-employees for
services................... -- -- -- -- 258,000 -- 258,000
Value of beneficial
conversion feature of
convertible debt........... -- -- -- -- 200,000 -- 200,000
Shares issued in private
placement, net of offering
costs...................... -- -- 475,000 475 189,525 -- 190,000
Net loss..................... -- -- -- -- -- (2,035,599) (2,035,599)
---------- ------- --------- ------ ---------- ----------- -----------
Balance, December 31, 1998..... -- $ -- 8,309,063 $8,309 $2,753,409 $(2,755,713) $ 6,005
========== ======= ========= ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE> 38
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(2,035,599) $(473,634)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 7,246 2,873
Sales returns............................................. 143,925 --
Accrued interest satisfied by the issuance of stock....... -- 43,559
Common stock issued for services.......................... 196,875 --
Stock options granted to employees........................ 51,500 --
Value of stock options granted to a non-employee for
services............................................... 258,000 --
Interest expense arising from beneficial conversion
feature on convertible notes payable................... 200,000 --
Decrease (increase) in assets:
Restricted cash........................................... 14,195 29,847
Accounts receivable....................................... (470,380) 64,785
Due from officers......................................... (8,000) --
Inventories............................................... 317,422 (336,318)
Prepaid membership costs.................................. (33,739) --
Other current assets...................................... (19,949) (3,250)
Deposits.................................................. (36,138) --
Intangible assets......................................... (12,000) --
Other assets.............................................. (10,165) 17,431
Increase in liabilities:
Accounts payable.......................................... 171,509 268,452
Other current liabilities................................. 32,914 --
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES....................... (1,232,384) (386,255)
----------- ---------
Cash flows used in investing activities:
Purchases of property and equipment....................... (30,539) --
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................... (30,539) --
----------- ---------
Cash flows provided by financing activities:
Proceeds from issuance of convertible debentures payable
to others.............................................. 200,000 --
Proceeds from sale of common stock........................ 1,175,685 402,090
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 1,375,685 402,090
----------- ---------
NET INCREASE IN CASH........................................ 112,762 15,835
CASH AND EQUIVALENTS IN BEGINNING OF YEAR................... 18,395 2,560
----------- ---------
CASH AND EQUIVALENTS AT END OF YEAR......................... $ 131,157 $ 18,395
=========== =========
Supplemental Disclosures of Cash Flow Information
Interest paid............................................... $ 39,398 $ 66,126
Income taxes paid........................................... -- $ 1,600
Supplemental Schedule of Non-Cash Investing and Financing
Activities
Satisfaction of debt through issuance of stock:
Liabilities satisfied..................................... -- $(468,813)
Shares issued............................................. -- $ 468,813
Issuance of stock pursuant to reorganization:
Reduction in paid-in capital.............................. -- $ (1,116)
Common stock issued....................................... -- $ 1,116
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE> 39
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1. NATURE OF OPERATIONS
The historical major line of business of Genius Products, Inc. (formerly
International Trading & Manufacturing Corporation) and its subsidiaries (the
"Company") has been the development and sale on a wholesale basis of fine and
costume jewelry. The Company's major customer is a television shopping network
that broadcasts in the United States. The Company designs its products and uses
independent foreign manufacturing facilities to produce them to the Company's
specifications.
During the year ended December 31, 1998, the Company developed and
trademarked the brand, Baby Genius(TM). The first products using this name are a
collection of music products produced by the Company under the name of Baby
Genius(TM) Classical Series featuring an assortment of classical, instrumental,
and relaxation music designed for expectant mothers, infants and children. Sales
of these products commenced in the first calendar quarter of 1999.
The Company is currently developing its website to serve as an e-commerce
retail and information site with an intended focus on parents, parents-to-be and
children. The website is anticipated to be fully operational in the first
calendar quarter of 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Genius Products, Inc. (formerly International Trading & Manufacturing
Corporation) (a Nevada corporation), and its subsidiaries International Trade &
Manufacturing Corporation (a Nevada corporation doing business in California)
Sanuk Jewelry Corporation, (a Nevada corporation), and The Astrology Network
Corporation (a Nevada corporation). All significant intercompany transactions
have been eliminated.
Revenue Recognition
Revenues and the related cost of sales are recorded upon the shipment of
goods.
The Company maintains a policy that allows for the return of defective or
damaged goods or for goods that do not meet the Company's customers'
specifications. Damaged or defective goods are returned by the Company to the
vendor for a full refund and are recorded as a reduction of cost of sales. Goods
that are returned that are not defective or damaged are reflected as a reduction
of sales. The returned goods inventory is reduced to net realizable value and
resold. Sales of returned goods are reported as revenue when they occur.
Business Combinations
The Company (formerly Salutations, Inc.) acquired all of the issued and
outstanding shares of International Trade & Manufacturing Corporation (a Nevada
corporation). Immediately after the acquisition Salutations, Inc. changed its
name to International Trading & Manufacturing Corporation, and then to Genius
Products, Inc. The transaction, has been recorded as a capital transaction.
Salutations, Inc. had no operations, assets or liabilities at the acquisition
date. No goodwill was recorded as a result of this transaction.
Cash and Equivalents
The Company maintains cash accounts in a bank depository insured by the
Federal Deposit Insurance Corporation. The Company maintains cash balances in
accounts which exceeded the federally insured limits by $30,665 at December 31,
1998; however, the Company has not experienced any losses in such accounts. The
Company has no requirements for compensating balances.
F-14
<PAGE> 40
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Inventory
Inventory consists of finished goods and is valued at the lower of cost or
market. Cost is determined on a first in first out ("FIFO") method of valuation.
The Company regularly monitors inventory for excess or obsolete items and makes
any valuation corrections when such adjustments are needed.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight line method over the expected useful lives noted below. The cost and
related accumulated depreciation of assets are removed from the accounts upon
retirement or other disposition, and the resulting profit or loss is reflected
in the statement of operations. Renewals and betterments that materially extend
the life of the assets are capitalized.
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Computer equipment................................ 5 years
Furniture and fixtures............................ 5-7 years
</TABLE>
Intangible Asset
The intangible asset is a license to use certain classical compositions in
the production of the Company's line of music products that became available for
sale after the year ended December 31, 1998. The license will be amortized on a
straight line basis over a three year period (the estimated life of the music
products sale promotion).
Impairment of Long-Lived Assets
The Company annually evaluates its long-lived assets, including its one
identifiable intangible asset, for potential impairment. When circumstances
indicate that the carrying amount of an asset is not recoverable, as
demonstrated by the projected undiscounted cash flows, an impairment loss is
recognized. The Company's management has determined that there was no such
impairment present at December 31, 1998 and 1997.
Income Taxes
The Company accounts for deferred income taxes using the liability method.
Deferred income taxes are computed based on the tax liability or benefit in
future years of the reversal of temporary differences in the recognition of
income or deduction of expenses between financial and tax reporting. Deferred
tax assets and/or liabilities are classified as current and noncurrent based on
the classification of the related asset or liability for financial reporting
purposes, or based on the expected reversal date for deferred taxes that are not
related to an asset or liability.
Stock Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based
employee and nonemployee compensation plans.
The Company accounts for stock-based employee compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" as permitted by SFAS No. 123.
Compensation cost for stock options granted to employees, if any, is measured as
the excess of the market price of the Company's stock at the date of grant over
the amount an employee must
F-15
<PAGE> 41
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
pay to acquire the stock. Compensation cost for stock options granted to
nonemployees is determined using a fair value method at the date of grant.
Compensation cost is recorded over the requisite vesting period.
Common Shares and Per Share Amounts
All common shares and per share amounts have been adjusted to give
retroactive effect, where applicable, for stock splits.
Earnings per Common Share
In 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This pronouncement replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share, respectively. Loss per common share has been calculated in accordance
with the requirements of this statement for the years ended December 31, 1998
and 1997.
Basic earnings per share ("EPS") is computed by dividing income or loss
available to common shareholders by the weighted average number of common shares
outstanding for the year. Diluted EPS is similar to basic EPS except that the
weighted average of common shares outstanding is increased to include the number
of additional common shares that would have been outstanding if potentially
dilutive common shares had been issued.
Advertising and Infomercial Costs
Advertising costs including infomercial production costs are expensed when
they are incurred. Infomercial production costs in 1998 include the value of
75,000 common shares issued ($196,800) and options on 150,000 common shares
granted ($258,000) in connection with the production of infomercials.
Vulnerability Due to Certain Concentrations
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's jewelry sales are dependent on sales to one customer that is a
television shopping network that broadcasts in the United States. Its Baby
Genius(TM) products are sold through traditional retail markets and will also be
sold through its website, once developed. Exposure to losses on accounts
receivable is principally dependent on the individual customer's financial
condition, as credit sales are not collateralized. The Company monitors its
exposure to credit losses and writes off those accounts receivable that it deems
to be not collectable.
The Company is dependent on a limited number of vendors from Pacific Rim
countries for its products. Although alternate sources of supply do exist for
its products, loss of certain suppliers could disrupt ongoing operations. All
transactions with foreign vendors were in United States currency.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements. Changes in
these estimates and assumptions are considered reasonably possible and may have
a material impact on the financial statements.
F-16
<PAGE> 42
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Reclassifications
Certain reclassifications have been made to prior years financial
statements to conform with the 1998 presentation.
3. TRADE ACCOUNTS RECEIVABLE
Pursuant to a factoring agreement entered into in 1996, the Company's
principal bank has served as its factor. The bank purchased with recourse, as
the owner, the Company's interest in the individual accounts receivable. As a
reserve against future claims, the bank required twenty percent of the invoice
face amount of the active account receivable involved in its factoring program
to be held in a restricted interest bearing account. In addition to the
factoring recourse reserve, the monies advanced under the agreement were also
secured by inventories, those accounts receivable not already factored,
equipment of the Company, and the personal guarantees of two of its officers who
are also major shareholders.
This factoring agreement expired October 9, 1998 and was not renewed. At
December 31, 1998, the Company had no contingent liabilities resulting from the
bank's purchases of accounts receivable as all factoring program amounts were
collected prior to the expiration of the agreement.
The bank charged a fee equal to 2.38% of the face value of the factored
accounts receivable. For the years ended December 31, 1998 and 1997, the bank's
fees amounted to $39,398 and $66,126, respectively.
4. DUE FROM OFFICERS
Due from officers consists of advances made to two vice-presidents of the
Company related to moving expenses at their hire date.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Computer and equipment.................................. $ 27,844 --
Furniture and fixtures.................................. 13,872 $11,177
-------- -------
41,716 11,177
Less: accumulated depreciation........................ (12,688) (5,442)
-------- -------
TOTAL PROPERTY AND EQUIPMENT............................ $ 29,028 $ 5,735
======== =======
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 was
$7,246 and $2,873, respectively.
6. LETTER OF CREDIT
In September 1998, the Company entered into a letter of credit agreement
with its bank. The letter of credit is for $10,000 and is used to satisfy the
reserve requirement of the Company's merchant account for processing credit card
purchases of the Company's products. The letter of credit is collateralized by a
$10,000 certificate of deposit and expires August 21, 2000.
F-17
<PAGE> 43
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
7. CONVERTIBLE DEBENTURES PAYABLE
During 1998, the Company issued two convertible debentures to individual
investors totaling $200,000. The debentures are without interest or collateral
and are due December 31, 1999. The debenture may be converted in whole or in
part into shares of the Company's common stock at any time until December 31,
1999, at a conversion price of $.50 per share. The value of the beneficial
conversion feature was estimated to be $200,000, and additional paid in capital
and interest expense of $200,000 was recognized. In connection with the issuance
of these debentures, the Company paid a fee of $20,000 to an individual as a
commission. The prepaid loan fee is being amortized to interest expense using
the effective interest method over the life of the debentures.
8. DEFERRED INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal..................................................... -- --
State..................................................... $800 $800
---- ----
800 800
---- ----
Deferred tax expense (benefit):
Federal................................................... -- --
State..................................................... -- --
---- ----
TOTAL PROVISION............................................. $800 $800
==== ====
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward...................... $ 787,049 $ 203,672
Depreciation......................................... -- --
Other................................................ 2,004 1,477
--------- ---------
Total deferred income tax asset................. 789,053 205,149
Valuation allowance.................................. (789,053) (205,149)
--------- ---------
NET DEFERRED INCOME TAX ASSET........................ -- --
========= =========
</TABLE>
F-18
<PAGE> 44
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Reconciliation of the effective tax rate to the U.S. statutory rate is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
--------------
1998 1997
----- -----
<S> <C> <C>
Tax expense at U.S. statutory rate.......................... (34.0)% (34.0)%
State tax provision......................................... -- --
Other....................................................... 8.1 1.3
Change in valuation allowance............................... 25.9 32.9
----- -----
EFFECTIVE INCOME TAX RATE................................... --% 0.2%
===== =====
</TABLE>
The Company has a net operating loss carryforward as of December 31, 1998
of $2,036,134 and $1,018,961 respectively, for federal and state income tax
purposes. The federal and state net operating losses begin to expire in 2018 and
2003, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company has operating leases for its corporate office and certain
vehicles. Two of such vehicle leases were entered into for the personal benefit
of two officers of the Company, and the minimum lease payments are to be
reimbursed to the Company. Future minimum lease payments at December 31, 1998,
are as follows:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
1999.............................................. $146,559
2000.............................................. 131,357
2001.............................................. 116,905
2002.............................................. 115,680
2003.............................................. 108,020
--------
TOTAL FUTURE MINIMUM LEASE PAYMENTS..... $618,521
========
</TABLE>
Rental expense, resulting from the operating lease agreements, was $68,761
and $65,297 during the years ended December 31, 1998 and 1997, respectively.
The Company's corporate facility lease expired in June 1998, and thereafter
it continued its occupancy on a month to month basis. The Company entered into a
sublease agreement commencing December 1, 1998 for its corporate office
facilities and, subsequent to year end, moved their corporate headquarters to a
new location in San Diego, California. The term of the sublease is five years.
Monthly lease payments are $9,034 during the first year and increase each year
thereafter by approximately $196 per month.
10. STOCK BASED COMPENSATION
The Company currently has a formal stock option plan that provides for the
granting of options to employees and consultants.
Employees
During the year ended December 31, 1997, the Company granted options to
four of its officers to purchase a total of 2,275,000 shares of its common stock
at an exercise price of $1.25 per share. The exercise
F-19
<PAGE> 45
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
price is equal to the estimated fair market value of the stock at the date of
grant. These options vest over three years and expire ten years after the date
of grant.
During the year ended December 31, 1998, the Company granted options to
three of its employees to purchase a total of 110,000 shares of its common stock
at an exercise price of $1.25. These options were granted at a price below fair
market value, which resulted in the recognition of an additional $51,500 of
compensation expense.
The weighted average fair value of the stock options granted during the
years ended December 31, 1998 and 1997 was $2.16 and $.94, respectively. The
following summarizes information about stock options granted and outstanding at
December 31, 1998 and 1997, and changes during the years then ended:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISED
OPTIONS PRICE
--------- ---------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1996....................... -- --
Granted................................................ 2,275,000 $1.25
Exercised............................................ -- --
Cancelled............................................ -- --
Expired.............................................. -- --
--------- -----
OUTSTANDING AT DECEMBER 31, 1997....................... 2,275,000 1.25
Granted.............................................. 110,000 1.25
Exercised............................................ -- --
Cancelled............................................ -- --
Expired.............................................. -- --
--------- -----
OUTSTANDING AT DECEMBER 31, 1998....................... 2,385,000 $1.25
========= =====
</TABLE>
No options were exercisable at December 31, 1998 or 1997.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the use
of option valuation models to provide supplemental information regarding options
granted after 1994. Pro forma information regarding net loss and loss per share
shown below was determined as if the Company had accounted for its employee
stock options under the fair value method of that statement.
The fair value of each option granted was estimated at the date of grant
using the Black-Scholes Option Pricing Model (the "BSOPM"). The BSOPM was
developed for use in estimating the fair value of traded options. The Company's
employee stock options have characteristics significantly different from those
of traded options, such as vesting restriction and extremely limited
transferability. In addition, the assumptions used in option valuation models
are highly subjective, particularly the expected stock price volatility of the
underlying stock. Because changes in these subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma effect on
net loss for 1998 and 1997 may not be representative of the actual results had
the Company accounted for the stock options using the fair value method.
F-20
<PAGE> 46
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net loss, as reported............................. $(2,035,599) $ (473,634)
Pro forma net loss................................ $(2,827,767) $(1,186,467)
BASIC LOSS PER SHARE, AS REPORTED................. $ (0.28) $ (0.09)
PRO FORMA BASIC LOSS PER SHARE.................... $ (0.34) $ (0.23)
</TABLE>
For purposes of the above pro forma calculation, the fair value of options
granted by the Company in fiscal years 1998 and 1997, is estimated using the
BSOPM with the weighted average assumptions listed below.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1998 1997
----- -----
<S> <C> <C>
Risk-free interest rate..................................... 4.91% 5.86%
Expected dividend yield..................................... -- --
Expected stock price volatility............................. 1.46 1.46
Expected life in years...................................... 10.00 10.00
</TABLE>
Nonemployees
On October 20, 1998, the Company granted options to two individuals, for
services rendered, to purchase a total of 150,000 shares of its common stock at
an exercise price of $3.40 per share.
The Company accounts for stock-based compensation awards to nonemployees
based upon fair values at the grant dates in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation". The consideration received for the
granting of stock options is based on the fair value of the goods or services
received or the options issued, whichever is more reliably measurable. The BSOPM
is used to determine the fair value of the options when the value of the
services is based on the value of the options issued. The fair value of the
options is amortized over the period the Company received the goods or services.
The weighted average fair value of the options granted during the year
ended December 31, 1998 was $1.72. The following summarizes information about
options granted to nonemployees and outstanding at December 31, 1998 and 1997,
and changes during the years then ended:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- --------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1997........................... -- --
Granted................................................ 150,000 $3.40
Exercised............................................ -- --
Cancelled............................................ -- --
------- -----
BALANCE AT DECEMBER 31, 1998........................... 150,000 $3.40
======= =====
</TABLE>
F-21
<PAGE> 47
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
The fair value of the options granted was estimated using the Black-Scholes
Option Pricing Model with the weighted-average assumptions below:
<TABLE>
<S> <C>
Risk free interest rate............................... 3.98%
Expected dividend yield............................... --
Expected stock price volatility....................... 1.46
Expected life in years................................ 3.00
</TABLE>
11. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of all financial instruments, on the
Company's December 31, 1998 and 1997 balance sheets, have been determined by
using available market information and appropriate valuation methodologies. Fair
value is described as the amount at which the instrument could be exchanged in a
current transaction between informed willing parties, other than in a forced
liquidation. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The Company does not have any off
balance sheet financial instruments.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for the financial statements:
Cash and equivalents, accounts receivable, inventory, accounts payable, and
certain other current liability amounts approximate fair value due to the short
term maturities of these instruments.
12. EARNINGS PER SHARE
In the year ended December 31, 1997, the Company has adopted SFAS No. 128,
"Earnings Per Share". Loss per common share has been calculated in accordance
with the requirements of this statement.
The computations of net loss per common share for the years ended December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Net loss available to common shareholders
(numerator)...................................... $(2,035,599) $ (473,634)
Weighted-average shares outstanding basic an
diluted (denominator).............................. 7,299,730 5,106,321
----------- ----------
Basic and diluted loss per common share............ $ (0.28) $ (0.09)
=========== ==========
</TABLE>
The effect of the potentially dilutive securities listed below were not
included in the computation of diluted loss per share, because to do so would
have been anti dilutive for the periods presented.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Shares of common stock issuable under:
Employee stock options................................ 2,385,000 2,275,000
Convertible debentures payable...................... 400,000 --
Non-employee stock options.......................... 150,000 --
</TABLE>
F-22
<PAGE> 48
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
13. COMMON STOCK
Pre-acquisition of International Trade & Manufacturing Corporation
Stock Split
In July 1997, prior to the acquisition, the Company's shareholders approved
a four thousand seven hundred to one forward stock split. Accordingly, $4,699
was transferred from common stock to additional paid-in capital representing the
par value of the shares issued in the stock split.
Private Placement Offering
In the year ended December 31 1997, the Company completed a private
placement offering of 423,000 shares of common shares at a price of $1.00 per
share. Total net proceeds of the offering was $402,090 which was used for
general corporation purposes.
Cancellation of Outstanding Shares
In July 1997, an officer and shareholder of Salutations, Inc. turned in
200,000 shares of common stock that were subsequently canceled.
Stock Split
In September 1997, concurrent to the acquisition described below,
Salutations, Inc.'s shareholders approved a two and one half for one forward
stock split. Accordingly, $516 was transferred from common stock to additional
paid-in capital representing the par value of the shares issued in the stock
split.
Shares Issued in Connection with the Acquisition of International Trade &
Manufacturing Corporation
Concurrent with the acquisition by Salutations, Inc., the Company issued
600,000 shares of common stock to an outside party for assistance in the
corporate reorganization and agreed to pay consulting fees of $5,000 per month.
Acquisition of International Trade & Manufacturing Corporation
On September 30, 1997, the Company (formerly Salutations, Inc.) acquired
all of the issued and outstanding shares of International Trade & Manufacturing
Corporation in exchange for 5,123,000 shares of the Company's common stock.
After the transaction, the former shareholders of International Trade &
Manufacturing, Inc. held 80.8 percent of the outstanding common stock of the
Company.
As part of the acquisition, Salutations, Inc. changed its name to
International Trading & Manufacturing Corporation. The board of directors of
International Trading & Manufacturing Corporation (formerly Salutations, Inc.)
was replaced by the corporate officers and board of directors of International
Trade & Manufacturing Corporation.
Post-acquisition of International Trade & Manufacturing Corporation
Common Shares Issued in Exchange for Debt
In the year ended December 31, 1997, the Company issued 486,813 shares of
common stock at market value of $468,813 in payment for $353,989 of notes
payable and $114,824 of accrued interest to note holders at December 31, 1997.
F-23
<PAGE> 49
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Private Placement Offering
In the year ended December 31, 1998, the Company completed a second private
placement offering of 955,000 shares of common stock at a price of $1.25 per
share. Total net proceeds of the offering was $902,928 which was used for
general corporation business.
Issuance of Common Stock to Private Investors
During the year ended December 31, 1998, the Company sold 96,000 shares of
common stock pursuant to a private placement, less commissions paid and other
financing costs, for net proceeds of $82,757.
Issuance of Common Stock for Advertising Services
In October 1998, the Company issued 75,000 shares of common stock valued at
$196,875 to non-employees for services rendered in connection with the creation
of an infomercial.
Issuance of Common Stock to Officers and Employees
In December 1998, the Company sold 475,000 shares of its common stock at
$.40 per share. These shares were purchased by (i) an associate of a holder of
more than 10% of the outstanding shares of the Company's common stock; (ii) an
officer of the Company; and (iii) an employee of the corporation. The net
proceeds of these sales totaled $190,000.
14. IMPACT OF THE YEAR 2000, (UNAUDITED)
The Company anticipates that the Year 2000 could impact the business of the
Company. Many business software applications use only the last two digits to
indicate the applicable year. Unless these programs are modified, computers
running time-sensitive software may be unable to distinguish between the year
1900 and the year 2000, which would result in system failures, miscalculations,
and general disruption of operations, including, among other things, a temporary
inability to process transactions or to engage in other normal business
activities. Many Year 2000 problems might not be readily apparent when they
first occur, but instead could imperceptibly degrade technology systems and
corrupt information stored in computerized databases, in some cases before
January 1, 2000.
The Company anticipates the completion of a preliminary assessment of each
of its operations and the Year 2000 readiness and feels that the appropriate
actions will be taken. The Company does not believe the Year 2000 issue will
pose significant problems for the Company's computer systems. The Company
recognizes, however, that the Year 2000 issue could have a material impact on
the operations of the Company. There is no guarantee that the systems of other
companies on which the Company's systems rely will be timely readied for the
Year 2000. Moreover, there can be no guarantee that the Company's suppliers,
customers, or other parties with whom the Company does business will not
experience significant Year 2000 problems, which might result in an adverse
effect on the Company's operations. The Company's computer system currently runs
several programs which may be affected by Year 2000. The Company anticipates
taking the necessary steps to determine whether the programs are Year 2000
compliant and, if not, what steps need to be taken to reduce the effect of Year
2000.
F-24
<PAGE> 50
GENIUS PRODUCTS, INC.
(FORMERLY INTERNATIONAL TRADING & MANUFACTURING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
15. SUBSEQUENT EVENTS
Investment Agreement
In March 1999, the Company entered into an investment agreement with
Minnesota Communications Group ("MCG"), an affiliate of Minnesota Public Radio.
The investment agreement provides MCG the right to purchase up to 1.5 million
shares of the Company's common stock at a purchase price of $1.00 per share.
This agreement is effective until March 31, 2000. Pursuant to this agreement,
MCG purchased 600,000 shares of the Company's common stock in March and April
1999.
Sales of Common Stock
During the period January 1, 1999 through August 31, 1999, the Company
sold, including the 600,000 shares of common stock sold to MCG described above,
1,661,930 shares of its common stock. The Company realized $1,738,044 from the
sale of these shares.
In addition, during this same period the Company issued 227,126 shares of
common stock for consulting and legal services and trademark license agreements.
F-25
<PAGE> 51
PART III
INDEX TO EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization with Salutations, Inc.,
and related exhibits and consents
3.1 Articles of Incorporation, as amended
3.2 Bylaws, as amended
4.1 Investment Agreement with Minnesota Communications Group
4.2 Shareholders Agreement with Minnesota Communications Group,
and related exhibits and schedules
4.3 Convertible Debenture with Russ Karlen
4.4 Convertible Debenture with Steve Livingston
4.5 Option Agreement to Purchase Common Stock with Kevin
Harrington Enterprises, Inc.
4.6 Option Agreement to Purchase Common Stock with Tim
Harrington
4.7 Form of Stock Option Agreement with Employees
10.1 License Agreement with Minnesota Communications Group
10.2 License Agreement with Minnesota Public Radio
10.3 Spokesperson Agreement with Panache, Inc., and related
exhibits and addendum thereto
10.4 Sublease with Torrey Hills Corporate Centre, and related
exhibits
10.5 Fulfillment Services Agreement with Professional Marketing
Associates, Inc.
10.6 Letter Agreement with Lido Group
10.7 International Marketing and Distribution Agreement with
HSND, and amendment and addendum thereto
10.8 Non-Qualified Stock Option Plan
10.9 Senior Executive Employment Agreement with Klaus Moeller
10.10 Change of Control Executive Employment Agreement with Klaus
Moeller
10.11 Senior Executive Employment Agreement with Dorian Lowell
10.12 Change of Control Executive Employment Agreement with Dorian
Lowell
10.13 Senior Executive Employment Agreement with Michael Meader
10.14 Change of Control Executive Employment Agreement with
Michael Meader
10.15 Executive Employment Agreement with Larry Balaban
10.16 Change of Control Executive Employment Agreement with Larry
Balaban
10.17 Executive Employment Agreement with Howard Balaban
10.18 Change of Control Executive Employment Agreement with Howard
Balaban
10.19 Executive Employment Agreement with Vinko Kovac
10.20 Change of Control Executive Employment Agreement with Vinko
Kovac
10.21 License Agreement with Sasha St. Clair
10.22 Letter Agreement with Gerald Edick
10.23 Form of License Agreement with Naxos of America, Inc.
27 Financial Data Schedule
</TABLE>
<PAGE> 52
SIGNATURE
In accordance with the provisions of Section 12 of the Securities Exchange
Act of 1934, Genius Products, Inc. has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
GENIUS PRODUCTS, INC., a Nevada
corporation
November 2, 1999 By: /s/ KLAUS MOELLER
------------------------------------
Name: Klaus Moeller,
Title: Chief Executive Officer and
Sole Director
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
July __, 1997 ("Agreement") is by and between Salutations, Inc., a Nevada
corporation, ("Salutations"), and International Trading & Manufacturing
Corporation, a Nevada corporation ("ITM"). Salutations and ITM are sometimes
hereinafter referred to collectively as the "parties" and individually as a
"party."
W I T N E S S E T H :
WHEREAS, Salutations and ITM desire to effect a combination between
Salutations and ITM in a manner that qualifies as a reorganization within the
meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986 as amended;
and
WHEREAS, pursuant to the intended combination, Salutations will acquire
100% of the issued and outstanding stock of ITM thereby making ITM a wholly
owned subsidiary of Salutations, all pursuant to the terms and conditions of
this Agreement;
NOW, THEREFORE, the parties each in consideration that the other join
herein represent, warrant and agree as follows:
I. EXCHANGE OF SHARES
Subject to the terms and conditions hereof and in reliance on the
respective representations and warranties contained herein, ITM hereby
transfers, which transfers shall be effective as of the Effective Date, and/or
shall cause to be transferred as of the Effective Date, 100% of the issued and
outstanding capital shares of ITM. In exchange for the transfer of ITM shares,
Salutations shall issue one common share of Salutations for each share of ITM
received. The shares of Salutations shall be issued in each case to the person
or entity who transferred to Salutations the applicable ITM shares. All
Salutations shares issued under this Section shall be post-split shares as
described in Subsection 3.02(a).
II. THE EFFECTIVE DATE AND DELIVERY OF SHARES
2.01 THE EFFECTIVE DATE. The "Effective Date" for purposes of this
Agreement shall be the date the State of Nevada accepts for filing the Amendment
to the Articles of Incorporation for Salutations which changes the name of
Salutations to International Trading &
1
<PAGE> 2
Manufacturing Corporation, or such similar name, and which puts into effect the
forward stock split of Salutations shares as described herein.
2.02 DELIVERY ITM SHARES. All certificates evidencing ITM shares
exchanged herein shall be delivered to Salutations, duly endorsed or accompanied
by stock powers duly executed in blank and otherwise in form acceptable for
transfer, free and clear of all options, liens, claims, charges and encumbrances
of any nature whatsoever, within 10 days of the Effective Date.
2.03 ISSUE OF SALUTATIONS SHARES. Salutations shall issue shares as
required herein with respect to each certificate of ITM shares received, within
20 days of receipt of the applicable ITM certificate and acceptable documents of
transfer.
III. REPRESENTATIONS AND WARRANTIES OF SALUTATIONS
Salutations represents to ITM as follows:
3.01 ORGANIZATION.
3.01(a) Salutations is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and
Salutations has the corporate power and authority to carry on its
business as presently conducted.
3.01(b) The copies of the Articles of Incorporation of
Salutations and of the Bylaws of Salutations, which have heretofore been
delivered to ITM, are complete and correct copies of such Articles of
Incorporation and Bylaws as amended and in effect on the date hereof.
3.02 CAPITALIZATION.
3.02(a) The issued and outstanding shares of stock of
Salutations as of the Effective Date shall be 516,250 common shares (the
"Salutations Shares"). Such shares shall be post-split shares, having
undergone a forward split on a 2.5 for one basis, which split shall be
effective as of the Effective Date. Except for the Salutations Shares,
Salutations shall have no other capital shares issued or outstanding on
the Effective Date. The Salutations Shares on the Effective Date shall
be duly authorized, validly issued, fully paid and nonassessable.
3.02(b) There are no outstanding options, warrants, or rights to
purchase any securities of Salutations.
2
<PAGE> 3
3.03 SUBSIDIARIES AND INVESTMENTS. Salutations does not own any capital
stock or have any interest in any corporation, partnership or other form of
business organization.
3.04 FINANCIAL STATEMENTS. Salutations has delivered to ITM copies of
the financial statements contained in the 15c2-11 information statement dated
June 5, 1997 of Salutations (the "Salutations Financial Statements").
Salutations believes the Salutations Financial Statements present fairly the
financial conditions of Salutations at the dates thereof.
3.05 NO UNDISCLOSED LIABILITIES. Other than as described in Exhibit 3.05
hereto, Salutations is not subject to any material liability or obligation of
any nature, whether absolute, accrued, contingent, or otherwise and whether due
or to become due, which is not reflected or reserved against in the Salutations
Financial Statements.
3.06 ABSENCE OF MATERIAL CHANGES. Except as described elsewhere in this
Agreement or on any Exhibit hereto, there has not been:
3.06(a) any material change in the condition (financial or
otherwise) of the properties, assets, liabilities or business of
Salutations from that represented in the Salutations Financial
Statements, except changes in the ordinary course of business which,
individually and in the aggregate, have not been materially adverse;
3.06(b) any redemption, purchase or other acquisition of any
shares of the capital stock of Salutations, or any issuance of any
shares of capital stock or the granting, issuance or exercise of any
rights, warrants, options or commitments by Salutations relating to its
authorized or issued capital stock; or
3.06(c) any change or amendment to the Articles of Incorporation
or Bylaws of Salutations.
3.07 LITIGATION. There is no litigation, proceeding or investigation
pending or to the knowledge of Salutations, threatened against Salutations
affecting any of its properties or assets, or, to the knowledge of Salutations,
against any officer, director, or stockholder of Salutations that might result,
either in any case or in the aggregate, in any material adverse change in the
business, operations, affairs or condition of Salutations or its properties or
assets, or that might call into question the validity of this Agreement, or any
action taken or to be taken pursuant hereto.
3.08 TITLE TO ASSETS. Salutations has good and marketable title to all
of its assets and properties now carried on its books including those reflected
in the balance sheet contained in the Salutations Financial Statements, free and
clear of all liens, claims, charges, security interests or other encumbrances,
except as described in the balance sheets included in the Salutations Financial
Statements or in any Exhibit.
3
<PAGE> 4
3.09 CONTRACTS AND UNDERTAKINGS. Each contract, agreement, lease,
license, arrangement, commitment and undertaking with respect to the business of
Salutations is valid, binding and in full force and effect. Salutations is not
in material default, or alleged to be in material default, under any contract,
agreement, lease, license, commitment, instrument or obligation and, to the
knowledge of Salutations, no other party to any contract, agreement, lease,
license, commitment, instrument or obligation to which Salutations is a party is
in default thereunder nor, to the knowledge of Salutations, does there exist any
condition or event which, after notice or lapse of time or both, would
constitute a default by any party to any such contract, agreement, lease,
license, commitment, instrument or obligation.
3.10 TRANSACTIONS WITH AFFILIATES, DIRECTORS AND SHAREHOLDERS. Except as
set forth in Exhibit 3.10 hereto, there are and have been no contracts,
agreements, arrangements or other transactions between Salutations, and any
officer, director, or stockholder of Salutations, or any corporation or other
entity controlled by such persons or a member of the such person's families.
3.11 NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any term or provision of, or constitute a default under,
the Articles of Incorporation or Bylaws of Salutations, or any agreement,
contract or instrument to which Salutations is a party or by which it or any of
its assets are bound.
3.12 DISCLOSURE. Neither this Agreement, the Salutations Financial
Statements nor any other agreement, document, certificate or written or oral
statement furnished to the ITM in connection with the transactions contemplated
hereby, contains any untrue statement of a material fact or when taken as a
whole omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
IV. REPRESENTATIONS AND WARRANTIES OF ITM
ITM and Gerald R. Edick (jointly the "ITM Warrantors") hereby represent
and warrant to Salutations as follows:
4.01 ORGANIZATION.
4.01(a) ITM is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and ITM has
the corporate power and authority to carry on its business as presently
conducted.
4.01(b) The copies of the Articles of Incorporation of ITM and
of the Bylaws of ITM, which have heretofore been delivered to
Salutations, are complete and correct copies of such Articles of
Incorporation and Bylaws as amended and in effect on the date hereof.
4
<PAGE> 5
4.02 CAPITALIZATION.
4.02(a) the issued and outstanding shares of stock of ITM as of
the Effective Date shall be 4,700,000 common shares together with any
common shares issued as of the Effective Date pursuant to the private
placement of up to 500,000 common shares of ITM at $1.00 per share
(which is being sold at the present time (the "ITM Shares"). Except for
the ITM Shares, ITM shall have no other capital shares issued or
outstanding on the Effective Date. The ITM Shares on the Effective Date
shall be duly authorized, validly issued, fully paid and nonassessable.
4.02(b) There are no outstanding options, warrants, or rights to
purchase any securities of ITM that have not been disclosed to
Salutations.
4.03 SUBSIDIARIES AND INVESTMENTS. ITM does not own any capital stock or
have any interest in any corporation, partnership or other form of business
organization.
4.04 FINANCIAL STATEMENTS. ITM has delivered to Salutations copies of
the financial statements contained in the Private Placement Memorandum dated
June 10, 1997, for the sale of up to 500,000 common shares of ITM (the "ITM
Financial Statements"). ITM believes the ITM Financial Statements present fairly
the financial conditions of ITM at the dates thereof.
4.05 NO UNDISCLOSED LIABILITIES. Other than as described in Exhibit 4.05
hereto, ITM is not subject to any material liability or obligation of any
nature, whether absolute, accrued, contingent, or otherwise and whether due or
to become due, which is not reflected or reserved against in the ITM Financial
Statements.
4.06 ABSENCE OF MATERIAL CHANGES. Except as described elsewhere in this
Agreement or on any Exhibit hereto, there has not been:
4.06(a) any material change in the condition (financial or
otherwise) of the properties, assets, liabilities or business of ITM
from that represented in the ITM Financial Statements, except changes in
the ordinary course of business which, individually and in the
aggregate, have not been materially adverse;
4.06(b) any redemption, purchase or other acquisition of any
shares of the capital stock of ITM, or any issuance of any shares of
capital stock or the granting, issuance or exercise of any rights,
warrants, options or commitments by ITM relating to its authorized or
issued capital stock; or
4.06(c) any change or amendment to the Articles of Incorporation
or Bylaws of ITM.
5
<PAGE> 6
4.07 LITIGATION. There is no litigation, proceeding or investigation
pending or to the knowledge of the ITM Warrantors, threatened against ITM
affecting any of its properties or assets, or, to the knowledge of the ITM
Warrantors against any officer, director, or stockholder of ITM that might
result, either in any case or in the aggregate, in any material adverse change
in the business, operations, affairs or condition of ITM or its properties or
assets, or that might call into question the validity of this Agreement, or any
action taken or to be taken pursuant hereto.
4.08 TITLE TO ASSETS. ITM has good and marketable title to all of its
assets and properties now carried on its books including those reflected in the
balance sheet contained in the ITM Financial Statements, free and clear of all
liens, claims, charges, security interests or other encumbrances, except as
described in the balance sheets included in the ITM Financial Statements or in
any Exhibit. All money raised pursuant to the current private placement of up to
500,000 ITM common shares shall belong to ITM and shall remain in ITM or used in
its usual course of business.
4.09 CONTRACTS AND UNDERTAKINGS. Each contract, agreement, lease,
license, arrangement, commitment and undertaking with respect to the business of
ITM is valid, binding and in full force and effect. ITM is not in material
default, or alleged to be in material default, under any contract, agreement,
lease, license, commitment, instrument or obligation and, to the knowledge of
the ITM Warrantors, no other party to any contract, agreement, lease, license,
commitment, instrument or obligation to which ITM is a party is in default
thereunder nor, to the knowledge of the ITM Warrantors, does there exist any
condition or event which, after notice or lapse of time or both, would
constitute a default by any party to any such contract, agreement, lease,
license, commitment, instrument or obligation.
4.10 TRANSACTIONS WITH AFFILIATES, DIRECTORS AND SHAREHOLDERS. Except as
set forth in Exhibit 4.10 hereto, there are and have been no contracts,
agreements, arrangements or other transactions between ITM, and any officer,
director, or stockholder of ITM, or any corporation or other entity controlled
by such persons or a member of the such person's families.
4.11 NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any term or provision of, or constitute a default under,
the Articles of Incorporation or Bylaws of ITM, or any agreement, contract or
instrument to which ITM is a party or by which it or any of its assets are
bound.
4.12 OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS. ITM owns or has valid
right or license to use all patents, patent rights, trade secrets, trademarks,
trademark rights, trade names, trade name rights, copyrights and other
intellectual property rights which are necessary to operate its business as now
operated and as now proposed to be operated.
4.12 DISCLOSURE. Neither this Agreement, the ITM Financial Statements
nor any other agreement, document, certificate or written or oral statement
furnished to the Salutations in connection with the transactions contemplated
hereby, contains any untrue statement
6
<PAGE> 7
of a material fact or when taken as a whole omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
V. OBLIGATIONS OF SALUTATIONS
Salutations covenants and agrees with ITM that on or before the
Effective Date it shall:
5.01 APPROVAL. Obtain the approval of all transactions contemplated in
this Agreement from both its Board of Directors and its shareholders.
5.02 STOCK SPLIT. consummate the forward split of its common shares on a
2.5 for one basis.
5.03 ELECTIONS. Take all steps necessary to elect Gerald R. Edick and
Klaus Moeller as the members of the Board of Directors and as the officers of
Salutations and to obtain the resignations of the current officers and directors
of Salutations.
5.04 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Refrain from
taking any action which would render any representation and/or warranty given by
Salutations from being accurate as of the Effective Date.
VI. OBLIGATIONS OF ITM
ITM hereby covenants and agrees with Salutations that:
6.01 CONDUCT OF BUSINESS. ITM will conduct its business and activities
diligently and in substantially the same manner as they previously have been
carried out.
6.02 APPROVAL. Obtain the approval of all transactions contemplated in
this Agreement from both its Board of Directors and each of its shareholders.
6.03 PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. ITM will
refrain from taking any action which would render any representation and/or
warranty given by the ITM Warrantors contained in this Agreement from being
inaccurate as of the Effective Date.
VII. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants contained herein shall
survive the consummation of the transactions contemplated herein and remain in
full force and effect.
7
<PAGE> 8
VIII. MISCELLANEOUS
8.01 FINDER'S FEES, INVESTMENT BANKING FEES. Neither Salutations nor ITM
have retained or used the services of any person, firm or corporation in such
manner as to require the payment of any compensation as a finder or a broker in
connection with the transactions contemplated herein.
8.02 TAX TREATMENT. The transaction contemplated hereby is intended to
qualify as a so-called "tax-free" reorganization under the provisions of Section
368 of the Internal Revenue Code. However, no tax opinion has been obtained
regarding tax implications of this reorganization.
8.03 FURTHER ASSURANCES. From time to time, at the other party's request
and without further consideration, each of the parties will execute and deliver
to the others such documents and take such action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
8.04 PARTIES IN INTEREST. Except as otherwise expressly provided herein,
all the terms and provisions of this Agreement shall be binding upon, shall
inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of the
parties hereto.
8.05 ENTIRE AGREEMENT: AMENDMENTS. This Agreement, including the
Exhibits and other documents and writings referred to herein or delivered
pursuant hereto, which form a part hereof, contains the entire understanding of
the parties with respect to its subject matter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings other than those
expressly set forth herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Agreement may be amended only by a written instrument duly executed
by the parties or their respective successors or assigns.
8.06 HEADINGS, ETC. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretations of this Agreement.
8.07 PRONOUNS. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the persons, entity or entities may require.
8.08 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8
<PAGE> 9
8.9 ATTORNEY FEES. If legal action is ever needed for the purpose of
enforcing any provision of this Agreement, the prevailing party shall be entitle
to an award of reasonable attorney fees.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as the date first above written.
SALUTATIONS, INC.
By: /s/ RANDALL L. FIGGINS
------------------------------------
Randall L. Figgins, President
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ GERALD R. EDICK
------------------------------------
Gerald R. Edick, President
/s/ GERALD R. EDICK
- ---------------------------------------
Gerald R. Edick, Individual with respect
to Section 4 only
9
<PAGE> 10
SALUTATIONS, INC.
3931 MACARTHUR BLVD., SUITE 201
NEWPORT BEACH, CA 92660
(714) 349-0364
July 3, 1997
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Salutations, Inc., a Nevada corporation
(the "corporation") to be voted at the Special Meeting of Shareholders to be
held on July 15, 1997, and any adjournment or adjournments thereof (hereinafter
the "Meeting" or the "Special Meeting of Shareholders"). Only shareholders of
record at the close of business on July 2, 1997 (the "Record Date"), are
entitled to notice of and to vote at the Meeting. This Proxy Statement and the
accompanying form of Proxy are being mailed to shareholders on or about July 3,
1997.
THE PROXY
All Proxies delivered pursuant to this solicitation are revocable at any
time at the option of the persons executing them by giving written notice to the
Secretary of the Company, by delivering a later proxy or by voting in person at
the Meeting. Proxies shall be voted in accordance with the directions of the
shareholders. Unless otherwise directed, proxies will be voted FOR each
proposal.
THE VOTING SHARES AND VOTE REQUIRED
The only securities of the Company entitled to vote at the Meeting are
its outstanding common shares which as of the Record Date totaled 406,500. Each
common share is entitled to one vote.
No business may be transacted unless a quorum of shareholders attends
the Meeting. A quorum is the presence in person or by proxy of the holders of a
majority of the shares entitled to vote at the Meeting. The proposals to forward
split the common shares of the corporation and to change the name of the
corporation will pass only upon the affirmative vote of a majority of the shares
issued and outstanding. All other proposals will pass upon the majority vote of
those in attendance at the meeting at which a quorum is present.
FORWARD SPLIT OF COMMON SHARES
As a pre-condition to the acquisition of 100% of the issued and
outstanding common shares of International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM") discussed below (the "Acquisition"), it is
necessary that the corporation forward split its common shares on
<PAGE> 11
a 2.5 for one basis. The effect of the split on the current outstanding common
shares of the corporation is as follows: for every common share held prior to
the split, the shareholder will have 2.5 common shares following the split. The
split will not change the percentage interest that any particular shareholder
owns in the corporation. For example, if prior to the split a shareholder owns
10% of the outstanding shares of the corporation, then following the split, the
same shareholder will continue to own 10% of the total outstanding shares of
the corporation, though the actual number of shares will have increased.
The purpose of the forward split is to change the number of common
shares outstanding so that the Acquisition can be consummated in an efficient
manner. Management believes that the corporation and the market for the
corporation's common shares will be benefitted by consummating the Acquisition
at the higher level of shares outstanding.
The split will be put into effect by virtue of an amendment to the
Articles of Incorporation. Therefore, approval by the shareholders of the split
will constitute approval by the shareholders to amend the Articles of
Incorporation for the purpose of effecting the split.
Following the effective date of the split (the "Effective Date"), the
shareholders will be invited to mail their share certificates to the transfer
agent who will issue a new certificate to the applicable shareholder evidencing
ownership of shares in an amount equal to 2.5 times the number of the pre-split
amount. Certificates that are not returned and continue to be dated prior to the
Effective Date will be deemed to evidence ownership of shares in an amount which
is 2.5 times the number of shares indicated on such certificate.
ACQUISITION OF ITM
Purpose for the Acquisition
The corporation was formed for the purpose of marketing executive gifts,
crafts and greeting cards. The corporation successfully completed its public
offering in November, 1996. Because the corporation was unable to begin
marketing prior to the 1996 Christmas season, management felt it was not wise to
commence operations until it had a clear business objective.
Julie Krueger had initially agreed to serve as secretary to the
corporation and to design and produce crafts to be marketed. Ms. Krueger, has
accepted a full time teaching position thereby limiting her availability to the
corporation. The corporation's objectives then became to narrow its focus to
the high margin areas of jewelry and collectibles. Sales in these areas are not
as seasonal as in cards and crafts. Management sought outside help to assist the
corporation in developing a strategy to grow a successful gift business.
The corporation began seeking wholesale suppliers and marketing
partners. Rather than expend its limited resources on a catalog and on
inventory, the Board of Directors, with the aid of outside consultants, have
identified that acquiring ITM will be an opportunity that the Board of Directors
believes will be in the long term best interest of the corporation.
<PAGE> 12
The Acquisition
It is proposed that following the forward split, the corporation will
issue shares of its common stock in exchange for all of the issued and
outstanding capital shares of ITM. Following the exchange, ITM will be a wholly
owned subsidiary of the corporation. The present terms and conditions of the
Acquisition will result in the present shareholders of the corporation owning
approximately 10% of the corporation following the Acquisition. In other words,
to vote in favor of the Acquisition, a shareholder must believe that it is in
the best interest of the corporation to transfer 90% of the corporation in order
to acquire the assets and business operations of ITM. The most recent financial
statement for the corporation is included to this Proxy Statement as Exhibit A.
The most recent financial statement for ITM is attached as Exhibit B.
Following the exchange, a new Board of Directors will be put in place
for the corporation, all of the members of which will be nominated by the
current management of ITM.
ITM
ITM manufactures and distributes gemstone jewelry in gold and sterling
silver. ITM also distributes clothing, collectibles and other products to
retailers and television shopping networks in the United States and Canada.
However, ITM's principal product is gemstone jewelry. The majority of ITM's
jewelry is manufactured under contract in Thailand and India.
ITM's products are marketed through television home shopping networks
such as Home Shopping Network and Canadian Home Shopping Network. Though still
in its infancy, the cable television home shopping industry has grown to sales
of $5.5 billion annually and continues to expand. Some industry leaders believe
that by the year 2000, annual sales will range between $20 billion and $100
billion. In connection with the growth of this marketing industry, ITM
management believes that its sales potential will also increase. ITM plans to
continue to focus on developing products and programs for its television home
shopping customers in order to capitalize on the industry's growth.
ITM also markets its products through retail organizations, including
Walmart and Fingerhut. In fact, ITM's customers include the top 30 jewelry
retailers in the nation. Dealing exclusively with large customers is more cost
effective than selling to numerous small retail jewelers. Expansion of ITM's
distribution outlets is expected to continue with both a domestic and
international focus.
Consumers shopping via catalogs, direct mail and infomercials is
expected to continue to grow in popularity and become more wide spread, since
time and convenience are important to today's consumer. According to Simmons
Market Research Bureau, more than 54% of the U.S. population ordered items by
the telephone or mail in 1990. Because of this, ITM has plans at the present
time to expand its marketing tools to include catalogs, direct mail and
infomercials.
ITM's operation is structured to keep operation costs as low as
possible. This provides ITM with a competitive edge over any retailers who
maintain expensive showrooms and offices with high overheads. ITM's expenditures
are directed more to the manufacture of its products.
<PAGE> 13
Since its inception, ITM has been in the forefront in bringing new
gemstones to the mass market. Gemstones now in the mass market include
tanzanite, tsavorite, fire opal, apatite and white sapphire. ITM has developed
proprietary expertise in producing calibrated gemstones which means gemstones
having the same size and color. The production of calibrated gemstones is an
important component of successful gemstone mass marketing.
ITM's business plan includes the expansion of its products through the
acquisition of complementary assets and/or business. ITM management believes
potential acquisition targets include competitors of ITM which produce and
distribute similar products as those distributed by ITM by mass marketing
through television shopping networks.
Risk Factors
Certain risk factors exist with respect to the Acquisition. ITM is a
fairly new company by most standards, is still developing, and has yet to
produce a profit over a sustained period of time. Following the Acquisition, the
corporation will be led by management new to the corporation and the present
shareholders of the corporation as a group will own a minority interest.
Accordingly, those who own the corporation prior to the Acquisition will have
little or no power to influence new management. There can be no assurance that
following the Acquisition, the corporation will succeed financially.
The Acquisition also must comply with various tax and securities laws.
No tax rulings or legal opinions have been obtained with respect to these
matters. No assurance can be given that the structure of the Acquisition as a
tax free exchange and as an exchange exempt from the registration requirements
of the Securities Act of 1933 will go unchallenged by applicable governmental or
other authorities.
NAME CHANGE
The Board of Directors is recommending that the corporation enter into
and consummate the Acquisition. Upon the consummation of the Acquisition, the
principal business of the corporation would be the manufacture and distribution
of products that currently constitute the business operations of ITM.
It is the recommendation of the corporation's Board of Directors that it
is in the best interest of the corporation to change its name to International
Trading & Manufacturing Corporation (ITM) in contemplation of the Acquisition.
ITM has established its name to some extent and is recognized in its industry.
Accordingly, the Board of Directors deems that it would be advantageous to the
corporation to capitalize upon the goodwill established in the name
"International Trading & Manufacturing Corporation" by using the name to the
fullest extent possible including changing the name of the corporation to
International Trading & Manufacturing Corporation. Conversely, the corporation
will lose the goodwill associated with the name Salutations, Inc., which in all
likelihood is negligible since the corporation had only recently commenced
business operations under that name.
<PAGE> 14
In order to change the name of the corporation, it is necessary to amend
the corporation's Articles of Incorporation, which Articles would then reflect
the new name and would be duly filed and of record in appropriate government
offices in the State of Nevada. Approval of the name change by the shareholders
shall constitute the approval to amend the Articles of Incorporation for such
purpose.
Dated: July 3, 1997
<PAGE> 15
EXHIBIT A
<PAGE> 16
[LOGO] 26TH Place
2601 East Thomas Road PH: 602-266-2646
CLANCY AND CO. P.L.L.C. Suite 110 FAX: 602-224-9496
CERTIFIED PUBLIC ACCOUNTANTS Phoenix, AZ 85016 E-MAIL: [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Salutations, Inc.
Las Vegas, NV 89128
We have audited the accompanying balance sheet of Salutations, Inc. as
of December 31, 1996, and the related statement of operations,
stockholders' equity and cash flows for the period then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit
of the financial statements provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents
fairly, in all material respects, the financial position of Salutations,
Inc. as of December 31, 1996, and the results of its operations and its
cash flows for the period then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a Development Stage Company as
defined in Financial Accounting Standards Board Statement No. 7. The
Company is devoting substantially all of its present efforts in
establishing a new business and its planned principal operations have
not commenced and, accordingly, no revenue has been derived therefrom.
These factors raise substantial doubt about its ability to continue as a
going concern. The company's ability to continue as a going concern is
dependent upon a successful public offering or other alternative
financing and its ability to attain profitable operations. The financial
statement does not include any adjustments that might result from the
outcome of this uncertainty.
/s/ CLANCY AND CO.
-------------------------------
Clancy and Co. P.L.L.C.
Phoenix, Arizona
May 23, 1997
-1-
<PAGE> 17
SALUTATIONS, INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
Current Assets
Cash in Bank $28,387
Total Current Assets $28,387
Other Assets
Organization Costs - Net of Amortization 280
-------
Total Other Assets 280
-------
Total Assets $28,667
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities NONE
Stockholders' Equity
Common Stock, $.001 Par Value
25,000,000 Shares Authorized;
406,500 Issued and Outstanding
At December 31, 1996 407
Additional Paid In Capital 34,770
Deficit Accumulated During the Development Stage (6,510)
-------
Total Stockholders' Equity 28,667
-------
Total Liabilities and Stockholders' Equity $28,667
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 18
SALUTATIONS, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 8, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
For The Accumulated
Period During The
January 8, Development
1996 Stage
Through Through
December December
31, 1996 31, 1996
---------- ----------
<S> <C> <C>
Revenue $ 0 $ 0
Expenses
General and
Administrative 6,510 6,510
------- --------
Total Expenses 6,510 6,510
------- --------
Net (Loss) $(6,510) $ (6,510)
======= ========
Net (Loss) Per Share $ (0.02) $ (0.02)
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 19
SALUTATIONS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31,1996 AND FROM INCEPTION
(JANUARY 8,1996) THROUGH DECEMBER 31,1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During The
Common Stock Paid-In Development
Shares Amount Capital Stage Total
------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Issuance of
Common Stock For Cash
on June 5, 1996 200,000 $200 $ 5,800 $ 6,000
Issuance of
Common Stock for Cash
in Connection with
a 504D Offering
Memorandum 206,500 207 30,769 30,976
Cost of Offering (1,799) (1,799)
Loss Year Ended
December 31, 1996 (6,510) (6,510)
------- ---- ------- ------- -------
Balance -
December 31, 1996 406,500 $407 $34,770 $(6,510) $28,667
======= ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 20
SALUTATIONS, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JANUARY 8,1996)
THROUGH THE YEAR ENDED DECEMBER 31,1996
<TABLE>
<CAPTION>
For The Deficit
Period Accumulated
January 8, During The
1996 Development
Through Period
December December
31,1996 31,1996
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (6,510) $ (6,510)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities
Amortization 70 70
Changes in Operating Assets and Liabilities
(Increase) Decrease in Organization Cost (350) (350)
-------- --------
Total Adjustments (280) (280)
-------- --------
Net Cash Provided by Operating Activities (6,790) (6,790)
Cash Flows from Investing Activities 0 0
Cash Flows from Financing Activities
Proceeds from sale of Common Stock 35,177 35,177
-------- --------
Net Cash provided by Financing Activities 35,177 35,177
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 28,387 28,387
Cash and Cash Equivalents Beginning of Period 0 0
-------- --------
Cash and Cash Equivalents End of Period $ 28,387 $ 28,387
======== ========
Supplemental Information
Cash Paid For:
Interest 0 $ 0
======== ========
Income Taxes $ 0 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 21
SALUTATIONS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,1996
NOTE I - ORGANIZATION
Salutations, Inc. (The Company) was incorporated under the laws of the
State of Nevada on January 8, 1996 with an authorized capital of
25,000,000 shares of common stock with a par value of one mil ($.001)
per share.
On June 5, 1996, the Company issued 200,000 shares of common stock for
$6,000 cash.
On November 14, 1996, the Company issued 206,500 shares of common stock
for cash at $0.15 per share or $30,976, less offering cost of $1,799, or
a net of $29,177.
The Company is a development stage company, as defined in Financial
Accounting Standards Board No. 7. The Company is devoting substantially
all of its present efforts in securing and establishing a new business,
and its planned principal operations have not commenced and,
accordingly, no revenue has been derived therefrom. In addition, the
Company does not presently have adequate financing to carry out its
business plan. These factors raise substantial doubt about its ability
to continue as a going concern.
The financial statement has been prepared on the basis of accounting
principles applicable to a going concern. Accordingly, they do not
purport to give effect to adjustments, if any, that may be necessary
should the Company be unable to continue as a going concern. The
continuation of the Company as a going concern, is dependent upon a
successful public offering or other alternative financing and its
ability to establish itself as a profitable business. The Company's
ability to achieve these objectives cannot be determined at this time.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Accounting Method
The Company's financial statements are prepared using the accrual method
of accounting.
B. Organization Costs
Cost incurred in organizing the Company is being amortized over a sixty
month period.
C. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity
of three months or less to be cash and cash equivalents.
-6-
<PAGE> 22
SALUTATIONS, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31,1996
D. Income or Loss Per Share
The computations of income or loss per share of common stock are based
on the weighted average number of shares outstanding at the date of the
financial statements.
-7-
<PAGE> 23
EXHIBIT B
<PAGE> 24
International Trading & Manufacturing Corporation
Balance Sheets
December 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current assets
Cash $ 50,484 $ 152
Accounts receivable 2,057,410 735,606
Inventory 118,000 33,500
Other current assets 19,756 --
----------- -----------
Total current assets 2,245,650 769,258
Furniture and equipment,
net of accumulated depression 9,306 7,714
Other assets 12,227 18,946
----------- -----------
$ 2,267,183 $ 795,918
=========== ===========
LIABILITIES AND SHAREHOLDER'S
DEFICIENCY
Current liabilities:
Cash overdraft -- $ 11,275
Accounts payable $ 2,053,489 606,922
Accrued interest 71,265 --
----------- -----------
Total current liabilities 2,124,754 618,197
Note payable to affiliate 353,989 357,967
----------- -----------
2,478,743 976,164
----------- -----------
Shareholder's deficiency:
Common stock 5,000 5,000
Additional paid in capital 2,700 1,700
Deficit (219,260) (186,946)
----------- -----------
(211,560) (180,246)
----------- -----------
$ 2,267,183 $ 795,918
=========== ===========
</TABLE>
<PAGE> 25
International Trading & Manufacturing Corporation
Statements of Operations
December 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales $4,428,634 $3,028,818
Cost of goods sold 3,876,172 2,568,223
---------- ----------
552,462 460,595
Selling, general and administrative expense 513,458 308,572
---------- ----------
Operating income 39,004 152,023
Interest expense 36,060 36,598
---------- ----------
Net income $ 2,944 $ 115,425
========== ==========
</TABLE>
<PAGE> 26
June 9, 1997
International Trading & Manufacturing Corporation
P. O. Box 2297
Del Mar, CA 92014-1597
Attention: Gerald R. Edick, President
Re: Letter of Intent for Exchange of Shares
Dear Mr. Edick:
This letter will confirm the following general terms and conditions
whereby, through an exchange of shares (among other things), ITM, as hereinafter
defined, will become a wholly-owned subsidiary of SI, as hereinafter defined.
DEFINITIONS
The following terms when used herein, shall have the following meanings:
"SI" shall mean Salutations, Inc., a corporation in good
standing, organized and operating under the laws of the State of Nevada.
"ITM" shall mean International Trading & Manufacturing
Corporation, a corporation in good standing, organized and operating
under the laws of the State of Nevada.
"SI SHARES" shall mean common voting shares of SI having a par
value of $0.001. It is expressly contemplated and understood by the
parties that SI Shares are the only securities with respect to SI which
are authorized, issued and/or outstanding.
"ITM SHARES" shall mean common voting shares of ITM having a par
value of $0.001. It is expressly contemplated and understood by the
parties that ITM Shares are the only securities with respect to ITM
which are authorized, issued and/or outstanding.
"FORWARD SPLIT" shall mean a forward split of the SI Shares on a
2.5 for one basis. Following the Forward Split, all SI Shares shall
total 516,250 shares.
"PRE-SPLIT SI SHARES" shall mean SI Shares without giving effect
to the Forward Split.
1
<PAGE> 27
"POST-SPLIT SI SHARES" shall mean SI Shares after giving effect
to the Forward Split.
"PARTIES" shall mean SI and ITM.
"PLAN" shall mean an Agreement and Plan of Reorganization
negotiated by and between the Parties. The Plan shall be negotiated in
good faith and shall contain all of the representations, warranties and
other terms and conditions common to transactions contemplated by this
Letter of Intent.
"EFFECTIVE DATE" shall mean the date and time set forth in the
Plan when all of the transactions contemplated under the Plan shall be
completed and consummated.
INTENT OF THE PARTIES
The Parties hereby express it as their specific intent that the Boards
of Directors of SI and ITM will negotiate and enter into a Plan, which shall
contain the following provisions:
1. Prior to the Closing, the shareholders of the Parties shall
approve the Plan. The shareholders of SI shall also specifically
approve the Forward Split.
2. On the Effective Date, SI Shares issued and outstanding shall
total 516,250 which shall all be Post-split SI Shares.
3. On the Effective Date, ITM Shares issued and outstanding
shall total 4,700,000 shares plus any shares sold by the Effective Date
pursuant to the private placement of up to 500,000 shares of ITM.
4. On the Effective Date or as soon thereafter as is
practicable, SI shall issue Post-split SI Shares to the shareholders of
ITM in exchange for the transfer and delivery to SI of all of the issued
and outstanding ITM Shares existing on the Effective date. All SI Shares
issued shall be "unregistered" and "restricted" shares and shall be
issued in accordance with and subject to applicable laws, rules and
regulations, and, when issued for the consideration indicated, shall be
deemed fully paid and nonassessable. The exchange is intended to be a
tax-free reorganization under Section 368(a)(1)(B) of the internal
Revenue Code.
ITM hereby represents that it has the agreement of each of its
shareholders (as well as purchasers of ITM Shares through the private placement
described above) that each such shareholder will be subject and bound by the
Plan as outlined in this Letter of Intent.
In the event the Plan is not successfully negotiated and entered into on
or before July 31, 1997, at the option of either Party, the agreements in this
Letter of Intent may be terminated with
2
<PAGE> 28
each Party to bear its own costs.
The Plan shall be executed as soon as practicable and SI shall instruct
its legal counsel to immediately prepare all necessary documentation upon the
execution of this Letter of Intent.
If the foregoing correctly sets forth the substance of the understanding
of the Parties, please execute this Letter of Intent in duplicate, retain one
copy for your records, and return one copy to Gary R. Henrie, to his address at
376 East 400 South, Suite 300, Salt Lake City, Utah 84111. In addition, upon
signing this Letter of Intent, please send one signed copy by facsimile
transmission to 801-539-5256.
Very truly yours,
SALUTATIONS, INC.
By: /s/ RANDALL L. FIGGINS
-------------------------------------
Randall L. Figgins, President
Accepted and Agreed this 9th day
of June, 1997.
INTERNATIONAL TRADING &
MANUFACTURING CORPORATION
By: /s/ GERALD R. EDICK
-------------------------------
Gerald R. Edick, President
3
<PAGE> 29
LETTER OF CONSENT TO USE NAME
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
P.O. Box 2297
Del Mar, CA 92014-1597
July 15, 1997
Secretary of State
Capitol Complex
Carson City, Nevada 89710
Re: International Trading & Manufacturing Corporation,
a Nevada corporation, (the "Corporation").
To Whom It May Concern:
I, the undersigned, am the President of the Corporation. I have entered
into an agreement (the "Agreement") in behalf of the Corporation, whereby the
Corporation will become a 100% owned subsidiary of Salutations, Inc., a Nevada
corporation ("Salutations"). A part of the Agreement is that Salutations will
change its name to International Trading & Manufacturing Corporation, which name
is the current name of the Corporation.
Please accept this letter as your authorization from the Corporation to
change the name of Salutations to International Trading & Manufacturing
Corporation.
If you have any questions, please call Gary R. Henrie, at (801)
355-2886. Thank you for your assistance.
INTERNATIONAL TRADING &
MANUFACTURING CORPORATION, a Nevada
corporation
By: /s/ GERALD R. EDICK
-------------------------------------
Gerald R. Edick, President
This Letter of Consent was acknowledged before me on July 15, 1997, by Gerald R.
Edick as the President of International Trading & Manufacturing Corporation.
[SEAL]
/s/ ROBINSON RANIER
-----------------------------------------
Notary Public
<PAGE> 30
WRITTEN CONSENT IN LIEU OF A MEETING
OF
THE BOARD OF DIRECTORS
OF
SALUTATIONS, INC.
The following resolutions were unanimously passed by the Board of Directors of
Salutations, Inc.
RESOLVED: That the Company accept the resignation of Julie Krueger as
Secretary/Treasurer of Salutations, Inc. effect immediately.
FURTHER RESOLVED: That the position of Secretary/Treasurer be filled by
Randall L. Figgins until a suitable replacement can be found.
FURTHER RESOLVED: That the Company pay Ms. Krueger $500.00 as
compensation for her services as an officer and director.
FURTHER RESOLVED: That the Company retain the services of Stephen B.
Utley as an outside consultant to assist the Company in it's attempt to
grow through either acquisition or additional financing.
FURTHER RESOLVED: That the Board of Directors is authorized to pay Mr.
Utley up to $5,000 upon the Boards agreement to pursue any such proposal
as he introduces.
FURTHER RESOLVED: The Board of Directors approve a payment of $1,000 to
Bob Hurd for services he performed in reviewing the due diligence
package for submission to the National Association of Securities Dealers
member.
By affixing their signatures hereto, the Officers and Directors of Salutations,
Inc. unanimously agree to these resolutions and further agree to waive notice of
time, place and purpose of a meeting of the Board of Directors.
DATED this the 6th day of June, 1997.
/s/ RANDALL L. FIGGINS /s/ JULIE KRUEGER
- ---------------------------------- ------------------------------------
RANDALL L. FIGGINS JULIE KRUEGER
<PAGE> 31
RESIGNATION
I, Randall L. Figgins, hereby resign the positions of being an officer
and director of Salutations, Inc., a Nevada corporation. This resignation shall
be effective immediately.
Dated this 15th day of July, 1997.
/s/ RANDALL L. FIGGINS
------------------------------------
Randall L. Figgins
<PAGE> 32
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
OF
SALUTATIONS, INC.
The undersigned, being the sole member of the Board of Directors of
Salutations, Inc., a Nevada corporation (the "Company"), and pursuant to the
general corporation laws of the State of Nevada, hereby takes the following
action:
WHEREAS, the number of members constituting the entire Board of
Directors of the Company is two;
WHEREAS, Randall L. Figgins has resigned his position as a member of the
Board of Directors leaving his position vacant;
NOW, THEREFORE, BE IT RESOLVED that Klaus Moeller is hereby appointed to
fill the vacancy existing in the Board of Directors.
DATED effective the date signed below.
/s/ GERALD R. EDICK
DATE: July 15, 1997 ------------------------------------
Gerald R. Edick, Member of the Board
<PAGE> 33
SALUTATIONS, INC. (NOW KNOW AS)
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
P. O. Box 2297
Del Mar, CA 92014-1597
July 15, 1997
Pacific Stock Transfer Company
P. O. Box 93385
Las Vegas, Nevada 89193
Re: Salutations, Inc., nka International Trading & Manufacturing
Corporation
To Whom It May Concern:
At a meeting of the Board of Directors held on July 15, 1997, our Board
decided to conclude our relationship with your firm as transfer agent and
registrar for the capital stock of Salutations, Inc., nka International Trading
& Manufacturing Corporation, effective as of the close of business on July 15,
1997. The Board is appreciative of the manner in which your firm has performed
its duties as our transfer agent over the years.
The Board felt that this was a propitious time, which was dictated by a
business decision, to effect this change in transfer agents.
Effective July 16, 1997, we are appointing Interwest Transfer Co., Inc.,
of Salt Lake City, Utah as our new transfer agent and registrar.
You are hereby authorized to work with Mr. Kurtis Hughes of Interwest
Transfer Co., Inc. in making the transition and accepting instructions on our
behalf from him. The specific items that they will require are as follows:
1. A list of the outstanding shares certified to be correct as of the
close of business on July 15, 1997. The list should include the name and
address of each shareholder and list each outstanding certificate held
by each stockholder listing certificate number, number of shares and
date the certificate was issued.
2. A list of stop transfer orders, if any, with respect to any
certificates, together with a list of any unregistered or control shares
outstanding. The list should contain name, certificate number, shares
and reason for the stop order.
3. Active stop files.
4. Unclaimed property schedule and records.
<PAGE> 34
5. Canceled stock certificates.
You are hereby further authorized to release the supply of blank stock
certificates in your possession, if any to Interwest Transfer Co., Inc. for
over-printing whereby your name as transfer agent and registrar will be blanked
out. Please advise Kurtis Hughes when these certificates are ready to be picked
up.
Again, thank you for your past assistance and cooperation. Please let me
know should you need any additional information and/or authorization from me.
You may send your final bill to my attention.
Very truly yours.
/s/ GERALD R. EDICK
------------------------------
Gerald R. Edick
President
c: Interwest Transfer Co., Inc.
1981 East 4800 South, Suite 100
Salt Lake City, Utah 84117
(801) 272-9294
<PAGE> 35
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
OF
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
The undersigned, constituting all of the members of the Board of
Directors of International Trading & Manufacturing Corporation, a Nevada
corporation (the "Company"), and pursuant to the general corporation laws of the
State of Nevada, hereby take the following action:
WHEREAS, it is deemed to be in the best interest of the Company to enter
into a reorganization with Salutations, Inc., a Nevada corporation
("Salutations") pursuant to the terms and conditions of the Agreement in
the form attached hereto;
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors approves the
reorganization with Salutations and calls for the shareholders of the
Company to review, consider, and to vote upon the proposal to consummate
said reorganization.
DATED effective the date signed below.
/s/ GERALD R. EDICK
DATE: July 9, 1997 ------------------------------------
/s/ KLAUS MOELLER
------------------------------------
<PAGE> 36
MAJORITY CONSENT OF THE SHAREHOLDERS
OF
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
The undersigned, constituting holders of over 50% of the voting common
shares of International Trading & Manufacturing Corporation, a Nevada
corporation (the "Company"), and pursuant to the general corporation laws of the
State of Nevada, hereby take the following action:
WHEREAS, the Board of Directors deems it to be in the best interest of
the Company to enter into a reorganization with Salutations, Inc., a
Nevada corporation ("Salutations") pursuant to the terms and conditions
of the Agreement in the form attached hereto (the "Reorganization"); and
WHEREAS, the Board of Directors has called on the shareholders to
review, consider, and to vote upon the proposal to consummate said
reorganization;
NOW, THEREFORE, BE IT RESOLVED that the shareholders hereby approve the
Reorganization and authorize and direct the officers of the Company to
enter into the Agreement and to take any and all other actions either
necessary and/or convenient for the purpose of consummating the
Reorganization.
DATED effective July 9, 1997.
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
<PAGE> 37
CERTIFICATE OF PASSAGE OF RESOLUTION APPOINTING
TRANSFER AGENT
RESOLVED: That Interwest Transfer Co., Inc., a corporation organized and
existing under and by virtue of the laws of the State of Utah, with offices at
1981 East 4800 South, Ste. 100, Salt Lake City, Utah, be and is hereby appointed
transfer agent of this Corporation, and that all accredited officers of said
Interwest Transfer Co., Inc., each of them is hereby authorized, designated and
accepted to act for and on behalf of this Corporation as Vice President and
Assistant Secretaries with power only to sign stock certificates in either
capacity; and be it further
RESOLVED: That this Corporation hereby does relieve the said transfer agent and
its officers and representatives of all liability for all acts and things done
and performed by said transfer agent and its officers and agents under orders
of any officer or agent and/or representative of this Corporation, and hereby
does assume full responsibility for all such acts and things done; and be it
further
RESOLVED: That said transfer agent be, and is hereby authorized to use its own
judgement in matters effecting its duties as such agent; and in its discretion
to apply to and to act upon instructions of its own counsel or of the counsel
of this Corporation in respect to any question arising in connection with such
agency, all legal fees to be at the expense of this Corporation, and said
transfer agent is hereby relieved of any responsibility to this Corporation,
and indemnified by this Corporation as to any responsibility to third persons,
for action taken in accordance with advice of such counsel or its own
judgement. Remaining liable only for its own willful default or misconduct; and
be it further
RESOLVED: That this corporation shall, and hereby does, indemnify, protect and
hold said transfer agent harmless for any act, omission, delay, or refusal made
by it in reliance upon any stock certificate or other instrument issued by this
Corporation believed by said agent in good faith to be valid, genuine and
sufficient, and in effecting any transfer believed by it in good faith to be
duly authorized, said transfer to retain liability in such respects only for
its own willful misconduct; and be it further
RESOLVED: That said transfer agent shall be without liability to this
Corporation, and is hereby indemnified from any liability to third persons from
said agent's refusal to perform any act in connection with this agency where,
in reliance upon opinion of its counsel, said agent in good faith believes that
such act may subject it or its officers or employees to criminal liability or
injunctive sanctions under any law of any state or of the United States and,
under the Securities Act of 1933.
STATE OF CALIFORNIA
COUNTY OF ORANGE
Gerald R. Edick Jr., being duly sworn deposes and says that he is
Secretary of Int. Trading, a corporation organized and existing under the laws
of the State of Nevada, and having its principal place of business in Solana
Beach at California; that he has custody of the books of said corporation, and
that the foregoing is a full, true and correct copy of the Resolution adopted
at a meeting of the board of Directors of said corporation held on the 15th day
of July 1997, at Solana Beach.
WITNESS MY HAND AND SEAL OF THE CORPORATION THIS ___ DAY OF
__________________, 19__.
/s/ GERALD EDICK
----------------------------------------
SECRETARY
Subscribed and sworn to before me this 15 day of July, 1997.
/s/ ROBINSON RANIER
----------------------------------------
NOTARY PUBLIC
[SEAL]
<PAGE> 38
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
OF
SALUTATIONS, INC.
The undersigned, being the sole member of the Board of Directors of
Salutations, Inc., a Nevada corporation (the "Company"), and pursuant to the
general corporation laws of the State of Nevada, hereby takes the following
action:
WHEREAS, the number of members constituting the entire Board of
Directors of the Company is two;
WHEREAS, Julie Krueger recently resigned her position as a member of the
Board of Directors leaving her position vacant;
NOW, THEREFORE, BE IT RESOLVED that Gerald R. Edick is hereby appointed
to fill the vacancy existing in the Board of Directors.
DATED effective the date signed below.
/s/ RANDALL L. FIGGINS
DATE: July 15, 1997 ------------------------------------
Randall L. Figgins, Member of
the Board
<PAGE> 39
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
OF
SALUTATIONS, INC.
The undersigned, being the sole member of the Board of Directors of
Salutations, Inc., a Nevada corporation (the "Company"), and pursuant to the
general corporation laws of the State of Nevada, hereby takes the following
action:
WHEREAS, it is deemed to be in the best interest of the Company to enter
into a reorganization with International Trading & Manufacturing
Corporation ("ITM") pursuant to the terms and conditions of the
Agreement in the form attached hereto;
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors approves the
reorganization with ITM and calls for a special meeting of the
shareholders of the Company to vote upon the proposal to consummate said
reorganization.
DATED effective the date signed below.
/s/ RANDALL L. FIGGINS
DATE: July 9, 1997 ------------------------------------
Randall L. Figgins, Member of
the Board
<PAGE> 40
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS
OF
SALUTATIONS, INC.
The undersigned, being the sole member of the Board of Directors of
Salutations, Inc., a Nevada corporation (the "Company"), and pursuant to the
general corporation laws of the State of Nevada, hereby takes the following
action:
WHEREAS, it is deemed to be in the best interest of the Company to enter
into a reorganization with International Trading & Manufacturing
Corporation ("ITM");
WHEREAS, it is necessary to redeem 200,000 shares of stock of the
Company in order to enter into the reorganization;
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors approves the
redemption and cancellation of 200,000 shares of the Corporation
evidenced by Certificate number I held in the name of Randall L Figgins.
DATED effective the date signed below.
/s/ RANDALL L. FIGGINS
DATE: July 9, 1997 ---------------------------------------
Randall L. Figgins, Member of the Board
<PAGE> 1
Exhibit 3.1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JAN 08 1996
No. 346-96
/s/ DEAN HELLER
DEAN HILLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
SALUTATIONS, INC.
FIRST. The name of the corporation is:
SALUTATIONS, INC.
SECOND. Its registered office in the State of Nevada is located at 7604
Delaware Bay Drive, Las Vegas, Nevada 89128, that this Corporation may maintain
an office, or offices, in such other place within or without the State of Nevada
as may be from time to time designated by the Board of Directors, or by the
By-Laws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: To engage in
any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be
conferred upon corporations by any existing law.
1
<PAGE> 2
(B) May at any time exercise such rights, privileges and powers,
when not inconsistent with the purposes and objects for which this corporation
is organized.
(C) Shall have power to have succession by its corporate name
for the period limited in its certificate or articles of incorporation, and
when no period is limited, perpetually, or until dissolved and its affairs
wound up according to law.
(D) Shall have the power to effect litigation in its own behalf
and interest in any court of law.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and
personal estate and mortgage or lease any such real and personal estate with
its franchises. The power to hold real and personal estate shall include the
power to take the same by devise or bequest in the State of Nevada, or in any
other state, territory or country.
(G) Shall have power to appoint such officers and agents as the
affairs of the corporation shall require, and to allow them suitable
compensation.
(H) Shall have power to make By-Laws not inconsistent with the
constitution or laws of the United States, or of the State of Nevada, for the
management, regulation and government of its affairs and property, the transfer
of its stock, the transaction of its business, and the calling and holding of
meetings of its stockholders.
2
<PAGE> 3
(I) Shall have power to dissolve itself.
(J) Shall have power to adopt and use a common seal or stamp,
and alter the same. The use of a seal or stamp by the corporation on any
corporate documents is not necessary. The corporation may use a seal or stamp,
if it desires, but such use or nonuse shall not in any way affect the legality
of the document.
(K) Shall have power to borrow money and contract debts when
necessary for the transaction of its business, or for the exercise of its
corporate rights, privileges or franchises, or for any other lawful purpose of
its incorporation; to issue bonds, promissory notes, bills of exchange,
debentures, and other obligations and evidences of indebtedness, payable at a
specified time or times, or payable upon the happening of a specified event or
events, whether secured by mortgage, pledge or otherwise, or unsecured, for
money borrowed, or in payment for property purchased, or acquired, or for any
other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidences of the indebtedness created by,
any other corporation or corporations of the State of Nevada, or any other
state or government, and, while owners of such stock, bonds, securities or
evidences of indebtedness, to exercise all the rights, powers and privileges of
ownership, including the right to vote, if any.
3
<PAGE> 4
(M) Shall have power to purchase, hold, sell and transfer shares of
its own capital stock and use therefor its capital, capital surplus, surplus,
or other property or fund.
(N) Shall have power to conduct business, have one or more offices,
and hold, purchase mortgage and convey real and personal property in the State
of Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and foreign
countries.
(O) Shall have power to do all and everything necessary and proper
for the accomplishment of the objects enumerated in its certificate or articles
of incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation, and, in general to carry on any
lawful business necessary or incidental to the attainment of the objects of the
corporation, whether or not such business is similar in nature to the objects
set forth in the certificate or articles of incorporation of the corporation,
or any amendment thereof.
(P) Shall have power to make donations for the public welfare or for
charitable scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited,
or joint ventures in connection with any lawful activities.
FOURTH. The aggregate number of shares the corporation shall have
authority to issue shall be TWENTY FIVE MILLION (25,000,000) shares of common
stock, par value one mil ($.001) per
4
<PAGE> 5
share, each share of common stock having equal rights and preferences, voting
privileges and preferences.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the By-Laws of this
Corporation, providing that the number of directors shall not be reduced to
fewer than one (1).
The name and post office address of the first Board of Directors
shall be one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
Stanley K. Stilwell 7604 Delaware Bay Drive
Las Vegas, Nevada 89128
SIXTH. The capital stock, after the amount of the subscription price, or
par value, has been paid in, shall not be subject to assessment to pay the
debts of the corporation.
SEVENTH. The name and post office address of the Incorporator signing the
Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
Stanley K. Stilwell 7604 Delaware Bay Drive
Las Vegas, Nevada 89128
EIGHT. The resident agent for this corporation shall be:
STANLEY K. STILWELL
5
<PAGE> 6
The address of said agent, and the registered or statutory address of this
corporation in the state of Nevada shall be:
7604 Delaware Bay Drive
Las Vegas, Nevada 89128
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to the By-Laws, if any, adopted by the Stockholders, to make,
alter or amend the By-Laws of the Corporation.
To fix the amount to be reserved a working capital over and above its
capital stock paid in; to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one
(1) or more committees, each committee to consist of one or more of the
Directors of the Corporation, which, to the extent provided in the resolution,
or in the By-Laws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation. Such committee, or committees shall have such name, or names as
may be stated in the By-Laws of the Corporation, or as may be determined from
time to time by resolution adopted by the Board of Directors.
6
<PAGE> 7
When and as authorized by the affirmative vote of the Stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a Stockholders meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock
issued and outstanding, the Board of Directors shall have power and authority
at any meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions as its Board of Directors deems expedient and for the best
interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided however, that the foregoing provision shall
not eliminate or limit the liability or a director or officer (i) for
7
<PAGE> 8
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law, or (ii) the payment of dividends in violation of Section
78.300 of the Nevada Revised Statutes. Any repeal or modification of this
Article by the stockholders of the Corporation shall be prospective only and
shall not adversely affect any limitation on the personal liability of a
director or officer of the Corporation for acts of omissions prior to such
repeal or modification.
THIRTEENTH. This Corporation reserves the right to amend, alter, change
or repeal any provision contained in the Articles of Incorporation, in the
manner now or hereafter prescribed by statute, or by the Articles of
Incorporation, and all rights conferred upon Stockholders herein are granted
subject to this reservation.
8
<PAGE> 9
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 5th day of January, 1996.
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JAN 08 1996 /s/ STANLEY K. STILWELL
---------------------------------------
No. 346-96 Stanley K. Stilwell
/S/ DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
STATE OF NEVADA )
: ss.
COUNTY OF CLARK )
On this the 5th day of January, 1996, in Las Vegas, Nevada before me,
the undersigned, a Notary Public in and for Las Vegas, State of Nevada
personally appeared Stanley K. Stilwell, known to me to be the person whose
name is subscribed to the foregoing document and acknowledged to me that he
executed the same.
[SEAL] JAMES BOLANDER
Notary Public - Nevada /s/ JAMES BOLANDER
Clark County ---------------------------------------
My appt. exp. May 10, 1998 Notary Public
I, Stanley K. Stilwell, hereby accept as Resident Agent for the previously
named Corporation.
1-5-96 /s/ STANLEY K. STILWELL
- ------ ---------------------------------------
Date Stanley K. Stilwell
9
<PAGE> 10
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SALUTATIONS, INC.
Salutations, Inc., a corporation duly organized and existing under the
laws of the State of Nevada, by its President and its Secretary, does here
certify as follows:
FIRST: The name of this corporation is Salutations, Inc. (the
"Corporation").
SECOND: Article First of the Corporation's Articles of Incorporation is
amended to read in its entirety as follows:
First: The name of the corporation is International Trading &
Manufacturing Corporation.
Article Fourth of the Corporation's Articles of Incorporation is
amended by adding the following paragraph to the currently
existing provisions of said Article Fourth:
FORWARD SPLIT: Effective July 15, 1997, the common shares of the
corporation were forward split on a 2.5 for one basis. The split
pertains to every person or entity having a direct, indirect or
beneficial interest in common shares on said date and the shares
applicable to such persons and entities. The split does not
change the number of common shares authorized which shall remain
at 25,000,000 shares of Common Stock, $.001 par value per share.
The split shall be implemented by shareholders forwarding
certificates evidencing common shares issued prior to July 15,
1997, to the transfer agent, which agent shall then issue new
certificates evidencing post-split shares which shall be 2.5
times the total of the pre-split number. Fractional shares shall
be rounded up to the nearest whole share. Certificates issued
prior to July 15, 1997, that are not forwarded to the transfer
agent as explained shall be deemed to represent post-split shares
in the amount of 2.5 times the number represented on such
certificates.
THIRD: The above described amendments were approved pursuant a
resolution of the Board of Directors, which resolution called for
a special meeting of the shareholders of the corporation to be
held in order for the shareholders to consider and vote upon the
proposed amendments.
A special meeting of the shareholders of the Corporation was held
on July 15, 1997, pursuant to written notice sent to all
shareholders entitled to vote at the meeting, which notice
described the amendments to the Articles of Incorporation set
forth herein. The number of shares outstanding and entitled to
vote at the meeting totaled
1
<PAGE> 11
406,500. The number of shares represented at the meeting either
in person or by proxy totaled 256,000 which represents
approximately 63% of the shares entitled to vote at the meeting.
The number of shares voting in favor of the amendments totaled
256,000 with zero shares voting against and zero shares
abstaining.
IN WITNESS WHEREOF, the said Corporation, has caused its corporate name
to be subscribed by its President and by its Secretary, who hereby verify that
the statements contained in the foregoing Certificate of Amendment are true and
correct to the best of their knowledge and belief this 15th day of July, 1997.
SALUTATIONS, INC.
(Now know as International Trading
& Manufacturing Corporation by
virtue of this Certificate of
Amendment.)
/s/ GERALD R. EDICK
------------------------------------
Gerald R. Edick, President
/s/ GERALD R. EDICK
------------------------------------
Gerald R. Edick, Secretary
This instrument was acknowledged before me on July 15, 1997, by Gerald
R. Edick as the President and Gerald R. Edick as the Secretary of Salutations,
Inc.
[SEAL] /s/ ROBINSON RANIER
------------------------------------
Notary Public
2
<PAGE> 12
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
CERTIFICATE OF AMENDMENT OF
OCTOBER 12, 1999 ARTICLES OF INCORPORATION OF
No. C346-96 INTERNATIONAL TRADING & MANUFACTURING CORPORATION,
--------- A NEVADA CORPORATION
/s/ DEAN HELLER
DEAN HELLER,
SECRETARY OF STATE
International Trading & Manufacturing Corporation, a corporation
organized under the General Corporation Law of the State of Nevada (the
"Corporation"), does hereby certify:
FIRST: The Corporation has received payment for its capital stock.
SECOND: The amendment to the Corporation's Articles of Incorporation
set forth in the following resolution was approved by a majority of the
Corporation's Board of Directors and was duly adopted in accordance with
the provisions of Section 78.385 (d) of the General Corporation Law of
Nevada; and, further, was approved by the shareholders of the Corporation
pursuant to Section 78.320 of the General Corporation Law of the State of
Nevada.
RESOLVED, that the Certificate of Incorporation of the Corporation
be amended by striking Article FIRST in its entirety and replacing
therefor: 'FIRST: The name of this corporation is GENIUS PRODUCTS, INC.'
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed and attested by its duly authorized officer.
Dated: August 17, 1999
--
/s/ GERALD EDICK
-----------------------
By:
Its: PRESIDENT
___________________________________________________________________________
ATTEST:
/s/ [SIGNATURE ILLEGIBLE]
-------------------------
By:
Its: Secretary
<PAGE> 13
STATE OF NEVADA
Secretary of State
I hereby certify that this is a true and complete copy of the document as filed
in this office.
OCT 13, '99
/s/ DEAN HELLER
DEAN HELLER
Secretary of State
By /s/ [SIGNATURE ILLEGIBLE]
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
SALUTATIONS, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation shall
be located in the City of Las Vegas, Nevada, Clark County, State of Nevada.
SECTION 2. OTHER OFFICES. In addition to the principal office at 601 S.
Rancho Drive, Suite D-32, Las Vegas, Nevada 89106, other offices may also be
maintained at such other place or places, either within or without the State of
Nevada, as may be designated from time to time by the Board of Directors, where
any and all business of the Corporation may be transacted, and where meetings of
the stockholders and of the Directors may be held with the same effect as
though done or held at said principal office.
ARTICLE II
MEETING OF THE STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholder,
commencing with the year 1996, shall be held at the registered office of the
corporation, or at such other place as may be specified or fixed in the notice
of said meetings in the month of or the month preceding the due date of the
annual list of the officers and directors of the corporation at such time as
the shareholders shall decide, for the election of directors and for the
transaction of such other business as may properly come before said meeting.
SECTION 2. NOTICE OF ANNUAL MEETING. The Secretary shall mail, in the
manner provided in Section 5 of Article II of these Bylaws, or deliver a
written or printed notice of each annual meeting to each stockholder of record,
entitled to vote thereat, or may notify by telegram, at least ten and not more
than sixty (60) days before the date of such meeting.
SECTION 3. PLACE OF MEETINGS. The Board of Directors may designate any
place either within or without the State of Nevada as the place of meeting for
annual meeting or for any special
<PAGE> 2
meeting called by the Board of Directors. A waiver of notice signed by all
stockholders may designate any place either within or without the State of
Nevada, as the place for holding of such meeting. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be the
principal office of Corporation in the State of Nevada, except as otherwise
provided in Section 6, Article II of these Bylaws, entitled "Meeting of All
Stockholders."
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place as shall
be specified or fixed in a notice hereof. Such meetings of the stockholders may
be called at any time by the President or Secretary, or by a majority of the
Board of Directors then in office, and shall be called by the President with or
without Board approval on the written request of the holders of record of at
least fifty percent (50%) of the number of shares of the Corporation then
outstanding and entitled to vote, which written request shall state the object
of such meeting.
SECTION 5. NOTICE OF MEETING. Written or printed notice stating the place,
day and hour of the meeting and, in case of special meeting, the purpose for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the President or the Secretary to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his/her address as it appears on the records of
the Corporation, with postage prepaid.
Any stockholder may at any time, by duly signed statement in writing to
that effect, waive any statutory or other notice of any meeting, whether such
statement be signed before or after such meeting.
SECTION 6. MEETING OF ALL STOCKHOLDERS. If all the stockholders shall meet
at any time and place, either within or without the State of Nevada, and
consent to the holding of the meeting at such time and place, such meeting
shall be valid without call or notice and at such meeting any corporate action
may be taken.
SECTION 7. QUORUM. At all stockholder's meetings, the presence in person
or by proxy of the holders of a majority of the outstanding stock entitled to
vote shall be necessary to constitute a quorum for the transaction of business,
but a lesser number may adjourn to some future time not less than seven
<PAGE> 3
(7) nor more than twenty-one (21) days later, and the Secretary shall thereupon
give at least three (3) days' notice by mail to each stockholders entitled to
vote who is absent from such meeting.
SECTION 8. MODE OF VOTING. At all meetings of the stockholders the voting
may be voice vote, but any qualified voter may demand a stock vote whereupon
such stock vote shall be taken by ballot, each of which shall state the name of
the stockholder voting and the number of shares voted by him/her and, if such
ballot be cast by proxy, it shall also state the name of such proxy; provided,
however, that the mode of voting prescribed by statute for any particular case
shall be in such case followed.
SECTION 9. PROXIES. At any meeting of the stockholders, any stockholder
may be represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event any such instrument in writing shall designate two or
more persons to act as proxies, a majority of such persons present at the
meeting, or if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six (6) months from the date of
its execution, unless coupled with an interest, or unless the person executing
it specified therein the length of time for which it is to continue in force,
which in no case shall exceed seven (7) years from the date of its execution.
Subject to the above, any proxy duly executed is not revoked and continues in
full force and effect until any instrument revoking it or duly executed proxy
bearing a later date is filed with the Secretary of the Corporation. At no time
shall any proxy be valid which shall be filed less than ten (10) hours before
the commencement of the meeting.
SECTION 10. VOTING LISTS. The officer or agent in charge of the transfer
books for shares of the corporation shall make, at least three (3) days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order with the number of shares
held by each, which list for a period of two (2) days prior to such meeting
shall be kept on file at the registered office of the corporation and shall be
subject to inspection by any stockholder at any time during the whole time of
the meeting. The original share ledger or transfer book, or duplicate thereof,
kept in this state, shall be prima facie evidence as to who are the
stockholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of stockholders.
<PAGE> 4
SECTION II. CLOSING TRANSFER BOOKS OR FIXING OR RECORD DATE. For the
purpose of determining stockholders entitled to notice or to vote for any
meeting of stockholders, the Board of Directors of the Corporation may provide
that the stock transfer books be closed for a stated period but not to exceed in
any case sixty (60) days before such determination. If the stock transfer books
be closed for the purpose of determining stockholders entitled to notice of a
meeting of stockholders, such books shall be closed for at least fifteen (15)
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date in any case to be not
more than sixty (60) days, not less than ten (10) days prior to the date on
which the particular action, requiring such determination of stockholders, is to
be taken. If the stock transfer books are not closed and no record date is fixed
for determination of stockholders entitled to notice of meeting of stockholders,
or stockholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record of date for such determinations of shareholders.
SECTION 12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the Bylaws of such corporation by prescribe, or in absence of
such provisions, the Board of Directors of such corporation may determine.
Shares standing in the name of decreased person may be voted by his/her
administrator or executor, either in person or by proxy. Shares standing in the
name of the guardian, conservator or trustee may be voted by such fiduciary
either in person or by proxy, but no guardian, conservator, or trustee shall be
entitled, as such fiduciary, to vote shares held by him without a transfer of
such shares into his/her name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court at which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
<PAGE> 5
Shares of its' own stock belonging to this corporation shall not voted
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any time, but shares of its own stock
held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 13. INFORMAL ACTION BY STOCKHOLDERS. Any action is required to be
taken at a meeting of the stockholders or any other action which may be taken
at a meeting of the stockholders except the election of directors may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the stockholders entitled to vote with respect to the
subject matter thereof.
SECTION 14. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one (1) vote upon each matter submitted to vote at a
meeting of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The Board of Directors shall have the control
and general management of the affairs and business of the Corporation. Such
directors shall in all cases act as Board, regularly convened, by a majority,
and they may adopt such rules and regulations for the conduct of their meetings
and the management of the Corporation, as they may deem proper, not
inconsistent with these Bylaws, Articles of Incorporation and the laws of the
State of Nevada. The Board of Directors shall further have the right to
delegate certain other powers to the Executive Committee as provided in these
Bylaws.
SECTION 2. NUMBER OF DIRECTORS. The affairs and business of this
Corporation shall be managed by a Board of Directors consisting of not less
than one (1) or more than seven (7), until changed by amendment to these Bylaws
adopted by the shareholders amending this Section 2, Article III, and except as
authorized by the Nevada Revised Statutes, there shall in no event be less than
one (1) Director.
SECTION 3. ELECTION. The Directors of the Corporation shall be elected at
the annual meeting of the stockholders except as hereinafter otherwise provided
for the filling of vacancies. Each
<PAGE> 6
Director shall hold office for a term of one (1) year and until his successor
shall have duly chosen and shall have qualified, or until his death, or until he
shall resign or shall have been removed in the manner hereinafter provided.
SECTION 4. VACANCIES IN THE BOARD. Any vacancy in the Board of Directors
occurring during the year through death, resignation, removal or other cause,
including vacancies caused by an increase in the number of directors, shall be
filled for the unexpired portion they constitute a quorum, at any special
meeting of the Board called for that purpose, or at any regular meeting thereof;
provided, however, that in the event the remaining directors do not represent a
quorum of the number set forth in Section 2 hereof, a majority of such remaining
directors may elect directors to fill any vacancies.
SECTION 5. DIRECTORS MEETINGS. Annual meeting of the Board of Directors
shall be held each year immediately following the annual meeting of the
stockholders. Other regular meetings of the Board of Directors shall from time
to time by resolution be prescribed. No further notice of such annual or regular
meeting of the Board of Directors need be given.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the President or any Director. The person or
persons authorized to call meetings of the Board of Directors may fix any place,
either within or without the State of Nevada, as the place for holding any
special meeting of the Board of Directors called by them.
SECTION 7. NOTICE. Notice of any special meeting shall be given at least
twenty-four (24) hours previous thereto by written notice if personally
delivered, or five (5) days previous thereto if mailed to each Director at his
business address, or by telegram. If mailed, such notice shall be deemed to have
been delivered when deposited in the United States mail so addressed with
postage thereon prepaid. If notice is given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the telegraph company.
Any Director may waive notice of any meeting. The attendance of a Director at
any meeting shall constitute a waive of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
<PAGE> 7
SECTION 8. CHAIRMAN. At all meetings of the Board of Directors, the
President shall serve as Chairman, or in the absence of the President, the
Directors present shall choose by majority vote a Director to preside as
Chairman.
SECTION 9. QUORUM AND MANNER OF ACTING. A majority of Directors, whose
number is designated in Section 2 herein, shall constitute a quorum for the
transaction of business at any meeting and the act of a majority of the
Directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors. In the absence of a quorum, the majority of the
Directors present may adjourn any meeting from time to time until a quorum be
had. Notice of any adjourned meeting need not be given. The directors shall act
only as a Board and the individual Directors shall have no power as such.
SECTION 10. REMOVAL OF DIRECTORS. Any one or more of the Directors may
be removed either with or without cause at any time by the vote or written
consent of the stockholders representing not less than two-thirds (2/3) of the
issued and outstanding capital stock entitled to voting power.
SECTION 11. VOTING. At all meetings of the Board of Directors, each
Director is to have one (1) vote, irrespective of the number of shares of stock
that he may hold.
SECTION 12. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any of attendance of each meeting of
the Board, and may be paid a fixed sum for attendance at meetings or a stated
salary of Directors. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 13. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any
corporate matter is taken, shall be conclusively presumed to have assented to
the action unless his/her dissent shall be entered in the minutes of the meeting
or unless he/she shall file his/her written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall file forward such dissent by certified or registered mail to the Secretary
of the Corporation immediately after the adjournment of the meeting. Such right
to dissent shall not apply to a Director who voted in favor of such action.
<PAGE> 8
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. NUMBER AND ELECTION. The Board of Directors may, in its'
discretion, appoint from it's membership an Executive Committee of one (1) or
more Directors, each to serve at the pleasure of the Board of Directors.
SECTION 2. AUTHORITY. The Executive Committee is authorized to take any
action which the Board of Directors could take, except that the Executive
Committee shall not have the power either to issue or authorize the issuance of
shares of capital stock, to amend the Bylaws, or a resolution of the Board of
Directors. Any authorized action taken by the Executive Committee shall be as
effective as if it had been taken by the full Board of Directors.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Executive Committee
may be held within or without the State of Nevada at such time and place as the
Executive Committee may provide from time to time.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Executive Committee
may be called by or at the request of the President or any member of the
Executive Committee.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
one (1) day previous thereto by written notice, telephone, telegram or in
person. Neither the business to be transacted, nor the purpose of a regular or
special meeting of the Executive Committee need be specified in the notice of
waiver of notice of such meeting. A member may waive notice of any meeting of
the Executive Committee. The attendance of a member at any meeting shall
constitute a waiver of notice of such meeting, except where a member attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 6. QUORUM. A majority of the members of the Executive
Committee shall constitute a quorum for the transaction of business at any
meeting of the Executive Committee; provided that if fewer than a majority of
the members are present at said meeting a majority of the members present may
adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the members
present at a meeting at which a quorum is present shall be the act of the
Executive Committee, and said Committee
<PAGE> 9
shall keep regular minutes of it's proceedings which shall at all times be open
for inspection by the Board of Directors.
SECTION 8. PRESUMPTION OF ASSENT. A member of the Executive Committee who
is present at a meeting of the Executive Committee at which action on any
corporate matter is taken, shall be conclusively presumed to have assented to
the action taken unless his/her dissent shall be entered in the minutes of the
meeting or unless he/she shall file his written dissent to such action with the
person acting as Secretary of the meeting before the adjournment hereof, or
shall forward such dissent by certified or registered mail to the Secretary of
the Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a member of the Executive Committee who voted in
favor of such action.
ARTICLE V
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a President,
Vice President, a Treasurer and a Secretary and such other or subordinate
officers as the Board of Directors may from time to time elect. One (1) person
may hold the office and perform the duties of one or more of said officers. No
officer need to a member of the Board of Directors.
SECTION 2. ELECTION, TERM OF OFFICE, QUALIFICATIONS. The officers of the
Corporation shall be chosen by the Board of Directors and they shall be elected
annually at the meeting of the Board of Directors held immediately after each
annual meeting of the stockholders except as hereinafter otherwise provided for
filling vacancies. Each officer shall hold his/her office until his/her
successor has been duly chosen and has qualified, or until his/her death, or
until he/she resigns or has been removed in the manner hereinafter provided.
SECTION 3. REMOVALS. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors at any time whenever in
its' judgment the best interests of the Corporation would be served thereby, and
such removal shall be without prejudice to the contract rights, if any, or the
person so removed.
SECTION 4. VACANCIES. All vacancies in any of office shall be filled by the
Board of Directors without undue delay, at any regular meeting, or at a meeting
specially called for that purpose.
<PAGE> 10
SECTION 5. PRESIDENT. The president shall be the Chief Executive Officer
of the Corporation and shall have general supervision over the business of the
Corporation and over its' several officers, subject, however, to the control of
the Board of Directors. He/she may sign, with the Treasurer or with the
Secretary or any other proper officer of the Corporation thereunto authorized by
the Board of Directors, certificates for shares of the capital stock of the
Corporation; may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments authorized by the Board of
Directors, except in cases where signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation; and in general shall perform all duties
incident to the duties of the President, and such other duties as from time to
time may be assigned to him/her by the Board of Directors.
SECTION 6. VICE PRESIDENT. The Vice President shall in the absence or
incapacity of the President, or as ordered by the Board of Directors, perform
the duties of the President, or such other duties or functions as may be given
to him by the Board of Directors from time to time.
SECTION 7. TREASURER. The Treasurer shall have the care and custody of
all the funds and securities of the funds and securities of the Corporation and
deposit the same in the name of the Corporation in such bank or trust company as
the Board of Directors may designate; he may sign or countersign all checks,
drafts and orders for the payment of money and may pay out and dispose of same
under the direction of the Board of Directors, and may sign or countersign all
notes or other obligations of indebtedness of the Corporation; he/she; may sign
with the President or Vice President, certificates for shares of stock of the
Corporation; he/she shall at all reasonable times exhibit the books and accounts
to any director or stockholder of the Corporation under application at the
office of the Company during business hours; and he/she shall, in general,
perform all duties as from time to time may be assigned to him/her by the
President or by the Board of Directors. The Board of Directors may at its
discretion require that each officer authorized to disburse the funds of the
Corporation be bonded in such amount as it may deem adequate.
SECTION 8. SECRETARY. The Secretary shall keep the minutes of the
meetings of the Board of Directors and also the minutes of the meetings of the
stockholders; he/she shall attend to the giving and serving of all notices of
the Corporation and shall affix the seal of Corporation to all certificates of
stock, when signed and countersigned by the duly authorized officers; he/she may
sign
<PAGE> 11
certificates for shares of stock of the Corporation; he/she may sign or
countersign all checks, drafts and orders for the payment of money; he/she
shall have charge of the certificate book and such other books and papers as
the Board may direct; he/she shall keep a stock book containing the names
alphabetically arranged, of all persons who are stockholders of the
Corporation, showing their places of residence, the number of shares held by
them respectively, the time when they respectively became the owners thereof,
and the amounts paid thereof; and he/she shall in general, perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him/her by the President or by the Board of Directors.
SECTION 9. OTHER OFFICERS. The Board of Directors may authorize and
empower other persons or other officers appointed by it to perform the duties
and functions of the officers specifically designated above by special
resolution in each case.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers shall respectively, as may be required by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine. The Assistant
Secretaries as thereunto authorized by the Board of Directors may sign with the
President or Vice President certificates for shares of the capital stock of the
Corporation, issued of which shall have been authorized by resolution of the
Board of Directors. The Assistant Treasurers and Assistant Secretaries shall,
in general, perform such duties as may be assigned to them by the Treasurer or
the Secretary respectively, or by the President or by the Board of Directors.
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Except as hereinafter stated otherwise, the Corporation shall indemnify
all of its' officers and directors, past, present and future, against any and
all expenses incurred by them, and each of them including but not limited to
legal fees, judgments and penalties which may be incurred, rendered or levied
in any legal action brought against any or all of them for or on account of any
act or omission alleged to have been committed while acting within the scope of
their duties as officers or directors of this Corporation.
<PAGE> 12
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors or approved by loan committee appointed by
the Board of Directors and charged with the duty of supervising investments.
Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. A check, draft or other orders for
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers, agent or agents
of the Corporation and in such manner as shall from time to time be determined
by resolutions of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
ARTICLE VIII
CAPITAL STOCK
SECTION 1. CERTIFICATE FOR SHARES. Certificates for shares of stocks of
the Corporation shall be in such form as shall be approved by the incorporators
or by the Board of Directors. The certificates shall be numbered in the order
of their issue, shall be signed by the President or Vice President and by the
Secretary or the Treasurer, or by such other person or officer as may be
designed by the Board of Directors; and the seal of the Corporation shall be
affixed thereto, which said signatures of the duly designated officers and of
the seal of the Corporation. Every certificate authenticated by a facsimile of
such signatures and seal must be countersigned by a Transfer Agent to be
appointed by the Board of Directors, before issuance.
<PAGE> 13
SECTION 2. TRANSFER OF STOCK. Shares of the stock of the Corporation may
be transferred by the delivery of the certificate accompanied either by an
assignment in writing on the back of the certificate or by written power of
attorney to sell, assign, and transfer the same on the books of the Corporation,
signed by the person appearing by the certificate to the owner of the shares
represented thereby, together with all necessary federal and state transfer tax
stamps affixed and shall be transferable on the books of the Corporation upon
surrender thereof so signed or endorsed. The person registered on the books of
the Corporation as the owner of any shares of stock shall be entitled to all
rights of ownership with respect to such shares.
SECTION 3. REGULATIONS. The Board of Directors may make such rules and
regulations as it may deem expedient not inconsistent with the Bylaws or with
the Articles of Incorporation, concerning the issue, transfer and registration
of the certificates for shares of stock of the Corporation. It may appoint a
transfer agent or registrar of transfers, or both, and it may require all
certificates to bear the signature of either or both.
SECTION 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issue thereof, require the owner of such
lost or destroyed certificate or certificates, or his/her legal representative,
to advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
ARTICLE IX
DIVIDENDS
SECTION 1. The Corporation shall be entitled to treat the holder of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by the laws of Nevada.
<PAGE> 14
SECTION 2. Dividends on the capital stock of the Corporation, subject to
the provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
SECTION 3. The Board of Directors may close the transfer books in its
discretion for a period not exceeding fifteen (15) days preceding the date fixed
for holding any meeting, annual or special of the stockholders, or the day
appointed for the payment of a dividend.
SECTION 4. Before payment of any dividend or making any distribution of
profits, there may be set aside out of funds of the Corporation available for
dividends, such sum or sums as the Directors may from time to time, in their
absolute discretion think proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any such other purpose as the Directors shall think
conducive to the interest of the Corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
SEAL
The Board of Directors shall provide a Corporate Seal which shall be in
the form of a circle and shall bear the full name of the Corporation, the year
of its' incorporation and the words "Corporate Seal, State of Nevada".
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of December
of each year.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these Bylaws, or under the laws of the State of Nevada, or under the
provisions of the Articles of Incorporation, a waiver in writing signed by the
person or persons entitled to such notice, whether before or after the time
state therein, shall be deemed equivalent to the giving of such notice.
<PAGE> 15
ARTICLE XIII
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted at any regular or special meeting of the stockholders by a vote of the
stockholders owning a majority of the shares and entitled to vote thereat.
These Bylaws may be altered, amended or repealed and new Bylaws may be adopted
at any regular or special meeting of the Board of Directors of the Corporation
(if notice of such alteration or repeal be contained in the notice of such
special meeting) by a majority vote of the Directors present at the meeting at
which a quorum is present, but any such amendment shall not be inconsistent
with or contrary to the provision of any amendment adopted by the stockholders.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, being the Secretary
of SALUTATIONS, INC., a Nevada corporation hereby acknowledges that the above
and foregoing Bylaws were duly adopted as the Bylaws of said Corporation on
June 5th, 1996.
IN WITNESS WHEREOF, I hereunto subscribe my name this 5th day of June,
1996.
/s/ STANLEY K. STILWELL
- -------------------------------------
STANLEY K. STILWELL, PRES/SEC/TREAS &
DIRECTOR
<PAGE> 16
INTERNATIONAL TRADING AND MANUFACTURING CORPORATION
Amendment to Bylaws
By resolution of the Board of Directors dated September 30, 1999, pursuant to
Article XIII of the Company's Bylaws, Sections 5 and 6 of Article V of the
Bylaws are hereby amended and restated by substituting therefor the following
provisions:
SECTION 5. CHIEF EXECUTIVE OFFICER; PRESIDENT. The Chief Executive
Officer of the Corporation shall have general supervision over the
business of the Corporation and over its several officers, subject,
however, to the control of the Board of Directors. The President of the
Corporation shall have general supervision over the business of the
Corporation and over its several officers other than the Chief Executive
Officer, subject, however, to the control of the Board of Directors. The
Chief Executive Officer and/or the President may sign, with the
Treasurer, Controller, or with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the capital stock of the
Corporation; may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instrument authorized by the Board
of Directors, except in cases where signing and execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the Corporation; and in general shall
perform all duties incident to the duties of the President, and such
other duties as from time to time may be assigned to him/her by the
Board of Directors.
SECTION 6. EXECUTIVE VICE PRESIDENT. The Executive Vice President shall
in the absence or incapacity of the Chief Executive Officer and the
President, or as ordered by the Board of Directors, perform the duties
of the Chief Executive Officer and the President, or such other duties
or functions as may be given to him by the Board of Directors from time
to time.
<PAGE> 1
Exhibit 4.1
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT ("Agreement") is made and entered in duplicate
effective the 31st day of March, 1999 ("Effective Date"), by and among
International Trading & Manufacturing Corporation, a Nevada corporation
("Company"), and Minnesota Communications Group, a Minnesota non profit
corporation ("Purchaser"). The Company and the Purchaser may hereinafter, also,
be referred to, individually, as a "party" and, collectively, as the "parties."
RECITALS
A. The Company is a corporation duly organized pursuant to the laws of the
State of Nevada.
B. The Purchaser is a non profit corporation duly organized pursuant to
the laws of the State of Minnesota.
C. The Company desires to receive funds to enable the Company to develop,
promote, market, sell, distribute and otherwise exploit the Company's Genius,
Baby Genius, Little Genius, Kid Genius and Child Genius music products and
services (collectively, the "Genius Business").
D. The Company desires that the Purchaser undertake and agree to provide
funds to the Company, during the two (2) year period commencing on the
Effective Date, in accordance with the terms of this Agreement, which the
Company shall use solely for the purpose of developing, promoting, marketing,
selling, distributing and otherwise exploiting the Genius Business.
E. As a result, to accomplish such funding, the Company desires to sell,
issue, deliver and set over to the Purchaser, and the Purchaser desires to
purchase from the Company during that two (2) year period, up to one million
(1,000,000) "restricted" (as that term is defined by the provisions of Rule 144
promulgated pursuant to the provisions of the Security Act of 1933, as amended
("Act")) shares of the Company's $.001 par value common stock (the "Common
Stock"), to provide the funds to the Company necessary and appropriate to
enable the Company to develop, produce, promote, market, sell, distribute and
otherwise exploit the Genius Business. A copy of that Rule 144 has been made
available to the Purchaser and the provisions of which, by this reference, are
made a part of this Agreement as though specified completely and specifically
verbatim in this Agreement.
F. The Company also desires to grant to the Purchaser the option to
purchase an additional five hundred thousand (500,000) "restricted" shares of
Common Stock (hereinafter also referred to as the "Subject Shares") on the
terms set forth herein.
<PAGE> 2
G. Concurrently herewith, the Company has entered into a License
Agreement with the Purchaser providing, among other things, for a license and
certain services (the "MCG Agreement") in the form attached hereto as Exhibit
"A."
H. Concurrently herewith, the Company has entered into a License
Agreement with Minnesota Public Radio, a Minnesota non profit corporation,
providing for, among other things, a license and certain services (the "MPR
Agreement") in the form attached hereto as Exhibit "B."
I. Concurrently herewith, the principal shareholders of the Company have
entered into a Shareholders Agreement with the Purchaser in the form attached
hereto as Exhibit "C."
J. Concurrently herewith, counsel for the Company has delivered to the
Purchaser its opinion in the form attached hereto as Exhibit "D."
NOW, THEREFORE, IN CONSIDERATION OF THE RECITALS SPECIFIED ABOVE THAT
SHALL BE DEEMED TO BE A SUBSTANTIVE PART OF THIS AGREEMENT, AND THE MUTUAL
COVENANTS, PROMISES, AGREEMENTS, REPRESENTATIONS AND WARRANTIES SPECIFIED IN
THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, WITH THE INTENT TO BE OBLIGATED
LEGALLY AND EQUITABLY, THE PARTIES DO HEREBY COVENANT, PROMISE, AGREE,
REPRESENT AND WARRANT AS FOLLOWS:
1. Incorporation of Recitals. The recitals to this Agreement, by this
reference, are made a part of this Agreement as though specified completely and
specifically verbatim in this Agreement.
2. Funding Commitment and Purchase and Sale of the Subject Shares.
2.1. Purchase and Sale of Subject Shares. Upon the terms and subject
to all of the conditions specified in this Agreement and upon the
performance by the parties of their obligations specified by the provisions
of this Agreement, during that two (2) year period commencing on the
Effective Date, the Company shall issue, sell, set over and deliver to the
Purchaser, and the Purchaser shall purchase from the Company, that number
of its shares of Common Stock (the "Subject Shares") which is determined by
the then funding requirements for the Genius Business, which funding
requirements will be determined by the Company, in its sole discretion.
Notwithstanding the foregoing, in the event the Company determines that it
has additional funding requirements for the Genius Business, the Company
agrees that, unless the Purchaser otherwise consents in writing, it will
make a Funding Request (as defined hereunder) prior to seeking alternative
funding sources.
2.2. Purchase Price. The full, entire and complete purchase price
that shall be paid by the Purchaser to the Company for each Subject Share shall
be One Dollar
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<PAGE> 3
($1.00), appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes effected after the
Effective Date ("Purchase Price").
2.3. Initial Purchase of Subject Shares. On the Effective Date, the
Company shall issue, sell, transfer, convey and set over to the Purchaser, and
the Purchaser shall purchase from the Company, five hundred thousand (500,000)
Subject Shares. As consideration for those five hundred thousand (500,000)
Subject Shares, on that date, the Purchaser shall pay to the Company Five
Hundred Thousand Dollars ($500,000).
2.4. Funding Commitment of the Purchaser. During that two (2) year period
commencing with the Effective Date, the Company will provide to the Purchaser
thirty (30) days written notice of the Company's request for additional funding
(a "Funding Request") and the amount of that funding. Thirty (30) days after
the date such notice is given to the Purchaser (or if such date is not a
business day or is less than forty five (45) days after the last Funding Due
Date, as herein defined, on the first business day following such thirty (30)
day notice or that is forty-five (45) days after the last Funding Due Date, as
the case may be) (the "Funding Due Date"), the Purchaser shall purchase from
the Company, and the Company shall issue, sell, transfer, convey, deliver and
set over to the Purchaser, that number of Subject Shares determined by dividing
the amount of the requested additional funding by One Dollar ($1.00), as
adjusted to reflect stock splits, stock dividends, reorganizations,
consolidations and similar changes effected after the Effective Date. For
example, in the event the Company requires additional funding in the principal
amount of One Hundred Thousand Dollars ($100,000), on the Funding Due Date the
Company shall sell to the Purchaser, and on that date the Purchaser shall
purchase from the Company, one hundred thousand (100,000) shares ($100,000
[divided by sign] $1.00 = 100,000). Any and all funding requested by the
Company pursuant hereto shall be installments of not greater than One Hundred
Thousand Dollars ($100,000) each, and such funding requests shall not be made
more frequently than once each forty-five (45) days. If, by the end of the two
year period, the Company has not requested the full amount of the commitment,
the Purchaser shall, in addition to its rights under Section 2.6, have the
right to purchase shares representing the difference between the funding
requested by the Company and the commitment, as though purchased pursuant to
Section 2.6.
2.5. Limitation on Funding Obligation. Any other provision of this
Agreement notwithstanding, the total funding commitment of the Purchaser to the
Company shall be, and hereby is, limited to One Million Dollars ($1,000,000).
Five Hundred Thousand Dollars ($500,000) of that commitment shall be satisfied
by the Purchaser's purchase of five hundred thousand (500,000) Subject Shares
on the Effective Date of this Agreement. Additionally, any other provision of
this Agreement notwithstanding, the Purchaser's funding commitment pursuant to
the provisions of this Agreement shall be subject to the following conditions:
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<PAGE> 4
(a) No more than one Funding Request shall be made during any
forty five (45) day period;
(b) Purchaser shall have received from the Chief Financial Officer
of the Company a certificate to the following effect:
(i) The representations and warranties of the Company set forth
herein are true and correct as of the Funding Due Date as if made on and
as of such date and the Company is not in violation of any of its
covenants set forth herein;
(ii) The Company has a positive equity of at least $100,000
immediately prior to the Funding Due Date;
(iii) The Company is not in default under any indenture, credit
agreement, security agreement, mortgage, guarantee, promissory note or
other contract relating to the borrowing of money;
(iv) There has been no material adverse change in the business,
results of operations or financial condition of the Company since the last
Funding Request;
(v) The Company has achieved the milestones set forth in Exhibit
"E" which, as contemplated by Exhibit "E," were to be achieved prior to
such Funding Due Date;
(vi) The Company has not issued after the Effective Date any shares
of Common Stock or options, warrants, call, subscriptions, convertible
securities or other rights which obligate the Company to issue, transfer
or sell any shares of Common Stock for a consideration of less than the
Purchase Price;
(vii) The Company's shares of Common Stock, to the extent publicly
traded, have not traded for less than the Purchase Price in the thirty
(30) days preceding such notice of a Funding Request or during the thirty
(30) days between the Funding Request and the Funding Due Date;
(c) The Company shall not be in default under either the MCG Agreement
or the MPR Agreement; and
(d) The Company has secured and continues to maintain a relationship
with a retail partner for the sale of Baby Genius products which is in form and
substance satisfactory to the Purchaser.
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<PAGE> 5
The Purchaser's and the Company's rights under Section 2.4 and this
Section 2.5 will expire on that date which is exactly two (2) years following
the Effective Date.
2.6. In addition to the Purchaser's funding commitment under Section
2.5, the Purchaser shall have the right, but not the obligation, to purchase up
to an additional five hundred thousand (500,000) Subject Shares at the Purchase
Price at any time during the two (2) year period following the Effective Date.
2.7. Delivery of Certificates. As soon as commercially practical,
after Subject Shares are purchased, the Company shall cause to be delivered to
the Purchaser a stock certificate issued by the Company representing those
Subject Shares.
2.8. Segregation and Separation of Funds. All funds received by the
Company from the Purchaser's purchase of the Subject Shares, other than Subject
Shares purchased pursuant to Section 2.6, shall be utilized by the Company
exclusively to fund and develop the Genius Business. The Company shall deposit
those funds into a separate bank account ("Account") and shall segregate those
funds, such that no other funds shall be commingled therewith. Only Michael
Meader, the Company's Chief Operating Officer or his duly appointed successor,
shall be authorized to sign on the Account on behalf of the Company and, at the
request of the Purchaser, the Company will provide the Purchaser with period
reports on its use of funds in the Account. Funds received by the Company from
the Purchaser's purchase of the Subject Shares pursuant to Section 2.6 shall
not be subject to the restrictions of this Section 2.8.
3. Representations and Warranties.
3.1. Representations and Warranties of Company. The Company
represents and warrants to the Purchaser that:
3.1.1. Issue and Sale of Acquired Stock. The Company has the
absolute and unconditional right to issue, sell, deliver and set over
the Subject Shares to the Purchaser in accordance with the provisions of
this Agreement and upon issuance of the Subject Shares in accordance
with this Agreement, the Subject Shares will be validly issued, fully
paid and non-assessable.
3.1.2. Due Organization; Good Standing; Authority of Company.
The Company is a corporation duly organized, validly existing and in
good standing pursuant to the laws of the State of Nevada. The Company
has full and complete right, power, and authority to own its properties
and assets, and to carry on its business as a Nevada corporation. The
Company is duly licensed, classified and authorized to do business as a
foreign corporation, and is in good standing, in each jurisdiction in
which the properties and assets
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<PAGE> 6
owned by it or the nature of the business conducted by it makes such licensing,
qualification and authorization legally necessary.
3.1.3. Validity of Agreement. The Company, and any officer, director or
representative executing this Agreement for and on behalf of the Company, has
the legal capacity and authority to enter into and deliver this Agreement. This
Agreement is a valid and legally binding obligation of the Company and is fully
enforceable against the Company in accordance with its terms.
3.1.4. No Brokerage. The Company has not incurred any obligation or
liability, contingent or otherwise, for brokerage fees, finder's fees, agent's
commissions, or similar compensation in connection with this Agreement or the
transactions contemplated by the provisions of this Agreement.
3.1.5. Governing Documents. The Company has delivered to the Purchaser
true, correct and complete copies of its articles of incorporation and by-laws
and any agreement among its shareholders.
3.1.6. Capital Stock and Ownership. The authorized capital stock of the
Company consists of twenty five million (25,000,000) shares of Common Stock, of
which exactly eight million three hundred thirty four thousand and sixty three
(8,334,063) shares are issued and outstanding on the date hereof (each a
"Previously Issued Share" and together, the "Previously Issued Shares").
Schedule 3.1.6 attached hereto contains a true, correct and complete statement
as of the date hereof of every holder of more than 5% of the capital stock of
the Company. Each Previously Issued Share is fully paid and non-assessable and
no Previously Issued Share was issued in violation of the articles of
incorporation or by-laws of the Company, any provision of law or any pre-emptive
right (or other right) of any shareholder of the Company or any other person. No
pre-emptive right exists with respect to any capital stock of the Company.
Except as set forth on Schedule 3.1.6 attached hereto, the Previously Issued
Shares (on the date hereof) represent each and every equity interest of any
nature in the Company, and no person or entity of any nature holds (or is or
will be entitled to receive), including, without limitation, under any agreement
or trust, any option, warrant, convertible instrument or security, put, call,
contract or commitment of any nature whereby any person or entity has or may
receive any interest in or right to acquire any equity interest of any nature in
the Company. The Company has no subsidiaries and does not own any equity
interest of any nature in any entity.
3.1.7. Financial Statements. True, correct and complete copies of the
audited balance sheets of the Company as of December 31, 1996 and December 31,
1997, and the unaudited balance sheet of the Company as of September 30, 1998,
and its audited statements of operations and retained earnings for each of the
two years ended December 31, 1996 and December 31, 1997 and for the
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<PAGE> 7
nine month period ended September 31, 1998 and any notes thereto (with all of
the foregoing collectively referred to herein as the "Financial Statements")
are attached hereto as Schedule 3.1.7. The Financial Statements are accurate
and complete and fairly present, in accordance with generally accepted
accounting principles ("GAAP"), the financial condition of the Company as of
December 31, 1996, December 31, 1997 and September 30, 1998, and the results of
its operations for each of the periods then ended. Each financial statement
delivered pursuant to Section 4.3 will be accurate, complete and fairly present,
in accordance with GAAP, the financial condition of the Company as of its
respective date. All transactions of the Company have been recorded in the
appropriate financial records and books of account of the Company in accordance
with GAAP and are reflected on the financial statements of the Company.
3.1.8. Tax Returns and Payment of Taxes.
(a) Except as disclosed in Schedule 3.1.8, the Company has properly
prepared and filed all tax returns and reports that it is required to file,
whether Federal, state, local or foreign. All such returns and reports are
correct and complete, and all taxes, interest and penalties of any kind shown
due thereon, or otherwise attributable to any operations, activities or
transactions of the Company, have been paid (or, solely in the case of taxes
that are not payable until after the date hereof, reserved for on the financial
statements and the books of the Company in amounts deemed adequate by the
Company).
(b) No claims are pending, or, to the knowledge of the Company, are
threatened against the Company for taxes, interest or penalties, whether
Federal, state, local or foreign, and no tax examination of the Company is
being conducted by Federal, state, local or foreign agents. No claim has ever
been made by an authority in a jurisdiction where the Company does not file tax
returns that it is, or may be, subject to taxation by that jurisdiction. The
Company has not waived any statute of limitations in respect of taxes or agreed
to an extension of time with respect to the assessment of any tax deficiency.
(c) The Company has not filed any consent under Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company is not, and
has not been at any time, a party to any tax allocation or sharing agreement.
The Company is not, and has not been at any time, a member of an affiliated
group of corporations filing consolidated Federal income tax returns or
consolidated or combined returns under state law.
(d) Except as disclosed on Schedule 3.1.8, the Company has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other third party.
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3.1.9. Absence of Liabilities and Claims, Insurance.
(a) Except for (i) the current liabilities of the Company, determined
in accordance with GAAP and shown on the Financial Statements, (ii) the
liabilities stated as "long-term debt" on the Financial Statements, (iii)
contractual obligations that are not then in default or overdue and (iv) other
liabilities incurred in the ordinary course of business after the date of the
Financial Statements or which were not required to be disclosed in the Financial
Statements in accordance with GAAP, the Company has no material liabilities of
any nature.
(b) No action, suit, proceeding, investigation or claim (including,
without limitation, any assertion of any claim for taxes, interest or penalties)
is pending or, to the Company's knowledge, threatened against or with respect to
the Company or any properties or assets of the Company, nor is there any basis
for any such action, suit, proceeding, investigation or claim.
(c) The Company maintains (and has maintained throughout the
three-year period ending on the date hereof) policies of insurance from
reputable and solvent insurance carriers with respect to all properties, assets
and business activities of the Company against such casualties, risks and
contingencies as are customarily insured against by entities owning similar
properties or assets or engaged in similar business activities.
3.1.10 Operations in Accordance with Law.
(a) The Company has been (and is being) operated, and its products
and services have been (and are being) processed, produced and sold in
compliance with all applicable laws, statutes, rules, regulations, ordinances
and other requirements, whether Federal, state, local or foreign, including,
without limitation, (i) those relating to worker health, welfare or safety, and
(ii) those relating to pollution or protection of the environment or emissions,
discharges or releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment and remediation
thereof;
(b) All licenses, permits and orders required of the Company to
conduct its business and to sell products and services have been obtained and
are in full force and effect; and
(c) The Company has not received (and has no knowledge of) any
notice, order or directive by any court, governmental agency or other authority
to the effect that the Company has violated or has failed to comply with any
law, statute, rule, regulation, ordinance or other requirement.
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3.1.11. Contracts.
(a) The Company is not a party to any contract that restricts its
business or operations in any material respect and the Company has not
breached in any material respect any contract, agreement or instrument
material to it.
(b) Issuance of the Subject Shares to the Purchaser will not cause
any breach of default on the part of the Company with respect to any
contract, agreement or instrument to which it is a party.
3.1.12. Title to Assets; Condition of Assets. The Company has good
title to all properties and assets, which individually or in the aggregate
are material to the Company, free and clear of all liens, charges or
encumbrances other than in connection with indebtedness of the Company
disclosed in the Financial Statements. The Company's properties and assets
are in good repair, working order and condition.
3.1.13. Patents, Trademarks, Royalties. Schedule 3.1.13 attached
hereto includes a true, correct and complete list and summary description
of (a) every mark, trademark, trade name, service name, patent, design,
license, franchise, proprietary know-how or other intellectual property,
whether or not registered, and registered copyrights which the Company
owns, has applied for, has rights under or an interest in or uses in its
business; (b) all royalties, license fees and other remuneration that the
Company is obligated to pay with respect to any such property; and (c) all
royalties, license fees and other remuneration that the Company is
entitled to receive with respect to any such property. The Company is not
(and has not been) infringing on any right of any person with respect to
any such property and has not made use of any work, invention, process,
technique, confidential information or trade secret in violation of any
right of any person where any such infringement or violation or
combination of such infringements or violations, individually or in the
aggregate, would have a material adverse effect on the Company.
3.1.14. Material Adverse Change. Since September 30, 1998, there has
been no material adverse change in the condition (financial or otherwise),
assets, liabilities, commitments or business of the Company.
3.1.15. Employee Benefit Plans. The Company does not have any
retirement plan in which any employees of the Company participate that is
subject to any provisions of the Employee Retirement Income Security Act
of 1974 and of the regulations adopted pursuant thereto ("ERISA").
3.1.16. Employees. To the best of the Company's knowledge, no
employee of the Company is subject to any secrecy or non-competition
agreement or any agreement or restriction of any kind that would impede in
any
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<PAGE> 10
way the ability of such employee to carry out fully all activities of such
employee in furtherance of the business of the Company. To the best of the
Company's knowledge, no employer or former employer of any employee of the
Company has any claim of any kind whatsoever in respect of any of the rights
described in Section 3.1.13 hereof.
3.1.17. Y2K Problems. To the best knowledge of the Company, the Company
has in place all systems and software solutions necessary or appropriate to
address and accommodate Y2K Problems (as hereinafter defined). "Y2K Problems"
means the inability of computer hardware, software or equipment containing
embedded microchips to (a) manage and manipulate data involving all dates from
the twentieth and twenty-first centuries without functional or data abnormality
and without inaccurate results related to such dates; (b) have user interfaces
and data fields formatted to distinguish between dates from the twentieth and
twenty-first centuries; and (c) represent all data in a form that includes
indications of the millennium, century and decade as well as the actual year.
3.1.18. Accuracy of Statements. The Company has not knowingly withheld
from the Purchaser any material facts relating to the assets, business,
operations, financial condition or prospects of the Company. Neither this
Agreement nor the Financial Statements nor any schedule, statement or
instrument furnished in writing to the Purchaser by or on behalf of the Company
in connection with the transactions contemplated hereby contains any statement
of a material fact that is false or misleading, nor is there any omission
therefrom of a material fact that is necessary to make each representation and
warranty of the Company not misleading.
3.2. Representations and Warranties of the Purchaser. The Purchaser represents
and warrants to the Company that:
3.2.1. Purchase of Acquired Stock. The Purchaser has the absolute and
unconditional right to purchase the Subject Shares from the Company, in
accordance with the provisions of this Agreement.
3.2.2. Due Organization; Good Standing; Authority of Purchaser. The
Purchaser is a non profit corporation duly organized, validly existing and in
good standing pursuant to the laws of the State of Minnesota. The Purchaser has
full and complete right, power, and authority to own its properties and assets,
and to carry on its business as a Minnesota non profit corporation.
3.2.3. Validity of Agreement. The Purchaser, and any officer, director or
representative executing this Agreement for and on behalf of the Purchaser,
has the legal capacity and authority to enter into and deliver this Agreement.
This Agreement is a valid and legally binding obligation of the Purchaser and
is fully enforceable against the Purchaser in accordance with its terms, except
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as such enforceability may be limited by general principles of equity,
bankruptcy, insolvency, moratorium and similar laws relating to creditors
rights generally.
3.2.4. No Brokerage. The Purchaser has not incurred any obligation or
liability, contingent or otherwise, for brokerage fees, finder's fees, agents's
commissions, or similar compensation in connection with this Agreement or the
transactions contemplated by the provisions of this Agreement.
3.2.5. The Purchaser's Acquisition Intention. The Subject Shares will be
acquired by the Purchaser (i) for the Purchaser's own account as a principal
and not as a nominee or as an agent; (ii) for investment purposes only; and
(iii) with no contemplation of, or for resale regarding, any distribution or
public offering of all or any portion of the Subject Shares within the meaning
of the Act. The Purchaser has no intention, agreement or arrangement to divide
the Subject Shares, or any of them, with any other person or to resell, assign,
transfer, convey or otherwise dispose of all or any part of the Subject Shares,
unless and until the Purchaser determines, at some future date, changed
circumstances, not in contemplation at the time of the acquisition of the
Subject Shares, make such disposition available.
3.2.6. Exemption from Registration. The Purchaser understands that the
Subject Shares and this Agreement (i) are "securities" as that term is defined
by the provisions of the Act and the Minnesota Uniform Securities Act ("Blue
Sky Law") and (ii) have not been (a) registered pursuant to the provisions of
the Act or (b) qualified or registered pursuant to the requirements of the Blue
Sky Law, by reason of the delivery of such Subject Shares in a transaction
exempt from the (1) registration requirements of the Act pursuant to the
provisions of Section 4(2) of the Act and (2) qualification requirements of the
Blue Sky Law pursuant to the provisions of Section 80A.15, Subd. 2(a) of the
Blue Sky Law and the rules and regulations promulgated pursuant thereto. The
Purchaser also understands that the Subject Shares (i) are "restricted
securities" as that term is defined by the provisions of Rule 144; and (ii)
must be held by the Purchaser indefinitely, unless a subsequent disposition of
the Subject Shares is registered pursuant to the provisions of the Act or is
exempt from such registration.
3.2.7. The Purchaser's Financial and Business Experience. By reason of the
Purchaser's financial and business experience, the Purchaser could be assumed
reasonably to have the capacity to protect the Purchaser's own interests in the
transactions contemplated by the provisions of this Agreement.
3.2.8. Material and Information about the Company. The Purchaser has had
access to such material and information about the Company, the
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Company's financial condition and the Company's business prospects as
the Purchaser has reasonably requested.
3.2.9. No Advertising. The Purchaser has not been furnished
with any advertising or offering literature regarding the acquisition
of the Subject Shares.
3.2.10. Response to Inquiries. The officers and directors of
the Company have answered all inquiries the Purchaser has asked of
such officers and directors concerning the Company and the Company's
proposed activities and all other matters regarding the acquisition of
the Subject Shares.
3.2.11. Evaluation of Risks. The Purchaser has such knowledge
and experience in business and financial matters that the Purchaser is
capable of evaluating the Company and the proposed activities thereof,
the risks and merits of the Subject Shares and of making an informed
decision thereon, and the Purchaser is not utilizing any other person
regarding the evaluation of those risks and merits.
3.2.12. Continued Action Regarding Exemption. The Purchaser
shall take any and all additional action which is necessary or
appropriate to maintain the exemptions from registration and
qualification provided by Section 4(2) of the Act and Section 80A.15,
Subd. 2(a) of the Blue Sky Law and the rules and regulations
promulgated pursuant thereto.
4. Covenants. The Company covenants and agrees (and for purposes of this
Article 4, "Company" shall also refer to any subsidiary of the Company hereafter
formed or acquired) that:
4.1. Corporate Existence. The Company will maintain its corporate
existence in good standing and comply with all applicable laws and
regulations of the United States or of any state or states thereof or of
any political subdivision thereof and of any governmental authority where
failure to so comply would have a material adverse impact on the Company or
its business or operations.
4.2. Books of Account and Reserves. The Company will keep books of
record and account in which full, true and correct entries are made of all
of its dealings, business and affairs, in accordance with GAAP. The Company
will employ certified public accountants selected by the Board of Directors
of the Company who are "independent" within the meaning of the accounting
regulations of the Securities and Exchange Commission (the "Commission"),
and have annual audits made by such independent public accountants in the
course of which such accountants shall make such examinations, in
accordance with generally accepted auditing standards, as will enable them
to give such reports or opinions with respect to the financial statements
of the Company as will satisfy the requirements of the Commission in effect
at such time with respect to certificates and opinions of accountants.
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4.3 Furnishing of Financial Statements and Information. The Company will
deliver to the Purchaser (which may be accomplished through delivery to the
Purchaser's designated representative on the Board of Directors of the Company):
(a) as soon as practicable, but in any event within thirty (30) days
after the close of each month, unaudited consolidated balance sheets of the
Company as of the end of such month, together with the related consolidated
statements of operations and cash flow for such month, setting forth the
budgeted figures for such month prepared and submitted in connection with
the Company's annual plan as required under Section 4.5 hereof and in
comparative form figures for the corresponding month of the previous fiscal
year, all in reasonable detail, subject to year-end adjustments;
(b) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year, a consolidated balance sheet of the
Company, as of the end of such fiscal year, together with the related
consolidated statements of operations, shareholders' equity and cash flow
for such fiscal year, setting forth in comparative form figures for the
previous fiscal year, all in reasonable detail and duly certified by the
Company's independent public accountants, which accountants shall have
given the Company an opinion, unqualified as to the scope of the audit,
regarding such statements;
(c) promptly after the submission thereof to the Company, copies of
all reports and recommendations submitted by independent public accountants
in connection with any annual or interim audit of the accounts of the
Company made by such accountants;
(d) promptly upon transmission thereof, copies of all reports, proxy
statements, registration statements and notifications filed by it with the
Commission pursuant to any act administered by the Commission or furnished
to shareholders of the Company;
(e) with reasonable promptness, such other financial data relating to
the business, affairs and financial condition of the Company as is
available to the Company and as from time to time the Purchaser may
reasonably request;
(f) promptly following the issuance of any Additional Shares of Common
Stock, or any options, warrants or other rights to purchase Additional
Shares of Common Stock, as hereinafter defined, written notice of the
amount of securities so issued and the total consideration received
therefor;
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(g) at least twenty (20) days prior to the earlier of (i) the
execution of any agreement relating to any merger or consolidation of the
Company with another corporation, or a plan of exchange involving the
outstanding capital stock of the Company, or the sale, transfer or other
disposition of all or substantially all of the property, assets or business
of the Company to another corporation, or (ii) the holding of any meeting
of the shareholders of the Company for the purpose of approving such
action, written notice of the terms and conditions of such proposed merger,
consolidation, plan of exchange, sale, transfer or other disposition; and
(h) within fifteen (15) days after the Company learns in writing of
the commencement or threatened commencement of any material suit, legal or
equitable, or of any material administrative, arbitration or other
proceeding against the Company or its businesses, assets or properties,
written notice of the nature and extent of such suit or proceeding.
4.4 Inspection. The Company will permit the Purchaser and any of its
officers or employees, or any outside representatives designated by the
Purchaser and reasonably satisfactory to the Company, to visit and inspect at
the Purchaser's expense any of the properties of the Company, including its
books and records (and to make photocopies thereof or make extracts therefrom),
and to discuss its affairs, finances, and accounts with its officers, lawyers
and accountants, except with respect to trade secrets and similar confidential
information, all to such reasonable extent and at such reasonable times and
intervals as the Purchaser may reasonably request. Except as otherwise required
by laws or regulations applicable to the Purchaser, the Purchaser shall
maintain, and shall require its representatives to maintain, all information
obtained pursuant to Section 4.3 hereof, this Section 4.4 and Section 4.5
hereof on a confidential basis.
4.5 Preparation and Approval of Budgets. At least one month prior to the
beginning of each fiscal year of the Company, the Company shall prepare and
submit to its Board of Directors, for its review and approval, an annual plan
for such year, which shall include monthly capital and operating expense
budgets, cash flow statements and profit and loss projections itemized in such
detail as the Board of Directors may reasonably request. Each annual plan shall
be modified as often as is necessary in the judgment of the Board of Directors
to reflect changes required as a result of operating results and other events
that occur, or may be reasonably expected to occur, during the year covered by
the annual plan, and copies of each such modification shall be submitted to the
Board of Directors.
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4.6 Payment of Taxes and Maintenance of Properties. The Company will:
(a) pay and discharge promptly, or cause to be paid and discharged
promptly when due and payable, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or upon any of its
properties, as well as all material claims of any kind (including claims
for labor, material and supplies) which, if unpaid, might by law become a
lien or charge upon its property; provided, however, that the Company shall
not be required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall currently be contested
in good faith by appropriate proceedings and if the Company shall have set
aside on its books reserves (segregated to the extent required by GAAP)
deemed adequate by it with respect thereto; and
(b) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to
time make, or cause to be made, all repairs and renewals and replacements
which in the opinion of the Company are necessary and proper so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; the Company will maintain or cause
to be maintained back-up copies of all valuable papers and software.
4.7 Insurance. The Company will obtain and maintain in force such property
damage, public liability, business interruption, worker's compensation,
indemnity bonds and other types of insurance as the Company's executive
officers, after consultation with an accredited insurance broker, shall
determine to be necessary or appropriate to protect the Company from the
insurable hazards or risks associated with the conduct of the Company's
business. The Company's executive officers shall periodically report to the
Board of Directors on the status of such insurance coverage.
4.8 Directors' Meetings. The Company agrees, as a general practice, to
hold a meeting of its Board of Directors at least once every quarter.
4.9 Filing of Reports. The Company will as promptly as reasonably
practicable file and use its best effort to cause to become effective a
Registration Statement on Form 10S-B with the Commission pursuant to the
Securities and Exchange Act of 1934, as amended and the rules promulgated
thereunder (the "Exchange Act"). The Company will, from and after such time as
it has securities registered pursuant to Section 12 of the Exchange Act, as
amended, or has securities registered pursuant to the Act, make timely filing of
such reports as are required to be filed by it with the Commission so that Rule
144 under the Act or any successor provision thereto will be available to the
security holders of the Company who are otherwise able to take advantage of the
provisions of such Rule.
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4.10. Patents and Other Intangible Rights. The Company will apply for, or
obtain assignments of, or licenses to use, all patents, trademarks, trademark
rights, trade names, trade name rights and copyrights which in the opinion of a
prudent and experienced businessman operating in the industry in which the
Company is operating are desirable or necessary for the conduct and protection
of the business of the Company.
4.11. Insurance on Lives of Key Personnel. The Company will maintain life
insurance under a policy or policies issued by insurers of recognized standing
in the amounts set forth in Exhibit "F" hereto on the lives of the persons
specified in such Exhibit, to the extent such persons are insurable and so long
as they are employees of the Company. Such policy or policies shall name the
Company as the beneficiary thereunder, and shall be in addition to any policy
or policies maintained by the Company to fund potential stock repurchase
obligations of the Company.
4.12. Rights to Purchase Additional Securities. If the Company should
decide to issue and sell additional shares of any capital stock of the Company
or any warrants, securities convertible into capital stock of the Company or
other rights to subscribe for or to purchase any capital stock of the Company,
other than (a) shares of Common Stock sold to the public pursuant to a
registration statement filed under the Act, if such offering is underwritten on
a firm commitment basis by an underwriter, or group of underwriters represented
by an underwriter or underwriters, which is a member of the New York Stock
Exchange, (b) shares of Common Stock awarded or issued upon the exercise of
options granted pursuant to employee and consultant benefit plans adopted by the
Company, and the grant of such options themselves, provided that the aggregate
number of shares thus awarded and issued and issuable pursuant to the exercise
of all such options shall not be in excess of 5,000,000 (appropriately adjusted
to reflect stock splits, stock dividends, reorganizations, consolidations and
similar changes effected after the Effective Date) or (c) shares of Common Stock
which are issued in satisfaction of an obligation or liability of the Company
and not for cash consideration or which are issued in connection with the
acquisition by the Company of another business (all such capital stock,
warrants, securities convertible into capital stock and other rights, other than
securities referred to in (a), (b) and (c) above, being hereinafter sometimes
collectively referred to as "Additional Securities"), the Company shall first
offer to sell to the Purchaser, upon the same terms and conditions as the
Company is proposing to issue and sell such Additional Securities to others, the
Purchaser's pro rata share of such Additional Securities. Such offer shall be
made by written notice given to the Purchaser and specifying therein the amount
of the Additional Securities being offered, the purchase price and other terms
of such offer. The Purchaser shall have a period of ten (10) days from and after
the date of receipt by it of such notice within which to accept such offer and
shall pay for such Additional Securities within the timeframe contemplated by
the Company for the issuance of such Additional Securities to a third party. If
the Purchaser elects to accept such offer in whole or in part, the Purchaser
shall so accept by written notice to the Company given within such 10-day
period. If
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<PAGE> 17
the Purchaser fails to accept such offer in whole or in part within such
10-day period, any of such Additional Securities not purchased by the Purchaser
pursuant to such offer may be offered for sale to others by the Company for a
period of ninety (90) days from the last day of such 10-day period, but only on
the same terms and conditions as set forth in the initial offer to the
Purchaser, free and clear of the restrictions imposed by this Section 4.12.
4.13 Restrictions. The Company will not without the prior approval of the
Purchaser:
(a) guarantee, endorse or otherwise be or become contingently liable,
or, in connection with the obligations, securities or dividends of any person,
firm, association or corporation, other than the Company, except that the
Company may endorse negotiable instruments for collection in the ordinary course
of business; or
(b) make loans or advances to any person (including without
limitation to any officer, director or shareholder of the Company), firm,
association or corporation, except loans and advances to the Company and
advances to suppliers and employees made in the ordinary course of business; or
(c) purchase or invest, in the stock or obligations of any other
person, firm or corporation;
(d) pay compensation, whether by way of salaries, bonuses,
participations in pension or profit sharing plans, fees under management
contracts or for professional services or fringe benefits to any officer in
excess of amounts fixed by the Board of Directors of the Company prior to any
payment to such officer; or
(e) amend the Company's articles of incorporation or by-laws.
5. Captions and Interpretations. Captions of the articles and sections of
this Agreement are for convenience and reference only, and the words specified
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction, or meaning of the provisions of this Agreement.
The language in all parts to this Agreement, in all cases, shall be construed
in accordance with the fair meaning of that language as if prepared by all
parties and not strictly for or against any party. Each party and counsel for
such party have reviewed this Agreement. The rule of construction, which
requires a court to resolve any ambiguities against the drafting party, shall
not apply in interpreting the provisions of this Agreement.
6. Entire Agreement. This Agreement and the Exhibits and the schedules to
this Agreement are the final written expression and the complete and exclusive
statement of all the agreements, conditions, promises, representations,
warranties and covenants between the
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parties with respect to the subject matter of this Agreement, and this
Agreement supersedes all prior or contemporaneous agreements, negotiations,
representations, warranties, covenants, understandings and discussions by and
between and among the parties, their respective representatives, and any other
person, with respect to the subject matter specified in this Agreement.
7. Choice of Law and Consent to Jurisdiction. This Agreement shall be
deemed to have been entered into in the County of San Diego, State of
California. All questions concerning the validity, interpretation, or
performance of any of the terms, conditions and provisions of this Agreement or
of any of the rights or obligations of the parties shall be governed by, and
resolved in accordance with, the laws of the State of Nevada, without regard to
conflicts of law principles.
8. Waiver and Modification. No modification, supplement or amendment of
this Agreement or of any covenant, condition, or limitation specified in this
Agreement shall be valid unless the same is made in writing and duly executed
by both parties. No waiver of any covenant, condition, or limitation specified
in this Agreement shall be valid unless the same is made in writing and duly
executed by the party making the waiver. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
9. Number and Gender. Whenever the singular number is used in this
Agreement and, when required by the context, the same shall include the plural,
and vice versa, the masculine gender shall include the feminine and the neuter
genders, and vice versa, and the word "person" shall include individual,
company, sole proprietorship, corporation, joint venture, association, joint
stock company, fraternal order, cooperative, league, club, society,
organization, trust, estate, government agency, political subdivision or
authority, firm, municipality, congregation, partnership, or other form of
entity. As used in this Agreement, the word "affiliate," as it relates to a
person, shall be defined as and mean a parent, spouse, brother or sister, or
natural or adopted lineal descendent or spouse of such descendent of such
person, and any proprietorship, corporation, partnership, congregation,
organization, firm, estate, association, league, club, society, joint venture,
trust or other form of entity in which such person or parent, spouse, brother
or sister, or natural or adopted lineal descendent or spouse of such descendent
or such person may have any equity interest or in which such person or parent,
spouse, brother or sister, or natural or adopted lineal descendent or spouse of
such descendent of such person is a proprietor, partner, officer, director,
shareholder, employee, consultant, independent contractor, owner, co-venturer,
employer, agent, representative, settlor or beneficiary.
10. Successors and Assigns. This Agreement and each of its provisions
shall inure to the benefit of the heirs, executors, administrators, successors,
and assigns of each of the parties. The Purchaser shall not, however, assign
any of its rights under this Agreement without the consent of the Company and
no holder of the Subject Shares or any assignee shall have any rights of the
Purchaser to purchase the Subject Shares pursuant to Article 2, to enforce the
covenants in Article 4 or under the Shareholders' Agreement. Nothing herein
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shall restrict the Purchaser's right to transfer or assign the Subject Shares
and any holder of the Subject Shares shall take such shares subject to and be
entitled to rely on the representations and warranties set forth in Article 3.
11. Third Party Beneficiaries. Except as expressly specified by the
provisions of this Agreement, this Agreement shall not be construed to confer
upon or give to any person, other than the parties hereto, any right, remedy or
claim pursuant to, or by reason of, this Agreement or of any term or condition
of this Agreement.
12. Severability. In the event any part of this Agreement, for any
reason, is determined by a court of competent jurisdiction to be invalid, such
determination shall not affect the validity of any remaining portion of this
Agreement, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated.
It is hereby declared the intention of the parties that they would have
executed the remaining portion of this Agreement without including any such
part, parts, or portion which, for any reason, may be hereafter determined to
be invalid.
13. Governmental Rules and Regulations. The transactions contemplated by
the provisions of this Agreement are and shall remain subject to any and all
present and future orders, rules and regulations of any duly constituted
authority having jurisdiction of those transactions.
14. Execution in Counterparts. This Agreement may be prepared in multiple
copies and forwarded to each of the parties for execution. All of the
signatures of the parties may be affixed to one copy or to separate copies of
this Agreement and when all such copies are received and signed by all parties,
those copies shall constitute one agreement which is not otherwise separable or
divisible. Counsel for the Company shall keep all of such signed copies and
shall conform one copy to show all of those signatures and the dates thereof
and shall mail a copy of such conformed copy to each of the parties within
thirty (30) days after the receipt by such counsel of the last signed copy, and
such counsel shall cause one such conformed copy to be filed in the principal
office of such counsel.
15. Reservation of Rights. The failure of any party at any time or times
hereafter to require strict performance by any other party of any of the
warranties, representations, covenants, terms, conditions and provisions
specified in this Agreement shall not waive, affect or diminish any right of
such party failing to require strict performance to demand strict compliance
and performance therewith and with respect to any other provisions, warranties,
terms, and conditions specified in this Agreement. Any waiver of any default
shall not waive or affect any other default, whether prior or subsequent
thereto, and whether the same or of a different type. None of the
representations, warranties, covenants, conditions, provisions and terms
specified in this Agreement shall be deemed to have been waived by any act or
knowledge of any party, its agents, trustees, officers, or employees and any
such waiver shall be made only by an instrument in writing, signed by the
waiving party and directed to any non-waiving party specifying such waiver, and
each party reserves such party's rights to insist upon strict compliance
herewith at all times.
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16. Survival of Covenants, Representations and Warranties. All covenants,
representations, and warranties made by each party to this Agreement shall be
deemed made for the purpose of inducing the other party to enter into and
execute this Agreement. The representations, warranties, and covenants
specified in this Agreement shall survive the Closing and shall survive any
investigation by either party whether before or after the execution of this
Agreement.
17. Force Majeure.
(a) If any party is rendered unable, completely or partially, by the
occurrence of an event of "force majeure" (hereinafter defined) to perform
such party's obligations created by the provisions of this Agreement,
other than the obligation to make payments of money, such party shall give
to the other party prompt written notice of the event of "force majeure"
with reasonably complete particulars concerning such event; thereupon, the
obligations of the party giving such notice, so far as those obligations
are affected by the event of "force majeure," shall be suspended during,
but no longer than, the continuance of the event of "force majeure." The
party affected by such event of "force majeure" shall use all reasonable
diligence to resolve, eliminate and terminate the event of "force majeure"
as quickly as practicable.
(b) The requirement that an event of "force majeure" shall be
remedied with all reasonable dispatch as hereinabove specified, shall not
require the settlement of strikes, lockouts or other labor difficulties by
the party involved, contrary to such party's wishes, and the resolution of
any and all such difficulties shall be handled entirely within the
discretion of the party concerned.
(c) The term "force majeure" as used herein shall be defined as and
mean any act of God, strike, civil disturbance, lockout or other
industrial disturbance, act of the public enemy, war, blockade, public
riot, earthquake, tornado, hurricane, lightning, fire, public
demonstration, storm, flood, explosion, governmental action, governmental
delay, restraint or inaction, unavailability of equipment, and any other
cause or event, whether of the kind enumerated specifically herein, or
otherwise, which is not reasonably within the control of the party
claiming such suspension.
18. Expenses. Each party shall pay all costs and expenses incurred or to
be incurred by that party in negotiating and preparing this Agreement and in
closing and consummating the transaction contemplated by the provisions of this
Agreement.
19. Concurrent Remedies. No right or remedy specified in this Agreement
conferred on or reserved to the parties is exclusive of any other right or
remedy specified in this Agreement or by law or equity provided or permitted;
but each such right and remedy shall be cumulative of, and in addition to,
every other right and remedy specified in this Agreement or now or hereafter
existing at law or in equity or by statute or otherwise, and may be enforced
concurrently therewith or from time to time. The termination of this
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Agreement for any reason whatsoever shall not prejudice any right or remedy
which any party may have, either at law, in equity, or pursuant to the
provisions of this Agreement.
[The remainder of this page left intentionally blank.]
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IN WITNESS WHEREOF the parties have executed this Agreement in duplicate to
be effective on the Effective Date.
INTERNATIONAL TRADING &
MANUFACTURING CORPORATION,
a Nevada corporation
By: /s/ KLAUS MOELLER
------------------------------------
Its: Director
-----------------------------------
By: /s/ MICHAEL MEADER
------------------------------------
Its: COO
-----------------------------------
MINNESOTA COMMUNICATIONS GROUP,
a Minnesota non profit corporation
By:
-----------------------------------
Its:
-----------------------------------
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<PAGE> 1
EXHIBIT 4.2
SHAREHOLDERS AGREEMENT
AGREEMENT, made and entered into as of March 31, 1999, by and among each of
the persons identified as "Shareholders" on the signature pages to this
Agreement (each a "Shareholder" and together the "Shareholders") and Minnesota
Communications Group, a Minnesota non profit corporation (the "Purchaser").
WHEREAS, the Purchaser has entered into an Investment Agreement with
International Trading & Manufacturing Corporation, a Nevada corporation (the
"Company"), of even date herewith (the "Investment Agreement"), pursuant to
which the Purchaser is initially acquiring 500,000 shares of Common Stock, $.001
par value of the Company (the Common Stock being hereinafter referred to as the
"Shares") and rights to acquire up to an additional 1,000,000 Shares; and
WHEREAS, the Shareholders in the aggregate own 1,670,000 of the outstanding
Shares of the Company, and
WHEREAS, the Shareholders desire that the Purchaser consummate the
transactions contemplated by the Investment Agreement; and
WHEREAS, the execution and delivery of this Agreement by each Shareholder
is a condition to the obligation of the Purchaser to purchase any of the Shares;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Voting Agreement
(a) Board of Directors in General. Each Shareholder hereby agrees, on
behalf of itself and any person to whom such Shareholder transfers any Shares,
to vote all Shares of the Company now or hereafter owned by such Shareholder and
take such other actions (whether in the capacity as a shareholder, director or
officer of the Company) as are reasonably requested by the Purchaser (i) to
ensure the presence on the Company's Board of Directors (the "Board of
Directors"), at all times, of one person designated by the Purchaser and (ii) to
have such designee appointed as a management nominee for election to the Board
of Directors.
(b) Limitations: Each shareholder shall retain at all times the right to
vote such Shareholder's Shares in the Shareholder's sole discretion on all
matters, other than those set forth in Section 1(a) hereof, which are at any
time and from time to time presented for a vote to the Company's shareholders
generally
(c) Conditional Irrevocable Proxy. To secure each shareholder's obligation
to vote such Shareholder's Shares in accordance with the provisions of this
Agreement, each Shareholder hereby appoints Thomas Kigin or William Kling,
acting individually or together
<PAGE> 2
(the "Proxy") as such Shareholder's true and lawful proxy and attorney, with
full power of substitution, to vote all of such Shareholder's Shares, in the
Proxy's sole discretion, for the election of directors as set forth in Section
1(a) hereof if (and only if) such Shareholder fails to comply with the
provisions of Section 1(a) hereof. The proxy and powers granted by each
Shareholder pursuant to this Section 1(c) are coupled with an interest and are
given to secure the performance of the Shareholders' duties under this
Agreement. Such proxy will be irrevocable for the term of this Agreement and, if
the Shareholder is an individual, will survive the death, incompetency and
disability of the Shareholder or any other individual holder of the
Shareholder's Shares and, if the Shareholder is an entity other than an
individual, will survive the merger and dissolution of the Shareholder or any
other entity holding any Shares of the Shareholder.
2. Co-Sale Rights.
(a) Except as hereinafter provided in paragraph 4 of this Agreement, each
Shareholder hereby agrees, for the term of this Agreement, not to sell for value
any of the Shares beneficially owned by such Shareholder without permitting the
Purchaser to participate as seller in such transaction such that the Purchaser
shall be entitled to sell an amount of Shares in connection with such
transaction equal to the product of (A) a fraction, the numerator of which is
the number of Shares then held by the Purchaser and the denominator of which is
the total number of Shares then held by the selling Shareholder or Shareholders
and the Purchaser, times (B) the number of Shares to be sold by the Shareholder
or Shareholders.
(b) Before accomplishing or entering into a binding contract for any sale
for value of Shares that would be covered by the right of co-sale granted by
paragraph 2(a) of this Agreement, each Shareholder hereby agrees to give the
Purchaser prompt written notice of any such proposed sale (a "Sale Proposal"),
stating the terms and conditions of such Sale Proposal in sufficient detail to
allow the Purchaser to exercise its right of co-sale. The Purchaser hereby
agrees to notify the selling Shareholder or Shareholders within 10 days of
receipt of such notice as to whether it wishes to exercise its right of co-sale
and participate in such Sale Proposal, and thereafter all negotiations leading
to the consummation of such Sale Proposal shall be conducted under the joint
control of the selling Shareholder of Shareholders and the Purchaser. Failure by
the Purchaser to respond within such 10-day period shall be deemed to be a
declination of the Purchaser's right of co-sale with respect to such Sale
Proposal, provided that (i) such Sale Proposal is fully closed and consummated
within 90 days of the expiration of such 10-day period and (ii) the terms of the
actual transaction are in all material respects the same as those set forth in
the notice given by the Shareholder(s) to the Purchaser hereunder. Failure to
meet either of the foregoing conditions shall again subject the Shares covered
by such Sale Proposal to the Purchaser's right of co-sale, each Shareholder
shall be required to give the Purchaser a new written notice with respect to
such Sale Proposal, and the Purchaser shall again have the right to participate
in such Sale Proposal if it notifies the Shareholder(s) thereof within 10 days
of receipt of such new notice.
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<PAGE> 3
3. Other Transfers.
(a) Except as hereinafter provided in paragraph 4 of this Agreement,
each Shareholder hereby agrees, for the terms of this Agreement, not to transfer
or dispose of any of the Shares beneficially owned by such Shareholder in a
manner not covered by paragraph 2 of this Agreement (i.e., a transfer or
disposition other than a sale for value) without the prior written consent of
the Purchaser.
(b) Before accomplishing or entering into a binding contract for any
transfer or disposition that would require the consent referred to in paragraph
3(a) of this Agreement, each Shareholder hereby agrees to give the Purchaser
prompt written notice of any such proposed transfer or disposition (a "Transfer
Proposal"), stating the terms and conditions of such Transfer Proposal in
sufficient detail to allow the Purchaser to exercise its right of consent. The
Purchaser hereby agrees to notify the Shareholder giving such notice within 10
days of receipt of such notice as to whether it intends to consent to such
Transfer Proposal. Failure by the Purchaser to respond within such 10-day
period shall be deemed to be the consent by the Purchaser to such Transfer
Proposal, provided that (i) such Transfer Proposal is fully closed and
consummated within 90 days of the expiration of such 10-day period and (ii) the
terms of the actual transaction are in all material respects the same as those
set forth in the notice given by the Shareholder(s) to the Purchaser hereunder.
Failure to meet either of the foregoing conditions shall again subject the
Shares covered by such Transfer Proposal to the Purchaser's right of consent,
the Shareholder(s) shall be required to give the Purchaser a new written notice
with respect to such Transfer Proposal, and the Purchaser shall again have the
right to consent or withhold consent with respect to such Transfer Proposal
within 10 days of receipt of such new notice.
4. Permitted Transfers. The following sales, transfers or
dispositions shall not be covered by the right of co-sale granted by paragraph 2
of this Agreement or the right of prior consent granted by paragraph 3 of this
Agreement:
(a) any transfer or disposition of Shares without consideration in
money or money's worth, such as by gift, bequest or devise, provided, however,
that as a condition precedent to any such transfer or disposition such
transferee agrees that the right of co-sale granted by paragraph 2 of this
Agreement and the right of prior consent granted by paragraph 3 of this
Agreement shall thereafter be fully binding and enforceable against such
transferee; and
(b) (i) any sale of Shares in a public offering pursuant to a
registration statement filed under the Securities Act of 1933, as amended
(the "Act"), if such offering is underwritten on a firm commitment basis by an
underwriter, or group of underwriters represented by an underwriter or
underwriters, which is a member of the New York Stock Exchange, or (ii) any sale
of Shares in an open market transaction at such time as there shall be a bona
fide public market for the Shares, such open market transaction being pursuant
to Rule 144 (or any successor rule) under the 1993 Act.
3
<PAGE> 4
5. Miscellaneous.
(a) Legend. Each certificate evidencing Shares owned by the Shareholders
and each certificate issued in exchanged for or upon the transfer of any such
Shares during the term of this Agreement will be stamped or otherwise imprinted
with a legend in substantially the following form or to the following effect:
"The securities represented by this certificate are subject to the
Shareholders Agreement dated as of March 31, 1999, by and among the
original holder of such securities and certain other shareholders of
the issuer of the securities represented by this certificate, and
to a conditional irrevocable proxy granted pursuant to such agreement.
Any sale, transfer or other disposition of the securities represented
by this certificate is subject to certain rights of co-sale and
consent by virtue of such agreement. A copy of such agreement will be
furnished without charge by the issuer of the securities represented
by this certificate to the holder hereof upon such holder's written
request."
(b) Term. This Agreement will terminate and cease to be effective, and
the aforesaid legend will be removed from all certificates, upon the mutual
written consent of the parties hereto or, if earlier, the date on which the
Purchaser transfers its Shares. If the Purchaser transfers less than all of its
Shares, this Agreement will no longer apply to any Shares transferred.
(c) Successors and Assigns. Except as otherwise expressly provided in
this Agreement, this Agreement will bind any subsequent holders of Shares now
or hereafter owned by the Shareholders and will otherwise bind and inure to the
benefit of the successors and assigns of Shareholders.
(d) Remedies. The Purchaser will be entitled to enforce its rights under
this Agreement specifically, to recover damages by reason of any breach of any
provision hereof and to exercise all other rights existing in its favor. Each
Shareholder agrees and acknowledges that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that the
Purchaser may, in its sole discretion, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
(e) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and this Agreement will be
performed,
4
<PAGE> 5
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
(f) Entire Agreement. This Agreement embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
(g) Counterparts. This Agreement may be executed on separate
counterparts, each of which will be an original and all of which taken together
will constitute one and the same agreement.
(h) Choice of Law. All questions concerning this Agreement will be
governed by and interpreted and enforced in accordance with the internal law of
the State of Nevada.
IN WITNESS WHEREOF, the Shareholders and the Purchaser have executed this
Agreement on the date set forth in the first paragraph.
MINNESOTA COMMUNICATIONS
GROUP
By /s/ THOMAS J. KIGIN
-------------------------------------
Its EVP
------------------------------------
SHAREHOLDERS
/s/ GERALD EDICK
---------------------------------------
Gerald Edick
/s/ MICHAEL MEADER
---------------------------------------
Michael Meader
/s/ KLAUS MOELLER
---------------------------------------
Klaus Moeller
5
<PAGE> 6
[STEPP & BEAUCHAMP LLP LETTERHEAD]
March 31, 1999
VIA TELECOPIER: 612.290.1431
WITH CONFIRMATION VIA U.S. MAIL
Minnesota Communications Group
444 Cedar Street, Suite 1900
St. Paul, Minnesota 55101-2179
Attention: Thomas J. Kigin, Executive Vice President
Re: International Trading & Manufacturing Corporation
Dear Mr. Kigin:
This law firm has been requested to render opinions regarding certain aspects
of that certain Investment Agreement ("Agreement") contemplated by and among
International Trading & Manufacturing Corporation, a Nevada corporation, on the
one hand, and Minnesota Public Radio, on the other hand. All defined terms
used in this letter, to the extent not defined in this letter, shall have the
definitions and meanings specified in the Agreement.
The provisions of this letter shall be governed by and shall be interpreted in
accordance with the Legal Opinion Court of the American Bar Association Section
of Business Law (1991). The law contemplated by the provisions of this letter
is limited to the Nevada General Corporation Law.
In this law firm's capacity as counsel to the Company and for purposes of the
opinions specified in this letter, this law firm has made such legal and factual
examinations and inquiries as this law firm has determined to be necessary and
appropriate and this law firm has examined, among other items, originals or
copies identified to the satisfaction of this law firm as true and correct
copies of those records, certificates, documents, and other instruments which,
in the judgment of this law firm, this law firm has considered necessary or
appropriate to enable this law firm to render the opinions specified in this
letter. Moreover, for purposes of rendering the opinion specified in this
letter, this law firm has
<PAGE> 7
Minnesota Communications Group
March 31, 1999
Page 2
relied upon representations, warranties, and information provided to this law
firm by officers, directors, employees and other representatives of the Company
as to certain factual matters upon which the assumptions specified in this
letter are based, and this law firm has not attempted to verify independently
the veracity of the representations, warranties, and information provided to
this law firm by those officers, directors, employees and other representatives
or attempted to authenticate any of the foregoing documents. If any of these
items is false or misleading in any material respect, the opinions specified
in this letter cannot be relied upon.
In reliance solely thereon and subject to any qualifications and limitations
specified in this letter, please be informed that it is the opinion of this law
firm that:
1. The Company has the absolute and unconditional right to issue, sell
deliver and set over the Subject Shares to the Purchaser in
accordance with the provisions of the Agreement and, upon issuance of
the Subject Shares in accordance with the Agreement, the Subject
Shares will be validly issued, fully paid and non-assessable.
2. The Company is a corporation duly organized, validly existing and in
good standing pursuant to the laws of the State of Nevada. The
Company has full and complete right, power, and authority to own its
properties and assets, and to carry on its business as a Nevada
corporation.
3. The Company, and any officer, director or representative executing the
Agreement for and on behalf of the Company, has the legal capacity and
authority to enter into and deliver the Agreement. The Agreement is a
valid and legally binding obligation of the Company and is fully
enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by general principles of
equity, bankruptcy, insolvency, moratorium and similar laws relating
to creditors rights generally.
4. Assuming the due execution and delivery of the Shareholders Agreement
by each of the Shareholders, pursuant to Nevada law, the Shareholders
Agreement is a valid and legally binding obligation of each
Shareholder and is fully enforceable against each Shareholder in
accordance with its terms, except as such enforceability may be
limited by general principles of equity,
<PAGE> 8
Minnesota Communications Group
March 31, 1999
Page 3
bankruptcy, insolvency, moratorium and similar laws relating to
creditors rights generally.
5. The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, of which exactly 8,334,063 shares are issued
and outstanding on the date hereof (each a "Previously Issued Share"
and together, the "Previously Issued Shares"). Each Previously Issued
Share is fully paid and non-assessable and no Previously Issued Share
was issued in violation of the Articles of Incorporation or by-laws of
the Company, any provision of law or any pre-emptive right (or other
right) of any shareholder of the Company or any other person. No
pre-emptive right exists with respect to any capital stock of the
Company. Except as set forth on Schedule 3.1.6 to the Agreement, to the
knowledge of this law firm, the Previously Issued Shares (on the date
hereof) represent each and every equity interest of any nature in the
Company, and no person or entity of any nature holds (or is or will be
entitled to receive), including, without limitation, pursuant to any
agreement or trust, any option, warrant, convertible instrument or
security, put, call, contract or commitment of any nature whereby any
person or entity has or may receive any interest in or right to acquire
any equity interest of any nature in the Company.
6. Assuming the accuracy of the representations of the Purchaser set
forth in Section 3.2 of the Agreement, the offer, sale, issuance and
delivery of the Subject Shares to the Purchaser are exempt from the
registration and prospectus delivery requirement of the Act, and, to
the extent required, all registrations, qualifications, permits and
approvals required pursuant to applicable state securities laws for the
lawful offer, sale, issuance and delivery of the Subject Shares have
been obtained. Upon issuance of the Subject Shares in accordance with
the Agreement, the Subject Shares will be validly issued, fully paid
and nonassessable.
Statutory provisions and interpretations thereof by the various administrative
authorities and courts having jurisdiction of matters upon which the opinions
expressed in this letter are based are necessarily subject to change from time
to time. The opinions and conclusions specified in this letter are based upon
the facts and representations which have been provided to this law firm by the
officers, directors, employees and other representatives of the Company.
<PAGE> 9
Minnesota Communications Group
March 31, 1999
Page 4
This law firm expresses no opinion regarding any federal or state law not
specified expressly in this letter. In particular, and without limiting the
generality of the foregoing, this law firm expresses no opinion regarding any
secondary trading exemption pursuant to the laws of any state or other
jurisdiction. Prior to any trading of the Subject Shares, the Company must first
comply with the rules and regulations of the securities laws of the
jurisdictions in which the Subject Shares are not to be traded.
The opinions specified in this letter are effective as of the date of this
letter and are subject to change and qualification by reason of change of law,
facts (including the facts upon which the assumptions specified in this letter
are based), circumstances, lapse of time, and other matters. This law firm
expresses no opinion as to rights, obligations, or other matters subsequent to
the date of this letter, and this law firm assumes no obligation to inform you
or any other person or entity of any changes to the opinions specified in this
letter subsequent to the date of this letter. Neither this letter nor any copy
of this letter may be used or circulated by any person or entity or filed,
quoted from, or otherwise referred to or relied upon for any other purpose
without the express prior written consent of this law firm.
You are hereby cautioned that the opinions of counsel, including the opinions
specified in this letter, do not obligate (i) the Securities and Exchange
Commission, (ii) any state securities administrators or commissioners, or
(iii) federal or state courts. In the event this law firm discovers any
information which would cause this law firm to change the opinions specified in
this letter or, alternatively, in the event any state or federal agency or
court determines that the opinions specified in this letter are inconsistent
with law, this letter may be withdrawn at any time by this law firm.
Finally, your cooperation in this matter is appreciated significantly. Of
course, in the event you have questions or comments regarding this or any other
matter, please do not hesitate to contact the undersigned. Thank you.
Sincerely,
STEPP & BEAUCHAMP LLP
/s/ DERON M. COLBY
By: Deron M. Colby
<PAGE> 10
FUNDING MILESTONES
Prior to the first Funding Request
500 retail outlets for products of the Genius Business
Prior to the second Funding Request
300 additional retail outlets for products of the Genius Business
Prior to each subsequent Funding Request
100 additional retail outlets for products of the Genius Business over and
above the number of retail outlets at the time of the last Funding Request
<PAGE> 11
SCHEDULE 3.1.8
DE 7 EDD 99006
A0071297
<TABLE>
<CAPTION>
1998
YEAR ENDED 12 31 98 DUE 01 01 99 DELINQUENT 02 01 99
-------- -------- --------
<S> <C> <C>
388 7221 4
0082-2861 99005
INTERNATIONAL TRADING &
C/O GERALD EDICK PRES
2533 N CARSON STREET
CARSON CITY NV 89706
88 0344739
C. Total wages paid this year 348 500 00
D. Unemployment Insurance
(Wages to $7,000)
5.40 % x 42 000 00 2 268 00
E. Employment Training Tax
0.00 % x 00
F. Disability Insurance
(Wages to $ 31,767)
0.50 % x 159 068 00 795 34
G. California PIT Withheld 19 768 00
H. Subtotal 22 831 34
I. Less Previous Payments 22 831 34
J. Total Taxes Due or Overpaid 00
Quality Rating 4=Excellent/3=Good/2=Fair/1=Poor 4
</TABLE>
I declare that the information herein is correct to the best of my knowledge and
belief.
REFERENCE COPY
PREPARED BY PAYCHEX DO NOT FILE
- --------------------------------------------------------------------------------
Signature Title Phone Date
MAIL TO: State of California / Employment Development Department /
P.O. Box 826286 / Sacramento, CA 94230-6288
<PAGE> 12
SCHEDULE 3.1.13
STATUS OF TRADEMARK REGISTRATIONS
REGARDING BABY GENIUS REGISTRATIONS FOR PRODUCTS ALREADY BEING SOLD:
Class 025 Products: Clothing
Status: Approved by Examiner for Publication subject to short
amendment to application.
Approved for publication and issuance once publication completed.
Class 009 Products: Musical sound recordings, video recordings
Status: Approved by Examiner for Publication subject to short
amendment to application.
Approved for publication and issuance once publication completed.
Class 016 Products: Calendars, books, printed matter, etc.
Status: Approved by Examiner for Publication subject to short
amendment to application.
Approved for publication and issuance once publication completed.
Class 028 Products: Toys
Status: Approved by Examiner for Publication subject to short
amendment to application.
Approved for publication and issuance once publication completed.
REGARDING BABY GENIUS REGISTRATIONS FOR PRODUCTS FOR INTENT-TO-USE:
Class 021 Product: Potties used alone or potties used in conjunction with
toilet seats, baby bath tubs, and lunch boxes.
Approved for publication and issuance once publication completed.
Class 024 Products: bedspreads, sheets, blankets, linens, towels, etc.
Status: Approved by Examiner for Publication and issuance once
publication completed.
1
<PAGE> 13
Class 005 Products: baby food, vitamins, formula, etc.
Status: Approved by Examiner for Publication and issuance once
publication completed.
Class 035 Products: Cartoon character licensing
Status: Approved by Examiner for Publication subject to short
amendment to application.
Class 018 Products: Luggage, book bags
Status: Approved by Examiner for Publication and issuance once
publication completed.
REGARDING KID GENIUS REGISTRATIONS FOR PRODUCTS ALREADY BEING SOLD:
Class 025 Products: Clothing
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 009 Products: Musical sound recordings, video recordings
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 018 Products: Calendars, books, printed matter, etc.
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 028 Products: Toys
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
2
<PAGE> 14
REGARDING CHILD GENIUS REGISTRATIONS FOR PRODUCTS ALREADY BEING SOLD:
Class 025 Products: Clothing
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 009 Products: Musical sound recordings, video recordings
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 016 Products: Calendars, books, printed matter, etc.
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 025 Products: Toys
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
REGARDING CHILD GENIUS REGISTRATIONS FOR PRODUCTS ALREADY BEING SOLD:
Class 025 Products: Clothing
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 009 Products: Musical sound recordings, video recordings
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
Class 016 Products: Calendars, books, printed matter, etc.
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
3
<PAGE> 15
Class 026 Products: Toys
Status: No prior pending or issued trademarks cited by Examiner
that would preclude registration.
Approved for publication subject to short office action.
4
<PAGE> 16
SCHEDULE 3.1.6
HOLDERS OF 5% OR MORE OF THE ISSUED AND OUTSTANDING SHARES
<TABLE>
<CAPTION>
Names: Amount of shares held:
- ------ ----------------------
<S> <C> <C>
Chan & Sons Ltd. 982,125
Gerald Edick 840,000
Gulfstream Capital Holding Ltd. 935,000
Michael Meader 450,000
Klaus Moeller family: 840,000
Hayden Moeller 150,000
Klaus Moeller 180,000
Shelly Moeller 360,000
Tia Moeller 150,000
WMA & Associates 560,000
-------
Total 4,607,125
Options outstanding:
Klaus Moeller 750,000
Gerald Edick 750,000
Michael Meader 750,000
Larry Balaban 333,000
Howard Balaban 333,000
Michael Rowe 40,000
Vinko Kovac 25,000
Deadra Hall 180,000
David Shapiro 20,000
others 20,000
-------
* Company is currently negotiating with
Dale Paisely to grant substantial options
subject to approval by the Board of Directors
Total 3,201,000
Warrants outstanding:
Kevin Harrington Enterprises Inc. 240,000
Tim Harrington 160,000
Holders of convertible instruments:
Steve Livingston $100,000
200,000 shares
Russ Karlen $100,000
200,000 shares
</TABLE>
<PAGE> 17
ACORDIA EAST
150 Monument Rd., Suite 203
Rale Cynwyd, Pa. 19004
FAX COVER SHEET
DATE: MARCH 29, 1999
To: ITM-Attn. Mike Meader
Fax: 619 793 8842
Tel:
From: Jay Frank Fax: 610 660 4855
Tel: 610 660 4814
Re: Life Insurance
Dear Mike,
This is to confirm that we are working with the Nahai Agency in L.A. to place
$500,000. of life insurance coverage on both you and Klauss Moeller.
Thank you for this opportunity to be of further service to your company.
Sincerely,
/s/ Jay Frank
Jay Frank, CPCU, CLU
<PAGE> 18
March 29, 1999
VIA TELECOPIER: 801.277.3147
WITH CONFIRMATION VIA U.S. MAIL
Interwest Transfer Co., Inc.
1981 E. Murray Holladay Road, Suite 100
P.O. Box 17136
Salt Lake City, UT 84117
Attention: Kurt Hughes
Re: International Trading & Manufacturing Corporation, a Nevada
corporation
Dear Mr. Hughes:
As you know, this law firm represents International Trading & Manufacturing
Corporation, a Nevada corporation ("Company"), and has provided you with
various opinion letters regarding the transfer of certain shares of that
Company's stock.
Enclosed herewith please find a copy of a Shareholders Agreement which
provides, among other things, that each certificate evidencing certain shares
of common stock ("Shares") owned by Gerald Edick, Michael Meader and Klaus
Moeller, and each certificate issued in exchange for or upon the transfer of
any such Shares during the term of that Shareholders Agreement will be stamped
or otherwise imprinted with a legend in substantially the following form or to
the following effect:
"The securities represented by this certificate are subject to the
Shareholders Agreement dated as of March 31, 1999, by and among the
original holder of such securities and certain other shareholders of
the issuer of the securities represented by this certificate, and to a
conditional irrevocable proxy granted pursuant to such agreement. Any
sale, transfer or other disposition of the securities represented by
this certificate is subject to certain rights of co-sale and consent
by virtue of such agreement. A copy of such
<PAGE> 19
Interwest Transfer Co., Inc.
March 29, 1999
Page 2
agreement will be furnished without charge by the issuer of the
securities represented by this certificate to the holder hereof upon
such holder's written request."
Please contact the undersigned to confirm that you have stamped those shares
with the appropriate legend or, in the alternative, please advise the
undersigned as to what additional steps are necessary to effectuate same.
Finally, your time, attention and cooperation in this matter are appreciated
significantly. Of course, if you have questions or comments regarding this or
any other matter, please do not hesitate to contact me. Thank you.
Sincerely,
STEPP & BEAUCHAMP LLP
By: Thomas E. Stepp, Jr.
TES:kl
<PAGE> 1
EXHIBIT 4.3
CONVERTIBLE DEBENTURE
FOR VALUE RECEIVED, INTERNATIONAL TRADING & MANUFACTURING CORPORATION, a Nevada
corporation ("Borrower"), hereby promises to pay to Russ Karlen ("Holder") the
principal amount of One Hundred Thousand Dollars ($100,000.00), on the terms and
subject to the conditions specified in this Debenture.
THE SECURITIES EVIDENCED, REPRESENTED AND CONTEMPLATED BY THE PROVISIONS OF THIS
DEBENTURE HAVE NOT BEEN REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES
ACT IF 1933 ("ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE RESOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) BORROWER HAS
RECEIVED FROM COUNSEL AN OPINION SATISFACTORY TO BORROWER THAT SUCH TRANSFER CAN
BE MADE WITHOUT COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE ACT, OR (2) A
REGISTRATION STATEMENT FILED BY BORROWER IS DECLARED EFFECTIVE OR ANY AND ALL
ACTIONS NECESSARY TO PERFECT AN EXEMPTION IS COMPLETED.
ARTICLE ONE
INTEREST, TERMS OF PAYMENT AND SECURITY
1.1 CURRENCY. All amounts specified by to the provisions of this Debenture are
in United States Dollars.
1.2 INTEREST. No interest shall accrue on the unpaid amount due and payable
pursuant to the provisions of this debenture.
1.3 PRINCIPAL. The principal amount evidenced by the provisions of this
Debenture shall be payable on December 31, 1999.
ARTICLE TWO
CONVERSION AND PURCHASE RIGHTS
2.1 CONVERSION OR PURCHASE RIGHT. Holder shall have the right from and after
December 1, 1998, and then at any time thereafter to convert any portion of the
principal indebtedness evidenced by the provisions of this Debenture into fully
paid and nonassessable shares of $.001 par value voting common stock of Borrower
("Common Stock"), on the terms and subject to the conditions specified by the
provisions of this Debenture. Upon the surrender of this Debenture, accompanied
by Holder's written request for conversions, Borrower shall issue and deliver or
cause to be issued and delivered to Holder certified evidencing the appropriate
number of shares of Common stock. If a portion of such principal is converted,
Borrower shall deliver to Holder a certified for the proper number of shares of
Common Stock for the portion of that principal indebtedness converted an a new
Debenture in the form hereof for the unconverted balance of the principal
indebtedness by the provision of this Debenture.
1
<PAGE> 2
2.2 CONVERSION OR PURCHASE PRICE. Subject to adjustment as specified by the
provision of Section 2.4 of this Debenture, the conversion or purchase price of
the Common Stock indebtedness ("Conversion Price") shall be $0.50 per share.
2.3 MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be
issued upon any conversion of the principal indebtedness evidenced by the
provisions of this Debenture. In lieu of any fractional shares to which Holder
would otherwise be entitled, Borrower shall pay Holder cash in the amount equal
to the Conversion Price for such fractional shares. Before Holder shall be
entitled to convert the indebtedness evidenced by the provisions of the
Debenture into shares of Common Stock and to receive certificates thereof,
Holder shall surrender the original copy of this Debenture, duly endorsed and
cancelled, at the office of Borrower, and shall given written notice to Borrower
at such office that Holder elects to convert the principal indebtedness
evidenced by the provisions of this Debenture; provided, however, that Borrower
shall not be obligated to issue certificates evidencing the shares of common
stock issuable upon such conversion unless the original endorsed and cancelled
original copy of this Debenture is either delivered to Borrower, as specified
above, or Holder notifies Borrower that such original copy of this Debenture has
been lost, stolen or destroyed and executes an agreement satisfactory to
Borrower to indemnify Borrower from any loss incurred by Borrower in connection
with such original copy of this Debenture. Borrower shall, as soon as practical
after such delivery of an original copy of this Debenture, or such agreement and
indemnification, issue and deliver or cause to be issued and delivered to
Holder, a certificate or certificates for the number of shares of Common Stock
to which Holder shall be entitled and a check payable to Holder in the amount of
any cash amounts payable as a result of the conversion into fractional shares of
Common Stock. The person or persons entitled to receive the shares of Common
Stock issuable upon any such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
2.4 ADJUSTMENT OF CONVERSION TERMS. The Conversion Price and number of shares of
Common Stock to be issued upon conversion or purchase shall be subject to
adjustment from time to time upon the happening of certain events while the
conversion or purchase right specified by the provisions of this Debenture
remains outstanding, as follows:
A. MERGER, SALE OF ASSETS, ETC. If Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets, the provisions of this Debenture shall thereafter be evidence of the
right to purchase such securities and property as would have purchase such
number and type of securities and property as would have been issuable or
distributable on account of such consolidation, merger, sale or conveyance, upon
or with respect to the securities subject to the conversion or purchase right
immediately prior to such consolidation, merger, sale or conveyance, the
foregoing provision shall similarly apply to successive transaction of a similar
nature by any such successor or purchaser. Without limiting the generality of
the foregoing, the provisions of this Section 2.4 shall apply to such securities
of such successor or purchaser after any such consolidation, merger, sale or
conveyance.
2
<PAGE> 3
B. RECLASSIFICATION, ETC. If Borrower at any time shall, by subdivision,
combination or reclassification of securities, or otherwise, change any of the
right specified by the provisions of this Debenture into the same or a different
number of securities of any class or classes, the provisions of this Debenture
shall thereafter be evidence of the right to purchase such number and type of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to conversion or purchase right immediately
prior to such subdivision, combination, reclassification or other change. If
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, the Conversion Price shall be proportionately
reduced in case of subdivision of shares or proportionately increased in case of
combination of shares, in both situations by the ratio which the total number of
Common Stock to be outstanding immediately after the occurrence of such event
bears to the total number of Common Stock outstanding immediately prior to the
occurrence of such event.
2.5 CASH DISTRIBUTION. No adjustment of cash dividends on Common Stock or other
Securities purchasable pursuant to the provisions of this Debenture will be made
to the Conversion Price.
2.6 AUTHORIZED SHARES. Borrower covenants that during the period the conversion
right specified by the provisions of this Debenture exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the conversion of the
principal indebtedness evidenced by the provisions of this Debenture. Borrower
agrees that its issuance of this Debenture shall constitute full authority to
Borrower's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of the principal indebtedness evidenced by the
provisions of this Debenture.
2.7 EARLY REPAYMENT. Borrower may, at its option, repay the principal and
accrued interest evidenced by the provisions of this Debenture at any time after
June 30, 1999, if the closing bid price of the Borrower's Common Stock equals or
exceeds four dollars ($4.00) per share for any twenty (20) consecutive business
days in the prior sixty (60) business days. If the Borrower elects to repay
pursuant to the provisions of this section, Holder will have ten (10) business
days to notify Borrower of Holder's intention to exercise the conversion of the
Debenture into common shares of the Borrower.
ARTICLE THREE
REPRESENTATIONS AND WARRANTS OF BORROWER
Borrower represents and warrants that:
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3.1 EXISTENCE AND RIGHTS. Borrower is a corporation duly, organized and existing
pursuant to the laws of the State of Nevada without limit as to the duration of
its existence; Borrower has corporate powers and adequate authority, rights and
franchises to own its property and to carry on its business as now conducted,
and is duly qualified and in good standing in each jurisdiction in which the
character of the properties owned by it therein or the conduct of its business
makes such qualification necessary: and Borrower has the corporate power and
adequate authority to issue this Debenture and the underlying shares of Common
Stock.
3.2 DEBENTURE AUTHORIZED. The execution and delivery of this Debenture and the
performance of the provisions of this Debenture are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
Articles or Certificate of Incorporation or Bylaws and are duly authorized and
do not require the consent or approval of any governmental body or other
authority; and this Debenture is the valid, binding and legally enforceable
obligation of Borrower in accordance with the terms herein.
3.3 NO CONFLICT. The execution, delivery and performance of this Debenture are
not in contravention of or conflict with any agreement, indenture or undertaking
to which Borrower is a party or by which Borrower or any of Borrower's property
may be bound or affected, and does not cause any lien, charge or other
encumbrance to be created or imposed upon any such property by reason thereof.
ARTICLE FOUR
REPRESENTATION, WARRANTIES AND CONVENANTS OF HOLDER
Holder hereby represents and warrants to and convenience with Borrower as
follows:
4.1 ABILITY TO PROVIDE FOR NEEDS. Holder has adequate means of providing for his
or her currents and possible personal contingencies and he or she no need in the
foreseeable future to sell any shares of Common Stock acquired by Holder. Holder
is able to bear economic risks of the transaction evidenced by the provisions of
this Debenture and Holder has a sufficient net worth to sustain a loss of the
principal amount lent by Holder to the Company and evidenced by the provisions
of this Debenture, in the event such loss should occur.
4.2 KNOWLEDGE AND EXPERIENCE. Holder has such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of a loan to Borrower.
4.3 BOOKS AND RECORDS. Holder confirms that all documents, records and books,
pertaining to his or her loan to Borrower have been made available to Holder.
4.4 QUESTIONS REGARDING LOAN. Holder has had an opportunity to ask questions of
an received satisfactory answers from Borrower, and any person or persons acting
on Borrower's behalf, concerning the terms and conditions of his or her loan to
Borrowers, and
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all such questions are been answered to the complete satisfaction of Holder.
4.5 ACQUISITION INTENTION. Any shares of Common Stock acquired by Holder because
of exercise of the conversion rights specified by the provisions of this
Debenture will be acquired by Holder for his or her own account for investment
in a manner which would not require registration or qualification pursuant tot
he provisions of the Securities Act of 1933,as amended ("Act"), or any state
Blue Sky law.
4.6 HISTORY AND EARNINGS OR BORROWER. It has been called to the attention of
Holder by those persons with whom the undersigned has dealt in connection with
his or her loan to Borrower, that Borrower has a limited history of operations
and insignificant earnings and that Holder's loan to Borrower involves
significant risk which may result in the loss of the amount lent to Borrower.
4.7 NO REPRESENTATIONS OR WARRANTIES. Holder has received no representations or
warranties in making his or her lending decision.
4.8 EVALUATION OF RISKS. Borrower has made available to Holder or his or her
personal advisor the opportunity to obtain appropriate to evaluate the merits
and risks of a loan to Borrower.
4.9 NO DETERMINATION BY REGULATORS. Holder understands that neither the
Securities and exchanges commission nor any Securities Administrator or similar
person of any state or province has made any finding or determination relating
to the fairness of any loan to Borrower or subsequent acquisition of Common
Stock and that neither the Securities and Exchange Commission nor any Securities
Administrator or similar person of any state or province has or will recommend
or enforce any such loan or acquisition of Common Stock
4.10 ACCREDITED INVESTOR. Holder hereby represents and warrants that Holder is
an "Accredited Investor", as defined pursuant to Section 2(a)(15) of the Act and
Rule 501 of Regulation D promulgated pursuant to the Act, and satisfies one of
the following categories:
(1) Holder is a director or executive officer of Borrower; or
(2) Holder is a natural person whose individual net worth, or joint
net worth with that Holder's spouse, at the time of his or her
loan to Borrower exceeds $1,000,000; or
(3) Holder is a natural person who has an individual income in
excess of $200,000 in each of the 2 most recent years or joint
income with Holder's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of having the same
income level in the current year; or
(4) Holder is a trust, with total asset in excess of $5,000,000, not
formed for the specific purpose of making the loan to Borrower,
whose lending
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decision is directed by a sophisticated person as described in
Regulation 230.506(b)(2)(ii) promulgated pursuant to the Act; or
(5) Holder is an entity in which all of the equity owners are
accredited investors.
4.11 INDEMNIFICATION. Holder acknowledges that he or she understands the meaning
and legal consequences of the representation, warranties, and covenants
specified in this Article 4 and that Borrower has relied on such representation,
warranties and covenants, and the undersigned hereby agrees to indemnify and
hold harmless Borrower, and its officers, directors, controlling persons,
agents, attorneys, accountants, and employees, from any and all loss, damage or
liability sue to, or occurring because of, a breach any such representation,
warranty, or covenant.
4.12 REGISTRATION OF ACQUIRED SHARES. Borrower has no right to require that any
shares of Common Stock acquired by Holder upon the exercise of the conversion
right specified in the Debenture be registered pursuant to the provisions of the
Act, or otherwise. The undersigned further acknowledges that Borrower has no
obligation to assist Holder in obtaining any exemption from any registration
requirements imposed by applicable law. Holder also acknowledges that he or she
shall be responsible for compliance with all conditions on transfer imposed by
the Securities and Exchange Commission or any Securities Administrator or
similar person of any state or province.
4.13 LIMITATION ON TRANSFER OF INTEREST. Holder acknowledges that he or she is
aware that there are substantial restrictions on the transferability of any
shares of Common Stock acquired by Holder upon the exercise of the Conversion
right specified in this Debenture. Because such Common Stock will not, and the
undersigned has no right to require that such Common Stock, be registered
pursuant to the provisions of the Act, Holder agrees not to sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any such Common Stock unless
such sale is exempt from such registration pursuant to the provisions of the
Act. Holder further acknowledges that Borrower has no obligation to assist
Holder in obtaining any exemption from any registration requirements imposed by
applicable law. Holder also acknowledges that he or she shall be responsible for
compliance with all conditions on transfer imposed by the Securities and
Exchange Commission or any Securities Administrator of any state and for any
expenses incurred by Borrower for legal and accounting services in connection
with reviewing such a proposed transfer and issuing options in connection
therewith.
4.14 COMPLIANCE WITH ACT. Holder understands and agrees that the following
restrictions and limitations are applicable to his purchase and any sale,
transfer, assignment, pledge, hypothecation or other disposition of any shares
of Common Stock acquired by Holder upon the exercise of the conversion right
specified in the Debenture pursuant to Section 4(2) of the Act and Rule 144
promulgated pursuant thereto:
(a) Borrower agrees that any shares of Common Stock acquired by
Holder
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upon the exercise of the conversion right specified in the
Debenture shall not be sold, pledged, hypothecated or otherwise
disposed of unless such Common Stock is registered pursuant to
the Act and applicable state securities laws or are exempt
therefrom.
(b) A legend in substantially the following form has been or will be
placed on any certificate(s) or other documents evidencing such
Common Stock.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR DOCUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT ONLY AND HAVE NOT BEEN REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OF 1933 AS AMENDED ("ACT"), AND HAVE BEEN OFFERED AND SOLD IN
RELIANCE UPON THE EXEMPTIONS SPECIFIED IN SECTION 4(2) AND 4(6) OF THE ACT.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY
TO THE COMPANY OR ITS TRANSFER AGENT OF AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY OR ITS TRANSFER AGENT THAT REGISTRATION IS NOT REQUIRED COR SUCH
TRANSFER OR THE SUBMISSION TO THE COMPANY OR ITS TRANSFER AGENT OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY OR ITS TRANSFER AGENT TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT, APPLICABLE
STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
(c) Stop transfer instructions to the transfer agent of such Common
Stock will be placed with respect to such Common Stock so as to
restrict the sale, transfer, pledge, hypothecation or other
disposition thereof, subject to the further terms hereof,
including the provisions of the legend set forth in subparagraph
(b) above.
(d) The legend and stop transfer instruction described in
subparagraphs (b) and (c) above will be placed on any new
certificate(s) or other documents for transfer.
ARTICLE FIVE
MISCELLANEOUS
5.1 LOST OR DESTROYED DEBENTURES. Upon receipt by Borrower at its principal
office of evidence satisfactory to Borrower of the loss, theft, destruction or
mutilation of this Debenture, and in the case of any such loss, theft, or
destruction, upon delivery of indemnity satisfactory to Borrower or, in case of
any such mutilation, upon surrender and cancellation of this Debenture, Borrower
will issue a new Debenture specifying provisions which are the same as those
specified in lieu of this Debenture with a notification thereon of the date from
which interest has accrued.
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5.2 SURVIVAL OF WARRANTIES. All agreements, representations and warranties made
herein shall survive the execution and delivery hereof.
5.3 NOTICES. Any notices herein required or permitted to be given shall be in
writing and may be personally served or sent by mail and shall be deemed to have
been given when deposited in the mail, registered, with postage prepaid and
properly addressed.
5.4 AMENDMENT PROVISION. The term "Debenture" or "this Debenture" and all
references thereto, as used throughout this instrument, shall mean this
instrument as originally executed or if later amended or supplemented, then, as
so amended or supplemented.
5.5 ASSIGNABILITY. This Debenture shall obligate Borrower, its successors and
assigns. This Debenture shall not be assigned, transferred, alienated, pledged
or otherwise hypothecated by Holder without prior written consent of Borrower,
which consent may be withheld unreasonably.
5.6 GOVERNING LAW. This Debenture has been executed in and shall be governed by
the laws of the State of Nevada.
IN WITNESS WHEREOF, BORROWER AND HOLDER HAVE CAUSED THIS DEBENTURE TO BE SIGNED
IN THEIR NAMES BY THEIR DULY AUTHORIZED REPRESENTATIVES ON THE DATES SPECIFIED
OPPOSITE THEIR SIGNATURES.
Dated: November 16, 1998 BORROWER:
INTERNATIONAL TRADING &
MANUFACTURING CORPORATION,
A NEVADA CORPORATION
By: Klaus Moeller /S/
Its: CEO
Dated: November 16, 1998 HOLDER:
Russ Karlan /S/
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EXHIBIT 4.4
CONVERTIBLE DEBENTURE
FOR VALUE RECEIVED, INTERNATIONAL TRADING & MANUFACTURING CORPORATION, a Nevada
corporation ("Borrower"), hereby promises to pay to Steve Livingston ("Holder")
the principal amount of One Hundred Thousand Dollars ($100,000.00), on the terms
and subject to the conditions specified in this Debenture.
THE SECURITIES EVIDENCED, REPRESENTED AND CONTEMPLATED BY THE PROVISIONS OF THIS
DEBENTURE HAVE NOT BEEN REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES
ACT IF 1933 ("ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE RESOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) BORROWER HAS
RECEIVED FROM COUNSEL AN OPINION SATISFACTORY TO BORROWER THAT SUCH TRANSFER CAN
BE MADE WITHOUT COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE ACT, OR (2) A
REGISTRATION STATEMENT FILED BY BORROWER IS DECLARED EFFECTIVE OR ANY AND ALL
ACTIONS NECESSARY TO PERFECT AN EXEMPTION IS COMPLETED.
ARTICLE ONE
INTEREST, TERMS OF PAYMENT AND SECURITY
1.1 CURRENCY. All amounts specified by to the provisions of this Debenture are
in United States Dollars.
1.2 INTEREST. No interest shall accrue on the unpaid amount due and payable
pursuant to the provisions of this debenture.
1.3 PRINCIPAL. The principal amount evidenced by the provisions of this
Debenture shall be payable on December 31, 1999.
ARTICLE TWO
CONVERSION AND PURCHASE RIGHTS
2.1 CONVERSION OR PURCHASE RIGHT. Holder shall have the right from and after
December 1, 1998, and then at any time thereafter to convert any portion of the
principal indebtedness evidenced by the provisions of this Debenture into fully
paid and nonassessable shares of $.001 par value voting common stock of Borrower
("Common Stock"), on the terms and subject to the conditions specified by the
provisions of this Debenture. Upon the surrender of this Debenture, accompanied
by Holder's written request for conversions, Borrower shall issue and deliver or
cause to be issued and delivered to Holder certified evidencing the appropriate
number of shares of Common stock. If a portion of such principal is converted,
Borrower shall deliver to Holder a certified for the proper number of shares of
Common Stock for the portion of that principal indebtedness converted an a new
Debenture in the form hereof for the unconverted balance of the principal
indebtedness by the provision of this Debenture.
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2.2 CONVERSION OR PURCHASE PRICE. Subject to adjustment as specified by the
provision of Section 2.4 of this Debenture, the conversion or purchase price of
the Common Stock indebtedness ("Conversion Price") shall be $0.50 per share.
2.3 MECHANICS OF CONVERSION. No fractional shares of Common Stock shall be
issued upon any conversion of the principal indebtedness evidenced by the
provisions of this Debenture. In lieu of any fractional shares to which Holder
would otherwise be entitled, Borrower shall pay Holder cash in the amount equal
to the Conversion Price for such fractional shares. Before Holder shall be
entitled to convert the indebtedness evidenced by the provisions of the
Debenture into shares of Common Stock and to receive certificates thereof,
Holder shall surrender the original copy of this Debenture, duly endorsed and
cancelled, at the office of Borrower, and shall given written notice to Borrower
at such office that Holder elects to convert the principal indebtedness
evidenced by the provisions of this Debenture; provided, however, that Borrower
shall not be obligated to issue certificates evidencing the shares of common
stock issuable upon such conversion unless the original endorsed and cancelled
original copy of this Debenture is either delivered to Borrower, as specified
above, or Holder notifies Borrower that such original copy of this Debenture has
been lost, stolen or destroyed and executes an agreement satisfactory to
Borrower to indemnify Borrower from any loss incurred by Borrower in connection
with such original copy of this Debenture. Borrower shall, as soon as practical
after such delivery of an original copy of this Debenture, or such agreement and
indemnification, issue and deliver or cause to be issued and delivered to
Holder, a certificate or certificates for the number of shares of Common Stock
to which Holder shall be entitled and a check payable to Holder in the amount of
any cash amounts payable as a result of the conversion into fractional shares of
Common Stock. The person or persons entitled to receive the shares of Common
Stock issuable upon any such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
2.4 ADJUSTMENT OF CONVERSION TERMS. The Conversion Price and number of shares of
Common Stock to be issued upon conversion or purchase shall be subject to
adjustment from time to time upon the happening of certain events while the
conversion or purchase right specified by the provisions of this Debenture
remains outstanding, as follows:
A. MERGER, SALE OF ASSETS, ETC. If Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets, the provisions of this Debenture shall thereafter be evidence of the
right to purchase such securities and property as would have purchase such
number and type of securities and property as would have been issuable or
distributable on account of such consolidation, merger, sale or conveyance, upon
or with respect to the securities subject to the conversion or purchase right
immediately prior to such consolidation, merger, sale or conveyance, the
foregoing provision shall similarly apply to successive transaction of a similar
nature by any such successor or purchaser. Without limiting the generality of
the foregoing, the provisions of this Section 2.4 shall apply to such securities
of such successor or purchaser after any such consolidation, merger, sale or
conveyance.
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B. RECLASSIFICATION, ETC. If Borrower at any time shall, by subdivision,
combination or reclassification of securities, or otherwise, change any of the
right specified by the provisions of this Debenture into the same or a different
number of securities of any class or classes, the provisions of this Debenture
shall thereafter be evidence of the right to purchase such number and type of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to conversion or purchase right immediately
prior to such subdivision, combination, reclassification or other change. If
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, the Conversion Price shall be proportionately
reduced in case of subdivision of shares or proportionately increased in case of
combination of shares, in both situations by the ratio which the total number of
Common Stock to be outstanding immediately after the occurrence of such event
bears to the total number of Common Stock outstanding immediately prior to the
occurrence of such event.
2.5 CASH DISTRIBUTION. No adjustment of cash dividends on Common Stock or other
Securities purchasable pursuant to the provisions of this Debenture will be made
to the Conversion Price.
2.6 AUTHORIZED SHARES. Borrower covenants that during the period the conversion
right specified by the provisions of this Debenture exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the conversion of the
principal indebtedness evidenced by the provisions of this Debenture. Borrower
agrees that its issuance of this Debenture shall constitute full authority to
Borrower's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of the principal indebtedness evidenced by the
provisions of this Debenture.
2.7 EARLY REPAYMENT. Borrower may, at its option, repay the principal and
accrued interest evidenced by the provisions of this Debenture at any time after
June 30, 1999, if the closing bid price of the Borrower's Common Stock equals or
exceeds four dollars ($4.00) per share for any twenty (20) consecutive business
days in the prior sixty (60) business days. If the Borrower elects to repay
pursuant to the provisions of this section, Holder will have ten (10) business
days to notify Borrower of Holder's intention to exercise the conversion of the
Debenture into common shares of the Borrower.
ARTICLE THREE
REPRESENTATIONS AND WARRANTS OF BORROWER
Borrower represents and warrants that:
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3.1 EXISTENCE AND RIGHTS. Borrower is a corporation duly, organized and existing
pursuant to the laws of the State of Nevada without limit as to the duration of
its existence; Borrower has corporate powers and adequate authority, rights and
franchises to own its property and to carry on its business as now conducted,
and is duly qualified and in good standing in each jurisdiction in which the
character of the properties owned by it therein or the conduct of its business
makes such qualification necessary: and Borrower has the corporate power and
adequate authority to issue this Debenture and the underlying shares of Common
Stock.
3.2 DEBENTURE AUTHORIZED. The execution and delivery of this Debenture and the
performance of the provisions of this Debenture are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
Articles or Certificate of Incorporation or Bylaws and are duly authorized and
do not require the consent or approval of any governmental body or other
authority; and this Debenture is the valid, binding and legally enforceable
obligation of Borrower in accordance with the terms herein.
3.3 NO CONFLICT. The execution, delivery and performance of this Debenture are
not in contravention of or conflict with any agreement, indenture or undertaking
to which Borrower is a party or by which Borrower or any of Borrower's property
may be bound or affected, and does not cause any lien, charge or other
encumbrance to be created ort imposed upon any such property by reason thereof.
ARTICLE FOUR
REPRESENTATION, WARRANTIES AND CONVENANTS OF HOLDER
Holder hereby represents and warrants to and convenience with Borrower as
follows:
4.1 ABILITY TO PROVIDE FOR NEEDS. Holder has adequate means of providing for his
or her currents and possible personal contingencies and he or she no need in the
foreseeable future to sell any shares of Common Stock acquired by Holder. Holder
is able to bear economic risks of the transaction evidenced by the provisions of
this Debenture and Holder has a sufficient net worth to sustain a loss of the
principal amount lent by Holder to the Company and evidenced by the provisions
of this Debenture, in the event such loss should occur.
4.2 KNOWLEDGE AND EXPERIENCE. Holder has such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of a loan to Borrower.
4.3 BOOKS AND RECORDS. Holder confirms that all documents, records and books,
pertaining to his or her loan to Borrower have been made available to Holder.
4.4 QUESTIONS REGARDING LOAN. Holder has had an opportunity to ask questions of
an received satisfactory answers from Borrower, and any person or persons acting
on Borrower's behalf, concerning the terms and conditions of his or her loan to
Borrowers, and
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all such questions are been answered to the complete satisfaction of Holder.
4.5 ACQUISITION INTENTION. Any shares of Common Stock acquired by Holder because
of exercise of the conversion rights specified by the provisions of this
Debenture will be acquired by Holder for his or her own account for investment
in a manner which would not require registration or qualification pursuant tot
he provisions of the Securities Act of 1933,as amended ("Act"), or any state
Blue Sky law.
4.6 HISTORY AND EARNINGS OR BORROWER. It has been called to the attention of
Holder by those persons with whom the undersigned has dealt in connection with
his or her loan to Borrower, that Borrower has a limited history of operations
and insignificant earnings and that Holder's loan to Borrower involves
significant risk which may result in the loss of the amount lent to Borrower.
4.7 NO REPRESENTATIONS OR WARRANTIES. Holder has received no representations or
warranties in making his or her lending decision.
4.8 EVALUATION OF RISKS. Borrower has made available to Holder or his or her
personal advisor the opportunity to obtain appropriate to evaluate the merits
and risks of a loan to Borrower.
4.9 NO DETERMINATION BY REGULATORS. Holder understands that neither the
Securities and exchanges commission nor any Securities Administrator or similar
person of any state or province has made any finding or determination relating
to the fairness of any loan to Borrower or subsequent acquisition of Common
Stock and that neither the Securities and Exchange Commission nor any Securities
Administrator or similar person of any state or province has or will recommend
or enforce any such loan or acquisition of Common Stock
4.10 ACCREDITED INVESTOR. Holder hereby represents and warrants that Holder is
an "Accredited Investor", as defined pursuant to Section 2(a)(15) of the Act and
Rule 501 of Regulation D promulgated pursuant to the Act, and satisfies one of
the following categories:
(1) Holder is a director or executive officer of Borrower; or
(2) Holder is a natural person whose individual net worth, or joint
net worth with that Holder's spouse, at the time of his or her
loan to Borrower exceeds $1,000,000; or
(3) Holder is a natural person who has an individual income in
excess of $200,000 in each of the 2 most recent years or joint
income with Holder's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of having the same
income level in the current year; or
(4) Holder is a trust, with total asset in excess of $5,000,000, not
formed for the specific purpose of making the loan to Borrower,
whose lending
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decision is directed by a sophisticated person as described in
Regulation 230.506(b)(2)(ii) promulgated pursuant to the Act; or
(5) Holder is an entity in which all of the equity owners are
accredited investors.
4.11 INDEMNIFICATION. Holder acknowledges that he or she understands the meaning
and legal consequences of the representation, warranties, and covenants
specified in this Article 4 and that Borrower has relied on such representation,
warranties and covenants, and the undersigned hereby agrees to indemnify and
hold harmless Borrower, and its officers, directors, controlling persons,
agents, attorneys, accountants, and employees, from any and all loss, damage or
liability sue to, or occurring because of, a breach any such representation,
warranty, or covenant.
4.12 REGISTRATION OF ACQUIRED SHARES. Borrower has no right to require that any
shares of Common Stock acquired by Holder upon the exercise of the conversion
right specified in the Debenture be registered pursuant to the provisions of the
Act, or otherwise. The undersigned further acknowledges that Borrower has no
obligation to assist Holder in obtaining any exemption from any registration
requirements imposed by applicable law. Holder also acknowledges that he or she
shall be responsible for compliance with all conditions on transfer imposed by
the Securities and Exchange Commission or any Securities Administrator or
similar person of any state or province.
4.13 LIMITATION ON TRANSFER OF INTEREST. Holder acknowledges that he or she is
aware that there are substantial restrictions on the transferability of any
shares of Common Stock acquired by Holder upon the exercise of the Conversion
right specified in this Debenture. Because such Common Stock will not, and the
undersigned has no right to require that such Common Stock, be registered
pursuant to the provisions of the Act, Holder agrees not to sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any such Common Stock unless
such sale is exempt from such registration pursuant to the provisions of the
Act. Holder further acknowledges that Borrower has no obligation to assist
Holder in obtaining any exemption from any registration requirements imposed by
applicable law. Holder also acknowledges that he or she shall be responsible for
compliance with all conditions on transfer imposed by the Securities and
Exchange Commission or any Securities Administrator of any state and for any
expenses incurred by Borrower for legal and accounting services in connection
with reviewing such a proposed transfer and issuing options in connection
therewith.
4.14 COMPLIANCE WITH ACT. Holder understands and agrees that the following
restrictions and limitations are applicable to his purchase and any sale,
transfer, assignment, pledge, hypothecation or other disposition of any shares
of Common Stock acquired by Holder upon the exercise of the conversion right
specified in the Debenture pursuant to Section 4(2) of the Act and Rule 144
promulgated pursuant thereto:
(a) Borrower agrees that any shares of Common Stock acquired by
Holder
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upon the exercise of the conversion right specified in the
Debenture shall not be sold, pledged, hypothecated or otherwise
disposed of unless such Common Stock is registered pursuant to
the Act and applicable state securities laws or are exempt
therefrom.
(b) A legend in substantially the following form has been or will be
placed on any certificate(s) or other documents evidencing such
Common Stock.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR DOCUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT ONLY AND HAVE NOT BEEN REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OF 1933 AS AMENDED ("ACT"), AND HAVE BEEN OFFERED AND SOLD IN
RELIANCE UPON THE EXEMPTIONS SPECIFIED IN SECTION 4(2) AND 4(6) OF THE ACT.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT UPON DELIVERY
TO THE COMPANY OR ITS TRANSFER AGENT OF AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY OR ITS TRANSFER AGENT THAT REGISTRATION IS NOT REQUIRED COR SUCH
TRANSFER OR THE SUBMISSION TO THE COMPANY OR ITS TRANSFER AGENT OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY OR ITS TRANSFER AGENT TO THE
EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT, APPLICABLE
STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
(c) Stop transfer instructions to the transfer agent of such Common
Stock will be placed with respect to such Common Stock so as to
restrict the sale, transfer, pledge, hypothecation or other
disposition thereof, subject to the further terms hereof,
including the provisions of the legend set forth in subparagraph
(b) above.
(d) The legend and stop transfer instruction described in
subparagraphs (b) and (c) above will be placed on any new
certificate(s) or other documents for transfer.
ARTICLE FIVE
MISCELLANEOUS
5.1 LOST OR DESTROYED DEBENTURES. Upon receipt by Borrower at its principal
office of evidence satisfactory to Borrower of the loss, theft, destruction or
mutilation of this Debenture, and in the case of any such loss, theft, or
destruction, upon delivery of indemnity satisfactory to Borrower or, in case of
any such mutilation, upon surrender and cancellation of this Debenture, Borrower
will issue a new Debenture specifying provisions which are the same as those
specified in lieu of this Debenture with a notification thereon of the date from
which interest has accrued.
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<PAGE> 8
5.2 SURVIVAL OF WARRANTIES. All agreements, representations and warranties made
herein shall survive the execution and delivery hereof.
5.3 NOTICES. Any notices herein required or permitted to be given shall be in
writing and may be personally served or sent by mail and shall be deemed to have
been given when deposited in the mail, registered, with postage prepaid and
properly addressed.
5.4 AMENDMENT PROVISION. The term "Debenture" or "this Debenture" and all
references thereto, as used throughout this instrument, shall mean this
instrument as originally executed or if later amended or supplemented, then, as
so amended or supplemented.
5.5 ASSIGNABILITY. This Debenture shall obligate Borrower, its successors and
assigns. This Debenture shall not be assigned, transferred, alienated, pledged
or otherwise hypothecated by Holder without prior written consent of Borrower,
which consent may be withheld unreasonably.
5.6 GOVERNING LAW. This Debenture has been executed in and shall be governed by
the laws of the State of Nevada.
IN WITNESS WHEREOF, BORROWER AND HOLDER HAVE CAUSED THIS DEBENTURE TO BE SIGNED
IN THEIR NAMES BY THEIR DULY AUTHORIZED REPRESENTATIVES ON THE DATES SPECIFIED
OPPOSITE THEIR SIGNATURES.
Dated: November 16, 1998 BORROWER:
INTERNATIONAL TRADING &
MANUFACTURING CORPORATION,
A NEVADA CORPORATION
By: Klaus Moeller /S/
Its: CEO
Dated: November 16, 1998 HOLDER:
Steve Livingston /S/
<PAGE> 1
EXHIBIT 4.5
THIS OPTION AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS
OPTION IS NOT TRANSFERABLE, AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS
EXERCISE MAY NOT BE TRANSFERRED UNTIL (1) A REGISTERED STATEMENT UNDER THE ACT
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THEREOF, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THIS ACT IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER AND THAT SUCH PROPOSED TRANSFER IS NOT IN VIOLATION OF ANY
APPLICATION STATE SECURITIES LAWS.
OPTION
TO PURCHASE COMMON STOCK
This option granted by International Trading & Manufacturing Corporation, a
Nevada Corporation (the "Company"), as of October 20, 1998, entitles Kevin
Harrington Enterprises, Inc., a Florida Corporation (the "Grantee") to purchase
90,000 shares of the Company's Common Stock at an initial purchase price of
$3.40 per share (the "Purchase Price").
SECTION 1. Definitions. As used herein the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the Common Stock of the Company, whether now
or hereafter authorized.
(b) "Corporate Office" shall mean the office of the Company at which at any
particular time its principal business shall be administered, which
office is located at the date hereof at 11250 El Camino Real, #100, San
Diego, California 92130.
(c) "Exercise Date" shall mean the date on which the company shall have
received both (a) the option, with an exercise form acceptable to the
Company and duly executed by the Registered Holder thereof or his
attorney duly authorized in writing and (b) payment in cash or by
official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the
applicable Purchase Price.
(d) "Initial Option Exercise Date" shall mean October 20, 1998.
(e) "Purchase Price" shall mean the initial purchase price to be paid per
share of Common Stock upon exercise of each option in accordance with
the terms hereof, which price shall be $3.40, subject to adjustment from
time to time pursuant to the provisions of Section 7 hereof and the
subject to the Company's right to reduce the Purchase Price upon notice
to the Registered Holder.
(f) "Grantee" shall mean the person, in whose name the options shall be
registered on the books maintained by the Company.
(g) "Option Expiration Date" shall mean 5:00 P.M. (California time) on
October 19, 2001 provided that if such date shall in the State of
California be a holiday or a day on which banks are authorized to close,
then 5:00 P.M. (California time) on the next following day which in the
State of California is not a holiday or a day on which banks are
authorized to close. Upon notice to the Grantee the Company shall have
the right to extend the Option Expiration Date.
SECTION 2. Options and Issuance of Option Agreements.
(a) This option initially entitles the Grantee to purchase an aggregate of
90,000 shares of Common Stock upon the exercise thereof, in accordance
with terms hereof, subject to modification and adjustment as provided in
Section 7.
<PAGE> 2
(b) From time to time, up to the Option Expiration Date, the Company shall
execute and deliver options in required whole number denominations to
the Grantee (a) any such adjustment or change in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the
options made pursuant to Section 7 hereof and (b) other modifications
approved by Grantee.
SECTION 3. Form and Execution of Options: Exercise of Options.
(a) Options shall be executed on behalf of the Company by its Chairman of
the Board. President, any Vice President or Chief Financial Officer by
manual signatures. In case any officer of the Company who shall have
signed any of the options shall cease to be such officer of the Company
before the date of issuance of the options and issue delivery thereof,
such may nevertheless be issued and delivered with the same force and
effect as though the person who signed such options had not ceased to be
such officer of the Company. After execution by the Company, each option
shall then be delivered to the Grantee.
(b) Each option may be exercised by the Grantee thereof at any on or after
the Initial Exercise Date, but not after the Option Expiration Date,
upon the terms and subject to the conditions set forth herein. An option
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all
purposed as the holder upon exercise thereof as of the close of business
on the Exercise Date and the person entitled to shares of Common Stock
outstanding on such record date.
(c) Whenever the Purchase Price payable upon exercise of each option is
adjusted as provided above, the number of shares of Common Stock
purchasable upon exercise of this option shall simultaneously be
adjusted by multiplying the number of shares of Common Stock initially
issuable upon exercise of this option by the Purchase Price in effect on
the date hereof and dividing the product so obtained by the Purchase
Price, as adjusted.
(d) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of options outstanding in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each option as herein above provided, so that each option
outstanding after such adjustment shall represent the right to purchase
one share of Common Stock. Each option held of record prior to such
adjustment of the number of options shall become that number of options
determined by multiplying the number one by a fraction the numerator of
which shall be the Purchase Price in effect immediately after such
adjustment. Upon each adjustment of the number of option, pursuant to
this Section 7, the Company shall, as promptly as practicable, cause to
be distributed to the Grantee of an option on the date of such
adjustment an option evidencing, subject to Section 8 hereof, the number
of additional options to which such Holder shall be entitled as a result
of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the
option held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) a new option evidencing the number
of options to which such shall be entitled after such adjustment.
(e) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the
options, the option or options theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue a new option
pursuant to Section 7 (d) hereof continue to express the Purchase Price
per share and the number of shares purchasable thereunder as they were
expressed in the option when it was originally issued.
(f) After each adjustment of the Purchase Price pursuant to this Section 7.
the Company will promptly prepare a certificate signed by the Chairman
or President and by the Chief Financial Officer, Controller, Treasurer
or an Assistant Treasurer or the Secretary or Assistant, delivered to
the optionee stating the exercise price per share and the number of
shares deliverable upon exercise. As soon as practicable on or after the
Exercise Date the Company shall deposit the proceeds received from the
exercise of a Warrant, and promptly after clearance of checks received
in
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<PAGE> 3
payment of the Purchase Price pursuant to such options, caused to be
issued and delivered by the Company's transfer agent, to the person or
persons entitled to receive the same, a certificate or certificates for
the securities deliverable upon such exercise (plus an option for any
remaining unexercised options of the Grantee).
SECTION 4. Reservation of Shares; Payment of Taxes.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock solely for the purpose of
issue upon exercise of the options, such number of shares of Common
Stock which shall then be issuable upon the exercise of all outstanding
options. The Company covenants that all shares of Common Stock which
shall be issuable upon exercise of the options and payment and Purchase
Price shall, at the time of delivery, be duly and validly issued, fully
paid, nonassessable and free from all taxes, liens and charges with
respect with the issued thereof (other than those which the Company
shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain appropriate approvals
or registrations under state "blue sky" securities laws with respect to
the exercise of the options; provided, however, that the Company shall
not be obligated to file any general consent to service of process or
qualify as a foreign corporation in any jurisdiction. With respect to
any such securities laws, however, options may not be exercised by, or
shares of Common Stock issued to, Grantee in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be charged with respect to the issuance of
the options; or the issuance, or delivered of any shares upon exercise
of the options; provided, however, that if the shares of Common Stock
are to be delivered in a name other than the name of the Grantee of the
option being exercised, then no such delivery shall be made unless the
person requesting the same has paid to the Company the amount of
transfer taxes or charges incident thereof, if any.
SECTION 5. Registration Rights.
(a) Upon demand by Grantee the Company shall use commercially reasonable
efforts to prepare and file with the Securities and Exchange Commission
(SEC) a registration statement and to cause such registration statement
to become and remain effective until all of the shares are sold without
restriction under the rules and regulations promulgated by the SEC.
(b) In the case of any registration pursuant to the Section 10, the Company
shall keep the person whose securities are to be registered thereunder
advised of the initiation and completion of such registration. At its
expense, except as provided in Section 10 (b) (iv) below, the Company
will promptly:
(i) Prepare and file with the SEC the registration statement
described in Section 10 (a) above and thereafter use
commercially reasonable efforts to cause such registration
statement to become effective;
(ii) Prepare and file with the SEC such amendments and supplements to
such registration and the prospectus, used in connection with
such registration statement as may be necessary to comply with
the provisions of the Securities Act;
(iii) Furnish to the Selling Stockholder such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act of 1933, and such
other documents as they may reasonably requested in order to
facilitate the disposition of the securities covered by such
registration statement;
(iv) Use commercially reasonable efforts to register and qualify the
securities covered by such
3
<PAGE> 4
registration statement under such other securities or Blue Sky
laws of such jurisdiction as shall be reasonably request by
selling Stockholder, provided, that the Company shall not be
required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service
of process in any such statement or jurisdictions;
(v) Notify the Selling Stockholder covered by such registration
statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus
includes such registration statements;
(vi) Cause all such shares exercised hereunder to be listed on such
securities exchange or market system on which similar securities
issued by the Company are then listed; and
(vii) Provide a transfer agent and register for such Shares not later
than the effective dates of such registration statements.
(c) The Grantee shall provide the Company with all necessary and reasonable
assistance in the preparation and filing of the registration statement
required to be prepared and file by the Company and other obligations of
the Company under this Section 5.
SECTION 6. Exchange of Option.
(a) This option may be exchanged for other options representing an equal
aggregate number of options of the same type. Options to be exchanged
shall be surrendered to the Company at its Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall
execute, issue and deliver in exchange therefore the option or options
which the Grantee making the exchange shall be enticed to receive.
(b) The Company shall keep at its office books in which it shall register
the options in accordance with its regular practice.
(c) The Company may require payment by such Grantee of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection
therewith.
(d) All options surrendered for exercise or for exchange in case of
mutilated options shall be promptly canceled by the Company and
thereafter retained by the Company until the Option Expiration Date, or
such other time as the Company shall determine solely within its
discretion.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company of evidence satisfactory to them of the
ownership of and loss, theft, destruction or mutilation of any option
and (in case of loss, theft, destruction) of indemnity satisfactory to
them, and (in cases of mutilation) upon surrender and cancellation
hereof, the Company shall execute and deliver to the Grantee in lieu
thereof a new option of like tenor representing an equal aggregate
number of options. Applicants for a substitution option shall comply
with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe or require.
SECTION 8. Adjustments of Exercise Price and number of Shares of Common Stock or
Options.
(a) In case the Company shall (i) declare a dividend or make a distribution
in its outstanding, shares of Common Stock in shares of Common Stock;
(ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares; or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Purchase Price in effect at the time
4
<PAGE> 5
of the record date for such dividend or distribution of the effective
date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the
Purchase Price by a fraction, the denominator which shall be the number
of shares of Common Stock outstanding after giving affect to such
action, and the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(b) In case the Company shall fix a record dare for the issuance of rights
or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price") (or
having a conversion price per share) less than the Purchase Price on
such record date, the Purchase Price shall be adjusted so that the same
shall equal the price determined by multiplying the Purchase Price in
effect immediately prior to the date of such issuance by a fraction, the
numerator of which all be the sum of the number of shares of Common
Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would
purchase at such Purchase Price, and the denominator of which shall be
the sum of the number certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof,
the Company shall pay to the Grantee an amount in cash equal to such
fraction multiplied by the current market value of such fractional
share, determined as follows:
A statement by the Secretary of the Company setting forth: (i) the
Purchase Price as adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise or each option after such adjustment, and, if
the Company shall have elected to adjust the number of options, the
number of options to which the Grantee of each option shall then be
entitled, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly cause a brief summary thereof to
be sent by ordinary first class mail to each Grantee of options at his
last address as it shall appear on the registry books of the Company. No
failure to mail such notice nor any defect herein or in the mailing
thereof shall affect the validity thereof except as to the holder whose
notice was defective. The affidavit of the Secretary or Assistant
Secretary of the Company that such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated herein.
(c) For purposes of Section 7 hereof, the following provisions shall also be
applicable:
(A) The number of shares of Common Stock outstanding at any given time
shall include shares of Common Stock owned or held by or for the account
of the Company and the sale for issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a
Change of Shares for purposed of said sections.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $0.05 in
such price, provided that any adjustments which by reason of this clause
(B) are not to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together
with any adjustment (s) so carried forward, shall require an increase or
decrease of at least $0.05 in the Purchase Price then in effect
hereunder.
(h) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 7, or as to the amount
of any such adjustment, if required, shall be binding upon the Grantee
of the options and the Company if made in good faith by the Board of
Directors of the Company.
(i) If and whenever the Company shall declare any dividends or distributions
or grant to the holders of Common Stock, as such, rights or warrants to
subscribe for or to purchase, or any options of the purchase of, Common
Stock or securities convertible into or exchangeable for or carrying a
right, warrant or option to purchase Common Stock, the Company shall
notify each of the then Grantees
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<PAGE> 6
of the options of such evince prior to its occurrence to enable such
options to exercise their options and participate as holders of Common
Stock in such event.
SECTION 9. Fractional Options and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the exercise of
each options is adjusted pursuant to Section 7 hereof, the Company shall
nevertheless not be required to issue fractions of shares, upon exercise
of the options or otherwise, or to distribute the shares:
(A) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privilege on such exchange or listed for
trading on the National Market System of NASDAQ ("NMS"), the current
value shall be the last reported sale price of the Common Stock on such
exchange of the last business day prior to the date of exercise of this
option or if no such sale is made on such day or no closing sale price
is quoted, the average of the closing bid and asked prices for such day
on such exchange or system; or
(B) If the Common Stock is listed in the over-the-counter marked (other than
on NMS) or admitted to adjusted trading privileges, the current value
shall be the mean of the last reported bid and asked prices reported by
the National Quotation Bureau, Inc. on the last business day prior to
the date of the exercise of this option; or
(C) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current
value shall be an amount decreed in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 10. Option Holder Not Deemed Stockholder. No holder of options shall, as
such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such options for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of options, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change or par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice e
of meetings, or to receive dividends or subscription rights, until such Grantee
shall have exercised such options and been issued shares of Common Stock in
accordance with the provisions hereof.
SECTION 11. Rights of Action. All rights of action with respect to this option
are vested in the Grantee of the options, and the Grantee of an option, without
consent of the holder of any other option, may, on his own behalf and for his
own benefit, enforce against the Company his right to exercise his options for
the purchase of shares of Common Stock in the manner provided in this Warrant.
SECTION 12. Agreement of Option Holder. Every holder of an option by his
acceptance thereof, consents and agrees with the Company that the Company may
deem and treat the person in whose name the option is registered as the sold and
as the absolute, true and lawful owner of the options represented thereby for
all purposes, and the Company shall not be affected by any notice or knowledge
to the contrary, except as otherwise expressly provided in Section 6 hereof.
SECTION 13. Gender, Singular and Plural. When the context and construction so
require, all words used in the singular herein shall be deemed to have been used
in the plural and the masculine shall include the feminine and neuter and vice
versa.
SECTION 14. Governing Law. This option shall be governed by and construed in
accordance with the laws of the State of California, without reference to
principal of conflict of laws.
SECTION 15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be denied to have been made when
delivered or mailed first class registered or certified
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<PAGE> 7
mail postage prepaid, as follows: If to the Grantee of options, at the address
of such holder as shown on the registry books maintained by the Company; if to
the Company 11250 El Camino Real, #100, San Diego, California 92130.
SECTION 16. Binding Effect. This option shall be binding upon and inure to the
benefit of the Company (and its respective successors and assigns). Nothing in
this option is intended or shall be construed to confer upon any other person
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
SECTION 17. Termination. This option shall terminate at the close of business on
the option Expiration Date.
International Trading & Manufacturing Corporation
By: /S/
----------------------------------------
Klaus Moeller, Chief Executive Officer
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<PAGE> 1
EXHIBIT 4.6
THIS OPTION AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS
OPTION IS NOT TRANSFERABLE, AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS
EXERCISE MAY NOT BE TRANSFERRED UNTIL (1) A REGISTERED STATEMENT UNDER THE ACT
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THEREOF, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THIS ACT IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER AND THAT SUCH PROPOSED TRANSFER IS NOT IN VIOLATION OF ANY
APPLICATION STATE SECURITIES LAWS.
OPTION
TO PURCHASE COMMON STOCK
This option granted by International Trading & Manufacturing Corporation, a
Nevada Corporation (the "Company"), as of October 20, 1998, entitles Tim
Harrington, (the "Grantee") to purchase 60,000 shares of the Company's Common
Stock at an initial purchase price of $3.40 per share (the "Purchase Price").
SECTION 1. Definitions. As used herein the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the Common Stock of the Company, whether now
or hereafter authorized.
(b) "Corporate Office" shall mean the office of the Company at which at any
particular time its principal business shall be administered, which
office is located at the date hereof at 11250 El Camino Real, #100, San
Diego, California 92130.
(c) "Exercise Date" shall mean the date on which the company shall have
received both (a) the option, with an exercise form acceptable to the
Company and duly executed by the Registered Holder thereof or his
attorney duly authorized in writing and (b) payment in cash or by
official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the
applicable Purchase Price.
(d) "Initial Option Exercise Date" shall mean October 20, 1998.
(e) "Purchase Price" shall mean the initial purchase price to be paid per
share of Common Stock upon exercise of each option in accordance with
the terms hereof, which price shall be $3.40, subject to adjustment
from time to time pursuant to the provisions of Section 7 hereof and
the subject to the Company's right to reduce the Purchase Price upon
notice to the Registered Holder.
(f) "Grantee" shall mean the person, in whose name the options shall be
registered on the books maintained by the Company.
(g) "Option Expiration Date" shall mean 5:00 P.M. (California time) on
October 19, 2001 provided that if such date shall in the State of
California be a holiday or a day on which banks are authorized to
close, then 5:00 P.M. (California time) on the next following day which
in the State of California is not a holiday or a day on which banks are
authorized to close. Upon notice to the Grantee the Company shall have
the right to extend the Option Expiration Date.
SECTION 2. Options and Issuance of Option Agreements.
(a) This option initially entitles the Grantee to purchase an aggregate of
90,000 shares of Common Stock upon the exercise thereof, in accordance
with terms hereof, subject to modification and adjustment as provided
in Section 7.
(b) From time to time, up to the Option Expiration Date, the Company shall
execute and deliver
<PAGE> 2
options in required whole number denominations to the Grantee (a) any
such adjustment or change in the Purchase Price or the number of shares
of Common Stock purchasable upon exercise of the options made pursuant
to Section 7 hereof and (b) other modifications approved by Grantee.
SECTION 3. Form and Execution of Options: Exercise of Options.
(a) Options shall be executed on behalf of the Company by its Chairman of
the Board. President, any Vice President or Chief Financial Officer by
manual signatures. In case any officer of the Company who shall have
signed any of the options shall cease to be such officer of the Company
before the date of issuance of the options and issue delivery thereof,
such may nevertheless be issued and delivered with the same force and
effect as though the person who signed such options had not ceased to
be such officer of the Company. After execution by the Company, each
option shall then be delivered to the Grantee.
(b) Each option may be exercised by the Grantee thereof at any on or after
the Initial Exercise Date, but not after the Option Expiration Date,
upon the terms and subject to the conditions set forth herein. An
option shall be deemed to have been exercised immediately prior to the
close of business on the Exercise Date and the person entitled to
receive the securities deliverable upon such exercise shall be treated
for all purposed as the holder upon exercise thereof as of the close of
business on the Exercise Date and the person entitled to shares of
Common Stock outstanding on such record date.
(c) Whenever the Purchase Price payable upon exercise of each option is
adjusted as provided above, the number of shares of Common Stock
purchasable upon exercise of this option shall simultaneously be
adjusted by multiplying the number of shares of Common Stock initially
issuable upon exercise of this option by the Purchase Price in effect
on the date hereof and dividing the product so obtained by the Purchase
Price, as adjusted.
(d) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of options outstanding in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each option as herein above provided, so that each option
outstanding after such adjustment shall represent the right to purchase
one share of Common Stock. Each option held of record prior to such
adjustment of the number of options shall become that number of options
determined by multiplying the number one by a fraction the numerator of
which shall be the Purchase Price in effect immediately after such
adjustment. Upon each adjustment of the number of option, pursuant to
this Section 7, the Company shall, as promptly as practicable, cause to
be distributed to the Grantee of an option on the date of such
adjustment an option evidencing, subject to Section 8 hereof, the
number of additional options to which such Holder shall be entitled as
a result of such adjustment or, at the option of the Company, cause to
be distributed to such Holder in substitution and replacement for the
option held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) a new option evidencing the number
of options to which such shall be entitled after such adjustment.
(e) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the
options, the option or options theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue a new option
pursuant to Section 7 (d) hereof continue to express the Purchase Price
per share and the number of shares purchasable thereunder as they were
expressed in the option when it was originally issued.
(f) After each adjustment of the Purchase Price pursuant to this Section 7.
the Company will promptly prepare a certificate signed by the Chairman
or President and by the Chief Financial Officer, Controller, Treasurer
or an Assistant Treasurer or the Secretary or Assistant, delivered to
the optionee stating the exercise price per share and the number of
shares deliverable upon exercise. As soon as practicable on or after
the Exercise Date the Company shall deposit the proceeds received from
the exercise of a Warrant, and promptly after clearance of checks
received in payment of the Purchase Price pursuant to such options,
caused to be issued and delivered by the
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<PAGE> 3
Company's transfer agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable
upon such exercise (plus an option for any remaining unexercised
options of the Grantee).
SECTION 4. Reservation of Shares; Payment of Taxes.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock solely for the purpose of
issue upon exercise of the options, such number of shares of Common
Stock which shall then be issuable upon the exercise of all outstanding
options. The Company covenants that all shares of Common Stock which
shall be issuable upon exercise of the options and payment and Purchase
Price shall, at the time of delivery, be duly and validly issued, fully
paid, nonassessable and free from all taxes, liens and charges with
respect with the issued thereof (other than those which the Company
shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain appropriate approvals
or registrations under state "blue sky" securities laws with respect to
the exercise of the options; provided, however, that the Company shall
not be obligated to file any general consent to service of process or
qualify as a foreign corporation in any jurisdiction. With respect to
any such securities laws, however, options may not be exercised by, or
shares of Common Stock issued to, Grantee in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be charged with respect to the issuance
of the options; or the issuance, or delivered of any shares upon
exercise of the options; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the
Grantee of the option being exercised, then no such delivery shall be
made unless the person requesting the same has paid to the Company the
amount of transfer taxes or charges incident thereof, if any.
SECTION 5. Registration Rights.
(a) Upon demand by Grantee the Company shall use commercially reasonable
efforts to prepare and file with the Securities and Exchange Commission
(SEC) a registration statement and to cause such registration statement
to become and remain effective until all of the shares are sold without
restriction under the rules and regulations promulgated by the SEC.
(b) In the case of any registration pursuant to the Section 10, the Company
shall keep the person whose securities are to be registered thereunder
advised of the initiation and completion of such registration. At its
expense, except as provided in Section 10 (b) (iv) below, the Company
will promptly:
(i) Prepare and file with the SEC the registration statement
described in Section 10 (a) above and thereafter use
commercially reasonable efforts to cause such registration
statement to become effective;
(ii) Prepare and file with the SEC such amendments and supplements
to such registration and the prospectus, used in connection
with such registration statement as may be necessary to comply
with the provisions of the Securities Act;
(iii) Furnish to the Selling Stockholder such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act of 1933, and such
other documents as they may reasonably requested in order to
facilitate the disposition of the securities covered by such
registration statement;
(iv) Use commercially reasonable efforts to register and qualify
the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdiction as
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<PAGE> 4
shall be reasonably request by selling Stockholder, provided,
that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file
a general consent to service of process in any such statement
or jurisdictions;
(v) Notify the Selling Stockholder covered by such registration
statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus
includes such registration statements;
(vi) Cause all such shares exercised hereunder to be listed on such
securities exchange or market system on which similar
securities issued by the Company are then listed; and
(vii) Provide a transfer agent and register for such Shares not
later than the effective dates of such registration
statements.
(c) The Grantee shall provide the Company with all necessary and reasonable
assistance in the preparation and filing of the registration statement
required to be prepared and file by the Company and other obligations
of the Company under this Section 5.
SECTION 6. Exchange of Option.
(a) This option may be exchanged for other options representing an equal
aggregate number of options of the same type. Options to be exchanged
shall be surrendered to the Company at its Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall
execute, issue and deliver in exchange therefore the option or options
which the Grantee making the exchange shall be enticed to receive.
(b) The Company shall keep at its office books in which it shall register
the options in accordance with its regular practice.
(c) The Company may require payment by such Grantee of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection
therewith.
(d) All options surrendered for exercise or for exchange in case of
mutilated options shall be promptly canceled by the Company and
thereafter retained by the Company until the Option Expiration Date, or
such other time as the Company shall determine solely within its
discretion.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company of evidence satisfactory to them of the
ownership of and loss, theft, destruction or mutilation of any option
and (in case of loss, theft, destruction) of indemnity satisfactory to
them, and (in cases of mutilation) upon surrender and cancellation
hereof, the Company shall execute and deliver to the Grantee in lieu
thereof a new option of like tenor representing an equal aggregate
number of options. Applicants for a substitution option shall comply
with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe or require.
SECTION 8. Adjustments of Exercise Price and number of Shares of Common Stock or
Options.
(a) In case the Company shall (i) declare a dividend or make a distribution
in its outstanding, shares of Common Stock in shares of Common Stock;
(ii) subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares; or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Purchase Price in effect at the time of the record date for such
dividend or distribution of the effective date of such subdivision,
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<PAGE> 5
combination or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Purchase Price by a
fraction, the denominator which shall be the number of shares of Common
Stock outstanding after giving affect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record dare for the issuance of rights
or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price")
(or having a conversion price per share) less than the Purchase Price
on such record date, the Purchase Price shall be adjusted so that the
same shall equal the price determined by multiplying the Purchase Price
in effect immediately prior to the date of such issuance by a fraction,
the numerator of which all be the sum of the number of shares of Common
Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would
purchase at such Purchase Price, and the denominator of which shall be
the sum of the number certificates that evidence fractional shares.
With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Grantee an amount in cash equal to
such fraction multiplied by the current market value of such fractional
share, determined as follows:
A statement by the Secretary of the Company setting forth: (i) the
Purchase Price as adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise or each option after such adjustment, and, if
the Company shall have elected to adjust the number of options, the
number of options to which the Grantee of each option shall then be
entitled, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly cause a brief summary thereof to
be sent by ordinary first class mail to each Grantee of options at his
last address as it shall appear on the registry books of the Company.
No failure to mail such notice nor any defect herein or in the mailing
thereof shall affect the validity thereof except as to the holder whose
notice was defective. The affidavit of the Secretary or Assistant
Secretary of the Company that such notice has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated herein.
(c) For purposes of Section 7 hereof, the following provisions shall also
be applicable:
(A) The number of shares of Common Stock outstanding at any given time
shall include shares of Common Stock owned or held by or for the
account of the Company and the sale for issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposed of said sections.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $0.05 in
such price, provided that any adjustments which by reason of this
clause (B) are not to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment
which, together with any adjustment (s) so carried forward, shall
require an increase or decrease of at least $0.05 in the Purchase Price
then in effect hereunder.
(h) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 7, or as to the amount
of any such adjustment, if required, shall be binding upon the Grantee
of the options and the Company if made in good faith by the Board of
Directors of the Company.
(i) If and whenever the Company shall declare any dividends or
distributions or grant to the holders of Common Stock, as such, rights
or warrants to subscribe for or to purchase, or any options of the
purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase
Common Stock, the Company shall notify each of the then Grantees of the
options of such evince prior to its occurrence to enable such options
to exercise their options
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<PAGE> 6
and participate as holders of Common Stock in such event.
SECTION 9. Fractional Options and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the exercise
of each options is adjusted pursuant to Section 7 hereof, the Company
shall nevertheless not be required to issue fractions of shares, upon
exercise of the options or otherwise, or to distribute the shares:
(A) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privilege on such exchange or listed for
trading on the National Market System of NASDAQ ("NMS"), the current
value shall be the last reported sale price of the Common Stock on such
exchange of the last business day prior to the date of exercise of this
option or if no such sale is made on such day or no closing sale price
is quoted, the average of the closing bid and asked prices for such day
on such exchange or system; or
(B) If the Common Stock is listed in the over-the-counter marked (other
than on NMS) or admitted to adjusted trading privileges, the current
value shall be the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. on the last business
day prior to the date of the exercise of this option; or
(C) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current
value shall be an amount decreed in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 10. Option Holder Not Deemed Stockholder. No holder of options shall, as
such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such options for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of options, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change or par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive notice e
of meetings, or to receive dividends or subscription rights, until such Grantee
shall have exercised such options and been issued shares of Common Stock in
accordance with the provisions hereof.
SECTION 11. Rights of Action. All rights of action with respect to this option
are vested in the Grantee of the options, and the Grantee of an option, without
consent of the holder of any other option, may, on his own behalf and for his
own benefit, enforce against the Company his right to exercise his options for
the purchase of shares of Common Stock in the manner provided in this Warrant.
SECTION 12. Agreement of Option Holder. Every holder of an option by his
acceptance thereof, consents and agrees with the Company that the Company may
deem and treat the person in whose name the option is registered as the sold and
as the absolute, true and lawful owner of the options represented thereby for
all purposes, and the Company shall not be affected by any notice or knowledge
to the contrary, except as otherwise expressly provided in Section 6 hereof.
SECTION 13. Gender, Singular and Plural. When the context and construction so
require, all words used in the singular herein shall be deemed to have been used
in the plural and the masculine shall include the feminine and neuter and vice
versa.
SECTION 14. Governing Law. This option shall be governed by and construed in
accordance with the laws of the State of California, without reference to
principal of conflict of laws.
SECTION 15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be denied to have been made when
delivered or mailed first class registered or certified mail postage prepaid, as
follows: If to the Grantee of options, at the address of such holder as shown on
the
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registry books maintained by the Company; if to the Company 11250 El Camino
Real, #100, San Diego, California 92130.
SECTION 16. Binding Effect. This option shall be binding upon and inure to the
benefit of the Company (and its respective successors and assigns). Nothing in
this option is intended or shall be construed to confer upon any other person
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
SECTION 17. Termination. This option shall terminate at the close of business on
the option Expiration Date.
International Trading & Manufacturing Corporation
By: /S/
----------------------------------------------
Klaus Moeller, Chief Executive Officer
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<PAGE> 1
EXHIBIT 4.7
FORM OF
STOCK OPTION AGREEMENT PURSUANT TO THE
GENIUS PRODUCTS, INC.
NON-QUALIFIED STOCK OPTION PLAN
THIS STOCK OPTION AGREEMENT dated as of December 7, 1997 between
Genius Products, Inc., a Nevada corporation (the "CORPORATION") and ____________
("GRANTEE").
WHEREAS, pursuant and subject to the Corporation's Non-Qualified
Stock Option Plan, a copy of which is attached hereto as Exhibit B and
incorporated herein by this reference (the "PLAN"), the Corporation's Board of
Directors has determined that it is the best interests of the Corporation and
its stockholders to grant the options provided for herein to Grantee;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration the sufficiency of which is
hereby acknowledge, the parties agree as follows:
1. GRANT OF OPTION: For value received, the Corporation hereby
grants to Grantee an option (the "OPTION") to purchase, on the terms and subject
to the conditions hereinafter set forth, shares of the Company's common stock as
set forth on Exhibit A attached hereto. The Corporation shall amend and restate
Exhibit A from time to time to reflect additional grants of options awarded to
Grantee by the Committee appointed by the Board of Directors of the Corporation
to administer the Corporation's Non-Qualified Stock Option Plan.
2. TIME AND MANNER OF EXERCISE: The purchase shall be made upon
delivery to the Corporation of a notice of exercise accompanied by a certified
or cashier's check in payment of the aggregate Option price, or in shares of the
capital stock of the Corporation already owned by the person exercising the
Option, valued at fair market value, or by cancellation of the Option with
respect to shares as to which it is then exercisable and as to which the
difference between fair market value of shares and the exercise price with
respect to shares equals the exercise price of the shares as to which the Option
is being exercised. Promptly upon receipt of such material, the Corporation will
deliver to Grantee stock certificate(s) representing the number of shares
purchased in accordance with the forgoing and during Grantee's lifetime, duly
registered in the name(s) of Grantee and, at Grantee election, his or her
nominee. The failure to exercise an Option with respect to any shares of the
Corporation's common stock for which the right has accrued during any one-year
period shall not result in the termination of the Option with respect to such
shares of stock; rather, the same shall cumulate and be eligible for exercise
during the remainder of the Option term.
3. ANTIDILUTION PROVISIONS: The number of shares that Grantee is
entitled to purchase upon the exercise of the Option and the purchase price of
those shares are the subject only the adjustments set forth in Section 5.7 of
the Plan.
4. INVESTMENT UNDERTAKING; NONASSIGNABILITY: The Option may be
exercised only by the Grantee during his or her lifetime. Grantee will hold the
Option and the rights arising hereunder for investment and not with a view to
distribution, and upon the exercise will deliver a letter confirming Grantee's
non-distributive intent with respect to the shares of common stock received.
Grantee will not transfer or assign the Option, except by will or the laws of
interstate succession.
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<PAGE> 2
5. EXPIRATION: The Option shall terminate and expire at midnight on
the date that is eight (8) years after the date of this Agreement unless the
Option expires prior to such date pursuant to Section 3 of the Plan. If Grantee
dies while still eligible to participate in the Plan, the right of his or her
executer(s) or administrator(s), or any person or persons who acquired the
Option from the Grantee by bequest or inheritance to exercise the Option shall
be governed by Section 3.3 of the Plan.
6. REPRESENTATIONS OF THE CORPORATION: So long as the Option remains
outstanding and unexpired, the Corporation will reserve for issuance upon the
exercise of the Option the number of shares of the Corporation's common stock
that are subject to the Option. The shares of common stock of the Corporation
subject to the Option shall, when due and payable, any and all federal and state
taxes or fees that may be payable by the Corporation with respect to the grant
of the Option or the issuance of any shares of common stock or certificates
therefore subject to the Option. However, this does not include any federal,
state, or other personal income tax payable by the Grantee by virtue of (i) the
grant of the Option; (ii) the issuance of any share of common stock upon
Exercise thereof; or (iii) any subsequence disposition of such shares which
shall remain the obligation of the Grantee.
7. WITHHOLDING TAXES: If the Corporation determines that it is
required to withhold federal, state, or local tax as a result of the exercise of
this option, the Grantee, as a condition to the exercise of the Option, shall
make arrangements satisfactory to the Corporation to enable it to satisfy such
withholding requirements.
8. COMMITTEE DETERMINATION FINAL: The interpretation and
construction of the Plan and the Stock Option Agreement, including any
inconsistency between the two documents, shall be reserved to and made by the
Committee of the Board of Directors provided for under the Plan. The Committee's
determinations shall be final as between the parties hereto unless otherwise
determined by the Board of Directors of the Corporation.
9. INTEGRATION: This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the Company and Grantee,
and supersedes any and all prior agreements, letters of intent, correspondence,
negotiations, discussions or understandings between the Company or any
predecessor of the Company and the Grantee.
10. SEVERABILITY: If any provision of the Agreement is held invalid
by a court with jurisdiction over the parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as possible the
original intentions of the parties in accordance with applicable law and (ii)
the remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect. If this Agreement is held invalid or
cannot be enforced, then to the full extent permitted by law any prior agreement
between the Company (or any predecessor thereof) and the Grantee shall be deemed
reinstated as if this Agreement had not been executed.
11. SUCCESSORS: The Company's rights and obligations under this
Agreement will inure to the benefit and be binding upon the Company's successors
and assignees.
12. AMENDMENTS: This Agreement may be altered only by a written
agreement signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
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<PAGE> 3
13. NOTICES: Any notice, approval, request, authorization, direction
or other communication under this Agreement will be given in writing and will be
deemed to have been delivered and given for all purposes (i) on the delivery
date if delivered personally to the party to whom the same is directed; (iii)
one business day after deposit with a commercial overnight carrier, with written
verification of receipt; or (iii) five business days after the mailing date,
whether or not actually received, if sent by U.S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. All notices to the Company will be
effective if delivered to ITM Corporation, 11250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: President, or such other address specified by the
Company in writing. All notices to Grantee will be effective if delivered to
Grantee's last residential address provided to the Company by Grantee.
14. ASSIGNMENTS: The Company will not assign this Agreement or any
right, interest or benefit under this Agreement without the prior written
consent of Grantee.
15. REMEDIES: Except where otherwise specified herein, the rights
and remedies granted to a party under the Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies which the Party
may possess at law or in equity.
16. LIMITED EFFECT OF WAIVER BY COMPANY: Should Company waive breach
of any provision of this Agreement by the Grantee, such waiver will not operate
or be construed as a waiver of further breach by the Grantee.
17. COUNTERPARTS: The Agreement may be executed in counterparts,
each of which will be deemed an original and all of which together will
constitute one and the same document.
18. GOVERNING LAW; JURISDICTION; VENUE: The Agreement will be
interpreted, construed and enforced in all respects in accordance with the laws
of the State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts San Diego County of the State of California in
connection with any action arising under this Agreement and waives all defenses
regarding the inconvenience of such forum. THE PARTIES IRREVOCABLY WAIVE THEIR
RIGHTS TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM, COUNTERCLAIM OR OTHER
PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
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<PAGE> 4
IN WITNESS WHEREOF, this Stock Option Agreement is executed on
behalf of the Corporation and its duly authorized officers and by Grantee as of
the date first above written.
Genius Products, Inc.
By:
-------------------------
Its:
GRANTEE
- -----------------------------
4
<PAGE> 5
FORM OF
STOCK OPTION AGREEMENT PURSUANT TO THE
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
EXHIBIT A
GRANTEE: ______________
<TABLE>
<CAPTION>
Date of Grant Number of Shares Exercise Price Vesting Dates
- ------------- ---------------- -------------- -------------
<S> <C> <C> <C>
</TABLE>
5
<PAGE> 1
EXHIBIT 10.1
LICENSE AGREEMENT
Minnesota Communications Group
and
International Trading and Manufacturing
This License Agreement ("Agreement") is entered into in duplicate
effective as of the 6th day of January, 1999, by and among Minnesota
Communications Group, a Minnesota nonprofit corporation having a place of
business at 444 Cedar Street, Suite 1900, St. Paul, Minnesota, 55101
("Licensor"); and International Trading & Manufacturing Corporation, a Nevada
corporation having a place of business at Suite 100, 11250 El Camino Real, San
Diego, California 92130 ("Licensee"). Licensor and Licensee are sometimes also
referred to in this Agreement individually, as a "party" and, collectively, as
the "parties".
RECITALS
A. Licensor is the owner of all rights in and to the marks PUBLIC RADIO
MUSICSOURCE, PRMS and PRMS (and Design).
B. Licensee is in the business of producing and distributing sound
recordings, and in particular compact discs featuring classical music which are
intended to be played for infants and children.
C. Licensee wishes to acquire from Licensor an exclusive, non-assignable
license to use the marks PUBLIC RADIO MUSICSOURCE, PRMS, and PRMS (and Design)
in connection with Licensee's promotion, marketing, sale and distribution of
the compact discs described in Recital B. Licensor is willing to grant such a
license under the terms and conditions as hereinafter set forth.
NOW, THEREFORE, based on the foregoing recitals and in consideration of
the mutual promises herein contained, the parties hereby agree as follows.
ARTICLE 1
DEFINITIONS, GRANT OF LICENSE AND USE LIMITATIONS
1.01 Definitions. For the purposes of this Agreement, the following
definitions shall apply:
<PAGE> 2
a) "Licensed Trademarks" also sometimes referred to herein as the
"Property") shall include and be limited to the marks PUBLIC RADIO
MUSICSOURCE (U.S. Registration No. 1,875,645), PRMS and PRMS (and
Design).
b) "Licensed Products" shall mean compact discs respectively entitled
Genius, Baby Genius, Little Genius, Kid Genius and Child Genius
produced and distributed by Licensee. The parties may, upon prior
mutual written consent, revise this definition by adding products to
and/or deleting products from the products listed above.
c) "Licensed Territory" shall mean the United States of America, its
territories and possessions.
d) "License Period" shall mean the period specified in Paragraph 4.01 of
this Agreement.
e) "Effective Date" shall mean the effective date of this Agreement,
which is January 6, 1999.
1.02 Grant of Exclusive License. Licensor hereby grants, and Licensee
hereby accepts, the nontransferable and exclusive right and license to use the
Licensed Trademarks in connection with the promotion, marketing, sale and
distribution by the Licensee of the Licensed Products.
1.03 Limitation on Use. Licensee's use of the Property shall be limited to
uses not inconsistent with the provisions of this Agreement and the license
granted by the provisions of this Agreement, which are reasonably related to
the promotion of the Genius Products in general. As set forth in this
Agreement, Licensee may not make any use of the Property after the expiration
of the License Period.
1.04. No Transfer. Licensee may not transfer, assign, sublicense, sell,
pledge, or hypothecate, or purport to transfer, assign, sublicense, sell,
pledge, or hypothecate the license granted by the provisions of this Agreement.
1.05. Costs and Expenses. Licensee shall bear and pay all costs and
expenses of promoting sales of the Licensed Products and any use of the
Property in connection therewith.
1.06. Indemnification for Promotional Materials. Licensee shall indemnify
and hold harmless Licensor from and against any liabilities, loss, damages,
expenses (including reasonable attorney's fees and costs), causes of action,
suits, claims or judgments arising out of or based upon the use of any false or
misleading publicity and promotional materials prepared or used by Licensee in
connection with the Licensed Products.
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<PAGE> 3
ARTICLE II
USE OF LICENSED TRADEMARKS AND QUALITY CONTROL
2.01 Ownership. Licensee acknowledges that the Licensed Trademarks are the
sole and exclusive property of the Licensor. Licensee covenants and agrees to
make its best efforts not to do anything which might invalidate or adversely
affect the Licensed Trademarks in any way, or to impair or tarnish the goodwill
connected therewith.
2.02 Quality Control. Licensor shall have the opportunity and right to
approve or disapprove the Licensed Products before they are distributed, and to
establish or designate quality standards and specifications for the Licensed
Products, which quality standards and specifications shall conform to industry
norms and which right to approve will not be unreasonably withheld. Licensee
shall manufacture the Licensed Products in strict conformity with the quality
standards and specifications established or designated by Licensor and shall
make no significant change the Licensed Products without the prior written
approval of Licensor. Licensor shall further have the right to inspect the
quality of the Licensed Products manufactured and sold pursuant to this
Agreement under the Licensed Trademarks to determine whether or not the quality
of the Licensed Products manufactured and sold meet the specifications
established or designated by Licensor. The failure by Licensee to manufacture
and sell products meeting the specifications approved by Licensor shall
constitute a material breach of this Agreement.
2.03 Inurement of Rights. All use of the Licensed Trademarks by Licensee
under the terms and conditions of this Agreement shall inure to the benefit of
Licensor. Licensee shall use its best efforts to preserve and expand the
goodwill in the Licensed Trademarks in the Licensed Territory.
2.04 Trademark Registration. Based on Licensee's use of the Licensed
Trademarks and pursuant to the provisions of Paragraph 2.03 of this Agreement,
Licensor shall have the right to obtain federal registrations of the Licensed
Trademarks based on Licensee's use. Licensee agrees to cooperate with Licensor
to that end by providing any and all information necessary to prepare and file
applications for federal registration as well as specimens of use to support any
such application.
ARTICLE III
CONSIDERATION
3.01 Consideration.
(a) For the first five hundred thousand (500,000) Licensed Products (that
is, the first 500,000 compact discs subject to this Agreement) sold
by
3
<PAGE> 4
Licensee, the consideration to be paid by Licensee to Licensor
for the license granted under this Agreement shall be seven
thousand five hundred (7,500) "restricted" (as that term is
defined by the provisions of Rule 144 promulgated pursuant to the
provisions of the Securities Act of 1933, as amended), shares of
Licensee's $.001 par value common stock, which Licensee shall
cause to be issued as soon as possible after the Effective Date
of this Agreement as set forth in the preamble above. The
provisions of Rule 144 are, by this reference, made a part of
this Agreement as though specified completely verbatim in this
Agreement.
(b) In the event sales of the Licensed Products exceed five hundred
thousand (500,000) units, (ie, compact discs subject to this
Agreement), Licensee shall report such circumstance and shall pay
additional consideration to Licensor for each additional unit
sold of $0.024 to maintain this Agreement throughout the
agreement term. Payment shall be made quarterly, along with a
report of sales and manufacture, within sixty (60) days at the
end of each calendar quarter, in arrears. The continuation of
this Agreement at that point in time shall be conditioned on
Licensee's delivery and Licensor's receipt of such shares.
ARTICLE IV
TERM AND TERMINATION
4.01 License Period. The license granted by the provisions of this
Agreement shall remain full force and effect for a period of ten (10) years from
the Effective Date ("License Period").
4.02 Termination. Licensor shall have the right to terminate this
Agreement under any of the events of defaults enumerated below by giving
Licensee written notice to that effect. If the event of default so specified is
not cured within thirty (30) days of receipt of such written notice, this
Agreement shall automatically terminate at the completion of such thirty (30)
day period. Any of the following events shall be an event of default:
(a) Licensee ceases using the Licensed Trademarks for a period of six
(6) months;
(b) Licensee commits a material breach of this Agreement, including
but not limited to a breach of the obligation specified at 2.01
and 2.02 of this Agreement;
(c) Licensee is adjudicated a bankrupt, makes an assignment for the
benefit of creditors, or liquidates its business.
4
<PAGE> 5
4.03 Automatic Termination. Licensee and Minnesota Public Radio have
concurrently entered into a related trademark license agreement involving
different trademarks. In the event of termination of this related trademark
license agreement by Minnesota Public Radio, this Agreement shall automatically
terminate effective the same termination date.
4.04 Expiration or Termination of License. Upon expiration of the
license period or termination of this Agreement by Licensor, Licensee shall
immediately cease all use of the Licensed Trademarks. Thereafter, the license
granted pursuant to the provisions of this Agreement shall terminate and revert
to the Licensor.
(a) In the event of expiration of the License Period, Licensee shall have
the right to complete distribution of any and all Licensed Products
produced as of the expiration date.
(b) In the event of termination of the License Agreement by Licensor,
Licensee shall not have any further distribution right of Licensed
Products that remain in inventory. Licensee acknowledges that further
distribution of Licensed Products bearing the Licensed Trademarks
after termination, or any other use of the Licensed Trademarks
thereafter, shall constitute an intentional infringement of Licensor's
trademark rights.
ARTICLE V
PROPERTY RIGHTS AND INDEMNIFICATION
5.01 Title Assurances. Licensor assures Licensee that, to the best
of Licensor's current actual knowledge, Licensor has good title to the
Licensed Trademarks and the right to license the Property's use to
Licensee, free of any proprietary rights of any other party or any
other encumbrance whatever.
5.02 Indemnification of Licensor. Licensor shall indemnify, defend and
hold Licensee, free and harmless from any and all losses, damages,
injuries, and liabilities, including attorney fees and costs, arising
from any third party claims that Licensee's use of the Property in
connection with the Licensed Products as provided in this Agreement A
infringes on the proprietary rights of any other party.
5
<PAGE> 6
ARTICLE VI
GENERAL PROVISIONS
6.01 Recitals. The recitals set forth above are incorporated herein by
this reference and made a part of this Agreement.
6.02 Advice of Counsel. Each party has been advised of and understands the
terms and conditions of this Agreement. This Agreement has been freely and
voluntarily entered into and executed by the parties, each of the parties being
duly represented by counsel or having the benefit of advice of counsel.
6.03 Entire Agreement. This Agreement and the exhibit to this Agreement
are the final written expression and the complete and exclusive statement of
all the agreements, conditions, promises, representations, warranties and
covenants between the parties with respect to the subject matter of this
Agreement, and this Agreement supersedes all prior or contemporaneous
agreements, negotiations, representations, warranties, covenants,
understandings and discussions by and between and among the parties, their
respective representatives, and any other person, with respect to the subject
matter specified in this Agreement. No provision of any exhibit to this
Agreement shall supersede or annul the terms and provisions of this Agreement,
unless the matter specified in such exhibit shall explicitly so provide to the
contrary, and in the event of ambiguity in meaning or understanding between the
provisions of this Agreement proper and the appended exhibits, the provisions
of this Agreement proper shall prevail and control in all instances.
6.04 Further Assurances. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be
necessary to effectuate the intent and purposes of this Agreement.
6.05 Assignment.
(a) Licensee shall not have the right, without the consent of Licensor, to
assign, transfer, sell, pledge, hypothecate, delegate, or otherwise
transfer, whether voluntarily, involuntarily or by operation of law,
this Agreement or any of its rights or obligations created by the
provisions of this Agreement, in whole or in part, nor shall its
rights be subject to encumbrance or the claim of creditors. Any such
purported assignment, transfer, or delegation shall be null and void.
(b) Licensor shall have the right to assign this Agreement without the
consent of Licensee as the result of any acquisition or merger of
assets, or in the event the Licensed Trademarks are transferred to a
third party.
6
<PAGE> 7
6.06 Captions and Interpretations. Captions of the articles and sections of
this Agreement are for convenience and reference only, and the works specified
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction, or meaning of the provisions of this Agreement.
The language in all parts to this Agreement, in all cases, shall be construed in
accordance with the fair meaning of that language as if prepared by all parties
and not strictly for or against any party. Each party and counsel for such party
have reviewed this Agreement. The rule of construction, which requires a court
to resolve any ambiguities against the drafting party, shall not apply in
interpreting the provisions of this Agreement.
6.07 Choice of Law and Consent of Jurisdiction. This Agreement shall be
deemed to have been entered into in the State of Minnesota. All questions
concerning the validity, interpretation, or performance of any of the terms,
conditions and provisions of this Agreement or of any of the rights or
obligations of the parties shall be governed by, and resolved in accordance
with, the laws of the State of Minnesota, without regard to conflicts of law
principles.
6.08 Waiver and Modification. No modification, supplement or amendment of
this Agreement or of any covenant, condition, or limitation specified in this
Agreement shall be valid unless the same is made in writing and duly executed
by both parties. No waiver or any covenant, condition, or limitation specified
in this Agreement shall be valid unless the same is made in writing and duly
executed by the party making the waiver. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
6.09 Number and Gender. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa.
6.10 Successor and Assigns. This Agreement and each of its provisions
shall obligate the heirs, executors, administrators, successors, and assigns of
each of the parties. Subject to Paragraph 6.05, nothing specified in this
article, however, shall be a consent to the assignment or delegation by any
party of such party's respective rights and obligations created by the
provisions of this Agreement.
6.11 Third Party Beneficiaries. Except as expressly specified by the
provisions of this Agreement, this Agreement shall not be construed to confer
upon or give to any person, other than the parties hereto, any right, remedy or
claim pursuant to, or by reason of, this Agreement or of any term or condition
of this Agreement.
6.12 Severability. In the event any part of this Agreement, for any reason,
is determined by a court of competent jurisdiction to be invalid, such
determination shall not affect the validity of any remaining portion of this
Agreement, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated. It
is hereby declared the intention of the parties that they would have executed
the
7
<PAGE> 8
remaining portion of this Agreement without including any such part, parts, or
portion which, for any reason, may be hereafter determined to be invalid.
6.13 Governmental Rules and Regulations. The transaction and
relationship contemplated by the provisions of this Agreement are and shall
remain subject to any and all present and future orders, rules and regulations
of any duly constituted authority having jurisdiction of that transaction and
relationship.
6.14 Execution in Counterparts. This Agreement may be prepared in
multiple copies and forwarded to each of the parties for execution. All of the
signatures of the parties may be affixed to one copy or to separate copies of
this Agreement and when all such copies are received and signed by all the
parties, those copies shall constitute one agreement which is not otherwise
separable or divisible.
6.15 Survival of Covenants, Representations and Warranties. All
covenants, representations, and warranties made by each party to this Agreement
shall be deemed made for the purpose of inducing the other party to enter into
and execute this Agreement. The representations, warranties, and covenants
specified in this Agreement shall survive any investigation by either party
whether before or after the execution of this Agreement.
6.16 Right to Audit. Licensor shall have the right, upon reasonable
notice, to audit the records of manufacture and sale of the Licensed Products.
If discrepancies between audit numbers and reported numbers (pursuant to Section
3.01) are found, the party whom the discrepancy benefited shall promptly repay
the other party. If errors of more than five percent (5%) are discovered by
such audit, Licensee shall pay the cost of the audit. Errors of more than ten
percent (10%) will be considered a material breach of this Agreement.
REMAINDER OF THIS PAGE IS BLANK
SIGNATURE PAGE FOLLOWS
8
<PAGE> 9
IN WITNESS WHEREOF, this License Agreement is executed and is effective
as of the date first set forth in the Preamble.
LICENSOR:
MINNESOTA COMMUNICATIONS GROUP
a Minnesota Nonprofit Corporation
By: /s/ THOMAS J. KIGIN
--------------------
Its: EVP
-------------------
Date: 99-03-08
------------------
LICENSEE:
INTERNATIONAL TRADING & MANUFACTURING CORPORATION,
a Nevada Corporation
By: /s/ MICHAEL MEADER
--------------------
Its: COO
-------------------
Date: 99-03-10
------------------
9
<PAGE> 1
EXHIBIT 10.2
LICENSE AGREEMENT
Minnesota Public Radio
and
International Trading and Manufacturing
This License Agreement ("Agreement") is entered into in duplicate
effective as of the 6th day of January, 1999, by and among Minnesota Public
Radio, a Minnesota nonprofit corporation having a place of business at 45 East
Seventh Street, St. Paul, Minnesota, 55101 ("Licensor"); and International
Trading & Manufacturing Corporation, a Nevada corporation having a place of
business at Suite 100, 11250 El Camino Real, San Diego, California 92130
("Licensee"). Licensor and Licensee are sometimes also referred to in this
Agreement individually as a "party" and, collectively, as the "parties".
RECITALS
A. Licensor is the owner of all rights in and to the marks MINNESOTA
PUBLIC RADIO, MPR and MPR (and Design).
B. Licensee is in the business of producing and distributing sound
recordings, and in particular compact discs featuring classical music which are
intended to be played for infants and children.
C. Licensee wishes to acquire from Licensor an exclusive, non-assignable
license to use the marks MINNESOTA PUBLIC RADIO, MPR and MPR (and Design) in
connection with Licensee's promotion, marketing, sale and distribution of the
compact discs described in Recital B. Licensor is willing to grant such a
license under the terms and conditions as hereinafter set forth.
NOW, THEREFORE, based on the foregoing recitals and in consideration of
the mutual promises herein contained, the parties hereby agree as follows.
ARTICLE 1
DEFINITIONS, GRANT OF LICENSE AND USE LIMITATIONS
1.01 Definitions. For the purposes of this Agreement, the following
definitions shall apply:
<PAGE> 2
a) "Licensed Trademarks" (also sometimes referred to herein as the
"Property") shall include and be limited to the marks MINNESOTA PUBLIC
RADIO (U.S. Registration No. 1,677,888), MPR (U.S. Registration No.
1,661,118) and MPR (and Design) (U.S. Registration No. 2,116,005).
b) "Licensed Products" shall mean compact discs respectively entitled
Genius, Baby Genius, Little Genius, Kid Genius and Child Genius
produced and distributed by Licensee. The parties may, upon prior
mutual written consent, revise this definition by adding products to
and/or deleting products from the products listed above.
c) "Licensed Territory" shall mean the United States of America, its
territories and possessions.
d) "License Period" shall mean the period specified in Paragraph 4.01 of
this Agreement.
e) "Effective Date" shall mean the effective date of this Agreement,
which is January 6, 1999.
1.02 Grant of Exclusive License. Licensor hereby grants, and Licensee
hereby accepts, the nontransferable and exclusive right and license to use the
Licensed Trademarks in connection with the promotion, marketing, sale and
distribution by the Licensee of the Licensed Products.
1.03 Limitation on Use. Licensee's use of the Property shall be limited to
uses not inconsistent with the provisions of this Agreement and the license
granted by the provisions of this Agreement, which are reasonably related to
the promotion of the Licensed Products in general. As set forth in this
Agreement, Licensee may not make any use of the Property after the expiration
of the License Period.
1.04 No Transfer. Licensee may not transfer, assign, sublicense, sell,
pledge, or hypothecate, or purport to transfer, assign, sublicense, sell,
pledge, or hypothecate the license granted by the provisions of this Agreement.
1.05 Costs and Expenses. Licensee shall bear and pay all costs and
expenses of promoting sales of the Licensed Products and any use of the
Property in connection therewith.
1.06 Indemnification for Promotional Materials. Licensee shall indemnify
and hold harmless Licensor from and against any liabilities, loss, damages,
expenses (including reasonable attorney's fees and costs), causes of action,
suits, claims or judgments arising out of or based upon the use of any false or
misleading publicity and promotional materials prepared or used by Licensee in
connection with the Licensed Products.
2
<PAGE> 3
ARTICLE II
USE OF LICENSED TRADEMARKS AND QUALITY CONTROL
2.01 Ownership. Licensee acknowledges that the Licensed Trademarks are the
sole and exclusive property of the Licensor. Licensee covenants and agrees to
make its best efforts not to do anything which might invalidate or adversely
affect the Licensed Trademarks in any way, or to impair or tarnish the goodwill
connected therewith.
2.02 Quality Control. Licensor shall have the opportunity and right to
approve or disapprove the Licensed Products before they are distributed, and to
establish or designate quality standards and specifications for the Licensed
Products, which quality standards and specifications shall conform to industry
norms and which right to approve will not be unreasonably withheld. Licensee
shall manufacture the Licensed Products in strict conformity with the quality
standards and specifications established or designated by Licensor and shall
make no significant change the Licensed Products without the prior written
approval of Licensor. Licensor shall further have the right to inspect the
quality of the Licensed Products manufactured and sold pursuant to this
Agreement under the Licensed Trademarks to determine whether or not the quality
of the Licensed Products manufactured and sold meet the specifications
established or designated by Licensor. The failure by Licensee to manufacture
and sell products meeting the specifications approved by Licensor shall
constitute a material breach of this Agreement.
2.03 Inurement of Rights. All use of the Licensed Trademarks by Licensee
under the terms and conditions of this Agreement shall inure to the benefit of
Licensor. Licensee shall use its best efforts to preserve and expand the
goodwill in the Licensed Trademarks in the Licensed Territory.
2.04 Trademark Registration. Based on Licensee's use of the Licensed
Trademarks and pursuant to the provisions of Paragraph 2.03 of this Agreement,
Licensor shall have the right to obtain federal registrations of the Licensed
Trademarks based on Licensee's use. Licensee agrees to cooperate with Licensor
to that end by providing any and all information necessary to prepare and file
applications for federal registration as well as specimens of use to support
any such application.
ARTICLE III
CONSIDERATION
3.01 Consideration.
(a) For the first five hundred thousand (500,000) Licensed Products (that
is, the first 500,000 compact discs subject to this Agreement) sold by
3
<PAGE> 4
Licensee, the consideration to be paid by Licensee to Licensor
for the license granted under this Agreement shall be seventeen
thousand five hundred (17,500) "restricted" (as that term is
defined in the provisions of Rule 144 promulgated pursuant to the
provisions of the Securities Act of 1933, as amended), shares of
Licensee's $.001 par value common stock, which Licensee shall
cause to be issued as soon as possible after the Effective Date
of this Agreement as set forth in the preamble above. The
provisions of Rule 144 are, by this reference, made a part of
this Agreement as though specified completely verbatim in this
Agreement.
(b) In the event sales of the Licensed Products exceed five hundred
thousand (500,000) units (ie, compact discs subject to this
Agreement), Licensee shall report such circumstance and shall pay
additional consideration to Licensor for each additional unit
sold of $0.056 to maintain this Agreement throughout the
agreement term. Payment shall be made quarterly, along with a
report of sales and manufacture, within sixty (60) days of the
end of each calendar quarter, in arrears. This continuation of
this Agreement shall be conditioned on Licensee's delivery of
such payment.
ARTICLE IV
TERM AND TERMINATION
4.01 License Period. Subject to the provisions contained elsewhere
herein, the license granted under of this Agreement shall remain full force and
effect for a period of ten (10) years from the Effective Date ("License
Period").
4.02 Termination. Licensor shall have the right to terminate this
Agreement under any of the events of default enumerated below by giving
Licensee written notice to that effect. If the event of default so specified is
not cured within thirty (30) days of receipt of such written notice, this
Agreement shall automatically terminate at the completion of such thirty (30)
day period. Any of the following events shall be an event of default:
(a) Licensee ceases using the Licensed Trademarks for a period of six
(6) months;
(b) Licensee commits a material breach of this Agreement, including
but not limited to a breach of the obligations specified at
Paragraphs 2.01 and 2.02 of this Agreement.
(c) The Licensee is adjudicated a bankrupt, makes an assignment for
the benefit of creditors, or liquidates its business.
4
<PAGE> 5
4.03 Automatic Termination. Licensee and Minnesota Communications Group
have concurrently entered into a related trademark license agreement involving
different trademarks. In the event of termination of this related trademark
license agreement by Minnesota Communications Group, this Agreement shall
automatically terminate effective the same termination date.
4.04 Expiration or Termination of License. Upon expiration of the license
period or termination of this Agreement by Licensor, Licensee shall immediately
cease all use of the Licensed Trademarks. Thereafter, the license granted
pursuant to the provisions of this Agreement shall terminate and revert to the
Licensor.
(a) In the event of expiration of the License Period, Licensee shall have
the right to complete distribution of any and all Licensed Products
produced as of the expiration date.
(b) In the event of termination of the License Agreement by Licensor,
Licensee shall not have any further distribution right of Licensed
Products that remain in inventory. Licensee acknowledges that further
distribution of Licensed Products bearing the Licensed Trademarks
after termination, or any other use of the Licensed Trademarks
thereafter, shall constitute an intentional infringement of Licensor's
trademark rights.
ARTICLE V
PROPERTY RIGHTS AND INDEMNIFICATION
5.01 Title Assurances. Licensor assures Licensee that, to the best of
Licensor's current actual knowledge, Licensor has good title to the Licensed
Trademarks and the right to license the Property's use to Licensee, free of any
proprietary rights of any other party or any other encumbrance whatever.
5.02 Indemnification of Licensor. Licensor shall indemnify, defend and
hold Licensee, free and harmless from any and all losses, damages, injuries,
and liabilities, including attorney fees and costs, arising from any third
party claims that Licensee's use of the Property in connection with the
Licensed Products as provided in this Agreement infringes on the proprietary
rights of any other party.
5
<PAGE> 6
ARTICLE VI
GENERAL PROVISIONS
6.01 Recitals. The recitals set forth above are incorporated herein by
this reference and made a part of this Agreement.
6.02 Advice of Counsel. Each party has been advised of and understands
the terms and conditions of this Agreement. This Agreement has been freely and
voluntarily entered into and executed by the parties, each of the parties being
duly represented by counsel or having the benefit of advice of counsel.
6.03 Entire Agreement. This Agreement and the exhibit to this Agreement
are the final written expression and the complete and exclusive statement of
all the agreements, conditions, promises, representations, warranties and
covenants between the parties with respect to the subject matter of this
Agreement, and this Agreement supersedes all prior or contemporaneous
agreements, negotiations, representations, warranties, covenants,
understandings and discussions by and between and among the parties, their
respective representatives, and any other person, with respect to the subject
matter specified in this Agreement. No provision of any exhibit to this
Agreement shall supersede or annul the terms and provisions of this Agreement,
unless the matter specified in such exhibit shall explicitly so provide to the
contrary, and, in the event of ambiguity in meaning or understanding between
the provisions of this Agreement proper and the appended exhibits, the
provisions of this Agreement proper shall prevail and control in all instances.
6.04 Further Assurances. The parties shall from time to time sign and
deliver any further instruments and take any further actions as may be
necessary to effectuate the intent and purposes of this Agreement.
6.05 Assignment.
(a) Licensee shall not have the right, without the consent of Licensor,
to assign, transfer, sell, pledge, hypothecate, delegate, or otherwise
transfer, whether voluntarily, involuntarily or by operation of law,
this Agreement or any of its rights or obligations created by the
provisions of this Agreement, in whole or in part, nor shall its
rights be subject to encumbrance or the claim of creditors. Any such
purported assignment, transfer, or delegation shall be null and void.
(b) Licensor shall have the right to assign this Agreement without the
consent of Licensee as the result of any acquisition or merger of
assets, or in the event the Licensed Trademarks are transferred to a
third party.
6
<PAGE> 7
6.06 Captions and Interpretations. Captions of the articles and sections
of this Agreement are for convenience and reference only, and the works
specified therein shall in no way be held to explain, modify, amplify or aid in
the interpretation, construction, or meaning of the provisions of this
Agreement. The language in all parts to this Agreement, in all cases, shall be
construed in accordance with the fair meaning of that language as if prepared
by all parties and not strictly for or against any party. Each party and counsel
for such party have reviewed this Agreement. The rule of construction, which
requires a court to resolve any ambiguities against the drafting party, shall
not apply in interpreting the provisions of this Agreement.
6.07 Choice of Law and Consent of Jurisdiction. This Agreement shall be
deemed to have been entered into in the State of Minnesota. All questions
concerning the validity, interpretation, or performance of any of the terms,
conditions and provisions of this Agreement or of any of the rights or
obligations of the parties shall be governed by, and resolved in accordance
with, the laws of the State of Minnesota, without regard to conflicts of law
principles.
6.08 Waiver and Modification. No modification, supplement or amendment of
this Agreement or of any covenant, condition, or limitation specified in this
Agreement shall be valid unless the same is made in writing and duly executed by
both parties. No waiver or any covenant, condition, or limitation specified in
this Agreement shall be valid unless the same is made in writing and duly
executed by the party making the waiver. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, not shall any waiver constitute a continuing waiver.
6.09 Number and Gender. Whenever the singular number is used in this
Agreement, and when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa.
6.10 Successor and Assigns. This Agreement and each of its provisions
shall obligate the heirs, executors, administrators, successors, and assigns of
each of the parties. Subject to Paragraph 6.05, nothing specified in this
article, however, shall be a consent to the assignment or delegation by any
party of such party's respective rights and obligations created by the
provisions of this Agreement.
6.11 Third Party Beneficiaries. Except as expressly specified by the
provisions of this Agreement, this Agreement shall not be construed to confer
upon or give to any person, other than the parties hereto, any right, remedy or
claim pursuant to, or by reason of, this Agreement or of any term or condition
of this Agreement.
6.12 Severability. In the event any part of this Agreement, for any
reason, is determined by a court of competent jurisdiction to be invalid, such
determination shall not affect the validity of any remaining portion of this
Agreement, which remaining portion shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated.
It is hereby declared the intention of the parties that they would have
executed the
7
<PAGE> 8
remaining portion of this Agreement without including any such part, parts, or
portion which, for any reason, may be hereafter determined to be invalid.
6.13 Governmental Rules and Regulations. The transaction and relationship
contemplated by the provisions of this Agreement are and shall remain subject to
any and all present and future orders, rules and regulations of any duly
constituted authority having jurisdiction of that transaction and relationship.
6.14 Execution in Counterparts. This Agreement may be prepared in multiple
copies and forwarded to each of the parties for execution. All of the signatures
of the parties may be affixed to one copy or to separate copies of this
Agreement and when all such copies are received and signed by all the parties,
those copies shall constitute one agreement which is not otherwise separable or
divisible.
6.15 Survival of Covenants, Representations and Warranties. All covenants,
representations, and warranties made by each party to this Agreement shall be
deemed made for the purpose of inducing the other party to enter into and
execute this Agreement. The representations, warranties, and covenants specified
in this Agreement shall survive any investigation by either party whether before
or after the execution of this Agreement.
6.16 Right to Audit. Licensor shall have the right, upon reasonable notice,
to audit the records of manufacture and sale of the Licensed Products. If
discrepancies between audited numbers and reported numbers (pursuant to Section
3.01) are found, the party whom the discrepancy benefited shall promptly repay
the other party. If errors of more than five percent (5%) are discovered by such
audit, Licensee shall pay the cost of the audit. Errors of more than ten percent
(10%) will be considered a material breach of this Agreement.
REMAINDER OF THIS PAGE IS BLANK
SIGNATURE PAGE FOLLOWS
8
<PAGE> 9
IN WITNESS WHEREOF, this License Agreement is executed and is effective as
of the date first set forth in the Preamble.
Licensor:
MINNESOTA PUBLIC RADIO,
a Minnesota Nonprofit Corporation
By: /s/ THOMAS J. KIGIN
-------------------------------------
Its: EVP
------------------------------------
Date: 99-03-08
-----------------------------------
Licensee:
INTERNATIONAL TRADING & MANUFACTURING CORPORATION,
a Nevada Corporation
By: /s/ MICHAEL MEADER
-------------------------------------
Its: COO
------------------------------------
Date: 99-03-10
-----------------------------------
9
<PAGE> 1
EXHIBIT 10.3
Agreement made and entered as of February 16, 1999 by and between:
PANACHE INC., a California corporation ("Corporation"), f/s/o DEIDRE HALL
("Artist"), Crofton Management Group, 1888 Century Park East, Suite 214, Los
Angeles, CA. 90067; and
INTERNATIONAL TRADING & MANUFACTURING, a Nevada corporation ("ITM"), 2533
North Carson Street #1667, Carson City, Nevada 69706.
ITM hereby agrees to engage Corporation and Corporation accepts such
engagement and agrees to furnish the services of Artist as a spokesperson for
those Baby Genius and Little Genius products, including any new products
introduced during the Term, set forth on Schedule "A", attached hereto and
incorporated herein by reference (collectively, the "Products") of ITM, on the
following terms and conditions:
1. SERVICES:
A. Corporation shall furnish the services of Artist:
(i) as an on-camera performer in one (1) thirty minute (30)
infomercial ("Infomercial");
(ii) as an on-camera performer in one (1) two (2) minute television
commercial ("Commercial");
(iii) as a spokesperson, the specific show(s) to be mutually agreed
upon, limited to national television shows such as Rosie O'Donnell and Oprah
("Personal Appearance"); and,
(iv) as a voice-over performer in two (2) radio commercials ("Radio
Commercial"), one Radio Commercial not to exceed sixty seconds (60) and the
other thirty seconds (30) in running time.
No Commercial, Infomercial or Radio Commercial shall be scheduled to
air opposite Days of Our Lives.
B. Corporation shall furnish the services of Artist for the number of
days specified below (exclusive of travel time) in order to fulfill the
requirements of this Agreement:
(i) For production (including rehearsal time) of the Infomercial -
Up to two (2) production days [each day not to exceed twelve (12) hours].
(ii) For production (including rehearsal time) of the Commercial -
One (1) production day [not to exceed twelve (12) hours].
(iii) For each Personal Appearance - One (1) day.
(iv) For production of the Radio Commercial - two (2) hours.
<PAGE> 2
The scheduling of days on which Artist shall render services will be
mutually agreed to between ITM and Artist, subject to the other professional
commitments of the Artist.
C. Artist shall make herself available to the extent reasonably necessary
to participate in those activities normally required in connection with the
production of a Commercial and Infomercial. The services of Artist shall be
rendered to the best of Artist's ability. Artist shall have the right to review
and reasonably approve (i) the script for the Commercial and Infomercial, (ii)
the content, station and time placement of the Radio Spot ("Radio Spot
Approval"), (iii) any likeness or still photographs ("Photograph") of Artist to
be used in the marketing, advertising, promotion, distribution and sale of the
Products and (iv) any related press or publicity material ("Related Material").
The Artist will be deemed to have approved a script, Photograph, Radio Spot
Approval or Related Materials unless the Artist objects within five (5)
business days of receipt of the script, Photograph, Radio Spot Approval or
Related Materials.
2. TERM:
The term of this Agreement shall commence on the date hereof and shall
continue for a period of One (1) year from March 1, 1999. Corporation and ITM
shall enter into good faith negotiations thirty (30) days prior to the
expiration of the Term to determine whether or not to extend the Term for an
additional year ("First Additional Term"). If there is a First Additional Term
then the parties hereby agree to enter into good faith negotiations thirty (30)
days prior to the expiration of the First Additional Term to determine whether
or not to extend the First Additional Term for a Second Additional Term.
3. AREA OF USE; NO USE BEYOND TERM:
A. During the Term hereof, the materials produced hereunder may be used
Worldwide.
B. The right to use any materials produced under this Agreement shall
cease upon the expiration or earlier termination of the Term hereof. ITM is
hereby granted the right to sell-off any existing inventory of Products for a
six (6) month period following termination of the Agreement, provided that ITM
shall not manufacture any new Products thirty (30) days prior to the
termination of the Agreement.
4. COMPENSATION:
A. As full compensation for Artist's services, use of the materials
produced hereunder and any other rights granted and obligations assumed by
Corporation and Artist hereunder, ITM shall compensate (cumulatively, the
"Compensation") Corporation as follows:
(i) Payment of One Hundred Thousand Dollars ($100,000.00), non
refundable, payable as follows: (a) Fifty Thousand Dollars ($50,000.00)
immediately following full execution of this Agreement and (b) Fifty Thousand
Dollars ($50,000.00) on or before September 1, 1999; and,
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<PAGE> 3
(ii) Grant to Corporation Two Hundred Thousand (200,000) Shares of
Capital Stock ("Shares") of "Restricted Securities" (as that term is defined
under Rule 144 of the Securities Act of 1933) of ITM, and/or any successor
company. Certificates representing the amount of the Shares are to be issued as
follows: (a) Eighty Thousand (80,000) Shares immediately following full
execution of this Agreement; (b) Sixty Thousand (60,000) Shares on or before
September 1, 1999; and (c) Sixty Thousand (60,000) Shares on or before
March 1, 2000. The Shares are not subject to any so-called vesting period, the
sole restriction as to the sale and/or transfer of the Shares shall be that the
Shares must be held for One (1) year from the date of each issuance (the,
"Restriction Period"). The Corporation is hereby granted a most favored nation
provision ("Most Favored Nation") with respect to anti-dilution
("Anti-Dilution") of the Shares. Most Favored Nation shall apply if any
employee, officer or director of ITM, any person, company, trust, agent or
entity (collectively, the "Person") either has been granted or is subsequently
granted during the Term hereof (as it may or may not be extended, but in any
event not prior to the expiration of the Restriction Period), anti-dilution
protection with respect to any shares, including but not limited to options,
warrants or other similar instruments, previously or subsequently issued by or
on behalf of ITM.
B. Ninety (90%) percent of the Compensation to be paid hereunder shall
be payable to Panache, Inc. f/s/o Deidre Hall and sent to Crofton Management
Company ("Crofton"). The remaining Ten (10%) percent agency fee due from
Panache to David Shapira and Associates, Inc. ("Shapira") shall be paid
directly to Shapira. Payments shall be made to the addresses set forth in this
Agreement. A copy of the check to Shapira will accompany the check sent to
Crofton. Payment to Crofton and Shapira shall be deemed payment to Panache.
Ninety (90%) percent of the Shares to be issued shall be issued directly to
Panache, Inc. and Ten (10%) percent of the Shares shall be issued directly to
Shapira.
C. ITM hereby agrees to pay directly to the appropriate union office
within thirty (30) days of receipt of notice from Corporation the amount due of
all requisite pension and health/welfare contributions on the above
compensation pursuant to the applicable union contract. Corporation will
furnish ITM with all appropriate information in connection therewith.
5. EXCLUSIVITY:
A. During the term of this Agreement, Artist shall not render services,
nor authorize the use of Artist's name, likeness or testimonial in connection
with the advertising or promotion of the Products, other than those of ITM
(herein collectively called "Competitive Products"). This exclusivity shall
extend to any other products added to the Baby Genius and Little Genius product
line, provided that written notice naming the new product(s) has been furnished
to Corporation.
B. Corporation represents that Artist has not heretofore rendered
services directly or indirectly, in advertising or promotion in any medium of
any Competitive Products, the utilization of which may occur within the term
hereof.
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<PAGE> 4
6. USE OF NAME AND LIKENESS:
ITM shall have the right during the term of this Agreement to use and to
authorize the use of Artist's name, likeness and biographical materials on
Products to its licensees/distributors, successors, permitted assigns,
authorized television media and advertising representatives and in connection
with the services to be performed pursuant to paragraph 1. herein, solely for
the sale of the Products and for the purpose of promoting and publicizing to the
trade Artist's services hereunder.
7. TRAVEL EXPENSES:
When commercial airlines are available, if Artist is required to travel
more than fifty (50) miles from her residence, in order to render services
hereunder, ITM will furnish Artist with two (2) first class round trip airline
tickets, first class exclusive ground transportation to and from the applicable
airports and between the hotel and the facility where Artists services are to be
rendered and first class hotel accommodations. Artist shall also receive a
living expense (Per Diem") for each day which Artist's services are required,
the amount of the Per Diem to be negotiated in good faith with Artist's Agent,
David Shapira.
8. MAKEUP AND HAIRDRESSING SERVICES:
ITM shall provide, in connection with each appearance by Artist on camera,
at a photography session or at a live appearance, the services of a hairdresser
and makeup person, subject to Artist's reasonable approval of the personnel.
9. OWNERSHIP:
All advertising materials produced hereunder shall be and remain the sole
and absolute property of ITM and neither Corporation nor Artist shall have any
right, title or interest of any kind in or to said advertising materials or any
component part, element of reproduction thereof.
10. EDITING:
Corporation agrees that ITM shall have, subject to the applicable guild
agreements having jurisdiction over Artist's services hereunder, full and
complete right to edit Artist's Commercial and Infomercial performance, provided
such editing does not alter in a material respect the content of any materials
previously approved by Artist.
11. PAY OR PLAY:
ITM shall not be under any obligation to make or use any advertising
materials, it being understood that ITM's entire liability hereunder may be
discharged by payment of the Compensation set forth in paragraph 4.A. (i) and
issuance of the Shares set forth in paragraph 4.A. (ii) herein.
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<PAGE> 5
12. UNION BENEFITS:
ITM hereby agrees to abide by all applicable guild rules and regulations.
13. MORALS:
In the event Artist shall have been convicted of any crime involving moral
turpitude, or a morals breach occurs as defined in the Days of Our Lives
Contract with Panache which causes a termination of Artist's participation in
that show, ITM shall have the right to terminate this Agreement, unless Panache
prevails in its dispute with Days of Our Lives.
14. INJUNCTIVE RELIEF:
ITM shall be entitled, in addition to any other rights which it may have
to damages or otherwise, to seek injunctive and other equitable relief against
Corporation to restrain, enjoin or prevent the violation or breach by
Corporation of any provision of this Agreement.
15. INDEPENDENT PARTIES:
Each party to this Agreement is dealing with the other as independent
contractors. This Agreement does not create nor is it intended in any way to
create, a joint venture, partnership or employer/employee relationship between
the Corporation/Artist and ITM nor does it create nor is it intended in any way
to create any such relationship between the Corporation/Artist and ITM other
than as independent contractors.
16. TAXES:
ITM and the Corporation shall be responsible for payment of all of its own
Federal, State and local taxes of any kind or nature whatsoever. Without
limiting the generality of the foregoing, Corporation assumes sole and
exclusive responsibility for the payment of all employer and employee
contributions and taxes relating to the Artist under all applicable laws now in
effect or hereafter enacted.
17. WARRANTIES AND REPRESENTATIONS OF THE CORPORATION:
Corporation hereby warrants and represents that:
A. Corporation is duly organized, validly existing and in good standing
under the laws of the State of California and has the corporate power to own
its assets and properties and to carry on its business as now being and
heretofore conducted.
B. Corporation has the full right and authority to enter into this
Agreement with respect to Artist's services.
C. Neither Artist nor Corporation has made or will make any agreement or
commitment
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<PAGE> 6
which would prevent or interfere in any manner with the full performance of
Artist's services hereunder.
D. In the making or performance of this Agreement, Artist will not
knowingly violate any laws, orders or regulations, or the rights, legal or
equitable of anyone.
E. Artist has the full ability and right to do any and all things called
for by this Agreement.
F. Corporation is, and during the term of this Agreement will remain,
signatory to the applicable guild agreements of the unions having jurisdiction
over the services to be rendered by Artist hereunder.
G. Artist is, and during the term of this Agreement, shall remain, an
employee of Corporation for the purposes of this Agreement and Corporation
shall discharge all obligations imposed by any union code, federal, state or
local law or regulation now or hereafter in force with respect to employees,
including, but not limited to the withholding of taxes, the filing of all
returns and reports and the payment of all assessments, taxes, contributions
(except for any pension and welfare contributions made directly by ITM) and
other sums required to be withheld, filed and/or paid by employers.
18. COVENANTS OF THE CORPORATION:
The Corporation hereby covenants to ITM as follows:
The Corporation shall defend, indemnify and hold harmless ITM and its
respective directors, officers, employees, affiliates and agents from any and
all costs (including reasonable attorneys' fees, expenses and other court
costs), expenses, damages, or other liabilities to third parties arising from a
breach of the Corporation's material representations and warrants contained
herein, including without limitation, relating to the use of the name, voice
and likeness of the Artist.
19. WARRANTIES AND REPRESENTATIONS OF ITM:
ITM hereby warrants and represents that:
A. It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada and has the corporate power to
own its assets and properties and carry on its business as now being and
heretofore conducted.
B. It has the full right and authority to enter into this Agreement.
C. It has not made nor will it make any agreement or commitment which
would prevent or interfere in any manner with the full performance of its
obligations hereunder.
D. In the making or performance of this Agreement, it will not knowingly
violate any laws,
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<PAGE> 7
orders or regulations, or the rights, legal or equitable, of anyone.
E. It has the full ability and right to do any and all things called for
by this Agreement.
F. Trademark protection pursuant to The Trademark Act of 1946, as amended,
has been obtained for the Products through the United States Patent and
Trademark Office.
G. No Person has been granted Anti-Dilution rights with respect to the
issuance of additional shares, including but not limited to options, warrants
and any similar instruments of ITM, ITM has not covenanted to grant
Anti-Dilution to any Person.
20. COVENANTS OF ITM:
ITM hereby covenants to Corporation and Artist as follows:
ITM shall defend, indemnify and hold harmless the Corporation and Artist
from any and all costs (including reasonable attorneys' fees and expenses and
other court costs), expenses, damages, or other liabilities to third parties
arising from a breach of ITM's material representations and warranties
contained herein, claims in the nature of product liability or defects inherent
in the Products, claims in the nature of alleged deceptive or misleading
advertising or promotion or any other claims involving the Commercial,
Infomercial, Radio Spot, any Related Materials or the Products. ITM shall cause
the Corporation and Artist to be named as additional insureds on any policies
of product liability or errors and omission insurance maintained by ITM in
respect of the Products. In the event ITM doesn't presently carry comprehensive
general liability insurance policies ("Insurance"), including but not limited
to products liability and advertising/endorsement liability coverage, then ITM
shall obtain such Insurance with a policy limit of One Million Dollars
($1,000,000). The Insurance shall be maintained for a period of three (3) years
following the end of the term. ITM, within thirty (30) days of the date hereof,
shall furnish the Corporation with a Certificate of Insurance naming the
Corporation and Artist as additional insureds.
21. FORCE MAJEURE:
In the event of failure of performance of this Agreement by either party,
such failure shall not be deemed a breach of this Agreement if such failure
arises from a cause which is beyond the control of and without the negligence
of the party failing to perform. Such force majeure causes include, but are not
limited to, acts of God, acts of governments, wars, hostilities, insurrections,
riots, strikes or labor disputes, or natural catastrophes.
22. ASSIGNMENT:
Corporation hereby consents to the assignment of this Agreement by ITM to
any of its affiliates or to an entity that acquires all or substantially all of
the assets of ITM. The assignment shall become effective upon receipt by the
Corporation of written notice of the assignment and the assignee assuming
responsibility in writing for all of ITM's obligations to the
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<PAGE> 8
Corporation. Other than as provided herein, this Agreement may not be assigned
by ITM without the prior written consent of the Corporation, which consent
shall not be unreasonably withheld.
23. NOTICES:
Any notice, request or other communication required or permitted under
this Agreement shall be in writing and given or made by facsimile, physical
delivery, or by registered or certified mail, postage prepaid, return receipt
requested or by overnight carrier addressed to the appropriate party. Mailed
notices shall be deemed to have been received five (5) days after being
deposited in the United States mail, or if by overnight mail, on the next
working day following the sending thereof, or if by any other means upon
receipt. Any party may change the person and addresses to which notices,
requests or other communications are sent by giving a written notice of such
change to the other party in the manner provided herein for giving notice, said
notice to be effective upon receipt. All notices shall be addressed as follows:
If to the Corporation:
Panache, Inc.
1888 Century Park East
Suite 214
Los Angeles, CA. 90067
Fax Number (310) 788-2755
With a copy to:
Ruth Crofton
1888 Century Park East
Suite 214
Los Angeles, CA. 90067
Fax Number (310) 788-2755
If to ITM:
International Trading & Manufacturing
11250 El Camino Real
Suite 100
San Diego, CA. 92130
Attn: Klaus Moeller
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<PAGE> 9
With copy to:
Norman Nouskajian, Esq.
12625 High Bluff Drive
San Diego, CA. 92130
Fax Number (619) 793-2103
24. ATTORNEYS' FEES:
If either party brings an action to enforce the terms hereof or declare
rights hereunder the prevailing party in any such action, on trial or appeal,
shall be entitled to recover reasonable attorneys' fees to be paid by the losing
party as fixed by the court.
25. HEADINGS:
The headings of the various paragraphs and subparagraphs of this Agreement
are for convenience and easy reference only and do not define, limit, augment or
describe the scope, content, or intent of this Agreement or any part or parts of
this Agreement.
26. CUMULATIVE REMEDIES:
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
27. CONSTRUCTION OF AGREEMENT:
No one party shall be deemed to be the drafter of this Agreement. This
Agreement shall not be construed in favor of or against any party hereto; it
shall be construed as if all parties prepared this Agreement.
28. WAIVER:
The failure of either party to this Agreement to object to or to take
affirmative action with respect to any conduct of the other which is in
violation of the terms of this Agreement shall not be construed as a waiver
thereof or of any future breach or subsequent wrongful conduct. No waiver by
either party, whether express or implied, of any provisions of this Agreement or
of the breach or default shall constitute a continuing waiver of such provision
or of any other provision of this Agreement.
29. CONFIDENTIALITY
A. ITM hereby agrees to hold confidential and not disclose at any time to
the media or to any person, any personal, private or proprietary information
which ITM learns through the association with Corporation and/or Artist which
pertains to the business, personal or private affairs of Corporation and/or
Artist (Confidential Information) excluding from the foregoing, any
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<PAGE> 10
disclosure ITM may be required to make by judicial process from a court of
competent jurisdiction or otherwise as a matter of law.
B. Corporation and Artist agree to hold all information given to them by
ITM or any of its affiliates, agents or assigns pertaining to the Products
(also Confidential Information) in strict confidence and not to release,
disclose or disseminate any such information without prior written approval of
ITM, excluding from the foregoing any disclosure Corporation or Artist may be
required to make by judicial process from a court of competent jurisdiction or
otherwise as a matter of law.
C. The Confidential Information may be disclosed to agents, employees or
professional advisors of Corporation, Artist or ITM, who need to have access to
the Confidential Information to develop, enhance or promote the Products or
business contemplated thereby, provided that all such persons shall be informed
of and agree to the confidential nature of the information.
D. A party to this Agreement may disclose the Confidential Information
to the extent required by applicable law or regulations. In the event a party
is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or other
process) do disclose any Confidential Information, it is agreed that party will
provide the other parties with prompt notice of any such request or requirement
so that the party may, should it desire to do so, seek an appropriate
protective order or waive the party's compliance with the provisions of this
Agreement. Failing the entry of a protective order or the receipt of a waiver
hereunder, a party may disclose that portion of the Confidential Information
requested.
E. The term "Confidential Information" and the provisions of this
Agreement relating thereto shall not apply to any information which (i) becomes
generally available to the public, other than as a result of a disclosure by a
party in violation of this Agreement, (ii) becomes available to a party on a
non-confidential basis from a source other than a party or its representatives,
(iii) was available to a party on a non-confidential basis prior to this
contract independently and is not based upon or derived from Confidential
Information, and (iv) becomes generally available by a party's own actions.
F. ITM and the Corporation agree that with, with respect to any breach
by such party of the provisions of this Paragraph 29, the non-breaching party
shall have the right to seek to obtain an injunction to be issued by any
tribunal of competent jurisdiction restricting the breaching party from
continuing to breach the provisions of Paragraph 29. The provisions of this
Paragraph 29. shall survive termination (for whatever reason) of this Agreement.
30. DEATH OR INCAPACITY OF ARTIST:
In the event of Artist's death or incapacity during the Term hereof,
Corporation shall be entitled to receive the Compensation set forth in
Paragraph 4. above, provided Artist has completed performance of the
Infomercial, Commercial and one (1) Personal Appearance.
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31. ENTIRE AGREEMENT:
This writing contains the entire Agreement of the parties with respect to
any matter mentioned in this Agreement. No prior agreement or understanding
pertaining to any such matter shall be effective. No representations were made
or relied upon by either party, other than those that are expressly set forth
in this Agreement. No agent, employee, or other representative of either party
is empowered to alter any of the terms hereof, unless done in writing and
signed by the party, and if a party is a corporation, by an executive officer
thereof.
32. GOVERNING LAW:
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of California applicable to agreements made and to be
performed within that State. The parties agree and consent that jurisdiction
and venue of all matters relating to this Agreement shall be vested exclusively
in the Federal, state and local courts located in Orange County within the
State of California.
33. SEVERABILITY:
If any provision of this Agreement, as applied to either party or to any
circumstances, finally shall be determined by a court to be void or
unenforceable, the same shall be stricken from this Agreement and shall in no
way affect any other provision of this Agreement or the validity or
enforceability of this Agreement.
34. BANKRUPTCY:
In the event ITM or Corporation files a petition in bankruptcy or is
adjudicated a bankrupt, or if a petition in bankruptcy is filed against ITM or
Corporation, or if ITM or Corporation becomes insolvent, or makes an assignment
for the benefit of ITM's or Corporation's creditors, or any arrangement
pursuant to any bankruptcy law, or if a receiver is appointed for ITM or the
Corporation, or their respective businesses, then ITM or the Corporation, as
the case may be, may at ITM's or the Corporation's sole election terminate this
Agreement upon thirty (30) days written notice to ITM or the Corporation.
35. CORPORATION'S RIGHT TO PURCHASE PRODUCTS:
Corporation may from time to time purchase Products from ITM for purposes
of gifts for Artist's immediate family and close friends and not for resale by
Corporation or the donee. The purchase price payable by Corporation shall be
ITM's manufacturing cost, plus tax and freight.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
INTERNATIONAL TRADE & MANUFACTURING
By: /s/ KLAUS MOELLER
-------------------------------
KLAUS MOELLER
Its Director
PANACHE, INC.
By: /s/ DEIDRE HALL
--------------------------------
DEIDRE HALL
Its President
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as of February 16, 1999
International Trade & Manufacturing
2533 North Carson Street
Suite #1667
Carson City, Nevada 69706
Attn: Mr. Klaus Moeller
Dear Mr. Moeller:
Reference is made to the Agreement made as of February 16, 1999 between
Panache, Inc., a California corporation (herein called the "Lender") and
International Trade & Manufacturing, a Nevada corporation (herein called "ITM")
with regard to Lender's providing and lending the undersigned's services to
ITM.
As an inducement to ITM to enter into the Agreement and as a material part of
the consideration for ITM entering into the Agreement, the undersigned hereby
represents, warrants and agrees as follows, effective on the date first set
forth above:
1. That the undersigned has heretofore entered into an agreement (herein
called the "Employment Agreement") with Lender covering the rendition of the
undersigned's services for Lender and that Lender has the right and authority
to enter into the Agreement and to furnish to ITM the rights and services of
the undersigned upon the terms and conditions therein specified.
2. That the undersigned is familiar with each and all of the terms,
covenants and conditions of the Agreement and hereby consents to the execution
thereof; that the undersigned shall perform and comply with all of the terms,
covenants and conditions of the Agreement to be performed and complied with by
the undersigned, even if the Employment Agreement should hereafter expire, be
terminated (whether by the undersigned or the Lender) or be suspended; that the
representations and warranties of Lender contained in the Agreement are true;
and that the undersigned has granted to Lender all of the rights granted to ITM
under the Agreement.
3. That the undersigned is under no obligation or disability by law or
otherwise which would prevent or restrict the undersigned from performing and
complying with all of the terms, covenants and conditions of the Agreement to
be performed or complied with by the undersigned.
4. That to the undersigned's actual knowledge there are no actions, suits
or proceedings pending or threatened before any court, arbitrator or government
body involving the undersigned
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personally, or which might adversely affect the carrying out by Lender of its
obligations under the Agreement.
5. That the undersigned will look solely to Lender and not to ITM for
all compensation and other renumeration for any and all services which the
undersigned may render and all rights which Lender may grant to ITM under the
Agreement.
6. That ITM shall be entitled to, in addition to any other rights which
ITM may have to damages or otherwise, to seek injunctive and other equitable
relief against the undersigned to restrain, enjoin and/or prevent the violation
or breach by the undersigned of any obligation of the undersigned to be
performed as provided in the Agreement and/or the violation or breach by the
undersigned of any obligations or agreements under this instrument.
7. That if Lender shall be dissolved or should otherwise cease to exist
or for any reason whatsoever should fail, be unable, neglect or refuse to
perform and observe each and all conditions of the Agreement by Lender or by
the undersigned, ITM shall be entitled to seek legal and equitable relief by
way of injunction or otherwise against Lender or against the undersigned or
against both of us at ITM's discretion, without the necessity of first
resorting to rights or remedies which you may have against Lender; all of the
foregoing to be to the same extent and with the same force and effect as if the
undersigned were a direct employee of ITM, and as if, in the Agreement, the
undersigned had personally agreed to render the services therein provided to be
rendered by the undersigned and to perform and observe each and all of the
terms and conditions of the Agreement requiring performance or compliance on
the part of Lender or the undersigned or both of us.
8. If ITM shall serve Lender with any notices, demands or instruments
relating to the Agreement or the rendition of the services of the undersigned
thereunder, such delivery shall constitute notice to the undersigned.
Very truly yours,
/s/ DEIDRE HALL
DEIDRE HALL
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SCHEDULE "A"
1. Baby Genius and Little Genius CDs
2. Baby Genius and Little Genius Coloring Books
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ADDENDUM
Reference is made to the agreement ("Agreement") entered into as of February 16,
1999, by and between Panache, Inc., a California corporation ("Corporation")
f/s/o Deidre Hall and International Trading & Manufacturing, a Nevada
corporation ("ITM"). In exchange for good and valuable consideration receipt of
which is hereby acknowledged, the parties hereby agree as of April 8, 1999 to
amend the Agreement as follows:
In paragraph 4 (a) (ii), line 9, of the Agreement following ("Restriction
Period") the following new sentence is added:
"Notwithstanding anything to the contrary contained herein ITM hereby
agrees to send the Shares to its transfer agent, currently Interwest Transfer
Co., Inc. with instructions for the restrictive legend ("Not Registered") which
appears on the face of the Shares to be removed on the earlier of the
registration of any unregistered shares, the filing of any Public Offering by or
on behalf of ITM or the expiration of each twelve (12) month period following
the issuance of the Shares."
All of the other terms, covenants and conditions of the Agreement are
hereby affirmed and remain in full force and effect.
INTERNATIONAL TRADING & MANUFACTURING
By: /s/ KLAUS MOELLER
--------------------------------
KLAUS MOELLER,
its President
PANACHE, INC.
By: /s/ DEIDRE HALL
--------------------------------
DEIDRE HALL,
its President
<PAGE> 17
[PANACHE, INC. LETTERHEAD]
VIA FACSIMILE (619) 793-8842 AND U.S MAIL
March 22, 1999
Mr. Klaus Moeller
International Trading & Manufacturing
11250 El Camino Real
Suite 100
San Diego, CA. 92130
Re: Radio Commercial
Dear Klaus:
Please be advised that with respect to my recording additional radio
commercials ("Further Services") for International Trading & Manufacturing, I
agree to meet with you to discuss Further Services approximately ninety (90)
days following completion of recording two (2) radio commercials pursuant to
the Agreement, dated February 16, 1999.
Very truly yours,
/s/ DEIDRE HALL
DEIDRE HALL
<PAGE> 1
EXHIBIT 10.4
SUBLEASE
TORREY HILLS CORPORATE CENTRE
This SUBLEASE is made as of September 29, 1998, between BUIE TORREY HILLS
LLC, a California limited liability company ("SUBLESSOR"), and I.T.M., a Nevada
Corporation ("SUBLESSEE"), based on the following:
RECITALS:
A. As of November 21, 1997, 5 Torrey Hills Venture LLC, a California
limited liability company ("LANDLORD"), as "Landlord", and Sublessor, as
"Tenant", entered into that certain Lease ("LEASE"), pursuant to which Landlord
demised to Sublessor all of the rentable square footage on the first floor
("FIRST FLOOR") of that certain office building commonly known as Torrey Hills
Corporate Centre ("BUILDING").
B. Sublessor currently holds the interest of "Tenant" under the Lease.
C. Sublessee desires to sublease and hire from Sublessor, and Sublessor
desires to sublease and demise to Sublessee, that portion of the First Floor of
the Building shown cross-hatched on the floor plan attached hereto as EXHIBIT
"B" ("PREMISES"), all on the terms and subject to the conditions set forth in
this Sublease, The Premises is comprised of approximately 3,928 rentable square
feet and approximately 3,401 usable square feet.
D. Pursuant to Section 17(e) of the Lease, the consent of Landlord is
required for this Sublease.
E. Capitalized terms not defined in this Sublease shall have the
meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the premises set forth in this
Sublease and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Sublessor and Sublessee hereby agree as
follows:
1. SUBLEASE OF PREMISES. Sublessor hereby subleases and demises the
Premises to Sublessee, and Sublessee hereby subleases and hires the Premises
from Sublessor, on all of the terms and conditions of the Lease, expect to the
extent specified to the contrary in this Sublease.
2. TERM. The term of this Sublease ("TERM") shall commence on December
1, 1998 ("COMMENCEMENT DATE") and shall expire at 5:00 p.m. on the fifth
anniversary of the Commencement Date ("EXPIRATION DATE"). Sublessee shall have
no option to extend the Term or to renew this Sublease.
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<PAGE> 2
3. RENT AND SECURITY DEPOSIT.
(a) From and after the Commencement Date, Sublessee agrees to pay
Sublessor, in advance, on the first day of each and every calendar month during
the Term, the following Basic Rent:
<TABLE>
<CAPTION>
MONTHS OF TERMS MONTHLY BASIC RENT
--------------- ------------------
<S> <C>
1-12 $9,034.40
13-24 $9,230.80
25-36 $9,427.20
37-48 $9,623.60
49-60 $9,820.00
</TABLE>
Sublessee shall also pay all other charges specified in the Lease if and to the
extent applicable to the Premises. Payment of all such rent and other charges
due Sublessor shall be without offset or demand, shall be in lawful money of
the United States of America and shall be made at the address set forth for
Sublessor in Paragraph 9 or at such other place as Sublessor may direct. All
sums of money required to be paid pursuant to the terms of this Sublease are
defined as "rent", whether or not the same are designated as such elsewhere in
this Sublease.
(b) Sublessee shall pay to Sublessor, immediately upon Sublessee's
signing this Sublease, a security deposit in the amount of Thirty-Six Thousand
One Hundred Thirty-Seven Dollars and Sixty Cents ($36,137.60). Said amount shall
be held by Sublessor as security for the faithful performance by Sublessee of
all of the terms, covenants and conditions of this Sublease to be kept and
performed by Sublessee during the Term. If Sublessee defaults with respect to
any provision of this Sublease, including, but not limited to, the provisions
relating to the payment of rent, Sublessor may (but shall not be required to)
use, apply or retain all or any part of the security deposit for the payment of
any rent or any other amount in default, or for the payment of any other amount
which Sublessor may spend or become obligated to spend by reason of Sublessee's
default or to compensate Sublessor for any other loss or damage which Sublessor
may suffer by reason of Sublessee's default. If any portion of said deposit is
so used or applied, Sublessee shall, upon demand therefor, deposit cash with
Sublessor in an amount sufficient to restore the security deposit to its
original amount and Sublessee's failure to do so shall be a material breach of
this Sublease. Sublessor shall not be required to keep the security deposit
separate from its general funds, and Sublessee shall not be entitled to interest
on such deposit. If Sublessee fully and faithfully performs every provision of
this Sublease to be performed by it, the security deposit or any balance thereof
shall be returned to Sublessee (or at Sublessor's option, to the last assignee
of Sublessee's interests hereunder) at the expiration of the Term, provided that
Sublessor may retain the security deposit until such time as any amount due from
Sublessee under this Sublease has been determined and paid in full.
4. USE OF LEASED PREMISES. Sublessee shall use the Premises for general
office purposes and for no other use or purpose without the prior written
consent of Sublessor, which shall not be unreasonably withheld or delayed.
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<PAGE> 3
5. RELATIONSHIP BETWEEN LEASE AND SUBLEASE.
(a) The Lease is hereby incorporated in this Sublease by this
reference, Sublessee acknowledges receipt of a redacted copy of the Lease,
which is attached hereto as EXHIBIT "A".
(b) Except to the extent this Sublease provides to the contrary, this
Sublease is subject and subordinate to all of the terms, conditions and
provisions of the Lease, and Sublessee agrees (1) to be bound thereby to the
same extent Sublessor is bound to Landlord thereunder; and (2) not to violate
any of the terms, conditions or provisions of the Lease. In addition, except
for and subject to the following, and except as otherwise provided in this
Sublease, Sublessee agrees to perform and comply with all of the obligations
required to be kept or performed by the "Tenant" under the Lease:
(i) Sublessor shall cause the Landlord to construct the Tenant
Improvements to be constructed by Landlord pursuant to the Lease for the
First Floor of the Building, and as "Tenant" under the Lease, Sublessor
shall remain obligated under the Lease to pay the cost and expense of such
Tenant Improvements in excess of the Tenant Improvement Allowance stated in
the Lease. Sublessee shall not have the obligations of "Tenant", if any,
which relate to the construction of the Tenant Improvements for the First
Floor of the Building, including, but not limited to, any such obligations
set forth in Section 5 of the Lease or EXHIBIT "C" of the Lease. As
"Tenant" under the Lease, Sublessor shall remain obligated to perform such
obligations, if any. As between Sublessor and Sublessee, the Sublessee
Improvements for the Premises shall be governed by the Sublease Work Letter
Agreement attached hereto as EXHIBIT "C".
(ii) Notwithstanding any provision of this Sublease or of the
Lease to the contrary, if the original Landlord, namely 5 Torrey Hills
Venture LLC, a California limited liability company ("5THV"), voluntarily
or involuntarily conveys fee title to the Project to a transferee
("TRANSFEREE"): (i) Sublessor shall have the option to terminate the Lease
pursuant to Section 17(d) thereof, and any such termination shall be
effective as of the date of such conveyance; and (ii) in the event of any
such termination, Sublessee shall attorn to the Transferee such that this
Sublease shall become a direct lease between the Transferee and Sublessee.
(iii) No parking spaces shall be reserved for Sublessee's
exclusive use. All parking for Sublessee and its employees, agents,
contractors, customers and other invitees shall be on a non-exclusive
basis, and Sublessee shall ensure that none of its employees, agents,
contractors, customers or other invitees park in any parking space which is
reserved for the use of another tenant or occupant.
(iv) Pursuant to Section 10 of the Lease, Landlord is obligated
to construct, at Landlord's cost and expense, a monument for signage at the
main entrance to the parking lot for the Building. Sublessee shall not have
any right to install identification signage on the monument for Sublessee's
business, and Sublessee shall not have any right to install identification
signage on the Building. Sublessee shall, however, be entitled, at
Sublessee's cost and expense, to be listed on the directory sign in the
Building's main lobby and on suite identification signage at the main
entrance to the Premises. Any and all identification signage of Sublessee
(i) shall
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<PAGE> 4
be subject to the prior written approval of (A) Sublessor, which shall not be
unreasonably withheld or delayed; and (B) Landlord, which pursuant to Section
10 of the Lease is required not be unreasonably withheld or delayed (however
Sublessor makes no representation or warranty with respect to whether Landlord
will grant its approval); and (ii) shall be in conformance with the sign
criteria for the Project, as approved by the City of San Diego and any other
governmental entities having jurisdiction. Except for the identification
signage expressly permitted pursuant to this Paragraph, Sublessee shall not
place or permit to be placed, any sign, advertisement, notice or other similar
matter on the doors, windows, exterior walls, roof or other areas of the
Premises or Building which are open to the view of persons in the common area
of the Building or the Project, except with the advance written consent of both
Sublessor and Landlord, either of which may be withheld in its respective sole,
absolute and unfettered discretion.
(v) Sublessee shall furnish and pay for, at Sublessee's sole
expense, all utilities for the Premises (including, but not limited to,
electricity, heating, ventilating and air conditioning and telephone service)
and other services which Sublessee requires with respect to the Premises, save
and except for those to be provided by Landlord pursuant to Section 7(a) of the
Lease. Electricity for the Premises shall be separately metered, and the account
therefor shall be in Sublessee's name. Sublessee shall pay for Sublessee's
consumption of electricity directly to the provider before delinquency according
to the amount shown on such separate meter.
(vi) Notwithstanding the preamble of Section 11(a) of the Lease, the
Best's rating of the insurer from which Sublessee shall obtain the required
insurance shall be A: VIII.
(vii) Notwithstanding Section 12(a) of the Lease, if the Premises are
damaged or destroyed to the extent that Sublessor determines that they cannot,
with reasonable diligence, be fully repaired or restored by Sublessor within
ninety (90) days after the date of the damage or destruction, either Sublessor
or Sublessee shall have the right to terminate this Sublease. Sublessor shall
send Sublessee written notice of Sublessor's determination within thirty (30)
days after the date of the damage or destruction. If Sublessor determines that
the Premises can be fully repaired or restored within said ninety (90) day
period, or if it is determined that such repair or restoration cannot be made
within said period but neither party elects to terminate this Sublease within
ten (10) days after the date of said determination, this Sublease shall remain
in full force and effect and Sublessor shall diligently repair and restore the
damage (or cause the same to be done) as soon as reasonably possible.
(viii) Notwithstanding item "(A)" of Section 11(a)(i) of the Lease, the
comprehensive general liability insurance or the commercial general liability
insurance of the Sublessee shall not be required to be endorsed to delete any
employee exclusion on personal and bodily injury coverage.
(ix) Notwithstanding Section 11(a)(iii) of the Lease, the workers'
compensation insurance of the Sublessee shall not be required to be endorsed to
waive the insurer's rights of subrogation against the Sublessor or the Landlord.
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<PAGE> 5
(c) Sublessee agrees to indemnify, defend, protect and hold
Sublessor harmless from and against any and all liabilities, damages, losses,
costs (including attorneys' fees and costs) and expenses incurred by Sublessor
by reason of a default or breach of the Lease which occurs as a result of a
default or breach by Sublessee of its obligations pursuant to this Sublease.
(d) Sublessor covenants that Sublessor's rights with regard to the
Premises are set forth under the terms, conditions and provisions of the Lease.
Sublessor agrees that during the Term: (i) Sublessor will maintain the Lease in
full force and effect, subject, however, to any earlier termination of the Lease
not resulting from a default or breach by Sublessor as the "Tenant" thereunder;
(ii) Sublessor shall perform all obligations of "Tenant" pursuant to the Lease,
except those which are the obligation of Sublessee pursuant to this Sublease;
(iii) Sublessor shall use reasonable efforts in good faith to cause Landlord to
perform Landlord's obligations under the Lease in a timely manner; and (iv)
Sublessor will not voluntarily cause a termination of the Lease without first
securing Sublessee's prior written consent, unless upon such voluntary
termination of the Lease this Sublease will continue as a direct lease between
Landlord and Sublessee, with the otherwise terminated Lease continuing to be
incorporated by reference in this Sublease to the extent necessary to interpret
and implement the provisions of this Sublease.
(e) Sublessor agrees that so long as Sublessee is not in default,
Sublessee shall have quiet and peaceful possession of the Premises and enjoy
all rights granted in this Sublease without interference.
(f) If Sublessor receives a written notice of default under the
Lease from Landlord, then Sublessor shall, as soon as reasonably possible
following the receipt of such written notice, deliver a copy thereof to
Sublessee. If the default to which such notice refers is the result of
Sublessee's failure to perform any obligation of Sublessee pursuant to this
Sublease, then Sublessee shall immediately cure such default at its own expense.
If the default is not the result of Sublessee's failure to perform an
obligation of Sublessee pursuant to this Sublease, then Sublessee may, at its
option, but without obligation to do so, undertake to cure such default,
provided that it does so in a reasonable manner and in accordance with the
terms of the Lease.
(g) If the Lease is terminated for any reason before the natural
expiration of its initial eleven-year (11-year) term, and if Sublessee is not
then in default, the termination of the Lease shall not terminate or affect the
continuing validity of this Sublease. In such event, all of Sublessor's interest
under this Sublease shall be deemed automatically assigned, transferred and
conveyed to Landlord. Landlord shall thereupon be bound under this Sublease to
the same extent as Sublessor was bound under this Sublease, and Landlord shall
have all of the rights of Sublessor under this Sublease. In addition, Sublessee
shall thereupon be deemed to have attorned to Landlord such that this Sublease
shall become a direct lease between Landlord and Sublessee.
6. CONDITION OF PREMISES.
(a) Sublessor shall deliver possession of the Premises to Sublessee
on the Commencement Date in the same condition as Sublessor accepts delivery of
possession of the Premises from Landlord on the Commencement Date. Sublessee's
taking possession of the Premises shall be
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<PAGE> 6
Sublessee's acknowledgment that the Premises are in good and tenantable
condition and that Sublessee accepts the Premises in their then-current
condition, "as is".
(b) On surrendering possession, Sublessee will leave the Premises
broom clean and in good condition, ordinary wear and tear excepted.
7. ESTOPPEL CERTIFICATE. Each party shall, without charge to the other
party, at any time and from time to time, within ten (10) days after receipt by
said party from the other party of written request therefor, deliver a fully
executed certificate certifying, if true: (a) that this Sublease is unmodified
and in full force and effect, or if there have been any modifications, that
same is in full force and effect as modified and stating any such
modifications; (b) whether or not there is then existing any claim of default
of the other party and if so, specifying the nature thereof; and (c) the
current amount of rent payable monthly by Sublessee and the date to which the
same has been paid.
8. BROKERS. Each party warrants to the other that the warranting party
has incurred no obligation by reason of this Sublease for a real estate
brokerage commission or finder's fee for which the other party would be liable.
Each party will indemnify, protect, defend and hold the other party free and
harmless from and against any liability, damage or expense the other party may
incur by reason of the untruth as to the warranting party of the foregoing
warranty, including expenses for attorney's fees and court costs.
9. NOTICES. All notices, demands or requests from one party to another
shall be delivered or sent in accordance with Section 19 of the Lease,
addressed to Sublessee at the address of the Premises and addressed to
Sublessor in care of Buie Communities, Inc., 380 Stevens Avenue, Suite 305,
Solana Beach, California 92075, Attention: Robert F. Buie or Robert Irish.
Either party may change its address for notices by delivering a notice to that
effect to the other party.
10. ASSIGNMENT, SUBLETTING AND HYPOTHECATION. Sublessee shall not assign
this Sublease or collaterally assign, pledge or hypothecate its interest under
this Sublease or further sublease all or any portion of the Premises without
the prior written consent of Sublessor, which may be withheld in Sublessor's
sole, absolute and unfettered discretion. No assignment or further sublease
shall release Sublessee, and Sublessee shall remain liable to Sublessor for full
performance of Sublessee's obligations.
11. OTHER PROVISIONS.
(a) One or more waivers by Sublessor of any breach of any covenant or
condition shall not be construed as a waiver of a subsequent or continuing
breach of the same or of any other covenant or condition, and the consent or
approval by Sublessor to or of any act by Sublessee requiring Sublessor's
consent or approval shall not be deemed to waive or render unnecessary
Sublessor's consent or approval to or of any subsequent act.
(b) This Sublease may be signed in two (2) or more counterparts, each
of which shall be an original, but all of which shall constitute one and the
same instrument.
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<PAGE> 7
(c) This Sublease has been negotiated and entered into in the State
of California, and shall be governed by, construed and enforced in accordance
with the internal laws of the Sate of California applied to contracts made in
California by California residents to be wholly performed in California.
(d) Paragraph titles or captions contained in this Sublease are
inserted as a matter of convenience and for reference and in no way define,
limit, extend or describe the scope of this Sublease or any provision hereof.
No provision in this Sublease is to be interpreted for or against either party
because that party or its legal representative drafted such provision.
(e) If any term, covenant, condition or provision of this Sublease is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the provisions shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(f) If Sublessor or Sublessee files a suit against the other which is
in any way connected with this Sublease, the unsuccessful party shall pay to
the prevailing party a reasonable sum for attorneys' fees and costs, which
shall be deemed to have accrued on the commencement of such action and shall be
enforceable whether or not such action is prosecuted to judgment.
(g) The covenants and conditions contained in this Sublease shall,
subject to the provision governing assignment and subletting, apply to and bind
the heirs, successors, executors, administrators and assigns of the respective
parties. If this Sublease is signed by more than one person as Sublessee, their
obligation shall be joint and several.
(h) Time is expressly declared to be of the essence of this Sublease,
and of all covenants and conditions herein contained.
[BALANCE OF PAGE IS LEFT BLANK INTENTIONALLY;
TEXT RESUMES WITH SECTION 11(i) ON PAGE 8]
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<PAGE> 8
(i) This Sublease constitutes the entire agreement between the
parties pertaining to Sublessee's subtenancy of the Premises, fully supersedes
any and all prior proposals, letters of intent, correspondence, understandings,
representations, warranties and agreements between the parties, or any of them,
pertaining to the subject matter of this Sublease, and may be modified only by
written agreement signed by all of the parties.
IN WITNESS WHEREOF, the parties hereto have signed and entered into this
Sublease as of the day and year first above written.
SUBLESSOR:
BUTE TORREY HILLS LLC, a California limited liability
company
BY: BUTE COMMERCIAL CORPORATION, a California corporation,
Manager
By /s/ ROBERT M. IRISH
-------------------------------------------------
Title Vice President
-------------------------------------------------
By
-------------------------------------------------
Title
-------------------------------------------------
SUBLESSEE:
I.T.M., a Nevada Corporation
By /s/ GERALD EDICK
-------------------------------------------------
Title PRESIDENT
-------------------------------------------------
By
-------------------------------------------------
Title
-------------------------------------------------
-8-
<PAGE> 9
EXHIBIT "A"
REDACTED COPY OF THE LEASE
<PAGE> 10
EXHIBIT "B"
FLOOR PLAN DEPICTING PREMISES
[FLOOR PLAN]
<PAGE> 11
EXHIBIT "C"
SUBLEASE WORK LETTER AGREEMENT
I.T.M.
- ------------------------
- ------------------------
Attention:
--------------
Gentlemen:
You ("SUBLESSEE") and we ("SUBLESSOR") are executing simultaneously with
this Sublease Work Letter Agreement, a written sublease ("SUBLEASE") covering
those certain Premises ("PREMISES") comprised of approximately 3,928 rentable
square feet and approximately 3,401 usable square feet on the First Floor of
the Torrey Hills Corporate Centre, San Diego, California, as depicted on
Exhibit "B" of the Sublease. To induce Sublessee to enter into the Sublease
(which is hereby incorporated by reference to the extent that the provisions of
this Sublease Work Letter Agreement may apply thereto) and in consideration of
the mutual covenants hereinafter contained, Sublessor and Sublessee mutually
agree that certain improvements to the Premises shall be constructed by
Sublessor as follows:
1. DESCRIPTION OF IMPROVEMENTS
(a) The Premises to be provided by Sublessor, at no cost or expense to
Sublessee expense (and exclusive of Sublessee Improvements), shall consist of a
concrete floor, exterior Building walls, off-Premises service points from which
electrical and telephone service to the Premises can be made, off-Premises
service points from which plumbing connections for the supply of water to the
Premises may be made and any "Tenant Improvements" required to be constructed
by the Landlord pursuant to the Lease.
(b) The additional improvements described on that certain two-page
(2-page) cost breakdown prepared by Burger Construction and Property Services,
a copy of which is attached to this Sublease Work Letter Agreement as
ATTACHMENT "1", which include, but are not limited to, ceilings, interior
partitions, insulation, drywall (including taping and sanding), painting,
window coverings, wood and plastic casework, carpet, lighting fixtures,
electrical systems, plumbing connections and fixtures for the supply of water
to the Premises and the equipment and distribution system for heating,
ventilation and air-conditioning ("HVAC") for the Premises, including, but not
limited to, all ducts, baffles and thermostats to serve the Premises, shall
constitute the "SUBLESSEE IMPROVEMENTS". The Sublessee Improvements all shall
be made by Sublessor pursuant to plans and specifications to be approved in
writing by Sublessor and Sublessee. The work to be done and the responsibility
for preparation of plans and specifications for the Sublessee Improvements is
described in this Sublease Work Letter Agreement.
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<PAGE> 12
2. PLANS AND SPECIFICATIONS
(a) The Sublessee Improvements shall be constructed pursuant to plans
and specifications prepared by Sublessor's space planner or by a space planner
approved by Sublessor and retained by Sublessee. Sublessee shall meet with such
space planner within thirty (30) days after the Sublease is signed for the
purpose of informing such space planner of the nature and extent of the
Sublessee Improvements which Sublessee requests. Following receipt of such
information, the space planner shall provide to Sublessee a general description
of such proposed Sublessee Improvements ("SPACE PLAN"), together with an
estimate of the cost thereof ("COST ESTIMATE"). Sublessee shall have the right,
reasonably, to approve such Space Plan and Cost Estimate, which approval, in
any event, shall be given no more than five (5) days following receipt thereof.
(b) Sublessor will furnish, based upon the approved Space Plan and Cost
Estimate, all architectural, mechanical and electrical engineering plans
required for the construction of the Sublessee Improvements ("WORKING
DRAWINGS"), including complete detailed plans and specifications for partition
layout, ceiling, heating and air conditioning, electrical outlets, and switches
and telephone outlets. Such complete plans and specifications shall be (i)
provided to Sublessee following Sublessee's approval of the Space Plan and Cost
Estimate pursuant to Paragraph 2(a) of this Sublease Work Letter Agreement, and
(ii) reasonably approved by Sublessee no more than three (3) days following
receipt thereof.
3. CONSTRUCTION OF TENANT IMPROVEMENTS
(a) Construction of the Sublessee Improvements pursuant to this
Sublease Work Letter Agreement shall be performed by such contractor as
Sublessor shall reasonably select, under Sublessor's supervision. Construction
shall commence promptly following final approval of the Working Drawings and
acceptance of final pricing by Sublessee (but not before the date on which this
Sublease is signed), and shall be diligently prosecuted to completion
thereafter.
(b) Sublessor reserves the right to use pre-stocked materials in
constructing the Sublessee Improvements, including drywall and studs, lighting
fixtures and air handling boxes. Sublessor represents that all such pre-stocked
items were acquired at the best price available in order to save cost and delay
in constructing the Sublessee Improvements in the Project.
(c) Sublessee shall be permitted, during the course of construction,
upon reasonably notice to Sublessor, and without unreasonably interfering with
the conduct of such construction, to inspect the progress of the work and, upon
written notice to Sublessor, to cause any material defects or deficiencies to
be repaired.
(d) Upon completion of construction of the Sublessee Improvements,
Sublessor shall cause the Premises to be thoroughly cleaned prior to
Sublessee's occupancy of the Premises.
(e) Sublessor shall repair or replace as soon as reasonably possible
all incomplete or defective items identified in any "pick-up list" or
"punchlist" delivered by Sublessee to Sublessor. Sublessee shall deliver such
"pick-up list" or "punchlist" to Sublessor within fifteen (15) days after
commencement of Sublessee's actual occupancy of the Premises.
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<PAGE> 13
(f) Following completion of the Sublessee Improvements, Sublessor will
cause to be prepared a set of as-built plans and specifications of the
Sublessee Improvements, the cost of which plans and specifications shall be
included in the cost of the Sublessee Improvements to which the Sublessee
Improvement Allowance applies, pursuant to Paragraph 4 of this Sublease Work
Letter Agreement.
4. CHANGE ORDERS
After approval of the Space Plan and Cost Estimate, any material change
desired by Sublessee ("CHANGE ORDER") shall be requested of Sublessor in
writing. Upon receipt of a Change Order request, Sublessor shall cause the
modification to be incorporated into the Working Plans and transmitted to the
contractor for pricing and for an estimate of the delay, if any, which would be
caused by incorporation of the requested Change Order. Upon receipt of pricing
information, Sublessor shall forward the cost of the work, including the
overhead of the contractor, the space planner and Sublessor, and a statement of
the estimated number of additional working days, if any, required to execute
the change, to Sublessee for approval. Work with respect to the Change Order
shall proceed only upon Sublessee's written approval of the pricing and
estimated delay. Whether or not a requested Change Order is ultimately
approved by Sublessee or incorporated in the Sublessee Improvements, all of
Sublessor's expenses associated with the requested Change Order, including
modification of the Working Drawings, shall be charged to the Sublessee
Improvement Allowance.
5. PAYMENT OF COST OF CONSTRUCTION
(a) Sublessor shall pay for the Sublessee Improvements in an amount not
to exceed the sum of One Hundred Ten Thousand Three Hundred Forty-Five Dollars
($110,345.00) ("SUBLESSEE IMPROVEMENT ALLOWANCE").
(b) In addition to the hard costs of constructing the Sublessee
Improvements, the Sublessee Improvement Allowance shall be used to pay for
Sublessor's expenses, if any, in connection with preparation of the Space Plan,
Working Drawings and other plans and specifications necessary to the
construction of the Sublessee Improvements.
(c) Notwithstanding the Cost Estimate delivered to Sublessee pursuant
to Paragraph 2(b) of this Sublease Work Letter Agreement, any cost for
Sublessee Improvements in excess of the Sublessee Improvement Allowance,
including the cost of any Change Orders, shall be paid by Sublessee. Such
excess shall be payable in full upon the later of commencement of construction
of the Sublessee Improvements or written demand by Sublessor.
6. ESTIMATED COMPLETION DATE
(a) The Estimated Completion Date with respect to the Sublessee
Improvements is November 1, 1998.
(b) If the Sublessee Improvements have not been completed on or before
the Estimated Completion Date, (i) Sublessor shall not be liable for any
damage incurred by Sublessee as a result
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<PAGE> 14
thereof, (ii) this Sublease shall not thereby become void or voidable, (iii)
the Commencement Date shall not be delayed but shall be the date specified in
Paragraph 2 of the Sublease, and (iv) Sublessee shall not be entitled to any
abatement of rent; provided, however, if Sublessee demonstrates, to Sublessor's
reasonable satisfaction, that Sublessor's contractor could not have completed
the Sublessee Improvements contemplated by the original Space Plan and Working
Drawings (without reference to any Change Orders) on or before the Estimated
Completion Date, then Sublessee shall be entitled to a per diem credit against
Basic Rent next payable to Sublessor for each day after the Estimated
Completion Date until the Sublessee Improvements are substantially complete.
(The amount of such per diem credit shall be determined by dividing the initial
Basic Rent set forth in Paragraph 3(a) of the Sublease by thirty (30).)
Notwithstanding the foregoing, either party shall be entitled to terminate this
Sublease if the Sublessee Improvements have not been substantially completed
within three hundred sixty-five (365) days after the Estimated Completion Date.
"SUBSTANTIAL COMPLETION", for purposes of this Paragraph 6(b), shall mean
completion of construction sufficient for Sublessee to occupy the Premises for
fixturing or for the use intended, subject only to punchlist items, including
completion of the ceiling system, electrical service, and floor finishes. The
completed work shall be clean and free of debris or obstructions, and floors to
receive carpeting shall be cleaned.
If the foregoing correctly sets forth our understanding, kindly sign this
Sublease Work Letter Agreement where indicated.
SUBLESSOR:
BUIE TORREY HILLS LLC, a California limited liability company
BY: BUIE COMMERCIAL CORPORATION, a California corporation,
Manager
By /s/ ROBERT M. IRISH
----------------------------------------------------------
Title Vice President
-------------------------------------------------------
By
----------------------------------------------------------
Title
--------------------------------------------------------
ACCEPTED AND APPROVED:
_________________________, 19__.
SUBLESSEE:
I.T.M., a Nevada Corporation
By /s/ GERALD EDICK
----------------------------------------------------------
Title PRESIDENT
--------------------------------------------------------
By
-----------------------------------------------------------
Title
---------------------------------------------------------
-4-
<PAGE> 15
ATTACHMENT "1" TO SUBLEASE WORK LETTER AGREEMENTS
COST BREAKDOWN
-1-
<PAGE> 16
BURGER
CONSTRUCTION AND PROPERTY SERVICES 437 SOUTH HIGHWAY 101 SUITE 110
SOLANA BEACH, CA 92075
Invoice No. 504587
<TABLE>
<CAPTION>
COST DIVISION
DIVISION DESCRIPTION TOTAL TOTAL
- -------- ----------- ----- --------
<S> <C> <C> <C>
1 GENERAL CONDITIONS
SUPERINTENDENT $ 2,500.00
PROJECT MANAGEMENT $ 250.00
JOBSITE LABOR $ 200.00
TRASH REMOVAL $ 550.00
FINAL CLEAN $ 350.00
CONSTRUCTION FACILITIES $ 300.00
$ 4,150.00
----------
6 WOOD AND PLASTIC, CABINETS
CASEWORK $ 7,000.00
$ 7,000.00
----------
7 THERMAL & MOISTURE PROTECTION
INSULATION
SOUND ATTENUATION BATTS $ 900.00
$ 900.00
----------
8 DOORS AND WINDOWS
GLAZING $ 3,000.00
DOORS/FRAMES & HARDWARE $10,200.00 $13,200.00
----------
9 FINISHES
DRYWALL & METAL STUD FRAMING $12,675.00
ACOUSTICAL CEILING $ 5,735.00
PAINTING $ 2,800.00
CARPET $ 7,500.00
BASE $ 950.00
$29,660.00
----------
10 SPECIALTIES
FIRE EXTINGUISHERS $ 150.00
WINDOWCOVERINGS $ 1,900.00
$ 2,050.00
----------
15 MECHANICAL
PLUMBING $ 2,500.00
HVAC $20,835.00
$23,335.00
----------
</TABLE>
Page 1
<PAGE> 17
<TABLE>
<CAPTION>
COST DIVISION
DIVISION DESCRIPTION TOTAL TOTAL
- -------- ----------- ----- --------
<S> <C> <C> <C>
16 ELECTRICAL $ 19,115.00
------------
$ 19,115.00
============
SUBTOTAL $ 99,410.00
PROFIT & OVERHEAD $ 9,941.00
INSURANCE $ 994.10
------------
TOTAL $ 110,345.10
============
</TABLE>
$32.44 per square foot based on 3,401 square feet
Page 2
<PAGE> 18
CONSENT OF LANDLORD
Effective as of the date of the foregoing Sublease, the undersigned, as
the "Landlord" under the Lease (defined in the Sublease), hereby consents to
the foregoing Sublease of the Premises (also defined in the Sublease), which is
a portion of the First Floor of the Building (also defined in the Sublease) to
I.T.M., a _______________________.
LANDLORD:
5 TORREY HILLS JOINT VENTURE, a California limited liability
company
BY: BUIE TORREY HILLS LLC, a California limited liability
company, Manager
BY: BUIE COMMERCIAL CORPORATION,
a California corporation, Manager
By /s/ ROBERT M. IRISH
----------------------------------
Title Vice President
----------------------------------
By
----------------------------------
Title
----------------------------------
-2-
<PAGE> 1
EXHIBIT 10.5
FULFILLMENT SERVICES AGREEMENT
This Fulfillment Services Agreement (the "Agreement"), dated as of September
11, 1999, is between Professional Marketing Associates, Inc., an Arizona
corporation ("Professional Marketing Associates") and Genius Products, Inc.
(formerly International Trading & Manufacturing Corporation) (the "Company"
&/or "Client").
WHEREAS, Professional Marketing Associates has the capability to provide
certain order entry and fulfillment services for the Company's direct response
offerings.
WHEREAS, the Company's use of Professional Marketing Associates order entry and
fulfillment services shall be under the terms and conditions set forth in this
Agreement.
Therefore, Professional Marketing Associates and the Company agree as follows:
1. Merchandise ownership.
A. For the purposes of this Agreement, "merchandise" means all products
provided by the Company for sale or delivery to Company's customers
pursuant to this Agreement. The Company shall retain ownership of all
merchandise covered by this Agreement and risk of loss at all times.
Legal title to the merchandise remains with the Company until the
merchandise is shipped for delivery to the Company's customer.
B. Professional Marketing Associates makes no claim of ownership of the
merchandise and shall act only as the Company's independent
contractor for the purposes of order entry, order processing,
warehousing and distribution of merchandise.
C. Customer orders for the merchandise are with the Company and the
Company is the seller of the merchandise.
2. Order entry and processing.
A. Professional Marketing Associates shall accept and process customer
orders for merchandise received by all media designated by the
Company.
B. For each customer order taken, Professional Marketing Associates
shall enter all or any part of the following information into its
information systems: customer name, address, city, state, zip code and
telephone number, description and quantity of merchandise ordered,
price, method of payment, advertising source codes, shipping
instructions, and company specific messages. The Company shall own all
rights, title and interest in such information, all of which shall be
deemed Confidential Information for the purposes of Section 14.
C. Except as provided in Subsection D of this section, Professional
Marketing Associates shall promptly process all qualified requests
and use its best efforts to cause the order to be shipped to the
customer within three (3) business days after receipt of the order.
D. The Company shall provide sufficient advance notice of all media
promotions to enable Professional Marketing Associates to implement an
order fulfillment program appropriate for the Company's projected
response forecast. Professional Marketing Associates hereby
acknowledges that the Company has given notice of a national TV
promotion scheduled for September 14, 1999, the projected response of
which is likely to be very high.
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:1
<PAGE> 2
3. Sales price of merchandise.
A. For all orders processed pursuant to this Agreement, Professional
Marketing Associates shall charge the Company's customers the
Company's designated unit price, plus applicable sales and use taxes
and other charges designated by the Company.
B. The company shall notify Professional Marketing Associates of any
change in the unit price at least forty-eight (48) hours in advance of
the date the price change takes effect, and shall subsequently confirm
the change in writing. Price changes may include quantity discounts,
promotion and advertised specials, coupons, rebates or any other
change to the unit price designated by Company.
4. Sales and use taxes.
A. Since title to the merchandise remains with the Company at all times,
the Company is liable and responsible to remit all sales and use taxes
to the appropriate taxing authorities. Professional Marketing
Associates assumes no liability for payment of sales and use tax.
B. Professional Marketing Associates shall charge the Company's customers
for sales and use taxes as directed in writing by the Company and
furnish the Company with monthly reports stating the taxable revenues,
taxes collected and tax rates effective for each jurisdiction for
which taxes must be paid.
C. Professional Marketing Associates assumes no responsibility for
determining whether sales of the Company's merchandise are taxable in
a given jurisdiction, or that the rate or method of calculating any
such taxes is correct. Professional Marketing Associates agrees only
to use reasonable care and skill in calculating and collecting taxes
due based on the rates and methods supplied by the Company.
D. The Company shall indemnity, defend and hold harmless Professional
Marketing Associates, its officers, directors, and managing officers
from and against all claims, suits or liabilities and expenses,
including reasonable legal fees, for the Company's failure to remit to
the appropriate authorities any sales or use taxes claimed to be due
and owing by reason of the Company's sale of merchandise to its
customers; provided that Professional Marketing Associates has
fulfilled its obligation to collect and result sales tax reports in
the manner specified in writing by the Company.
5. Processing payments.
A. Professional Marketing Associates shall process payments considered
acceptable. A payment is considered acceptable if it is for the full
amount of the sale, and in cash or by a designated credit card.
Designated credit cards include Visa, MasterCard, Discover Card,
Diners Club and American Express and any other credit cards which the
Company and Professional Marketing Associates mutually agree to
accept. The Company shall designate in writing a maximum permitted
amount or percentage of underpayment which is considered acceptable to
the Company, and for which an order may be shipped. This allowance is
not a discount and applies only to those transactions in which the
customer fails to remit a correct payment to Professional Marketing
Associates.
B. Professional Marketing Associates shall receive, control, process and
report incoming cash, checks, credit card and balance due payments on
a daily basis. Professional Marketing Associates shall promptly
deposit all payments it receives within two (2) business days of
shipment of product.
C. Professional Marketing Associates shall process refunds and credits
for returned merchandise pursuant to the Company's written policies
and applicable state and federal regulations.
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:2
<PAGE> 3
6. Delivery.
Professional Marketing Associates shall ship merchandise to customers by
United Parcel Service (UPS), the United States Post Office (USPS) or
equivalent delivery service consistent with Company's requirements for
shipping and delivery of merchandise.
7. Customer services.
A. Professional Marketing Associates shall provide trained
representatives to respond to mail or other inquiries by the Company's
customers for merchandise information, order status, order changes,
cancellations, returns or billing problems.
B. Professional Marketing Associates shall send back - order notices and
process customer return cards in accordance with applicable federal,
state and local laws. It shall also respond to customer complaints,
process rejected credit card charges, and issue refunds or merchandise
credits.
C. Professional Marketing Associates shall issue appropriate UPS call
tags, request proof of delivery, and process all necessary tracers and
claims for non-delivery or damage on behalf of Company. Professional
Marketing Associates shall provide Company with proof of shipments but
is not responsible in any way for credit card charge-backs.
Professional Marketing Associates shall pick up all mail relating to
the fulfillment services provided under this Agreement at designated
Post Office addresses once each day.
D. Professional Marketing Associates acknowledges that the satisfaction
of the Company's customers is of paramount importance to the Company
and that the Company is entering into this Agreement in reliance on
Professional Marketing Associate's undertaking to deliver the services
hereunder to the highest professional standard. The protocol and
content of customary and usual written or oral communications between
Professional Marketing Associates and the Company's customers shall be
subject to the Company's prior approval.
8. Returns.
Professional Marketing Associates shall instruct customers on the
appropriate procedure for returning merchandise and inspect all returned
merchandise. Professional Marketing Associates shall inspect and repackage
all undamaged or unused merchandise and return it to inventory for resale.
Professional Marketing Associates shall repackage all damaged or
unsalvageable merchandise, and process such merchandise in any manner
designated by the Company at the Company's expense.
9. Operating reports.
A. Professional Marketing Associates shall provide the Company with
standard system reports on a regular basis for all services provided
pursuant to this Agreement. Standard system reports include a
compilation of customer order information and monthly sales and tax
reports upon written request from the Company.
B. If special reports not provided as part of the standard reporting
system are required, the Company shall pay Professional Marketing
Associates for any programming expenses incurred. Professional
Marketing Associates shall provide the Company with a written
estimate of expected programming charges, and obtain written
authorization from the Company for such modifications before
proceeding with the programming development of special reports.
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:3
<PAGE> 4
10. Compensation and payment.
A. The Company agrees to pay Professional Marketing Associates the rates
prescribed in the Services Fees as set forth in Exhibit "A" attached
hereto and incorporated herein. If other services not specifically
defined in this Agreement are requested by the Company in writing, the
compensation to Professional Marketing Associates shall be the hourly
rate prescribed in the Service Fees.
B. If in the event The Company ceases selling the product and requests
inventory to be returned to them, then Professional Marketing
Associates shall waive any monthly minimum fee beginning with the next
calendar month until the termination of the Agreement. If, the Company
then proceeds to market the product again during the term of the
Agreement, any minimum charge agreed by the parties in writing shall
again commence beginning on the first day of the calendar month the
marketing and/or selling begins, and shall continue until the
termination of the Agreement.
C. Any and all financial arrangements not covered in this contract must
be agreed upon and attached to this contract.
11. Compliance with laws.
The Company shall comply with all applicable laws, regulations and
requirements of the Federal Trade Commission, the Food and Drug
Administration, and any other state or federal agency which might have
jurisdiction over the Company's merchandise or sales transactions. The
Company shall monitor compliance under such laws, regulations and
requirements, and shall promptly notify Professional Marketing Associates
of any special compliance issues raised by the offer or sale of the
Company's merchandise or sales or promotional activities in a particular
state.
12. Indemnification.
(a) The Company shall indemnify and hold harmless Professional Marketing
Associates and its employees from and against all claims, damages, losses
and expenses, including reasonable legal fees and costs of suit, arising
out of or relating to any defects in the merchandise or from the Company's
negligent or culpable acts or omissions.
(b) Professional Marketing Associates shall indemnify and hold harmless
the Company and its employees from and against all claims, damages, losses
and expenses, including reasonable legal fees and costs of suit, arising
out of or relating to (1) any damage caused to the merchandise by the gross
negligence or willful misconduct by Professional Marketing Associates while
such merchandise is in its custody, (2) from the Professional Marketing
Associates' negligent or culpable acts or omissions or (3) third party
claims arising as a result of a material breach of this Agreement by
Professional Marketing Associates.
13. Insurance.
The Company shall provide, at its own expense, all necessary insurance for
product damage loss through fire or other casualty while the merchandise is
in the custody of Professional Marketing Associates, or in transit to or
from any location.
14. Confidentiality.
Material or information which the Company gives or divulges to Professional
Marketing Associates or which comes into the possession or knowledge of
Professional Marketing Associates and which relates to the Company and its
business operations, such as financial information, marketing data,
customer
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:4
<PAGE> 5
lists and pricing policies, is confidential and proprietary data.
Professional Marketing Associates shall hold this information or material
in confidence and shall not reveal the information or material without the
consent of the Company. On termination of this Agreement, Professional
Marketing Associates shall immediately deliver this information or material
to the Company on request if all invoices and outstanding debts to
Professional Marketing Associates have been paid.
15. Use of Company name.
Except to the extent necessary to perform its services under this
Agreement, Professional Marketing Associates shall not use the Company's
name or any derivation of the Company's name for advertising or trade
purposes without the Company's prior written permission. Notwithstanding
this prohibition, Professional Marketing Associates may list the Company
among its clients in any brochure, business plan or other document
describing the business and clients of Professional Marketing Associates.
16. Programming ownership.
Professional Marketing Associates is the exclusive owner of all
internally-designed or developed computer programming utilized for
processing, tracking, fulfilling, analyzing or reporting orders of the
Company's merchandise. The Company shall not, directly or indirectly,
divulge, disclose or communicate to any other person or company who is
not a party to this Agreement information concerning programming or
systems designed or utilized by Professional Marketing Associates.
17. Audit and inventory.
A. Upon reasonable advance written notice and during normal business
hours, the Company or the Company's authorized representatives may
inspect, audit, and copy excerpts from books, records, contracts and
data processing procedures created or maintained by Professional
Marketing Associates that relate to the reconciliation of invoices to
the Company and to this Agreement. This audit or inspection shall take
place at the offices of Professional Marketing Associates or such
other place as the parties mutually agree. The Company shall pay all
direct and indirect costs of any such inspection or audit, except the
salaries of Professional Marketing Associates' employees, and those
costs reasonably incurred by Professional Marketing Associates in
cooperating with such inspection or audit. Professional Marketing
Associates shall pay all of the Company's direct and indirect costs of
any such inspection or audit if amounts invoiced to the Company exceed
105% of the audited amounts payable by the Company over the audit
period.
B. On reasonable advance written notice from the Company, Professional
Marketing Associates shall perform a physical inventory of the
Company's merchandise entrusted to Professional Marketing Associates
at reasonable times during normal business hours at no cost to the
Company at a rate of 1 per physical year. The Company shall compensate
Professional Marketing Associates as prescribed in the Service Fees
section of this Agreement for all costs incurred in conducting
additional inventories per physical year.
16. Shrinkage
A. Professional Marketing Associates will take reasonable and prudent
precautions to preserve and protect Client's property, including all
property that is returned by buyers. Provided that such precautions
are taken by Professional Marketing Associates, Professional Marketing
Associates shall not be responsible or liable for, and CLIENT agrees
to hold Professional Marketing Associates harmless from property
losses or shrinkage under the acceptable annual rate of 1.5% of the
wholesale value.
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:5
<PAGE> 6
B. Professional Marketing Associates is not responsible for any shrinkage
incurred prior to receipt by Professional Marketing Associates or any
hidden shrinkage or shortage not visibly apparent at time of receipt.
19. Reserve for shipping costs and customer refunds.
At all times during the term of this Agreement, the Company shall provide
Professional Marketing Associates with sufficient funds to cover all
delivery service shipping costs.
20. Return of merchandise to the Company.
A. Professional Marketing Associates shall, within thirty (30) days after
termination of this Agreement, deliver all the remaining merchandise
entrusted to it by the Company to a location specified by the Company
on a freight-collect basis. The Company shall also have the option to
arrange for the delivery of the product themselves.
B. Professional Marketing Associates assumes no responsibility for any
perishable or date-sensitive merchandise remaining in its custody
after the termination of this Agreement. Absent other instructions
from Company, Professional Marketing Associates may, within sixty (60)
days after the Company ceases to market any merchandise covered by
this Agreement, charge appropriate storage fees until product is
dispersed to destination designated by the Company.
C. Professional Marketing Associates shall charge the Company the hourly
rates prescribed in the Service Fees section of this Agreement to
cover the direct cost of labor and administrative and systems support
services for relocation of merchandise or return of merchandise to the
Company.
21. Default, termination, and renewal.
Either Professional Marketing Associates or the Company may terminate this
Agreement:
A. Upon not less than 30 days' prior written notice;
B. Immediately if either party fails to pay any sum due to the other
party within five (5) business days after receiving written notice
that payment is past due; or
C. Immediately if either party files a petition in bankruptcy, is
declared bankrupt or insolvent, makes any assignment for the benefit
of creditors or is placed in trustee or receivership.
This Agreement shall be renewed automatically at the end of each term, at
the rates then prevailing for Professional Marketing Associates' services,
unless either party gives written notice to the other of its intent not to
renew at least thirty (30) days prior to the end of each term.
22. Force Majeure.
Either party's failure to perform any of its obligations under this
Agreement, except its payment obligations, is excused due to any cause or
event beyond the parties' reasonable control including, without limitation,
strikes, lockouts or other labor disputes, other than by employees by the
affected
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:6
<PAGE> 7
party, acts of God, fire, other casualty, civil insurrections, actions or
orders of any governmental or other lawful authority or similar events.
23. Assignment.
Neither Professional Marketing Associates nor the Company may assign its
interests in this Agreement without the prior written consent of the other
party to this Agreement. Such consent shall not be unreasonably withheld.
24. Arbitration.
A. Any dispute or claim arising out of or relating to this Agreement, or
the performance of any obligations created or imposed by this
Agreement, shall be resolved by arbitration before the American
Arbitration Association (AAA), through its office in Phoenix, Arizona.
A single independent arbitrator shall be selected by the AAA, and all
proceedings shall be conducted, according to the AAA's Commercial
Arbitration Rules. The arbitrator's decision and award shall be final
and binding, and it shall have the force and effect of a judgment when
filed with any court of competent jurisdiction.
B. The cost of the arbitration procedure shall be borne by the losing
party or, if the decision is not clearly in favor of one party or the
other, then the costs shall be borne as determined by such arbitration
procedure.
C. The arbitration procedure provided herein shall be the sole and
exclusive remedy to resolve any controversy or dispute between the
parties to this Agreement, and the proper venue for such arbitration
proceeding and any legal action to enforce such arbitration award
shall be Maricopa County, Arizona. The parties to this Agreement
hereby expressly consent to the jurisdiction and venue of Maricopa
County Superior Court.
25. Attorneys' Fees.
If any arbitration proceeding or action shall be brought to recover any
amount due under this Agreement, or for or on account of any breach of or
to enforce or interpret any of the terms, covenants, or conditions of this
Agreement, the prevailing party shall be entitled to recover from the other
party, as part of prevailing party's costs, a reasonable attorneys' fee,
the amount of which shall be fixed by the arbitrators or by the Court and
shall be made a part of any judgment or award rendered.
26. Notice.
All notices under this Agreement shall be in writing, shall be effective
when received, and shall be given by personal service, by facsimile
transmission with suitable proof of receipt, or by certified or registered
mail, return receipt requested, to the addresses set forth below or at such
other addresses which may be specified in writing to all parties hereto.
Professional Marketing Associates, Inc. Genius Products, Inc.
405 West Fairmont Drive 11250 El Camino Real
Tempe, AZ 85282 San Diego, CA 92130
Attn: Lou Hagen Attn: Larry Balaban
27. Number and gender.
Whenever the context of this Agreement requires, the singular shall
include the plural, the masculine shall include the feminine, and personal
pronouns shall include corporations, firms, partnerships, or other forms of
association.
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:7
<PAGE> 8
28. Captions.
Titles or captions contained in this Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit,
extend, or describe the scope of this Agreement of the intent of any of its
provisions.
29. Governing law and successors.
This Agreement, and any dispute, claim or defense arising out of or
relating to this Agreement, shall be governed and construed in accordance
with the laws of the State of Arizona. This Agreement shall be binding upon
and inure to the benefit of the parties, their heirs, legal
representatives, successors and assigns.
30. Entire agreement.
This instrument contains the entire agreement of the parties, and no
representations, warranties or inducements have been made by any of the
parties hereto, except as expressly set forth herein.
31. Term of Agreement.
The Term of this Agreement shall be for a period of six (6) months and
shall be renewed automatically at the end of each term pursuant to
Section 21E.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day,
month and year first above written.
Professional Marketing Associates, Inc. Genius Products, Inc.
BY: /s/ LOU HAGEN BY: /s/ LARRY BALABAN
--------------------------- ---------------------------
Lou Hagen Larry Balaban
TITLE: SVP Marketing & Production
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:8
<PAGE> 9
Exhibit "A"
SERVICES LISTING
================================================================================
PROCESSING COST PER ORDER: $1.65 (W.B.)
$1.25 (2CD SET)
================================================================================
================================================================================
1. Receive and stock merchandise
2. Warehouse all merchandise
3. Receive orders via Electronic Transfer and process
4. Maintain customer database and products shipping labels
5. Insert pre-printed return forms and all bounce back materials
6. Pick, pack and ship merchandise
7. Provide reports and inventory counts as determined by The Company
8. Receive return packages
9. Inspect returned merchandise
10. Issue customer credits
11. Restock undamaged return merchandise
12. Answer customer service phone calls (included in per order costs.)
13. Open, edit, enter data and prepare shipping labels for money
order/check orders
14. Process credit card orders via The Company's merchant processing
center
15. Mail credit card decline letters (The Company to provide and pay
postage)
16. Mail back-order merchandise letters (The Company to provide and pay
postage)
17. Communicate with merchant bank for charges, credits and inquiries
18. Reply to merchant bank in the event of charge-backs
19. Make daily deposits
20. Initiate tracers and claims
================================================================================
When The Company's weekly volume of orders received reaches 5,000 orders, the
cost per order as set forth above for all orders received during that week will
be reduced by 10%. Additional 10% discounts (to a maximum of a 50% discount)
will be given for each additional increment of 5,000 orders received during the
week.
PMA will assist The Company in the setup of UPS and USPS accounts with funds
paid directly to the supplier by The Company. PMA will also help establish and
set up the link with a merchant bank. Also, at The Company discretion, PMA will
obtain packaging with payment made directly to the supplier.
Processing Costs and USPS charges are to be paid in advance by The Company to
PMA by weekly deposits.
Professional Marketing Associates, Inc. -- Fulfillment Services Agreement
Page:9
<PAGE> 1
EXHIBIT 10.6
[LIDO GROUP LETTERHEAD]
May 21, 1997
Mr. Gerald Edick
Mr. Klaus Moeller
International Trading & Manufacturing Corporation
647 Via de La Valle
Solano Beach, California
Dear Messrs. Edick and Moeller:
Lido Group is pleased to assist International Trading & Manufacturing
Corporation (ITM) pursue its corporate expansion plans. Lido Group will arrange
for the preparation of a private Placement memorandum (PPM) which will raise
between $250,000 and $500,000, based upon the sale of 250,000 to 500,000 shares
at $1.00 per share. A merger with an existing public entity will be negotiated
and upon consummation, a 504 offering of $1 million, which represent 800,000
shares at $1.25 per share, will be placed.
Our fees to ITM will be 8% of the cash raised and 650,000 shares of restricted
stock of ITM.
The transaction will have the following impact on ITM:
<TABLE>
<CAPTION>
Shares Amount
--------- --------
<S> <C> <C>
PPM 250,000/ $250,000/
500,000 500,000
Merger 500,000
Fee 650,000
504 800,000 1,000,000
Existing Shareholder 4,500,000
--------- ---------
Total 6,700,000/6,950,000 $1,250,000/$1,500,000
Commission $1,000,000/$1,200,000
</TABLE>
ITM will be responsible for legal fees relating to the merger and accounting
fees. Lido Group will assume the cost of perpetration of the PPM and 504
offering.
In addition, ITM will engage Lido Group to perform financial public relations
for one year at $5,000.00 per month. This may be extended upon mutual agreement.
Please acknowledge your acceptance by signing below.
Very truly yours,
Lido Group
by /s/ WILLIAM M. ALVERSON (LD)
----------------------------
William M. Alverson
<PAGE> 1
EXHIBIT 10.7
INTERNATIONAL MARKETING AND DISTRIBUTION AGREEMENT
This agreement ("Agreement") is made as of June __, 1998 between
International Trading & Manufacturing, a company incorporated in Nevada, whose
principal place of business is at 2533 N. Carson Street, Suite 1667, Carson
City, Nevada 89708 ("Licensor"), and HSN Direct International Limited, a
company incorporated in England and Wales with registered number 3156797 whose
principal place of business is at 1 HSN Drive, Building C, St. Petersburg,
Florida 33729 ("HSND").
1. GRANT OF RIGHTS. Licensor grant(s) to HSND:
1.1 MARKETING AND DISTRIBUTION RIGHTS. The exclusive worldwide right to
advertise, promote, market, sell and otherwise distribute The Astrology Network
(the "Product") more particularly described in the Schedule attached hereto and
incorporated herein ("Schedule") and such ancillary products (the "Ancillary
Products" as described in the Schedule and subject to Section 3.2 of this
Agreement) by means of direct response television programming however
distributed and by all other means, media and channels of distribution, now
existing or hereafter developed (the "Marketing and Distribution Rights").
Notwithstanding the foregoing, Licensor shall retain the right to market and
distribute the Product and the Ancillary Products (provided Licensor utilizes
only the Indra software and no part of the Product contains components of
Product from HSND's Third Party Supplier) through an outbound telemarketing
program in the U.S. conducted by an outsourced telemarketing firm and a single
catalog currently under development by Licensor for distribution in the U.S.
which shall be owned and controlled by Licensor.
1.2 USE OF TRADEMARKS. The right to use all trademarks, trade dress
and/or trade names which Licensor may own, control or have the right to use
with respect to the Product and Ancillary Products (the "Licensor's
Trademarks"), including the trademarks and/or trade names listed in the
Schedule, and the right to advertise, promote, market, sell and otherwise
distribute the Product and Ancillary Products using such other trademarks,
trade names, and identifying designations and such other advertisements and
promotional materials as HSND may determine.
1.3 USE OF ARTWORK. The right to use any and all artwork and promotional
materials which Licensor may own, control or have the right to use with respect
to the Product and Ancillary Products ("Licensor's Artwork"), copies all of
which Licensor shall provide to HSND as soon as practicable after the execution
of this Agreement, and the right to use Licensor's trademark, including but not
limited to that of "The Astrology Network" and the names, likenesses (including
photographs, illustrations, films and videotapes), endorsements and
testimonials of any endorsers and other persons which Licensor may own, control
or have the right to use. HSND shall have no obligation to make any payment to
any person or entity as a result of selling the Product or Ancillary Products
using Licensor's Artwork except as expressly set forth in this Agreement or as
required by contract expressly entered into by HSND and such third parties.
1.4 MODIFICATIONS. The right to duplicate and modify Licensor's Artwork
in any manner whatsoever, including the right to make insertions and deletions,
dub foreign languages or voice-overs, or to use time compression or expansion
techniques. HSND shall also have the right to use and reuse Licensor's Artwork
and any modified versions thereof in any manner which HSND may determine. HSND
shall have the right to translate, modify and otherwise revise and edit any
product packaging and any printed, video or audio materials included with the
Product or Ancillary Products and to include such modified versions with the
Product and Ancillary Products. Licensor shall provide HSND with a copy of any
such packaging and printed, video or audio materials, together with a
transcript, promptly following execution and delivery of this Agreement.
1.5 PRODUCT PACKAGING. The right to develop such groupings, ensembles,
configurations and packaging of the Product and the Ancillary Products or
upsells, including any backend or continuity products, as HSND may determine,
including but not limited to HSND's use of it's own upsell or continuity
products.
1.6 SUBDISTRIBUTORS. The right to sub-license any of the rights granted
to HSND hereunder to any third party and to exercise any of the rights granted
to HSND hereunder through any affiliates, distributors
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or licensees selected by HSND including the right to assign the rights
hereunder in whole or in part to such affiliates, distributors or licensees.
1.7 UPSELL, BACKEND AND CONTINUITY ITEMS. HSND shall be entitled to sell
upsell, backend and continuity items in conjunction with the Product if it
feels appropriate, whether part of the Product or otherwise, and nothing in
this in this Agreement or otherwise shall prevent HSND from so doing.
1.8 INFOMERCIAL. The right to write, produce and edit a direct response
television advertisement, approximately 30 minutes in length and/or such
additional direct response television advertisement or spots of the same or
shorter lengths as HSND may, in its sole judgment, determine (each or
collectively, the "Infomercial") which will describe, display and promote the
benefits to be derived from the use of the Product and Ancillary Products (based
upon attributes of and claims made about the Product and Ancillary Products
documented and substantiated by Licensor to HSND's satisfaction) and offer the
Product and Ancillary Products for sale to the general public. Notwithstanding
anything to the contrary in this Agreement of otherwise, HSND shall have the
unlimited right to air or cause to be aired the jointly owned Infomercial
worldwide through any and all licensees, sublicensees, or subdistributors at
HSND's sole election for the term of this Agreement. Licensor hereby appoints
HSND with full power of attorney to transact all business in the copyrights to
the Infomercial referenced herein. Licensor shall provide (or cause to be
provided) to HSND at Licensor's expense (i) all documentation and substantiation
necessary to ensure or facilitate compliance with all applicable laws and
regulations in the United States and to satisfy HSND; (ii) the names and
addresses of a reasonable number of good quality testimonials as users or owners
of the Product, and Licensor shall assist HSND in coordinating the attendance of
and otherwise make such persons available for purposes of filming, taping and/or
photography on a royalty/commission free basis; and (iii) all existing footage,
if any is available, relevant to the promotion of the Ancillary Products,
including but not limited to footage from Licensor's existing appearances on
live shop-at-home programming (if any) or any testimonials and B-roll. Ultimate
decisions about all production work and the final content of the Infomercial
shall be determined by HSND. If HSND uses any testimonials provided by Licensor
in the Infomercial, Licensor will supply to HSND copies of releases from all
such providers of testimonials and assist HSND in obtaining from such
individuals testimonials documenting their current use of the Product, if
applicable.
2. JOINT INFOMERCIAL FUNDING. HSND and Licensor shall both contribute equally
to the funding of the Infomercial. It is anticipated that the total budget for
the Infomercial shall not exceed $200,000 inclusive of talent fees and the
direct non-labor costs of HSND and Licensor for their involvement in
supervising the production of the Infomercial. Upon HSND's submitting a budget
to Licensor for Licensors review, Licensor shall approve the budget within 5
days or otherwise inform HSND of such discrepancies. Upon Licensors final
approval, Licensor shall promptly make payment to HSND for one half the total
budget, no later than 10 days after final approval, such final approval shall
not be unreasonably withheld.
3. NON-COMPETITION AND RIGHT OF FIRST REFUSAL
3.1 NON-COMPETITION. Throughout the term(s) of this Agreement and for one
hundred and eighty days thereafter, Licensor shall not either alone or in
participation with another person or entity, market, distribute, manufacture,
license or promote the Product or Ancillary Products (subject to Licensor
authorized means of distribution in Section 1.1 or Section 3.2) or any product
so similar in design, composition, content or function to the Product or
Ancillary Products as to be likely to compete with the Product or Ancillary
Products ("Competing Product"), or use any of the Trademarks or Licensor's
Artwork, by any means or medium, with HSND's prior written consent.
3.2 ANCILLARY PRODUCTS DEVELOPMENT. During the term(s) of this Agreement,
Licensor shall use Licensor's best efforts to provide HSND with no less than
three astrology related products every month for inclusion in the Astrology
Network offering as an Ancillary Product. HSND shall have final approval over
which Ancillary Products are incorporated into the offering. HSND and Licensor
agree that Licensor shall be permitted to sell, market and distribute products
that are not astrology related to third parties, provided always that the
products marketed by Licensor are in no way confusingly similar to those
Ancillary Products sold
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through the Astrology Network. For purposes of clarity, it is understood by the
parties that because of the difficult nature of determining whether products
are in fact astrology related or not, it may be the case that a product is
simply re-packaged to an astrology related theme to constitute a product which
is not confusingly similar.
4. TEST MARKETING. HSND shall have the right to conduct test marketing of the
Product and Ancillary Products by such means as HSND may determine, including
but not limited to Infomercial, short-form direct response and live
shop-at-home television ("Test Marketing"). Test Marketing may commence either
before or after commencement of production of any Infomercial created or to be
created under this Agreement. HSND shall bear the expense of performing the
Test Marketing, which expense shall include and be limited to the cost of media
for strategic geographic regions throughout the United States to obtain a cross
sampling of consumer response, and to be determined solely by HSND.
(a) If HSND determines, in its sole judgment, that Test Marketing is
successful, the parties may commence wide-scale airings ("Rollout") of
the Infomercial. If HSND determines that Test Marketing is unsuccessful
HSND shall have the right to terminate this Agreement in accordance
with Section 16.3. Prior to commencement of Rollout, Licensor shall
provide one half of the initial Rollout media cost for the Infomercial,
which total cost for Rollout media is not expected to exceed $400,000,
unless otherwise mutually agreed to by both HSND and Licensor. The
initial Rollout media costs shall be those funds expended for airing
the Infomercial until such time that the Infomercial generates a
positive cash flow and becomes self funding. All decisions thereafter
for media placement shall be made by HSND at their sole discretion,
including the decision to cease airing the Infomercial entirely.
5. SUPPLY OF PRODUCT. Unless otherwise agreed by the parties, all orders for
the Product and Ancillary Products purchased from Licensor will be subject to
the following terms and conditions:
5.1 DESCRIPTION OF GOODS. The goods shipped by Licensor will conform in
every manner to the samples, models, drawings, plans, specifications and other
descriptions provided to HSND and will be: new and not used, free from all
defects in materials and workmanship, of good and merchantable quality, fit for
the purpose for which they are supplied and will comply with all legislation
and regulations of any government, governmental department or other regulatory
body which may be applicable to them. HSND shall have the right to perform
periodic unannounced inspections of the Product during normal business hours
before shipment to the end use consumer either at Licensors facility or through
random checks of the Product received by the end use consumer and any
additional costs incurred by HSND as a result of reinspection due to
noncompliance of the goods or unavailability of some or all of the goods when
inspections are scheduled shall be borne by Licensor. Licensor shall use best
efforts to assist HSND to accomplish the above inspections including, but not
limited to, making Licensors facility available to HSND.
5.2 DEFECTIVE OR DAMAGED PRODUCT. Without limiting any other rights or
remedies, HSND has the right to return to Licensor any defective or damaged
Product and Ancillary Product, at Licensor's expense, for a full and immediate
refund, credit or replacement, at HSND's option.
5.3 SHIPMENT OF GOODS. Licensor shall periodically receive from HSND an
Electronic Data Transmission ("EDI") of valid authorized transactions setting
forth the customer order information containing the consumers name, address,
and item order number(s). Upon Licensor's receipt of such EDI transmission,
Licensor shall initiate fulfillment of each customer order within three days of
such receipt and provide to HSND via return EDI transmission notice and
confirmation that such customer order has been fulfilled. Licensor shall be
obligated to promptly create the components of the Product and package the
necessary Ancillary Products in a mail order box and to ship directly to the
consumer. Without prejudicing any other rights or remedies of HSND, Licensor
will notify HSND immediately if Licensor is unable to ship or cause shipment of
all or any portion of the Product or Ancillary Products by an EDI transmission
to HSND. If Licensor is unable to ship or cause shipment of all or any portion
of the goods covered by an EDI transmission, Licensor shall provide HSND with a
detailed packing list indicating the exact times and quantities that are
available for shipment. Licensor shall not ship or cause shipment of incomplete
or partial shipments or the balance of any previous
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incomplete or partial shipment without the prior written approval of HSND.
5.4 PRICES. The price for the Product and Ancillary Products purchased by
HSND from Licensor will be at a maximum as set forth on Schedule attached
hereto and as modified for Ancillary Product. Licensor agrees and acknowledges
that all Products and Ancillary Products subject to this Agreement shall be
provided to HSND at Licensor's true cost of goods with no additional profit or
markup for the benefit of Licensor.
5.5 PAYMENT TERMS. Payment for all goods purchased from Licensor by HSND
will be provided by HSND within 30 days net after the goods have been shipped
by Licensor to the end use consumer. All claims of Licensor for moneys due or
to become due from HSND shall be subject to deduction or set off by HSND for
any claim or counterclaim of HSND arising out of this Agreement or any purchase
order or any other agreement between HSND and Licensor and/or Performer.
5.6 FOREIGN LANGUAGE VERSIONS OF PRODUCT. Where required by HSND, its
affiliates, licensees or distributors the Licensor will supply the Product and
Ancillary Products with foreign language labeling, packaging and instructional
materials satisfactory to HSND, provided that HSND shall either have such items
translated or meet the costs of translation.
5.7 PRODUCT LIABILITY INSURANCE. For as long as HSND, its affiliates,
licensees or distributors continue to sell the Product and Ancillary Products
(including any upsell, backend or continuity products supplied or licensed by
Licensor) and thereafter for the life of such Product or Ancillary Products,
Licensor shall have and continue to maintain and keep in force product
liability and general liability insurance with a broad
form vendor endorsement in amounts of not less than $2,000,000 per occurrence
and $10,000,000 in the aggregate covering all Product and Ancillary Products
purchased by HSND, its affiliates, licensees or distributors from the Licensor
for as long as HSND, its affiliates, licensees or distributors continue to sell
the Product or Ancillary Products (including any upsell products supplied or
licensed by Licensor) and thereafter for the life of such Product or Ancillary
Products. Licensor shall name HSND, its affiliates, licensees, distributors,
and, if required by HSND any designee involved in marketing the Product or
Ancillary Products, as additional insureds on all such liability insurance
policies, each of which shall be endorsed so as to provide at least 30 days
notice to HSND of its cancellation, termination or non-renewal. All such
insurance shall be placed with one or more carriers reasonably acceptable to
HSND. Within 28 days of the date of this Agreement Licensor shall deliver to
HSND written evidence of such insurance in a form acceptable to HSND.
5.8 NO CUSTOMER SOLICITATION. Licensor will not include with the Product
or Ancillary Products or the packaging of any information that would enable or
induce any customer to acquire, directly or indirectly, any additional
merchandise (including but not limited to re-orders) from persons other than
HSND unless expressly required to do so by HSND. However, HSND shall consult
Licensor prior to any packaging insert being placed in the Product or Ancillary
Products. Licensor agrees not to use any information obtained from the customers
(e.g., through warranty cards) to offer for sale to such customers any goods or
services at any time, unless mutually agreed by the parties.
6. THIRD PARTY SUPPLIERS. Without prejudice to and without implying any
restriction on HSND which is not expressly set out in the Agreement. In the
event that HSND can obtain the Product or any component of the Product or
Ancillary Products at a lower price or superior quality, or otherwise on terms
which it deems are more favorable than those offered by Licensor or that HSND
is unable to obtain such quantities of the Product as it requires from Licensor
in a timely manner, HSND shall have the right to select one or more third
parties ("Third Party Suppliers") to manufacture the Product or any component
of the Product as HSND may elect or Ancillary Products. HSND may then purchase
the Product or Ancillary Products and components from such Third Party Suppliers
at any price that may be negotiated between HSND and such Third Party
Suppliers. Upon request, Licensor (if applicable) shall promptly supply HSND,
at no cost to HSND, with all materials, information and licenses which HSND may
reasonably require to exercise its rights under this Section.
7. COMPENSATION DUE LICENSOR. Licensor shall be entitled to 50% of the
Net Revenues ("Net
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Revenues" as defined below) generated from the worldwide sales of the Product
or Ancillary Products by HSND during the Term of the Agreement, including the
Test Marketing. For any bimonthly period (60 days) in which sales of the Product
or Ancillary Products results in royalties payable to Licensor (or Licensor's
nominee) hereunder, HSND shall render to Licensor on or before the 45th day
after each such bimonthly a true and correct statement setting forth HSND's
calculations determining any royalties on such sales, accompanied by a check in
US dollars for royalties payable to Licensor (or Licensor's nominee). HSND shall
maintain complete and accurate sales records of the Product and Ancillary
Products, and all other information necessary to calculate royalties and shall
retain such records for a period of two years. Licensor shall have the right to
inspect and audit such records during normal business hours upon five business
days prior notice. Audits shall be conducted by a mutually agreed upon certified
public accounting firm and be conducted no more frequently than two times during
any twelve month period.
7.1 REVERSE ROYALTY DUE HSND. At such time that media expenditures exceeds
$2,000,000 for airing the infomercial, Licensor shall pay royalties to HSND for
any sales of the Product or Ancillary Products or for any product using the "The
Astrology Network" trademark if sold by outbound telemarketing or catalog sales
as provided for in Section 1, in all instances during the term of this Agreement
and for one year thereafter, at the rate of fifty percent (50%) of Licensors Net
Revenues (as more specifically defined below for HSND's collections). For any
bimonthly period (60 days) in which sales of the Product or Ancillary Products
occur which result in royalties payable to HSND hereunder, Licensor shall render
to HSND on or before the 45th day after each such month a true and correct
statement setting forth Licensor's calculations determining royalties,
accompanied by a check in U.S. dollars for royalties payable to HSND. Licensor
shall maintain complete and accurate records of all sales of the Product or
Ancillary Products, and all other information necessary to calculate royalties,
and shall retain such records for a period of two years after such sales. HSND
shall have the right to inspect and audit such records of Licensor at HSND's
expense during normal business hours upon five business days prior notice.
Audits shall be conducted by a mutually agreed upon certified public accounting
firm and be conducted no more frequently than two times during any 12-month
period.
8. DEFINITION OF NET REVENUES. For the purposes of this Agreement,"Net Revenues"
shall mean the gross collections by HSND from all sales of Product and Ancillary
Products, less the following costs which shall be made available in a report.
(a) customer refunds, credits and other allowances on account of return or
rejection of goods or otherwise granted in the ordinary course of
business, as actually incurred ("Returns"); uncollectible accounts due
to credit card chargebacks, bad checks, check cancellations, credit
declines or other reasons of uncollectibility ("Uncollectibles"); and
other events resulting in the selling party not receiving revenues from
sales of the Product;
(b) the true cost of the Product or Ancillary Products whether purchased
from Licensor or a Third Party Supplier, including packaging and
shipping to the consumer;
(c) media and advertising costs paid for television, print and other media,
outbound telemarketing and other direct marketing activities designed
to sell the Product or Ancillary Products;
(d) credit card discounts and merchant fees payable to credit card
processors in connection with sales of the Product or Ancillary
Products;
(e) inbound telemarketing (including customer service calls) costs in
connection with the sales of the Product or Ancillary Products;
(f) order fulfillment, trafficking costs and other expenses associated with
EDI transmissions between the parties;
(g) Royalties that become due or owing to any third party for the sale of
the Product or Ancillary
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Products such as royalties owed to the producer or talent.
(h) any other cost associated with the direct marketing and distribution
of the Product or Ancillary Products.
9. ADDITIONAL CONSULTING SERVICES. The parties agree that Kevin Harrington
Enterprises, Inc. and TPH Marketing, Inc. have provided and will continue to
provide significant consulting services to Licensor in connection with the
production of the Infomercial. In exchange for such consulting services,
Licensor shall issue warrants to acquire four hundred thousand (400,000) shares
of common stock of Licensor (the "Warrants") which Licensor represents
constitutes approximately five percent (5%) of the currently issued and
outstanding common stock of Licensor as follows:
KEVIN HARRINGTON ENTERPRISES, INC. 240,000
TPH MARKETING, INC. 160,000
The Warrants shall provide for an exercise price of $1.25 per share, shall be
exercisable at any time within five (5) years after the date of this Agreement,
and shall be in the form of the attached Exhibit "A", which is incorporated
herein by this reference.
In addition and in further consideration of consulting services to be rendered,
Licensor further agrees to grant to Kevin Harrington Enterprises, Inc. and TPH
Marketing, Inc. options to purchase shares of the common stock of Licensor
which, in the aggregate, combined with the Warrants described above, shall not
exceed fifteen percent (15%) of the then currently issued and outstanding stock
of Licensor (the "Options"). Options to purchase four hundred thousand
(400,000) shares of common stock of Licensor shall be granted for each three
million dollars ($3,000,000.00) paid for items described in Section 8(c) (the
"Media Threshold"), which includes media and advertising costs paid for
television, print and other media, outbound telemarketing and other direct
marketing activities designed to sell the Product or ancillary Products, as
follows:
KEVIN HARRINGTON ENTERPRISES, INC. 60% of Option
TPH MARKETING, INC. 40% of Option
Licensor shall issue the Option within fifteen (15) days after the earlier to
occur of (i) Licensor's receipt of cumulative bimonthly statements pursuant to
Section 7 which reflect expenditures equal to the applicable Media Threshold,
or (ii) Licensor's receipt from Kevin Harrington Enterprises, Inc. and/or TPH
Marketing, Inc. of written notice, with a supporting statement, that the Media
Threshold has been satisfied. The Options shall provide for an exercise price
equal to the fair market value of the Option shares as of the date of grant,
shall be fully vested, shall be exercisable at any time within five (5) years
after the date of grant, and shall be in the form of the attached Exhibit "B",
which is incorporated herein by this reference. Licensor warrants that the
Licensor shares covered by the Warrants and the Options are eligible to be
registered on Form S-8. Licensor represents and agrees that it will use its
best efforts to cause the Licensor shares to remain eligible for such
registration during the term of the Warrants and the Options. HSND makes no
representations or warranties regarding the issuance of the Warrants or the
Options or the stock of Licensor to be issued pursuant to the Warrants or the
Options.
10. PRESS RELEASES. HSND and Licensor shall jointly have the right to approve
the other parties press release or public disclosure of the parties
relationship for accuracy and veracity, such approval must be provided in
writing by the approving party prior to any press release being issued.
11. RETAIL PRICES. HSND shall have the right to sell and distribute the
Product and Ancillary Products at such prices, and on such terms and conditions
(including shipping and handling charges) as HSND may establish. HSND may seek
the advice of Licensor with respect to such pricing, but final approval shall
rest with HSND.
12. REGULATORY APPROVALS. Licensor shall cooperate with HSND in securing all
regulatory and other
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approvals. Any expenses that HSND may incur in obtaining any approvals, or
participating in any regulatory investigation or prosecution against HSND
regarding the Product and Ancillary Products or the claims made by HSND for
either that are based on information provided to HSND by Licensor may be used
by HSND as a deduction or set-off of any payments that Licensor might otherwise
be due under this Agreement.
13. INTELLECTUAL PROPERTY RIGHTS.
13.1 LICENSOR'S INTELLECTUAL PROPERTY. Subject to the rights granted to
HSND under this Agreement, HSND shall acquire fifty percent (50%) right, title
and interest in Licensor's Trademarks and Licensor's Artwork. Upon execution of
this Agreement, Licensor shall complete all necessary assignments to properly
and fully transfer 50% ownership in Licensor's Trademarks and Licensor's
Artwork (exclusive of those Ancillary Products HSND declines to market pursuant
to Section 3.2). Licensor's assignment shall occur simultaneously with the
execution of this Agreement, or in no event less than three (3) days from
execution hereof. In the event the Test Marketing is deemed to be unsuccessful,
HSND shall assign back to Licensor all of Licensor's Trademarks and Licensor's
Artwork within thirty (30) days of termination of this Agreement.
13.2 ENFORCEMENT OF RIGHTS. Either party shall have the right, but shall
not be required, to enforce its interest in the jointly owned intellectual
property against infringement thereof. The parties may mutually agree to
enforce such rights, paying half of the expense associated therewith and
sharing one half each of any judgement or proceeds therefrom. In the event that
one party does not wish to enforcement such rights the other may do so at their
sole expense, taking all benefit that may result from such enforcement.
13.3 TRADEMARK REGISTRATIONS. Either party shall have the option to seek
to register Licensor's Trademarks in any or all jurisdictions where they are
not currently registered. If HSND decides to register a trademark or the
parties mutually agree to register a trademark then the cost shall be deducted
from the Net Revenues pursuant to Section 8(h). If it is so determined to
register Licensors trademark, such trademark must be registered in the name of
both parties jointly.
13.4 HSND'S INTELLECTUAL PROPERTY. Licensor acknowledges and agrees that
it shall acquire no right, title or interest in or to any trademarks, trade
names or other intellectual property owned wholly by HSND and used by the
parties in connection with the marketing and distribution of the Product or
Ancillary Products.
13.5 JOINTLY OWNED INFOMERCIAL. The parties agree and acknowledge that all
right, title and interest in and to the copyrights of the Infomercial including
any derivative copyrights, such as any modified or translated Infomercial
footage, shall vest fifty percent each in HSND and Licensor jointly and all
goodwill engendered by the use thereof shall inure for the benefit of HSND and
Licensor jointly.
13.6 CUSTOMER LIST. Any customer list(s) shall be the joint property of
HSND and Licensor during the term of this Agreement. Neither party shall
utilize the customer list for its own purpose without prior written consent
from the other party. Notwithstanding, HSND shall have the right to utilize the
customer list for any purpose provided such purpose is for furtherance of sales
of the Product or Ancillary Products.
14. LICENSOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
14.1 THE PRODUCT. Licensor represents, warrants and covenants to HSND:
(a) that all information provided in writing to HSND or any affiliate,
licensee, distributor or other designee of HSND by Licensor relating
to the Product and Ancillary Products is and will be true and correct,
including without limitation all written information regarding the
effectiveness, quality, characteristics or fitness of the Product and
Ancillary Products;
(b) at the time of transfer to HSND or any of its affiliates, licensees or
distributors of title to any Product or Ancillary Products purchased
by HSND or any of its affiliates, licensees or distributors from
Licensor, Licensor shall have good title to such Product or Ancillary
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\ Products and the transfer and delivery of such Product or Ancillary
Products to HSND, or its affiliates, licensees or distributors where
appropriate, shall be rightful, and transfer to HSND, of its
affiliates licensees or distributors where appropriate, of title to
such Product or Ancillary Products shall effectively convey title to
such Product or Ancillary Products to HSND, or its affiliates,
licensees or distributors where appropriate, free and clear of all
liens, claims, encumbrances and rights of third parties of any nature
whatsoever;
(c) all Product or Ancillary Products sold by Licensor to HSND or its
affiliates, licensees or distributors will be new and not used,
remanufactured, reconditioned or refurbished, and will be of
consistent kind and quality, and will be merchantable; and
(d) all Product or Ancillary Products sold by Licensor to HSND or any of
its affiliates, licensees or distributors will be safe and appropriate
for the purpose for which goods of that kind are normally used; and
(e) Licensor has paid or shall pay all fees, royalties and other
compensation payable to any person or entity in connection with the
development, manufacture, sale or use of the Product or Ancillary
Products and HSND shall have no obligation to make any such payment.
In addition, Licensor shall provide copies of all copyright registrations,
copyright applications, patents, patent applications, trademark applications,
licenses and other agreements and instruments relating to the Product or
Ancillary Products and Licensor's Intellectual Property (and all amendments
supplements and modifications thereof) which are now in existence or which
Licensor shall obtain, file, or enter into during the term of the Agreement, to
HSND within ten days after the execution of this Agreement or subsequently
within ten days after any of the listed documents herein come into existence or
into Licensor's possession.
14.2 THE INFOMERCIAL.
(a) Licensor represents, warrants, and covenants to HSND that the
Informercial, to the extent that it is based on information provided
by Licensor to HSND or is otherwise approved by Licensor, will comply
with all applicable laws and regulations within the United States
relating to the advertising and sale of the Product or Ancillary
Products;
(b) HSND represents, warrants, and covenants to Licensor that HSND shall
as part of Section 8(g) pay all fees, royalties and other compensation
payable to any person or entity in connection with the production, use
or transmission of the Infomercial, if any, that become due as a
result of sales of the Product or Ancillary Products. For avoidance of
confusion this does not refer to up front talent fees or the
production budget which shall be jointly funded, but royalties and
fees which become due or owing for the sale of the Product or
Ancillary Products.
14.3 DOCUMENTATION. Licensor shall provide to HSND, at Licensor's expense,
all such documentation and substantiation of claims made about the Product and
Ancillary Products as HSND reasonably requests.
14.4 PAYMENT OF FEES. Licensor has paid or shall pay all fees, royalties
and other compensation payable to any person or entity in connection (i) the use
of the trademarks and Licensor's Artwork, or (ii) any other contractual
obligation for the manufacture of the Product or Ancillary Products in
connection with any of the rights granted to HSND hereunder.
14.5 PROPRIETARY RIGHTS. Licensor represents, warrants and covenants that;
(a) It has all necessary power and authority to grant to HSND the rights
in this Agreement and neither the granting of the rights nor the
exercise of them by HSND will infringe or violate the intellectual
property or other proprietary or intangible rights of any other person
or entity;
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(b) It has not been and is not, as of the date of this Agreement, a
party to any litigation enforcing or defending Licensor's rights in,
or with respect to the Product or Ancillary Products, Licensed
Intellectual Property or any other intangible property rights relating
to the Product or Ancillary Products.
(c) It is not aware of any such claims made or threatened involving the
validity of Licensor's rights in, to or with respect to the Product or
Ancillary Products Licensed Intellectual Property.
15. INDEMNIFICATION.
15.1 BY LICENSOR. Licensor shall defend, indemnify and hold harmless HSND
and its subsidiaries, affiliates, distributors and licensees and their
respective officers, directors, shareholders, employees, licensees, agents,
successors and assigns from and against any and all liabilities and expenses
whatsoever, including without limitation, claims, damages, judgments, awards,
settlements, investigations, costs and reasonable legal fees ("Claims"), which
any of them may incur or become obligated to pay as a result of (i) the sale or
use of the Product or Ancillary Products, including product liability claims,
(ii) the use of Licensor's Trademarks or Licensor's Artwork, or (iii) the
breach by Licensor of any of the representations, warranties, covenants or
obligations of either of them under this Agreement.
15.2 BY HSND. HSND shall defend, indemnify and hold harmless Licensor and
Licensor's officers, directors, shareholders, employees, licensees, agents,
successors and assigns from and against any and all Claims which any of them
may incur or become obligated to pay arising out of or resulting from the
breach by HSND of any of its representations, warranties, covenants or
obligations under this Agreement.
15.3 PROCEDURE. Promptly after learning of the occurrence of any event
which may give rise to its rights under the provisions of this Section, any
party seeking to enforce such right (a "Claiming Person") shall give written
notice of such matter to the party against whom enforcement of such rights is
sought (the "Indemnifying Party"). The Claiming Person shall cooperate with the
Indemnifying Party in the negotiation, compromise and defense of any such
matter. The Indemnifying Party shall be in charge of and control such
negotiations, compromise and defense and shall have the right to select counsel
with respect thereto, provided that the Indemnifying Party shall promptly notify
the Claiming Person of all material developments in the matter. In no event
shall the Indemnifying Party compromise or settle any such matter without the
prior consent of the Claiming Person, which shall not be bound by any such
compromise or settlement absent its prior consent.
16. TERM. Unless sooner terminated in accordance with the provisions of
Section 18, this Agreement shall remain in full force and effect for an
"Initial Term" commencing as of the date hereof and expiring ten (10) years.
This Agreement may be renewed for additional and successive terms of two (2)
years each provided the required sales minimums are achieved on a yearly basis,
the parties mutually agree and written notice of such is exchanged between the
parties (the "Additional Term(s)") unless and until terminated in accordance
with the provisions of Section 18.
17. TERMINATION.
17.1 UPON BREACH. Any party may terminate this Agreement upon 30 days
notice to the other parties upon the material breach by another party of any of
its material representations, warranties, covenants or obligations under this
Agreement. Upon the expiration of such notice period, this Agreement shall
terminate without the need for further action by any party, provided, however,
that if the breach upon which such notice of termination is based shall have
been fully cured to the reasonable satisfaction of the non-breaching party
within such 30-day notice period, then such notice of termination shall be
deemed rescinded. Such right of termination shall be in addition to such other
rights and remedies as the terminating party may have under applicable law.
17.2 FAILURE TO ACHIEVE SALES MINIMUM. In the event that Licensor does not
receive Net
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<PAGE> 10
Revenues totaling $400,000 for the period commencing upon Rollout and ending
one year thereafter, Licensor and HSND shall both have the right to terminate
this Agreement upon 30 days prior written notice to the other, provided such
notice is given to the other party within 60 days after the end of the one year
period. Failure to give notice of such termination will constitute both parties
acknowledgment that the Agreement will remain in full force for an additional
year, subject to other causes of termination. Thereafter, this Agreement shall
be subject to termination by either party if Licensor does not receive Net
Revenues totaling at least $400,000 for each successive year, provided the
terminating party gives 30 days prior written notice to the other party.
17.3 BY HSND. HSND shall have the sole right to terminate this Agreement
upon written notice to Licensor if Test Marketing is unsuccessful.
18. RIGHTS AND DUTIES UPON TERMINATION. HSND shall notify Licensor of any
Inventory of the Product or Ancillary Products remaining in HSND's possession,
and if Licensor does not elect to promptly purchase such inventory from HSND at
HSND's cost, then HSND and its affiliates, licensees and distributors shall
have the right to dispose of such inventory in such manner as they may
determine. Notwithstanding any termination of this Agreement, HSND and Licensor
shall perform as though this Agreement were still in effect until all existing
and pending orders for the Product placed through HSND or its affiliates,
licensees or distributors are filled and all requests for refunds and
replacements have been satisfactorily honored.
19. INTELLECTUAL PROPERTY RIGHTS UPON TERMINATION. In the event of
termination, both HSND and Licensor agree to negotiate in good faith for the
division of jointly owned intellectual property based on commercially
reasonable prices for like assets. If HSND and Licensor are unable to reach a
mutually agreeable division of intellectual property with in 30 days after
termination, then the following procedures will apply. If one party desires to
purchase the entirety of the intellectual property (the trademarks, trade
dress, Infomercial and customer list) that party shall provide a reasonable
offer to the other party and the receiving party shall then have the option of
either accepting such offer or purchasing the entirety of the intellectual
property for that offer price. In the event that neither party makes an offer
for the intellectual property within 120 days after termination of the
Agreement then neither party shall have the right to utilize the intellectual
property or any part thereof without the others prior written consent.
20. CONFIDENTIALITY. All customer lists, price lists, written and unwritten
marketing plans, techniques, methods and data, sales and transaction data, and
other information designated or deemed by either party as being confidential or
a trade secret, shall constitute confidential information of both parties
("Confidential Information"). HSND and Licensor shall hold all Confidential
Information in the strictest confidence and shall protect all Confidential
Information with the same degree of care that party, as applicable, exercises
with respect to its own proprietary information. Without the prior written
consent of the other party, neither shall use, disclose, divulge or otherwise
disseminate any Confidential Information to any person or entity, except for
that party's attorneys and such other professionals as that party may retain in
order for either of them to enforce the provisions of this Agreement.
Notwithstanding the foregoing, neither party shall have an obligation with
respect to any Confidential Information which:
(i) is or becomes within the public domain through no act of its own in
breach of this Agreement;
(ii) was lawfully in the possession of without any restriction on use or
disclosure prior to its disclosure hereunder;
(iii) is lawfully received from another source subsequent to the date of this
Agreement without any restriction on use or disclosure; or
(iv) is required to be disclosed by order of any court of competent
jurisdiction or other governmental authority.
21. MISCELLANEOUS.
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<PAGE> 11
21.1 NOTICES. All notices, requests, instructions, consents, and other
communications to be given pursuant to this Agreement shall be in writing and
shall be deemed received (i) on the same day if delivered in person, by
same-day courier or by telegraph, telex or facsimile transmission, (ii) on the
next day if delivered by overnight mail or courier, or (iii) on the date
indicated on the return receipt, or if there is no such receipt, on the third
calendar day (excluding Sundays) after being sent by certified or registered
mail, postage prepaid, to the party for whom intended to the following
addresses:
IF TO LICENSOR: IF TO HSND:
International Trading & Manufacturing HSN Direct International Limited
674 Via de la Valle #100 1 HSN Drive, Bldg. C
Solana Beach, CA 92075 St. Petersburg, FL 33729
Attn: Klaus Moeller Attn: Tim Harrington
Fax: (619) 793-8840 Fax: (813) 573-2704
Phone: (619) 793-8842 Phone: (813) 572-8565
WITH A COPY TO HSND'S SOLICITORS:
Wiggin & Co.
3 Albany Court Yard
Piccadilly
London England W1V 9RA
Attn: Stephen Cook
Fax: 011 44 171 287 8628
Phone: 011 22 171 287 8833
21.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the Schedule)
contains the entire understanding of the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings between
them. Each party has executed this Agreement without reliance upon any promise,
representation or warranty other than those expressly set forth herein. No
amendment of this Agreement shall be effective unless written and signed by all
parties.
21.3 WAIVER OF BREACH. The failure of any party hereto at any time to
enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provisions, or in any way affect the
validity of this Agreement or the right of any party to thereafter enforce its
provisions.
21.4 ASSIGNABILITY. No party may assign this Agreement or any rights under
it to any person or entity without the prior written consent of the other
party, which consent shall not be unreasonably withheld. Any attempted
assignment without such consent shall be void. However, it is understood and
agreed that HSND may exercise its rights and obligations by itself or through
any one or more of its affiliates, licensees or distributors and may assign all
or part of its rights under this Agreement to any such affiliates, licensees,
distributors or successor-in-interest.
21.5 FORCE MAJEURE. In the event of war, fire, flood, labor troubles,
strike, riot, act of governmental authority, acts of God, or other similar
contingencies beyond the reasonable control of any of the parties interfering
with the performance of the obligations of such party, the obligations so
affected shall be deferred or eliminated to the extent necessitated by such
event or contingency without liability, but this Agreement shall otherwise
remain unaffected. Notice with full details of any circumstances referenced
herein shall be given by the affected party to the other party within ten days
after its occurrence. The affected party shall use due diligence, where
practicable, to minimize the effects of or end any such event.
21.6 FURTHER ACTIONS. The parties agree to execute such additional
documents and to perform such further acts as may be necessary or desirable to
carry out the purposes and intents of this Agreement.
21.7 SEVERABILITY. All of the provisions of this Agreement are intended to
be distinct and severable. If any provision of this Agreement is, or is
declared, invalid or unenforceable in any jurisdiction, it shall be
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<PAGE> 12
ineffective in such jurisdiction only to the extent of such invalidity or
unenforceability. Such invalidity or unenforceability shall not affect either
the balance of such provision, to the extent it is not invalid or
unenforceable, or the remaining provisions hereof, or render invalid or
unenforceable such provision in any other jurisdiction.
21.8 COUNTERPARTS. This Agreement may be executed in one or more counter
parts each of which shall be deemed to be an original, and all of which
together shall constitute one and the same Agreement. HSND and Licensor agree
and consent that a facsimile transmission shall constitute a valid execution
of this Agreement.
21.9 INDEPENDENT CONTRACTOR. No party is an employee or agent of the other
party. Each party is and shall at all times remain an independent contractor.
21.10 CONFLICT WITH SCHEDULE. In the event of a conflict between this
Agreement and the Schedule, the terms and conditions of the Schedule shall
prevail.
21.11 CURRENCY. All dollar amounts set forth in this Agreement and the
Schedule shall refer to U.S. Dollars.
21.12 GOVERNING LAW. Licensor and HSND each hereby submits itself to the
exclusive personal and subject matter jurisdiction of the Florida courts, and
it agrees that such courts shall provide the sole forum for determining all
matters and disputes arising out of this Agreement. Under no circumstance may
Licensor initiate or maintain, directly or indirectly, an action against HSND
in a state other than Florida. This Agreement shall be deemed to constitute a
contract made and entered into under the laws of the State of Florida and shall
be construed in accordance with Florida Law, without regard to conflict of
laws, principles.
21.13 ASSISTANCE OF COUNSEL. Each party acknowledges that (i) it has
carefully read this Agreement, (ii) it has had the assistance of legal counsel
of its choosing (and such other professionals and advisors as it has deemed
necessary) in the review and execution hereof, (iii) the meaning and effect of
the various terms and provisions hereof have been fully explained to it by such
counsel, (iv) it has conducted such investigation, review and analysis as it
has deemed necessary to understand the provisions of this Agreement and the
transactions contemplated hereby, and (v) it has executed this Agreement of its
own free will.
21.14 SURVIVAL OF TERMINATION. Sections 3.1, 7-15 and 18-21 of this
Agreement shall be deemed to survive its termination.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement and Schedule to
be duly executed on the date first written above.
HSN DIRECT INTERNATIONAL LIMITED INTERNATIONAL TRADING &
MANUFACTURING
By: /s/ MICHAEL O. SULLIVAN By: /s/ KLAUS MOELLER
------------------------------ -------------------------
Name: MICHAEL O. SULLIVAN Name: KLAUS MOELLER
------------------------------ -------------------------
Title: CHIEF OPERATING OFFICER Title: DIRECTOR
------------------------------ -------------------------
Date: 6-18-98 Date: 6/22/98
------------------------------ -------------------------
The below named parties are only signatories to this contract
with respect to Section 9 of this Agreement.
KEVIN HARRINGTON ENTERPRISES, INC.
By: /s/ KEVIN HARRINGTON
-------------------------
Name: KEVIN HARRINGTON
-------------------------
Title: CHIEF EXECUTIVE OFFICER
-------------------------
Date:
-------------------------
TPH MARKETING, INC.
By: /s/ TIMOTHY HARRINGTON
-------------------------
Name: TIMOTHY HARRINGTON
-------------------------
Title: PRESIDENT
-------------------------
Date: 6/18/98
-------------------------
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<PAGE> 14
SCHEDULE
1. PRODUCT: The Product consists of the following items:
(1) Personalized Astrological Chart, 30 day subscription of horoscopes,
and (1) personalized financial report.
ANCILLARY PRODUCTS: including, but not limited to, continued monthly
astrological charts, jewelry, CD's, and audio tapes. HSND reserves the
right to add Ancillary Products to this list as they are developed by
Licensor.
2. COST:
<TABLE>
<S> <C>
Pocket Folder (White) $1.17
Birthchart Cover $0.21
90 Day Forecast Cover $0.21
Astrology Pendant $1.90
Pouch or Box for Pendant $0.10
Paper Cost $0.45
Printer & Binder Lease $1.20
Fulfillment Cost $2.82
Total Cost $8.08
Priority Postage $3.00 additional
</TABLE>
3. TRADEMARKS, COPYRIGHTS, AND PENDING APPLICATIONS: "The Astrology Network"
[To be confirmed]
4. LICENSOR'S THIRD PARTY SUPPLIER: [IF APPLICABLE]
5. OTHER PROVISIONS:
N/A
6. DISTRIBUTORS TO WHOM LICENSOR CURRENTLY SUPPLIES THE PRODUCT:
14
<PAGE> 15
ADDENDUM
Let this document serve as an addendum to the original Astrology Network
Agreement. ITM and HSND will re-cut from existing and new footage, a one hundred
twenty (120) second spot. The spot will be produced at Satellite Video
Productions in San Diego. The cost of the spot will not exceed twelve thousand
five hundred dollars ($12,500.00) and will be split equally between HSND and
ITM. All other terms in the original contract will remain the same.
/s/ KLAUS MOELLER /s/ MIKE SULLIVAN
- --------------------------- ------------------------------
Klaus Moeller Mike Sullivan
May 11, 1999 May 12, 1999
- --------------------------- ------------------------------
Date Date
<PAGE> 16
AMENDMENT TO INTERNATIONAL MARKETING AND DISTRIBUTION AGREEMENT
This amendment ("Amendment") is made as of June 15, 1999 to the June 22, 1998
Agreement (as previously modified by the Addendum dated May 11, 1999) between
International Trading & Manufacturing ("Licensor") and HSN Direct International
Limited ("HSND").
1. MODIFICATION OF SECTION 9 OF THE AGREEMENT. The parties had agreed that
Kevin Harrington Enterprises, Inc. ("KHE") and TPH Marketing, Inc. ("TPH") would
provide consulting services to Licensor in connection with the production of the
Infomercial, and accordingly specified a number of warrants and options that KHE
and TPH would be entitled to receive under certain conditions for common stock
of Licensor. That Section is hereby deleted in its entirety (except for the
first sentence and the introductory phrase of the second sentence: "In exchange
for such consulting services,"), and the following consideration to KHE and TPH
substituted therefor: upon execution of this Amendment by all parties hereto,
KHE and TPH will receive a total of 75,000 shares of common stock of Licensor at
no cost, and will be jointly provided options to acquire an additional 150,000
shares of common stock, at an exercise price of $3.40 per share. The options
shall be fully vested, shall be exercisable at any time within five (5) years
after the date of grant, and shall be in the form of the attached Exhibit "A"
which is incorporated herein by reference. In each case, sixty percent of the
total (or 45,000 of the shares of stock and 90,000 of the options) will be
issued to KHE, and the remainder to TPH). These rights shall be non-assignable
and non-transferable, and none of the stock acquired hereunder may be sold to
any person or entity prior to one year after the execution of this Amendment.
HSND makes no representations or warranties regarding the issuance of the stock
or the options.
2. RELEASE BY LICENSOR, HSND, KHE, AND TPH. Licensor, HSND, KHE, and TPH,
jointly and severally release and absolutely and forever discharge each of the
others of them, along with their heirs, successors, predecessors, assigns,
parent and subsidiary corporations and representatives, from any and all claims,
rights, demands, covenants, agreements, obligations, representations,
warranties, promises, liens, accounts, debts, liabilities, damages, expenses,
attorneys fees, costs and causes of action of any kind and nature, whether known
or unknown, anticipated or unanticipated, whether at law or in equity, which any
of them may have, or claim to have, against each other based on, arising out of,
or by reason of the Agreement or the performance of any services or obligations
in connection with therewith that have occurred, or could or should have
occurred, by this date. The parties agree and acknowledge that the long-form
infomercial for the Product described in the Agreement did not result in any Net
Revenues to be split, and agree that the lack of success does not, and will not,
give rise to any cause of action by any of the parties hereto against each
other. This release does not apply to any cause of action which any of the
parties may have against each other for any performance (or non-performance) of
any service or obligation under the Agreement which may arise in the future, nor
for any claim with respect to any other action unrelated to the subject matter
of the Agreement.
3. MODIFICATION OF SECTION 21.1 OF THE AGREEMENT. Section 21.1 of the
Agreement is hereby revised to delete the requirement that a copy of notice be
served on HSND's solicitors, and to modify the information for both parties, as
follows:
<TABLE>
<S> <C>
If to Licensor: If to HSND:
International Trading & Manufacturing HSN Direct International Limited
11250 El Camino Real, Suite 100 1 HSN Drive, Bldg. C
San Diego, CA 92130 St. Petersburg, FL 33729
Attn: Klaus Moeller Attn: Michael O. Sullivan
Fax: (619) 793-8842 Fax: (727) 573-2704
Phone: (619) 793-8840 Phone: (727) 872-7005
</TABLE>
4. CONTINUING EFFECT OF THE AGREEMENT. Except as expressly modified above, the
Agreement remains in full force and effect.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Agreement and referenced
Exhibit to be duly executed on the date first written above.
HSN DIRECT INTERNATIONAL LIMITED INTERNATIONAL TRADING &
MANUFACTURING
By: /s/ MICHAEL O. SULLIVAN By: /s/ KLAUS MOELLER
-------------------------- ------------------------------
Name: Michael O. Sullivan Name: Klaus Moeller
------------------------ ----------------------------
Title: Chief Operating Officer Title: Director
----------------------- ---------------------------
Date: 6/15/99 Date: 6/17/99
------------------------ ----------------------------
KEVIN HARRINGTON ENTERPRISES, INC.
By: /s/ KEVIN HARRINGTON
------------------------------
Name: Kevin Harrington
----------------------------
Title: CEO
---------------------------
Date: 6/24/99
----------------------------
TPH MARKETING, INC.
By: /s/ TIM HARRINGTON
------------------------------
Name: Tim Harrington
----------------------------
Title: President
---------------------------
Date: 6/28/99
----------------------------
2
<PAGE> 1
EXHIBIT 10.8
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE: This Non-Qualified Stock Option Plan (the "PLAN") is
intended to serve as an incentive to and to encourage stock ownership by certain
directors, officers, employees of and certain persons rendering service to
International Trading and Manufacturing Corporation, a Nevada Corporation (the
"CORPORATION"), so that they may acquire or increase their proprietary interest
in the success of the Corporation, and to encourage them to remain in the
Corporation's service.
2. ADMINISTRATION: The Plan shall be administered by a committee
appointed by the Corporation's Board of Directors (the "COMMITTEE"). The
Committee shall consist of not less than two (2) members who shall be appointed
by, and serve at the pleasure of, the Corporation's Board of Directors. The
Board of Directors may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, shall be filled only
by the Board of Directors. The Committee shall select one of its members as
Chairman, and shall hold meetings at such times and places as it may be
determine. Acts by a majority of the Committee in a meeting at which a quorum is
present and acts approved in writing by a majority of the members of the
Committee shall be valid acts of the Committee. No member of the Committee shall
vote on any matter concerning his or her own participation in the Plan, except
that the Board of Directors as a whole may act on options granted to directors.
The Committee shall be authorized to grant options under the Plan to
such directors, officers, employees of, and other persons rendering service to,
the Corporation or any parent or subsidiary corporation of the Corporation, as
defined for purposes of Section 422A of the Internal Revenue Code of 1986, as
from time to time amended ("PARENT" or "SUBSIDIARY"), at such times and in such
amounts as it may decide.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the committee or Board of
Directors shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
3. ELIGIBILITY
3.1 GENERAL: Any person who performs services of special
importance to the Corporation, or any Parent or Subsidiary
thereof, relating to the Corporation's management, operation or
development shall be eligible to receive options under the Plan.
The selection of options recipients shall be within the sole and
absolute discretion of the Committee, or the Board of Directors.
3.2 TERMINATION OF ELIGIBILITY: An optionee's eligibility to
participate in the Plan shall terminate (other than by reason of
his or her death) on the date the optionee (a) ceases to be
employed by the Corporation or a Parent or Subsidiary thereof or
(b) if not an employee, ceases to be a member of the
Corporation's Board of Directors.
The options of an optionee whose eligibility under the Plan has
terminated shall expire (a) five (5) years from the date the
optionee (i) "Resigns for Good
1
<PAGE> 2
Reason" if so provided in the optionee's employment agreement
with the Company, if any, or (ii) is terminated without cause,
(b) four (4) months from the date optionee is terminated for
cause or resigns from the Company or resigns from or is voted off
the Board of Directors, as the case may be, (c) twelve (12)
months from the date on which the optionee's eligibility ceases
because of any "Disability" if so provided in the optionee's
employment contract, if any, or (d) upon the date the option
expires by its terms.
At any time during such five (5) year period, the option may be
exercised in accordance with its terms but only in respect of the
number of shares for which the right to exercise has vested at
the time of exercise.
At any time during such four (4) month period, the option may be
exercised in accordance with its terms, but only in respect of
the number of shares for which the right to exercise has vested
on the date of termination of employment or status as a director.
At any time during such twelve (12) month period, the option may
be exercised in accordance with its terms, but only in respect of
the number of shares for which the right to exercise has vested
at the time of exercise.
The Committee shall decide whether an authorized leave of absence
or absence for military or governmental service, or absence for
any other reason, shall constitute termination of eligibility for
purposes of this Section. The Committee may also extend any
expiration date for any option granted hereunder. Any such
determination or extension shall be subject to review by the
Board of Directors.
3.3 DEATH OF OPTIONEE AND TRANSFER OF OPTION: If the optionee
dies while eligible to participate in the Plan or within four (4)
months after the termination of his or her eligibility, the
optionee's executers or administrators or any persons who
acquired the option directly from the optionee by bequest or
inheritance shall have the right to exercise the optionee's
option in accordance with its terms at any time during the twelve
(12) month period following optionee's death but only in respect
of the number of shares for which the right to exercise has
vested at the time of exercise.
3.4 TRANSFERABILITY: No option shall be transferable by the
optionee otherwise than by will or the laws of intestate
succession.
4. IDENTFICATION OF STOCK: The stock subject to the options shall be
shares of the Corporation's authorized but unissued or acquired or reacquired
$.001 par value common stock (the "STOCK"). The aggregate number of shares
subject to outstanding options shall not exceed five million (5,000,000) shares
of Stock or such number of shares of Stock as the Committee shall from time to
time determine (subject to adjustment as provided in Section 5.7) If any option
granted hereunder shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject thereto shall again be
available for purposes of this Plan.
5. TERMS AND CONDITIONS OF OPTIONS: Any Option granted pursuant to the
Plan shall be evidenced by an agreement in such form as the Committee shall from
time to
2
<PAGE> 3
time determine, which agreement shall comply with and be subject to the
following terms and conditions:
5.1 NUMBER OF SHARES: Each option shall state the number of
shares to which it pertains.
5.2 OPTION EXERCISE PRICE: Each option shall state the option
price, which shall be not less than 100% of the fair market value
of the Stock subject to the option on the date of granting the
option, unless otherwise determined at the Committee's
discretion.
5.3 EXERCISABILITY: Any option shall be exercisable only to the
extent that the option has vested in accordance with the
provisions hereof and any other terms determined by the
Committee.
5.4 METHOD OF EXERCISE: An option shall be exercised by written
notice to the Corporation stating the number of shares with
respect to which the option is being exercised and designating a
time for the delivery thereof, which shall be at least fifteen
(15) days after the notice is given unless an earlier date was
mutually agreed upon. At the time specified in the notice, the
Corporation shall deliver to the optionee at the Corporation's
principal office, or other appropriate place the Committee
determines, a certificate(s) for such shares of previously
authorized but unissued shares or acquired or reacquired shares
of Stock as the Corporation may elect. Notwithstanding the
foregoing, the Corporation may postpone delivery of any
certificate(s) after notice of exercise for any reasonable period
required to comply with any applicable listing requirements of
any national or other securities exchange. In the event an option
shall be exercisable by any person other than the optionee, the
required notice under this section shall be accompanied by
appropriate proof of such person's right to exercise the option.
5.5 MEDIUM AND TIME OF PAYMENT: The option price shall be payable
in full upon the exercise of the option by certified or bank
cashier's check, in shares of the capital stock of the
Corporation already owned by the person exercising the option,
valued at fair market value, or by cancellation of the option
with respect to shares as to which it is then exercisable and as
to which the difference between the fair market value of shares
and the exercise price with respect to such shares equals the
exercise price of the shares as to which the option is being
exercised, or any equivalent form of payment acceptable to the
Corporation.
5.6 TERM OF OPTION: The term of an option granted hereunder shall
be determined by the Committee at the time of Grant, but shall
not exceed ten (10) years from the day of the grant. In no event
shall any option be exercisable after the expiration of its term.
5.7 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION: Subject to any
required shareholder action, the number of shares of stock
covered by an outstanding option and the price per share in each
such option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Stock of the
Corporation resulting from: (i) a subdivision or consolidation of
shares; (ii) the payment of a stock dividend (but only on the
stock); or (iii) any other increase or decrease in the number of
such shares effected without receipt of
3
<PAGE> 4
consideration by the Corporation. Any fraction of a share subject
to the option that would otherwise result from an adjustment
pursuant to this subparagraph shall be rounded downward to the
next full number of shares without other compensation or
consideration to the holder of the option.
Subject to any required shareholder action, if the Corporation
shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain and apply to
the securities to which a holder of the number of shares of Stock
subject to the option would have been entitled. The Corporation's
Board of Directors may grant each optionee the right to exercise
his or her option in whole or in part immediately prior to the
Corporation's dissolution or liquidation, or merger or
consolidation in which the corporation is not the surviving
corporation. If the Corporation is consolidated with or merged
into any other corporation, or if the Corporation sells or
transfers all or substantially all of its assets, or if any other
similar event affecting shares of Stock of the Corporation should
occur, and if the exercisability of the options is not
accelerated by the Board of Directors and the acquiring
Corporation assumes the Corporation's obligations under the
options granted under this Plan, then each optionee shall be
entitled thereafter to purchase shares of stock and other
securities and property in the kind and amount, and at the price,
which the optionee would have been entitled to had his or her
option been exercised prior to such event. The Corporation shall
make lawful provision therefore as part of any such transaction.
To the extent that the forgoing adjustments relate to stock or
securities of the Corporation, they shall be made by the
Committee, whose determinations shall be final, binding and
conclusive.
The grant of an option pursuant to the Plan shall not affect in
any way the Corporation's right or power to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure, or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or
assets.
Whenever the Corporation takes any action resulting in any
adjustment provided for in this Section 5.7, the Corporation
shall forthwith deliver notice of the action to optionee. The
notice shall set forth the number of shares subject to this
option and the purchase price thereof resulting from the
adjustment.
5.8 RIGHTS AS A SHAREHOLDER: An optionee or a transferee of an
option shall have no rights as a share holder with respect to any
shares underlying his or her option until fifteen (15) days after
exercise of such option, as specified in Section 5.4 hereof. No
adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided
in Section 5.7 above.
5.9 MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS: Subject to
the terms and conditions and within the limitations of the Plan,
the Committee may modify, extend or renew outstanding options (to
the extent not theretofore exercised) and
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authorize the granting of new options in substitution therefore
(to the extent not theretofore exercised).
5.10 OTHER PROVISIONS: The option agreements authorized under the
Plan shall contain such other provisions, including without
limitation, restrictions upon the exercise of the option, as the
Committee and the Board of Directors of the Corporation shall
deem advisable. Thus, for example, the Committee and the Board of
Directors may require that all or any portion of an option
granted hereunder not be exercisable until a specified period of
time has passed or some other event has occurred.
6. TERM OF PLAN: Options may be granted pursuant to the Plan from time
to time within a period of ten (10) years from the date the Plan is adopted by
the Corporation's Board of Directors or is approved by the Corporation's
shareholders, whichever occurs earlier. Termination of the Plan shall not affect
any option previously granted.
7. AMENDMENT OF THE PLAN: To the extent permitted by law and subject to
any required approval by the Corporation's shareholders, the Board of Directors
may suspend or discontinue the Plan or revise or amend it in any way with
respect to any shares not subject to options at that time.
8. APPLICATIONS OF FUNDS: The proceeds received by the Corporation from
the sale of Stock pursuant to options may be used for general corporate
purposes.
9. NO OBLIGATION TO EXERCISE OPTION: The granting of an option shall
impose no obligation upon the optionee to exercise such option.
10. APPROVAL OF STOCKHOLDERS: The Plan shall not take effect until
approved by the holders of a majority of the outstanding shares of Common Stock
of the Corporation and by the Board of Directors or its Executive Committee.
11. SECURITIES LAWS COMPLIANCE: Notwithstanding anything contained
herein, the Corporation shall not be obligated to grant any option under this
Plan, or to sell or issue any share pursuant to any option agreement executed
pursuant to the Plan, unless the grant or sale is effectively registered or
exempt from registration under the Securities Act of 1933, as amended, and is
qualified or exempt from qualification under the appropriate state securities
law(s).
As adopted by the Board of Directors on December 9, 1997
International Trading & Manufacturing Corporation,
a Nevada Corporation
/s/ KLAUS MOELLER
- -------------------------------
By: Klaus Moeller
Its: Chief Executive Officer
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EXHIBIT 10.9
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
SENIOR EXECUTIVE
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM" or the "COMPANY") and Klaus Moeller, ("EXECUTIVE")
dated as of June 1, 1999 (the "EFFECTIVE DATE").
WHEREAS, ITM wishes to employ Executive and Executive wishes to be employed by
ITM, all on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
A) ITM hereby employs Executive for three (3) years from the Effective
Date (the "TERM") as Chief Executive Officer to provide executive
services in connection with the development of its Baby Genius business
and perform such other duties consistent with Executive's office as may
be directed by the Board of Directors.
b) As an officer of the Company Executive may contractually bind the
Company.
2) EXECUTIVE TO DEVOTE FULL TIME TO COMPANY. Executive shall devote full time,
attention, and energies to the business of the Company, and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain, or other pecuniary
advantage. Executive is not prohibited from making personal investments in
any other businesses provided those investments do not require active
involvement in the operation of said companies.
3) COMPENSATION AND BENEFITS: ITM shall pay, provide and grant to Executive
the following salary and benefits:
a) Annual Salary: $150,000
b) End of Year Bonus: As determined by the Board in its sole discretion.
c) Grant of Options: A grant of options as provided in the Non-Qualified
Stock Option Agreement attached hereto as Exhibit A and subject to the
terms and conditions of the Company's Non-Qualified Stock Option Plan
attached hereto as Exhibit B.
d) Car Benefits: A car leased by the Company as determined by the Board in
its sole discretion.
e) Medical and Other Benefits: As determined by the Board in its sole
discretion, provided that all benefits are on terms no less favorable
than those provided to all other executives,
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including senior executives, of the Company, including, to the extent
applicable:
i) Medical and health insurance for Executive and dependants;
ii) Medical expense reimbursement plan;
iii) Retirement, pension and 401(k) plans; and
iv) Life, disability and key-man insurance.
f) Vacation: Four (4) weeks per year, any unused days of which may be
rolled-over into following year; and three (3) personal days.
g) Other Benefits/Reimbursement: Reimbursement of reasonable
out-of-pocket expenses incurred on Company business.
4) DISABILITY: If Executive cannot perform his duties because of illness or
incapacity (a "DISABILITY") for a period of more than twelve (12) weeks,
Executive's salary due during such Disability shall be reduced by thirty
(30%) percent and shall be reinstated upon Executive's return to work. If
Executive absence is because of Disability for a continuous period of over
four (4) months, the Company may terminate the Executive's employment, and
the Company's obligations under this Agreement will cease on that date. Any
dispute as to whether an illness or incapacity constitutes a Disability
shall be determined by the Company's health care insurance carrier and such
determination shall be final and binding on the parties.
5) DEATH BENEFITS. Should Executive die during the term of employment, the
Company shall pay to Executive's estate any compensation and other benefits
due through the end of the month in which death occurred.
6) TERMINATION.
a) Termination by Company Without Cause; Termination by Executive for
Good Reason
i) Notwithstanding anything to the contrary herein and subject to
applicable law, the Company may terminate this Agreement without
cause at any time upon thirty (30) days' prior written notice to
Executive.
ii) Notwithstanding anything to the contrary herein, Executive may
terminate this Agreement for Good Reason at any time upon thirty
(30) days' prior written notice to the Company. "GOOD REASON"
means:
(1) the assignment to Executive of any duties inconsistent with
his duties described in Section 1) above or any removal of
Executive from or any failure to re-elect Executive to his
office and position described in Section 1) above, except in
connection with promotions to higher office;
(2) the failure by the Company to maintain and to continue
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to
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the Change in Control (including but not limited to bonus
and incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans);
(3) the taking of any action by the Company which would
adversely affect Executive's participation in or reduce
Executive's benefits under any of the Company's benefit or
compensation plans (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award and
purchase plans, life insurance, medical, health and
accident, and disability plans);
(4) the failure by the Company to obtain the assumption of this
Agreement by any successor as required under Section 12) c)
below.
iii) If Executive is terminated without cause or resigns for Good
Reason, the Company shall continue to provide the compensation
and benefits set forth in Section 3) for the remainder of the
Term, except that medical and health insurance benefits shall
only be provided until the earlier of (1) the end of the Term and
(2) the date on which Executive and his dependants are fully
covered under the medical insurance plan of a new employer.
b) Termination by Executive. Executive may terminate this Agreement upon
thirty (30) days' prior written notice to the Company. Executive may
at his election and subject to the Company's consent, perform his
duties through to the termination date and the Company shall continue
to pay and provide Executive with all of the compensation and benefits
set forth in Section 3) through to the termination date, but Executive
shall not receive any severance allowance.
c) Termination by Company for Cause. Notwithstanding anything to the
contrary contained herein and subject to applicable law, the Company
may terminate the Executive's employment with immediate effect if the
Board of Directors shall determine in good faith that any of the
following has occurred: (i) acts or omissions by the Executive which
constitute material misconduct or a knowing violation of a material
written policy of the Company or any of its subsidiaries (provided
Executive has been provided with a copy of such material written
policy), (ii) the Executive or any affiliated or related person or
entity receiving a benefit in money, property or services from the
Company or any of its subsidiaries or from another person dealing with
the Company or any of its subsidiaries, in material violation of
applicable law or Company policy, (iii) an act of fraud, conversion,
misappropriation, or embezzlement by the Executive or his conviction
of, or entering a guilty plea or plea of no contest with respect to, a
felony, or the equivalent thereof, (iv) a material breach by the
Executive of any provision of Section 8 hereof, (v) the Executive's
failure or refusal (whether intentional, reckless or negligent) to
perform his duties under this Agreement or (vi) any other breach by
the Executive of this Agreement in any material respect. In no event
shall the Executive's termination by the Company be considered to have
been for cause if such termination took place as a result of (1) the
Executive's bad judgment or negligence or (2) any act or omission
without intent of gaining a profit to which the Executive was not
legally entitled or (3) any act or omission believed by the Executive
in good faith to have been in, or not opposed to, the interests of the
Company. If Executive is terminated for cause, he shall be entitled to
the compensation and other benefits set forth in Section 3) through
the last date of
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Executive's employment. Upon payment of all obligations under this
Agreement that are then outstanding, this Agreement shall terminate.
Notice of such termination shall be given to Executive in writing,
specifying the reasons for such termination.
7) SEVERANCE UPON CHANGE IN CONTROL: As of the effective date of a Change of
Control as defined in the Employment Agreement set forth in Exhibit C
hereto, the Company and Executive shall enter into, and shall be deemed to
have entered into, an Employment Agreement substantially identical to the
agreement set forth in Exhibit C, unless such Employment Agreement has been
terminated as provided therein.
8) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) All information, data, materials, computer code, intellectual property
rights, customer lists, discoveries, inventions or processes or
improvement in procedures or made or discovered by Executive during the
term of this Agreement in connection with or in any way affecting or
relating to the business of the Company or capable of being used or
adapted for use therein or in connection therewith is and shall
forthwith be deemed to be "CONFIDENTIAL INFORMATION" and shall be
disclosed to the Company and shall belong to and be the absolute
property of the Company.
b) Executive shall, if and when required so to do, whether during or after
the termination of this Agreement, at Employer's expense apply or join
in applying for any patent or trademark registration or other similar
protection in the United States or in any other part of the world for
any such discovery, invention, process or improvement and shall execute
all instruments and do all things necessary to register the patent,
trademark or other similar protection when obtained and all right and
title to an interest in the same in the Company absolutely and as sole
beneficial owner.
c) Executive shall not at any time either during the term of this
Agreement or any extension thereof or after the termination of the
employment for any reason (i) divulge any Confidential Information or
other affairs or secrets of the Company to any other company, person or
persons without the previous consent in writing of the Company or (ii)
use or attempt to use any information which Executive may acquire in
the course of the employment in any manner which may injure or cause
loss or be calculated to injure or cause loss to the Company.
d) Upon the termination of this Agreement for any reason, Executive shall
resign without claim for compensation from as a director (if
applicable) of the Company and from all offices held by Executive in
the Company, and in the event of Executive failing to do so the Company
is hereby irrevocably authorized to appoint some person in Executive's
name and on Executive's behalf to execute any documents and to do all
things required to give effect to the provisions of this Section.
e) Upon the termination of this Agreement for any reason, Executive shall
deliver to the Company all documents used by Executive in the course of
the Company's business, including but without limiting the foregoing,
all price lists, mailing lists, customer, client or supplier lists,
sales information, catalogues, diaries, log books, computer software
and computer data.
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f) Should Executive reveal or threaten to reveal any Confidential
Information, the Company shall be entitled to an injunction restraining
the Executive from disclosing same, or from rendering any services to
any entity to whom such information has been or is threatened to be
disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Executive for
a breach or threatened breach of this provision, including the recovery
of damages from the Executive.
9) RESTRICTIVE COVENANT: Executive expressly agrees that it shall not at any
time for one (1) year after the termination of the employment (i) undertake
or carry on or be employed or directly or indirectly be concerned or
interested either as employer, Executive, consultant, director or
shareholder or (ii) for one (1) year after the termination of the
employment attempt in any way whatsoever to obtain customers or clients of
the Company, in either case in or for any enterprise, person, firm or
company, the principal business of which involves (A) the production or
development or the retail or wholesale selling or distribution of goods and
services that are substantially similar to or in competition with those
sold or provided by the Company or (B) the sale of memberships in member
programs the benefits of which include the sale or provision of such goods
or services. Executive further agrees during and after the termination of
the employment for any reason, whether for Executive's own account or for
any other person or for any firm or company not to solicit, interfere with
or endeavor to entice away from the Company any employee of the Company or
any person, firm or company who at any time during the continuance of the
employment shall have been a customer or client of the Company.
10) INDEMNITY: Executive shall defend, save and hold harmless the Company from
and against any claims, damages, actions, proceedings or other losses
incurred or suffered by the Company arising out of a material breach by
Executive of the confidentiality provisions herein.
11) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts San Diego County of the State of California in
connection with any action arising under this Agreement and waives all
defenses regarding the inconvenience of such forum. THE PARTIES IRREVOCABLY
WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
12) MISCELLANEOUS.
a) Integration. This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the Company and
Executive, and supersedes any and all prior agreements, letters of
intent, correspondence, negotiations, discussions or understandings
between the Company or any predecessor of the Company and the
Executive.
b) Severability. If any provision of the Agreement is held invalid by a
court with jurisdiction over the parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as
possible the original intentions of the parties in accordance with
applicable law and (ii) the remaining terms, provisions, covenants and
restrictions of
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this Agreement will remain in full force and effect. If this Agreement
is held invalid or cannot be enforced, then to the full extent
permitted by law any prior agreement between the Company (or any
predecessor thereof) and the Executive shall be deemed reinstated as
if this Agreement had not been executed.
c) Successors. The Company's rights and obligations under this Agreement
will inure to the benefit and be binding upon the Company's successors
and assignees.
d) Amendments. This Agreement may be altered only by a written agreement
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
e) Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement will be given in writing and
will be deemed to have been delivered and given for all purposes (i)
on the delivery date if delivered personally to the party to whom the
same is directed; (iii) one business day after deposit with a
commercial overnight carrier, with written verification of receipt; or
(iii) five business days after the mailing date, whether or not
actually received, if sent by U.S. mail, return receipt requested,
postage and charges prepaid, or any other means of rapid mail delivery
for which a receipt is available. All notices to the Company will be
effective if delivered to ITM Corporation, 11250 El Camino Real, Suite
100, San Diego, CA 92130, attention: President, or such other address
specified by the Company in writing. All notices to Executive will be
effective if delivered to Executive's last residential address
provided to the Company by Executive.
f) Assignments. The Company will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written
consent of Executive.
g) Remedies. Except where otherwise specified herein, the rights and
remedies granted to a party under the Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies which
the Party may possess at law or in equity.
h) Limited Effect of Waiver By Company. Should Company waive breach of
any provision of this Agreement by the Executive, such waiver will not
operate or be construed as a waiver of further breach by the
Executive.
i) Counterparts. The Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will
constitute one and the same document.
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IN WITNESS WHEREOF, parties have signed this Employment Agreement as of the date
first above written.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ GERALD EDICK
---------------------------
Name: Gerald Edick
President
EXECUTIVE
By: /s/ KLAUS MOELLER
---------------------------
Name: Klaus Moeller
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EXHIBIT 10.10
CHANGE OF CONTROL
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of June 1, 1999 between International Trading & Manufacturing Corporation, a
Nevada corporation (the "COMPANY"), and Klaus Moeller (the "EXECUTIVE").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution, but anything
in this Agreement to the contrary notwithstanding, neither this Agreement nor
any of its provisions, except its renewal provision, shall be operative unless
and until there has been a Change in Control of the Company, as defined in
Subsection 1(c) below and subject to the provisions of Subsection 1(d) below
(regarding action by a majority of the Incumbent Board to modify or terminate
this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on or before the
close of business on December 31, 2001, this Agreement shall thereupon expire;
provided, however, the parties by their written mutual assent may extend such
date on which this Agreement shall expire.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any of the
following events shall have occurred:
(i) any corporation, other person or "Group" (as defined
below) becomes the "Beneficial Owner" (as defined below)
of more than 15% of the Company's outstanding Common
Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed
on a national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association.
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For purposes of this definition of Change in Control, the following
terms shall have the following meanings:
"BENEFICIAL OWNER" shall have the meaning which that term is
given in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "ACT").
"GROUP" shall mean persons who act in concert as described in
Section 14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the contrary, at
any time up to thirty (30) days following the date of a Change in Control, the
Board of Directors may, in its sole and exclusive discretion with approval of at
least a majority of the Incumbent Board (as defined below), terminate this
Agreement or make any modifications to the terms and provisions of this
Agreement (including without limitation causing the Agreement not to apply with
respect to the given Change in Control or reducing the amount of benefits
described herein) without the consent of Executive. For purposes hereof,
"INCUMBENT BOARD" shall mean the group of individuals who, as of the date of
this Agreement, constitute the Board of Directors of the Company; provided,
however, that any individual who becomes a director subsequent to the date of
this Agreement and whose election, or whose nomination for election by the
Company's shareholders, to the Board of Directors was either (i) approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
or (ii) recommended by a nominating committee comprised entirely of directors
who are then Incumbent Board members, shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
set forth in Subsection 2(b) below (the "PERIOD OF EMPLOYMENT") in the position
and with the duties and responsibilities set forth in any Employment Agreement
in effect on the date of any Change in Control and Section 3 below, subject to
the other terms and conditions of this Agreement. If there is any conflict
between any terms of any such Employment Agreement and any terms hereof, the
terms of this Agreement shall prevail.
(b) The Period of Employment shall commence on the date of any Change in
Control and, subject only to the Executive's death or termination of employment
by the Company for "Cause" or "Disability" or by the Executive for "Good Reason"
(as defined in Section 4), shall continue until the close of business on the
later of (i) that date two years after the date on which the Change in Control
occurred or (ii) the expiration date under Subsection 1(b), taking into account
any extensions of such expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall continue to
serve as an officer of the Company, either (i) with substantially the same
offices, titles, duties and responsibilities as the Executive had immediately
prior to the Change in Control or (ii) with a higher office with titles, duties
and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except reasonable vacation periods and
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periods of illness or incapacity, but nothing in this Agreement shall preclude
the Executive from devoting reasonable time to serving as a director or member
of a committee of one or more organizations (business, charitable, civic,
religious or otherwise) involving no conflict with the interests of the Company.
4. Termination Following Change in Control. If, after a Change in
Control of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "DISABILITY" shall mean termination
because of the Executive's absence due to physical or mental illness from his
duties with the Company on a full-time basis for 150 consecutive business days
unless within 30 days after Notice of Termination (as defined in Subsection 4(d)
below) is given following such absence, the Executive shall return to the
full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for "CAUSE" only if
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to result
in substantial gain or personal enrichment at the expense of the Company, or if
there has been a willful and substantial breach by the Executive of the
provisions of Subsection 3(b) above, and such breach has caused substantial
injury to the Company. In no event shall the Executive's termination by the
Company be considered to have been for Cause if such termination took place as a
result of (i) the Executive's bad judgment or negligence or (ii) any act or
omission without intent of gaining a profit to which the Executive was not
legally entitled or (iii) any act or omission believed by the Executive in good
faith to have been in, or not opposed to, the interests of the Company.
(c) Good Reason. "GOOD REASON" shall mean
(i) the assignment to the Executive of any duties inconsistent
with his duties described in Subsection 3(a) above or any
removal of the Executive from or any failure to re-elect
the Executive to his positions described in Subsection
3(a) above, except in connection with promotions to higher
office;
(ii) a reduction by the Company in the Executive's base salary
as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to maintain and to continue the
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans); or the taking of any
action by the Company which would adversely affect the
Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(iv) the relocation of the Executive's office to anywhere other
than a location within 100 miles of Del Mar, California or
the Company's requiring the Executive to be based anywhere
other than within 100 miles of Del Mar,
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California (or such other location as shall be the
location of the Executive's office immediately prior to
the Change in Control) except for required travel on the
Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the assumption of
this Agreement by any successor as contemplated in Section
7 below.
(d) Any termination of the Executive's employment, unless because of
death, shall be communicated by written Notice of Termination to the other
party. In the event of termination of employment by the Company for Cause or
Disability or by the Executive for Good Reason, the Notice of Termination shall
state the specific ground for termination (Cause, Disability or Good Reason) and
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the specified ground of termination.
(e) "TERMINATION DATE" shall mean (i) if the Executive's employment is
terminated due to death, the Executive's date of death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty day period),
(iii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iv) if the Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
5. Benefits.
(a) If the Company shall terminate the Executive's employment other than
because of his death or for Disability or Cause, or if the Executive shall
terminate his employment for Good Reason, then the Company shall pay to the
Executive and provide him, his dependents, beneficiaries and estate, with the
following;
(i) The Company shall pay the Executive his full base salary
through the Termination Date at the higher of the rate in
effect when Notice of Termination is given or the rate in
effect one year prior to such date, plus credit for any
vacation earned but not taken. The Executive's full base
salary shall be paid at the times normally scheduled for
payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) Subject to clause (iii) below, the Company shall pay the
Executive a lump sum payment equal to ten (10) times the
highest annual compensation (including base salary,
incentive compensation and monetary bonus or similar
award) paid or payable to the Executive by the Company for
any of the three fiscal years ended immediately prior to
the Termination Date. The Company shall gross-up the lump
sum payment such that the amount of the payment is net of
all federal, state, local, excise and other taxes and
withholdings, including without limitation, any "golden
parachute" taxes payable by the Executive. This lump sum
payment shall be due and payable on the 10th business day
after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest published by Citibank, N.A.
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(iii) The Company shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's
contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the benefits or
amounts of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 5 be reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of Termination, or
otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all of
the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. As used in this
Agreement, "COMPANY" shall mean the company as defined in the preamble to this
Agreement and any successor to its business or assets which executes and
delivers the agreement provided for in this Paragraph 7 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices.
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United Stated registered or certified mail,
return receipt requested, postage prepaid. All notices to the Company will be
effective if delivered to ITM Corporation, 1250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: Chief Executive Officer. All notices to Executive
will be effective if delivered to Executive's last residential address provided
to the Company by Executive, or to such other address as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of California.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive
concerning this Agreement will be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, by a panel
of three arbitrators, one selected by the Executive, one selected by the Company
and the other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration
award pursuant to subsection (a) above, the Company shall, within thirty (30)
days after the presentation of proper receipts or invoices therefor, reimburse
the Executive the reasonable fees and disbursements of counsel incurred in
connection of any amounts awarded the Executive pursuant thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
BY: /s/ GERALD EDICK
--------------------------
Gerald Edick
PRESIDENT
EXECUTIVE
BY: /s/ KLAUS MOELLER
--------------------------
Klaus Moeller
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<PAGE> 1
EXHIBIT 10.11
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
SENIOR EXECUTIVE
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM" or the "COMPANY") and Dorian Lowell, ("EXECUTIVE")
dated as of August 23, 1999 (the "EFFECTIVE DATE") .
WHEREAS, ITM wishes to employ Executive and Executive wishes to be employed by
ITM, all on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
A) ITM hereby employs Executive for three (3) years from the Effective
Date (the "TERM") as Chief Operating Officer to provide executive
services in connection with the development of its Baby Genius business
and perform such other duties consistent with Executive's office as may
be directed by the Board of Directors.
b) As an officer of the Company Executive may contractually bind the
Company.
2) EXECUTIVE TO DEVOTE FULL TIME TO COMPANY. Executive shall devote full time,
attention, and energies to the business of the Company, and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain, or other pecuniary
advantage. Executive is not prohibited from making personal investments in
any other businesses provided those investments do not require active
involvement in the operation of said companies.
3) COMPENSATION AND BENEFITS: ITM shall pay, provide and grant to Executive
the following salary and benefits:
a) Annual Salary: $150,000
b) End of Year Bonus: As determined by the Board in its sole discretion.
c) Grant of Options: A grant of options as provided in the Non-Qualified
Stock Option Agreement attached hereto as Exhibit A and subject to the
terms and conditions of the Company's Non-Qualified Stock Option Plan
attached hereto as Exhibit B.
d) Housing: Subsidized housing up to a maximum of $2,200 per month plus
any security deposits required with respect to any lease of a rental
property.
e) Car Benefits: A car leased by the Company as determined by the Board in
its sole discretion.
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f) Home Travel. One round-trip coach class air fare San Diego - New York
per calendar quarter, and a one-way, coach class air fare New York -
San Diego at the commencement of employment.
g) Medical and Other Benefits: As determined by the Board in its sole
discretion, provided that all benefits are on terms no less favorable
than those provided to all other executives, including senior
executives, of the Company, including, to the extent applicable:
i) Medical and health insurance for Executive and dependants;
ii) Medical expense reimbursement plan;
iii) Retirement, pension and 401(k) plans; and
iv) Life, disability and key-man insurance.
h) Vacation: Four (4) weeks per year, any unused days of which may be
rolled-over into following year; and three (3) personal days.
i) Other Benefits/Reimbursement: Reimbursement of reasonable
out-of-pocket expenses incurred on Company business.
4) DISABILITY: If Executive cannot perform his duties because of illness or
incapacity (a "DISABILITY") for a period of more than twelve (12) weeks,
Executive's salary due during such Disability shall be reduced by thirty
(30%) percent and shall be reinstated upon Executive's return to work. If
Executive absence is because of Disability for a continuous period of over
four (4) months, the Company may terminate the Executive's employment, and
the Company's obligations under this Agreement will cease on that date. Any
dispute as to whether an illness or incapacity constitutes a Disability
shall be determined by the Company's health care insurance carrier and such
determination shall be final and binding on the parties.
5) DEATH BENEFITS. Should Executive die during the term of employment, the
Company shall pay to Executive's estate any compensation and other benefits
due through the end of the month in which death occurred.
6) TERMINATION.
a) Termination by Company Without Cause; Termination by Executive for Good
Reason
i) Notwithstanding anything to the contrary herein and subject to
applicable law, the Company may terminate this Agreement without
cause at any time upon thirty (30) days' prior written notice to
Executive.
ii) Notwithstanding anything to the contrary herein, Executive may
terminate this Agreement for Good Reason at any time upon thirty
(30) days' prior written notice to the Company. "GOOD REASON"
means:
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(1) the assignment to Executive of any duties inconsistent with
his duties described in Section 1) above or any removal of
Executive from or any failure to re-elect Executive to his
office and position described in Section 1) above, except in
connection with promotions to higher office;
(2) the failure by the Company to maintain and to continue
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award and
purchase plans, life insurance, medical, health and accident,
and disability plans);
(3) the taking of any action by the Company which would adversely
affect Executive's participation in or reduce Executive's
benefits under any of the Company's benefit or compensation
plans (including but not limited to bonus and incentive
compensation plans, stock option, bonus, award and purchase
plans, life insurance, medical, health and accident, and
disability plans);
(4) the failure by the Company to obtain the assumption of this
Agreement by any successor as required under Section 12) c)
below.
iii) If Executive is terminated without cause or resigns for Good
Reason, the Company shall continue to provide the compensation and
benefits set forth in Section 3) for the remainder of the Term,
except that medical and health insurance benefits shall only be
provided until the earlier of (1) the end of the Term and (2) the
date on which Executive and his dependants are fully covered under
the medical insurance plan of a new employer.
b) Termination by Executive. Executive may terminate this Agreement upon
thirty (30) days' prior written notice to the Company. Executive may at
his election and subject to the Company's consent, perform his duties
through to the termination date and the Company shall continue to pay
and provide Executive with all of the compensation and benefits set
forth in Section 3) through to the termination date, but Executive
shall not receive any severance allowance.
c) Termination by Company for Cause. Notwithstanding anything to the
contrary contained herein and subject to applicable law, the Company
may terminate the Executive's employment with immediate effect if the
Board of Directors shall determine in good faith that any of the
following has occurred: (i) acts or omissions by the Executive which
constitute material misconduct or a knowing violation of a material
written policy of the Company or any of its subsidiaries (provided
Executive has been provided with a copy of such material written
policy), (ii) the Executive or any affiliated or related person or
entity receiving a benefit in money, property or services from the
Company or any of its subsidiaries or from another person dealing with
the Company or any of its subsidiaries, in material violation of
applicable law or Company policy, (iii) an act of fraud, conversion,
misappropriation, or embezzlement by the Executive or his conviction
of, or entering a guilty plea or plea of no contest with respect to, a
felony, or the equivalent thereof, (iv) a material breach by the
Executive of any provision of Section 8 hereof, (v) the Executive's
failure or refusal (whether intentional, reckless or negligent) to
perform his duties under this Agreement or (vi) any other breach by the
Executive of this
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Agreement in any material respect. In no event shall the Executive's
termination by the Company be considered to have been for cause if such
termination took place as a result of (1) the Executive's bad judgment
or negligence or (2) any act or omission without intent of gaining a
profit to which the Executive was not legally entitled or (3) any act
or omission believed by the Executive in good faith to have been in, or
not opposed to, the interests of the Company. If Executive is
terminated for cause, he shall be entitled to the compensation and
other benefits set forth in Section 3) through the last date of
Executive's employment. Upon payment of all obligations under this
Agreement that are then outstanding, this Agreement shall terminate.
Notice of such termination shall be given to Executive in writing,
specifying the reasons for such termination.
7) SEVERANCE UPON CHANGE IN CONTROL: As of the effective date of a Change of
Control as defined in the Employment Agreement set forth in Exhibit C
hereto, the Company and Executive shall enter into, and shall be deemed to
have entered into, an Employment Agreement substantially identical to the
agreement set forth in Exhibit C, unless such Employment Agreement has been
terminated as provided therein.
8) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) All information, data, materials, computer code, intellectual property
rights, customer lists, discoveries, inventions or processes or
improvement in procedures or made or discovered by Executive during the
term of this Agreement in connection with or in any way affecting or
relating to the business of the Company or capable of being used or
adapted for use therein or in connection therewith is and shall
forthwith be deemed to be "CONFIDENTIAL INFORMATION" and shall be
disclosed to the Company and shall belong to and be the absolute
property of the Company.
b) Executive shall, if and when required so to do, whether during or after
the termination of this Agreement, at Employer's expense apply or join
in applying for any patent or trademark registration or other similar
protection in the United States or in any other part of the world for
any such discovery, invention, process or improvement and shall execute
all instruments and do all things necessary to register the patent,
trademark or other similar protection when obtained and all right and
title to an interest in the same in the Company absolutely and as sole
beneficial owner.
c) Executive shall not at any time either during the term of this
Agreement or any extension thereof or after the termination of the
employment for any reason (i) divulge any Confidential Information or
other affairs or secrets of the Company to any other company, person or
persons without the previous consent in writing of the Company or (ii)
use or attempt to use any information which Executive may acquire in
the course of the employment in any manner which may injure or cause
loss or be calculated to injure or cause loss to the Company.
d) Upon the termination of this Agreement for any reason, Executive shall
resign without claim for compensation from as a director (if
applicable) of the Company and from all offices held by Executive in
the Company, and in the event of Executive failing to do so the Company
is hereby irrevocably authorized to appoint some person in Executive's
name and on Executive's behalf to execute any documents and to do all
things required to
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give effect to the provisions of this Section.
e) Upon the termination of this Agreement for any reason, Executive shall
deliver to the Company all documents used by Executive in the course of
the Company's business, including but without limiting the foregoing,
all price lists, mailing lists, customer, client or supplier lists,
sales information, catalogues, diaries, log books, computer software
and computer data.
f) Should Executive reveal or threaten to reveal any Confidential
Information, the Company shall be entitled to an injunction restraining
the Executive from disclosing same, or from rendering any services to
any entity to whom such information has been or is threatened to be
disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Executive for
a breach or threatened breach of this provision, including the recovery
of damages from the Executive.
9) RESTRICTIVE COVENANT: Executive expressly agrees that it shall not at any
time for one (1) year after the termination of the employment (i) undertake
or carry on or be employed or directly or indirectly be concerned or
interested either as employer, Executive, consultant, director or
shareholder or (ii) for one (1) year after the termination of the
employment attempt in any way whatsoever to obtain customers or clients of
the Company, in either case in or for any enterprise, person, firm or
company, the principal business of which involves (A) the production or
development or the retail or wholesale selling or distribution of goods and
services that are substantially similar to or in competition with those
sold or provided by the Company or (B) the sale of memberships in member
programs the benefits of which include the sale or provision of such goods
or services. Executive further agrees during and after the termination of
the employment for any reason, whether for Executive's own account or for
any other person or for any firm or company not to solicit, interfere with
or endeavor to entice away from the Company any employee of the Company or
any person, firm or company who at any time during the continuance of the
employment shall have been a customer or client of the Company.
10) INDEMNITY: Executive shall defend, save and hold harmless the Company from
and against any claims, damages, actions, proceedings or other losses
incurred or suffered by the Company arising out of a material breach by
Executive of the confidentiality provisions herein.
11) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts San Diego County of the State of California in
connection with any action arising under this Agreement and waives all
defenses regarding the inconvenience of such forum. THE PARTIES IRREVOCABLY
WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
12) MISCELLANEOUS.
a) Integration. This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the Company and
Executive, and supersedes any and all
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prior agreements, letters of intent, correspondence, negotiations,
discussions or understandings between the Company or any predecessor of
the Company and the Executive.
b) Severability. If any provision of the Agreement is held invalid by a
court with jurisdiction over the parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as
possible the original intentions of the parties in accordance with
applicable law and (ii) the remaining terms, provisions, covenants and
restrictions of this Agreement will remain in full force and effect. If
this Agreement is held invalid or cannot be enforced, then to the full
extent permitted by law any prior agreement between the Company (or any
predecessor thereof) and the Executive shall be deemed reinstated as if
this Agreement had not been executed.
c) Successors. The Company's rights and obligations under this Agreement
will inure to the benefit and be binding upon the Company's successors
and assignees.
d) Amendments. This Agreement may be altered only by a written agreement
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
e) Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement will be given in writing and
will be deemed to have been delivered and given for all purposes (i) on
the delivery date if delivered personally to the party to whom the same
is directed; (iii) one business day after deposit with a commercial
overnight carrier, with written verification of receipt; or (iii) five
business days after the mailing date, whether or not actually received,
if sent by U.S. mail, return receipt requested, postage and charges
prepaid, or any other means of rapid mail delivery for which a receipt
is available. All notices to the Company will be effective if delivered
to ITM Corporation, 11250 El Camino Real, Suite 100, San Diego, CA
92130, attention: President, or such other address specified by the
Company in writing. All notices to Executive will be effective if
delivered to Executive's last residential address provided to the
Company by Executive.
f) Assignments. The Company will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written
consent of Executive.
g) Remedies. Except where otherwise specified herein, the rights and
remedies granted to a party under the Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies which the
Party may possess at law or in equity.
h) Limited Effect of Waiver By Company. Should Company waive breach of any
provision of this Agreement by the Executive, such waiver will not
operate or be construed as a waiver of further breach by the Executive.
i) Counterparts. The Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will
constitute one and the same document.
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IN WITNESS WHEREOF, parties have signed this Employment Agreement as of the date
first above written.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ KLAUS MOELLER
-----------------------------
Name: Klaus Moeller
Chief Executive Officer
EXECUTIVE
By: /s/ DORIAN LOWELL
-----------------------------
Name: Dorian Lowell
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EXHIBIT 10.12
CHANGE OF CONTROL
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of August 23, 1999 between International Trading & Manufacturing Corporation, a
Nevada corporation (the "COMPANY"), and Dorian Lowell (the "EXECUTIVE").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution, but anything
in this Agreement to the contrary notwithstanding, neither this Agreement nor
any of its provisions, except its renewal provision, shall be operative unless
and until there has been a Change in Control of the Company, as defined in
Subsection 1(c) below and subject to the provisions of Subsection 1(d) below
(regarding action by a majority of the Incumbent Board to modify or terminate
this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on or before
the close of business on December 31, 2001, this Agreement shall thereupon
expire; provided, however, the parties by their written mutual assent may extend
such date on which this Agreement shall expire.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any of
the following events shall have occurred:
(i) any corporation, other person or "Group" (as defined
below) becomes the "Beneficial Owner" (as defined below)
of more than 15% of the Company's outstanding Common
Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed
on a national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association.
<PAGE> 2
For purposes of this definition of Change in Control, the following
terms shall have the following meanings:
"BENEFICIAL OWNER" shall have the meaning which that term is
given in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "ACT").
"GROUP" shall mean persons who act in concert as described in
Section 14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the contrary, at
any time up to thirty (30) days following the date of a Change in Control, the
Board of Directors may, in its sole and exclusive discretion with approval of at
least a majority of the Incumbent Board (as defined below), terminate this
Agreement or make any modifications to the terms and provisions of this
Agreement (including without limitation causing the Agreement not to apply with
respect to the given Change in Control or reducing the amount of benefits
described herein) without the consent of Executive. For purposes hereof,
"INCUMBENT BOARD" shall mean the group of individuals who, as of the date of
this Agreement, constitute the Board of Directors of the Company; provided,
however, that any individual who becomes a director subsequent to the date of
this Agreement and whose election, or whose nomination for election by the
Company's shareholders, to the Board of Directors was either (i) approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
or (ii) recommended by a nominating committee comprised entirely of directors
who are then Incumbent Board members, shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
set forth in Subsection 2(b) below (the "PERIOD OF EMPLOYMENT") in the position
and with the duties and responsibilities set forth in any Employment Agreement
in effect on the date of any Change in Control and Section 3 below, subject to
the other terms and conditions of this Agreement. If there is any conflict
between any terms of any such Employment Agreement and any terms hereof, the
terms of this Agreement shall prevail.
(b) The Period of Employment shall commence on the date of any Change
in Control and, subject only to the Executive's death or termination of
employment by the Company for "Cause" or "Disability" or by the Executive for
"Good Reason" (as defined in Section 4), shall continue until the close of
business on the later of (i) that date two years after the date on which the
Change in Control occurred or (ii) the expiration date under Subsection 1(b),
taking into account any extensions of such expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall continue to
serve as an officer of the Company, either (i) with substantially the same
offices, titles, duties and responsibilities as the Executive had immediately
prior to the Change in Control or (ii) with a higher office with titles, duties
and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except reasonable vacation periods and
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periods of illness or incapacity, but nothing in this Agreement shall preclude
the Executive from devoting reasonable time to serving as a director or member
of a committee of one or more organizations (business, charitable, civic,
religious or otherwise) involving no conflict with the interests of the Company.
4. Termination Following Change in Control. If, after a Change in Control
of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "DISABILITY" shall mean termination
because of the Executive's absence due to physical or mental illness from his
duties with the Company on a full-time basis for 150 consecutive business days
unless within 30 days after Notice of Termination (as defined in Subsection 4(d)
below) is given following such absence, the Executive shall return to the
full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for "CAUSE" only if
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to result
in substantial gain or personal enrichment at the expense of the Company, or if
there has been a willful and substantial breach by the Executive of the
provisions of Subsection 3(b) above, and such breach has caused substantial
injury to the Company. In no event shall the Executive's termination by the
Company be considered to have been for Cause if such termination took place as a
result of (i) the Executive's bad judgment or negligence or (ii) any act or
omission without intent of gaining a profit to which the Executive was not
legally entitled or (iii) any act or omission believed by the Executive in good
faith to have been in, or not opposed to, the interests of the Company.
(c) Good Reason. "GOOD REASON" shall mean
(i) the assignment to the Executive of any duties inconsistent
with his duties described in Subsection 3(a) above or any
removal of the Executive from or any failure to re-elect
the Executive to his positions described in Subsection
3(a) above, except in connection with promotions to higher
office;
(ii) a reduction by the Company in the Executive's base salary
as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to maintain and to continue the
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans); or the taking of any
action by the Company which would adversely affect the
Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(iv) the relocation of the Executive's office to anywhere other
than a location within 100 miles of Del Mar, California or
the Company's requiring the Executive to be based anywhere
other than within 100 miles of Del Mar,
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California (or such other location as shall be the
location of the Executive's office immediately prior to
the Change in Control) except for required travel on the
Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the assumption of
this Agreement by any successor as contemplated in Section
7 below.
(d) Any termination of the Executive's employment, unless because of
death, shall be communicated by written Notice of Termination to the other
party. In the event of termination of employment by the Company for Cause or
Disability or by the Executive for Good Reason, the Notice of Termination shall
state the specific ground for termination (Cause, Disability or Good Reason) and
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the specified ground of termination.
(e) "TERMINATION DATE" shall mean (i) if the Executive's employment is
terminated due to death, the Executive's date of death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty day period),
(iii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iv) if the Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
5. Benefits.
(a) If the Company shall terminate the Executive's employment other than
because of his death or for Disability or Cause, or if the Executive shall
terminate his employment for Good Reason, then the Company shall pay to the
Executive and provide him, his dependents, beneficiaries and estate, with the
following;
(i) The Company shall pay the Executive his full base salary
through the Termination Date at the higher of the rate in
effect when Notice of Termination is given or the rate in
effect one year prior to such date, plus credit for any
vacation earned but not taken. The Executive's full base
salary shall be paid at the times normally scheduled for
payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) Subject to clause (iii) below, the Company shall pay the
Executive a lump sum payment equal to ten (10) times the
highest annual compensation (including base salary,
incentive compensation and monetary bonus or similar
award) paid or payable to the Executive by the Company for
any of the three fiscal years ended immediately prior to
the Termination Date. The Company shall gross-up the lump
sum payment such that the amount of the payment is net of
all federal, state, local, excise and other taxes and
withholdings, including without limitation, any "golden
parachute" taxes payable by the Executive. This lump sum
payment shall be due and payable on the 10th business day
after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest published by Citibank, N.A.
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(iii) The Company shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's
contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the benefits or
amounts of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 5 be reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of Termination, or
otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all of
the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "COMPANY" shall mean the company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Paragraph 7 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices.
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United Stated registered or certified mail,
return receipt requested, postage prepaid. All notices to the Company will be
effective if delivered to ITM Corporation, 1250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: Chief Executive Officer. All notices to Executive
will be effective if delivered to Executive's last residential address provided
to the Company by Executive, or to such other address as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of California.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive concerning
this Agreement will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, by a panel of three
arbitrators, one selected by the Executive, one selected by the Company and the
other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration award
pursuant to subsection (a) above, the Company shall, within thirty (30) days
after the presentation of proper receipts or invoices therefor, reimburse the
Executive the reasonable fees and disbursements of counsel incurred in
connection of any amounts awarded the Executive pursuant thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
BY: /s/ KLAUS MOELLER
--------------------------
Klaus Moeller
CEO
EXECUTIVE
BY: /s/ DORIAN LOWELL
--------------------------
Dorian Lowell
6
<PAGE> 1
EXHIBIT 10.13
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
SENIOR EXECUTIVE
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM" or the "COMPANY") and Mike Meader, ("EXECUTIVE")
dated as of June 1, 1999 (the "EFFECTIVE DATE") .
WHEREAS, ITM wishes to employ Executive and Executive wishes to be employed by
ITM, all on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
a) ITM hereby employs Executive for three (3) years from the Effective Date
(the "TERM") as Executive Vice President Distribution & Specialty
Products to provide executive services in connection with the
development of its Baby Genius business and perform such other duties
consistent with Executive's office as may be directed by the Board of
Directors.
b) As an officer of the Company Executive may contractually bind the
Company.
2) EXECUTIVE TO DEVOTE FULL TIME TO COMPANY. Executive shall devote full time,
attention, and energies to the business of the Company, and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain, or other pecuniary
advantage. Executive is not prohibited from making personal investments in
any other businesses provided those investments do not require active
involvement in the operation of said companies.
3) COMPENSATION AND BENEFITS: ITM shall pay, provide and grant to Executive the
following salary and benefits:
a) Annual Salary: $150,000
b) End of Year Bonus: As determined by the Board in its sole discretion.
c) Grant of Options: A grant of options as provided in the Non-Qualified
Stock Option Agreement attached hereto as Exhibit A and subject to the
terms and conditions of the Company's Non-Qualified Stock Option Plan
attached hereto as Exhibit B.
d) Car Benefits: A car leased by the Company as determined by the Board in
its sole discretion.
e) Medical and Other Benefits: As determined by the Board in its sole
discretion, provided that all benefits are on terms no less favorable
than those provided to all other executives,
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including senior executives, of the Company, including, to the extent
applicable:
i) Medical and health insurance for Executive and dependants;
ii) Medical expense reimbursement plan;
iii)Retirement, pension and 401(k) plans; and
iv) Life, disability and key-man insurance.
f) Vacation: Four (4) weeks per year, any unused days of which may be
rolled-over into following year; and three (3) personal days.
g) Other Benefits/Reimbursement: Reimbursement of reasonable out-of-pocket
expenses incurred on Company business.
4) DISABILITY: If Executive cannot perform his duties because of illness or
incapacity (a "DISABILITY") for a period of more than twelve (12) weeks,
Executive's salary due during such Disability shall be reduced by thirty
(30%) percent and shall be reinstated upon Executive's return to work. If
Executive absence is because of Disability for a continuous period of over
four (4) months, the Company may terminate the Executive's employment, and
the Company's obligations under this Agreement will cease on that date. Any
dispute as to whether an illness or incapacity constitutes a Disability
shall be determined by the Company's health care insurance carrier and such
determination shall be final and binding on the parties.
5) DEATH BENEFITS. Should Executive die during the term of employment, the
Company shall pay to Executive's estate any compensation and other benefits
due through the end of the month in which death occurred.
6) TERMINATION.
a) Termination by Company Without Cause; Termination by Executive for Good
Reason
i) Notwithstanding anything to the contrary herein and subject to
applicable law, the Company may terminate this Agreement without
cause at any time upon thirty (30) days' prior written notice to
Executive.
ii) Notwithstanding anything to the contrary herein, Executive may
terminate this Agreement for Good Reason at any time upon thirty
(30) days' prior written notice to the Company. "GOOD REASON" means:
(1) the assignment to Executive of any duties inconsistent with his
duties described in Section 1) above or any removal of Executive
from or any failure to re-elect Executive to his office and
position described in Section 1) above, except in connection
with promotions to higher office;
(2) the failure by the Company to maintain and to continue
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to
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the Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award and
purchase plans, life insurance, medical, health and accident,
and disability plans);
(3) the taking of any action by the Company which would adversely
affect Executive's participation in or reduce Executive's
benefits under any of the Company's benefit or compensation
plans (including but not limited to bonus and incentive
compensation plans, stock option, bonus, award and purchase
plans, life insurance, medical, health and accident, and
disability plans);
(4) the failure by the Company to obtain the assumption of this
Agreement by any successor as required under Section 12) c)
below.
iii) If Executive is terminated without cause or resigns for Good
Reason, the Company shall continue to provide the compensation and
benefits set forth in Section 3) for the remainder of the Term,
except that medical and health insurance benefits shall only be
provided until the earlier of (1) the end of the Term and (2) the
date on which Executive and his dependants are fully covered under
the medical insurance plan of a new employer.
b) Termination by Executive. Executive may terminate this Agreement upon
thirty (30) days' prior written notice to the Company. Executive may at
his election and subject to the Company's consent, perform his duties
through to the termination date and the Company shall continue to pay
and provide Executive with all of the compensation and benefits set
forth in Section 3) through to the termination date, but Executive shall
not receive any severance allowance.
c) Termination by Company for Cause. Notwithstanding anything to the
contrary contained herein and subject to applicable law, the Company may
terminate the Executive's employment with immediate effect if the Board
of Directors shall determine in good faith that any of the following has
occurred: (i) acts or omissions by the Executive which constitute
material misconduct or a knowing violation of a material written policy
of the Company or any of its subsidiaries (provided Executive has been
provided with a copy of such material written policy), (ii) the
Executive or any affiliated or related person or entity receiving a
benefit in money, property or services from the Company or any of its
subsidiaries or from another person dealing with the Company or any of
its subsidiaries, in material violation of applicable law or Company
policy, (iii) an act of fraud, conversion, misappropriation, or
embezzlement by the Executive or his conviction of, or entering a guilty
plea or plea of no contest with respect to, a felony, or the equivalent
thereof, (iv) a material breach by the Executive of any provision of
Section 8 hereof, (v) the Executive's failure or refusal (whether
intentional, reckless or negligent) to perform his duties under this
Agreement or (vi) any other breach by the Executive of this Agreement in
any material respect. In no event shall the Executive's termination by
the Company be considered to have been for cause if such termination
took place as a result of (1) the Executive's bad judgment or negligence
or (2) any act or omission without intent of gaining a profit to which
the Executive was not legally entitled or (3) any act or omission
believed by the Executive in good faith to have been in, or not opposed
to, the interests of the Company. If Executive is terminated for cause,
he shall be entitled to the compensation and other benefits set forth in
Section 3) through the last date of
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Executive's employment. Upon payment of all obligations under this
Agreement that are then outstanding, this Agreement shall terminate.
Notice of such termination shall be given to Executive in writing,
specifying the reasons for such termination.
7) SEVERANCE UPON CHANGE IN CONTROL: As of the effective date of a Change of
Control as defined in the Employment Agreement set forth in Exhibit C
hereto, the Company and Executive shall enter into, and shall be deemed to
have entered into, an Employment Agreement substantially identical to the
agreement set forth in Exhibit C, unless such Employment Agreement has been
terminated as provided therein.
8) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) All information, data, materials, computer code, intellectual property
rights, customer lists, discoveries, inventions or processes or
improvement in procedures or made or discovered by Executive during the
term of this Agreement in connection with or in any way affecting or
relating to the business of the Company or capable of being used or
adapted for use therein or in connection therewith is and shall
forthwith be deemed to be "CONFIDENTIAL INFORMATION" and shall be
disclosed to the Company and shall belong to and be the absolute
property of the Company.
b) Executive shall, if and when required so to do, whether during or after
the termination of this Agreement, at Employer's expense apply or join
in applying for any patent or trademark registration or other similar
protection in the United States or in any other part of the world for
any such discovery, invention, process or improvement and shall execute
all instruments and do all things necessary to register the patent,
trademark or other similar protection when obtained and all right and
title to an interest in the same in the Company absolutely and as sole
beneficial owner.
c) Executive shall not at any time either during the term of this Agreement
or any extension thereof or after the termination of the employment for
any reason (i) divulge any Confidential Information or other affairs or
secrets of the Company to any other company, person or persons without
the previous consent in writing of the Company or (ii) use or attempt to
use any information which Executive may acquire in the course of the
employment in any manner which may injure or cause loss or be calculated
to injure or cause loss to the Company.
d) Upon the termination of this Agreement for any reason, Executive shall
resign without claim for compensation from as a director (if applicable)
of the Company and from all offices held by Executive in the Company,
and in the event of Executive failing to do so the Company is hereby
irrevocably authorized to appoint some person in Executive's name and on
Executive's behalf to execute any documents and to do all things
required to give effect to the provisions of this Section.
e) Upon the termination of this Agreement for any reason, Executive shall
deliver to the Company all documents used by Executive in the course of
the Company's business, including but without limiting the foregoing,
all price lists, mailing lists, customer, client or supplier lists,
sales information, catalogues, diaries, log books, computer software and
computer data.
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f) Should Executive reveal or threaten to reveal any Confidential
Information, the Company shall be entitled to an injunction restraining
the Executive from disclosing same, or from rendering any services to
any entity to whom such information has been or is threatened to be
disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Executive for a
breach or threatened breach of this provision, including the recovery of
damages from the Executive.
9) RESTRICTIVE COVENANT: Executive expressly agrees that it shall not at any
time for one (1) year after the termination of the employment (i) undertake
or carry on or be employed or directly or indirectly be concerned or
interested either as employer, Executive, consultant, director or
shareholder or (ii) for one (1) year after the termination of the employment
attempt in any way whatsoever to obtain customers or clients of the Company,
in either case in or for any enterprise, person, firm or company, the
principal business of which involves (A) the production or development or
the retail or wholesale selling or distribution of goods and services that
are substantially similar to or in competition with those sold or provided
by the Company or (B) the sale of memberships in member programs the
benefits of which include the sale or provision of such goods or services.
Executive further agrees during and after the termination of the employment
for any reason, whether for Executive's own account or for any other person
or for any firm or company not to solicit, interfere with or endeavor to
entice away from the Company any employee of the Company or any person, firm
or company who at any time during the continuance of the employment shall
have been a customer or client of the Company.
10) INDEMNITY: Executive shall defend, save and hold harmless the Company from
and against any claims, damages, actions, proceedings or other losses
incurred or suffered by the Company arising out of a material breach by
Executive of the confidentiality provisions herein.
11) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts San Diego County of the State of California in
connection with any action arising under this Agreement and waives all
defenses regarding the inconvenience of such forum. THE PARTIES IRREVOCABLY
WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
12) MISCELLANEOUS.
a) Integration. This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the Company and
Executive, and supersedes any and all prior agreements, letters of
intent, correspondence, negotiations, discussions or understandings
between the Company or any predecessor of the Company and the Executive.
b) Severability. If any provision of the Agreement is held invalid by a
court with jurisdiction over the parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as possible
the original intentions of the parties in accordance with applicable law
and (ii) the remaining terms, provisions, covenants and restrictions of
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this Agreement will remain in full force and effect. If this Agreement
is held invalid or cannot be enforced, then to the full extent permitted
by law any prior agreement between the Company (or any predecessor
thereof) and the Executive shall be deemed reinstated as if this
Agreement had not been executed.
c) Successors. The Company's rights and obligations under this Agreement
will inure to the benefit and be binding upon the Company's successors
and assignees.
d) Amendments. This Agreement may be altered only by a written agreement
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
e) Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement will be given in writing and
will be deemed to have been delivered and given for all purposes (i) on
the delivery date if delivered personally to the party to whom the same
is directed; (iii) one business day after deposit with a commercial
overnight carrier, with written verification of receipt; or (iii) five
business days after the mailing date, whether or not actually received,
if sent by U.S. mail, return receipt requested, postage and charges
prepaid, or any other means of rapid mail delivery for which a receipt
is available. All notices to the Company will be effective if delivered
to ITM Corporation, 11250 El Camino Real, Suite 100, San Diego, CA
92130, attention: President, or such other address specified by the
Company in writing. All notices to Executive will be effective if
delivered to Executive's last residential address provided to the
Company by Executive.
f) Assignments. The Company will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written
consent of Executive.
g) Remedies. Except where otherwise specified herein, the rights and
remedies granted to a party under the Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies which the
Party may possess at law or in equity.
h) Limited Effect of Waiver By Company. Should Company waive breach of any
provision of this Agreement by the Executive, such waiver will not
operate or be construed as a waiver of further breach by the Executive.
i) Counterparts. The Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will
constitute one and the same document.
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IN WITNESS WHEREOF, parties have signed this Employment Agreement as of the date
first above written.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ KLAUS MOELLER
-----------------------
Name: Klaus Moeller
Chief Executive Officer
EXECUTIVE
By: /s/ MIKE MEADER
-----------------------
Name: Mike Meader
7
<PAGE> 1
EXHIBIT 10.14
CHANGE OF CONTROL
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of June 1, 1999 between International Trading & Manufacturing Corporation, a
Nevada corporation (the "COMPANY"), and Mike Meader (the "EXECUTIVE").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution, but anything
in this Agreement to the contrary notwithstanding, neither this Agreement nor
any of its provisions, except its renewal provision, shall be operative unless
and until there has been a Change in Control of the Company, as defined in
Subsection 1(c) below and subject to the provisions of Subsection 1(d) below
(regarding action by a majority of the Incumbent Board to modify or terminate
this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on or before
the close of business on December 31, 2001, this Agreement shall thereupon
expire; provided, however, the parties by their written mutual assent may extend
such date on which this Agreement shall expire.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any of
the following events shall have occurred:
(i) any corporation, other person or "Group" (as defined
below) becomes the "Beneficial Owner" (as defined below)
of more than 15% of the Company's outstanding Common
Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed
on a national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association.
<PAGE> 2
For purposes of this definition of Change in Control, the following
terms shall have the following meanings:
"BENEFICIAL OWNER" shall have the meaning which that term is
given in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "ACT").
"GROUP" shall mean persons who act in concert as described in
Section 14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the contrary, at
any time up to thirty (30) days following the date of a Change in Control, the
Board of Directors may, in its sole and exclusive discretion with approval of at
least a majority of the Incumbent Board (as defined below), terminate this
Agreement or make any modifications to the terms and provisions of this
Agreement (including without limitation causing the Agreement not to apply with
respect to the given Change in Control or reducing the amount of benefits
described herein) without the consent of Executive. For purposes hereof,
"INCUMBENT BOARD" shall mean the group of individuals who, as of the date of
this Agreement, constitute the Board of Directors of the Company; provided,
however, that any individual who becomes a director subsequent to the date of
this Agreement and whose election, or whose nomination for election by the
Company's shareholders, to the Board of Directors was either (i) approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
or (ii) recommended by a nominating committee comprised entirely of directors
who are then Incumbent Board members, shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
set forth in Subsection 2(b) below (the "PERIOD OF EMPLOYMENT") in the position
and with the duties and responsibilities set forth in any Employment Agreement
in effect on the date of any Change in Control and Section 3 below, subject to
the other terms and conditions of this Agreement. If there is any conflict
between any terms of any such Employment Agreement and any terms hereof, the
terms of this Agreement shall prevail.
(b) The Period of Employment shall commence on the date of any Change
in Control and, subject only to the Executive's death or termination of
employment by the Company for "Cause" or "Disability" or by the Executive for
"Good Reason" (as defined in Section 4), shall continue until the close of
business on the later of (i) that date two years after the date on which the
Change in Control occurred or (ii) the expiration date under Subsection 1(b),
taking into account any extensions of such expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall continue to
serve as an officer of the Company, either (i) with substantially the same
offices, titles, duties and responsibilities as the Executive had immediately
prior to the Change in Control or (ii) with a higher office with titles, duties
and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except reasonable vacation periods and
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periods of illness or incapacity, but nothing in this Agreement shall preclude
the Executive from devoting reasonable time to serving as a director or member
of a committee of one or more organizations (business, charitable, civic,
religious or otherwise) involving no conflict with the interests of the Company.
4. Termination Following Change in Control. If, after a Change in Control
of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "DISABILITY" shall mean termination
because of the Executive's absence due to physical or mental illness from his
duties with the Company on a full-time basis for 150 consecutive business days
unless within 30 days after Notice of Termination (as defined in Subsection 4(d)
below) is given following such absence, the Executive shall return to the
full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for "CAUSE" only if
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to result
in substantial gain or personal enrichment at the expense of the Company, or if
there has been a willful and substantial breach by the Executive of the
provisions of Subsection 3(b) above, and such breach has caused substantial
injury to the Company. In no event shall the Executive's termination by the
Company be considered to have been for Cause if such termination took place as a
result of (i) the Executive's bad judgment or negligence or (ii) any act or
omission without intent of gaining a profit to which the Executive was not
legally entitled or (iii) any act or omission believed by the Executive in good
faith to have been in, or not opposed to, the interests of the Company.
(c) Good Reason. "GOOD REASON" shall mean
(i) the assignment to the Executive of any duties inconsistent
with his duties described in Subsection 3(a) above or any
removal of the Executive from or any failure to re-elect
the Executive to his positions described in Subsection
3(a) above, except in connection with promotions to higher
office;
(ii) a reduction by the Company in the Executive's base salary
as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to maintain and to continue the
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans); or the taking of any
action by the Company which would adversely affect the
Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(iv) the relocation of the Executive's office to anywhere other
than a location within 100 miles of Del Mar, California or
the Company's requiring the Executive to be based anywhere
other than within 100 miles of Del Mar,
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California (or such other location as shall be the
location of the Executive's office immediately prior to
the Change in Control) except for required travel on the
Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the assumption of
this Agreement by any successor as contemplated in Section
7 below.
(d) Any termination of the Executive's employment, unless because of
death, shall be communicated by written Notice of Termination to the other
party. In the event of termination of employment by the Company for Cause or
Disability or by the Executive for Good Reason, the Notice of Termination shall
state the specific ground for termination (Cause, Disability or Good Reason) and
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the specified ground of termination.
(e) "TERMINATION DATE" shall mean (i) if the Executive's employment is
terminated due to death, the Executive's date of death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty day period),
(iii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iv) if the Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
5. Benefits.
(a) If the Company shall terminate the Executive's employment other than
because of his death or for Disability or Cause, or if the Executive shall
terminate his employment for Good Reason, then the Company shall pay to the
Executive and provide him, his dependents, beneficiaries and estate, with the
following;
(i) The Company shall pay the Executive his full base salary
through the Termination Date at the higher of the rate in
effect when Notice of Termination is given or the rate in
effect one year prior to such date, plus credit for any
vacation earned but not taken. The Executive's full base
salary shall be paid at the times normally scheduled for
payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) Subject to clause (iii) below, the Company shall pay the
Executive a lump sum payment equal to ten (10) times the
highest annual compensation (including base salary,
incentive compensation and monetary bonus or similar
award) paid or payable to the Executive by the Company for
any of the three fiscal years ended immediately prior to
the Termination Date. The Company shall gross-up the lump
sum payment such that the amount of the payment is net of
all federal, state, local, excise and other taxes and
withholdings, including without limitation, any "golden
parachute" taxes payable by the Executive. This lump sum
payment shall be due and payable on the 10th business day
after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest published by Citibank, N.A.
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(iii) The Company shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's
contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the benefits or
amounts of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 5 be reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of Termination, or
otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all of
the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "COMPANY" shall mean the company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Paragraph 7 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices.
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United Stated registered or certified mail,
return receipt requested, postage prepaid. All notices to the Company will be
effective if delivered to ITM Corporation, 1250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: Chief Executive Officer. All notices to Executive
will be effective if delivered to Executive's last residential address provided
to the Company by Executive, or to such other address as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of California.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive concerning
this Agreement will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, by a panel of three
arbitrators, one selected by the Executive, one selected by the Company and the
other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration award
pursuant to subsection (a) above, the Company shall, within thirty (30) days
after the presentation of proper receipts or invoices therefor, reimburse the
Executive the reasonable fees and disbursements of counsel incurred in
connection of any amounts awarded the Executive pursuant thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
BY: /s/ KLAUS MOELLER
--------------------------
Klaus Moeller
CEO
EXECUTIVE
BY: /s/ MIKE MEADER
--------------------------
Mike Meader
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EXHIBIT 10.15
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM" or the "COMPANY") and Larry Balaban, ("EXECUTIVE")
dated as of January 1, 1999 (the "EFFECTIVE DATE") .
WHEREAS, ITM wishes to employ Executive and Executive wishes to be employed by
ITM, all on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
A) ITM hereby employs Executive for three (3) years from the Effective Date
(the "TERM") as Senior Vice President Marketing & Production to provide
executive services in connection with the development of its Baby Genius
business and perform such other duties consistent with Executive's
office as may be directed by the CEO, President, CFO or the Board of
Directors.
b) As an officer of the Company Executive may contractually bind the
Company subject to prior written authorization from the CEO, President,
CFO or the Board of Directors.
2) EXECUTIVE TO DEVOTE FULL TIME TO COMPANY. Executive shall devote full time,
attention, and energies to the business of the Company, and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain, or other pecuniary
advantage. Executive is not prohibited from making personal investments in
any other businesses provided those investments do not require active
involvement in the operation of said companies.
3) COMPENSATION AND BENEFITS: ITM shall pay, provide and grant to Executive the
following salary and benefits:
a) Annual Salary: $110,000
b) Grant of Options: A grant of options as provided in the Non-Qualified
Stock Option Agreement attached hereto as Exhibit A and subject to the
terms and conditions of the Company's Non-Qualified Stock Option Plan
attached hereto as Exhibit B.
c) Medical and Other Benefits: As determined by the Board in its sole
discretion, provided that all benefits are on terms no less favorable
than those provided to all other executives, including senior
executives, of the Company, including, to the extent applicable:
i) Medical and health insurance for Executive and dependants;
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ii) Medical expense reimbursement plan;
iii)Retirement, pension and 401(k) plans; and
iv) Life, disability and key-man insurance.
d) Vacation: Three (3) weeks per year, any unused days of which may be
rolled-over into following year; and three (3) personal days.
4) Other Benefits/ Reimbursement: Reimbursement of reasonable out-of-pocket
expenses incurred on Company business and pre-approved in writing by the
CEO, President or CFO of the Company.
5) DEATH BENEFITS. Should Executive die during the term of employment, the
Company shall pay to Executive's estate any compensation and other benefits
due through the end of the month in which death occurred.
6) TERMINATION.
a) Termination by Company Without Cause; Termination by Executive for Good
Reason
i) Notwithstanding anything to the contrary herein and subject to
applicable law, the Company may terminate this Agreement without
cause at any time upon thirty (30) days' prior written notice to
Executive.
ii) Notwithstanding anything to the contrary herein, Executive may
terminate this Agreement for Good Reason at any time upon thirty
(30) days' prior written notice to the Company. "GOOD REASON"
means:
(1) the assignment to Executive of any duties inconsistent with his
duties described in Section 1) above or any removal of Executive
from or any failure to re-elect Executive to his office and
position described in Section 1) above, except in connection with
promotions to higher office;
(2) the failure by the Company to maintain and to continue
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the Change
in Control (including but not limited to bonus and incentive
compensation plans, stock option, bonus, award and purchase
plans, life insurance, medical, health and accident, and
disability plans);
(3) the taking of any action by the Company which would adversely
affect Executive's participation in or reduce Executive's
benefits under any of the Company's benefit or compensation plans
(including but not limited to bonus and incentive compensation
plans, stock option, bonus, award and purchase plans, life
insurance, medical, health and accident, and disability plans);
(4) the failure by the Company to obtain the assumption of this
Agreement by any successor as required under Section 12) c)
below.
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iii) If Executive is terminated without cause or resigns for Good
Reason, the Company shall continue to provide the compensation and
benefits set forth in Section 3) for the remainder of the Term,
except that medical and health insurance benefits shall only be
provided until the earlier of (1) the end of the Term and (2) the
date on which Executive and his dependants are fully covered under
the medical insurance plan of a new employer.
b) Termination by Executive. Executive may terminate this Agreement upon
thirty (30) days' prior written notice to the Company. Executive may at
his election and subject to the Company's consent, perform his duties
through to the termination date and the Company shall continue to pay
and provide Executive with all of the compensation and benefits set
forth in Section 3) through to the termination date, but Executive shall
not receive any severance allowance.
c) Termination by Company for Cause. Notwithstanding anything to the
contrary contained herein and subject to applicable law, the Company may
terminate the Executive's employment with immediate effect if the
Company shall determine in good faith that any of the following has
occurred: (i) acts or omissions by the Executive which constitute
material misconduct or a knowing violation of a material written policy
of the Company or any of its subsidiaries (provided Executive has been
provided with a copy of such material written policy), (ii) the
Executive or any affiliated or related person or entity receiving a
benefit in money, property or services from the Company or any of its
subsidiaries or from another person dealing with the Company or any of
its subsidiaries, in material violation of applicable law or Company
policy, (iii) an act of fraud, conversion, misappropriation, or
embezzlement by the Executive or his conviction of, or entering a guilty
plea or plea of no contest with respect to, a felony, or the equivalent
thereof, (iv) a material breach by the Executive of any provision of
Section 8 hereof, (v) the Executive's failure or refusal (whether
intentional, reckless or negligent) to perform his duties under this
Agreement or (vi) any other breach by the Executive of this Agreement in
any material respect. In no event shall the Executive's termination by
the Company be considered to have been for cause if such termination
took place as a result of (1) the Executive's bad judgment or negligence
or (2) any act or omission without intent of gaining a profit to which
the Executive was not legally entitled or (3) any act or omission
believed by the Executive in good faith to have been in, or not opposed
to, the interests of the Company. If Executive is terminated for cause,
he shall be entitled to the compensation and other benefits set forth in
Section 3) through the last date of Executive's employment. Upon payment
of all obligations under this Agreement that are then outstanding, this
Agreement shall terminate. Notice of such termination shall be given to
Executive in writing, specifying the reasons for such termination.
7) SEVERANCE UPON CHANGE IN CONTROL: As of the effective date of a Change of
Control as defined in the Employment Agreement set forth in Exhibit C
hereto, the Company and Executive shall enter into, and shall be deemed to
have entered into, an Employment Agreement substantially identical to the
agreement set forth in Exhibit C, unless such Employment Agreement has been
terminated as provided therein.
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8) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) All information, data, materials, computer code, intellectual property
rights, customer lists, discoveries, inventions or processes or
improvement in procedures or made or discovered by Executive during the
term of this Agreement in connection with or in any way affecting or
relating to the business of the Company or capable of being used or
adapted for use therein or in connection therewith is and shall
forthwith be deemed to be "CONFIDENTIAL INFORMATION" and shall be
disclosed to the Company and shall belong to and be the absolute
property of the Company.
b) Executive shall, if and when required so to do, whether during or after
the termination of this Agreement, at Employer's expense apply or join
in applying for any patent or trademark registration or other similar
protection in the United States or in any other part of the world for
any such discovery, invention, process or improvement and shall execute
all instruments and do all things necessary to register the patent,
trademark or other similar protection when obtained and all right and
title to an interest in the same in the Company absolutely and as sole
beneficial owner.
c) Executive shall not at any time either during the term of this Agreement
or any extension thereof or after the termination of the employment for
any reason (i) divulge any Confidential Information or other affairs or
secrets of the Company to any other company, person or persons without
the previous consent in writing of the Company or (ii) use or attempt to
use any information which Executive may acquire in the course of the
employment in any manner which may injure or cause loss or be calculated
to injure or cause loss to the Company.
d) Upon the termination of this Agreement for any reason, Executive shall
resign without claim for compensation from as a director (if applicable)
of the Company and from all offices held by Executive in the Company,
and in the event of Executive failing to do so the Company is hereby
irrevocably authorized to appoint some person in Executive's name and on
Executive's behalf to execute any documents and to do all things
required to give effect to the provisions of this Section.
e) Upon the termination of this Agreement for any reason, Executive shall
deliver to the Company all documents used by Executive in the course of
the Company's business, including but without limiting the foregoing,
all price lists, mailing lists, customer, client or supplier lists,
sales information, catalogues, diaries, log books, computer software and
computer data.
f) Should Executive reveal or threaten to reveal any Confidential
Information, the Company shall be entitled to an injunction restraining
the Executive from disclosing same, or from rendering any services to
any entity to whom such information has been or is threatened to be
disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Executive for a
breach or threatened breach of this provision, including the recovery of
damages from the Executive.
9) RESTRICTIVE COVENANT: Executive expressly agrees that it shall not at any
time for one (1) year after the termination of the employment (i) undertake
or carry on or be employed or directly or indirectly be concerned or
interested either as employer, Executive, consultant,
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director or shareholder or (ii) for one (1) year after the termination of
the employment attempt in any way whatsoever to obtain customers or clients
of the Company, in either case in or for any enterprise, person, firm or
company, the principal business of which involves (A) the production or
development or the retail or wholesale selling or distribution of goods and
services that are substantially similar to or in competition with those sold
or provided by the Company or (B) the sale of memberships in member programs
the benefits of which include the sale or provision of such goods or
services. Executive further agrees during and after the termination of the
employment for any reason, whether for Executive's own account or for any
other person or for any firm or company not to solicit, interfere with or
endeavor to entice away from the Company any employee of the Company or any
person, firm or company who at any time during the continuance of the
employment shall have been a customer or client of the Company.
10) INDEMNITY: Executive shall defend, save and hold harmless the Company from
and against any claims, damages, actions, proceedings or other losses
incurred or suffered by the Company arising out of a material breach by
Executive of the confidentiality provisions herein.
11) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts San Diego County of the State of California in
connection with any action arising under this Agreement and waives all
defenses regarding the inconvenience of such forum. THE PARTIES IRREVOCABLY
WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
12) MISCELLANEOUS.
a) Integration. This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the Company and
Executive, and supersedes any and all prior agreements, letters of
intent, correspondence, negotiations, discussions or understandings
between the Company or any predecessor of the Company and the Executive.
b) Severability. If any provision of the Agreement is held invalid by a
court with jurisdiction over the parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as possible
the original intentions of the parties in accordance with applicable law
and (ii) the remaining terms, provisions, covenants and restrictions of
this Agreement will remain in full force and effect. If this Agreement
is held invalid or cannot be enforced, then to the full extent permitted
by law any prior agreement between the Company (or any predecessor
thereof) and the Executive shall be deemed reinstated as if this
Agreement had not been executed.
c) Successors. The Company's rights and obligations under this Agreement
will inure to the benefit and be binding upon the Company's successors
and assignees.
d) Amendments. This Agreement may be altered only by a written agreement
signed by the party against whom enforcement of any waiver, change,
modification, extension, or
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discharge is sought.
e) Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement will be given in writing and
will be deemed to have been delivered and given for all purposes (i) on
the delivery date if delivered personally to the party to whom the same
is directed; (iii) one business day after deposit with a commercial
overnight carrier, with written verification of receipt; or (iii) five
business days after the mailing date, whether or not actually received,
if sent by U.S. mail, return receipt requested, postage and charges
prepaid, or any other means of rapid mail delivery for which a receipt
is available. All notices to the Company will be effective if delivered
to ITM Corporation, 11250 El Camino Real, Suite 100, San Diego, CA
92130, attention: President, or such other address specified by the
Company in writing. All notices to Executive will be effective if
delivered to Executive's last residential address provided to the
Company by Executive.
f) Assignments. The Company will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written
consent of Executive.
g) Remedies. Except where otherwise specified herein, the rights and
remedies granted to a party under the Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies which the
Party may possess at law or in equity.
h) Limited Effect of Waiver By Company. Should Company waive breach of any
provision of this Agreement by the Executive, such waiver will not
operate or be construed as a waiver of further breach by the Executive.
i) Counterparts. The Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will
constitute one and the same document.
IN WITNESS WHEREOF, parties have signed this Employment Agreement as of the date
first above written.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ KLAUS MOELLER
-------------------------------------
Name: Klaus Moeller
Chief Executive Officer
EXECUTIVE
By: /s/ LARRY BALABAN
-------------------------------------
Name: Larry Balaban
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EXHIBIT 10.16
CHANGE OF CONTROL
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of January 1, 1999 between International Trading & Manufacturing Corporation, a
Nevada corporation (the "COMPANY"), and Larry Balaban (the "EXECUTIVE").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution, but anything
in this Agreement to the contrary notwithstanding, neither this Agreement nor
any of its provisions, except its renewal provision, shall be operative unless
and until there has been a Change in Control of the Company, as defined in
Subsection 1(c) below and subject to the provisions of Subsection 1(d) below
(regarding action by a majority of the Incumbent Board to modify or terminate
this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on or before
the close of business on December 31, 2001, this Agreement shall thereupon
expire; provided, however, the parties by their written mutual assent may extend
such date on which this Agreement shall expire.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any of
the following events shall have occurred:
(i) any corporation, other person or "Group" (as defined
below) becomes the "Beneficial Owner" (as defined below)
of more than 15% of the Company's outstanding Common
Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed
on a national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association.
<PAGE> 2
For purposes of this definition of Change in Control, the following
terms shall have the following meanings:
"BENEFICIAL OWNER" shall have the meaning which that term is
given in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "ACT").
"GROUP" shall mean persons who act in concert as described in
Section 14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the contrary, at
any time up to thirty (30) days following the date of a Change in Control, the
Board of Directors may, in its sole and exclusive discretion with approval of at
least a majority of the Incumbent Board (as defined below), terminate this
Agreement or make any modifications to the terms and provisions of this
Agreement (including without limitation causing the Agreement not to apply with
respect to the given Change in Control or reducing the amount of benefits
described herein) without the consent of Executive. For purposes hereof,
"INCUMBENT BOARD" shall mean the group of individuals who, as of the date of
this Agreement, constitute the Board of Directors of the Company; provided,
however, that any individual who becomes a director subsequent to the date of
this Agreement and whose election, or whose nomination for election by the
Company's shareholders, to the Board of Directors was either (i) approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
or (ii) recommended by a nominating committee comprised entirely of directors
who are then Incumbent Board members, shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
set forth in Subsection 2(b) below (the "PERIOD OF EMPLOYMENT") in the position
and with the duties and responsibilities set forth in any Employment Agreement
in effect on the date of any Change in Control and Section 3 below, subject to
the other terms and conditions of this Agreement. If there is any conflict
between any terms of any such Employment Agreement and any terms hereof, the
terms of this Agreement shall prevail.
(b) The Period of Employment shall commence on the date of any Change
in Control and, subject only to the Executive's death or termination of
employment by the Company for "Cause" or "Disability" or by the Executive for
"Good Reason" (as defined in Section 4), shall continue until the close of
business on the later of (i) that date two years after the date on which the
Change in Control occurred or (ii) the expiration date under Subsection 1(b),
taking into account any extensions of such expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall continue to
serve as an officer of the Company, either (i) with substantially the same
offices, titles, duties and responsibilities as the Executive had immediately
prior to the Change in Control or (ii) with a higher office with titles, duties
and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except reasonable vacation periods and
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periods of illness or incapacity, but nothing in this Agreement shall preclude
the Executive from devoting reasonable time to serving as a director or member
of a committee of one or more organizations (business, charitable, civic,
religious or otherwise) involving no conflict with the interests of the Company.
4. Termination Following Change in Control. If, after a Change in Control
of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "DISABILITY" shall mean termination
because of the Executive's absence due to physical or mental illness from his
duties with the Company on a full-time basis for 150 consecutive business days
unless within 30 days after Notice of Termination (as defined in Subsection 4(d)
below) is given following such absence, the Executive shall return to the
full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for "CAUSE" only if
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to result
in substantial gain or personal enrichment at the expense of the Company, or if
there has been a willful and substantial breach by the Executive of the
provisions of Subsection 3(b) above, and such breach has caused substantial
injury to the Company. In no event shall the Executive's termination by the
Company be considered to have been for Cause if such termination took place as a
result of (i) the Executive's bad judgment or negligence or (ii) any act or
omission without intent of gaining a profit to which the Executive was not
legally entitled or (iii) any act or omission believed by the Executive in good
faith to have been in, or not opposed to, the interests of the Company.
(c) Good Reason. "GOOD REASON" shall mean
(i) the assignment to the Executive of any duties inconsistent
with his duties described in Subsection 3(a) above or any
removal of the Executive from or any failure to re-elect
the Executive to his positions described in Subsection
3(a) above, except in connection with promotions to higher
office;
(ii) a reduction by the Company in the Executive's base salary
as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to maintain and to continue the
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans); or the taking of any
action by the Company which would adversely affect the
Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(iv) the relocation of the Executive's office to anywhere other
than a location within 100 miles of Del Mar, California or
the Company's requiring the Executive to be based anywhere
other than within 100 miles of Del Mar,
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California (or such other location as shall be the
location of the Executive's office immediately prior to
the Change in Control) except for required travel on the
Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the assumption of
this Agreement by any successor as contemplated in Section
7 below.
(d) Any termination of the Executive's employment, unless because of
death, shall be communicated by written Notice of Termination to the other
party. In the event of termination of employment by the Company for Cause or
Disability or by the Executive for Good Reason, the Notice of Termination shall
state the specific ground for termination (Cause, Disability or Good Reason) and
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the specified ground of termination.
(e) "TERMINATION DATE" shall mean (i) if the Executive's employment is
terminated due to death, the Executive's date of death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty day period),
(iii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iv) if the Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
5. Benefits.
(a) If the Company shall terminate the Executive's employment other than
because of his death or for Disability or Cause, or if the Executive shall
terminate his employment for Good Reason, then the Company shall pay to the
Executive and provide him, his dependents, beneficiaries and estate, with the
following;
(i) The Company shall pay the Executive his full base salary
through the Termination Date at the higher of the rate in
effect when Notice of Termination is given or the rate in
effect one year prior to such date, plus credit for any
vacation earned but not taken. The Executive's full base
salary shall be paid at the times normally scheduled for
payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) Subject to clause (iii) below, the Company shall pay the
Executive a lump sum payment equal to ten (10) times the
highest annual compensation (including base salary,
incentive compensation and monetary bonus or similar
award) paid or payable to the Executive by the Company for
any of the three fiscal years ended immediately prior to
the Termination Date. The Company shall gross-up the lump
sum payment such that the amount of the payment is net of
all federal, state, local, excise and other taxes and
withholdings, including without limitation, any "golden
parachute" taxes payable by the Executive. This lump sum
payment shall be due and payable on the 10th business day
after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest published by Citibank, N.A.
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(iii) The Company shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's
contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the benefits or
amounts of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 5 be reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of Termination, or
otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all of
the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "COMPANY" shall mean the company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Paragraph 7 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices.
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United Stated registered or certified mail,
return receipt requested, postage prepaid. All notices to the Company will be
effective if delivered to ITM Corporation, 1250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: Chief Executive Officer. All notices to Executive
will be effective if delivered to Executive's last residential address provided
to the Company by Executive, or to such other address as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of California.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive concerning
this Agreement will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, by a panel of three
arbitrators, one selected by the Executive, one selected by the Company and the
other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration award
pursuant to subsection (a) above, the Company shall, within thirty (30) days
after the presentation of proper receipts or invoices therefor, reimburse the
Executive the reasonable fees and disbursements of counsel incurred in
connection of any amounts awarded the Executive pursuant thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
BY: /s/ KLAUS MOELLER
--------------------------
Klaus Moeller
CEO
EXECUTIVE
BY: /s/ LARRY BALABAN
--------------------------
Larry Balaban
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EXHIBIT 10.17
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM" or the "COMPANY") and Howard Balaban, ("EXECUTIVE")
dated as of January 1, 1999 (the "EFFECTIVE DATE") .
WHEREAS, ITM wishes to employ Executive and Executive wishes to be employed by
ITM, all on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
A) ITM hereby employs Executive for three (3) years from the Effective Date
(the "TERM") as Senior Vice President Sales & Marketing to provide
executive services in connection with the development of its Baby Genius
business and perform such other duties consistent with Executive's
office as may be directed by the CEO, President, CFO or the Board of
Directors.
b) As an officer of the Company Executive may contractually bind the
Company subject to prior written authorization from the CEO, President,
CFO or the Board of Directors.
2) EXECUTIVE TO DEVOTE FULL TIME TO COMPANY. Executive shall devote full time,
attention, and energies to the business of the Company, and, during this
employment, will not engage in any other business activity, regardless of
whether such activity is pursued for profit, gain, or other pecuniary
advantage. Executive is not prohibited from making personal investments in
any other businesses provided those investments do not require active
involvement in the operation of said companies.
3) COMPENSATION AND BENEFITS: ITM shall pay, provide and grant to Executive the
following salary and benefits:
a) Annual Salary: $110,000
b) Commissions:
i) Commissions of 4% on net sales (gross sales minus returns,
discount allowances, chargebacks and bad debt) by the Company to
accounts procured by Executive
ii) Commissions of 1% on net sales by the Company to all other
accounts other than (A) net sales under clause (i) above and (B)
net sales to Target, Shopko, RiverTown, Skandisk and Pamida.
Commissions shall be paid to Executive on a calendar quarterly basis
with respect to net sales made in such quarter not earlier than 30 days
after the Company receiving actual
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payments with respect to such net sales. Commission payments shall be
accompanied by a statement detailing net sales and payments received for
the period in question.
c) Grant of Options: A grant of options as provided in the Non-Qualified
Stock Option Agreement attached hereto as Exhibit A and subject to the
terms and conditions of the Company's Non-Qualified Stock Option Plan
attached hereto as Exhibit B.
d) Medical and Other Benefits: As determined by the Board in its sole
discretion, provided that all benefits are on terms no less favorable
than those provided to all other executives, including senior
executives, of the Company, including, to the extent applicable:
i) Medical and health insurance for Executive and dependants;
ii) Medical expense reimbursement plan;
iii) Retirement, pension and 401(k) plans; and
iv) Life, disability and key-man insurance.
e) Vacation: Three (3) weeks per year, any unused days of which may be
rolled-over into following year; and three (3) personal days.
4) Other Benefits/ Reimbursement: Reimbursement of reasonable out-of-pocket
expenses incurred on Company business and pre-approved in writing by the
CEO, President or CFO of the Company.
5) DEATH BENEFITS. Should Executive die during the term of employment, the
Company shall pay to Executive's estate any compensation and other benefits
due through the end of the month in which death occurred.
6) TERMINATION.
a) Termination by Company Without Cause; Termination by Executive for Good
Reason
i) Notwithstanding anything to the contrary herein and subject to
applicable law, the Company may terminate this Agreement without
cause at any time upon thirty (30) days' prior written notice to
Executive.
ii) Notwithstanding anything to the contrary herein, Executive may
terminate this Agreement for Good Reason at any time upon thirty
(30) days' prior written notice to the Company. "GOOD REASON"
means:
(1) the assignment to Executive of any duties inconsistent with his
duties described in Section 1) above or any removal of Executive
from or any failure to re-elect Executive to his office and
position described in Section 1) above, except in connection with
promotions to higher office;
(2) the failure by the Company to maintain and to continue
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to
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the Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award and
purchase plans, life insurance, medical, health and accident, and
disability plans);
(3) the taking of any action by the Company which would adversely
affect Executive's participation in or reduce Executive's
benefits under any of the Company's benefit or compensation plans
(including but not limited to bonus and incentive compensation
plans, stock option, bonus, award and purchase plans, life
insurance, medical, health and accident, and disability plans);
(4) the failure by the Company to obtain the assumption of this
Agreement by any successor as required under Section 12) c)
below.
iii) If Executive is terminated without cause or resigns for Good
Reason, the Company shall continue to provide the compensation and
benefits set forth in Section 3) for the remainder of the Term,
except that medical and health insurance benefits shall only be
provided until the earlier of (1) the end of the Term and (2) the
date on which Executive and his dependants are fully covered under
the medical insurance plan of a new employer.
b) Termination by Executive. Executive may terminate this Agreement upon
thirty (30) days' prior written notice to the Company. Executive may at
his election and subject to the Company's consent, perform his duties
through to the termination date and the Company shall continue to pay
and provide Executive with all of the compensation and benefits set
forth in Section 3) through to the termination date, but Executive shall
not receive any severance allowance.
c) Termination by Company for Cause. Notwithstanding anything to the
contrary contained herein and subject to applicable law, the Company may
terminate the Executive's employment with immediate effect if the
Company shall determine in good faith that any of the following has
occurred: (i) acts or omissions by the Executive which constitute
material misconduct or a knowing violation of a material written policy
of the Company or any of its subsidiaries (provided Executive has been
provided with a copy of such material written policy), (ii) the
Executive or any affiliated or related person or entity receiving a
benefit in money, property or services from the Company or any of its
subsidiaries or from another person dealing with the Company or any of
its subsidiaries, in material violation of applicable law or Company
policy, (iii) an act of fraud, conversion, misappropriation, or
embezzlement by the Executive or his conviction of, or entering a guilty
plea or plea of no contest with respect to, a felony, or the equivalent
thereof, (iv) a material breach by the Executive of any provision of
Section 8 hereof, (v) the Executive's failure or refusal (whether
intentional, reckless or negligent) to perform his duties under this
Agreement or (vi) any other breach by the Executive of this Agreement in
any material respect. In no event shall the Executive's termination by
the Company be considered to have been for cause if such termination
took place as a result of (1) the Executive's bad judgment or negligence
or (2) any act or omission without intent of gaining a profit to which
the Executive was not legally entitled or (3) any act or omission
believed by the Executive in good faith to have been in, or not opposed
to, the interests of the Company. If Executive is terminated for cause,
he shall be entitled to the compensation and other benefits set forth in
Section 3) through the last date of
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Executive's employment. Upon payment of all obligations under this
Agreement that are then outstanding, this Agreement shall terminate.
Notice of such termination shall be given to Executive in writing,
specifying the reasons for such termination.
7) SEVERANCE UPON CHANGE IN CONTROL: As of the effective date of a Change of
Control as defined in the Employment Agreement set forth in Exhibit C
hereto, the Company and Executive shall enter into, and shall be deemed to
have entered into, an Employment Agreement substantially identical to the
agreement set forth in Exhibit C, unless such Employment Agreement has been
terminated as provided therein.
8) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) All information, data, materials, computer code, intellectual property
rights, customer lists, discoveries, inventions or processes or
improvement in procedures or made or discovered by Executive during the
term of this Agreement in connection with or in any way affecting or
relating to the business of the Company or capable of being used or
adapted for use therein or in connection therewith is and shall
forthwith be deemed to be "CONFIDENTIAL INFORMATION" and shall be
disclosed to the Company and shall belong to and be the absolute
property of the Company.
b) Executive shall, if and when required so to do, whether during or after
the termination of this Agreement, at Employer's expense apply or join
in applying for any patent or trademark registration or other similar
protection in the United States or in any other part of the world for
any such discovery, invention, process or improvement and shall execute
all instruments and do all things necessary to register the patent,
trademark or other similar protection when obtained and all right and
title to an interest in the same in the Company absolutely and as sole
beneficial owner.
c) Executive shall not at any time either during the term of this
Agreement or any extension thereof or after the termination of the
employment for any reason (i) divulge any Confidential Information or
other affairs or secrets of the Company to any other company, person or
persons without the previous consent in writing of the Company or (ii)
use or attempt to use any information which Executive may acquire in the
course of the employment in any manner which may injure or cause loss or
be calculated to injure or cause loss to the Company.
d) Upon the termination of this Agreement for any reason, Executive shall
resign without claim for compensation from as a director (if applicable)
of the Company and from all offices held by Executive in the Company,
and in the event of Executive failing to do so the Company is hereby
irrevocably authorized to appoint some person in Executive's name and on
Executive's behalf to execute any documents and to do all things
required to give effect to the provisions of this Section.
e) Upon the termination of this Agreement for any reason, Executive shall
deliver to the Company all documents used by Executive in the course of
the Company's business, including but without limiting the foregoing,
all price lists, mailing lists, customer, client or supplier lists,
sales information, catalogues, diaries, log books, computer software and
computer data.
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f) Should Executive reveal or threaten to reveal any Confidential
Information, the Company shall be entitled to an injunction restraining
the Executive from disclosing same, or from rendering any services to
any entity to whom such information has been or is threatened to be
disclosed. The right to secure an injunction is not exclusive, and the
Company may pursue any other remedies it has against the Executive for a
breach or threatened breach of this provision, including the recovery of
damages from the Executive.
9) RESTRICTIVE COVENANT: Executive expressly agrees that it shall not at any
time for one (1) year after the termination of the employment (i) undertake
or carry on or be employed or directly or indirectly be concerned or
interested either as employer, Executive, consultant, director or
shareholder or (ii) for one (1) year after the termination of the employment
attempt in any way whatsoever to obtain customers or clients of the Company,
in either case in or for any enterprise, person, firm or company, the
principal business of which involves (A) the production or development or
the retail or wholesale selling or distribution of goods and services that
are substantially similar to or in competition with those sold or provided
by the Company or (B) the sale of memberships in member programs the
benefits of which include the sale or provision of such goods or services.
Executive further agrees during and after the termination of the employment
for any reason, whether for Executive's own account or for any other person
or for any firm or company not to solicit, interfere with or endeavor to
entice away from the Company any employee of the Company or any person, firm
or company who at any time during the continuance of the employment shall
have been a customer or client of the Company.
10) INDEMNITY: Executive shall defend, save and hold harmless the Company from
and against any claims, damages, actions, proceedings or other losses
incurred or suffered by the Company arising out of a material breach by
Executive of the confidentiality provisions herein.
11) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
State of California, without regard to its conflicts of laws principles.
Each party hereby irrevocably consents to the exclusive jurisdiction of the
state and federal courts San Diego County of the State of California in
connection with any action arising under this Agreement and waives all
defenses regarding the inconvenience of such forum. THE PARTIES IRREVOCABLY
WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS
AGREEMENT.
12) MISCELLANEOUS.
a) Integration. This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the Company and
Executive, and supersedes any and all prior agreements, letters of
intent, correspondence, negotiations, discussions or understandings
between the Company or any predecessor of the Company and the Executive.
b) Severability. If any provision of the Agreement is held invalid by a
court with jurisdiction over the parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as possible
the original intentions of the parties in accordance with applicable law
and (ii) the remaining terms, provisions, covenants and restrictions of
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this Agreement will remain in full force and effect. If this Agreement
is held invalid or cannot be enforced, then to the full extent permitted
by law any prior agreement between the Company (or any predecessor
thereof) and the Executive shall be deemed reinstated as if this
Agreement had not been executed.
c) Successors. The Company's rights and obligations under this Agreement
will inure to the benefit and be binding upon the Company's successors
and assignees.
d) Amendments. This Agreement may be altered only by a written agreement
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
e) Notices. Any notice, approval, request, authorization, direction or
other communication under this Agreement will be given in writing and
will be deemed to have been delivered and given for all purposes (i) on
the delivery date if delivered personally to the party to whom the same
is directed; (iii) one business day after deposit with a commercial
overnight carrier, with written verification of receipt; or (iii) five
business days after the mailing date, whether or not actually received,
if sent by U.S. mail, return receipt requested, postage and charges
prepaid, or any other means of rapid mail delivery for which a receipt
is available. All notices to the Company will be effective if delivered
to ITM Corporation, 11250 El Camino Real, Suite 100, San Diego, CA
92130, attention: President, or such other address specified by the
Company in writing. All notices to Executive will be effective if
delivered to Executive's last residential address provided to the
Company by Executive.
f) Assignments. The Company will not assign this Agreement or any right,
interest or benefit under this Agreement without the prior written
consent of Executive.
g) Remedies. Except where otherwise specified herein, the rights and
remedies granted to a party under the Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies which the
Party may possess at law or in equity.
h) Limited Effect of Waiver By Company. Should Company waive breach of any
provision of this Agreement by the Executive, such waiver will not
operate or be construed as a waiver of further breach by the Executive.
i) Counterparts. The Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will
constitute one and the same document.
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IN WITNESS WHEREOF, parties have signed this Employment Agreement as of the date
first above written.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ KLAUS MOELLER
------------------------------------
Name: Klaus Moeller
Chief Executive Officer
EXECUTIVE
By: /s/ HOWARD BALABAN
------------------------------------
Name: Howard Balaban
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EXHIBIT 10.18
CHANGE OF CONTROL
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of January 1, 1999 between International Trading & Manufacturing Corporation, a
Nevada corporation (the "COMPANY"), and Howard Balaban (the "EXECUTIVE").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution, but anything
in this Agreement to the contrary notwithstanding, neither this Agreement nor
any of its provisions, except its renewal provision, shall be operative unless
and until there has been a Change in Control of the Company, as defined in
Subsection 1(c) below and subject to the provisions of Subsection 1(d) below
(regarding action by a majority of the Incumbent Board to modify or terminate
this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on or before
the close of business on December 31, 2001, this Agreement shall thereupon
expire; provided, however, the parties by their written mutual assent may extend
such date on which this Agreement shall expire.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any of
the following events shall have occurred:
(i) any corporation, other person or "Group" (as defined
below) becomes the "Beneficial Owner" (as defined below)
of more than 15% of the Company's outstanding Common
Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed
on a national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association.
<PAGE> 2
For purposes of this definition of Change in Control, the following
terms shall have the following meanings:
"BENEFICIAL OWNER" shall have the meaning which that term is
given in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "ACT").
"GROUP" shall mean persons who act in concert as described in
Section 14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the contrary, at
any time up to thirty (30) days following the date of a Change in Control, the
Board of Directors may, in its sole and exclusive discretion with approval of at
least a majority of the Incumbent Board (as defined below), terminate this
Agreement or make any modifications to the terms and provisions of this
Agreement (including without limitation causing the Agreement not to apply with
respect to the given Change in Control or reducing the amount of benefits
described herein) without the consent of Executive. For purposes hereof,
"INCUMBENT BOARD" shall mean the group of individuals who, as of the date of
this Agreement, constitute the Board of Directors of the Company; provided,
however, that any individual who becomes a director subsequent to the date of
this Agreement and whose election, or whose nomination for election by the
Company's shareholders, to the Board of Directors was either (i) approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
or (ii) recommended by a nominating committee comprised entirely of directors
who are then Incumbent Board members, shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
set forth in Subsection 2(b) below (the "PERIOD OF EMPLOYMENT") in the position
and with the duties and responsibilities set forth in any Employment Agreement
in effect on the date of any Change in Control and Section 3 below, subject to
the other terms and conditions of this Agreement. If there is any conflict
between any terms of any such Employment Agreement and any terms hereof, the
terms of this Agreement shall prevail.
(b) The Period of Employment shall commence on the date of any Change
in Control and, subject only to the Executive's death or termination of
employment by the Company for "Cause" or "Disability" or by the Executive for
"Good Reason" (as defined in Section 4), shall continue until the close of
business on the later of (i) that date two years after the date on which the
Change in Control occurred or (ii) the expiration date under Subsection 1(b),
taking into account any extensions of such expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall continue to
serve as an officer of the Company, either (i) with substantially the same
offices, titles, duties and responsibilities as the Executive had immediately
prior to the Change in Control or (ii) with a higher office with titles, duties
and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except reasonable vacation periods and
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periods of illness or incapacity, but nothing in this Agreement shall preclude
the Executive from devoting reasonable time to serving as a director or member
of a committee of one or more organizations (business, charitable, civic,
religious or otherwise) involving no conflict with the interests of the Company.
4. Termination Following Change in Control. If, after a Change in Control
of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "DISABILITY" shall mean termination
because of the Executive's absence due to physical or mental illness from his
duties with the Company on a full-time basis for 150 consecutive business days
unless within 30 days after Notice of Termination (as defined in Subsection 4(d)
below) is given following such absence, the Executive shall return to the
full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for "CAUSE" only if
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to result
in substantial gain or personal enrichment at the expense of the Company, or if
there has been a willful and substantial breach by the Executive of the
provisions of Subsection 3(b) above, and such breach has caused substantial
injury to the Company. In no event shall the Executive's termination by the
Company be considered to have been for Cause if such termination took place as a
result of (i) the Executive's bad judgment or negligence or (ii) any act or
omission without intent of gaining a profit to which the Executive was not
legally entitled or (iii) any act or omission believed by the Executive in good
faith to have been in, or not opposed to, the interests of the Company.
(c) Good Reason. "GOOD REASON" shall mean
(i) the assignment to the Executive of any duties inconsistent
with his duties described in Subsection 3(a) above or any
removal of the Executive from or any failure to re-elect
the Executive to his positions described in Subsection
3(a) above, except in connection with promotions to higher
office;
(ii) a reduction by the Company in the Executive's base salary
as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to maintain and to continue the
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans); or the taking of any
action by the Company which would adversely affect the
Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(iv) the relocation of the Executive's office to anywhere other
than a location within 100 miles of Del Mar, California or
the Company's requiring the Executive to be based anywhere
other than within 100 miles of Del Mar,
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California (or such other location as shall be the
location of the Executive's office immediately prior to
the Change in Control) except for required travel on the
Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the assumption of
this Agreement by any successor as contemplated in Section
7 below.
(d) Any termination of the Executive's employment, unless because of
death, shall be communicated by written Notice of Termination to the other
party. In the event of termination of employment by the Company for Cause or
Disability or by the Executive for Good Reason, the Notice of Termination shall
state the specific ground for termination (Cause, Disability or Good Reason) and
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the specified ground of termination.
(e) "TERMINATION DATE" shall mean (i) if the Executive's employment is
terminated due to death, the Executive's date of death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty day period),
(iii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iv) if the Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
5. Benefits.
(a) If the Company shall terminate the Executive's employment other than
because of his death or for Disability or Cause, or if the Executive shall
terminate his employment for Good Reason, then the Company shall pay to the
Executive and provide him, his dependents, beneficiaries and estate, with the
following;
(i) The Company shall pay the Executive his full base salary
through the Termination Date at the higher of the rate in
effect when Notice of Termination is given or the rate in
effect one year prior to such date, plus credit for any
vacation earned but not taken. The Executive's full base
salary shall be paid at the times normally scheduled for
payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) Subject to clause (iii) below, the Company shall pay the
Executive a lump sum payment equal to ten (10) times the
highest annual compensation (including base salary,
incentive compensation and monetary bonus or similar
award) paid or payable to the Executive by the Company for
any of the three fiscal years ended immediately prior to
the Termination Date. The Company shall gross-up the lump
sum payment such that the amount of the payment is net of
all federal, state, local, excise and other taxes and
withholdings, including without limitation, any "golden
parachute" taxes payable by the Executive. This lump sum
payment shall be due and payable on the 10th business day
after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest published by Citibank, N.A.
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(iii) The Company shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's
contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the benefits or
amounts of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 5 be reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of Termination, or
otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all of
the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "COMPANY" shall mean the company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Paragraph 7 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices.
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United Stated registered or certified mail,
return receipt requested, postage prepaid. All notices to the Company will be
effective if delivered to ITM Corporation, 1250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: Chief Executive Officer. All notices to Executive
will be effective if delivered to Executive's last residential address provided
to the Company by Executive, or to such other address as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of California.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive concerning
this Agreement will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, by a panel of three
arbitrators, one selected by the Executive, one selected by the Company and the
other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration award
pursuant to subsection (a) above, the Company shall, within thirty (30) days
after the presentation of proper receipts or invoices therefor, reimburse the
Executive the reasonable fees and disbursements of counsel incurred in
connection of any amounts awarded the Executive pursuant thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
BY: /s/ KLAUS MOELLER
--------------------------
Klaus Moeller
CEO
EXECUTIVE
BY: /s/ HOWARD BALABAN
--------------------------
Howard Balaban
6
<PAGE> 1
EXHIBIT 10.19
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
EXECUTIVE
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT between International Trading & Manufacturing Corporation,
a Nevada corporation ("ITM" or the "COMPANY") and Vinko Kovac, ("EXECUTIVE")
dated as of January 1, 1999 (the "EFFECTIVE DATE") .
WHEREAS, ITM wishes to employ Executive and Executive wishes to be employed by
ITM, all on the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants set forth below and for
other good and valuable consideration, the adequacy and sufficiency is hereby
acknowledged, the parties agree as follows:
1) POSITION AND TERM:
a) ITM hereby employs Executive for three (3) years from the
Effective Date (the "TERM") as Vice President Sales to provide
executive services in connection with the development of its
Baby Genius business and perform such other duties consistent
with Executive's office as may be directed by the Board of
Directors, CEO, President or Executive Vice President.
b) As an officer of the Company Executive may contractually bind
the Company subject to prior written authorization from the CEO,
President, CFO, Executive Vice President or Board of Directors.
2) EXECUTIVE TO DEVOTE FULL TIME TO COMPANY. Executive shall devote full
time, attention, and energies to the business of the Company, and,
during this employment, will not engage in any other business activity,
regardless of whether such activity is pursued for profit, gain, or
other pecuniary advantage. Executive is not prohibited from making
personal investments in any other businesses provided those investments
do not require active involvement in the operation of said companies.
3) COMPENSATION AND BENEFITS: ITM shall pay, provide and grant to Executive
the following salary and benefits:
a) Annual Salary: $45,000
b) Grant of Options: A grant of options as provided in the
Non-Qualified Stock Option Agreement attached hereto as Exhibit
A and subject to the terms and conditions of the Company's
Non-Qualified Stock Option Plan attached hereto as Exhibit B.
c) Medical and Other Benefits: As determined by the Board in its
sole discretion, provided that all benefits are on terms no less
favorable than those provided to all other executives, including
senior executives, of the Company, including, to the extent
applicable:
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i) Medical and health insurance for Executive and
dependants;
ii) Medical expense reimbursement plan;
iii) Retirement, pension and 401(k) plans; and
iv) Life, disability and key-man insurance.
d) Vacation: Three (3) weeks per year, any unused days of which may
be rolled-over into following year; and three (3) personal days.
e) Other Benefits/ Reimbursement: Reimbursement of reasonable
out-of-pocket expenses incurred on Company business and
pre-approved in writing by the CEO, President, or CFO of the
Company.
4) DEATH BENEFITS. Should Executive die during the term of employment, the
Company shall pay to Executive's estate any compensation and other
benefits due through the end of the month in which death occurred.
5) TERMINATION.
a) Termination by Company Without Cause; Termination by Executive
for Good Reason
i) Notwithstanding anything to the contrary herein and
subject to applicable law, the Company may terminate
this Agreement without cause at any time upon thirty
(30) days' prior written notice to Executive.
ii) Notwithstanding anything to the contrary herein,
Executive may terminate this Agreement for Good Reason
at any time upon thirty (30) days' prior written notice
to the Company. "GOOD REASON" means:
(1) the assignment to Executive of any duties
inconsistent with his duties described in
Section 1) above or any removal of Executive
from or any failure to re-elect Executive to his
office and position described in Section 1)
above, except in connection with promotions to
higher office;
(2) the failure by the Company to maintain and to
continue Executive's participation in the
Company's benefit or compensation plans as in
effect immediately prior to the Change in
Control (including but not limited to bonus and
incentive compensation plans, stock option,
bonus, award and purchase plans, life insurance,
medical, health and accident, and disability
plans);
(3) the taking of any action by the Company which
would adversely affect Executive's participation
in or reduce Executive's benefits under any of
the Company's benefit or compensation plans
(including but not limited to bonus and
incentive compensation plans, stock option,
bonus, award and purchase plans, life insurance,
medical, health and accident, and disability
plans);
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(4) the failure by the Company to obtain the
assumption of this Agreement by any successor as
required under Section 12) c) below.
iii) If Executive is terminated without cause or resigns for
Good Reason, the Company shall continue to provide the
compensation and benefits set forth in Section 3) for
the remainder of the Term, except that medical and
health insurance benefits shall only be provided until
the earlier of (1) the end of the Term and (2) the date
on which Executive and his dependants are fully covered
under the medical insurance plan of a new employer.
b) Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' prior written notice to the Company.
Executive may at his election and subject to the Company's
consent, perform his duties through to the termination date and
the Company shall continue to pay and provide Executive with all
of the compensation and benefits set forth in Section 3) through
to the termination date, but Executive shall not receive any
severance allowance.
c) Termination by Company for Cause. Notwithstanding anything to
the contrary contained herein and subject to applicable law, the
Company may terminate the Executive's employment with immediate
effect if the Board of Directors shall determine in good faith
that any of the following has occurred: (i) acts or omissions by
the Executive which constitute material misconduct or a knowing
violation of a material written policy of the Company or any of
its subsidiaries (provided Executive has been provided with a
copy of such material written policy), (ii) the Executive or any
affiliated or related person or entity receiving a benefit in
money, property or services from the Company or any of its
subsidiaries or from another person dealing with the Company or
any of its subsidiaries, in material violation of applicable law
or Company policy, (iii) an act of fraud, conversion,
misappropriation, or embezzlement by the Executive or his
conviction of, or entering a guilty plea or plea of no contest
with respect to, a felony, or the equivalent thereof, (iv) a
material breach by the Executive of any provision of Section 8
hereof, (v) the Executive's failure or refusal (whether
intentional, reckless or negligent) to perform his duties under
this Agreement or (vi) any other breach by the Executive of this
Agreement in any material respect. In no event shall the
Executive's termination by the Company be considered to have
been for cause if such termination took place as a result of (1)
the Executive's bad judgment or negligence or (2) any act or
omission without intent of gaining a profit to which the
Executive was not legally entitled or (3) any act or omission
believed by the Executive in good faith to have been in, or not
opposed to, the interests of the Company. If Executive is
terminated for cause, he shall be entitled to the compensation
and other benefits set forth in Section 3) through the last date
of Executive's employment. Upon payment of all obligations under
this Agreement that are then outstanding, this Agreement shall
terminate. Notice of such termination shall be given to
Executive in writing, specifying the reasons for such
termination.
6) SEVERANCE UPON CHANGE IN CONTROL: As of the effective date of a Change
of Control as defined in the Employment Agreement set forth in Exhibit C
hereto, the Company and Executive shall enter into, and shall be deemed
to have entered into, an Employment Agreement substantially identical to
the agreement set forth in Exhibit C, unless such Employment Agreement
has been terminated as provided therein.
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7) PROPRIETARY AND CONFIDENTIAL INFORMATION:
a) All information, data, materials, computer code, intellectual
property rights, customer lists, discoveries, inventions or
processes or improvement in procedures or made or discovered by
Executive during the term of this Agreement in connection with
or in any way affecting or relating to the business of the
Company or capable of being used or adapted for use therein or
in connection therewith is and shall forthwith be deemed to be
"CONFIDENTIAL INFORMATION" and shall be disclosed to the Company
and shall belong to and be the absolute property of the Company.
b) Executive shall, if and when required so to do, whether during
or after the termination of this Agreement, at Employer's
expense apply or join in applying for any patent or trademark
registration or other similar protection in the United States or
in any other part of the world for any such discovery,
invention, process or improvement and shall execute all
instruments and do all things necessary to register the patent,
trademark or other similar protection when obtained and all
right and title to an interest in the same in the Company
absolutely and as sole beneficial owner.
c) Executive shall not at any time either during the term of this
Agreement or any extension thereof or after the termination of
the employment for any reason (i) divulge any Confidential
Information or other affairs or secrets of the Company to any
other company, person or persons without the previous consent in
writing of the Company or (ii) use or attempt to use any
information which Executive may acquire in the course of the
employment in any manner which may injure or cause loss or be
calculated to injure or cause loss to the Company.
d) Upon the termination of this Agreement for any reason, Executive
shall resign without claim for compensation from as a director
(if applicable) of the Company and from all offices held by
Executive in the Company, and in the event of Executive failing
to do so the Company is hereby irrevocably authorized to appoint
some person in Executive's name and on Executive's behalf to
execute any documents and to do all things required to give
effect to the provisions of this Section.
e) Upon the termination of this Agreement for any reason, Executive
shall deliver to the Company all documents used by Executive in
the course of the Company's business, including but without
limiting the foregoing, all price lists, mailing lists,
customer, client or supplier lists, sales information,
catalogues, diaries, log books, computer software and computer
data.
f) Should Executive reveal or threaten to reveal any Confidential
Information, the Company shall be entitled to an injunction
restraining the Executive from disclosing same, or from
rendering any services to any entity to whom such information
has been or is threatened to be disclosed. The right to secure
an injunction is not exclusive, and the Company may pursue any
other remedies it has against the Executive for a breach or
threatened breach of this provision, including the recovery of
damages from the Executive.
8) RESTRICTIVE COVENANT: Executive expressly agrees that it shall not at
any time for one (1) year after the termination of the employment (i)
undertake or carry on or be employed or directly or indirectly be
concerned or interested either as employer, Executive, consultant,
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director or shareholder or (ii) for one (1) year after the termination
of the employment attempt in any way whatsoever to obtain customers or
clients of the Company, in either case in or for any enterprise, person,
firm or company, the principal business of which involves (A) the
production or development or the retail or wholesale selling or
distribution of goods and services that are substantially similar to or
in competition with those sold or provided by the Company or (B) the
sale of memberships in member programs the benefits of which include the
sale or provision of such goods or services. Executive further agrees
during and after the termination of the employment for any reason,
whether for Executive's own account or for any other person or for any
firm or company not to solicit, interfere with or endeavor to entice
away from the Company any employee of the Company or any person, firm or
company who at any time during the continuance of the employment shall
have been a customer or client of the Company.
9) INDEMNITY: Executive shall defend, save and hold harmless the Company
from and against any claims, damages, actions, proceedings or other
losses incurred or suffered by the Company arising out of a material
breach by Executive of the confidentiality provisions herein.
10) GOVERNING LAW; JURISDICTION; VENUE. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of
the State of California, without regard to its conflicts of laws
principles. Each party hereby irrevocably consents to the exclusive
jurisdiction of the state and federal courts San Diego County of the
State of California in connection with any action arising under this
Agreement and waives all defenses regarding the inconvenience of such
forum. THE PARTIES IRREVOCABLY WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN
CONNECTION WITH ANY CLAIM, COUNTERCLAIM OR OTHER PROCEEDINGS ARISING
UNDER OR IN CONNECTION WITH THIS AGREEMENT.
11) MISCELLANEOUS.
a) Integration. This Agreement is the sole contract governing the
relationship between the Company or any predecessor of the
Company and Executive, and supersedes any and all prior
agreements, letters of intent, correspondence, negotiations,
discussions or understandings between the Company or any
predecessor of the Company and the Executive.
b) Severability. If any provision of the Agreement is held invalid
by a court with jurisdiction over the parties to the Agreement,
(i) such provision will be deemed to be restated to reflect as
nearly as possible the original intentions of the parties in
accordance with applicable law and (ii) the remaining terms,
provisions, covenants and restrictions of this Agreement will
remain in full force and effect. If this Agreement is held
invalid or cannot be enforced, then to the full extent permitted
by law any prior agreement between the Company (or any
predecessor thereof) and the Executive shall be deemed
reinstated as if this Agreement had not been executed.
c) Successors. The Company's rights and obligations under this
Agreement will inure to the benefit and be binding upon the
Company's successors and assignees.
d) Amendments. This Agreement may be altered only by a written
agreement signed by the party against whom enforcement of any
waiver, change, modification, extension, or
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discharge is sought.
e) Notices. Any notice, approval, request, authorization, direction
or other communication under this Agreement will be given in
writing and will be deemed to have been delivered and given for
all purposes (i) on the delivery date if delivered personally to
the party to whom the same is directed; (iii) one business day
after deposit with a commercial overnight carrier, with written
verification of receipt; or (iii) five business days after the
mailing date, whether or not actually received, if sent by U.S.
mail, return receipt requested, postage and charges prepaid, or
any other means of rapid mail delivery for which a receipt is
available. All notices to the Company will be effective if
delivered to ITM Corporation, 11250 El Camino Real, Suite 100,
San Diego, CA 92130, attention: President, or such other address
specified by the Company in writing. All notices to Executive
will be effective if delivered to Executive's last residential
address provided to the Company by Executive.
f) Assignments. The Company will not assign this Agreement or any
right, interest or benefit under this Agreement without the
prior written consent of Executive.
g) Remedies. Except where otherwise specified herein, the rights
and remedies granted to a party under the Agreement are
cumulative and in addition to, and not in lieu of, any other
rights or remedies which the Party may possess at law or in
equity.
h) Limited Effect of Waiver By Company. Should Company waive breach
of any provision of this Agreement by the Executive, such waiver
will not operate or be construed as a waiver of further breach
by the Executive.
i) Counterparts. The Agreement may be executed in counterparts,
each of which will be deemed an original and all of which
together will constitute one and the same document.
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IN WITNESS WHEREOF, parties have signed this Employment Agreement as of the date
first above written.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
By: /s/ KLAUS MOELLER
---------------------------
Name: Klaus Moeller
Chief Executive Officer
EXECUTIVE
By: /s/ VINKO KOVAC
---------------------------
Name: Vinko Kovac
7
<PAGE> 1
EXHIBIT 10.20
CHANGE OF CONTROL
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made and entered into as
of January 1, 1999 between International Trading & Manufacturing Corporation, a
Nevada corporation (the "COMPANY"), and Vinko Kovac (the "EXECUTIVE").
STATEMENT OF PURPOSE
The Company considers sound and vital management to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
Although the Company knows of no change in control of the Company which is being
contemplated, the Company recognizes that a future change in control is always
possible and this possibility creates uncertainty and insecurity among members
of management. The Company believes that appropriate measures should be taken to
reinforce the dedication of key members of management and to provide them with a
greater sense of security so that they will be encouraged to remain in the
employ of the Company. The Company also believes that it is in the best
interests of the Company and its stockholders that appropriate measures be taken
to assure the neutrality of management in analyzing a potential change in
control and the options available to the Company and to preserve continuity in
corporate management and operations in the event of a change in control.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Company and the Executive hereby agree as follows:
1. Operation of Agreement.
(a) This Agreement shall be effective upon its execution, but anything
in this Agreement to the contrary notwithstanding, neither this Agreement nor
any of its provisions, except its renewal provision, shall be operative unless
and until there has been a Change in Control of the Company, as defined in
Subsection 1(c) below and subject to the provisions of Subsection 1(d) below
(regarding action by a majority of the Incumbent Board to modify or terminate
this Agreement up to 30 days following a Change in Control).
(b) If no Change in Control of the Company has occurred on or before
the close of business on December 31, 2001, this Agreement shall thereupon
expire; provided, however, the parties by their written mutual assent may extend
such date on which this Agreement shall expire.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any of
the following events shall have occurred:
(i) any corporation, other person or "Group" (as defined
below) becomes the "Beneficial Owner" (as defined below)
of more than 15% of the Company's outstanding Common
Stock; or
(ii) the Company's outstanding Common Stock (x) is held of
record by less than 300 persons or (y) is neither listed
on a national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association.
<PAGE> 2
For purposes of this definition of Change in Control, the following
terms shall have the following meanings:
"BENEFICIAL OWNER" shall have the meaning which that term is
given in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "ACT").
"GROUP" shall mean persons who act in concert as described in
Section 14(d)(2) of the Act.
(d) Notwithstanding any provision of this Agreement to the contrary, at
any time up to thirty (30) days following the date of a Change in Control, the
Board of Directors may, in its sole and exclusive discretion with approval of at
least a majority of the Incumbent Board (as defined below), terminate this
Agreement or make any modifications to the terms and provisions of this
Agreement (including without limitation causing the Agreement not to apply with
respect to the given Change in Control or reducing the amount of benefits
described herein) without the consent of Executive. For purposes hereof,
"INCUMBENT BOARD" shall mean the group of individuals who, as of the date of
this Agreement, constitute the Board of Directors of the Company; provided,
however, that any individual who becomes a director subsequent to the date of
this Agreement and whose election, or whose nomination for election by the
Company's shareholders, to the Board of Directors was either (i) approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
or (ii) recommended by a nominating committee comprised entirely of directors
who are then Incumbent Board members, shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Act), other actual
or threatened solicitation of proxies or consents or an actual or threatened
tender offer.
2. Employment; Period of Employment.
(a) The Company agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company, for the period
set forth in Subsection 2(b) below (the "PERIOD OF EMPLOYMENT") in the position
and with the duties and responsibilities set forth in any Employment Agreement
in effect on the date of any Change in Control and Section 3 below, subject to
the other terms and conditions of this Agreement. If there is any conflict
between any terms of any such Employment Agreement and any terms hereof, the
terms of this Agreement shall prevail.
(b) The Period of Employment shall commence on the date of any Change
in Control and, subject only to the Executive's death or termination of
employment by the Company for "Cause" or "Disability" or by the Executive for
"Good Reason" (as defined in Section 4), shall continue until the close of
business on the later of (i) that date two years after the date on which the
Change in Control occurred or (ii) the expiration date under Subsection 1(b),
taking into account any extensions of such expiration date.
3. Position, Duties, and Responsibilities.
(a) During the Period of Employment, the Executive shall continue to
serve as an officer of the Company, either (i) with substantially the same
offices, titles, duties and responsibilities as the Executive had immediately
prior to the Change in Control or (ii) with a higher office with titles, duties
and responsibilities commensurate with such higher office.
(b) During the Period of Employment, the Executive shall devote his
full-time efforts during normal business hours to the business and affairs of
the Company, except reasonable vacation periods and
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periods of illness or incapacity, but nothing in this Agreement shall preclude
the Executive from devoting reasonable time to serving as a director or member
of a committee of one or more organizations (business, charitable, civic,
religious or otherwise) involving no conflict with the interests of the Company.
4. Termination Following Change in Control. If, after a Change in Control
of the Company has occurred, the Company shall terminate the Executive's
employment other than because of his death or for Disability or Cause or if the
Executive shall terminate his employment for Good Reason, the Executive shall be
entitled to all of the benefits and payments provided in Section 5 below,
subject to the provisions of Subsection 1(d) above.
(a) Disability. Termination based on "DISABILITY" shall mean termination
because of the Executive's absence due to physical or mental illness from his
duties with the Company on a full-time basis for 150 consecutive business days
unless within 30 days after Notice of Termination (as defined in Subsection 4(d)
below) is given following such absence, the Executive shall return to the
full-time performance of his duties.
(b) Cause. Termination shall be deemed to have been for "CAUSE" only if
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to result
in substantial gain or personal enrichment at the expense of the Company, or if
there has been a willful and substantial breach by the Executive of the
provisions of Subsection 3(b) above, and such breach has caused substantial
injury to the Company. In no event shall the Executive's termination by the
Company be considered to have been for Cause if such termination took place as a
result of (i) the Executive's bad judgment or negligence or (ii) any act or
omission without intent of gaining a profit to which the Executive was not
legally entitled or (iii) any act or omission believed by the Executive in good
faith to have been in, or not opposed to, the interests of the Company.
(c) Good Reason. "GOOD REASON" shall mean
(i) the assignment to the Executive of any duties inconsistent
with his duties described in Subsection 3(a) above or any
removal of the Executive from or any failure to re-elect
the Executive to his positions described in Subsection
3(a) above, except in connection with promotions to higher
office;
(ii) a reduction by the Company in the Executive's base salary
as in effect immediately prior to the Change in Control;
(iii) the failure by the Company to maintain and to continue the
Executive's participation in the Company's benefit or
compensation plans as in effect immediately prior to the
Change in Control (including but not limited to bonus and
incentive compensation plans, stock option, bonus, award
and purchase plans, life insurance, medical, health and
accident, and disability plans); or the taking of any
action by the Company which would adversely affect the
Executive's participation in or reduce the Executive's
benefits under any of such plans or deprive the Executive
of any fringe benefit he enjoyed immediately prior to the
Change in Control; or the failure to provide the Executive
with the number of paid vacation days to which he was
entitled under the Company's normal vacation policy in
effect immediately prior to the Change in Control;
(iv) the relocation of the Executive's office to anywhere other
than a location within 100 miles of Del Mar, California or
the Company's requiring the Executive to be based anywhere
other than within 100 miles of Del Mar,
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California (or such other location as shall be the
location of the Executive's office immediately prior to
the Change in Control) except for required travel on the
Company's business to an extent consistent with the
Executive's business travel obligations immediately prior
to the Change in Control; or
(v) the failure by the Company to obtain the assumption of
this Agreement by any successor as contemplated in Section
7 below.
(d) Any termination of the Executive's employment, unless because of
death, shall be communicated by written Notice of Termination to the other
party. In the event of termination of employment by the Company for Cause or
Disability or by the Executive for Good Reason, the Notice of Termination shall
state the specific ground for termination (Cause, Disability or Good Reason) and
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for the specified ground of termination.
(e) "TERMINATION DATE" shall mean (i) if the Executive's employment is
terminated due to death, the Executive's date of death, (ii) if the Executive's
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that the Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty day period),
(iii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iv) if the Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
5. Benefits.
(a) If the Company shall terminate the Executive's employment other than
because of his death or for Disability or Cause, or if the Executive shall
terminate his employment for Good Reason, then the Company shall pay to the
Executive and provide him, his dependents, beneficiaries and estate, with the
following;
(i) The Company shall pay the Executive his full base salary
through the Termination Date at the higher of the rate in
effect when Notice of Termination is given or the rate in
effect one year prior to such date, plus credit for any
vacation earned but not taken. The Executive's full base
salary shall be paid at the times normally scheduled for
payment of the salaries of key members of management;
provided, however, that all of such salary shall be paid
not later than Termination Date.
(ii) Subject to clause (iii) below, the Company shall pay the
Executive a lump sum payment equal to ten (10) times the
highest annual compensation (including base salary,
incentive compensation and monetary bonus or similar
award) paid or payable to the Executive by the Company for
any of the three fiscal years ended immediately prior to
the Termination Date. The Company shall gross-up the lump
sum payment such that the amount of the payment is net of
all federal, state, local, excise and other taxes and
withholdings, including without limitation, any "golden
parachute" taxes payable by the Executive. This lump sum
payment shall be due and payable on the 10th business day
after the Termination Date and bear interest from the
Termination Date until paid at then current prime rate of
interest published by Citibank, N.A.
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(iii) The Company shall pay all legal fees and expenses which
the Executive may incur as a result of the Company's
contesting the validity or enforceability of this
Agreement, or as a result of the Company's failure to make
timely payment of any sum due to the Executive hereunder.
(b) The Executive shall not be required to mitigate the benefits or
amounts of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
this Section 5 be reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of Termination, or
otherwise.
6. Options. Subject to the provisions of Subsection 1(d) above, all of
the Executive's outstanding stock options shall become exercisable in full on
the date of a Change in Control of the Company, whether or not the stock options
were exercisable on such date.
7. Successors; Binding Agreement.
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. As
used in this Agreement, "COMPANY" shall mean the company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Paragraph 7 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notices.
For the purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United Stated registered or certified mail,
return receipt requested, postage prepaid. All notices to the Company will be
effective if delivered to ITM Corporation, 1250 El Camino Real, Suite 100, San
Diego, CA 92130, attention: Chief Executive Officer. All notices to Executive
will be effective if delivered to Executive's last residential address provided
to the Company by Executive, or to such other address as any party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
9. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the internal laws of the
State of California.
10. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party of
any breach of this Agreement shall be deemed a waiver of any prior or subsequent
breach. No agreements or representations, oral or otherwise, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
11. Separability. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
13. Withholding of Taxes. The Company may withhold from any benefits
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
14. Non-assignability. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 7 above. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of a security interest or otherwise, other than a
transfer by his will or by the laws of descent or distribution, and in the event
of any attempted assignment or transfer contrary to this paragraph, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
15. Arbitration; Fees.
(a) Any disputes between the Company and the Executive concerning
this Agreement will be settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, by a panel of three
arbitrators, one selected by the Executive, one selected by the Company and the
other selected by the two so chosen. Judgment upon the arbitration award
rendered by the arbitrators shall be binding and conclusive and may be entered
in any court having jurisdiction thereof. The costs of the arbitration shall be
borne by the Company.
(b) In the event that the Executive receives an arbitration award
pursuant to subsection (a) above, the Company shall, within thirty (30) days
after the presentation of proper receipts or invoices therefor, reimburse the
Executive the reasonable fees and disbursements of counsel incurred in
connection of any amounts awarded the Executive pursuant thereto.
16. Termination of Pre-Existing Employment Agreement. The Company and
the Executive hereby acknowledge and agree that this Agreement replaces any
employment agreement previously entered into between the Company and the
Executive, and that any rights granted under any such pre-existing employment
agreement are hereby terminated and of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
INTERNATIONAL TRADING & MANUFACTURING CORPORATION
BY: /s/ KLAUS MOELLER
--------------------------
Klaus Moeller
CEO
EXECUTIVE
BY: /s/ VINKO KOVAC
--------------------------
Vinko Kovac
6
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EXHIBIT 10.21
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 4th day of March, 1999 by and
between INTERNATIONAL TRADING & MANUFACTURING CORP., a Nevada corporation
("Licensee") and SASHA ST. CLAIR ("SSC").
BACKGROUND
A. SSC has the right to license the trade name, likeness,
trademark, patent rights and other licensed indicia relating to "Downunder
Spineless Wunder Boner" (collectively, the "Marks") as more completely set
forth on Exhibit "A", attached hereto and incorporated herein by reference.
B. Licensee is engaged in the business of manufacturing and
selling the products set forth on Exhibit "B", attached hereto and incorporated
herein by reference and desires to obtain a license from SSC to manufacture and
sell such products utilizing the Marks.
C. SSC desires to protect the integrity of any likeness,
trademarks and patent rights contained within said Marks, if any.
D. SSC and Licensee have entered into this Agreement to set forth
their respective rights and obligations.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. LICENSE
1.1 GRANT OF LICENSE. Upon the terms and conditions set forth
herein, SSC hereby grants to Licensee, and Licensee hereby accepts, an
exclusive license and exclusive right to use the Marks in the Contract
Territory (as defined below) during the Contract Period (as defined below) in
connection with the manufacture, packaging, shipping and sale of products
bearing and replicating the Marks (the "Licensed Product"). It is understood
that at all times SSC shall be deemed the owner of the Marks. It is understood
and agreed that this License shall pertain only to the Licensed Product and
does not extend to any other product or service.
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1.2 Right to Sublicense. The license and rights granted herein shall
include the right of Licensee to do any of the following acts: (i) manufacture
or distribute the Licensed Product or merchandise, including the advertisement
or packaging thereof, bearing the Marks; (ii) grant sublicenses or assignments
in or of the license granted herein or any portion thereof; (iii) produce the
Licensed Product under any name other than those set forth on Exhibit "B"; (iv)
change, alter, add to, delete from, augment or modify the Licensed Product in
any way or mix the Marks with any other image, photograph, likeness, or copy
thereof or couple or bundle the Licensed Product in conjunction with others;
or, (vi) sell the Licensed Product to any person or entity for incorporation
into another product. License is granted hereunder for the manufacture, sale,
or distribution of Licensed Product to be used as giveaway advertising,
premiums, for fund raising, as giveaways, in combination sales, or to be
disposed of under similar methods of merchandising or sold for less than the
usual selling price for the purpose of increasing sales. Licensee may use the
Licensed Product and any of the Marks in connection with any sweepstakes
lottery, game of chance or any similar promotional sales device, scheme, or
program.
SECTION 2. TERRITORY
2.1 CONTRACT TERRITORY. The license granted pursuant to this Agreement
shall be worldwide (the "Contract Territory").
SECTION 3. TERM
3.1 TERM. The term of this Agreement shall be for a period beginning on
the date hereof and ending on August 31, 2003 unless sooner terminated in
accordance with the terms hereof (the "Contract Period"). This Agreement may be
renewed by a writing signed by each party hereto.
SECTION 4. ROYALTY AND COMPENSATION
4.1 ROYALTY
(a) In consideration of the rights granted by SSC hereunder, Licensee
hereby irrevocably agrees to pay SSC, on its own behalf and on behalf of all
its licensees and sublicenses, a royalty (the "Royalty") equal to the following
sum payable in U.S. Dollars:
(i) $1.00 per unit sold from television sales and giveaways; and,
(ii) $3.00 per unit sold for all other sales.
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b) For the purposes of Paragraph 4.1(a) above, the term "unit
sold" shall mean the actual sale of the Licensed Product and collection of
payment thereon after any returns of the products sold. A "unit" shall mean one
Licensed Product.
4.2 GUARANTEED MINIMUM AND ADVANCE ROYALTIES. Licensee agrees that
notwithstanding the actual amount of sales of Licensed Product, so long as this
Agreement is in effect it shall be obligated to make certain nonrefundable
minimum payments to SSC ("Guaranteed Minimum Royalties") in the amount of
$5,000 for four (4) consecutive months commencing upon the execution of this
Agreement. All payments of Royalty pursuant to SECTION 4.1 will be credited
against the Guaranteed Minimum Royalty. Once the prepaid minimum amount is
reached, Royalty payments will be made in accordance with SECTION 4.1.
4.3 PAYMENTS; STATEMENTS AND RECORDS. All Royalty payments shall be
made to the order of SSC and shall be due and payable within thirty (30) days
after the end of each calendar month for sales or distributions during the
previous month. Complete and accurate Royalty reports will be due whether or
not there were sales during the previous month. Licensee shall (i) furnish to
SSC, in connection with each Royalty payment, a statement of account of all
sales activity relating to the Licensed Product and (ii) keep full, true, clear
and accurate records and books of account with respect to all Licensed Product,
such books and records to be retained for at least one (1) year after expiration
of the Contract Period. SSC shall have the right to inspect any such books and
records related to the Licensed Product during normal business hours upon
seventy-two (72) hour advance notice.
In the event that audit by SSC (or its representatives) determines a
payment deficiency for Royalties due versus Royalties actually paid by Licensee
of ten percent (10%) or greater, then the cost of the audit shall be paid by
Licensee, together with the Royalty deficiency.
The receipt and/or acceptance by SSC of the statements furnished or
Royalties paid hereunder to SSC or the cashing of any Royalty checks paid
hereunder, shall not preclude SSC from questioning the correctness thereof at
any time. In the event that any inconsistencies or mistakes are discovered in
such statements or payments, they shall immediately be rectified by Licensee
and the appropriate payment shall be made by Licensee.
SECTION 5. MANUFACTURE AND QUALITY STANDARDS
5.1 QUALITY STANDARDS. The Licensed Product shall meet or exceed
Licensee's standards and shall be of uniform premium quality stainless steel in
Licensee's reasonable judgment.
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5.2 TRADEMARK PROTECTION; INTELLECTUAL PROPERTY.
(a) Licensee acknowledges that the manufacture and sale by it of the
Licensed Product shall not vest in Licensee any ownership rights whatsoever in
the Marks. Licensee shall cause to appear on all Licensed Product, and on all
materials in connection with which the Marks are used hereunder, legends,
markings, indications and notices in order to give notice of the trademarks,
tradenames, patents or other rights therein or pertaining thereto.
Section 6. INDEMNIFICATION
6.1 INDEMNIFICATION. If any person shall make a claim for any damage or
injury of any kind or nature whatever, including death, whether such claim be
for breach of warranty, product liability, or for any other alleged type of
damage, and whether such claim be based in negligence, strict liability, or
under any other theory, against SSC and/or any of his affiliates, partners,
shareholders, agents, employees, and directors or licensors (collectively, the
"Indemnified Parties") arising out of the Licensee's actions or inactions in
accordance with this Agreement, Licensee will indemnify and hold harmless SSC
and each Indemnified Party from and against any and all loss, expense, damage,
or injury that SSC and any Indemnified Party may sustain as a result of any such
claim, and Licensee will assume on behalf of SSC and such Indemnified Parties
the defense of any action at law or suit in equity or any other proceeding
which may be brought against SSC or any Indemnified Party upon such claim and
will pay on behalf of SSC upon its demand the amount of any and all costs,
fees, and expenses in connection with such defense, including the fees of SSC's
counsel, as well as any judgment, fine, or penalty that may be entered against
SSC or any Indemnified Party in any such action, suit, or proceeding. This
indemnity shall continue in force notwithstanding the termination of this
Agreement.
Section 7. REPRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS AND WARRANTIES. Each party represents and warrants to
the other that: (i) it is duly organized and validly existing under the laws of
the state of its organization; (ii) it has full power and authority to enter
into and this Agreement and the person or persons executing this Agreement have
been duly authorized to do so; and (iii) the execution, delivery and
performance of this Agreement shall not conflict with, violate or constitute a
default under any other contracts, agreements or undertakings to which it is a
party or by which it is bound.
7.2 INDEMNITY BY SSC. SSC represents and warrants that is has the rights
to grant the license in the Marks granted herein as set forth on Exhibit "A"
and permit the manufacture and sale of the Licensed Product. In the event a
third party should file
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within the Contract Territory any claim against Licensee for infringement or
for other similar intellectual property infringement, occurring within the
Contract Territory, Licensee shall promptly notify SSC of such claim, and
thereafter (i) if such claim arises out of SSC's failure to possess full right
and authority to grant the License evidenced by this Agreement, then SSC shall
undertake defense of such claim through counsel of its choosing and at its
expense. SSC shall take whatever steps it deems necessary or appropriate to
defend and finally dispose of such claim. If the claim is disposed of by agreed
or court imposed suspension of distribution of Licensed Product, Licensee, upon
notice from SSC shall suspend its distribution of Licensed Product, however,
SSC shall be responsible for any damages or expenses suffered by Licensee as a
result of such suspension or limitations including without limitation
consequential damages.
7.3 SAFETY. Licensee certifies that the Licensed Product will meet all
applicable Consumer Product Safety Commission (CPSC) and all applicable American
Society for Testing and Materials (ASTM) standards as well as comply with all
other applicable federal, state and local laws and regulations.
Section 8. TERMINATION
8.1 PAYMENT OF COVENANT DEFAULT. If Licensee shall (i) fail to make any
payment due hereunder and if such default shall continue uncured for a period
of twenty (20) days thereafter; (ii) if Licensee fails to use reasonable
efforts to continue to sell the Licensed Product; or, (iii) if the Royalty
payments as set forth in Paragraph 4.1 are less than $5,000 in any given month,
then SSC shall have the right, at its sole discretion to terminate this
Agreement. If Licensee shall otherwise fail to perform any of the terms,
conditions, agreements or covenants in this Agreement, and such default shall
continue uncured for a period of thirty (30) days after written notice thereof
to Licensee, SSC shall also have the right to terminate this Agreement.
8.2 INSOLVENCY. Either party may by written notice terminate this
Agreement immediately without incurring thereby any liability to the other in
the event the other party shall (i) be dissolved, be adjudicated insolvent or
bankrupt or cease operations, admit in writing its inability to pay its debts
as they mature or make a general assignment for the benefit of, or enter into
any composition or arrangement with, creditors, or file for relief under any
insolvency law; (ii) apply for, or consent (by admission of material
allegations of a petition or otherwise) to the appointment of a receiver,
trustee or liquidator of all or a substantial part of its assets or affairs, or
authorize such application or consent, or suffer any proceedings seeking such
appointment to be commenced against it (whether voluntary or involuntary) which
continues undismissed for a period of thirty (30) days; or (iii) be the subject
of any other proceeding not defined above whereby any substantial portion of
the property or assets of such party are or may be distributed among its
creditors (or any group of them).
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<PAGE> 6
8.3 BANKRUPTCY. SSC may immediately terminate this Agreement without
liability if Licensee files for protection under any bankruptcy rules or
regulations.
8.4 RIGHTS AND REMEDIES. On the expiration or sooner termination of this
Agreement:
(a) The rights and license granted to Licensee herein shall forthwith
terminate and automatically revert to SSC.
The parties acknowledge that there may not be an adequate remedy at law to
redress a breach or threatened breach of the terms of this Agreement, and
therefore agree that either party, or their respective assigns, shall be
entitled to an injunction or other equitable relief against the other to
restrain it from such breach, and each party waives any claim or defense that
the other has all adequate remedy at law. The foregoing is in addition to any
remedies at law that either party may have.
SECTION 9. MISCELLANEOUS
9.1 NO AGENCY RELATION. Nothing herein contained shall create or be deemed
to create any agency, partnership or joint venture between the parties hereto;
and neither party shall have power or authority to obligate or bind the other in
any manner whatsoever.
9.2 AMENDMENTS. No addition to, deletion from or modification of any of
the provisions of this Agreement shall be binding upon the parties unless made
in writing and signed by a duly authorized representative of each party.
9.3 ASSIGNMENT. This Agreement shall inure to the benefit of the
respective parties and their successors and assigns, however, Licensee shall not
assign its interest in this Agreement without the prior written consent of SSC,
which consent shall not be unreasonably withheld.
9.4 APPLICABLE LAW. This Agreement and all purchase orders placed pursuant
to this Agreement shall be governed by and construed and enforced in accordance
with the internal laws and judicial decisions of the State of California. Should
any action be brought to enforce or interpret this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees and costs. The parties
agree that any dispute under this Agreement shall be resoled by binding
Arbitration in San Diego County, California.
6
<PAGE> 7
9.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
9.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given when personally delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, or by
facsimile transmission or overnight carrier.
<TABLE>
<S> <C>
TO LICENSEE: TO SCC:
International Trading & Manufacturing Corp. Sasha St. Clair
11250 El Camino Real, Suite #100 P.O. Box 980188
San Diego, CA 92130 Park City, Utah 84098
Facsimile: (619) 793-8842 Facsimile: (435) 649-5891 and
(435) 649-1770
</TABLE>
or to other such address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth herein,
provided that notice of a change of address all be deemed given only upon
receipt.
9.7 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, verbal or written relating to the subject matter hereof. There
are not unwritten oral agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
INTERNATIONAL TRADING &
MANUFACTURING CORP.,
a Nevada corporation
By: /s/ Klaus Moeller CEO
----------------------------
Its: CFO
---------------------------
/s/ [Sasha St. Clair] 5 Feb 99
-------------------------------
Sasha St. Clair
7
<PAGE> 8
EXHIBIT "A"
MARKS TO BE USD
ON LICENSED PRODUCT
Name(s) of Owners of Marks: Marks*
- --------------------------- ------
o SSC o Downunder Spineless Wunder Boner
[in any combination on any single
Licensed Product]
- -----------
* All patents, trademarks and tradenames shall be deemed owned by SSC at all
times.
<PAGE> 9
EXHIBIT "B"
LICENSED PRODUCT
Licensed Product:
o Fishing gear and accessories
<PAGE> 1
Exhibit 10.22
[GENIUS PRODUCTS, INC. LETTERHEAD]
Dear Gerry,
This is to confirm the arrangement regarding the bonus that will be paid in
consideration of your resignation and in recognition of your services to the
company.
The Company will pay you a cash bonus of $200,000. Payments of $8,333.33 will
be made bi-monthly on the first and the fifteenth day of each calendar month.
You will be responsible for federal and state taxes, FICA, and all other
withholdings. The first payment will be made on October 1, 1999.
The Company will continue to cover you on its medical health plan until the
earlier of September 30, 2000, and the date on which you are covered under a
medical health plan of a new employer or other person, and you agree to give us
prompt notice if you become covered by another such plan.
Insurance and lease payments on the car will be for your account and you will
be responsible for all such payments and for taking over all administration and
documentation in connection therewith.
You will retain the options to purchase 750,000 shares of the Company's common
stock that were granted to you on December 7, 1997 at the exercise price of
$1.25 and which vested in full on January 1, 1999.
The Committee appointed by the Company's Board of Directors to administrate the
Non-Qualified Stock Option Plan will adopt a resolution to the effect that your
options will not expire notwithstanding the fact that you are no longer a
director, officer or employee of the Company. In all other respects your
options will be governed by the plan and the Stock Option Agreement between you
and International Trading & Manufacturing Corporation dated as of December 7,
1997 or any successor to such plan or agreement.
If you are in agreement with the above, please countersign below.
Sincerely,
Acknowledged and Agreed
As of 26 day of October, 1999
/s/ Gerald Edick /s/ Klaus Moeller
- --------------------------- ----------------------------
Gerald Edick Klaus Moeller CEO & Director
[ADDRESS FOR LETTERHEAD]
<PAGE> 1
EXHIBIT 10.23
LICENSE AGREEMENT
This AGREEMENT is dated the day of , 1999.
BETWEEN:
NAXOS OF AMERICA, INC., 416 Mary Lindsay Polk Drive (Suite 509), Franklin,
Tennessee 37067, USA (the LICENSOR)
AND:
INTERNATIONAL TRADING & MANUFACTURING CORPORATION, P.O. Box 2297, Del Mar, CA
92014, USA (Attn: Mike Meader)(the LICENSEE)
WHEREAS:
The Licensor owns or controls the rights in the sound recordings listed in
Schedule A (the RECORDINGS); and
The Licensee is engaged in the business of producing and manufacturing a
compilation CD/audio cassette entitled (the PRODUCT); and
The Licensee wishes to use the Recordings in connection with the Product;
IT IS HEREBY AGREED AS FOLLOWS:
1. LICENSE GRANT
a) In consideration of the payment by the Licensee to the Licensor under
Section 4 of this Agreement and the other covenants herein on the part
of the Licensee, the Licensor hereby grants to the Licensee the
non-exclusive right and license to reproduce and make copies of the
Recordings for the purposes of manufacturing and distributing the
Product.
b) All rights other than those specifically granted herein are reserved by
the Licensor. By way of illustration but not of limitation, the
Recordings shall not be sold and/or used separately from the Product and
the Licensee shall not have the right to change or adapt the copies of
the Recordings supplied by the Licensor, except with respect to
duration.
c) The Licensor acknowledges that the Licensee plans to manufacture up to
twelve (12) compilation CDs, for which it may wish to use additional
sound recordings owned or controlled by the Licensor. In that case, the
parties will negotiate in good faith agreements on similar terms and
conditions with respect to the use of sound recordings to be used on
such compilations.
2. TERM
1
<PAGE> 2
a) This Agreement shall commence upon the above date and shall end upon the
earlier of:
I) with respect to each of the Recordings, the expiration of the
copyright therein, or
II) the date on which publication of the Product has been definitively
terminated.
The Licensor shall give the Licensee reasonable notice of the expiration
of copyright (including renewals and extensions) in the Recordings.
b) Upon the expiration of the term of this Agreement, or upon termination of
this Agreement as provided herein, all rights granted under this Agreement
shall cease and terminate and the rights to make or authorize any further
use of the Recordings and to use or distribute the Product shall also
cease and terminate. The Licensee shall destroy its unsold stock of the
Product and shall provide the Licensor with an affidavit of destruction.
3. TERRITORY
The rights granted hereunder shall apply throughout the world.
4. PAYMENT
In consideration of the license granted hereunder, the Licensee shall pay to
the Licensor:
a) for the manufacture of the first _____________ copies of the Product:
i) the sum of _____________ upon the execution hereof; or
ii) an advance of _____________ upon the execution hereof, the sum of
_____________ upon the first test marketing commitment for the
Product, and the sum of _____________ upon the signing of a chain-wide
distribution agreement in respect to the Product.
b) for the manufacture of additional copies of the Product, _____________ for
each _________ copies of the Product.
5. LABELLING OF PRODUCTS
a) The products shall be sold under the labels and/or trademarks of the
Licensee, i.e. Baby Genius, Child Genius, Kid Genius, Little Genius and
Genius.
b) The Licensee shall include on the product credit to the Licensor as
follows: "under license from Naxos".
c) If the Product is manufactured without the credit set forth in subsection
(b) above, the Licensee shall, at the discretion of the Licensor, either
recall copies which have been distributed but which have not
2
<PAGE> 3
yet reached the end consumer, and/or pay a contractual penalty equivalent
to one-half of the fee set out in Section 4(a)(i) above.
6. SAMPLES
The Licensee shall provide the Licensor with sample copies of the Product
free of charge at the time of its commercial release.
7. WARRANTIES
a) The Licensor hereby warrants that, except for approvals of appropriate
music publishers, it has the full right, power and authority to enter
into this Agreement and to grant this license as the party which owns
and/or controls the exclusive right to make copies of the Recording in
the way and by the means authorized by this Agreement.
b) The Licensee hereby warrants that it has the full right, power and
authority to enter into this Agreement and to perform its obligations
hereunder.
c) The Licensee shall obtain music publishing clearances, if required, from
the owners of the musical works embodied in the Recordings and shall pay
any mechanical reproduction rights in respect of the Recordings
reproduced on the Product, and guarantees the Licensor against any claim
by any third party in this regard.
d) Each party shall indemnify the other in respect of any costs, losses,
claims or damages actually incurred by the party not in breach by reason
of breach of this Agreement, but the Licensor's aggregate liability to
the Licensee shall be limited to the amount of consideration actually
paid by the Licensee hereunder. This shall survive the termination of
this Agreement.
8. ASSIGNMENT
a) The Licensee may not transfer or assign the rights and license granted
hereunder, in whole or in part, either affirmatively or by operation of
law, without the Licensor's prior written consent.
b) If the Licensor does grant consent to an assignment, the Licensee shall
remain liable for the performance of all of the terms and conditions
hereof to be performed on the Licensee's part and any such assignment or
transfer shall be subject to all the terms hereof. The Licensee agrees
that any assignee or person acquiring from it any right, title or
interest shall be notified of the terms and conditions of this license
and shall agree to be bound thereby.
9. TERMINATION
3
<PAGE> 4
a) Either party may terminate this Agreement (without prejudice to its
other rights and remedies) by written notice sent by registered mail, if
the other party is in breach of any of its obligations hereunder and has
failed to remedy such breach within twenty-one (21) days of a written
request for remedy from the party not in breach.
b) This Agreement and the license granted hereunder shall automatically
terminate immediately upon the Licensor sending written notice by
registered mail to the Licensee at its address listed above, without
prejudice to any claim which the Licensor may have for damages or
otherwise, and the Licensee shall surrender the material supplied to it
by the Licensor, on the occurrence of any of the following:
(i) the Licensee is adjudicated bankrupt or files a petition in
bankruptcy or is in process of reorganization under the Bankruptcy
Act of the Licensee's country of domicile; or
(ii) the Licensee takes advantage of the insolvency laws of any state
or territory; or
(iii) a permanent receiver, trustee, or similar court officer is
appointed by a court of competent jurisdiction to administer its
affairs; or
(iv) the Licensee voluntarily or involuntarily goes out of business or
attempts to assign, mortgage, or pledge all or substantially all
of its assets for the benefit of its creditors; or
(v) the Licensee attempts to assign this Agreement, or sublicense or
terminate any of its rights or duties hereunder, or attempts to
sell, mortgage or pledge the Recordings provided to it hereunder
without the prior written consent of the Licensor.
10. GENERAL
a) This Agreement shall be subject to and interpreted in accordance with
the laws of the state of Tennessee which courts shall have exclusive
jurisdiction to hear and determine all disputes under or in connection
with this Agreement.
b) Notices to be given under this Agreement shall be sent to the address of
the party to receive notice as stated above, which address may be
changed by written notice hereunder.
c) This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and merges all prior and
contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and
signed by the parties.
d) Headings are for ease of reference only and shall not be deemed to form
part of this Agreement.
e) Nothing in this Agreement shall constitute a joint venture or a
partnership between the parties.
f) In the event that any clause of this Agreement should be revealed to be
invalid or unenforceable, this shall not invalidate the remaining
clauses of this Agreement.
4
<PAGE> 5
g) Each of the parties agrees that the signature hereof on its behalf and on
behalf of the other party and exchange hereof with such signatures in the
first instance by means of facsimile transmission shall thereupon
constitute a binding agreement between the parties and that the parties
shall as soon as possible thereafter sign and exchange original paper
copies hereof.
In witness of which this Agreement has been executed.
/s/ Vincent Peppe
- -------------------------------------------
Vincent Peppe, Director of Licensing
Naxos of America, Inc.
/s/ Michael Meader
- -------------------------------------------
Michael Meader
International Trading & Manufacturing Corp.
5
<PAGE> 6
SCHEDULE A
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998 DEC-31-1998 DEC-31-1997
<CASH> 104,087 0 131,157 18,395
<SECURITIES> 0 0 0 0
<RECEIVABLES> 671,819 0 327,955 1,500
<ALLOWANCES> 0 0 (143,925) 0
<INVENTORY> 138,400 0 136,896 454,318
<CURRENT-ASSETS> 939,404 0 661,771 492,483
<PP&E> 129,579 0 29,028 5,735
<DEPRECIATION> 0 0 12,688 5,442
<TOTAL-ASSETS> 1,610,726 0 749,102 428,218
<CURRENT-LIABILITIES> 562,267 0 743,097 338,674
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 10,148 0 8,309 6,708
<OTHER-SE> 1,038,311 0 2,304 152,836
<TOTAL-LIABILITY-AND-EQUITY> 1,610,726 0 749,102 498,218
<SALES> 1,590,787 2,224,886 2,511,138 3,639,468
<TOTAL-REVENUES> 1,590,787 2,224,886 2,511,138 3,638,468
<CGS> 822,223 2,127,645 2,479,032 3,343,693
<TOTAL-COSTS> 822,223 2,127,645 2,479,032 3,343,693
<OTHER-EXPENSES> 1,801,941 1,066,169 1,826,670 660,282
<LOSS-PROVISION> 0 0 143,925 0
<INTEREST-EXPENSE> 11,247 0 240,233 108,327
<INCOME-PRETAX> (1,044,624) (967,923) (2,034,799) (472,834)
<INCOME-TAX> (340) (800) (800) (800)
<INCOME-CONTINUING> (1,044,284) (968,723) (2,035,599) (473,634)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 129,908 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (915,056) (968,723) (2,035,599) (473,634)
<EPS-BASIC> (0.10) (0.13) (0.28) (0.09)
<EPS-DILUTED> (0.10) (0.13) (0.28) (0.09)
</TABLE>
