UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
AMENDMENT NO. 2
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
OPEN DOOR ONLINE, INC.
(Name of Small Business Issuer in its charter)
New Jersey 05-0507504
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46 Old Flat River Road,
Coventry, Rhode Island 02816
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (401) 272-3267
Securities to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which
to be registered each class of stock is to be registered
Common Stock, par value $.0001 per share
Securities to be registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
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TABLE OF CONTENTS
PART I Page
ITEM 1. Description of Business .......................................... 3
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................12
ITEM 3. Description of Properties.........................................17
ITEM 4. Security Ownership of Certain Beneficial Owners
and Management ...................................................18
ITEM 5. Directors, Executive Officers, Promoters and
Control Persons ..................................................19
ITEM 6. Executive Compensation............................................23
ITEM 7. Certain Relationships and Related Transactions....................24
ITEM 8. Description of Securities.........................................25
PART II
ITEM 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters.......................25
ITEM 2. Legal Proceedings.................................................27
ITEM 3. Changes in and Disagreements with Accountants.....................28
ITEM 4. Recent Sales of Unregistered Securities...........................28
ITEM 5. Indemnification of Directors and Officers ........................29
PART F/S ..................................................................30
PART III
ITEM 1 Index to Exhibits.................................................59
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
(1) FORM AND YEAR OF ORGANIZATION
Open Door Online, Inc., formerly known as Genesis Media Group, Inc.,
was incorporated under the laws of the state of New Jersey on June 20, 1987. We
use the Internet in operating a music recording, distribution and publishing
business.
(2) ACQUISITION AGREEMENT
On June 17, 1999, Open Door Records, Inc., a Rhode Island corporation,
entered into a Plan of Exchange and Acquisition Agreement, which is described
later in this registration statement as the "Acquisition Agreement," with
Genesis Media Group, Inc., a New Jersey corporation. This exchange was intended
to qualify as a tax-free reorganization pursuant to section 351 of the Internal
Revenue Code of 1986, as amended. Pursuant to the Acquisition Agreement, Genesis
Media Group declared a 1 for 30 reverse stock split of its existing shares and
issued 7,000,000 shares of common stock in exchange for a contribution to
Genesis Media Group of 1,000 shares of Open Door Records, which constituted 100%
of the issued and outstanding stock of Open Door Records. This transaction
caused Open Door Records to become a wholly owned subsidiary of Genesis Media
Group. The transaction also caused the former shareholders of Open Door Records
to become the controlling shareholders of Genesis Media Group, owning 7,000,000
shares, or 69%, of the total issued and outstanding shares of Genesis Media
Group. As a result of this transaction, the shareholders of Open Door Records
obtained control of Genesis Media Group's assets which included office furniture
and equipment, leased recording equipment and facilities, and the non-exclusive
rights to a music library consisting of various artist titles. Genesis Media
Group then changed its name to Open Door Online, Inc. The existing officers and
directors of Genesis Media Group resigned, and new directors nominated by the
former shareholders of Open Door Online were elected. Prior to the execution of
the Acquisition Agreement, Genesis Media Group had operations in the record,
movie and advertising business in southern California. Genesis Media Group's
common stock was listed on the Over-The-Counter Bulletin Board (OTC:BB) market
prior to the completion of the Acquisition Agreement. The stock continued to be
so listed after the transactions in the Acquisition Agreement were complete. On
December 6, 1999, however, we were de-listed from the OTC:BB and began trading
on the Over-The-Counter pink sheets.
This Disclosure Statement is being filed for the purpose of allowing
Open Door Online, f/k/a Genesis Media Group, to re-establish its listing on the
Over-The-Counter Bulletin Market exchange.
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(3) PRIOR MERGER OF GENESIS GROUP, INC. AND HOLLYWOOD TELEVISION
NETWORK, INC.
Genesis Media Group, Inc., was a New Jersey corporation created from
the combination of the assets of Hollywood Showcase Television Network, Inc. and
Genesis Group, Inc. on August 17, 1997. The business of Genesis Group was
originating, developing, producing and financing low budget motion pictures,
with an emphasis on the action/adventure and family-comedy film genre.
(4) DISCONTINUED BUSINESS
Genesis Media Group maintained office space and operations in the Los
Angeles, California area. The business of Genesis Media Group was originating,
developing, producing and financing low budget motion pictures, with an emphasis
on the action/adventure and family-comedy film genre. These motion picture
projects typically had a budget of $1,000,000 to $5,000,000.
Prior to the transactions provided for in the Acquisition Agreement,
Genesis Media Group planned to expand this business and to increase utilization
of its office and operational facilities. However, on June 30, 1999, new
management of Genesis Media Group determined that developing and maintaining the
capital expenditures and management intensity that were necessary to maintain
and expand this type of business were not in the best interests of Genesis Media
Group and its shareholders. Genesis Media Group cancelled certain outstanding
orders for specialized production equipment. Then in conjunction with the
Acquisition Agreement closing, Genesis Media Group's business operations were
then terminated and the successor company, Open Door Online, is now disposing of
the leased facilities and certain other operating assets of the former Genesis
Media Group's business that will not be necessary for the normal intended
operations of Open Door Online.
(b) BUSINESS OF THE ISSUER
(1) PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS
Open Door Music. In February of 1999, Open Door Records, Inc. created
Open Door Music, an online music CD store. Our online CD store, located on the
Internet at www.opendoormusic.com, offers over 250,000 music titles. To assist
customers in making music selections, the web site contains product notes,
reviews, related articles and sound samples and is open 24 hours a day, seven
days a week. It offers its customers convenient and timely product fulfillment,
including standard and overnight delivery options. Our web site provides an
entertaining and informative resource enabling users to search and sample music
and artist information interactively through sound and graphics, including
online "sound stations" for each artist. Music posted on our web site in digital
form is available for downloading using Real Audio(TM) "plug-ins." Visitors to
the web site who are interested in the music they sample may purchase it
immediately online.
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Open Door Records. On November 21, 1997, Open Door Records, Inc.
established its own record label, "Open Door Records." Subsequent to the
acquisition of Open Door Records, Inc., we now use our web site, as well as
traditional distribution channels to promote, distribute and sell original and
licensed artists recordings. We intend to license master recordings from other
record labels, acquire master recordings and publishing catalogs and sign
artists to the record label. Through our web site, we intend to feature and
promote individual artists and independent record labels.
With respect to licensing master recordings from other record labels,
we are in the process of creating compilation recordings for release as
commercial items, corporate premiums for itself or outside clients, giveaways
and other promotional uses. To date the record label has three active projects,
none of which however we have entered into any formal agreements for as of this
date. Nevertheless, we anticipate entering into agreements for the licensing of
these projects prior to Fall 2000. Two of these projects are under consideration
by outside clients and one has been approved and is in production. The two
projects under consideration are for J.C. Penney and Hanes/Sara Lee, and
projected commencement dates are tentatively set for January 1st, 2001. The WHJY
Radio project has commenced meaning that requests for master licenses have been
sent to the various record labels and music publishers. We have commenced
negotiating the license fees with WHJY Radio, setting a budget, developing art
and manufacturing the product. WHJY Radio plans to release the project in
October 2000. In all cases, the client is responsible for the ultimate purchase
and/or sale depending upon if it is to be used as a premium item or as a
consumer product. An ongoing and active effort to secure other clients and
projects of this nature is part of our operational plan for Open Door Records
for the coming years.
In an effort to acquire master recordings and publish catalogues,
solicitation has been made to various individuals and organizations such as Zen
Archer Music, Cross Eyed Cat Songs, SESAC, Motown and Spirit Music. To date, the
record label has acquired the exclusive distribution rights to WMG Record's
entire catalogue which is comprised of six artists from Spirit Music. Under the
terms of this distribution agreement, we are required to pay WMG Records, on a
quarterly basis, 75% of the wholesale price of all WMG products it sells. The
initial term of this agreement is for two years, with an expiration date of May
18, 2001. Thereafter, the agreement automatically renews for an additional one
year term, unless WMG Records exercises its option to terminate the agreement.
In addition, we are in preliminary negotiations to acquire master recordings by
Stephen Bishop and Robert Lamm from Spirit Music.
We actively solicit the acquisition of publishing catalogues from all
artists signed to Open Door Records. As of this date, we have secured the
exclusive and entire right to 50% plus a 7.5% administration fee of all recorded
copyright works owned by the music group No Soap Radio for the group's next four
records. Under the exclusive recording contract, we are required to pay
approximately $10,000 to the artists, 50% payable upon commencement of recording
each album and 50% upon approval and delivery of the album as an advance charged
against, and recoupable from, all royalties the artists receives from record
sales. Royalties received by the artists range from 6% to 13.5% on each sale.
The initial term of this agreement expires nine months after delivery of the
last master recordings comprising the artists' current recording obligations.
The artists anticipate delivering the master recordings by then end of May 2000,
with a release set for Fall 2000. Thereafter, we have the option to renew the
agreement for an additional term, whereby the artists will be obligated to
produce another recorded work. We have three such options, one of which has
already been exercised, thus giving us rights to the artists next four records
including the recorded work in production at this time. All subsequent optional
terms of the agreement expire nine months after delivery of the last master
recordings comprising the artists' recording obligations for each optional term.
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On October 4, 1999, we entered into an agreement with Intershow
Records, Inc. whereby were granted an exclusive license to exploit two master
recordings of The Harlem Gospel Singers and Queen Ester Marrow. In exchange for
this license, we are required to pay $75,000 in advances to Intershow records,
payable by installments with the last advancement due on August 1, 2000. We
receive 70% of the wholesale price for each CD sold, and the artitsts receive
30% after recoupment of all advances and expenses. With respect to non-Internet
related exploitation of the recordings, the license granted to us is limited to
the territories of the United States, Canada and Mexico. There is no territorial
restriction on Internet exploitation of the recordings. The agreement expires on
August 1, 2002, after which we would have to renegotiate a new contract in order
for Open Door Records to continue exploiting the recordings.
On June 1, 1999, we signed an exclusive distribution agreement with the
music artist "Jeru." Under the agreement, we are granted the exclusive right to
manufacture and distribute the artist's record "Jeru the Damaja Presents the
Supa-Human Klik Featuring MizMarvel" and any other records produced during the
term of the agreement for a two year period. In exchange, we are required to pay
recoupable advances up to $25,000 for the artist's promotional expenses. After
recoupment of all advances, the royalty split on the wholesale purchase price of
the CD's is 50% for us and 50% for the artist. The initial term of the agreement
is for two years, after which the agreement automatically renews for an
additional one year period unless the artist opts not to renew the agreement by
written notice to us prior to expiration of the agreement.
On July 1, 1999, we entered into an agreement with Live on the Net
whereby Live on the Net is granted the exclusive right to broadcast Open Door
Records artist performances on its website for a two year term. We are allowed
to keep 100% of any advertising revenues we generate. Live on the Net is granted
the right to use our trademarks and other intellectual property in its
programming and archiving. The agreement expires on July 1, 2001, after which
time we will have to renegotiate a new agreement for the continued performance
of these services.
Bowvau Records, Inc., owned by super DJ Quincy Vaughn, has joined the
Open Door Online distribution family. We entered into a two-year distribution
agreement with Bowvau Records on April 12, 1999, whereby we were made the
exclusive distributor of Bowvau's music productions. We are required to pay
Bowvau Records, on a quarterly basis, 75% of the wholesale price of all Bowvau
music products we sell. The agreement automatically renews for successive one
year terms unless Bowvau Records elects to terminate the agreement by giving us
thirty days written notice.
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Open Door Studios. As part of the Open Door Records division, we
recently opened our own digital recording studio to be utilized for both our own
in-house recording projects and outside commercial recording projects.
(2) DISTRIBUTION METHODS OF THE PRODUCTS OR SERVICES:
We have designed an ordering system we believe is easy-to-use and
simple to understand. At any time during a visit to our web site, a customer can
click on the "order now" button to place an item in his or her personal shopping
cart. The customer can continue to shop the website, adding chosen items. When
the customer is ready to submit an order, he or she simply returns to the order
page and chooses a shipping method. We offer shipping services by the U.S. Mail,
2-Day Federal Express or Federal Express Overnight. If not previously registered
with us, a customer is prompted to register at the time of purchase and enter
his or her name, address and password so that we can update our database.
The customer has the option of securely submitting credit card
information on-line or calling or faxing the information to the Open Door Music
Customer Service Department. We also offer the option of payment by check or
money order. By assigning a password to every buyer, our ordering process
facilitates repeat business by eliminating the need to re-submit credit card and
shipping information for subsequent orders. We keep customers informed regarding
the status of their orders, receipt and shipment of each order and whether an
item is back-ordered.
We primarily use Sound Delivery, a division of Valley Media, Inc., as a
third-party fulfillment operation to ship CDs, cassettes, and our other
products. We anticipate using Baker and Taylor to supply CDs, cassettes and
related items purchased at our web site if these items are unavailable through
Sound Delivery. All inventory is owned and stored by Sound Delivery and Baker
and Taylor. Twice daily, we batch customer orders and electronically transmits
them to Sound Delivery. We use a secure network through which we transmit data
to Sound Delivery, thereby helping to ensure customer security as well as data
integrity. Sound Delivery picks, packs and ships customer orders in Open Door
Music boxes, and charges us the negotiated rates for merchandise, shipping and
handling.
Customer billing is performed by utilizing a third-party credit card
processor, First USA, Inc. If a customer's selection is not in stock, we will
notify the customer of the backlogged items. We believe that high levels of
customer service and support are critical to the value of our services and to
retaining and expanding our customer base. Our Customer Service representatives
are available from 10:00AM. to 10:00 PM EST on weekdays, and 10:00 AM to 6:00 PM
on weekends.
Open Door Records uses traditional retail music stores, as well as
online Internet music stores to distribute the record label's music productions.
(3) STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
We have no new publicly announced products or services for either Open
Door Music or Open Door Records.
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(4) COMPETITIVE BUSINESS CONDITIONS
The market for Internet content providers is highly competitive and
rapidly changing. Since the Internet's commercialization in the early 1990's,
the number of web sites on the Internet competing for consumers, attention and
spending has proliferated. With little or no substantial barriers to entry, we
expect that competition will continue to intensify. With respect to competition
for consumers' attention, in addition to intense competition from Internet
content providers, we face competition from traditional media such as radio,
television and print.
With respect to recorded music sales, Open Door Music competes with
numerous Internet retailers, including traditional music retail stores, chains
and mega-stores, mass merchandisers, consumer electronics stores and music
clubs.
The US record industry grew to $8.7 billion dollars in the 1997 annual
survey completed by the National Association of Recording Manufacturers. The
report reflects CD sales of approximately $7.5 billion of the total annual
record industry revenue. The total of new releases grew by 36.2% in 1997 and
34.6% in 1996. We believe this trend is continuing and only assists companies
who are growth and artist oriented. An inter-year 1999 report published by
RIAA, another record industry association, reflects the US markets growth to
$12.6 billion annually. The advent of Internet sites, attributed to what were
previously mail order houses and record clubs is providing the majority of
competition along with the newcomers CDNOW.com and Amazon.com. The mail order
sites comprised 14.3% of the total market while the Internet provided 0.3% in
1997. The interim 1999 report shows that Internet music sales had increased to
a 15.8% market share.
The top 5 independent retail music Internet sites, according to Forbes
Magazine (11/15/99 issue) ranks Launch Media number one in sales with $17
million annually. Other competitors range from $7.5 million to $3 million.
We believe that the primary competitive factors in providing music
entertainment products and services via the Internet are name recognition,
variety of value-added services, ease of use, price, quality of service,
availability of customer support, reliability, technical expertise and
experience.
Many of our current and potential competitors in the Internet and the
music entertainment businesses have longer operating histories, significantly
greater financial, technical and marketing resources, greater name recognition
and larger existing customer bases than we do.
With respect to the recording industry, Open Door Records competes with
major and other independent record labels in signing individual artists and
groups to its record label. Some of the independent record labels Open Door
Records competes with include TVT, Aftermath, Cash Money, Republic, Righteous
Babe, Ruff Ryder and Rounder Records. Competition from the major recording
labels includes the five major labels of Sony, Universal, WEA, EMI and BMG.
Financial Times 1998 Magazine expects these five labels' market share to
decline from 78%, its current market share, to 64% of the total market, and
that they will maintain this market share through 2008 only by their web sites
assistance. Success in this industry is often based on the ability of the
record label to move decisively and quickly on music trends, artist signings
and promotion. Open Door Records may not be able to compete with other record
labels that have larger advertising and promotion budgets. Therefore, there is
no guarantee that we can successfully compete in this industry.
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Our future success will depend heavily upon our ability to provide high
quality, entertaining content, along with cutting edge technology and value
added Internet service. Our failure to compete successfully in the music
entertainment business would have a material adverse effect on our business,
results of operations and financial condition.
(5) PRINCIPAL SUPPLIERS
On August 26, 1998, we entered into an agreement to use Sound Delivery,
a division of Valley Media, Inc., to fill all online orders of CDs, cassettes
and other related products. This agreement has a two year term and therefore
expires on August 26, 2000. At that time, we intend to renegotiate a new
agreement prior to the expiration of the agreement's current term. We intend to
use Baker and Taylor, another supplier, to fill customer orders if and to the
extent that Sound Delivery is unable to do so, or in the event we are unable to
renegotiate a second term with Sound Delivery. Nevertheless, as of this date, we
have not entered into any contracts with Baker and Taylor for the performance of
such services. All inventory is owned and stored by Sound Delivery and Baker and
Taylor.
(6) DEPENDENCE ON MAJOR CUSTOMERS
We are not currently dependent on any major customers for either of our
business divisions. The Internet has changed the way people shop by providing
convenience and the ability to shop without leaving their home or office. We
believe customers will log on to several sites searching for entertainment
products and services, and we hope that customers will look to our web site due
to its user-friendly environment and wide variety of products and services.
(7) INTELLECTUAL PROPERTY
Security. We use an electronic data interchange, or "EDI", interface to
ensure the security of customer credit cards transactions and other order
information shared with our order fulfillment partner and third party billing
company, Sound Delivery. Currently, the EDI interface we utilize is owned by
Sound Delivery. Under our distribution agreement with Sound Delivery, we are
allowed the non-exclusive use of the EDI for the term of the agreement, which
expires in August 2000. The agreement does not automatically renew for
successive terms, and therefore we will have to renegotiate a new agreement with
Sound Delivery, or enter into an agreement with another distributor. While we
believe we could find with little difficulty another distributor to provide
secured order fulfillment services in the event we are unable to renegotiate a
new agreement with Sound Delivery, there is no guarantee that we will find such
a distributor.
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(8) GOVERNMENTAL APPROVAL
At this point in time, there is no need for government approval of our
principal products or services.
(9) PROBABLE GOVERNMENTAL APPROVAL AND REGULATION
We are unaware of any existing governmental regulations of our
business, including the business of our divisions, as presently conducted. In
the future, we expect to be subject, both directly and indirectly, to various
laws and regulations relating to its business, although there are few laws or
regulations directly applicable today to access to the Internet. Due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations will be adopted governing commerce on the Internet. Such
laws and regulations may cover issues such as user privacy, pricing, content,
copyrights, distribution, sales and other use taxes and characteristics and
quality of products and services. Further, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on those companies conducting
business online. The enactment of any additional laws or regulations could
impede our ability to conduct our business, and could also impede the growth of
the Internet generally. Either or both of these events could, in turn, decrease
the demand for our business, or otherwise have an adverse effect on us. The
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, contests and
sweepstakes, libel, personal privacy, rights or publicity, language requirements
and content restrictions, is uncertain and could expose us to substantial
liability.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
For example, America's Carriers Telecommunications Association has recently
filed a petition with the FCC for this purpose. The growing popularity and use
of the Internet has burdened the existing telecommunications infrastructure, and
many areas with high Internet use have begun to experience interruptions in
phone service, local telephone carriers, such as Pacific Bell, have petitioned
the FCC to regulate Internet service providers and online service providers in a
manner similar to long distance telephone carriers and to impose access fees on
such providers. If either of these petitions are granted, or if the relief
sought therein is otherwise granted, the costs of communicating on the Internet
could increase substantially, potentially slowing the growth in use of the
Internet.
Any such new legislation, regulation, application or interpretation of
existing laws could have an adverse effect on our business, results of
operations and financial condition. U.S. and foreign laws regulate certain uses
of customer information and development and sale of mailing lists. We believe
that it is in material compliance with such laws, but new restrictions may arise
in this area that could have an adverse affect on Open Door Online.
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(10) RESEARCH AND DEVELOPMENT
During 1998 and 1999, Open Door Online and its predecessors did not
engage in any research and development activities.
In the future, we intend to establish a small research and development
team composed of our current employees, along with a network of outside industry
experts, who will develop and adopt new products and Internet services. The
current budget for this area is less than one hundred thousand dollars over the
next two years.
(11) COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTA LAWS
We anticipate that we will have no material costs associated with
compliance with either federal, state or local environmental law.
(12) EMPLOYEES
We currently have four (4) full time employees and thirteen (13)
part-time employees. These are the employees used for either Open Door Music or
Open Door Records. All of these employees have been hired on an "at-will" basis,
and thus are not under contract for any definite term. However, Open Door Online
has entered into employment agreements with certain of its officers and
directors.
On November 15, 1999, we entered into three year employment agreements
with Messrs. DeBaene and Carley. Under the agreements, each is entitled to
receive a base annual salary of $95,000 during the period of November 15, 1999
to December 31, 2000. The salary will be increased annually, effective January
1st of each year, except in year one, by an amount of 13% or higher as
determined by the Board of Directors. In addition to the base salary amounts,
each of Messrs. DeBaene and Carley will receive incentive bonuses ranging from
1-3% of our after-tax profits, standard benefits such as health and life
insurance, disability payments and reimbursement of reasonable business
expenses.
On March 1, 2000, we entered into three year employment agreements with
Mr. Birmingham and Ms. Barbone. Under the agreements, each is entitled to
receive a base annual salary of $75,000 during the period of March 31, 2000 to
December 31, 2000. The salary will be increased annually, effective January 1st
of each year, except in year one, by an amount of 13% or higher as determined by
the Board of Directors. In addition to the base salary amounts, each will
receive incentive bonuses ranging from 1-3% of our after-tax profits, standard
benefits such as health and life insurance, disability payments and
reimbursement of reasonable business expenses.
We may terminate any of the employment agreements for cause, as defined
in the agreements, or without cause. In addition, the employee may terminate the
agreement for "good reason" or upon the occurrence of a "change in control", as
both terms are defined in the agreements. In the event we terminate the
employment agreement without cause, the employee terminates the agreement for
"good reason", or upon the death or disability of the employee at any time prior
to the end of the term of the agreement, the employee is entitled to receive a
severance payment in an amount equal to the balance of the employee's base
salary due through the balance of the term of the agreement.
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Competition for qualified personnel in certain areas of our industry is
intense, particularly among software development and other technical staff. We
believe that our future success will depend in part on our continued ability to
attract, hire and retain qualified personnel.
(c) REPORTS TO SECURITY HOLDERS
Prior to filing this Form 10-SB, we were not required to deliver annual
reports. On January 4, 2000, however, we became a reporting company, subject to
the reporting requirements set forth under the 1934 Securities Exchange Act. We
anticipate filing Forms 10-KSB, 10-QSB, 8-K and Schedules 13D along with
appropriate proxy materials as they come due. In addition, Paragraph 16(a) of
the Securities Exchange Act requires our executive officers and directors, and
persons who own 10% or more of a registered class of our equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission if we and our equity securities meet certain requirements.
As of this date, we have not received or reviewed any filings under
Section 16(a) from such individuals, including any filing on Forms 3, 4 or 5. If
we issue additional shares, we may file additional registration statements for
those shares.
Also, to the extent we are required in the future to deliver annual
reports by the rules or regulations of any exchange upon which our shares are
traded, we intend to deliver annual reports. If we are not required to deliver
annual reports in the future for any reason, we do not intend to go to the
expense of producing and delivering such reports. If we are required to deliver
annual reports, they will contain audited financial statements as required.
The public may read and copy materials contained in our files with the
Securities and Exchange Commission at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. The Internet
address of the Commission's site is (http://www.sec.gov).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included herein should be read in conjunction with the
financial statements of Genesis Media Group, Inc. for the two years ended
December 31, 1998 and the six months ended June 30, 1998 and 1999, Open Door
Records, Inc. for the year ended December 31, 1998 and the six months ended June
30, 1999 and 1998, and the financial statement of Open Door Online, Inc. for the
nine months ended September 30, 1999 and 1998, respectively, and the related
notes to each statement appearing elsewhere in this Form 10-SB. In addition to
historical information, the following discussion and other parts of this Form
10-SB contains forward-looking information that involves risks and
uncertainties. Actual results could differ materially from those anticipated by
this forward-looking information due to factors discussed in other sections of
this Form 10-SB.
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Historical
Our historical financial data presented below has been derived from the
financial statements of Open Door Online and its predecessors, including the
notes thereto, appearing elsewhere herein.
The financial data includes the results of operations of Open Door
Online, Inc. for September 30, 1999, Open Door Records, Inc. for September 30,
1998 and the results of operations of Genesis Media Group, Inc. and its
predecessor, Hollywood Showcase Television Network, Inc. for 1998 and 1997.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Summary of Operations $191,064 $ - $521,562 $829,985
Net Revenues
Cost of Sales 118,385 81,564 3,196
Gross Profit 72,679 439,998 826,789
Operating Expenses 223,917 8,729 813,971 575,031
Net Profit (Loss) (151,238) (8,729) (320,470) 151,055
Summary Balance Sheet Data
Total Assets $14,918,974 $96,622 $3,229,655 $2,218,216
Total Liabilities 1,518,780 33,076 558,241 180,941
Shareholder's Equity 13,400,194 63,546 2,671,414 2,037,275
</TABLE>
1997 and 1998
The operations of the company for 1998 and 1997 are those of Genesis
Media Grou, Inc., and its predecessor, Hollywood Showcase Television Network,
Inc. The business of those pentities was editing and production of movie and
television media and commercial advertising. Genesis Media Group was unable to
either generate sufficient liquidity or capital to expand its base of operations
and acquire the necessary infrastructure to attract large production
engagements. The primary sales revenue came from editing of advertising for
various television media. The expansion of the business would have required
substantial outlays of capital for additional state of the art editing and
production equipment. The production business is highly competitive and requires
continual updating of production techniques. Most contracts are awarded by
competitive bid to companies with demonstrated capability and personnel. Most
contracts obtained by Genesis Media Group were relatively short term in duration
and did not include the feature film market, which could extend beyond one year
in duration. Genesis Media Group was not able to develop its record library for
use in the production of films or television entertainment due to a lack of
working capital to develop and release such music.
13
<PAGE>
Genesis Media Group did not have sufficient sources of capital or
liquidity to allow it to pursue its intended business lines with the intensity
and stability that was needed to compete in the west coast entertainment
industry.
The business of Genesis Media Group was labor intensive in that they
required skilled technicians to operate the production and editing equipment. As
a result, the labor costs per hour of Genesis Media Group were greater than
those found in less skilled industries.
These factors were the major contributing circumstances, which lead
Genesis Media Group to enter into the Acquisition Agreement. In conjunction with
the Acquisition Agreement, the new management of the company abandoned those
operations upon completion of certain contracts in process and elected to pursue
its own business plan and implement the Internet operations and expand the
distribution operations of Open Door Online, Inc., acquired in the exchange with
Open Door Records, Inc.
Therefore, we do not believe that the historical results of operations
of Genesis Media Group and its predecessor are indicative of the future
operations of Open Door Online, Inc.
1999
The operations of Open Door Online, Inc., subsequent to the exchange,
effective June 30, 1999, through the quarter ended September 30, 1999 consisted
primarily of three phases. The first phase was to wrap up the operations of the
predecessor, Genesis Media Group, to which the Company completed open contracts
as required, laid-off all west coast personnel, and set about the orderly
liquidation of the owned and leased equipment of the predecessor. This resulted
in an operating loss from discontinued operations for the period of
approximately $171,000 in addition to the establishment of a reserve for
discontinued operations of $500,000 to buy-out and terminate certain long term
leases of production equipment.
Second, we devoted substantial resources to completion of our web based
business sites and related programs, processing applications and marketing
plans. Portions of the Internet structure were up and operating by August, 1999.
However, we continue to add more services and products as quickly as possible to
capture a significant market share of the home entertainment and music
distribution markets while implementing our Internet sales presence.
Third, we devoted our time and resources to raising liquidity,
assembling a management team and developing strategic alliances with artists,
managers and promoters. During this period we raised approximately $558,000 of
new equity/liquidity.
14
<PAGE>
Results of Operations
From inception to September 30, 1999, revenues have primarily consisted
of the sale of CD's from our distribution division, Open Door Records, and from
the commercial operations of Open Door Studios. Minimal other income was derived
from sales of merchandise at locally sponsored concerts.
Cost of Sales
Cost of Sales primarily represent website operating costs, CD and
fulfillment operations and artist record promotions and royalties. Website
operating costs include Internet development, design and programming,
connectivity charges and equipment. Future costs may include costs of
acquisitions and development.
Cost of Sales for the nine month period ended September 30, 1999 for
Open Door Online, Inc. was approximately 62% of gross revenue. The operations of
Genesis Media Group, the predecessor, were not comparative. As sales volume
increases, the cost of sales, as a percentage of sales, should decrease since
fixed costs are spread over a greater base.
Sales and Marketing
Sales and marketing expense consists primarily of direct marketing
expenses, promotional activities, salaries and costs related to website
maintenance and development. We anticipate that overall sales and marketing
costs will increase significantly in the future; however, sales and marketing
expense as a percentage of net revenue may fluctuate depending on the timing of
new marketing programs and addition of sales and marketing personnel.
In the future, we anticipate that we will enter into arrangements with
additional leading artists and record labels to secure distribution and
marketing services and obtain rights to their music. Future expenses may include
costs related to promotional events, which will be expensed in the period the
event is held.
General and Administrative
General and administrative expense consists primarily of salaries,
legal and other administrative costs, fees for outside consultants and other
overhead. General and administrative expense was approximately 94% of Revenue
for the nine months ended September 30, 1999. It is anticipated that overall
general and administrative expense will decrease as a percentage of Revenue as
Revenue increases after this initial development stage.
Interest Expense
Net interest expense for the nine month period ended September 30, 1999
was $8,224. Interest costs may increase in future periods as the Company expands
through a combination of debt and equity offerings.
15
<PAGE>
Liquidity and Capital Resources
As of September 30, 1999 we had approximately $78,580 of cash available
to support operations. Subsequent to September 30, 1999, we collected a
receivable in the amount of $518,000. We believe that we will be able to raise
such additional capital to meet our operating and financial obligations in the
future.
Future Plan of Operation
The post exchange company, Open Door Online, has discontinued the
production operations of the predecessor and focused on branding itself as a
virtual "open door" bridging together artists and consumers from around the
world and ultimately maintaining a loyal and appreciative entertainment
community. Our objective is to build a global entertainment company offering a
broad range of entertainment commerce related products and to deliver a wealth
of original content in a highly personalized interactive context.
We recognize that the nature and scope of our intended business will
require substantial additional financing. To meet this requirement, we plan to
finance our cash requirements through a combination of equity offerings and debt
financing. This process will allow us to complete the initial phases of our
Internet marketing plan. Once in place, we believe this should provide
sufficient operating revenue to expand the other intended areas of our business.
The Internet marketing arena is highly competitive. We believe that we
are well placed to take advantage of this growing market and look to become more
competitive in the entertainment and distribution sectors of that market.
We will expand our workforce to meet our business plan and growth
objectives while providing quality services and products.
The overall plan of operation and objectives is detailed earlier in
this Form 10-SB.
Our business plan estimates that revenue will be approximately $6.9
million in the first full year of operations subsequent to the exchange
resulting in a net operation loss for the period of approximately $450,000. The
total revenues anticipate $3.0 million from retail CD sales, $3.5 million from
wholesale CD sales of artists under distribution contracts, $ .2 million from
Internet advertising and $.2 million from product license and studio rental. Our
basis for arriving at these figures include developing sales patterns and
current industry conditions. The loss for this first period is due in large part
to expensing costs related to the programming, promotion, setup and
implementation of the Internet presence necessary for our activities.
Year 2000 Disclosure
We do not anticipate any problem in dealing with computer entries in
the year 2000 or thereafter, with any computers currently used at any of its
facilities. All of our computer systems are new and have been Year 2000
compliant since their acquisition. We keep current with all updates and
revisions with all software we currently use. It is anticipated that the
software updates reflect required revisions to accommodate transactions in the
Year 2000 and thereafter.
16
<PAGE>
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. We do not believe that we have material exposure to the
Year 2000 issue with respect to our own information systems since our existing
systems correctly define the year 2000. We are currently unable to predict the
extent to which the Year 2000 issue will affect our clients, customers and
suppliers, or the extent to which any of them would be vulnerable to a failure
to remediate any Year 2000 issues on a timely basis.
In addition, most of the purchases on our web site are expected to be
made with credit cards, and our operations may be adversely affected to the
extent its customers are unable to use their credit cards due to any Year 2000
issues that are not rectified by their credit card vendors. In a worst case
scenario, if our customers' computer systems or that of suppliers and vendors do
not contain the necessary software updates to be Year 2000 compliant, a
multitude of problems could occur which may include, among others, lost orders,
merchandise not shipped or shipped to incorrect addresses and credit card
purchases incorrectly credited or debited. As a result, we could lose customers,
clients, and credibility which could have a material adverse effect on our
business and our financial condition. Such problems could occur with Sound
Delivery, our supplier of music CDs, cassettes and other related products. We
have not independently verified whether Sound Delivery is Year 2000 compliant,
nor assessed the risk that this poses to our business. We have not taken any
steps in preparation for a worst case scenario if our customers or suppliers are
not Year 2000 Compliant. We do not have, nor do we intend to create, a
contingency plan to handle such an event.
We have concluded, based on our review of our operations and computer
systems, that our computer programs and operations have not had any problems
associated with the Year 2000 issue. However, we cannot guarantee that such
problems will not arise in the future.
ITEM 3. DESCRIPTION OF PROPERTIES
Real Property. Our corporate headquarters are located at 46 Old Flat
River Road, Coventry, Rhode Island. We leases our facilities and certain other
equipment under operating and capital lease agreements. Our Metro Office is
located at 206 Bryans Road, Hampton, New Jersey. Our recording studio is located
at 40 Wilson Street, West Warwick, R.I.
Equipment. We currently own approximately $146,000 of equipment and
leasehold improvements that are used in conjunction with our recording and
production studio.
17
<PAGE>
Music Library. We have a music library consisting of original and
digitally mastered music media from numerous artists from the 1940's through the
1990's. We own certain of the master recordings in the Library, and have
nonexclusive license rights to the rest of the recordings. We are currently in
the process of purchasing those master recordings to which we currently have
only the nonexclusive license rights to. This library can be used to produce
original singles and albums by the various artists, used to score motion picture
productions, television productions and specialty productions. We intend to
utilize this product through traditional CD production and sales and MP3 digital
sales over the Internet. Pursuant to industry standards, we are obligated to pay
artists royalties on units sold. We has valued this library at the lower of the
appraised value or the present value of the estimated cash flow from the sale
and utilization of these assets over the next three years, after consideration
of production and distribution costs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Shares
Beneficially Percent of
Title of Class Name/Address of Owner Owned Class
- -------------- --------------------------------------- ------------ ----------
Common Don R. & Barrie M. Logan 545,530 5.38%
23355 Gondor Drive
Lake Forrest, California 90710
Common DJS Investors (iv) 2,105,000 20.77%
275 Crescent Street
West Bridgewater, MA 02379
Common Thomas R. Carley 1,977,000 19.517%
46 Old Flat River Road
Coventry, Rhode Island (D)
Common David N. DeBaene 1,837,000 18.13%
46 Old Flat River Road
Coventry, Rhode Island (D)
Common Camille M. Barbone 705,000 6.96%
206 Bryan's Ferry Rd.
Hampton, NJ 08827 (D)
Common All Officers and Directors over 5% per 4,519,000 44.59%
Individual
Common All Officers and Directors 5,044,000 49.78%
18
<PAGE>
Notes: (1) Includes only officers and directors subsequent to the June 30,
1999 merger.
(D) Officer and Director of the Company
(i) All Percentages are calculated based upon 10,133,285 shares
outstanding as of the date of the filing of this Form 10-SB.
(ii) As of April 11, 2000, we had 1,275,744 free
trading shares outstanding and 8,857,541
restricted shares outstanding for a total of
10,133,285 shares.
(iii) All common shares are entitled to 1 vote per
share. There are no other shares with voting
rights.
(iv) Donna Petronelli owns 100% of the shares of DJS
Investors, and therefore is the beneficial owner
of these shares. Her address is 275 Crescent
Street, Bridgewater, MA 02379.
(b) SECURITY OWNERSHIP OF MANAGEMENT
Shares
Beneficially Percent of
Title of Class Name/Address of Owner Owned Class
- -------------- --------------------------------------- ------------ ----------
Common David N. DeBaene 1,837,000 18.13%
Common Thomas R. Carley 1,977,000 19.51%
Common Camille M. Barbone 705,000 6.96%
(1) All percentages are calculated based upon 10,133,285 shares of
common stock of Open Door Online issued and outstanding as of the date of filing
this Form 10-SB.
(c) CHANGES IN CONTROL
There is no arrangement which may result in a change of control.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) IDENTITY OF DIRECTORS AND EXECUTIVE OFFICERS
As of October 1, 1999, our directors and executive officers, their
ages, positions, the dates of their initial election or appointment as director
or executive officer, and the expiration of the terms as directors are as
follows:
19
<PAGE>
Name Age Position
---------------------- ------ ---------------------------------------
David N. DeBaene 41 President, Chief Executive Officer
and Director
Thomas Carley 38 Vice President and Director
Edmond L. Lonergan 53 Director
Norman J. Birmingham 45 Treasurer and Chief Financial Officer
Steev Panneton 41 Secretary
Camille M. Barbone 48 Vice President and Chief Operating
Officer
(1) BUSINESS EXPERIENCE
Mr. David DeBaene, one of the founders of Open Door Online, serves as
its President and CEO. In June 1991, David DeBaene founded JD American Workwear,
Inc., a publicly traded manufacturer and distributor of safety work wear, and
currently serves as Chairman of the Board and Chief Executive Officer. Mr.
DeBaene created four styles of industrial safety work pants, which are secured
by individual patents. These products are distributed worldwide. Entrepreneur
Magazine has recognized Mr. DeBaene as one of its featured "outstanding
entrepreneurs." Mr. DeBaene is also a musician and played professionally for 10
years. Mr. DeBaene began serving as a director of Open Door Records, Inc. in
June 1997 and has been one of our directors since June 17, 1999.
Mr. Thomas Carley, one of the founders of Open Door Records, Inc.,
serves as a Vice President and member of our Board of Directors. Thomas Carley
has actively been involved in the music industry as a freelance performer,
producer and recording engineer. Prior to joining Open Door Online, Mr. Carley
was the owner and operator of C & C Contracting and Painting, a general
contracting firm, securing both union and non-union contracts, from June 1988 to
August 1997. Mr. Carley has been a director of Open Door Records, Inc., and
subsequently Open Door Online, since June 1997.
Edmond L. Lonergan, over the last five years, has been involved in
business consulting and the insurance field. From February 1994 to July 1996,
Mr. Lonergan was President of an Insurance Company called Insurance Providers of
American. He was self employed from July 1996 to May 1998, as a business
consultant. Mr. Lonergan has owned and operated Corporate Architects, Inc., a
merger and acquisition consulting business specializing in reverse mergers of
private companies into inactive public companies, since May 1998. Mr. Lonergan
has been a one of our directors since June 17, 1999.
Norman J. Birmingham has served as President of Patina Corp., a holding
company for construction demolition and asbestos abatement companies, since
April of 1999. From September 1998 to January 1999, Mr. Birmingham served as
Chief Financial Officer of Mediforce, Inc., a medical products company. He
served as Chief Financial Officer for General Environmental Technologies, Inc.,
a holding company for three demolition companies, from January 1998 to September
1998. Mr. Birminghman was not employed from August 1997 to January 1998. From
November 1995 to August 1997, he served as President and Chief Financial Officer
for Westmark Group Holdings, Inc., a holding company for wholesale mortgage
companies. In addition, he served as President of Heart Labs of America, Inc.
from November 1995 to June 1996. Mr. Birmingham was President of Budget Services
and provided accounting, tax and financial planning services from September 1986
to July 1997. Mr. Birmingham became an officer of Open Door Online in February
2000.
20
<PAGE>
Mr. Steev Panneton has served as Vice President of Manufacturing and
New Product Development for JD American Workwear, Inc. since June 1991. He has
also worked as a freelance commercial artist and illustrator for the past 10
years and is a graduate of the College of Rhode Island. Mr. Panneton has
developed several new products, including a patented game called Vegas Run . He
currently has several other patents pending. He was elected a director of Open
Door Records, Inc. in June 1997 and has served as one of our directors since
June 17, 1999.
Ms. Barbone has been involved in the music industry for over twenty-two
years. She has discovered, developed and managed many significant artists. From
January 1995 to March 2000, Ms. Barbone has owned and been employed by August
Artist Management, where she has managed several music artists. Her clients have
included The Rolling Stones, Aerosmith, The Indigo Girls, Michael Bolton, The
Monkees, J.Giles, Edgar and Johnny Winters. Camille also produced the Gospel
segment of Woodstock `94 for a crowd of 350,000. She has lectured throughout the
country at seminars, workshops, and conventions and has been interviewed by
major newspapers, magazines and television specials such as 20/20, Entertainment
Tonight and Fox News. Since March 2000, Ms. Barbone has served as one our Vice
Presidents as well as our Chief Operating Officer.
All prior directors and executive officers of Genesis Media Group, Inc,
our predecessor, tendered their resignations in conjunction with the Acquisition
Agreement dated June 17, 1999.
Our directors are elected at the annual meeting of stockholders and
hold office until their successors are elected and qualified. Our officers are
appointed by the Board of Directors and serve at the pleasure of the Board and
subject to employment agreements, if any, approved and ratified by the Board.
(b) IDENTITY OF SIGNIFICANT EMPLOYEES
Name Age Position
------------------ ----- --------------------------------------------
Timothy R. Dahler 29 Vice President Internet & Multimedia
Development & Production
Moses J. Calouro 29 Vice President Information Management
Systems
Mr. Dahler, over the last five years, has co-founded of Concept-Link,
Ltd., a service bureau and Internet production corporation in Providence, Rhode
Island. Mr. Dahler has integrated his knowledge of art and design with leading
edge communications technology. Mr. Dahler has contracted with such companies as
Fuji Film, USA, United Technologies, Samsonite, and Fleet Bank. He has extensive
experience and commanding knowledge of both Microsoft and Macintosh operating
systems and is a graduate of Roger Williams University.
21
<PAGE>
Mr. Calouro, over the last five years, has been operating Maritime
Information System and currently operates an Internet portal for the Maritime
Industry, Maritime Global Net at www.mgn.com. Mr. Calouro has over seven years
experience producing and maintaining Internet applications and database servers.
He has contracted with such companies as Motorola, Lloyd's of London, Arco, and
AT&T.
(c) SIGNIFICANT CONSULTANTS
Bridgewater Management Group Inc. Bridgewater Management Group Inc. has
been instrumental in the creation and implementation of the Internet activities
of Open Door Online Inc. The services Bridgewater Management Group has provided
for Open Door Online include coordination of Internet activities, research and
development of current and future Internet ventures, identifying potential
acquisition candidates, and general corporate strategic guidance. For each of
the services performed, Bridgewater Management Group has acted, and will
continue to act, in the capacity of a consultant. It is anticipated that
Bridgewater Management Group Inc. will continue to play an important role in the
coordination and growth of the Open Door Music division.
Pat Rogers. Ms. Rogers brings well over twenty years of experience in
music publishing and licensing. The services that Ms. Rogers has provided for
Open Door Online include consultation services in music publishing for film and
television, consultation services with respect to new emerging technologies such
as MP3 and other digital download technology, and has assisted Open Door Online
in its composer/artist relations. For each of the services performed, Ms. Rogers
has acted, and will continue to act, in the capacity of a consultant. It is
anticipated that Ms. Rogers will play an important role in the future publishing
activities of Open Door Online Inc.
(d) FAMILY RELATIONSHIPS
There are no family relationships between the directors, executive
officers or any other person who may be selected as one of our directors or
executive officers.
(e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of our officers, directors, promoters or control persons have been
involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceedings or being subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
22
<PAGE>
(3) Being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, or any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities laws, and the
judgment has not been reversed, suspended, or vacated.
ITEM 6. EXECUTIVE COMPENSATION
No compensation or directors fees have been paid to any executive
officers or directors of Open Door Online or Open Door Records, Inc. from
November 1997, the date of Open Door Records' inception, to the date hereof. On
November 15, 1999, we entered into three year employment agreements with Messrs.
DeBaene and Carley. Under the agreements, each is entitled to receive a base
annual salary of $95,000 during the period of November 15, 1999 to December 31,
2000. The salary will be increased annually, effective January 1st of each year,
except in year one, by an amount of 13% or higher as determined by the Board of
Directors. In addition to the base salary amounts, each of Messrs. DeBaene and
Carley will receive incentive bonuses ranging from 1-3% of our after-tax
profits, standard benefits such as health and life insurance, disability
payments and reimbursement of reasonable business expenses.
In addition, On March 1, 2000, we entered into three year employment
agreements with Mr. Birmingham and Ms. Barbone. Under the agreements, each is
entitled to receive a base annual salary of $75,000 during the period of March
31, 2000 to December 31, 2000. The salary will be increased annually, effective
January 1st of each year, except in year one, by an amount of 13% or higher as
determined by the Board of Directors. In addition to the base salary amounts,
each will receive incentive bonuses ranging from 1-3% of our after-tax profits,
standard benefits such as health and life insurance, disability payments and
reimbursement of reasonable business expenses.
Compensation paid to the officers and directors of Genesis Media Group
and Hollywood Showcase Television Network, Inc., and Open Door Online during
1997, 1998, 1999, or 2000 were as follows:
<TABLE>
<CAPTION>
Summary Compensation Table
- ---------------------------------------------------------------------------------------------------------------------
Long Term Compensation
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Restricted Under-lying
Name and Annual Stock Options/ All
Principal Compensa- Award(s) SARs (#) LTIP Other
Position Year Salary($) Bonus ($) tion($) ($) Payouts Compensa
($) -tion($)
------ ------ ------ ------ ------ ------ ------ ------ ------
23
<PAGE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CEO Don R. 1997 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Logan 1998 $ 66,500 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
6 months
1999 $ - 0 - $ - 0 - $ - 0 - $ 576,000 $ - 0 - $ - 0 - $ - 0 -
Secretary Barrie 1997 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Logan 1998 $ 30,826 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
6 months
1999 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
Treasurer Carl Conte 1997 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
1998 $ 31,250 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
6 months
1999 $ 20,000 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
CEO David 1997 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
DeBaene 1998 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
1999 $ 10,962 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
4 months
2000 $ 31,667 $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 - $ - 0 -
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 and 1999, Mr. DeBaene has been a lender or guarantor of
funds to Open Door Online. As of December 31, 1998 and September 30, 1999, the
outstanding balances due him to lenders for which he has guaranteed amounts are
$113,643 and $498,622, including interest expense of $3,643 and $8,224,
respectively. Interest rates range from 12% to 20% per annum. On March 7, 2000,
Mr. DeBaene converted $474,895 of this debt into 1,158,280 shares based on the
average bid price of our Common Stock over the twenty day period preceding the
conversion. He has elected not to convert any of the guaranteed debt outstanding
incurred prior to the initial filing of this registration statement. At no time
has Mr. DeBaene received any consideration, directly or indirectly, for the
amounts he has guaranteed.
On February 22, 1999, Genesis Media Group, Inc. distributed to its
shareholders shares of TranStar Communications, Inc., that Genesis Media Group
received in exchange for certain assets, based on the book value of those assets
as determined by their purchase price to Genesis Media Group in an arm's length
transaction. The assets consisted of equipment valued at $70,000 and certain
receivables in the amount of $165,168. The fair market value of the shares at
the time of distribution was $.50 per share. These shares were subsequently sold
by the shareholders in a private transaction on April 9, 1999 at a price of $.50
per share.
On April 12, 1999, Genesis Media Group issued to Don R. Logan, the
former chief executive officer and director of Genesis Media Group, 9,000,000
shares of restricted common stock in lieu of compensation. At the time of the
issue, the fair market value of the stock based on the asked price was $.064 per
equivalent share and discounted 20% to allow for the restricted nature of the
securities issued. Genesis Media Group therefore recognized salary expense in
the amount of $576,000 for the six months ended June 30, 1999.
24
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
Our Articles of Incorporation authorize the issuance of 50,000,000
shares of Common Stock, $0.0001 par value per share. There is no preferred stock
authorized. The shares are fully paid, non-assessable, without pre-emptive or
other subscription rights and without cumulative voting rights. Holders of
Common Stock are entitled to one vote for each share on all matters to be voted
on by the stockholders. Holders of shares of Common Stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available therefor. In the
event of a liquidation, dissolution or winding up of our business, the holders
of shares of Common Stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
(a) MARKET INFORMATION
On December 6, 1999, we were de-listed from the Over-The-Counter
Bulletin Board (OTC:BB). Prior to that time, our stock had been trading under
the trading symbol "NTER." The following tables set forth the highest and lowest
bid prices for our and our predecessors' common stock for each calendar month
during the period the stock was traded on the OTC:BB, as reported by the
National Quotation Bureau:
Predecessor: Hollywood Television Network, Inc.
<TABLE>
<CAPTION>
Bid Prices Ask Prices
---------------- ----------------- ----------------- ---------------
1997 High Low High Low
- ---- ---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
January 1 - January 31 1 3/16 1-1/8 3/4
February 1 - February 28 1-3/16 5/8 13/16 5/8
March 1 - March 31 1-1/2 3/8 2 3/8
April 1 - April 30 2-1/4 1 2-3/8 1-9/16
May 1 - May 31 1-1/2 1 1-7/8 1
June 1 - June 30 1-1/2 7/8 1-7/8 7/8
July 1 - July 31 1-1/8 13/16 1-3/8 13/16
August 1 - August 31 3-1/16 1/2 3-15/16 11/16
September 1 - September 30 1-3/8 1 1-3/4 15/16
October 1 - October 31 1-1/8 3/4 1-1/8 3/4
November 1 - November 30 1 5/8 1 5/8
December 1 - December 31 3/4 3/8 7/8 7/16
25
<PAGE>
Predecessor: Hollywood Television Network, Inc.
1998
- ----
January 1 - January 31 11/16 1/4 9/16 1/8
February 1 - February 28 1/4 1/8 1/4 3/16
March 1 - March 31 - - - -
Predecessor: Genesis Media Group, Inc.
1998
- ----
April 1 - April 30 - - - -
May 1 - May 31 1-5/8 1-5/16 1-15/16 1-5/8
June 1 - June 30 1-3/8 1-1/16 1-11/16 1-1/4
July 1 - July 31 1-3/8 5/8 1-7/16 13/16
August 1 - August 31 11/16 3/8 11/16 7/16
September 1 - September 30 11/16 3/8 11/16 7/16
October 1 - October 31 3/8 1/4 7/16 1/4
November 1 - November 30 5/16 .15 3/8 .18
December 1 - December 31 .15 .07 3/8 .11
Predecessor: Genesis Media Group, Inc.
1999
- ----
January 1 - January 31 .15 .09 .26 .12
February 1 - February 28 .22 1/8 .30 1/8
March 1 - March 31 .20 1/8 .26 1/8
April 1 - April 30 .23 .08 .37 .13
May 1 - May 31 .21 .16 .30 .17
June 1 - June 30 .17 .10 .18 .11
July 1 - July 31 .13 .08 3/16 .12
Open Door Online, Inc.
1999 1 for 30 reverse split
- ----
August 1 - August 31 3.60 1-9/16 3.90 2.00
September 1 - September 30 4-1/8 1-9/16 4-3/4 1-7/8
October 1 - October 31 3-3/16 1-1/8 3-7/8 1-5/8
November 1 - November 30 1-7/8 .15 2-5/8 .42
December 1 - December 31 .59 .3125 .75 .32
</TABLE>
The above quotations are inter-dealer quotations, and the actual retail
transactions may involve dealer retail markups, markdowns, or commissions for
market makers of our stock. The prices quoted are based on the then stock
outstanding and has not been adjusted for mergers, exchanges, splits or reverse
splits. There can be no assurance the Common Stock will be accepted for trading
on an active public market. In addition, the shares of Common Stock are subject
to various governmental or regulatory body rules which affect the liquidity of
the shares.
26
<PAGE>
As of April 11, 2000, except for 1,275,744 free trading shares, all
shares issued by us are "restricted securities" with in the meaning of Rule 144
under the Securities Act of 1933. Ordinarily, under Rule 144, a person holding
restricted securities for a period of one year may, every three months, sell in
ordinary brokerage transactions or in transactions directly with a market maker
an amount equal to the greater of one percent of our then-outstanding Common
Stock or the average weekly trading volume during the four calendar weeks prior
to such sale. Future sales of such shares could have an adverse effect on the
market price of the Common Stock.
(b) HOLDERS
As of April 11, 2000, there were approximately 233 registered holders
of free-trading shares and 79 holders of our restricted Common Stock, as
reported by our transfer agent. Some holders own both free-trading and
restricted shares and would be included in both classifications above.
(c) DIVIDENDS
We have not paid any dividends on our Common Stock. We currently intend
to retain any earnings for use in our operations and to finance the development
and the expansion of our business. Therefore, we do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends is within the
discretion of the Board of Directors. Any future decision with respect to
dividends will depend on future earnings, future capital needs and our operating
and financial condition, among other factors.
ITEM 2. LEGAL PROCEEDINGS
We are currently vigorously defending the following suits that were
either know to have been, or threatened to be, filed against Genesis Media
Group, Inc. prior to the time of the acquisition and which were not disclosed to
the current management as required by the acquisition agreement between Open
Door Records and Genesis Media Group. We intend to seek indemnification from
prior management of Genesis Media Group for any and all losses and legal
expenses we incur in connection with these matters.
Willette v. Genesis Media Group, Inc. This suit, which was filed in
Crawford County, Michigan in 1998, involves a purported deficiency of
compensation payable to the plaintiff for the amount of $15,184.00. We have
reason to believe that the plaintiff has in fact been over paid by prior
management, and we intend to pursue a counterclaim for the recovery of the
excess payment. No settlement negotiations in connection with this matter are
taking place at this time.
Pamela Lane v. Genesis Media Group, Inc., et. al. In September 1999,
the plaintiff in this suit filed claims of breach of contract and other tortious
claims against Genesis Media Group, our predecessor, Don Logan and Shelly
Liebowitz in the Los Angeles County Superior Court, State of California. The
plaintiff is claiming $25,000 in damages. We intend to file a petition seeking
dismissal of the suit.
27
<PAGE>
Empire Burbank Studios, Inc. v. Let's Do It Again Productions, et. al.
This suit, which was filed in the Los Angeles County Superior Court in 1998,
involves a breach of contract claim for studio time that was allegedly
contracted for and never used. The plaintiff is seeking $70,000 in damages and
we are currently in the process of negotiating a settlement in this case.
Octavia Entertainment Group, Inc., et. al. v. Genesis Media Group, Inc.
et. al. This suit involves claims of fraudulent misrepresentation, fraudulent
conversion and breach of contract for prior management's alleged failure to pay
for certain equipment and not returning said equipment. This suit was just
recently filed this year by the plaintiff in Grand Traverse County, Michigan,
and the plaintiff is seeking $25,000 in damages. We intend to file a response to
this matter immediately.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with our independent auditor. The
Independent Certified Public Accountant for Open Door Records, Inc., our
predecessor, also became the accountant for Genesis Media Group, Inc., another
predecessor.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On May 18, 1998, Genesis Media Group, Inc, the predecessor, completed
an offering under Regulation D, Rule 504 whereby 21,529,607 shares of Genesis
Media Group's common stock were sold. Of these shares, 5,452,857 were freely
trading, while 16,076,750 were subject to trading restrictions.
On August 17, 1997, Hollywood Showcase Television Netowork, Inc. issued
an equivalent 303,418 shares of its common stock in conjunction with the merger
and exchange of shares of Genesis Group, Inc. These shares were issued pursuant
to the exchange agreement between those companies.
On April 12 1999, Genesis issued to Don R. Logan, the former chief
executive officer and director of Genesis, an equivalent 9,000,000 pre-reverse
shares of restricted common stock in lieu of compensation. At the time of the
issue, the fair market value of the stock based on the asked price was $.064 per
equivalent share and discounted 20% to allow for the restricted nature of the
securities issued.
In conjunction with the Acquisition Agreement described above, on June
30, 1999 Open Door Records, Inc. was issued 7,000,000 shares of Genesis Media
Group's common stock outstanding immediately prior to the closing of the
Acquisition Agreement. In exchange, Open Door Records, Inc. issued 1,000 of its
shares to Genesis Media Group.
28
<PAGE>
In conjunction with the Acquisition Agreement, we granted Mr. DeBaene
the right to convert up to 100% of the debt owed to him by us, plus accrued
interest, into our Common Stock. On March 7, 2000, he converted $474,895 of debt
into 1,158,280 shares at a conversion price equal to the average bid price over
the 20 day period preceding the conversion.
On August 9, 1999, we issued 116,667 shares of our common stock to
three investors at a price of $1.20 per share pursuant to an offering under
Regulation D, Rule 504.
On September 17, 1999, we issued 557,333 shares of our common stock to
three investors at a price of $.075 per share pursuant to an offering under
Regulation D, Rule 504.
For all of the above referenced offerings, we are relying on
information provided to us such as the number of investors solicited, the
information provided to and received from investors, and the representations
made to us by counsel and/or the issuers' management, that such offerings were
in compliance with federal and state securities laws.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our directors and officers may not be liable for errors in judgment or
other acts, or omissions not amounting to intentional misconduct, fraud or a
knowing violation of law, since provisions to limit such liability have been
made in the Articles of Incorporation and By-laws. These provisions allow for
indemnification of our officers and directors for any liability suffered by
them, or arising from their activities as officers and directors if they were
not engaged in intentional misconduct, fraud or a knowing violation of law.
Therefore, purchasers of our stock will have a more limited right of action than
they would have except for this limitation in the Articles of Incorporation and
By-laws.
Our officers and directors are accountable to us as fiduciaries, which
means such officers and directors are required to exercise good faith and
integrity in handling our affairs. A shareholder may be able to institute legal
action on behalf of himself and all other similarly stated shareholders to
recover damages where we have failed or refused to observe the law. Shareholders
may, subject to applicable rules of civil procedure, be able to bring a class
action or derivative suit to enforce their rights, including rights under
certain federal and state securities laws and regulations. Shareholders who have
suffered losses in connection with the purchase or sale of their interest in our
company, including misapplication by any such officer or director of the
proceeds from the sale of these securities, may be able to recover such losses
from us.
29
<PAGE>
PART F/S FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
OPEN DOOR ONLINE, INC.:
Report of Independent Accountants ...........................................31
Balance Sheet - December 31, 1998 and September 30, 1999 and 1998
(Unaudited) ............................................................32
Statements of Operations for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998
(Unaudited) ............................................................33
Statements of Stockholders' Equity for the years ended December
31, 1998 and the nine months ended September 30, 1999
(Unaudited) ............................................................34
Statements of Cash Flows for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998
(Unaudited) ............................................................35
Notes to Financial Statements for the year ended December 31,
1998 and the nine months ended September 30, 1999 and 1998
(Unaudited) ............................................................36
GENESIS MEDIA GROUP, INC.:
Report of Independent Accountants .......................................... 43
Balance Sheet - December 31, 1998 and 1997 and June 30, 1999 and
1998 (Unaudited) .......................................................44
Statements of Operations for the two years ended December 31,
1998 and the six months ended June 30, 1999 and 1998
(Unaudited) ............................................................46
Statements of Stockholders' Equity for the two years ended
December 31, 1998 and the six months ended June 30, 1999
(Unaudited) ............................................................47
Statements of Cash Flows for the two years ended December 31,
1998 and the six months ended June 30, 1999 and 1998
(Unaudited) ............................................................48
Notesto Financial Statements for the two years ended December
31, 1998 and the six months ended June 30, 1999 and 1998
(Unaudited) ............................................................50
30
<PAGE>
Report of Independent Accountants
To the Board of Directors
Open Door Online, Inc. (formerly Genesis Media Group, Inc.)
Providence, Rhode Island
We have audited the accompanying balance sheet of Open Door Online,
Inc. (formerly Genesis Media Group, Inc.) as of December 31, 1998, and the
related statements of operations, stockholders' equity and cash flows for the
year 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all materials respects, the financial position of Open Door Online,
Inc. (formerly Genesis Media Group, Inc.) as of December 31, 1998, and the
results of operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
James C. Marshall, CPA, PC
Scottsdale, Arizona
March 27, 2000
31
<PAGE>
<TABLE>
<CAPTION>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Balance Sheets
December 31, 1998
and September 30, 1999 and 1998(Unaudited)
ASSETS
September 30,
December 31, --------------------------------------------
1998 1999 1998
(Unaudited) (Unaudited)
- ------------------------------------------------ --------------------- ---------------------- -----------------
Current Assets
<S> <C> <C> <C>
Cash and cash equivalents $33 $78,580 $1,195
Accounts receivable - trade 37,185 261,582
Loans receivable - trade 12,500
Loans receivable - investors (Note 9) 164,000
Prepaid expenses 1,477 15,621
--------------------- ---------------------- -----------------
38,695 532,283 1,195
Property and equipment, net of accumulated 133,615 173,954 92,690
depreciation (Note 4)
Master music library 14,209,000
Other Assets 2,737 3,737 2,737
--------------------- ---------------------- -----------------
$175,047 $14,918,974 $96,622
===================== ====================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $6,720 $109,942 $3,076
Payroll taxes and accrued expenses 212,138
Reserve for discontinued operations (Note 2) 500,000
Notes payable 110,000 471,700 30,000
Current portion of long term debt 75,000
--------------------- ---------------------- ------------------
116,720 1,368,780 33,076
Long term debt 150,000
--------------------- ---------------------- ------------------
Total liabilities 116,720 1,518,780 33,076
Stockholders' Equity
Common Stock (Notes 7 and 9) 1,000 1,013 1,000
Additional paid in capital 71,275 13,564,367 71,275
Retained earnings (deficit) (13,948) (165,186) (8,729)
--------------------- ---------------------- ------------------
58,327 13,400,194 63,546
--------------------- ---------------------- ------------------
$175,047 $14,918,974 $96,622
===================== ====================== ==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Statements of Operations
for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
December 31, September 30,
------------------------- ---------------------------------------------------
1998 1999 1998
(Unaudited) (Unaudited)
------------------------- --------------------- --------------------------
<S> <C> <C> <C>
Revenue
Sales $37,185 $190,606 $---
Other income 458
------------------------- --------------------- --------------------------
37,185 191,064
Cost of sales 10,485 118,385
------------------------- --------------------- --------------------------
Gross profit 26,700 72,679
Operating Expenses
Administrative expenses 23,530 71,376 5,677
Amortization and depreciation 11,321 18,942 2,158
Interest expense 3,888 8,224
Office expense 1,144 4,346 394
Professional and outside services 765 86,741 500
Rent 11,788
Salaries and payroll taxes 22,500
------------------------- --------------------- --------------------------
Total Operation Expense 40,648 223,917 8,729
------------------------- --------------------- --------------------------
Net Loss $(13,948) $(151,238) $(8,729)
========================= ===================== ==========================
Net loss per common share $(13.95) $(0.04) $(8.73)
(Note 8)
========================= ===================== ==========================
The accompanying notes are an integral part of these financial statements.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Open Door Online, Inc.
Statements of Stockholders' Equity
for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 (Unaudited)
Paid in Retained
Common Stock Capital Earnings Total
-------------------------------- ---------------- --------------- ----------------
Shares Amount
--------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 1,000 $1,000 $71,275 72,275
New Income/(Loss) $(13,948) (13,948)
Balance December 31, 1998 1,000 1,000 71,275 (13,948) 58,327
Adjustment to reflect Genesis 936,626 (63) 2,839,417 (226,267) 2,613,087
acquisition of Open Door Records
(Note 7)
Restated Balance at January 1, 1999 937,626 937 2,910,692 (240,215) 2,671,414
Issuance of Common Stock of Genesis 340,000 340 714,399 714,739
prior to acquisition of Open Door
Records (Note 7)
Issuance for acquisition of Open 8,181,665 (331) 9,775,343 226,267 10,001,279
Door Records (Note 7)
Issuance of Common Stock 673,994 67 163,933 164,000
Net Income/(Loss) (151,238) (151,238)
Balance at September 30, 1999 10,133,285 $1,013 $13,564,367 $(165,186) $13,400,194
=============== ============= ================ =============== ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Statements of Cash Flows
for the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
December 31, September 30,
--------------- ---------------------------------------
1998 1999 1998
(Unaudited) (Unaudited)
- ------------------------------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
(Unaudited)
Cash flows from Operations
Net Loss $(13,948) $(151,238) $(8,729)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Amortization and depreciation 11,321 18,942 2,158
Net case flow provided by (used in)
operating activities (2,627) (132,296) (6,571)
Changes in operating assets and
liabilities (net of effects from
acquisition of business):
accounts receivable (37,185) (224,397)
loans receivable - trade (12,500)
prepaid expenses (1,477) (14,144)
other assets (2,737) (1,000) (2,737)
accounts payable 6,720 8,222 3,076
accrued expenses 24,243
--------------- ----------------- -----------------
Net cash flow used by operating activities (37,306) (351,72) (6,232)
--------------- ----------------- -----------------
Cash Flows from investing activities
Acquisition of property, plant and (73,661) (59,281) (23,575)
equipment
--------------- ----------------- -----------------
Net cash used in investing activities (73,661) (59,281) (23,573)
--------------- ----------------- -----------------
Cash flow from financing activities
Proceeds form issuance of debt 110,000 325,700 30,000
Proceeds for issuance of Common Stock 1,000 164,000 1,000
--------------- ----------------- -----------------
Net cash provided by financing 111,000 489,700 31,000
activities
--------------- ----------------- -----------------
Net increase in cash and cash 33 78,547 1,195
equivalents
Cash at January 1, --- 33 ---
--------------- ----------------- -----------------
Cash at end of period $33 $78,580 $1,195
=============== ================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
35
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 1 - Organization
Open Door Records, Inc. ("Open Door") was incorporated in the state of
Rhode Island on November 20, 1997. The Company had no operations during 1997.
In June 1999, Open Door entered into a stock exchange agreement with
Genesis Media Group, Inc. ("Genesis") accounted for as a reverse acquisition
whereby all of Open Door's outstanding stock would be acquired in exchange for
stock of Genesis. On an aggregate basis, Genesis shareholders received 0.0333
shares of the Company for each share of Genesis common stock. In addition, the
agreement provides for the resignation of management and directors of Genesis
and the appointment of directors and executives selected by Open Door. This
agreement was completed as of June 30, 1999, whereupon the resulting entity
changed its name to Open Door Online, Inc. (the "Company") and state of
incorporation to New Jersey. The combination of Open Door with Genesis was
accounted for as a tax-free exchange under the Internal Revenue Code.
The purchase method of accounting was performed on Genesis based on the
fair market value at the transaction date. The fair market value of Genesis was
based on the per share value of Genesis common stock near June 30, 1999, the
closing date of the merger. Since the appraised value of the music library was
in excess of $38 million, the fair market value of the merger was allocated
music library and results in no goodwill being recorded. The valuation of
Genesis, including transaction costs of $120,000 was $13,370,115. A summary of
assets and liabilities acquired, at established fair market value was as
follows:
Assets - Music Library $14,209,000
--------------
Total Assets $14,209,000
Current liabilities assumed (688,885)
Long-term liabilities assumed (150,000)
--------------
Fair market value of Genesis $13,370,115
==============
The accompanying financial statements include the results of Open Door
for all periods and the results of Genesis beginning on July 1, 1999. The
unaudited pro forma financial data does not purport to represent what the
Company's results from continuing operations would actually have been had the
transaction in fact occurred as of an earlier date, or project the results for
any future date or period.
36
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 1 - Organization (continued)
December 31, September 30,
1998 1999
------------- -------------
Pro Forma (unaudited)
Revenue $558,747 $244,164
Cost of good sold 92,049 123,885
------------- -------------
Gross Profit 466,698 120,279
Expenses
Selling, general and administrative (749,602) (1,000,924)
Interest expense (31,950) (18,502)
------------- -------------
Loss from operations $(314,854) $(899,147)
============= =============
Loss per share $ (0.04) $ (0.10)
============= =============
Weighted average number of shares 9,119,291 9,385,253
============= =============
Note 2 - Discontinued Operations
In conjunction with the acquisition, the Company had certain
capitalized leases and operating lease obligations that extend through 2003.
Genesis had a number of capitalized leases and other obligations as of June 30,
1999 with scheduled payments of approximately $820,000 through 2003 which the
Company is in the process of eliminating. As of June 30, 1999, the Company
elected to discontinue the acquired movie production and editing business in
California and accordingly provided a reserve of $500,000 in excess of the net
carrying value of Genesis to terminate such leases and close the operations.
Note 3 - Summary of Significant Accounting Policies
The summary of significant accounting policies of Open Door Records,
Inc. is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management. Management is responsible for their integrity. The accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
37
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 3 - Summary of Significant Accounting Policies (continued)
Line of Business
- ----------------
The business of the Company to date has derived revenue from the
promotion, production and studio recording services to music artists. The
Company is in the process of developing and internet presence for the sales and
marketing of music and related products through the internet and expanding its
promotion, production and recording services to the entertainment and music
markets.
Revenue Recognition
- -------------------
Revenue is generally recognized upon shipment to the customer or upon
completion of the services and is fully earned. Through September 30, 1999,
substantially all of the revenue is derived from the sale of music production
services to third parties.
Equipment and Depreciation
- --------------------------
Depreciation has been provided on a straight-line basis for financial
accounting purposes using the straight-line method over the shorter of the
asset's estimated life or the lease term. The estimated useful lives of the
assets are as follows:
Record and production equipment 5-7 Years
Website Development 5-7 Years
Leasehold improvements 3-10 Years
38
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 3 - Summary of Significant Accounting Policies (continued)
Master Music Library
- --------------------
The master music library consists of original and digitized masters of
well known artists. The Company has the right to produce, sell, distribute or
otherwise profit from its utilization of this library subject to industry
standard royalty fees to be paid to artists as copies of the product are sold or
distributed. The Company will amortize the library on a units sold basis in
accordance with SFAS 50 that relates the capitalized costs to estimated net
revenue to be realized. When anticipated sales appear to be insufficient to
fully recover the basis, a provision against current operations will be made for
anticipated losses. To date the Company has not utilized the library nor
expensed any of the carrying value.
Comprehensive Net Loss
- ----------------------
There is no difference between the Company's net loss as reported for
any of the periods reported herein and the Company's comprehensive loss, as
defined by the Statement of Financial Accounting Standards No. 130.
Note 4 - Property and Equipment
Depreciation and amortization for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998 is $11,321, $18,942 and
$2,158, respectively.
Property plant and equipment consist of the following:
December 31, September 30,
1998 1999
------------ -----------
Production Equipment $105,306 $ 126,206
Office equipment, furniture and fixtures 33,985 57,855
Leasehold improvements 5,645 20,156
------------ -----------
144,936 204,217
Less accumulated depreciation and amortization (11,321) (30,263)
------------ -----------
$133,615 $173,954
============ ===========
39
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 5 - Related Party Short Term Debt
Short term debt is due to the president of the Company for cash
advances made to the Company for working capital. No repayments have been made
on the balances. Advances during the year ended December 31, 1998 and the nine
months ended September 30, 1999 and 1998 were $110,000, $361,700 and $30,000,
respectively. The ending balances at December 31, 1998, September 30, 1999 and
1998 were $110,000, $471,700 and $30,000, respectively. Interest expense for the
periods was $3,888, $8,224 and $0, respectively. See Note 9 for subsequent
events.
Note 6 - Income Taxes
The tax-free exchange with Genesis creates a difference in the basis of
the assets between tax basis and accounting basis. At July 1, 1999, the tax
basis of the assets is approximately $906,000 greater than the accounting basis.
In the future, as assets are disposed of, depreciated, or amortized or
liabilities paid, the deduction for tax purposes will be greater than the book
basis, resulting in reduced tax expense or greater net operating loss carryover
for tax purposes than would otherwise be expected. There is no certainty as to
the timing of such recognition nor that the Company will be able to fully
utilize these differences.
The components of deferred tax assets and liabilities are as follows:
December 31, September 30,
1998 1999
--------- -----------
Tax effect of assets acquired in business combination $--- $362,000
Tax effects of reserve for discontinued operations 200,000
Tax effects of carry forward benefits:
Net operating loss carryforwards 5,600 60,000
--------- -----------
Tax effects of carryforwards
Tax effects of future taxable differences and 5,600 622,000
carryforwards
Less deferred tax asset valuation allowance (5,600) (622,000)
--------- -----------
Net deferred tax asset $--- $---
========= ===========
40
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 6 - Income Taxes(continued)
Realization of the net deferred tax assets is dependent on generating
sufficient taxable income prior to their expiration. Tax effects are based on a
9.0% state and 34.0% federal income tax rates for a net combined rate of 40%.
The tax effects of the acquired business combination have not been recognized in
the current or prior periods but will be recognized in future periods, at which
time if the current period taxable income is insufficient to offset such charges
for tax purposes, the effect will be available to the Company over the
succeeding 20 years. The realized net operating losses expire over the next 19
years, the majority of which expire in 2018. A valuation allowance has been
provided for the full deferred tax asset amount due to the lack of operating
history and operating losses in recent periods. When realization of the deferred
tax asset is more likely than not to occur, the benefit related to the
differences will be recognized as a reduction of income tax expense.
Note 7 - Common Stock
Genesis was the nominal acquirer in the Open Door transaction in which
Open Door was the nominal acquiree in the reverse acquisition. The December 31,
1998 and September 30, 1998 financial statements represent the activities of
Open Door only. As the legal acquirer, the Genesis balances at January 1, 1999
were adjusted to reflect the business combination and to give effect to the one
for 30 reverse split of the Genesis shares as of June 30, 1999 retroactive to
January 1, 1999 in accordance with SFAS 128. The Company issued a total of
8,181,665 shares for former Open Door Records, Inc. holders and to promoters and
sponsors of the transaction.. The outstanding stock of the Company was 1,000 as
of December 31, 1998 and 10,133,285 shares and 1,000 shares at September 30,
1999 and 1998, respectively.
Note 8 - Earnings per Common Share
Earnings per share of common stock have been computed based on the
weighted average number of shares outstanding. As of December 31, 1998 and
September 30, 1998, the weighted average number of shares outstanding was 1,000.
The weighted average number of shares used to compute the earnings per share at
September 30, 1999, after giving effect to the acquisition on June 30, 1999 by
Genesis, the legal acquirer of Open Door Records, Inc., and giving retroactive
effect to January 1, 1999 of the one for 30 reverse stock split of Genesis was
3,970,916.
41
<PAGE>
Open Door Online, Inc.
(formerly Genesis Media Group, Inc.)
Notes to Financial Statements
For the year ended December 31, 1998 and
for the nine months ended September 30, 1999 and 1998 (Unaudited)
Note 9 - Stock Transactions - Subsequent Events
During the third quarter, the Company sold 673,994 shares of its common
stock pursuant to a private offering for an aggregate price of $204,000. In
October 1999, the Company received the amount due on the sale of $164,000. The
stock is shown as outstanding at September 30, 1999 and a receivable of the
unpaid amount at that date.
On March 7, 2000, the president of the Company exercised his option to
convert his loans to the Company to common stock. The conversion price was based
on the average of the last 20 days average price of the stock immediately
preceding the exercise. The Company issued a total of 1,183,853 shares which
included principal and interest due of $473,541 and the Company reduced its
liability for the debt.
Note 10 - Restatement of Change in Accounting
The Company has restated herein the application of APBO 16 to reflect
the value of the music library based on the fair market value of the stock
issued for the acquisition of Genesis rather than the fair market value of the
music library. This change had the effect of reducing the music library and paid
in capital by approximately $7,491,000. The changes to the results of operations
were not material.
42
<PAGE>
Report of Independent Accountants
To The Board of Directors
Genesis Media Group, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of Genesis Media Group,
Inc. as of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the two years 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all materials respects, the financial position of Genesis Media
Group, Inc. as of December 31, 1998 and 1997, and the results of operations and
its cash flows for the two years then ended in conformity with generally
accepted accounting principles.
James C. Marshall, CPA, PC
Scottsdale, Arizona
March 26, 2000
43
<PAGE>
<TABLE>
<CAPTION>
Genesis Media Group, Inc.
Balance Sheet
December 31, 1998 and 1997 and
June 30, 1999 and 1998 (Unaudited)
ASSETS
December 31, June 30,
------------------------------------- -------------------------------------
1998 1997 1999 1998
(Unaudited (Unaudited)
------------------ --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $400 $10,025 $2,077 $155,952
Accounts receivable - trade
(Note 3) 186,437 13,814 176,436 198,913
Loans receivable - trade 50,000 50,000 50,000
Prepaid expenses 111,030 51,416 399,739 130,944
Market securities (Note 7) 235,168 243,168
------------------ --------------- ---------------- -----------------
583,035 75,255 628,252 778,977
Property and equipment, net of
accumulated depreciation of $37,333
and $15,733 for 1998 and 1997,
respectively. (Notes 4 and 6) 661,666 158,914 638,038 161,581
Master music library (Note 5) 108,329 52,500 108,331 77,814
Goodwill, net of accumulated
amortization of $94,378 and $21,311
for 1998 and 1997, respectively
1,732,287 1,805,354 1,695,754 1,768,821
Other assets 144,338 126,193 143,647 139,092
------------------ --------------- ---------------- -----------------
$3,229,655 $2,218,216 $3,214,022 $2,926,285
================== =============== ================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $17,286 $109,850 $--- $8,000
Payroll taxes and accrued expenses 46,735 17,588 113,895 4,649
Income taxes payable (Note 8) 53,503 92,703
Current portion of long-term debt.
(Note 6) 114,096 163,320 4,276
------------------ ---------------- ---------------- ------------------
178,117 180,941 277,215 109,628
Long-term debt - capitalized lease.
(Note 6) 380,124 334,594 3,500
------------------ ---------------- ---------------- ------------------
Total liabilities 558,241 180,941 611,809 113,128
Stockholders' Equity
Common stock - par value $0.000,
Authorized, 50,000,000 shares
issued and outstanding 28,130,607
and 17,499,327, 1998 and 1997
respectively. (Notes 1, 9 and 10) 2,213 1,750 3,833 2,519
Additional paid in capital 2,908,816 1,955,270 3,622,535 2,813,157
Retained earnings (deficit) (240,215) 80,255 (1,024,155) 139,050
------------------ ---------------- ---------------- ------------------
2,671,414 2,037,275 2,602,213 2,813,157
------------------ ---------------- ---------------- ------------------
$3,229,655 $2,218,216 $3,214,022 $2,926,285
================== ================ ================ ==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
44
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45
<PAGE>
<TABLE>
<CAPTION>
Genesis Media Group, Inc.
Statements of Operations
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
For the year ended For the six months ended
------------------------------------- --------------------------------------
1998 1997 1999 1998
------------------ --------------- ----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Sales $521,562 $829,985 $53,100 $461,121
------------------ --------------- ----------------- -----------------
521,562 829,985 53,100 461,121
Cost of sales 81,564 3,196 5,500 53,271
------------------ --------------- ----------------- -----------------
439,998 826,789 47,600 407,850
Operating Expenses
Administrative expenses 145,128 60,836 15,930 53,851
Amortization and depreciation 102,813 37,044 62,686 47,089
Interest expense 28,062 10,278
Office expense 11,624 40,131 5,228 29,724
Professional and outside services 137,014 201,025 10,500 83,498
Rent 106,327 27,339 18,902 54,074
Salaries and payroll taxes 283,003 208,656 708,016 41,619
------------------ --------------- ----------------- -----------------
Total Operation Expense 813,971 575,031 831,540 309,855
------------------ --------------- ----------------- -----------------
Income/(Loss) from operations (373,973) 251,758 (783,940) 97,995
Benefit/(provision) for income taxes 53,503 (100,703) --- (39,200)
------------------ --------------- ----------------- -----------------
Net Income/(Loss) $ (320,470) $151,055 $(783,940) $58,795
================== =============== ================= =================
Loss per common share (Note 10) $(0.01) $ 0.02 $ (0.02) $ 0.00
================== =============== ================= =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Genesis Media Group, Inc.
Statements of Stockholders' Equity
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 (Unaudited)
Common Stock Paid in Retained
Shares Amount Capital Earnings Total
---------------- -------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 2,680,000 $2,680 $26,144 $(12,989) $15,835
Merger of Genesis and
Hollywood 14,819,327 (930) 1,929,136 (57,811) 1,870,385
Net Income/(Loss) 151,055 151,055
Issuance of Common
Stock 10,629,453 1,063 953,546 954,609
New Income/(Loss) (320,470) (320,470)
Balance at December 31,
1998 28,128,780 2,813 2,908,816 (240,215) 2,671,414
Issuance of Common
Stock 1,200,000 120 138,619 138,739
Stock issued to employee as
compensation 9,000,000 900 575,100 576,000
Net Income/(Loss) (783,940) (783,940)
Balance at June 30, 1999 38,328,780 $3,833 $3,622,535 $(1,024,155) $2,602,213
The accompanying notes are an integral part of these financial statements.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Genesis Media Group, Inc.
Statements of Cash Flows
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
For the year ended For the six months ended
------------------------------------ -------------------------------------
1998 1997 1999 1998
----------------- --------------- ---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income (Loss) $(320,470) $151,055 $(783,940) $58,795
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization and depreciation 102,813 37,044 62,686 47,089
Non-monetary compensation 576,000
Income tax provision (53,503) 100,703 39,200
----------------- --------------- ---------------- -----------------
Net cash flow provided by (used in) operating
activities (271,160) 288,802 (145,254) 145,084
Changes in assets and liabilities
Accounts receivable (172,623) (13,814) 10,001 (185,099)
Notes receivable (50,000) (50,000)
Prepaid expenses (59,614) (41,230) (283,709) (79,528)
Other assets (18,145) (158,673) 691 (12,899)
Accounts payable (92,564) (55,626) (17,276) (101,850)
Accrued expenses 29,147 17,588 67,160 (12,939)
----------------- --------------- ---------------- -----------------
(363,799) (251,755) (233,133) (442,315)
Net cash flow provided/(used) by operating
activities (634,959) 37,047 (368,387) (297,231)
Cash flows from investing activities:
Marketable securities purchases (235,168) (243,168)
Marketable securities sales 235,168
Purchase of property, plant and
equipment (532,498) (30,509) (2,525) (13,223)
Payments on production of music
library (55,829) (2) (25,314)
----------------- --------------- ---------------- -----------------
(823,495) (30,509) 232,641 (281,705)
Cash flow from financing activities:
Principal payments on long-term debt -
capitalized leases (60,530) (45,350) (810)
Proceeds from issuance of long-term debt -
capitalized leases 554,750 49,044 8,586
Proceeds from issuance of common stock 954,609 133,729 717,087
----------------- --------------- ---------------- -----------------
1,448,829 137,423 724,863
Net increase (decrease) in cash (9,625) 6,538 1,677 145,927
Cash at January 1 10,025 3,487 400 10,025
----------------- --------------- ---------------- -----------------
Cash at end of period $400 $10,025 $2,077 $155,952
================= =============== ================ =================
The accompanying notes are an integral part of these financial statements.
</TABLE>
48
<PAGE>
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49
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Note 1 - Organization
The predecessor of the Genesis media Group, Inc. ("Genesis") was
incorporated in the state of New Jersey on July 27, 1987. In August 1997,
Hollywood Showcase Television Network, Inc. acquired in a reverse acquisition
all of the assets of Genesis Group, Inc. and changed its name to Genesis Media
Group, Inc.
1997 Merger
- -----------
On August 17, 1997 (the "Merger Date"), Genesis Group, Inc. merged into
Hollywood Showcase Television Network, Inc. ("Hollywood"). The shareholders of
Hollywood received shares of Genesis Group, Inc. for each share of Hollywood
common stock. In total, approximately 2,680,000 shares were exchanged for the
outstanding stock of Hollywood.
The Merger was accounted for as a reverse acquisition whereby Genesis
Group, Inc. was treated as the acquirer and Hollywood as the acquiree, because
Genesis Group, Inc. shareholders owned a majority of the surviving entity stock
as of the Merger Date and Genesis owned a majority of the assets. Purchase
accounting was performed on Hollywood based on the fair market value of the
transaction date.
The value of Hollywood was based on the fair market value of the
assets, net of liabilities acquired by Genesis Group, Inc. at the Merger Date. A
summary of the assets and liabilities acquired, at estimated fair market value
was as follows:
Current Assets $16,456
Property, Plant & Equipment 42,757
Goodwill 1,826,665
-----------------
Total Assets 1,885,878
-----------------
Current Liabilities (43,378)
-----------------
Fair market value of Hollywood $1,842,500
=================
The accompanying financial statements include the results of Genesis
Group, Inc. for all periods and the results of Hollywood beginning on the Merger
Date. The following 1997 pro forma selected financial data reflect the Merger as
if it had occurred at the beginning of 1997. The unaudited pro forma financial
data does not purport to represent what the results from continuing operations
would actually have been had the transaction in fact occurred as of an earlier
date, or project the results for any future date or period.
50
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
for the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Note 1 - Organization (continued)
Pro Forma (unaudited) 1997
--------------------------------------- -----------------
Revenues $ 888,317
Cost of good sold 31,039
Selling, general and administrative 655,044
-----------------
Operating Income 202,234
-----------------
Net Income $121,334
=================
Income (loss) per share $0.01
=================
Weighted average number of shares 17,499,327
=================
Note 2 - Summary of Significant Accounting Policies
The summary of significant accounting policies of Genesis Media Group,
Inc. is presented to assist in understanding Genesis's financial statements. The
financial statements and notes are representations of Genesis's management.
Management is responsible for their integrity. The accounting policies conform
to generally accepted accounting principles and have been consistently applied
in the preparation of the financial statements.
Line of Business
- ----------------
Genesis was primarily engaged in media production and advertising
production services.
Accounts Receivable
- -------------------
Genesis provides allowances against accounts receivable to maintain
sufficient reserves to cover anticipated losses.
Equipment and Depreciation
- -----------------------------------
Depreciation has been provided on a straight-line basis for financial
accounting purposes using the straight-line method over the shorter of the
asset's estimated life or the lease term. The estimated useful lives of the
assets are as follows:
Record and production equipment 5-7 Years
Website Development 5-7 Years
Leasehold improvements 3-10 Years
51
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Master Music Library
- --------------------
The master music library is stated at cost for additions and
improvements to the library since being acquired by Genesis and the cost
incurred by the majority shareholder of Genesis prior to the library's
contribution to the Genesis. Genesis was in the process of upgrading the master
media before production and marketing of the various music products. Genesis
intended to amortize the carrying cost of the library over the estimated useful
net sales lives of the recordings in such a way that the costs would be
amortized against net revenue in accordance with SFAS 50.
Goodwill is amortized on the straight-line method over a 25 years.
Revenue Recognition
- -------------------
Revenue is recognized when the individual media products have been
completed, delivered to the client and accepted by the client. At times, this
may include the allocation of income for portions or segments of contracts that
have been completed and accepted by the clients. Income is generally recognized
in these circumstances ratably over the total units of the contract..
Copyrights and Amortization
- ---------------------------
Copyrights were purchased and are subject to the 15 year amortization
rules. For purposes of these financial statements, copyrights are amortized on
the straight-line basis over 15 years.
Note 3 - Accounts Receivable
Accounts receivable is comprised of the following:
December 31, June 30,
--------------------- -----------------------
1998 1997 1999 1998
---------- --------- ---------- -----------
Trade receivables $206,437 $13,814 $196,436 $198,913
Less: Allowance for doubtful
accounts 20,000 --- 20,000 ---
---------- --------- ---------- -----------
Total $186,437 $13,814 $176,436 $198,913
========== ========= ========== ===========
52
<PAGE>
Note 3 - Prepaid Expenses
Included in prepaid expenses is a note for $20,000 from an officer of
Genesis. The officer has pledged his shares of Genesis's common stock as
collateral for said note.
53
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Note 4 - Property and Equipment
Property and equipment consists of the following at cost:
1998 1997
----------- -----------
Computer equipment $34,114 $32,057
Office furniture 27,356 21,436
Office equipment 46,172 46,172
Production equipment 55,371 55,371
Capitalized lease production equipment 515,810
Signs 335
Software 230
Leasehold improvements 19,611 19,611
----------- -----------
698,999 174,647
Less accumulated depreciation (37,333) (15,733
----------- -----------
$661,666 $158,914
=========== ===========
Depreciation expense for the years ended December 31, 1998 and 1997 and
the six months ended June 30, 1999 and 1998 was $29,746, $15,733, $26,153 and
$10,556, respectively.
Property, plant and equipment include certain capitalized leases.
Leased production equipment represents capitalized leases whereby Genesis has
the right to exercise a nominal purchase option at the end of the lease period.
Note 5 - Master Music Library
The master music library consists of movie films, music tapes and CD
ROM interactive tapes. With the masters comes the rights to market, reconfigure,
compile, manufacture, distribute, license, sell and lease originals or copies
thereof. Genesis has an independent appraisal that identifies each item and
evaluates it. The appraisal value of this library is approximately $41,000,000.
Also included in inventory are the costs incurred to date in developing the
movie production of the "Diary of James Dean."
54
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Note 6 - Leases
Genesis leases certain real estate and equipment. Commitments for
minimum rentals under noncancellable leases, by year, of the future minimum
payments under these leases, together with the present value of the net minimum
payments under the capital leases, together with the present value of the net
minimum payments as of December 31, 1998:
Capital Operating
Leases Leases
------------- ------------
Year ending December 31,
1999 $163,320 $99,191
2000 163,320 49,595
2001 144,952
2002 127,816
2003 66,323
-------------
Total minimum lease payments 665,731 $148,786
============
Less amount representing interest 171,511
-------------
Total present value of minimum payments 494,220
Less current portion of such obligations 114,096
-------------
Long-term obligations with interest rates ranging
from 11.0% to 15.0% averaging approximately
12.95% $380,124
=============
Property, plant and equipment included the following amounts for capitalized
leases:
December 31, June 30,
--------------------- ----------------------
1998 1997 1999 1998
---------- --------- ---------- ----------
Capitalized lease production
equipment $515,810 $--- $515,810 $232,025
Less allowance for depreciation 14,727 --- 37,567 5,832
---------- --------- ---------- ----------
$501,083 $ $478,243 $226,193
========== ========= ========== ==========
Rent expense under operating leases for the years ended 1998 and 1997
and the six months ended June 30, 1999 and 1998 amounted to approximately
$106,327, $51,095, $37,775, and $54,074, respectively.
55
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Note 7 - Investment in TranStar Communications, Inc.
During 1998, the Company acquired shares of TranStar Communications,
Inc., an affiliate. At December 31, 1998, Genesis holds 576,535 rule 144
restricted shares of common stock of TranStar Communications, Inc. The carrying
basis approximates the market value of the stock at balance sheet dates.
Note 8 - Income Taxes
The Company had a net operating loss carryforward from 1996 of
$118,000. The tax benefit of this carry forward was recognized in 1997 and
resulted in a reduction of the tax liability of $47,200. The remaining tax
liability for 1997 was offset by the net operating loss for 1998 resulting in a
carryback of $53,503. Any remaining unused net operating losses from 1998 and
1999 have been offset by the valuation allowance since it is more likely than
not that the Company will not realize the benefits of such carryforwards.
The components of deferred tax assets and liabilities are as follows:
December 31, June 30,
1998 1999
-------------- -------------
Tax effects of carryforward benefits:
Federal; net operating loss carryforwards $74,700 $313,600
-------------- -------------
Tax effects of carryforwards
Tax effects of future taxable differences
and carryforwards 74,700 313,600
-------------- ------------
Less deferred tax asset valuation allowance (74,700) (313,600)
-------------- -------------
Net deferred tax asset $-- $--
============== =============
At December 31, 1998, Genesis has net operating loss carryforwards
("NOLs") of approximately $240,000 available at December 31, 1998 to offset its
future U.S. taxable income. This amount may not be available or available only
in limited amounts as a result of the stock exchange agreement discussed in note
12. However, the successor may authorize other tax planning techniques to
utilize a portion of the remaining NOLs before they expire. These net operating
losses expire over the next 19 years, the majority of which expire 2018. The net
operating loss carryforwards for state purposes are not significant and,
therefore, have not been recorded as deferred tax assets. Any tax benefits
subsequently recognized will be allocated to additional paid in capital.
56
<PAGE>
GENESIS MEDIA GROUP, INC.
Notes to Financial Statements
For the two years ended December 31, 1998 and
the six months ended June 30, 1999 and 1998 (Unaudited)
Note 9 - Stockholders' Equity
Genesis has 50,000,000 shares of stock authorized at $0.0001 par value,
26,930,607 and 17,499,327 shares outstanding at December 31, 1998 and 1997,
respectively and 38,130,607 and 22,130,607 shares outstanding at June 30, 1999
and 1998.
During 1999, Genesis paid its chief executive officer 9,000,000 shares
of common stock in lieu of monetary compensation. The fair market value of the
payment, based on the fair market value of the Genesis stock's trading price,
was $576,000.
Note 10 - Earnings per Common Share
Earnings per common share are computed by dividing the net
income/(loss) by the average number of common shares and common stock
equivalents outstanding during the period. The weighted average number of common
shares outstanding during the periods were approximately 22,742,150 and
8,242,323 at December 31, 1998 and 1997 and 32,495,574 and 21,049,975 at June
30, 1999 and 1998.
Common stock equivalents are the net additional shares which would be
issuable upon the exercise of the outstanding common stock options, assuming
that Genesis reinvested the proceeds to purchase additional shares at market
value. Common stock equivalents had no material effect on the computation of
earnings per share for any period.
Note 11 - Restatement of 1997 Results of Operations and Change in Accounting
The 1997 income has been restated to eliminate the installment sale of
films since the transaction has not been completed by Genesis. The result is
that sales have been reduced by $5,400,000, operating income, net income and
retained earnings at December 31, 1997 have been reduced by $3,215,892.
Additionally, the Company has restated herein the application of APBO 16,
interpretation 39, to reflect the value of the music library based on the cost
paid the majority shareholders rather than the fair market value at the date of
the contribution. This change had the effect of reducing the music library and
paid in capital by approximately $41,000,000. The changes to the results of
operations were not material.
Note 12 - Subsequent Company Exchange Agreement
In June 1999, Genesis entered into a stock exchange agreement with Open
Door Music, Inc. whereby Genesis would acquire all of the issued and outstanding
stock of Open Door Records, Inc. in exchange for stock of Genesis. In addition,
the agreement provides for the resignation of management and directors and the
appointment of directors and executives selected by Open Door. This agreement
was completed as of June 30, 1999, whereupon Genesis changed its name to Open
Door Online, Inc. The exchange referred to in this note is not reflected in
these financial statements.
57
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58
<PAGE>
PART III. EXHIBITS
ITEM 1. INDEX TO EXHIBITS
The following exhibits are filed with this Form 10-SB:
Number Description
------- -------------------------------------------------------------------
3(i)* Articles of Incorporation
3(ii)* By-laws
10.1* Stock Exchange Agreement between Genesis Media Group, Inc. and
Open Door Records, Inc.
10.2 Employment Agreement between Open Door Online, Inc. and David N.
DeBaene
10.3 Employment Agreement between Open Door Online, Inc. and Camille
M. Barbone
10.4 Employment Agreement between Open Door Online, Inc. and Norman J.
Birmingham
10.5 Employment Agreement between Open Door Online, Inc. and Thomas
Carley
10.6 Exclusive Distribution Agreement between Richard Wagner d/b/a
Wagner Music Group and Open Door Music Distribution
10.7 Exclusive Recording Contract between Open Door Records, Inc. and
Christopher O'Hara, Daniel Roselle, James Farrell, and Walter
Lockhart (No Soap Radio)
10.8 License Agreement between Intershow Records AG and Open Door Music
10.9 Agreement between LiveOnTheNet.com and Open Door Music, Inc.
10.10 Exclusive Distribution Agreement between KnowSavage Productions,
Inc. and Open Door Music Distribution
10.11 Bowvau Distribution Agreement
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
*Previously filed.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
OPEN DOOR ONLINE, INC.
Date:
By: /s/
------------------------------
David N. DeBaene, Chairman
60
<PAGE>
Number Description
------- -------------------------------------------------------------------
3(i)* Articles of Incorporation
3(ii)* By-laws
10.1* Stock Exchange Agreement between Genesis Media Group, Inc. and
Open Door Records, Inc.
10.2 Employment Agreement between Open Door Online, Inc. and David N.
DeBaene
10.3 Employment Agreement between Open Door Online, Inc. and Camille
M. Barbone
10.4 Employment Agreement between Open Door Online, Inc. and Norman J.
Birmingham
10.5 Employment Agreement between Open Door Online, Inc. and Thomas
Carley
10.6 Exclusive Distribution Agreement between Richard Wagner d/b/a
Wagner Music Group and Open Door Music Distribution
10.7 Exclusive Recording Contract between Open Door Records, Inc. and
Christopher O'Hara, Daniel Roselle, James Farrell, and Walter
Lockhart (No Soap Radio)
10.8 License Agreement between Intershow Records AG and Open Door Music
10.9 Agreement between LiveOnTheNet.com and Open Door Music, Inc.
10.10 Exclusive Distribution Agreement between KnowSavage Productions,
Inc. and Open Door Music Distribution
10.11 Bowvau Distribution Agreement
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
*Previously filed.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") effective as of the 15th day of
November, 1999 between OPEN DOOR ON LINE, INC., a Delaware corporation (together
with its successors and assigns referred to herein as the "Corporation"), with
principal executive offices located at 46 Old Flat River Road, Coventry, Rhode
Island 02816; and DAVID N. DeBAENE, residing at 60 Peters Lane, West Warwick,
Rhode Island 02893 (the "Executive").
W I T N E S E T H:
WHEREAS, the Corporation desires to employ Executive as the
Corporation's Chairman of the Board, Chief Executive Officer, President to
engage in such activities and to render such services under the terms and
conditions hereof and has authorized and approved the execution of this
Agreement; and
WHEREAS, Executive desires to be employed by the Corporation under the
terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Services. The Corporation hereby employs Executive, for the Term (as
hereinafter defined in Section 2 hereof), to render services to the business and
affairs of the Corporation in the office referenced in the recitals hereof and,
in connection therewith, shall perform such duties as directed by the Board of
Directors of the Corporation from time to time, in its reasonable discretion,
and shall perform such other duties as shall be consistent with the
responsibilities of such office (collectively the "Services"). Executive shall
perform activities related to such office as he shall reasonably be directed or
requested to so perform by the Corporation's Board of Directors, to whom he
shall report. Executive shall use his best efforts, skill and abilities to
promote the interests of the Corporation and its subsidiaries.
1.2 Acceptance. Executive hereby accepts such employment and agrees to
render the Services.
1.3 Representations of the Executive. The Executive represents and warrants
to the Corporation that his execution and delivery of this Agreement, his
performance of the Services hereunder and the observance of his other
obligations contemplated hereby will not (i) violate any provisions of or
require the consent or approval of any party to any agreement, letter of intent
or other document to which he is a party or (ii) violate or conflict with any
arbitration award, judgment or decree or other restriction of any kind to or by
which he is subject or bound.
1.4 Executive's Ability to Contract. Notwithstanding anything herein
contained to the contrary, executive shall have the right to make any contracts
or commitments on behalf of the division the Executive operates as long as the
Executive holds the position described above. Ratification of this contract by
the Board of Directors authorizes the Executive right to negotiate all contracts
up to $1,000,000. All other agreements in excess of these amounts or requiring
commitment of company stock require the express consent of the Board of
Directors.
2. Term of Employment.
The term of Executive's employment under this Agreement (the "Term")
shall commence on November 15, 1999 and shall terminate on November 14, 2002,
unless sooner terminated pursuant to Sections 9 or 5.2 of this Agreement;
provided, however, if the Corporation shall fail to give Executive notice of
non-renewal not less than 180 days prior to the scheduled expiration of the Term
hereof, the Term shall automatically be extended for an additional three (3)
year period. Notwithstanding anything to the contrary contained herein, the
provisions of this Agreement governing Protection of Confidential Information
shall continue in effect as specified in Section 10 hereof.
3. Base Salary, Expense Reimbursement and Stock Options.
3.1 Base Salary. During the Term, as full compensation for the Services,
the Corporation agrees to pay Executive a minimum base salary ("Base Salary") at
the annual rate of $95,000 for the period from November 15, 1999 to December 31,
2000. Such Base Salary shall be (i) increased thirteen percent (13%) annually
effective January 1st of each year during the term of this Agreement, except in
te first year, (ii) reviewed periodically for possible increases promptly after
each future acquisition by the Corporation of any other corporation or business
or other material increase in the Corporation's revenues or scope of the
Corporation's business and (iii) renegotiated in good faith effective as of July
15, 2002 for possible increase based upon the Corporation's historical
performance and projections for future performance. Such Base Salary shall be
subject to withholding and other applicable taxes, payable during the term of
this Agreement in accordance with the Corporation's customary payment practices,
but not less frequently than monthly.
3.2 Business Expense Reimbursement. Upon submission to, and approval by an
officer of the Corporation designated by the Board of Directors of the
Corporation, of a statement of expenses, reports, vouchers or other supporting
information, which approval shall be granted or withheld based on the
Corporation's policies in effect at such time, the Corporation shall promptly
reimburse Executive for all reasonable business expenses actually incurred or
paid by him during the Term or renewals thereof in the performance of the
Services, including, but not limited to, expenses for entertainment, travel and
similar items.
3.3 Stock Option Agreement. In addition to the salary hereinabove provided,
the Executive shall be granted options to purchase 25,000 shares of the
Corporation's Common Stock as of January 1 of each year during the Term of this
Agreement at an exercise price equal to to average of the closing bid and asked
price of the Corporation's Common Stock during month of December immediately
preceeding said January 1, pursuant to the terms of the Stock Option Agreement
between the Corporation and the Executive executed concurrently herewith.
4. Profit Sharing.
4.1 Bonus Amount. In order to provide performance-based incentive
compensation to the Executive, the Corporation hereby agrees to pay the
Executive, in addition to the Base Salary set forth in Section 3 hereof, a
minimum cash bonus in respect of each fiscal year during the Executive's
employment hereunder (the "Bonus") equal to the Applicable Percentage (as
defined below) of the Net Pre-Tax Income (as defined below) of the Corporation.
For purposes hereof, the Applicable Percentage shall equal (a) 1.0% if the Net
Pre-Tax Income of the Corporation is less than $2,500,000 (b) 2.0% if the Net
Pre-Tax Income of the Corporation is at least $2,500,000, but less than
$3,500,000; (c) 2.5% if the Net Pre-Tax Income of the Corporation is at least
$3,500,001, but less than $5,000,000; and (d) 3.0% if the Net Pre-Tax Income of
the Corporation is at least $5,000,001.
4.2 Net Pre-Tax Income of the Corporation. For purposes hereof, the Net
Pre-Tax Income of the Corporation shall be the amount determined by the Board of
Directors of the Corporation, after consultation with the independent
accountants of the Corporation, to be the Net Pre-Tax Income of the Corporation
with respect to a given fiscal year, which amount shall be determined based on
the financial statements of the Corporation (a) in a manner consistent with
generally accepted accounting principles, (b) with regard solely to the
Corporation and its subsidiaries, (c) so as to exclude the effect of any
elimination of inter-Corporation transfers applied with respect to any entity
which is not a subsidiary of the Consumer Products Division, (d) after adding
back any charges for management consulting or corporate services or payments
with respect to non-competition agreements which may be paid to persons who are
subject to reporting obligations with respect to the Corporation under Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or their affiliates (other than the Corporation and its subsidiaries), (e)
having regard to such other matters, if any, as the Board of Directors of the
Corporation may determine to be equitable to consider and (f) without giving
effect to any Bonus paid pursuant to this Section 4.2. The determination of the
Board of Directors of the Corporation shall be final, conclusive and binding for
all purposes, absent manifest error.
4.3 Determination and Payment. The determination of the Applicable
Percentage, of the Net Pre-Tax Income and of the extent to which any Bonus under
this Section 4 may be payable (the "Final Determination") shall be determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) of
the Corporation in accordance with the terms hereof based on the financial
statements of the Corporation and the criteria set forth herein with respect to
each fiscal year. Such Final Determination with respect to any fiscal year shall
be made promptly, and in any event within 15 days, after the Corporation has
filed its Annual Report on Form 10-K for each year with the Securities and
Exchange Commission. Within 45 days after the end of the Corporation's fiscal
year, based on the preliminary results of the Corporation for such fiscal year,
the Corporation shall pay the Executive an amount equal to 60% of the estimated
minimum cash Bonus based on such preliminary results. The balance of the
definitive Bonus so determined, if any, shall be payable to the Executive in a
single lump sum no later than thirty days after the Final Determination has been
made. In any event, all matters pertaining to the Bonus and to the payment of
any Bonus to the Executive hereunder, shall be administered and determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) in
its reasonable discretion consistent with the terms hereof, the determination of
which shall be final, conclusive and binding for all purposes, absent manifest
error.
4.4 Bonus. The Board of Directors, at its discretion shall be allowed to
provide an additional bonus in excess of the remuneration already included.
4.5 Partial Years. Notwithstanding anything contained herein to the
contrary, no Bonus under this Section 4 shall be deemed earned or payable with
respect to any fiscal year during which this Agreement or the Executive's
employment is terminated by the Corporation for Cause (as such term is
hereinafter defined).
4.6 Nothing in this Section 4 shall be construed as conferring upon the
Executive any right (i) normally associated with the ownership of capital stock;
(ii) to continue in the employ of the Corporation or any affiliate of the
Corporation; or (iii) to interfere in any way with the right of the Corporation
to terminate this Agreement in accordance with the provisions hereof. Nothing in
this Agreement shall be construed to imply that any specific assets of the
Corporation have been set aside to provide for payments under this Agreement.
Any payments under this Agreement shall be made solely from general assets of
the Corporation existing at the time such payments are due.
5. Severance Upon Termination.
5.1 Termination. In the event that Executive's employment hereunder shall
be terminated by the Corporation without Cause (as defined in Section 9.3
hereof) or by the Executive for Good Reason (as defined in Section 9.5 hereof)
or upon a Change in Control (as defined in Section 9.6 hereof) or upon the death
or Disability (as defined in Section 9.2) of Executive at any time prior to the
end of the Term, the Executive shall be entitled to receive from the
Corporation, in addition to any Base Salary earned to the date of termination, a
severance payment in an amount equal to the greater of (i) the balance of the
Executive's Base Salary due through the balance of the Term of this Agreement or
(ii) two (2) times the Executive's Base Salary as was payable to Executive
during the then current calendar year plus two (2) times the Bonus for which
Executive was entitled during the immediately preceding fiscal year. In addition
to the severance payment set forth in the preceding sentence, in the event
Executive's employment hereunder shall be terminated by the Corporation without
Cause or by Executive for Good Reason or upon a Change in Control. In the event
of any such termination, the amounts due hereunder shall be payable, in lump sum
of the effective date of termination, without offset or defense or any
obligation of the Executive to mitigate damages.
5.2 Right of First Refusal. In the event that Executive's employment
hereunder shall be terminated for any reason other than the death or disability
(as defined by Section 9.2 hereof) of Executive, Executive shall have the right,
exercisable upon thirty (30) days written notice following the effective date of
termination, to acquire all or any portion of the patents, trademarks, trade
names, machinery, inventory or other assets used by, useful to or otherwise
relating to Corporation's safety related work clothing business, free and clear
of any liens and encumbrances, for a purchase price equal to the then current
fair market value of said assets. Within thirty (30) days following Executive's
notice of exercise, Executive and the Corporation shall jointly select and
mutually agree on an appraiser, whose appraisal of said assets shall be binding.
The transfer of said assets and the purchase price shall be paid in full within
ninety following receipt of said appraisal. Executive shall be permitted to file
a UCC Financing Statement notice filing to evidence the rights hereunder.
Executive agrees to to accept a junior position if the Corporation has
successfully raised capital with these assets as collaterral.
6. Additional Benefits.
6.1 In General. In addition to the compensation, bonuses, expenses and
other benefits to be paid under Sections 3, 4 and 5 hereof, Executive will be
entitled to all rights and benefits for which he shall be eligible under any
insurance, health and medical, incentive, bonus, profit-sharing, pension or
other extra compensation or "fringe" benefit plan of the Corporation or any of
its subsidiaries now existing or hereafter adopted for the benefit of the
executives or employees generally of the Corporation. The provisions of this
Agreement which incorporate employee benefit packages shall change as and when
such employee benefit packages change. In the event that the Corporation does
not provide family health and medical insurance for the benefit of the
executives and employees generally of the Corporation, the Corporation shall
provide Executive and pay the all costs associated with family health and
medical insurance for the benefit of Executive as selected by Executive in his
sole discretion.
6.2 Automobile. The Corporation shall pay the Executive $300 per month,
plus all expenses including insurance, repairs and maintenance plus fuel.
6.3 Life and Disability Insurance. The Corporation shall provide the
Executive with (i) a policy of term life insurance in an amount equal to not
less than three (3) times his annual Base Salary hereunder, payable to such
beneficiary or beneficiaries as shall be designated by him in writing and (b) a
policy of disability insurance that will provide Executive with an annual amount
equal to not less than seventy-five percent (75%) of his then current Base
Salary, payable until Executive shall reach 65 years of age, with a waiting
period not to exceed 120 days.
6.4 Director's and Officers Insurance. The Corporation shall provide the
Executive with a policy of director's and officers liability insurance in such
amounts and providing such coverage as the Executive and the Corporation shall
reasonably agree, consistent with policies obtained by other publicly held
companies of similar size and engaged in similar businesses.
7. Vacation.
The Executive shall be entitled, during the Term of this Agreement, to
a vacation period annually as follows:
November 15, 1999 through November 14, 2002 -- four (4) weeks;
during which all salary, compensation, benefits and other rights to which the
Executive is entitled to hereunder shall be provided in full. Such vacation may
be taken in the Executives discretion, and such time or times as are not
inconsistent with the reasonable business needs of the Corporation. In addition,
Executive shall be entitled to up to eight (8) sick days and two (2) personal
days for each year commencing January 1, during which all salary, compensation,
benefits and other rights to which the Executive is entitled to hereunder shall
be provided in full.
8. Insurability; Right to Insure.
Executive agrees that the Corporation shall have the right during the
Term to insure the life of Executive by a policy or policies of insurance in
such amount or amounts as it may deem necessary or desirable, and the
Corporation shall be the beneficiary of any stitch policy or policies and shall
pay the premiums or other costs thereof. The Corporation shall have the right,
from time to time, to modify any such policy or policies of insurance or to take
out new insurance on the life of Executive. Executive agrees, upon request, at
any time or times prior to the commencement of or during the Term to sign and
deliver any and all documents and to submit to any physical or other reasonable
examinations which may be required in connection with any such policy or
policies of insurance or modifications thereof.
9. Termination.
9.1 Death. If Executive dies during the Term of this Agreement, Executive's
employment hereunder shall terminate upon his death and all obligations of the
Corporation hereunder shall terminate on such date, except that Executive's
estate or his designated beneficiary shall be entitled to payment of any unpaid
accrued Base Salary through the date of his death. In addition, any accrued and
unpaid Bonus shall be paid in accordance with Section 4 hereof. In addition,
Executive's estate or his designated beneficiary shall be entitled to payment of
the severance payments set forth in Section 5.1 hereof.
9.2 Disability. If Executive shall be unable to perform a significant part
of his duties and responsibilities in connection with the conduct of the
business and affairs of the Corporation and such inability lasts for (i) a
period of at least one hundred twenty (120) consecutive days, or (ii) periods
aggregating at least one hundred eighty (180) days during any three hundred
sixty-five (365) consecutive days, by reason of Executive's physical or mental
disability, whether by reason of injury, illness or similar cause, Executive
shall be deemed disabled, and the Corporation any time thereafter may terminate
Executive's employment hereunder by reason of the disability. Upon delivery to
Executive of such notice, all obligations of the Corporation hereunder shall
terminate, except that Executive shall be entitled to payment of any unpaid
accrued Base Salary through the date of termination. In addition, any accrued
and unpaid Bonus shall be paid in accordance with Section 4 hereof. In addition,
the Executive shall be entitled to those severance payments set forth in Section
5.1 hereof. The obligations of Executive under Section 10 hereof shall continue
notwithstanding termination of Executive's employment pursuant to this Section
9.2.
9.3 Termination For Cause. The Corporation may at any time during the Term,
without any prior notice, terminate this Agreement and discharge Executive for
Cause, whereupon the Corporation's obligation to pay compensation or other
amounts payable hereunder to or for the benefit of Executive shall terminate on
the date of such discharge. As used herein the term Cause shall mean: (i) a
willful and material breach by Executive of the terms of this Agreement' which
breach shall not have been cured within thirty (30) days of written notice of
such breach; (ii) willful violation of specific and lawful written direction
from the Board of Directors of the Corporation, which violation shall not have
been cured within thirty (30) days of written notice of such violation, provided
such direction is not inconsistent with the Executive's duties and
responsibilities as the Chairman of the Board, Chief Executive Officer and
President of the Corporation; or (iii) conviction of the Executive of a felony
by a federal or state court of competent jurisdiction, which felony is directly
and materially related to or arises out of Executive's employment with the
Corporation. The obligations of the Executive under Section 10 shall continue
notwithstanding termination of the Executive's employment pursuant to this
Section 9.3.
9.4 Termination Without Cause. The Corporation shall have the option to
terminate this Agreement Without Cause upon one hundred and eighty (180) days'
written notice to the Executive. In the event the Corporation terminates this
Agreement without Cause as defined above, the Corporation shall pay the
Executive upon termination, the amount required pursuant to Section 5.1. The
obligations of the Executive under Section 10 hereof shall continue
notwithstanding termination of the Executive's employment pursuant to this
Section 9.4.
9.5 Termination by Executive For Good Reason. The Executive shall have the
right to terminate this Agreement for Good Reason, as hereinafter defined, upon
written notice to the Corporation. Good Reason shall mean any of the following:
(i) the assignment to the Executive of duties inconsistent with the Executive's
position, duties, responsibilities, titles or offices as described herein; (ii)
any material reduction by the Corporation of the Executive's duties and
responsibilities (including the appointment, without the Executive's consent, of
an Executive officer senior to him in the division); (iii) any reduction by the
Corporation of the Executive's compensation or benefits payable hereunder (it
being understood that a reduction of benefits applicable to all executives of
the Corporation, including the Executive, shall not be deemed a reduction of the
Executive's compensation package for purposes of this definition); (iv)
requiring the Executive to be based without his consent at a location not within
reasonable commuting distance of Coventry, Rhode Island; (v) the Corporation
sells, transfers or discontinues the uses of any or all of the patents,
trademarks, tradenames, machinery, or other assets (other than inventory in the
ordinary course of business or assets that may become obsolete or depleted over
time) relating to, or discontinues the operations of or otherwise ceases to
engage in, the Corporation's main business activities
9.6. Termination by Executive upon Change in Control. Executive, at his
option, shall be able to terminate this Agreement upon written notice given to
the Secretary of the Corporation within ninety (90) days of an occurrence of a
"Change in Control". A "Change in Control" of the Corporation shall mean a
change in control of the Corporation or any entity controlling the Corporation
(referred to collectively in this Section 5 as the Corporation) of a nature that
would be required to be reported in response to Item 1 of a Current Report on
Form 8-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); provided that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
person who or which was a shareholder of the Corporation immediately prior to
the Corporation's initial public offering (the "IPO") (other than Patina
Corporation, a Florida corporation or its shareholders or in relation to the
terms and conditions of the contract of August, 1999), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing twenty-five percent
(25%) or more of the combined voting power of the Corporation's outstanding
securities ordinarily having the right to vote at elections of directors; or (b)
individuals who constitute the Board concurrent with the execution of this
Agreement (the incumbent Board) cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a sale by
the Corporation of all or substantially all of its assets occurs.
Notwithstanding anything in the foregoing to the contrary, no Change in Control
shall be deemed to have occurred for purposes of this Agreement by virtue of any
transactions which result in the acquisition by the Executive, or by a group of
persons which includes the Executive, directly or indirectly, of a majority of
either the outstanding shares of common stock of the Corporation or the voting
securities of any corporation which acquires all or substantially all of the
assets of the Corporation, whether by way of merger, consolidation, sale of such
assets or otherwise.
10. Protection of Confidential Information.
In view of the fact that Executive's work for the Corporation will
bring him into close contact with confidential information and plans for future
developments, Executive agrees to the following:
10.1 Secrecy. To keep secret and retain in the strictest confidence all
confidential matters of the Corporation, including, without limitation, trade
"know how" and trade secrets, customer lists, pricing policies, marketing plans,
technical processes, formulae, inventions and research projects, and other
business affairs of the Corporation, learned by him heretofore or hereafter, and
not to disclose them to anyone inside or outside of the Corporation, except in
the course of performing the Services hereunder or with the express written
consent of the Chief Executive Officer or Board of Directors of the Corporation
and except to the extent such information is already known to the general public
10.2 Return Memoranda, etc. To deliver promptly to the Corporation on
termination of his employment, or at any other time as the Chief Executive
Officer or the Board of Directors of the Corporation may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Corporation's business and
all property associated therewith, which he may then possess or have under his
control.
10.3 Covenants.
10.31 Non-competition. Executive agrees that at all times while he is
employed by the Corporation and, regardless of the reason for termination of his
employment or this Agreement, for a period of one (1) year thereafter, he will
not, as a principal, agent, employee, employer, consultant, stockholder,
investor, director or co-partner of any person, firm, corporation or business
entity other than the Corporation, or in any individual or representative
capacity whatsoever, directly or indirectly, without the express prior written
consent of the Corporation:
(i) engage or participate in any business whose products or services are
competitive with that of the Corporation, which business is involved
with all facets music production and sales, and which conducts or
solicits business, or transacts with supplier or customers located
within the United States and worldwide;
(ii) aid or counsel any other person, firm, corporation or business entity
to do any of the above;
(iii)become employed by a firm, corporation, partnership or joint venture
which competes with the business of the Corporation within the United
States; or
(iv) approach, solicit business from, or otherwise do business or deal with
any customer of the Corporation in connection with any product or
service competitive to any provided by the Corporation.
10.32 Anti-Raiding. Executive agrees that during the term of his employment
hereunder, and, thereafter for a period of one (1) year, he will not, as a
principal, agent, employee, employer, consultant, director or partner of any
person, firm, corporation or business entity other than the Corporation, or in
any individual or representative capacity whatsoever' directly or indirectly,
without the prior express written consent of the Corporation approach, counsel
or attempt to induce any person who is then in the employ of the Corporation to
leave the employ of the Corporation or employ or attempt to employ any such
person or persons who at any time during the preceding six months was in the
employ of the Corporation.
10.33 Executive's Acknowledgements. Executive acknowledges (i) that his
position with the Corporation requires the performance of services which are
special, unique, and extraordinary in character and places him in a position of
confidence and trust with e Customers and employees of the Corporation, through
which, among other things, he shall obtain knowledge of the Corporation's
"technical information" and "know-how" and become acquainted with its customers,
in which matters the Corporation has substantial proprietary interests; (ii)
that the restrictive covenants set forth above are necessary in order to protect
and maintain such proprietary interests and the other legitimate business
interests of the Corporation; and (iii) that the Corporation would not have
entered into this Agreement unless such covenants were included herein.
Executive also acknowledges that the business of the Corporation
presently will extend throughout the United States, and that he will personally
supervise and engage in such business on behalf of Corporation and, accordingly,
it is reasonable that the restrictive covenants set forth above are not more
limited as to geographic area then is set forth therein. Executive also
represents to the Corporation that the enforcement of such covenants will not
prevent Executive from earning a livelihood or impose an undue hardship on the
Executive.
10.4 Severability. If any of the provisions of this Section 10, or any part
thereof, is hereinafter construed to be invalid or unenforceable, the same shall
not affect the remainder of such provision or provisions, which shall be given
full effect, without regard to the invalid portions. If any of the provisions of
this Section 10, or any part thereof, is held to be unenforceable because of the
duration of such provision, the area covered thereby or the type of conduct
restricted therein, the parties agree that the court making such determination
shall have the power to modify the duration, geographic area and/or other terms
of such provision and, as so modified, said provision(s) shall then be
enforceable. In the event that the courts of any one or more jurisdictions shall
hold such provisions wholly or partially unenforceable by reason of the scope
thereof or otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the Corporation's right to the relief
provided for herein in the courts of any other jurisdictions as to breaches or
threatened breaches of such provisions in such other jurisdictions, the above
provisions as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.
10.5 Injunctive Relief. Executive acknowledges and agrees that, because of
the unique and extraordinary nature of his services, any breach or threatened
breach of the provisions of Sections 10.1, 10.2, or 10.3 hereof will cause
irreparable injury and incalculable harm to the Corporation, and the Corporation
shall, accordingly, be entitled to injunctive and other equitable relief for
such breach or threatened breach and that resort by the Corporation to such
injunctive or other equitable relief shall not be deemed to waive or to limit in
any respect any right or remedy which the Corporation may have with respect to
such breach or threatened breach. The Corporation and Executive agree that any
such action for injunctive or equitable relief shall be heard in a state or
federal court situate in Rhode Island and each of the parties hereto, hereby
agrees to accept service of process by registered mail and to otherwise consent
to the jurisdiction of such courts.
10.6 Expenses of Enforcement of Covenants. In the event that any action,
suit or proceeding at law or in equity is brought to enforce the covenants
contained in Sections 10.1, 10.2, or 10.3 hereof or to obtain money damages for
the breach thereof, the party prevailing in any such action, suit or other
proceeding shall be entitled upon demand, to reimbursement from the other party
for all expenses (including, without limitation, reasonable attorneys' fees and
disbursements) incurred in connection therewith.
10.7 Separate Agreement. The provisions of this Section 10 shall be
construed as an agreement on the part of the Executive independent of any other
part of this Agreement or any other agreement, and the existence of any claim or
cause of action of the Executive against the Corporation, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Corporation of the provisions of this Section 10.
11. Indemnification.
The Corporation shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors and
officers liability insurance policy at the Corporation's expense to the same
extent as provided for any other director, officer or trustee of the
Corporation. In addition, the Corporation shall indemnify the Executive (and his
heirs, executors and administrators) to the fullest extent permitted under the
law of its state of incorporation against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which the Executive may be involved by reason of his having
been a director or officer of the Corporation or any subsidiary thereof. Such
expenses and liabilities shall include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board if such action is brought against the
Executive in his capacity as a director or officer of the Corporation or any
subsidiary thereof. The Corporation shall, upon the request of the Executive,
advance to the Executive such amounts as necessary to cover expenses, including
without limitation legal fees and expenses, incurred by the Executive in
connection with any suit or proceeding in which the Executive may be involved by
reason of his being or having been a director or officer of the Corporation or
of any subsidiary thereof. Such indemnity and advance of expenses, however,
shall not extend to matters as to which the Executive is finally adjudged to be
liable for wilful misconduct in the performance of his duties.
12. Arbitration.
Except with respect to any proceeding brought under Section 10 hereof,
any controversy, claim, or dispute between the parties, directly or indirectly,
concerning this Employment Agreement or the breach hereof, or the subject matter
hereof, including questions concerning the scope and applicability of this
arbitration clause, shall be finally settled by arbitration in Kent County,
Rhode Island pursuant to the rules then applying of the American Arbitration
Association The arbitrators shall consist of one representative selected by the
Corporation, one representative selected by the Executive and one representative
selected by the first two arbitrators The parties agree to expedite the
arbitration proceeding in every way, so that the arbitration proceeding shall be
commenced within thirty (30) days after request therefore is made, and shall
continue thereafter, without interruption, and that the decision of the
arbitrators shall be handed down within thirty (30) days after the hearings in
the arbitration proceedings areclosed. The arbitrators shall have the right and
authority to assess the cost of the arbitration proceedings and to determine how
their decision or determination as to each issue or matter in dispute may be
implemented or enforced. The decision in writing of any two of the arbitrators
shall be binding and conclusive on all of the parties to this Agreement. Should
either the Corporation or the Executive fail to appoint an arbitrator as
required by this Section 12 within thirty (30) days after receiving written
notice from the other party to do so, the arbitrator appointed by the other
party shall act for all of the parties and his decision in writing shall be
binding and conclusive on all of the parties to this Employment Agreement. Any
decision or award of the arbitrators shall be final and conclusive on the
parties to this Agreement; judgment upon such decision or award may be entered
in any competent Federal or state court located in the United States of America;
and the application may be made to such court for confirmation of such decision
or award for any order of enforcement and for any other legal remedies that may
be necessary to effectuate such decision or award.
13. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder, shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telegram, telecopy or
mailed first-class, postage prepaid, by registered or certified mail (notices
sent by telegram or mailed shall be deemed to have been given on the date sent),
to the parties at their respective addresses hereinabove set forth or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith. Copies of all notices shall be sent to the Executive's
attorney so designated, in writing from time to time.
14. General.
14.1 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the local laws of the State of Rhode Island
applicable to agreements made and to be performed entirely in Rhode Island.
14.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
14.3 Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation'
promise or inducement not so set forth.
14.4 Severability. If any of the provisions of this Agreement shall be
unlawful, void, or for any reason, unenforceable, such provision shall be deemed
severable from, and shall in no way affect the validity or enforceability of,
the remaining portions of this Agreement.
14.5 Waiver. The waiver by any party hereto of a breach of any provision of
this Agreement by any other party shall not operate or be construed as a waiver
of any subsequent breach of the same provision or any other provision hereof.
14.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
14.7 Assignability. This Agreement, and Executive's rights and obligations
hereunder, may not be assigned by Executive. The Corporation may assign its
rights, together with its obligations, hereunder in connection with any sale,
transfer or other disposition of all or substantially all of its business or
assets; in any event the rights and obligations of the Corporation hereunder
shall be binding on its successors or assigns, whether by merger, consolidation
or acquisition of all or substantially all of its business or assets; provided,
however, that any such assignment shall not release the Corporation from its
obligations hereunder, provided the Executive has been requested and given his
consent in writing. This Agreement shall inure to the benefit of, and be binding
upon, the Executive and his executors, administrators, heirs and legal
representatives.
14.8 Amendment This Agreement may be amended, modified, superseded,
cancelled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. No superseding instrument,
amendment, modification, cancellation, renewal or extension hereof shall require
the consent or approval of any person other than the parties hereto. The failure
of either party at any time or times to require performance of any provision
hereof shall in no matter affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: OPEN DOOR ON LINE, INC.
By: _____________________ By: _____________________________
Name: Name:
Title: Title
WITNESS:
- -------------------------- -----------------------------------
David N. DeBaene, individually
<PAGE>
Amendment to Employment Contract
David N DeBaene
November 11, 1999
Paragraph 3.3 Stock Option Agreement is rescinded due to the lack of an
authorized employment stock option program. In the event the Board of Directors
of Open Door Online, Inc. and the shareholders agree to the formation of a stock
option plan awards may be made upon the approval of the Board of Directors at
that time.
Signed this 31st day of March, 2000
- -----------------------------------
David N. DeBaene
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") effective as of the 1st day of
March, 2000 between OPEN DOOR ONLINE, INC., a New Jersey corporation (together
with its successors and assigns referred to herein as the "Corporation"), with
principal executive offices located at 46 Old Flat River Road, Coventry, Rhode
Island 02816; and CAMILLE M BARBONE, residing at 206 Bryan's Rd., Hampton, NJ
08827 (the "Executive").
W I T N E S E T H:
WHEREAS, the Corporation desires to employ Executive as the Chief
Operating Officer to engage in such activities and to render such services under
the terms and conditions hereof and has authorized and approved the execution of
this Agreement; and
WHEREAS, Executive desires to be employed by the Corporation under the
terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Services. The Corporation hereby employs Executive, for the Term
(as hereinafter defined in Section 2 hereof), to render services to the business
and affairs of the Corporation in the office referenced in the recitals hereof
and, in connection therewith, shall perform such duties as directed by the Board
of Directors of the Corporation from time to time, in its reasonable discretion,
and shall perform such other duties as shall be consistent with the
responsibilities of such office (collectively the "Services"). Executive shall
perform activities related to such office as he shall reasonably be directed or
requested to so perform by the Corporation's Board of Directors, to whom he
shall report. Executive shall use his best efforts, skill and abilities to
promote the interests of the Corporation and its subsidiaries.
1.2 Acceptance. Executive hereby accepts such employment and agrees to
render the Services.
1.3 Representations of the Executive. The Executive represents and
warrants to the Corporation that his execution and delivery of this Agreement,
his performance of the Services hereunder and the observance of his other
obligations contemplated hereby will not (i) violate any provisions of or
require the consent or approval of any party to any agreement, letter of intent
or other document to which he is a party or (ii) violate or conflict with any
arbitration award, judgment or decree or other restriction of any kind to or by
which he is subject or bound.
1.4 Executive's Ability to Contract. Notwithstanding anything herein
contained to the contrary, executive shall have the right to make any contracts
or commitments on behalf of the division the Executive operates as long as the
Executive holds the position described above. Ratification of this contract by
the Board of Directors authorizes the Executive right to negotiate for all
normal business contracts up to $500,000 per contract, per annum in conjunction
with and approval by the President of the Company. All other agreements in
excess of these amounts or requiring commitment of company stock require the
express consent of the Board of Directors.
2. Term of Employment.
The term of Executive's employment under this Agreement (the "Term")
shall commence on March 1, 2000 and shall terminate on February 28, 2003, unless
sooner terminated pursuant to Sections 9 or 5.2 of this Agreement; provided,
however, if the Corporation shall fail to give Executive notice of non-renewal
not less than 90 days prior to the scheduled expiration of the Term hereof, the
Term shall automatically be extended for an additional three (3) year period.
Notwithstanding anything to the contrary contained herein, the provisions of
this Agreement governing Protection of Confidential Information shall continue
in effect as specified in Section 10 hereof.
3. Base Salary, Expense Reimbursement and Stock Options.
3.1 Base Salary. During the Term, as full compensation for the
Services, the Corporation agrees to pay Executive a minimum base salary ("Base
Salary") at the annual rate of $75,000 for the period from March 1, 2000 to
December 31, 2000. Such Base Salary shall be (i) increased thirteen percent
(13%) annually effective January 1st of each year during the term of this
Agreement, (ii) reviewed periodically for possible increases promptly after each
future acquisition by the Corporation of any other corporation or business or
other material increase in the Corporation's revenues or scope of the
Corporation's business and (iii) renegotiated in good faith effective as of July
15, 2002 for possible increase based upon the Corporation's historical
performance and projections for future performance. Such Base Salary shall be
subject to withholding and other applicable taxes, payable during the term of
this Agreement in accordance with the Corporation's customary payment practices,
but not less frequently than monthly.
3.2 Business Expense Reimbursement. Upon submission to, and approval by
an officer of the Corporation designated by the Board of Directors of the
Corporation, of a statement of expenses, reports, vouchers or other supporting
information, which approval shall be granted or withheld based on the
Corporation's policies in effect at such time, the Corporation shall promptly
reimburse Executive for all reasonable business expenses actually incurred or
paid by him during the Term or renewals thereof in the performance of the
Services, including, but not limited to, expenses for entertainment, travel and
similar items.
3.3 Stock Option Agreement. In addition to the salary hereinabove
provided, the Executive shall be granted options to purchase 25,000 shares of
the Corporation's Common Stock as of January 1 of each year during the Term of
this Agreement at an exercise price equal to to average of the closing bid and
asked price of the Corporation's Common Stock during month of December
immediately preceeding said January 1, pursuant to the terms of the Stock Option
Agreement between the Corporation and the Executive executed concurrently
herewith.
4. Profit Sharing.
4.1 Profit Sharing Amount. In order to provide performance-based
incentive compensation to the Executive, the Corporation hereby agrees to pay
the Executive, in addition to the Base Salary set forth in Section 3 hereof, a
minimum cash bonus in respect of each fiscal year during the Executive's
employment hereunder (the "Bonus") equal to the Applicable Percentage (as
defined below) of the Net Pre-Tax Income (as defined below) of the Corporation.
For purposes hereof, the Applicable Percentage shall equal (a) 1.0% if the Net
Pre-Tax Income of the Corporation is less than $2,500,000 (b) 2.0% if the Net
Pre-Tax Income of the Corporation is at least $2,500,000, but less than
$3,500,000; (c) 2.50% if the Net Pre-Tax Income of the Corporation is at least
$3,500,001, but less than $5,000,000; and (d) 3.0% if the Net Pre-Tax Income of
the Corporation is at least $5,000,001.
4.2 Net Pre-Tax Income of the Corporation. For purposes hereof, the Net
Pre-Tax Income of the Corporation shall be the amount determined by the Board of
Directors of the Corporation, after consultation with the independent
accountants of the Corporation, to be the Net Pre-Tax Income of the Corporation
with respect to a given fiscal year, which amount shall be determined based on
the financial statements of the Corporation (a) in a manner consistent with
generally accepted accounting principles, (b) with regard solely to the
Corporation and its subsidiaries, (c) so as to exclude the effect of any
elimination of interCorporation transfers applied with respect to any entity
which is not a subsidiary of the Corporation, (d) after adding back any charges
for management consulting or corporate services or payments with respect to
non-competition agreements which may be paid to persons who are subject to
reporting obligations with respect to the Corporation under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or their
affiliates (other than the Corporation and its subsidiaries), (e) having regard
to such other matters, if any, as the Board of Directors of the Corporation may
determine to be equitable to consider and (f) without giving effect to any Bonus
paid pursuant to this Section 4.2. The determination of the Board of Directors
of the Corporation shall be final, conclusive and binding for all purposes,
absent manifest error.
4.3 Determination and Payment. The determination of the Applicable
Percentage, of the Net Pre-Tax Income and of the extent to which any Bonus under
this Section 4 may be payable (the "Final Determination") shall be determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) of
the Corporation in accordance with the terms hereof based on the financial
statements of the Corporation and the criteria set forth herein with respect to
each fiscal year. Such Final Determination with respect to any fiscal year shall
be made promptly, and in any event within 15 days, after the Corporation has
filed its Annual Report on Form 10-K for each year with the Securities and
Exchange Commission. Within 45 days after the end of the Corporation's fiscal
year, based on the preliminary results of the Corporation for such fiscal year,
the Corporation shall pay the Executive an amount equal to 60% of the estimated
minimum cash Bonus based on such preliminary results. The balance of the
definitive Bonus so determined, if any, shall be payable to the Executive in a
single lump sum no later than thirty days after the Final Determination has been
made. In any event, all matters pertaining to the Bonus and to the payment of
any Bonus to the Executive hereunder, shall be administered and determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) in
its reasonable discretion consistent with the terms hereof, the determination of
which shall be final, conclusive and binding for all purposes, absent manifest
error.
4.4 Bonus. The Board of Directors, at its discretion shall be allowed
to provide an additional bonus in excess of the remuneration already included.
4.5 Partial Years. Notwithstanding anything contained herein to the
contrary, no Bonus under this Section 4 shall be deemed earned or payable with
respect to any fiscal year during which this Agreement or the Executive's
employment is terminated by the Corporation for Cause (as such term is
hereinafter defined).
4.6 Nothing in this Section 4 shall be construed as conferring upon the
Executive any right (i) normally associated with the ownership of capital stock;
(ii) to continue in the employ of the Corporation or any affiliate of the
Corporation; or (iii) to interfere in any way with the right of the Corporation
to terminate this Agreement in accordance with the provisions hereof. Nothing in
this Agreement shall be construed to imply that any specific assets of the
Corporation have been set aside to provide for payments under this Agreement.
Any payments under this Agreement shall be made solely from general assets of
the Corporation existing at the time such payments are due.
5. Severance Upon Termination.
5.1 Termination. In the event that Executive's employment hereunder
shall be terminated by the Corporation without Cause (as defined in Section 9.3
hereof) or by the Executive for Good Reason (as defined in Section 9.5 hereof)
or upon a Change in Control (as defined in Section 9.6 hereof) or upon the death
or Disability (as defined in Section 9.2) of Executive at any time prior to the
end of the Term, the Executive shall be entitled to receive from the
Corporation, in addition to any Base Salary earned to the date of termination, a
severance payment in an amount equal to the greater of (i) the balance of the
Executive's Base Salary due through the balance of the Term of this Agreement.
The amounts due hereunder shall be payable, in lump sum of the effective date of
termination, without offset or defense or any obligation of the Executive to
mitigate damages.
6. Additional Benefits.
6.1 In General. In addition to the compensation, bonuses, expenses and
other benefits to be paid under Sections 3, 4 and 5 hereof, Executive will be
entitled to all rights and benefits for which he shall be eligible under any
insurance, health and medical, incentive, bonus, profit-sharing, pension or
other extra compensation or "fringe" benefit plan of the Corporation or any of
its subsidiaries now existing or hereafter adopted for the benefit of the
executives or employees generally of the Corporation. The provisions of this
Agreement which incorporate employee benefit packages shall change as and when
such employee benefit packages change. In the event that the Corporation does
not provide family health and medical insurance for the benefit of the
executives and employees generally of the Corporation, the Corporation shall
provide Executive and pay the all costs associated with family health and
medical insurance for the benefit of Executive as selected by Executive in his
sole discretion.
6.2 Automobile. The Corporation shall pay Executive $300 per month,
plus all expenses including inssurance, repairs and maintenance, and fuel.
6.3 Life and Disability Insurance. The Corporation shall provide the
Executive with (i) a policy of term life insurance in an amount equal to not
less than three (3) times his annual Base Salary hereunder, payable to such
beneficiary or beneficiaries as shall be designated by him in writing and (b) a
policy of disability insurance that will provide Executive with an annual amount
equal to not less than seventy-five percent (75%) of his then current Base
Salary, payable until Executive shall reach 65 years of age, with a waiting
period not to exceed 120 days. This paragraph is effective, if and when all
officers compensation includes this provision.
6.4 Director's and Officers Insurance. The Corporation shall provide
the Executive with a policy of director's and officers liability insurance in
such amounts and providing such coverage as the Executive and the Corporation
shall reasonably agree, consistent with policies obtained by other publicly held
companies of similar size and engaged in similar businesses.
7. Vacation.
The Executive shall be entitled, during the Term of this Agreement, to
a vacation period annually, as follows:
November 15, 2000 through November 14, 2002 -- four (4) weeks;
during which all salary, compensation, benefits and other rights to which the
Executive is entitled to hereunder shall be provided in full. Such vacation may
be taken in the Executives discretion, and such time or times as are not
inconsistent with the reasonable business needs of the Corporation. In addition,
Executive shall be entitled to up to eight (8) sick days and two (2) personal
days for each year commencing January 1, during which all salary, compensation,
benefits and other rights to which the Executive is entitled to hereunder shall
be provided in full.
8. Insurability; Right to Insure.
Executive agrees that the Corporation shall have the right during the
Term to insure the life of Executive by a policy or policies of insurance in
such amount or amounts as it may deem necessary or desirable, and the
Corporation shall be the beneficiary of any stitch policy or policies and shall
pay the premiums or other costs thereof. The Corporation shall have the right,
from time to time, to modify any such policy or policies of insurance or to take
out new insurance on the life of Executive. Executive agrees, upon request, at
any time or times prior to the commencement of or during the Term to sign and
deliver any and all documents and to submit to any physical or other reasonable
examinations which may be required in connection with any such policy or
policies of insurance or modifications thereof.
9. Termination.
9.1 Death. If Executive dies during the Term of this Agreement,
Executive's employment hereunder shall terminate upon his death and all
obligations of the Corporation hereunder shall terminate on such date, except
that Executive's estate or his designated beneficiary shall be entitled to
payment of any unpaid accrued Base Salary through the date of his death. In
addition, any accrued and unpaid Bonus shall be paid in accordance with Section
4 hereof. In addition, Executive's estate or his designated beneficiary shall be
entitled to payment of the severance payments set forth in Section 5.1 hereof.
9.2 Disability. If Executive shall be unable to perform a significant
part of his duties and responsibilities in connection with the conduct of the
business and affairs of the Corporation and such inability lasts for (i) a
period of at least one hundred twenty (120) consecutive days, or (ii) periods
aggregating at least one hundred eighty (180) days during any three hundred
sixty-five (365) consecutive days, by reason of Executive's physical or mental
disability, whether by reason of injury, illness or similar cause, Executive
shall be deemed disabled, and the Corporation any time thereafter may terminate
Executive's employment hereunder by reason of the disability. Upon delivery to
Executive of such notice, all obligations of the Corporation hereunder shall
terminate, except that Executive shall be entitled to payment of any unpaid
accrued Base Salary through the date of termination. In addition, any accrued
and unpaid Bonus shall be paid in accordance with Section 4 hereof. In addition,
the Executive shall be entitled to those severance payments set forth in Section
5.1 hereof. The obligations of Executive under Section 10 hereof shall continue
notwithstanding termination of Executive's employment pursuant to this Section
9.2.
9.3 Termination For Cause. The Corporation may at any time during the
Term, without any prior notice, terminate this Agreement and discharge Executive
for Cause, whereupon the Corporation's obligation to pay compensation or other
amounts payable hereunder to or for the benefit of Executive shall terminate on
the date of such discharge. As used herein the term Cause shall mean: (i) a
willful and material breach by Executive of the terms of this Agreement' which
breach shall not have been cured within thirty (30) days of writen notice of
such breach; (ii) willful violation of specific and lawful written direction
from the Board of Directors of the Corporation, which violation shall not have
been cured within thirty (30) days of written notice of such violation, provided
such direction is not inconsistent with the Executive's duties and
responsibilities as the, Chief Executive Officer and President of the
Corporation; or (iii) conviction of the Executive of a felony by a federal or
state court of competent jurisdiction, which felony is directly and materially
related to or arises out of Executive's employment with the Corporation. The
obligations of the Executive under Section 10 shall continue notwithstanding
termination of the Executive's employment pursuant to this Section 9.3.
9.4 Termination Without Cause. The Corporation shall have the option to
terminate this Agreement Without Cause upon one hundred and eighty (180) days'
written notice to the Executive. In the event the Corporation terminates this
Agreement without Cause as defined above, the Corporation shall pay the
Executive upon termination, the amount required pursuant to Section 5.1. The
obligations of the Executive under Section 10 hereof shall continue
notwithstanding termination of the Executive's employment pursuant to this
Section 9.4.
9.5 Termination by Executive For Good Reason. The Executive shall have
the right to terminate this Agreement for Good Reason, as hereinafter defined,
upon written notice to the Corporation. Good Reason shall mean any of the
following: (i) the assignment to the Executive of duties inconsistent with the
Executive's position, duties, responsibilities, titles or offices as described
herein; (ii) any reduction by the Corporation of the Executive's compensation or
benefits payable hereunder (it being understood that a reduction of benefits
applicable to all executives of the Corporation, including the Executive, shall
not be deemed a reduction of the Executive's compensation package for purposes
of this definition.
9.6. Termination by Executive upon Change in Control. Executive, at his
option, shall be able to terminate this Agreement upon written notice given to
the Secretary of the Corporation within ninety (90) days of an occurrence of a
"Change in Control". A "Change in Control" of the Corporation shall mean a
change in control of the Corporation or any entity controlling the Corporation
(referred to collectively in this Section 5 as the Corporation) of a nature that
would be required to be reported in response to Item 1 of a Current Report on
Form 8-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); provided that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
person who or which was a shareholder of the Corporation immediately prior to
the Corporation's initial public offering (the "IPO"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing thirty-five percent
(35%) or more of the combined voting power of the Corporation's outstanding
securities ordinarily having the right to vote at elections of directors; or (b)
individuals who constitute the Board concurrent with the execution of this
Agreement (the incumbent Board) cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a sale by
the Corporation of all or substantially all of its assets occurs.
Notwithstanding anything in the foregoing to the contrary, no Change in Control
shall be deemed to have occurred for purposes of this Agreement by virtue of any
transactions which result in the acquisition by the Executive, or by a group of
persons which includes the Executive, directly or indirectly, of a majority of
either the outstanding shares of common stock of the Corporation or the voting
securities of any corporation which acquires all or substantially all of the
assets of the Corporation, whether by way of merger, consolidation, sale of such
assets or otherwise.
10. Protection of Confidential Information.
In view of the fact that Executive's work for the Corporation will
bring him into close contact with confidential information and plans for future
developments, Executive agrees to the following:
10.1 Secrecy. To keep secret and retain in the strictest confidence all
confidential matters of the Corporation, including, without limitation, trade
"know how" and trade secrets, customer lists, pricing policies, marketing plans,
technical processes, formulae, inventions and research projects, and other
business affairs of the Corporation, learned by him heretofore or hereafter, and
not to disclose them to anyone inside or outside of the Corporation, except in
the course of performing the Services hereunder or with the express written
consent of the Chief Executive Officer or Board of Directors of the Corporation
and except to the extent such information is already known to the general public
10.2 Return Memoranda, etc. To deliver promptly to the Corporation on
termination of his employment, or at any other time as the Chief Executive
Officer or the Board of Directors of the Corporation may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Corporation's business and
all property associated therewith, which he may then possess or have under his
control.
10.3 Covenants.
10.3.1 Non-competition. Executive agrees that at all times
while he is employed by the Corporation and, regardless of the reason for
termination of his employment or this Agreement, for a period of one (1) year
thereafter, he will not, as a principal, agent, employee, employer, consultant,
stockholder, investor, director or co-partner of any person, firm, corporation
or business entity other than the Corporation, or in any individual or
representative capacity whatsoever, directly or indirectly, without the express
prior written consent of the Corporation:
(i) engage or participate in any business whose products or services are
competitive with that of the Corporation, which business is the
creation, distribution, publishing, production and sales of music and
product marketing, advertising plus radio and internet broadcasting
clients and customers located within the United States and worldwide;
(ii) aid or counsel any other person, firm, corporation or entity to do any
of the above;
(iii)become employed by a firm, corporation, partnership or joint venture
which competes with the business of the Corporation within the United
States; or
(iv) approach, solicit business from, or otherwise do business or deal with
any customer of the Corporation in connection with any product or
service competitive to any provided by the Corporation.
10.3.2 Anti-Raiding. Executive agrees that during the term of his
employment hereunder, and, thereafter for a period of one (1) year, he will
not, as a principal, agent, employee, employer, consultant, director or
partner of any person, firm, corporation or business entity other than the
Corporation, or in any individual or representative capacity whatsoever'
directly or indirectly, without the prior express written consent of the
Corporation approach, counsel or attempt to induce any person who is then
in the employ of the Corporation to leave the employ of the Corporation or
employ or attempt to employ any such person or persons who at any time
during the preceding six months was in the employ of the Corporation.
10.3.3 Executive's Acknowledgements. Executive acknowledges (i) that
his position with the Corporation requires the performance of services
which are special, unique, and extraordinary in character and places him in
a position of confidence and trust with e Customers and employees of the
Corporation, through which, among other things, he shall obtain knowledge
of the Corporation's "technical information" and "know-how" and become
acquainted with its customers, in which matters the Corporation has
substantial proprietary interests; (ii) that the restrictive covenants set
forth above are necessary in order to protect and maintain such proprietary
interests and the other legitimate business interests of the Corporation;
and (iii) that the Corporation would not have entered into this Agreement
unless such covenants were included herein.
Executive also acknowledges that the business of the Corporation
presently will extend throughout the United States, and that he will personally
supervise and engage in such business on behalf of Corporation and, accordingly,
it is reasonable that the restrictive covenants set forth above are not more
limited as to geographic area then is set forth therein. Executive also
represents to the Corporation that the enforcement of such covenants will not
prevent Executive from earning a livelihood or impose an undue hardship on the
Executive.
10.4 Severability. If any of the provisions of this Section 10, or any
part thereof, is hereinafter construed to be invalid or unenforceable, the same
shall not affect the remainder of such provision or provisions, which shall be
given full effect, without regard to the invalid portions. If any of the
provisions of this Section 10, or any part thereof, is held to be unenforceable
because of the duration of such provision, the area covered thereby or the type
of conduct restricted therein, the parties agree that the court making such
determination shall have the power to modify the duration, geographic area
and/or other terms of such provision and, as so modified, said provision(s)
shall then be enforceable. In the event that the courts of any one or more
jurisdictions shall hold such provisions wholly or partially unenforceable by
reason of the scope thereof or otherwise, it is the intention of the parties
hereto that such determination not bar or in any way affect the Corporation's
right to the relief provided for herein in the courts of any other jurisdictions
as to breaches or threatened breaches of such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
10.5 Injunctive Relief. Executive acknowledges and agrees that, because
of the unique and extraordinary nature of his services, any breach or threatened
breach of the provisions of Sections 10.1, 10.2, or 10.3 hereof will cause
irreparable injury and incalculable harm to the Corporation, and the Corporation
shall, accordingly, be entitled to injunctive and other equitable relief for
such breach or threatened breach and that resort by the Corporation to such
injunctive or other equitable relief shall not be deemed to waive or to limit in
any respect any right or remedy which the Corporation may have with respect to
such breach or threatened breach. The Corporation and Executive agree that any
such action for injunctive or equitable relief shall be heard in a state or
federal court situate in Rhode Island and each of the parties hereto, hereby
agrees to accept service of process by registered mail and to otherwise consent
to the jurisdiction of such courts.
10.6 Expenses of Enforcement of Covenants. In the event that any
action, suit or proceeding at law or in equity is brought to enforce the
covenants contained in Sections 10.1, 10.2, or 10.3 hereof or to obtain money
damages for the breach thereof, the party prevailing in any such action, suit or
other proceeding shall be entitled upon demand, to reimbursement from the other
party for all expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred in connection therewith.
10.7 Separate Agreement. The provisions of this Section 10 shall be
construed as an agreement on the part of the Executive independent of any other
part of this Agreement or any other agreement, and the existence of any claim or
cause of action of the Executive against the Corporation, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Corporation of the provisions of this Section 10.
11. Indemnification.
The Corporation shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors and
officers liability insurance policy at the Corporation's expense to the same
extent as provided for any other director, officer or trustee of the
Corporation. In addition, the Corporation shall indemnify the Executive (and his
heirs, executors and administrators) to the fullest extent permitted under the
law of its state of incorporation against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which the Executive may be involved by reason of his having
been a director or officer of the Corporation or any subsidiary thereof. Such
expenses and liabilities shall include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board if such action is brought against the
Executive in his capacity as a director or officer of the Corporation or any
subsidiary thereof. The Corporation shall, upon the request of the Executive,
advance to the Executive such amounts as necessary to cover expenses, including
without limitation legal fees and expenses, incurred by the Executive in
connection with any suit or proceeding in which the Executive may be involved by
reason of his being or having been a director or officer of the Corporation or
of any subsidiary thereof. Such indemnity and advance of expenses, however,
shall not extend to matters as to which the Executive is finally adjudged to be
liable for wilful misconduct in the performance of his duties.
12. Arbitration.
Except with respect to any proceeding brought under Section 10 hereof,
any controversy, claim, or dispute between the parties, directly or indirectly,
concerning this Employment Agreement or the breach hereof, or the subject matter
hereof, including questions concerning the scope and applicability of this
arbitration clause, shall be finally settled by arbitration in Kent County,
Rhode Island pursuant to the rules then applying of the American Arbitration
Association The arbitrators shall consist of one representative selected by the
Corporation, one representative selected by the Executive and one representative
selected by the first two arbitrators The parties agree to expedite the
arbitration proceeding in every way, so that the arbitration proceeding shall be
commenced within thirty (30) days after request therefore is made, and shall
continue thereafter, without interruption, and that the decision of the
arbitrators shall be handed down within thirty (30) days after the hearings in
the arbitration proceedings areclosed. The arbitrators shall have the right and
authority to assess the cost of the arbitration proceedings and to determine how
their decision or determination as to each issue or matter in dispute may be
implemented or enforced. The decision in writing of any two of the arbitrators
shall be binding and conclusive on all of the parties to this Agreement. Should
either the Corporation or the Executive fail to appoint an arbitrator as
required by this Section 12 within thirty (30) days after receiving written
notice from the other party to do so, the arbitrator appointed by the other
party shall act for all of the parties and his decision in writing shall be
binding and conclusive on all of the parties to this Employment Agreement. Any
decision or award of the arbitrators shall be final and conclusive on the
parties to this Agreement; judgment upon such decision or award may be entered
in any competent Federal or state court located in the United States of America;
and the application may be made to such court for confirmation of such decision
or award for any order of enforcement and for any other legal remedies that may
be necessary to effectuate such decision or award.
13. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder, shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telegram, telecopy or
mailed first-class, postage prepaid, by registered or certified mail (notices
sent by telegram or mailed shall be deemed to have been given on the date sent),
to the parties at their respective addresses hereinabove set forth or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith. Copies of all notices shall be sent to the attorney
selecteed by the Executive and noticed in writing to mthe Corporation from time
to time.
14. General.
14.1 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the local laws of the State of Rhode Island
applicable to agreements made and to be performed entirely in Rhode Island.
14.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
14.3 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation'
promise or inducement not so set forth.
14.4 Severability. If any of the provisions of this Agreement shall be
unlawful, void, or for any reason, unenforceable, such provision shall be deemed
severable from, and shall in no way affect the validity or enforceability of,
the remaining portions of this Agreement.
14.5 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement by any other party shall not operate or be construed
as a waiver of any subsequent breach of the same provision or any other
provision hereof.
14.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
14.7 Assignability. This Agreement, and Executive's rights and
obligations hereunder, may not be assigned by Executive. The Corporation may
assign its rights, together with its obligations, hereunder in connection with
any sale, transfer or other disposition of all or substantially all of its
business or assets; in any event the rights and obligations of the Corporation
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets; provided, however, that any such assignment shall not release the
Corporation from its obligations hereunder. This Agreement shall inure to the
benefit of, and be binding upon, the Executive and his executors,
administrators, heirs and legal representatives.
14.8 Amendment. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. No superseding instrument,
amendment, modification, cancellation, renewal or extension hereof shall require
the consent or approval of any person other than the parties hereto. The failure
of either party at any time or times to require performance of any provision
hereof shall in no matter affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: OPEN DOOR ONLINE, INC.
By: _____________________ By: _____________________________
Name: Name: David N. DeBaene
Title: President
WITNESS:
- -------------------------- -----------------------------------
CAMILLE M BARBONE, individually
<PAGE>
Amendment to Employment Contract
Camille M. Barbone
March 1, 2000
Paragraph 3.3 Stock Option Agreement is rescinded due to the lack of an
authorized employment stock option program. In the event the Board of Directors
of Open Door Online, Inc. and the shareholders agree to the formation of a stock
option plan awards may be made upon the approval of the Board of Directors at
that time.
Signed this 31st day of March, 2000
- -----------------------------------
Camille M. Barbone
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") effective as of the 1st day of
March, 2000 between OPEN DOOR ONLINE, INC., a New Jersey corporation (together
with its successors and assigns referred to herein as the "Corporation"), with
principal executive offices located at 46 Old Flat River Road, Coventry, Rhode
Island 02816; and NORMAN J. BIRMINGHAM, residing at 10250 NW 52ND St., Coral
Springs, FL 33076 (the "Executive").
W I T N E S E T H:
WHEREAS, the Corporation desires to employ Executive as the Chief
Financial Officer and Treasurer to engage in such activities and to render such
services under the terms and conditions hereof and has authorized and approved
the execution of this Agreement; and
WHEREAS, Executive desires to be employed by the Corporation under the
terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Services. The Corporation hereby employs Executive, for the Term
(as hereinafter defined in Section 2 hereof), to render services to the business
and affairs of the Corporation in the office referenced in the recitals hereof
and, in connection therewith, shall perform such duties as directed by the Board
of Directors of the Corporation from time to time, in its reasonable discretion,
and shall perform such other duties as shall be consistent with the
responsibilities of such office (collectively the "Services"). Executive shall
perform activities related to such office as he shall reasonably be directed or
requested to so perform by the Corporation's Board of Directors, to whom he
shall report. Executive shall use his best efforts, skill and abilities to
promote the interests of the Corporation and its subsidiaries.
1.2 Acceptance. Executive hereby accepts such employment and agrees to
render the Services.
1.3 Representations of the Executive. The Executive represents and
warrants to the Corporation that his execution and delivery of this Agreement,
his performance of the Services hereunder and the observance of his other
obligations contemplated hereby will not (i) violate any provisions of or
require the consent or approval of any party to any agreement, letter of intent
or other document to which he is a party or (ii) violate or conflict with any
arbitration award, judgment or decree or other restriction of any kind to or by
which he is subject or bound.
1.4 Executive's Ability to Contract. Notwithstanding anything herein
contained to the contrary, executive shall have the right to make any contracts
or commitments on behalf of the division the Executive operates as long as the
Executive holds the position described above. Ratification of this contract by
the Board of Directors authorizes the Executive right to negotiate for capital
raises up to $1,000,000 per source. All other agreements in excess of these
amounts or requiring commitment of company stock require the express consent of
the Board of Directors.
2. Term of Employment.
The term of Executive's employment under this Agreement (the "Term")
shall commence on March 1, 2000 and shall terminate on February 28, 2003, unless
sooner terminated pursuant to Sections 9 or 5.2 of this Agreement; provided,
however, if the Corporation shall fail to give Executive notice of non-renewal
not less than 180 days prior to the scheduled expiration of the Term hereof, the
Term shall automatically be extended for an additional three (3) year period.
Notwithstanding anything to the contrary contained herein, the provisions of
this Agreement governing Protection of Confidential Information shall continue
in effect as specified in Section 10 hereof.
3. Base Salary, Expense Reimbursement and Stock Options.
3.1 Base Salary. During the Term, as full compensation for the
Services, the Corporation agrees to pay Executive a minimum base salary ("Base
Salary") at the annual rate of $75,000 for the period from March 31, 2000 to
December 31, 2000. Such Base Salary shall be (i) increased thirteen percent
(13%) annually effective Januaryt 1st of each year during the term of this
Agreement, (ii) reviewed periodically for possible increases promptly after each
future acquisition by the Corporation of any other corporation or business or
other material increase in the Corporation's revenues or scope of the
Corporation's business and (iii) renegotiated in good faith effective as of July
15, 2002 for possible increase based upon the Corporation's historical
performance and projections for future performance. Such Base Salary shall be
subject to withholding and other applicable taxes, payable during the term of
this Agreement in accordance with the Corporation's customary payment practices,
but not less frequently than monthly.
3.2 Business Expense Reimbursement. Upon submission to, and approval by
an officer of the Corporation designated by the Board of Directors of the
Corporation, of a statement of expenses, reports, vouchers or other supporting
information, which approval shall be granted or withheld based on the
Corporation's policies in effect at such time, the Corporation shall promptly
reimburse Executive for all reasonable business expenses actually incurred or
paid by him during the Term or renewals thereof in the performance of the
Services, including, but not limited to, expenses for entertainment, travel and
similar items.
3.3 Stock Option Agreement. In addition to the salary hereinabove
provided, the Executive shall be granted options to purchase 25,000 shares of
the Corporation's Common Stock as of January 1 of each year during the Term of
this Agreement at an exercise price equal to to average of the closing bid and
asked price of the Corporation's Common Stock during month of December
immediately preceeding said January 1, pursuant to the terms of the Stock Option
Agreement between the Corporation and the Executive executed concurrently
herewith.
4. Profit Sharing.
4.1 Profit Sharing Amount. In order to provide performance-based
incentive compensation to the Executive, the Corporation hereby agrees to pay
the Executive, in addition to the Base Salary set forth in Section 3 hereof, a
minimum cash bonus in respect of each fiscal year during the Executive's
employment hereunder (the "Bonus") equal to the Applicable Percentage (as
defined below) of the Net Pre-Tax Income (as defined below) of the Corporation.
For purposes hereof, the Applicable Percentage shall equal (a) 1.0% if the Net
Pre-Tax Income of the Corporation is less than $2,500,000 (b) 2.0% if the Net
Pre-Tax Income of the Corporation is at least $2,500,000, but less than
$3,500,000; (c) 2.50% if the Net Pre-Tax Income of the Corporation is at least
$3,500,001, but less than $5,000,000; and (d) 3.0% if the Net Pre-Tax Income of
the Corporation is at least $5,000,001.
4.2 Net Pre-Tax Income of the Corporation. For purposes hereof, the Net
Pre-Tax Income of the Corporation shall be the amount determined by the Board of
Directors of the Corporation, after consultation with the independent
accountants of the Corporation, to be the Net Pre-Tax Income of the Corporation
with respect to a given fiscal year, which amount shall be determined based on
the financial statements of the Corporation (a) in a manner consistent with
generally accepted accounting principles, (b) with regard solely to the
Corporation and its subsidiaries, (c) so as to exclude the effect of any
elimination of interCorporation transfers applied with respect to any entity
which is not a subsidiary of the Corporation, (d) after adding back any charges
for management consulting or corporate services or payments with respect to
non-competition agreements which may be paid to persons who are subject to
reporting obligations with respect to the Corporation under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or their
affiliates (other than the Corporation and its subsidiaries), (e) having regard
to such other matters, if any, as the Board of Directors of the Corporation may
determine to be equitable to consider and (f) without giving effect to any Bonus
paid pursuant to this Section 4.2. The determination of the Board of Directors
of the Corporation shall be final, conclusive and binding for all purposes,
absent manifest error.
4.3 Determination and Payment. The determination of the Applicable
Percentage, of the Net Pre-Tax Income and of the extent to which any Bonus under
this Section 4 may be payable (the "Final Determination") shall be determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) of
the Corporation in accordance with the terms hereof based on the financial
statements of the Corporation and the criteria set forth herein with respect to
each fiscal year. Such Final Determination with respect to any fiscal year shall
be made promptly, and in any event within 15 days, after the Corporation has
filed its Annual Report on Form 10-K for each year with the Securities and
Exchange Commission. Within 45 days after the end of the Corporation's fiscal
year, based on the preliminary results of the Corporation for such fiscal year,
the Corporation shall pay the Executive an amount equal to 60% of the estimated
minimum cash Bonus based on such preliminary results. The balance of the
definitive Bonus so determined, if any, shall be payable to the Executive in a
single lump sum no later than thirty days after the Final Determination has been
made. In any event, all matters pertaining to the Bonus and to the payment of
any Bonus to the Executive hereunder, shall be administered and determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) in
its reasonable discretion consistent with the terms hereof, the determination of
which shall be final, conclusive and binding for all purposes, absent manifest
error.
4.4 Bonus. The Board of Directors, at its discretion shall be allowed
to provide an additional bonus in excess of the remuneration already included.
4.5 Partial Years. Notwithstanding anything contained herein to the
contrary, no Bonus under this Section 4 shall be deemed earned or payable with
respect to any fiscal year during which this Agreement or the Executive's
employment is terminated by the Corporation for Cause (as such term is
hereinafter defined).
4.6 Nothing in this Section 4 shall be construed as conferring upon the
Executive any right (i) normally associated with the ownership of capital stock;
(ii) to continue in the employ of the Corporation or any affiliate of the
Corporation; or (iii) to interfere in any way with the right of the Corporation
to terminate this Agreement in accordance with the provisions hereof. Nothing in
this Agreement shall be construed to imply that any specific assets of the
Corporation have been set aside to provide for payments under this Agreement.
Any payments under this Agreement shall be made solely from general assets of
the Corporation existing at the time such payments are due.
5. Severance Upon Termination.
5.1 Termination. In the event that Executive's employment hereunder
shall be terminated by the Corporation without Cause (as defined in Section 9.3
hereof) or by the Executive for Good Reason (as defined in Section 9.5 hereof)
or upon a Change in Control (as defined in Section 9.6 hereof) or upon the death
or Disability (as defined in Section 9.2) of Executive at any time prior to the
end of the Term, the Executive shall be entitled to receive from the
Corporation, in addition to any Base Salary earned to the date of termination, a
severance payment in an amount equal to the greater of (i) the balance of the
Executive's Base Salary due through the balance of the Term of this Agreement or
(ii) two (2) times the Executive's Base Salary as was payable to Executive
during the then current calendar year plus two (2) times the Bonus for which
Executive was entitled during the immediately preceding fiscal year. The
Corporation agrees to purchase all the outstanding stock at the fair market
value on the date notice is given. The amounts due hereunder shall be payable,
in lump sum of the effective date of termination, without offset or defense or
any obligation of the Executive to mitigate damages.
6. Additional Benefits.
6.1 In General. In addition to the compensation, bonuses, expenses and
other benefits to be paid under Sections 3, 4 and 5 hereof, Executive will be
entitled to all rights and benefits for which he shall be eligible under any
insurance, health and medical, incentive, bonus, profit-sharing, pension or
other extra compensation or "fringe" benefit plan of the Corporation or any of
its subsidiaries now existing or hereafter adopted for the benefit of the
executives or employees generally of the Corporation. The provisions of this
Agreement which incorporate employee benefit packages shall change as and when
such employee benefit packages change. In the event that the Corporation does
not provide family health and medical insurance for the benefit of the
executives and employees generally of the Corporation, the Corporation shall
provide Executive and pay the all costs associated with family health and
medical insurance for the benefit of Executive as selected by Executive in his
sole discretion.
6.2 Automobile. The Corporation shall pay the Executive $300 per month
plus all expenses including insurance, maintenance and repairs and fuel.
6.3 Life and Disability Insurance. The Corporation shall provide the
Executive with (i) a policy of term life insurance in an amount equal to not
less than three (3) times his annual Base Salary hereunder, payable to such
beneficiary or beneficiaries as shall be designated by him in writing and (b) a
policy of disability insurance that will provide Executive with an annual amount
equal to not less than seventy-five percent (75%) of his then current Base
Salary, payable until Executive shall reach 65 years of age, with a waiting
period not to exceed 120 days. This paragraph is effective, if and when all
officers compensation includes this provision.
6.3.1 Director's and Officers Insurance. The Corporation shall provide
the Executive with a policy of director's and officers liability insurance
in such amounts and providing such coverage as the Executive and the
Corporation shall reasonably agree, consistent with policies obtained by
other publicly held companies of similar size and engaged in similar
businesses.
7. Vacation.
The Executive shall be entitled, during the Term of this Agreement, to
a vacation period annually, as follows:
March 1, 2000 through February 28, 2003 -- four (4) weeks;
during which all salary, compensation, benefits and other rights to which the
Executive is entitled to hereunder shall be provided in full. Such vacation may
be taken in the Executives discretion, and such time or times as are not
inconsistent with the reasonable business needs of the Corporation. In addition,
Executive shall be entitled to up to eight (8) sick days and two (2) personal
days for each year commencing January 1, during which all salary, compensation,
benefits and other rights to which the Executive is entitled to hereunder shall
be provided in full.
8. Insurability; Right to Insure.
Executive agrees that the Corporation shall have the right during the
Term to insure the life of Executive by a policy or policies of insurance in
such amount or amounts as it may deem necessary or desirable, and the
Corporation shall be the beneficiary of any stitch policy or policies and shall
pay the premiums or other costs thereof. The Corporation shall have the right,
from time to time, to modify any such policy or policies of insurance or to take
out new insurance on the life of Executive. Executive agrees, upon request, at
any time or times prior to the commencement of or during the Term to sign and
deliver any and all documents and to submit to any physical or other reasonable
examinations which may be required in connection with any such policy or
policies of insurance or modifications thereof.
9. Termination.
9.1 Death. If Executive dies during the Term of this Agreement,
Executive's employment hereunder shall terminate upon his death and all
obligations of the Corporation hereunder shall terminate on such date, except
that Executive's estate or his designated beneficiary shall be entitled to
payment of any unpaid accrued Base Salary through the date of his death. In
addition, any accrued and unpaid Bonus shall be paid in accordance with Section
4 hereof. In addition, Executive's estate or his designated beneficiary shall be
entitled to payment of the severance payments set forth in Section 5.1 hereof.
9.2 Disability. If Executive shall be unable to perform a significant
part of his duties and responsibilities in connection with the conduct of the
business and affairs of the Corporation and such inability lasts for (i) a
period of at least one hundred twenty (120) consecutive days, or (ii) periods
aggregating at least one hundred eighty (180) days during any three hundred
sixty-five (365) consecutive days, by reason of Executive's physical or mental
disability, whether by reason of injury, illness or similar cause, Executive
shall be deemed disabled, and the Corporation any time thereafter may terminate
Executive's employment hereunder by reason of the disability. Upon delivery to
Executive of such notice, all obligations of the Corporation hereunder shall
terminate, except that Executive shall be entitled to payment of any unpaid
accrued Base Salary through the date of termination. In addition, any accrued
and unpaid Bonus shall be paid in accordance with Section 4 hereof. In addition,
the Executive shall be entitled to those severance payments set forth in Section
5.1 hereof. The obligations of Executive under Section 10 hereof shall continue
notwithstanding termination of Executive's employment pursuant to this Section
9.2.
9.3 Termination For Cause. The Corporation may at any time during the
Term, without any prior notice, terminate this Agreement and discharge Executive
for Cause, whereupon the Corporation's obligation to pay compensation or other
amounts payable hereunder to or for the benefit of Executive shall terminate on
the date of such discharge. As used herein the term Cause shall mean: (i) a
willful and material breach by Executive of the terms of this Agreement' which
breach shall not have been cured within thirty (30) days of writen notice of
such breach; (ii) willful violation of specific and lawful written direction
from the Board of Directors of the Corporation, which violation shall not have
been cured within thirty (30) days of written notice of such violation, provided
such direction is not inconsistent with the Executive's duties and
responsibilities as the, Chief Executive Officer and President of the
Corporation; or (iii) conviction of the Executive of a felony by a federal or
state court of competent jurisdiction, which felony is directly and materially
related to or arises out of Executive's employment with the Corporation. The
obligations of the Executive under Section 10 shall continue notwithstanding
termination of the Executive's employment pursuant to this Section 9.3.
9.4 Termination Without Cause. The Corporation shall have the option to
terminate this Agreement Without Cause upon one hundred and eighty (180) days'
written notice to the Executive. In the event the Corporation terminates this
Agreement without Cause as defined above, the Corporation shall pay the
Executive upon termination, the amount required pursuant to Section 5.1. The
obligations of the Executive under Section 10 hereof shall continue
notwithstanding termination of the Executive's employment pursuant to this
Section 9.4.
9.5 Termination by Executive For Good Reason. The Executive shall have
the right to terminate this Agreement for Good Reason, as hereinafter defined,
upon written notice to the Corporation. Good Reason shall mean any of the
following: (i) the assignment to the Executive of duties inconsistent with the
Executive's position, duties, responsibilities, titles or offices as described
herein; (ii) any material reduction by the Corporation of the Executive's duties
and responsibilities (including the appointment, without the Executive's
consent, of an Executive officer senior to him, in his respective sphere and;
(iii) any reduction by the Corporation of the Executive's compensation or
benefits payable hereunder (it being understood that a reduction of benefits
applicable to all executives of the Corporation, including the Executive, shall
not be deemed a reduction of the Executive's compensation package for purposes
of this definition.
9.6. Termination by Executive upon Change in Control. Executive, at his
option, shall be able to terminate this Agreement upon written notice given to
the Secretary of the Corporation within ninety (90) days of an occurrence of a
"Change in Control". A "Change in Control" of the Corporation shall mean a
change in control of the Corporation or any entity controlling the Corporation
(referred to collectively in this Section 5 as the Corporation) of a nature that
would be required to be reported in response to Item 1 of a Current Report on
Form 8-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); provided that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
person who or which was a shareholder of the Corporation immediately prior to
the Corporation's initial public offering (the "IPO"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing twenty-five percent
(25%) or more of the combined voting power of the Corporation's outstanding
securities ordinarily having the right to vote at elections of directors; or (b)
individuals who constitute the Board concurrent with the execution of this
Agreement (the incumbent Board) cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a sale by
the Corporation of all or substantially all of its assets occurs.
Notwithstanding anything in the foregoing to the contrary, no Change in Control
shall be deemed to have occurred for purposes of this Agreement by virtue of any
transactions which result in the acquisition by the Executive, or by a group of
persons which includes the Executive, directly or indirectly, of a majority of
either the outstanding shares of common stock of the Corporation or the voting
securities of any corporation which acquires all or substantially all of the
assets of the Corporation, whether by way of merger, consolidation, sale of such
assets or otherwise.
10. Protection of Confidential Information.
In view of the fact that Executive's work for the Corporation will
bring him into close contact with confidential information and plans for future
developments, Executive agrees to the following:
10.1 Secrecy. To keep secret and retain in the strictest confidence all
confidential matters of the Corporation, including, without limitation, trade
"know how" and trade secrets, customer lists, pricing policies, marketing plans,
technical processes, formulae, inventions and research projects, and other
business affairs of the Corporation, learned by him heretofore or hereafter, and
not to disclose them to anyone inside or outside of the Corporation, except in
the course of performing the Services hereunder or with the express written
consent of the Chief Executive Officer or Board of Directors of the Corporation
and except to the extent such information is already known to the general public
10.2 Return Memoranda, etc. To deliver promptly to the Corporation on
termination of his employment, or at any other time as the Chief Executive
Officer or the Board of Directors of the Corporation may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Corporation's business and
all property associated therewith, which he may then possess or have under his
control.
10.3 Covenants.
10.3.1 Non-competition. Executive agrees that at all times while he is
employed by the Corporation and, regardless of the reason for termination
of his employment or this Agreement, for a period of one (1) year
thereafter, he will not, as a principal, agent, employee, employer,
consultant, stockholder, investor, director or co-partner of any person,
firm, corporation or business entity other than the Corporation, or in any
individual or representative capacity whatsoever, directly or indirectly,
without the express prior written consent of the Corporation:
(i) engage or participate in any business whose products or services are
competitive with that of the Corporation, which business is involved
with all facets of music production and sales, and which conducts or
solicits business, or transacts with supplier or customers located
within the United States and worldwide;
(ii) aid or counsel any other person, firm, corporation or business entity
to do any of the above;
(iii)become employed by a firm, corporation, partnership or joint venture
which competes with the business of the Corporation within the United
States; or
(iv) approach, solicit business from, or otherwise do business or deal with
any customer of the Corporation in connection with any product or
service competitive to any provided by the Corporation.
10.3.2 Anti-Raiding. Executive agrees that during the term of his
employment hereunder, and, thereafter for a period of one (1) year, he will
not, as a principal, agent, employee, employer, consultant, director or
partner of any person, firm, corporation or business entity other than the
Corporation, or in any individual or representative capacity whatsoever'
directly or indirectly, without the prior express written consent of the
Corporation approach, counsel or attempt to induce any person who is then
in the employ of the Corporation to leave the employ of the Corporation or
employ or attempt to employ any such person or persons who at any time
during the preceding six months was in the employ of the Corporation.
10.3.3 Executive's Acknowledgements. Executive acknowledges (i) that
his position with the Corporation requires the performance of services
which are special, unique, and extraordinary in character and places him in
a position of confidence and trust with e Customers and employees of the
Corporation, through which, among other things, he shall obtain knowledge
of the Corporation's "technical information" and "know-how" and become
acquainted with its customers, in which matters the Corporation has
substantial proprietary interests; (ii) that the restrictive covenants set
forth above are necessary in order to protect and maintain such proprietary
interests and the other legitimate business interests of the Corporation;
and (iii) that the Corporation would not have entered into this Agreement
unless such covenants were included herein.
Executive also acknowledges that the business of the Corporation
presently will extend throughout the United States, and that he will personally
supervise and engage in such business on behalf of Corporation and, accordingly,
it is reasonable that the restrictive covenants set forth above are not more
limited as to geographic area then is set forth therein. Executive also
represents to the Corporation that the enforcement of such covenants will not
prevent Executive from earning a livelihood or impose an undue hardship on the
Executive.
10.4 Severability. If any of the provisions of this Section 10, or any
part thereof, is hereinafter construed to be invalid or unenforceable, the same
shall not affect the remainder of such provision or provisions, which shall be
given full effect, without regard to the invalid portions. If any of the
provisions of this Section 10, or any part thereof, is held to be unenforceable
because of the duration of such provision, the area covered thereby or the type
of conduct restricted therein, the parties agree that the court making such
determination shall have the power to modify the duration, geographic area
and/or other terms of such provision and, as so modified, said provision(s)
shall then be enforceable. In the event that the courts of any one or more
jurisdictions shall hold such provisions wholly or partially unenforceable by
reason of the scope thereof or otherwise, it is the intention of the parties
hereto that such determination not bar or in any way affect the Corporation's
right to the relief provided for herein in the courts of any other jurisdictions
as to breaches or threatened breaches of such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
10.5 Injunctive Relief. Executive acknowledges and agrees that, because
of the unique and extraordinary nature of his services, any breach or threatened
breach of the provisions of Sections 10.1, 10.2, or 10.3 hereof will cause
irreparable injury and incalculable harm to the Corporation, and the Corporation
shall, accordingly, be entitled to injunctive and other equitable relief for
such breach or threatened breach and that resort by the Corporation to such
injunctive or other equitable relief shall not be deemed to waive or to limit in
any respect any right or remedy which the Corporation may have with respect to
such breach or threatened breach. The Corporation and Executive agree that any
such action for injunctive or equitable relief shall be heard in a state or
federal court situate in Rhode Island and each of the parties hereto, hereby
agrees to accept service of process by registered mail and to otherwise consent
to the jurisdiction of such courts.
10.6 Expenses of Enforcement of Covenants. In the event that any
action, suit or proceeding at law or in equity is brought to enforce the
covenants contained in Sections 10.1, 10.2, or 10.3 hereof or to obtain money
damages for the breach thereof, the party prevailing in any such action, suit or
other proceeding shall be entitled upon demand, to reimbursement from the other
party for all expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred in connection therewith.
10.7 Separate Agreement. The provisions of this Section 10 shall be
construed as an agreement on the part of the Executive independent of any other
part of this Agreement or any other agreement, and the existence of any claim or
cause of action of the Executive against the Corporation, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Corporation of the provisions of this Section 10.
11. Indemnification.
The Corporation shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors and
officers liability insurance policy at the Corporation's expense to the same
extent as provided for any other director, officer or trustee of the
Corporation. In addition, the Corporation shall indemnify the Executive (and his
heirs, executors and administrators) to the fullest extent permitted under the
law of its state of incorporation against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which the Executive may be involved by reason of his having
been a director or officer of the Corporation or any subsidiary thereof. Such
expenses and liabilities shall include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board if such action is brought against the
Executive in his capacity as a director or officer of the Corporation or any
subsidiary thereof. The Corporation shall, upon the request of the Executive,
advance to the Executive such amounts as necessary to cover expenses, including
without limitation legal fees and expenses, incurred by the Executive in
connection with any suit or proceeding in which the Executive may be involved by
reason of his being or having been a director or officer of the Corporation or
of any subsidiary thereof. Such indemnity and advance of expenses, however,
shall not extend to matters as to which the Executive is finally adjudged to be
liable for wilful misconduct in the performance of his duties.
12. Arbitration.
Except with respect to any proceeding brought under Section 10 hereof,
any controversy, claim, or dispute between the parties, directly or indirectly,
concerning this Employment Agreement or the breach hereof, or the subject matter
hereof, including questions concerning the scope and applicability of this
arbitration clause, shall be finally settled by arbitration in Kent County,
Rhode Island pursuant to the rules then applying of the American Arbitration
Association The arbitrators shall consist of one representative selected by the
Corporation, one representative selected by the Executive and one representative
selected by the first two arbitrators The parties agree to expedite the
arbitration proceeding in every way, so that the arbitration proceeding shall be
commenced within thirty (30) days after request therefore is made, and shall
continue thereafter, without interruption, and that the decision of the
arbitrators shall be handed down within thirty (30) days after the hearings in
the arbitration proceedings areclosed. The arbitrators shall have the right and
authority to assess the cost of the arbitration proceedings and to determine how
their decision or determination as to each issue or matter in dispute may be
implemented or enforced. The decision in writing of any two of the arbitrators
shall be binding and conclusive on all of the parties to this Agreement. Should
either the Corporation or the Executive fail to appoint an arbitrator as
required by this Section 12 within thirty (30) days after receiving written
notice from the other party to do so, the arbitrator appointed by the other
party shall act for all of the parties and his decision in writing shall be
binding and conclusive on all of the parties to this Employment Agreement. Any
decision or award of the arbitrators shall be final and conclusive on the
parties to this Agreement; judgment upon such decision or award may be entered
in any competent Federal or state court located in the United States of America;
and the application may be made to such court for confirmation of such decision
or award for any order of enforcement and for any other legal remedies that may
be necessary to effectuate such decision or award.
13. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder, shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telegram, telecopy or
mailed first-class, postage prepaid, by registered or certified mail (notices
sent by telegram or mailed shall be deemed to have been given on the date sent),
to the parties at their respective addresses hereinabove set forth or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith. Copies of all notices shall be sent to the attorney
selecteed by the Executive and noticed in writing to mthe Corporation from time
to time.
14. General.
14.1 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the local laws of the State of Rhode Island
applicable to agreements made and to be performed entirely in Rhode Island.
14.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
14.3 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation'
promise or inducement not so set forth.
14.4 Severability. If any of the provisions of this Agreement shall be
unlawful, void, or for any reason, unenforceable, such provision shall be deemed
severable from, and shall in no way affect the validity or enforceability of,
the remaining portions of this Agreement.
14.5 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement by any other party shall not operate or be construed
as a waiver of any subsequent breach of the same provision or any other
provision hereof.
14.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
14.7 Assignability. This Agreement, and Executive's rights and
obligations hereunder, may not be assigned by Executive. The Corporation may
assign its rights, together with its obligations, hereunder in connection with
any sale, transfer or other disposition of all or substantially all of its
business or assets; in any event the rights and obligations of the Corporation
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets; provided, however, that any such assignment shall not release the
Corporation from its obligations hereunder. This Agreement shall inure to the
benefit of, and be binding upon, the Executive and his executors,
administrators, heirs and legal representatives.
14.8 Amendment. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. No superseding instrument,
amendment, modification, cancellation, renewal or extension hereof shall require
the consent or approval of any person other than the parties hereto. The failure
of either party at any time or times to require performance of any provision
hereof shall in no matter affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: OPEN DOOR ONLINE, INC.
By: _____________________ By: _____________________________
Name: Name:
Title: Title
WITNESS:
- -------------------------- -----------------------------------
Norman J. Birmingham, individually
<PAGE>
Amendment to Employment Contract
Norman J. Birmingham
March 1, 2000
Paragraph 3.3 Stock Option Agreement is rescinded due to the lack of an
authorized employment stock option program. In the event the Board of Directors
of Open Door Online, Inc. and the shareholders agree to the formation of a stock
option plan awards may be made upon the approval of the Board of Directors at
that time.
Signed this 31st day of March, 2000
- -----------------------------------
Norman J. Birmingham
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") effective as of the 15th day of
November, 1999 between OPEN DOOR ONLINE, INC., a New Jersey corporation
(together with its successors and assigns referred to herein as the
"Corporation"), with principal executive offices located at 46 Old Flat River
Road, Coventry, Rhode Island 02816; and THOMAS CARLEY, residing at 40 Wilson
St., West warwick, RI 02893 (the "Executive").
W I T N E S E T H:
WHEREAS, the Corporation desires to employ Executive as the Vice
President to engage in such activities and to render such services under the
terms and conditions hereof and has authorized and approved the execution of
this Agreement; and
WHEREAS, Executive desires to be employed by the Corporation under the
terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Services. The Corporation hereby employs Executive, for the Term
(as hereinafter defined in Section 2 hereof), to render services to the business
and affairs of the Corporation in the office referenced in the recitals hereof
and, in connection therewith, shall perform such duties as directed by the Board
of Directors of the Corporation from time to time, in its reasonable discretion,
and shall perform such other duties as shall be consistent with the
responsibilities of such office (collectively the "Services"). Executive shall
perform activities related to such office as he shall reasonably be directed or
requested to so perform by the Corporation's Board of Directors, to whom he
shall report. Executive shall use his best efforts, skill and abilities to
promote the interests of the Corporation and its subsidiaries.
1.2 Acceptance. Executive hereby accepts such employment and agrees to
render the Services.
1.3 Representations of the Executive. The Executive represents and
warrants to the Corporation that his execution and delivery of this Agreement,
his performance of the Services hereunder and the observance of his other
obligations contemplated hereby will not (i) violate any provisions of or
require the consent or approval of any party to any agreement, letter of intent
or other document to which he is a party or (ii) violate or conflict with any
arbitration award, judgment or decree or other restriction of any kind to or by
which he is subject or bound.
1.4 Executive's Ability to Contract. Notwithstanding anything herein
contained to the contrary, executive shall have the right to make any contracts
or commitments on behalf of the division the Executive operates as long as the
Executive holds the position described above. Ratification of this contract by
the Board of Directors authorizes the Executive right to negotiate for all
normal business contracts up to $50,000 per contract, per annum in conjunction
with and approval by the President of the Company. All other agreements in
excess of these amounts or requiring commitment of company stock require the
express consent of the Board of Directors.
2. Term of Employment.
The term of Executive's employment under this Agreement (the "Term")
shall commence on November 15, 1999 and shall terminate on November 14, 2002,
unless sooner terminated pursuant to Sections 9 or 5.2 of this Agreement;
provided, however, if the Corporation shall fail to give Executive notice of
non-renewal not less than 90 days prior to the scheduled expiration of the Term
hereof, the Term shall automatically be extended for an additional three (3)
year period. Notwithstanding anything to the contrary contained herein, the
provisions of this Agreement governing Protection of Confidential Information
shall continue in effect as specified in Section 10 hereof.
3. Base Salary, Expense Reimbursement and Stock Options.
3.1 Base Salary. During the Term, as full compensation for the
Services, the Corporation agrees to pay Executive a minimum base salary ("Base
Salary") at the annual rate of $95,000 for the period from November 15, 1999 to
December 31, 2000. Such Base Salary shall be (i) increased thirteen percent
(13%) annually effective January 1st of each year during the term of this
Agreement, except in year one, (ii) reviewed periodically for possible increases
promptly after each future acquisition by the Corporation of any other
corporation or business or other material increase in the Corporation's revenues
or scope of the Corporation's business and (iii) renegotiated in good faith
effective as of July 15, 2002 for possible increase based upon the Corporation's
historical performance and projections for future performance. Such Base Salary
shall be subject to withholding and other applicable taxes, payable during the
term of this Agreement in accordance with the Corporation's customary payment
practices, but not less frequently than monthly.
3.2 Business Expense Reimbursement. Upon submission to, and approval by
an officer of the Corporation designated by the Board of Directors of the
Corporation, of a statement of expenses, reports, vouchers or other supporting
information, which approval shall be granted or withheld based on the
Corporation's policies in effect at such time, the Corporation shall promptly
reimburse Executive for all reasonable business expenses actually incurred or
paid by him during the Term or renewals thereof in the performance of the
Services, including, but not limited to, expenses for entertainment, travel and
similar items.
3.3 Stock Option Agreement. In addition to the salary hereinabove
provided, the Executive shall be granted options to purchase 25,000 shares of
the Corporation's Common Stock as of January 1 of each year during the Term of
this Agreement at an exercise price equal to to average of the closing bid and
asked price of the Corporation's Common Stock during month of December
immediately preceeding said January 1, pursuant to the terms of the Stock Option
Agreement between the Corporation and the Executive executed concurrently
herewith.
4. Profit Sharing.
4.1 Profit Sharing Amount. In order to provide performance-based
incentive compensation to the Executive, the Corporation hereby agrees to pay
the Executive, in addition to the Base Salary set forth in Section 3 hereof, a
minimum cash bonus in respect of each fiscal year during the Executive's
employment hereunder (the "Bonus") equal to the Applicable Percentage (as
defined below) of the Net Pre-Tax Income (as defined below) of the Corporation.
For purposes hereof, the Applicable Percentage shall equal (a) 1.0% if the Net
Pre-Tax Income of the Corporation is less than $2,500,000 (b) 2.0% if the Net
Pre-Tax Income of the Corporation is at least $2,500,000, but less than
$3,500,000; (c) 2.50% if the Net Pre-Tax Income of the Corporation is at least
$3,500,001, but less than $5,000,000; and (d) 3.0% if the Net Pre-Tax Income of
the Corporation is at least $5,000,001.
4.2 Net Pre-Tax Income of the Corporation. For purposes hereof, the Net
Pre-Tax Income of the Corporation shall be the amount determined by the Board of
Directors of the Corporation, after consultation with the independent
accountants of the Corporation, to be the Net Pre-Tax Income of the Corporation
with respect to a given fiscal year, which amount shall be determined based on
the financial statements of the Corporation (a) in a manner consistent with
generally accepted accounting principles, (b) with regard solely to the
Corporation and its subsidiaries, (c) so as to exclude the effect of any
elimination of interCorporation transfers applied with respect to any entity
which is not a subsidiary of the Corporation, (d) after adding back any charges
for management consulting or corporate services or payments with respect to
non-competition agreements which may be paid to persons who are subject to
reporting obligations with respect to the Corporation under Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or their
affiliates (other than the Corporation and its subsidiaries), (e) having regard
to such other matters, if any, as the Board of Directors of the Corporation may
determine to be equitable to consider and (f) without giving effect to any Bonus
paid pursuant to this Section 4.2. The determination of the Board of Directors
of the Corporation shall be final, conclusive and binding for all purposes,
absent manifest error.
4.3 Determination and Payment. The determination of the Applicable
Percentage, of the Net Pre-Tax Income and of the extent to which any Bonus under
this Section 4 may be payable (the "Final Determination") shall be determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) of
the Corporation in accordance with the terms hereof based on the financial
statements of the Corporation and the criteria set forth herein with respect to
each fiscal year. Such Final Determination with respect to any fiscal year shall
be made promptly, and in any event within 15 days, after the Corporation has
filed its Annual Report on Form 10-K for each year with the Securities and
Exchange Commission. Within 45 days after the end of the Corporation's fiscal
year, based on the preliminary results of the Corporation for such fiscal year,
the Corporation shall pay the Executive an amount equal to 60% of the estimated
minimum cash Bonus based on such preliminary results. The balance of the
definitive Bonus so determined, if any, shall be payable to the Executive in a
single lump sum no later than thirty days after the Final Determination has been
made. In any event, all matters pertaining to the Bonus and to the payment of
any Bonus to the Executive hereunder, shall be administered and determined by
the Board of Directors (or a subcommittee thereof appointed for such purpose) in
its reasonable discretion consistent with the terms hereof, the determination of
which shall be final, conclusive and binding for all purposes, absent manifest
error.
4.4 Bonus. The Board of Directors, at its discretion shall be allowed
to provide an additional bonus in excess of the remuneration already included.
4.5 Partial Years. Notwithstanding anything contained herein to the
contrary, no Bonus under this Section 4 shall be deemed earned or payable with
respect to any fiscal year during which this Agreement or the Executive's
employment is terminated by the Corporation for Cause (as such term is
hereinafter defined).
4.6 Nothing in this Section 4 shall be construed as conferring upon the
Executive any right (i) normally associated with the ownership of capital stock;
(ii) to continue in the employ of the Corporation or any affiliate of the
Corporation; or (iii) to interfere in any way with the right of the Corporation
to terminate this Agreement in accordance with the provisions hereof. Nothing in
this Agreement shall be construed to imply that any specific assets of the
Corporation have been set aside to provide for payments under this Agreement.
Any payments under this Agreement shall be made solely from general assets of
the Corporation existing at the time such payments are due.
5. Severance Upon Termination.
5.1 Termination. In the event that Executive's employment hereunder
shall be terminated by the Corporation without Cause (as defined in Section 9.3
hereof) or by the Executive for Good Reason (as defined in Section 9.5 hereof)
or upon a Change in Control (as defined in Section 9.6 hereof) or upon the death
or Disability (as defined in Section 9.2) of Executive at any time prior to the
end of the Term, the Executive shall be entitled to receive from the
Corporation, in addition to any Base Salary earned to the date of termination, a
severance payment in an amount equal to the greater of (i) the balance of the
Executive's Base Salary due through the balance of the Term of this Agreement.
The amounts due hereunder shall be payable, in lump sum of the effective date of
termination, without offset or defense or any obligation of the Executive to
mitigate damages.
6. Additional Benefits.
6.1 In General. In addition to the compensation, bonuses, expenses and
other benefits to be paid under Sections 3, 4 and 5 hereof, Executive will be
entitled to all rights and benefits for which he shall be eligible under any
insurance, health and medical, incentive, bonus, profit-sharing, pension or
other extra compensation or "fringe" benefit plan of the Corporation or any of
its subsidiaries now existing or hereafter adopted for the benefit of the
executives or employees generally of the Corporation. The provisions of this
Agreement which incorporate employee benefit packages shall change as and when
such employee benefit packages change. In the event that the Corporation does
not provide family health and medical insurance for the benefit of the
executives and employees generally of the Corporation, the Corporation shall
provide Executive and pay the all costs associated with family health and
medical insurance for the benefit of Executive as selected by Executive in his
sole discretion.
6.2 Automobile. The Corporation shall pay to the Executive $300 per
month, plus all expenses including insurance, repairs and maintenance, and fuel.
6.3 Life and Disability Insurance. The Corporation shall provide the
Executive with (i) a policy of term life insurance in an amount equal to not
less than three (3) times his annual Base Salary hereunder, payable to such
beneficiary or beneficiaries as shall be designated by him in writing and (b) a
policy of disability insurance that will provide Executive with an annual amount
equal to not less than seventy-five percent (75%) of his then current Base
Salary, payable until Executive shall reach 65 years of age, with a waiting
period not to exceed 120 days. This paragraph is effective, if and when all
officers compensation includes this provision.
6.4 Director's and Officers Insurance. The Corporation shall provide
the Executive with a policy of director's and officers liability insurance in
such amounts and providing such coverage as the Executive and the Corporation
shall reasonably agree, consistent with policies obtained by other publicly held
companies of similar size and engaged in similar businesses.
7. Vacation.
The Executive shall be entitled, during the Term of this Agreement, to
a vacation period annually, as follows:
November 15, 2000 through November 14, 2003 -- four (4) weeks;
during which all salary, compensation, benefits and other rights to which the
Executive is entitled to hereunder shall be provided in full. Such vacation may
be taken in the Executives discretion, and such time or times as are not
inconsistent with the reasonable business needs of the Corporation. In addition,
Executive shall be entitled to up to eight (8) sick days and two (2) personal
days for each year commencing January 1, during which all salary, compensation,
benefits and other rights to which the Executive is entitled to hereunder shall
be provided in full.
8. Insurability; Right to Insure.
Executive agrees that the Corporation shall have the right during the
Term to insure the life of Executive by a policy or policies of insurance in
such amount or amounts as it may deem necessary or desirable, and the
Corporation shall be the beneficiary of any stitch policy or policies and shall
pay the premiums or other costs thereof. The Corporation shall have the right,
from time to time, to modify any such policy or policies of insurance or to take
out new insurance on the life of Executive. Executive agrees, upon request, at
any time or times prior to the commencement of or during the Term to sign and
deliver any and all documents and to submit to any physical or other reasonable
examinations which may be required in connection with any such policy or
policies of insurance or modifications thereof.
9. Termination.
9.1 Death. If Executive dies during the Term of this Agreement,
Executive's employment hereunder shall terminate upon his death and all
obligations of the Corporation hereunder shall terminate on such date, except
that Executive's estate or his designated beneficiary shall be entitled to
payment of any unpaid accrued Base Salary through the date of his death. In
addition, any accrued and unpaid Bonus shall be paid in accordance with Section
4 hereof. In addition, Executive's estate or his designated beneficiary shall be
entitled to payment of the severance payments set forth in Section 5.1 hereof.
9.2 Disability. If Executive shall be unable to perform a significant
part of his duties and responsibilities in connection with the conduct of the
business and affairs of the Corporation and such inability lasts for (i) a
period of at least one hundred twenty (120) consecutive days, or (ii) periods
aggregating at least one hundred eighty (180) days during any three hundred
sixty-five (365) consecutive days, by reason of Executive's physical or mental
disability, whether by reason of injury, illness or similar cause, Executive
shall be deemed disabled, and the Corporation any time thereafter may terminate
Executive's employment hereunder by reason of the disability. Upon delivery to
Executive of such notice, all obligations of the Corporation hereunder shall
terminate, except that Executive shall be entitled to payment of any unpaid
accrued Base Salary through the date of termination. In addition, any accrued
and unpaid Bonus shall be paid in accordance with Section 4 hereof. In addition,
the Executive shall be entitled to those severance payments set forth in Section
5.1 hereof. The obligations of Executive under Section 10 hereof shall continue
notwithstanding termination of Executive's employment pursuant to this Section
9.2.
9.3 Termination For Cause. The Corporation may at any time during the
Term, without any prior notice, terminate this Agreement and discharge Executive
for Cause, whereupon the Corporation's obligation to pay compensation or other
amounts payable hereunder to or for the benefit of Executive shall terminate on
the date of such discharge. As used herein the term Cause shall mean: (i) a
willful and material breach by Executive of the terms of this Agreement' which
breach shall not have been cured within thirty (30) days of writen notice of
such breach; (ii) willful violation of specific and lawful written direction
from the Board of Directors of the Corporation, which violation shall not have
been cured within thirty (30) days of written notice of such violation, provided
such direction is not inconsistent with the Executive's duties and
responsibilities as the, Chief Executive Officer and President of the
Corporation; or (iii) conviction of the Executive of a felony by a federal or
state court of competent jurisdiction, which felony is directly and materially
related to or arises out of Executive's employment with the Corporation. The
obligations of the Executive under Section 10 shall continue notwithstanding
termination of the Executive's employment pursuant to this Section 9.3.
9.4 Termination Without Cause. The Corporation shall have the option to
terminate this Agreement Without Cause upon ninety (90) days' written notice to
the Executive. In the event the Corporation terminates this Agreement without
Cause as defined above, the Corporation shall pay the Executive upon
termination, the amount required pursuant to Section 5.1. The obligations of the
Executive under Section 10 hereof shall continue notwithstanding termination of
the Executive's employment pursuant to this Section 9.4.
9.5 Termination by Executive For Good Reason. The Executive shall have
the right to terminate this Agreement for Good Reason, as hereinafter defined,
upon written notice to the Corporation. Good Reason shall mean any of the
following: (i) the assignment to the Executive of duties inconsistent with the
Executive's position, duties, responsibilities, titles or offices as described
herein; (ii) any reduction by the Corporation of the Executive's compensation or
benefits payable hereunder (it being understood that a reduction of benefits
applicable to all executives of the Corporation, including the Executive, shall
not be deemed a reduction of the Executive's compensation package for purposes
of this definition.
9.6. Termination by Executive upon Change in Control. Executive, at his
option, shall be able to terminate this Agreement upon written notice given to
the Secretary of the Corporation within ninety (90) days of an occurrence of a
"Change in Control". A "Change in Control" of the Corporation shall mean a
change in control of the Corporation or any entity controlling the Corporation
(referred to collectively in this Section 5 as the Corporation) of a nature that
would be required to be reported in response to Item 1 of a Current Report on
Form 8-K, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); provided that, without limitation, such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
person who or which was a shareholder of the Corporation immediately prior to
the Corporation's initial public offering (the "IPO"), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing thirty-five percent
(35%) or more of the combined voting power of the Corporation's outstanding
securities ordinarily having the right to vote at elections of directors; or (b)
individuals who constitute the Board concurrent with the execution of this
Agreement (the incumbent Board) cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least three quarters of the directors
comprising the Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a sale by
the Corporation of all or substantially all of its assets occurs.
Notwithstanding anything in the foregoing to the contrary, no Change in Control
shall be deemed to have occurred for purposes of this Agreement by virtue of any
transactions which result in the acquisition by the Executive, or by a group of
persons which includes the Executive, directly or indirectly, of a majority of
either the outstanding shares of common stock of the Corporation or the voting
securities of any corporation which acquires all or substantially all of the
assets of the Corporation, whether by way of merger, consolidation, sale of such
assets or otherwise.
10. Protection of Confidential Information.
In view of the fact that Executive's work for the Corporation will
bring him into close contact with confidential information and plans for future
developments, Executive agrees to the following:
10.1 Secrecy. To keep secret and retain in the strictest confidence all
confidential matters of the Corporation, including, without limitation, trade
"know how" and trade secrets, customer lists, pricing policies, marketing plans,
technical processes, formulae, inventions and research projects, and other
business affairs of the Corporation, learned by him heretofore or hereafter, and
not to disclose them to anyone inside or outside of the Corporation, except in
the course of performing the Services hereunder or with the express written
consent of the Chief Executive Officer or Board of Directors of the Corporation
and except to the extent such information is already known to the general public
10.2 Return Memoranda, etc. To deliver promptly to the Corporation on
termination of his employment, or at any other time as the Chief Executive
Officer or the Board of Directors of the Corporation may so request, all
memoranda, notes, records, reports, manuals, drawings, blueprints and other
documents (and all copies thereof) relating to the Corporation's business and
all property associated therewith, which he may then possess or have under his
control.
10.3 Covenants.
10.3.1 Non-competition. Executive agrees that at all times
while he is employed by the Corporation and, regardless of the reason for
termination of his employment or this Agreement, for a period of one (1) year
thereafter, he will not, as a principal, agent, employee, employer, consultant,
stockholder, investor, director or co-partner of any person, firm, corporation
or business entity other than the Corporation, or in any individual or
representative capacity whatsoever, directly or indirectly, without the express
prior written consent of the Corporation:
(i) engage or participate in any business whose products or services are
competitive with that of the Corporation, which business is the
creation, distribution, publishing, production and sales of music and
product marketing, advertising plus radio and internet broadcasting
clients and customers located within the United States and worldwide;
(ii) aid or counsel any other person, firm, corporation or entity to do any
of the above;
(iii)become employed by a firm, corporation, partnership or joint venture
which competes with the business of the Corporation within the United
States; or
(iv) approach, solicit business from, or otherwise do business or deal with
any customer of the Corporation in connection with any product or
service competitive to any provided by the Corporation.
10.3.2 Anti-Raiding. Executive agrees that during the term of his
employment hereunder, and, thereafter for a period of one (1) year, he will
not, as a principal, agent, employee, employer, consultant, director or
partner of any person, firm, corporation or business entity other than the
Corporation, or in any individual or representative capacity whatsoever'
directly or indirectly, without the prior express written consent of the
Corporation approach, counsel or attempt to induce any person who is then
in the employ of the Corporation to leave the employ of the Corporation or
employ or attempt to employ any such person or persons who at any time
during the preceding six months was in the employ of the Corporation.
10.3.3 Executive's Acknowledgements. Executive acknowledges (i) that
his position with the Corporation requires the performance of services
which are special, unique, and extraordinary in character and places him in
a position of confidence and trust with e Customers and employees of the
Corporation, through which, among other things, he shall obtain knowledge
of the Corporation's "technical information" and "know-how" and become
acquainted with its customers, in which matters the Corporation has
substantial proprietary interests; (ii) that the restrictive covenants set
forth above are necessary in order to protect and maintain such proprietary
interests and the other legitimate business interests of the Corporation;
and (iii) that the Corporation would not have entered into this Agreement
unless such covenants were included herein.
Executive also acknowledges that the business of the Corporation
presently will extend throughout the United States, and that he will personally
supervise and engage in such business on behalf of Corporation and, accordingly,
it is reasonable that the restrictive covenants set forth above are not more
limited as to geographic area then is set forth therein. Executive also
represents to the Corporation that the enforcement of such covenants will not
prevent Executive from earning a livelihood or impose an undue hardship on the
Executive.
10.4 Severability. If any of the provisions of this Section 10, or any
part thereof, is hereinafter construed to be invalid or unenforceable, the same
shall not affect the remainder of such provision or provisions, which shall be
given full effect, without regard to the invalid portions. If any of the
provisions of this Section 10, or any part thereof, is held to be unenforceable
because of the duration of such provision, the area covered thereby or the type
of conduct restricted therein, the parties agree that the court making such
determination shall have the power to modify the duration, geographic area
and/or other terms of such provision and, as so modified, said provision(s)
shall then be enforceable. In the event that the courts of any one or more
jurisdictions shall hold such provisions wholly or partially unenforceable by
reason of the scope thereof or otherwise, it is the intention of the parties
hereto that such determination not bar or in any way affect the Corporation's
right to the relief provided for herein in the courts of any other jurisdictions
as to breaches or threatened breaches of such provisions in such other
jurisdictions, the above provisions as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
10.5 Injunctive Relief. Executive acknowledges and agrees that, because
of the unique and extraordinary nature of his services, any breach or threatened
breach of the provisions of Sections 10.1, 10.2, or 10.3 hereof will cause
irreparable injury and incalculable harm to the Corporation, and the Corporation
shall, accordingly, be entitled to injunctive and other equitable relief for
such breach or threatened breach and that resort by the Corporation to such
injunctive or other equitable relief shall not be deemed to waive or to limit in
any respect any right or remedy which the Corporation may have with respect to
such breach or threatened breach. The Corporation and Executive agree that any
such action for injunctive or equitable relief shall be heard in a state or
federal court situate in Rhode Island and each of the parties hereto, hereby
agrees to accept service of process by registered mail and to otherwise consent
to the jurisdiction of such courts.
10.6 Expenses of Enforcement of Covenants. In the event that any
action, suit or proceeding at law or in equity is brought to enforce the
covenants contained in Sections 10.1, 10.2, or 10.3 hereof or to obtain money
damages for the breach thereof, the party prevailing in any such action, suit or
other proceeding shall be entitled upon demand, to reimbursement from the other
party for all expenses (including, without limitation, reasonable attorneys'
fees and disbursements) incurred in connection therewith.
10.7 Separate Agreement. The provisions of this Section 10 shall be
construed as an agreement on the part of the Executive independent of any other
part of this Agreement or any other agreement, and the existence of any claim or
cause of action of the Executive against the Corporation, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Corporation of the provisions of this Section 10.
11. Indemnification.
The Corporation shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors and
officers liability insurance policy at the Corporation's expense to the same
extent as provided for any other director, officer or trustee of the
Corporation. In addition, the Corporation shall indemnify the Executive (and his
heirs, executors and administrators) to the fullest extent permitted under the
law of its state of incorporation against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which the Executive may be involved by reason of his having
been a director or officer of the Corporation or any subsidiary thereof. Such
expenses and liabilities shall include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, such
settlements to be approved by the Board if such action is brought against the
Executive in his capacity as a director or officer of the Corporation or any
subsidiary thereof. The Corporation shall, upon the request of the Executive,
advance to the Executive such amounts as necessary to cover expenses, including
without limitation legal fees and expenses, incurred by the Executive in
connection with any suit or proceeding in which the Executive may be involved by
reason of his being or having been a director or officer of the Corporation or
of any subsidiary thereof. Such indemnity and advance of expenses, however,
shall not extend to matters as to which the Executive is finally adjudged to be
liable for wilful misconduct in the performance of his duties.
12. Arbitration.
Except with respect to any proceeding brought under Section 10 hereof,
any controversy, claim, or dispute between the parties, directly or indirectly,
concerning this Employment Agreement or the breach hereof, or the subject matter
hereof, including questions concerning the scope and applicability of this
arbitration clause, shall be finally settled by arbitration in Kent County,
Rhode Island pursuant to the rules then applying of the American Arbitration
Association The arbitrators shall consist of one representative selected by the
Corporation, one representative selected by the Executive and one representative
selected by the first two arbitrators The parties agree to expedite the
arbitration proceeding in every way, so that the arbitration proceeding shall be
commenced within thirty (30) days after request therefore is made, and shall
continue thereafter, without interruption, and that the decision of the
arbitrators shall be handed down within thirty (30) days after the hearings in
the arbitration proceedings areclosed. The arbitrators shall have the right and
authority to assess the cost of the arbitration proceedings and to determine how
their decision or determination as to each issue or matter in dispute may be
implemented or enforced. The decision in writing of any two of the arbitrators
shall be binding and conclusive on all of the parties to this Agreement. Should
either the Corporation or the Executive fail to appoint an arbitrator as
required by this Section 12 within thirty (30) days after receiving written
notice from the other party to do so, the arbitrator appointed by the other
party shall act for all of the parties and his decision in writing shall be
binding and conclusive on all of the parties to this Employment Agreement. Any
decision or award of the arbitrators shall be final and conclusive on the
parties to this Agreement; judgment upon such decision or award may be entered
in any competent Federal or state court located in the United States of America;
and the application may be made to such court for confirmation of such decision
or award for any order of enforcement and for any other legal remedies that may
be necessary to effectuate such decision or award.
13. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder, shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by prepaid telegram, telecopy or
mailed first-class, postage prepaid, by registered or certified mail (notices
sent by telegram or mailed shall be deemed to have been given on the date sent),
to the parties at their respective addresses hereinabove set forth or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith. Copies of all notices shall be sent to the attorney
selecteed by the Executive and noticed in writing to mthe Corporation from time
to time.
14. General.
14.1 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the local laws of the State of Rhode Island
applicable to agreements made and to be performed entirely in Rhode Island.
14.2 Captions. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
14.3 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation'
promise or inducement not so set forth.
14.4 Severability. If any of the provisions of this Agreement shall be
unlawful, void, or for any reason, unenforceable, such provision shall be deemed
severable from, and shall in no way affect the validity or enforceability of,
the remaining portions of this Agreement.
14.5 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement by any other party shall not operate or be construed
as a waiver of any subsequent breach of the same provision or any other
provision hereof.
14.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
14.7 Assignability. This Agreement, and Executive's rights and
obligations hereunder, may not be assigned by Executive. The Corporation may
assign its rights, together with its obligations, hereunder in connection with
any sale, transfer or other disposition of all or substantially all of its
business or assets; in any event the rights and obligations of the Corporation
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets; provided, however, that any such assignment shall not release the
Corporation from its obligations hereunder. This Agreement shall inure to the
benefit of, and be binding upon, the Executive and his executors,
administrators, heirs and legal representatives.
14.8 Amendment. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. No superseding instrument,
amendment, modification, cancellation, renewal or extension hereof shall require
the consent or approval of any person other than the parties hereto. The failure
of either party at any time or times to require performance of any provision
hereof shall in no matter affect the right at a later time to enforce the same.
No waiver by either party of the breach of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: OPEN DOOR ONLINE, INC.
By: _____________________ By: _____________________________
Name: Name: David N. DeBaene
Title: President
WITNESS:
- -------------------------- -----------------------------------
THOMAS CARLEY, individually
<PAGE>
Amendment to Employment Contract
Thomas Carley
March 1, 2000
Paragraph 3.3 Stock Option Agreement is rescinded due to the lack of an
authorized employment stock option program. In the event the Board of Directors
of Open Door Online, Inc. and the shareholders agree to the formation of a stock
option plan awards may be made upon the approval of the Board of Directors at
that time.
Signed this 31st day of March, 2000
- -----------------------------------
Thomas Carley
EXCLUSIVE DISTRIBUTION AGREEMENT
This Exclusive Distribution Agreement ("Agreement") is entered into as
of the 18th day of May, 1999 between RICHARD WAGNER doing business as WAGNER
MUSIC GROUP, a Michigan State corporation with its principal location at 707
Federal, Saginaw, MI 48607 (hereinafter referred to as "Artist," "Label" or
"Supplier") and OPEN DOOR DISTRIBUTION, a Rhode Island Corporation with its
principal place of business at 10 Dorrance Street, Providence, Rhode Island,
002903 (hereinafter referred to as "Distributor").
WHEREAS the Supplier is in the business of recording, developing,
marketing and supporting certain Products as defined below and the Distributor
wishes to manufacture and distribute to the dealers and the re-marketers of
these Products and assures the Supplier that it has the facilities, personnel,
and technical expertise necessary to do so. The Supplier is willing to grant to
the Distributor the exclusive right to manufacture and distribute these Products
to such dealers and re-marketers as qualify and as defined below for resale
purposes. In consideration of the mutual promises, covenants, and agreements
made below, the parties, intending to be legally bound, agree as follows:
1. Definitions
"End-User." Any person or entity who purchases or licenses the
Product(s).
"Information." The technical or business information, either oral or
written, that the Supplier or the Distributor furnishes to the other marked as
proprietary or confidential or simply treated as such by the disclosing party.
It includes research, development or business activities, including any
unannounced Products and services, as well as any information relating to
services, developments, services, processes, plans, financial information,
customer and Supplier lists, forecasts and projections. Information will also
include the terms of this Agreement.
"Intellectual Property Rights." Any work of authorship, regardless of
copyrightability, including copyrights and any moral rights recognized by law;
and (3) any other similar rights, in each case on a national and international
basis.
"Products." The audio, digital or any other technical form, now known
or later developed, of the musical, theatrical or literary performances
developed or owned by the Supplier that are specifically listed in Exhibit "A"
attached, along with enhancements, revisions, remixes or modifications made to
the Products by the Supplier.
2. Term. This Agreement will begin on the date first written and will terminate
Twenty-Four (24) months following the start date, unless sooner or later in
accordance with the terms of this Agreement. Certain sections, as indicated
below, will survive and remain effective even after the termination or
expiration of this Agreement. All other rights and obligations of each party to
the other will terminate upon the termination of this Agreement.
3. Exclusive Distributor. The Supplier grants the Distributor an irrevocable
exclusive right and license to manufacture and distribute the Products alone or
with other Products and to affix its own label in addition to the Supplier's.
Except as provided, the Distributor will have sole control over methods of
manufacturing, distributing, marketing, pricing, labeling, advertising, and the
terms and conditions of any sale, unless otherwise provided for herein.
3.1 Independent Contractors. The Supplier and the Distributor agree
that their relationship is not that of joint venturers, principals or agents, or
franchiser and franchisee. Both are independent contractors acting for their own
accounts, and neither is authorized to make any commitment or representations,
express or implied, on the other's behalf unless authorized to do so by the
other in writing.
3.2 Use of Trademarks and Trade Names. No right, title or interest in
or to any trademarks, trade names, professional names, slogans, labels and
designs used by either the Supplier or the Distributor, nor the goodwill
connected, is conveyed by this Agreement. The Distributor may, in connection
with the manufacture, distribution and sale of the Products pursuant to the
terms of this Agreement, refer to the Supplier's applicable trade names or
trademarks provided that all such references are in conformance with the
Supplier's requirements regarding such use, as such requirements are
communicated to the Distributor in writing from time to time by the Supplier.
4. Distribution Rights. In recognition of the investment to be made by the
Distributor in connection with its manufacture, marketing and distribution of
the Products, the parties agree to the following: The Supplier hereby grants the
Distributor the exclusive right to manufacture for the first Twelve (12) months
("Manufacture Period") of this Agreement as needed and distribute the Products
in all countries in the world in which it is legal to manufacture and sell the
Products, subject to the limitations below and in Section 4.1.
The Distributor shall distribute the Products to any and all wholesale
and retail outlets, key outlets, direct mail, mail order, audiophile or other
specialty stores, chains, franchises, one stops, individual stores or any other
stores who normally and traditionally sell audio and video products embodying
the performances of musical, literary or theatrical talent. These outlets
include, without limitation, any "Internet," "On-Line" or new technological
sales outlets now known or to be developed in the future. The exclusive
distribution rights granted to the Distributor pursuant to this Agreement expire
Twenty-Four (24) months (the "Primary Contract Period") from the date first
written above. The Supplier controls the exclusive right to extend and renew
this Agreement by exercising options ("Option Periods") as defined in this
paragraph. The length of each consecutive option shall be for a period of One
(1) year commencing upon the expiration of the Primary Contract Period or the
then current Option Period. Each option will be deemed automatically exercised
by Supplier unless Supplier delivers notice to Distributor of its intention to
terminate. Said notice to terminate shall be delivered to Distributor no later
than Thirty (30) days prior to the expiration of the current Primary ?Contract
or Option Period. It shall be made in writing and mailed to Distributor by
Certified or Registered mail, return receipt requested, in order to be deemed
delivered. The Supplier will not sell any products with specifications
substantially comparable to those of the Products.
Notwithstanding anything in the foregoing paragraph, in the event
Supplier wishes to exercise its option to terminate this Agreement at the end of
the Primary Contract Period or the then current Option Period, and, in
consideration of the fact that the Distributor shall be responsible for
manufacturing, duplicating and packaging of the Products as needed for the first
Twelve (12) months (Manufacture Period) of this Agreement as set forth herein,
the then current Primary Contract or Option Period shall be extended until such
time as Distributor has recouped any and all expenses, costs or other recoupable
amounts as incurred by the Distributor as a result of the sale of Products. Once
any and all expenses, costs or other recoupable amounts have been recovered by
Distributor, the Supplier shall have the right to exercise its option to
terminate this Agreement.
5. Distributor's Responsibilities. The Distributor agrees to manufacture or
re-press Product to maintain inventory levels as needed for the first Twelve
(12) months of this Agreement and to distribute the Products to any authorized
dealers as defined herein. The Distributor will maintain an inventory of
Products and warehousing facilities sufficient to adequately serve the demands
of its dealers on a timely basis. The Supplier agrees to provide the Distributor
with the necessary Masters, complete artwork, including label copy, liner notes
and credits in completed film form, as well as licenses, approvals, consents and
permissions necessary to manufacture, duplicate and distribute the Products.
Both the Supplier and Distributor agree that at the end of the Manufacture
Period which is Twelve (12) months from the date first written above, all
Parties agree to negotiate and decide in good faith whether to extend or
terminate the Manufacture Period as described herein.
5.1 Supplier's Responsibilities. Supplier agrees to supply Distributor
with different photographs and biographical material pertaining to the Products
as may be needed for promotion, merchandising, in-store display and advertising.
If any such material is inaccurate, misleading, obscene or an invasion of
anyone's privacy, then Distributor shall have the right, but not the obligation,
to correct, edit, delete or revise such information and to eliminate any
inaccuracy, or misleading materials. Distributor shall have the right to charge
the actual cost or expense of making such changes against any sums due Supplier
under this Agreement. Distributor agrees to consult with Supplier before making
any of the changes. Distributor's inadvertent failure to consult with Supplier
regarding the changes shall not be deemed a breach of this Agreement. Both the
Supplier and Distributor agree that at the end of the Manufacture Period which
is Twelve (12) months from the date first written above, all Parties agree to
negotiate and decide in good faith whether to extend or terminate the
Manufacture Period as described herein.
5.1.1 Live Performances. The Supplier does hereby agree to
perform or to permit the public performance of the Masters by means of radio
broadcast, television broadcast or any other method now or hereafter known,
including new technologies.
5.2 Promotion Efforts. The Supplier will be solely responsible for all
promoting, publicizing, advertising, marketing, and merchandising efforts
necessary to generate airplay and the sale of the Products. Excluding the terms
as set forth in Sections 5.2 and 5.3, the Distributor shall, at its sole
discretion, advertise, publicize, market and promote the Products in the media
of its choice. For each one hundred (100) compact discs, disc lp's singles or
tapes that Distributor ships to its dealers for which royalties shall be payable
hereunder, Distributor shall have the right to ship its dealers, on a no-charge
basis or at a cost which is Fifty (50%) percent or less of Distributor's regular
wholesale price five (5) compact discs, ten (10) disc lp's, singles or tapes for
which royalties shall not be payable to Supplier. No royalties shall be payable
for compact discs, lp discs, singles or tapes used for the purposes of publicity
or advertising, for records distributed to radio stations, television stations,
motion picture companies, publishers or others, for Products used on
transportation facilities or as in-store play samplers, for records sold as
cutouts or overstock or for records sold as scrap.
Notwithstanding anything to the contrary hereinabove set forth, if
Distributor changes its overall policy with respect to Products shipped to
dealers on a no-charge basis or at a cost which is Fifty (50%) percent or less
of Distributor's regular wholesale price on which royalties are not payable,
then Distributor shall have the right to change the limitations hereinabove set
forth in accordance with such new policy.
5.3 Participation by Distributor. For Products selling One Thousand
(1,000) units and for each increment of One Thousand units sold thereafter,
Distributor agrees to hold from its share of royalties and to place in a
separate Advertising Escrow Account an amount equal to Fifty ($0.50) cents per
unit sold. Said account is to be used for the purpose of advertising and
promoting the Product. This expense will be deemed a non-recoupable advance to
the Supplier and is meant to promote, expose and market the Products. Further,
it is agreed to by Distributor to provide Supplier with a minimum of Ten
Thousand Dollars ($10,000) to be used by Supplier to promote, advertise, market
and exploit its Product and Roster. This amount is deemed a recoupable advance
which will be payable to Supplier in quarterly and equal increments.
5.3.1 Participation by Supplier. For Products selling One
Thousand (1,000) units and for each increment of One Thousand units sold
thereafter, Supplier authorizes Distributor to hold from its share of royalties
and to place in a separate Advertising Escrow Account an amount equal to Fifty
($0.50) cents per unit sold. Said escrowed amounts to be used for the purpose of
advertising and promoting the Product.
5.3.2 Use of Advertising Escrow Account. It is the sole
discretion of the Supplier to direct the Distributor, in writing, as to whether
funds deposited in its Advertising Escrow Account are to be used for advertising
space or time solely for the promotion of its Products or as part of cooperative
advertising buys in which Supplier is promoted along with other Suppliers or
Artists of like or similar style, image and audience appeal. If Supplier agrees
to participate in cooperative advertising buys, Distributor agrees to allocate
advertising space, type size, placement and all other aspects of the advertising
equally among the participant Suppliers.
5.4 Supplier Packaging. The Distributor will distribute Products with
all packaging, warranties, and disclaimers designated by the Supplier and will
require all the Dealers to adhere to the terms applicable to such Products.
5.5 Reports. The Distributor will mail to Supplier no later than
Fifteen (15) days after the end of each month during the term of this Agreement
including any extensions, renewals or revisions and quarterly for Twenty-four
(24) months after the expiration or termination of this Agreement, a customized
report showing the preceding month's current inventory of each Product, the
quantity of each Product shipped, the number of returns or refunds on Products,
the balance of Supplier's Advertising Escrow Account and other relevant
information for the prior month as requested by Supplier.
5.6 Compliance with Laws. The Distributor will comply with all material
applicable present and future federal, state, county, local, and, where
necessary, foreign laws, ordinances, and regulations relating to the sale of the
Products.
5.7 Service Support. Subject to the Distributor's customer service
policy and in union with the Supplier, the Distributor will provide sales
support including, without limitation, returns processing, End-User inquiries,
field account maintenance and mutually-approved sales incentives, in the form of
"free goods," etc.
6. Payment Terms. Distributor will play to Supplier, on a quarterly basis,
Seventy-Five (75%) percent of the wholesale price as set forth in Exhibit "D" of
this Agreement after deducting all taxes and duties and Distributor's customary
container charges (i.e. the container charges which Distributor customarily
charges a majority of the suppliers then under exclusive term distribution
agreements with Distributor). With respect to the distribution of Product
outside of the United States for which Distributor receives payment or credit,
Distributor shall calculate the applicable container charge on the basis of the
retail price less all taxes and duties only if the licensee accounting to
Distributor for the particular sales concerned has computed the container charge
applicable to the Distributor on a basis which is less all taxes and duties;
otherwise, Distributor shall calculate the applicable container charge hereunder
on the basis of the wholesale list price, inclusive of taxes and duties. At the
present time, Distributor's customary container charges are as follows for the
following Product: Twelve (12%) percent of the retail list price for compact
discs, disc records (other than seven-inch singles released in a standard
generic sleeve, for which there is no packaging deduction and other than those
listed below); Ten (10%) percent of the retail list price for cassette tapes or
digital audio tapes (DATS).
6.1 Packaging. The Supplier will provide appropriate packaging as
requested by the Distributor to permit Products to be shipped directly into the
Distributor's system without reopening the boxes or re-handling the finished
goods.
The Distributor may request that the Supplier ship directly to any
location designated by the Distributor. The Supplier agrees to comply with these
requests at no additional charge (other than transportation charges) provided
that the Distributor furnishes the Supplier with shipping instructions at least
Five (5) days prior to shipment. The Supplier agrees to supply art, graphics,
film, biographical material, press clippings or any other item to be used for
promotional or advertising purposes by the Distributor. The Distributor agrees
to provide displays, rock dividers or other forms of "in-store" display as
required or by its distribution outlets. The Distributor's costs would be
recoupable expenses, deductible from Supplier's royalties payable, itemized and
included on the Reports as defined in Section 5.4 herein.
6.2 Warehousing. The Distributor may request that the Supplier ship to
its own warehouse or to another warehouse owned by a third party. In this event,
the Supplier's shipment will constitute delivery to the Distributor. The
Supplier will procure insurance to cover damage or loss to these shipments while
in the warehouse awaiting final delivery to the customers as set forth in this
Agreement. The Supplier will arrange for final shipment to the dealers
designated at the Distributor's instruction.
7. Financial Condition. The Distributor represents and warrants that it is and
at all times during the term of this Agreement will remain in good financial
condition, solvent and able to pay its bills when due. From time to time, on
reasonable notice by the Supplier, an audit of the Books and Records pertaining
to this Agreement can be scheduled as long as it is during normal business
hours, at Supplier's sole expense, at a place and time designated by Distributor
and no more frequently than once in any contractual year of this Agreement. If
errors or discrepancies are found, the responsible Party shall reimburse to
correct ht error within Thirty (30) business days. Interest will accrue on any
delinquent amounts owed to the Supplier at the rate of One (1%) percent per
month, or at the maximum permitted by applicable law, whichever is less.
7.1 Pricing. The Supplier is free to determine its own suggested resale
prices for the Products.
8. Risk of Loss. The Distributor assumes the risk of loss and damage of the
Products in transit from the Distributor's shipping point to the point of
destination as well as once Product is warehoused.
9. Distributor Duties. The Distributor agrees to honor all replacement requests
from Dealers to End-Users pursuant to the terms of the End-User Agreement
pertaining to the defective units. The Distributor will instruct all the Dealers
to submit all replacement requests to the Distributor.
9.1 Additional Protection. If, within any Six (6) month period, Twenty
(20%) percent or more of the Products, while within the warranty period
specified in this Agreement, exhibit defects of the same kind and nature, and
such defects are the result of faulty design or workmanship or defects in
materials arising from any cause for which the Distributor is responsible, then
the Distributor agrees to give compensation, or render assistance at the
Distributor's sole expense, by delivery of replacement Products found to be
defective to the place designated by the Distributor. If the cause of the
defects are the responsibility of the Supplier, then the Supplier agrees to give
compensation or render assistance to re-record, mix or master the Product to
correct the defects. The Distributor will provide the Supplier a written report
of all warranty claims at least once every Three (3) months.
9.2 Indemnification. The Supplier will indemnify the Distributor from
any claim brought against the Distributor on Product liability. The Supplier
will defend or settle and the Supplier agrees, at its own expense, to defend or
settle any claim brought against the Distributor on the issue of Product
liability, subject to the limitations in this Agreement. The Supplier agrees to
pay, subject to this Agreement, any final judgment entered against the
Distributor on such issue in any such suit defended by the Supplier. The
Supplier will be relieved of the foregoing obligations unless the Distributor or
its Customer notifies the Supplier promptly in writing of such claim and gives
the Supplier authority to proceed as contemplated herein, and at the Supplier's
expense, gives proper and full information and assistance to settle or defend
any such claim. The foregoing provisions of this Section states the entire
liability and obligations of the Supplier and the exclusive remedy of the
Distributor and its Customers with respect to any alleged Product liability suit
related to the Products or any part thereof.
10. Ownership Warranty and Indemnification. The Supplier warrants to the
Distributor that the Products are the originals with the Supplier, the Products
do not infringe upon any copyright or other proprietary rights of others, the
Supplier has full power and authority to grant the rights herein granted to the
Distributor and the Supplier has not previously or otherwise granted any other
rights in the Products to any third party that conflict with the rights in this
Agreement granted to the Distributor.
The Supplier agrees to defend at its expense and hold the Distributor
harmless from any claim against the Distributor resulting from a breach of any
of the warranties set forth above and to pay any costs, damages, or expenses
(including attorneys' fees) arising from any such claim. The Supplier will have
sole control of the defense, all negotiations and settlement. The Distributor
will promptly notify the Supplier in writing of any such claim, and, at the
Supplier's request and expense, provide the Supplier with all available
information to enable the Supplier to defend the same.
Following notice of a claim or a threatened or actual suit, the
Supplier will immediately, at its own expense, procure for the Distributor the
right to continue the use of the Products subject to such claim, demand, or,
having failed to obtain such right, replace or modify such Products to make them
non-infringing, or having failed to replace or modify the Products, refund to
the Distributor the purchase price of all unsold Products. If the Distributor
elects to replace any of the Products, such replacement will substantially meet
the performance and interface specifications of the replaced Products. The
warranties stated in this Section will survive the expiration or termination of
this Agreement.
11. Termination Events. This Agreement may be terminated by either Party upon
the occurrence of any assignment for the benefit of the creditors, or any
bankruptcy, reorganization, or other proceeding under any bankruptcy or
insolvency law which is initiated by the other Party, or is initiated against it
and not dismissed or stayed within Thirty (30) days, a material breach by the
other Party of any of the terms of this Agreement, which breach is not remedied
by the other Party within Thirty (30) days of the other Party's receipt of
notice of such breach or upon the sale or distribution of the Products in
violation of the Distributor's exclusive distribution rights as described in
Section 4. The written notice of termination will be given by registered or
certified mail, in which event this Agreement will terminate Thirty (30) days
from the date of mailing of the notice, providing Distributor is not able to
cure said breach during that time.
11.1 Supplier's Early Termination. This Agreement may be terminated by
the Supplier upon receipt of a bona fide offer to Supplier from a major record
or distribution company, major being defined by the standards and traditions of
the Music Industry (i.e. Sony, Universal, etc.). Notwithstanding anything in the
foregoing sentence, the Distributor is hereby granted the right of first refusal
providing Distributor be given the opportunity to submit a counter-offer to the
Supplier that is of a comparable or more favorable terms. If Supplier accepts
Distributor's counter-offer, then both Parties agree to negotiate the new
agreement in good faith.
11.1.1 Early Termination. If Supplier declines Distributor's
counter-offer and chooses to terminate this Agreement entering into a new
recording or distribution agreement, as defined herein, within Twelve (12)
months from the date of the early termination, Supplier agrees to pay or cause
to be paid directly to the Distributor a sum equal to Two (2%) percent of retail
sales on any Product released by Supplier during the term of any new agreement.
Distributor will continue to distribute any and all Product distributed under
this Agreement to date. Notwithstanding any rates as set forth in Exhibit "D,"
upon early termination of this Agreement, the following Post Term Royalty rates
will apply: Year One--After Early Termination--Fifteen (15%) percent; Year
Two--After Early Termination--Ten (10%) percent; Year Three--After Early
Termination--Five (5%) percent; and Nothing thereafter. Further, Supplier agrees
to abide by all other terms and provisions governing the manufacture,
distribution, sale, quality control and End-User services as set forth herein,
including, but not limited to, the Supplier's Advertising Escrow Account. The
Distributor may, at its discretion, choose to manufacture the distributed
Product in order to maintain inventory levels as needed. In the event that
Distributor does manufacture Products, all expenses and costs shall be deemed
recoupable advances and be deductible from Supplier's share of royalties as set
forth herein.
11.1.2 Early Termination Buy Out. Notwithstanding anything
stated in the above Sections, in the event of Early Termination as set forth in
Section 11.1.1, Supplier may elect to buy out Distributor by way of a flat fee
buy out. Said amount to be negotiated at the time of Early Termination, in good
faith and agreed upon, in writing by all Parties. In the event of a flat fee buy
out, all rights, product, inventory, royalties, future overrides, accrued
Advertising Escrow Account, art, masters and other items as set forth herein
shall revert back to Supplier.
12. Fulfillment of Obligations. Any termination of this Agreement will not
otherwise release either party from its obligation to pay any sum that may be
then or thereafter owing to the other party nor operate to discharge any
liability incurred by either party prior to any such termination. Except as
qualified by the preceding sentences, neither party will, by reason of the
termination of this Agreement, be liable to the other for any damages arising
out of any such termination.
12.1 Effect of Termination and Survival. Except in the event of Early
Termination, the Distributor shall have the right to continue all display,
advertising, and use of all the Supplier names, trademarks, logos, and
designations and will use, advertise, or display any such names, logos,
trademarks, or designations.
13. Protection of Information. The parties agrees to hold Information in
confidence, except as permitted by this Agreement, as it uses to protect its own
confidential information. If used in a manner contrary to the terms of this
Section, the other party will have the right, to injunctive relief enjoining
such attempts, it being agreed that legal remedies are inadequate.
No press releases or other like publicity or advertising of any nature
regarding this Agreement that mentions this Agreement or the other party by name
will be released by a party without the prior written agreement of the other
party. Without the prior written consent of the Supplier, the Distributor will
refrain from copying, reverse engineering, disassembling, de-compiling,
translating, or modifying the Products, or granting any other person or entity
the right to do so.
13.1 Notification. The Distributor will promptly notify the Supplier of
any claims, or notification that its marketing, licensing, support , or service
may or will infringe the Intellectual Property Rights of any other person or
entity and any determination or notification that any person or entity is or may
be infringing the Intellectual Property Rights of the Supplier. The Distributor
will assist the Supplier in the protection and defense of such Intellectual
Property Rights.
14. Assignment. Except as set forth herein, neither this Agreement nor any of
its rights, in whole or in part, will be assignable or transferable by either
party without the express written consent of the other party. This Agreement
will be binding upon and take effect for the benefit of the successors and
assigns of the parties to this Agreement.
14.1 Waiver, Amendment, Modification. No waiver, amendment or
modification, including those by custom, usage of trade, or course of dealing,
of any provision of this Agreement will be effective unless in writing and
signed by the party against whom such waiver, amendment or modification is
sought to be enforced.
No waiver by any party of any default in performance by the other party
under this Agreement or of any breach or series of breaches by the other party
of any of the terms or conditions of this Agreement will constitute a waiver of
any subsequent default in performance under this Agreement or any subsequent
breach of any terms or conditions of that Agreement. Performance of nay
obligation required of a Party under this Agreement may be waived only by a
written waiver signed by a duly authorized officer of the other party, that
waiver will be effective only with respect to the specific obligation described
in that waiver.
14.2 Force Majeure. Neither Party will be deemed in default of this
Agreement to the extent that performance of its obligations, or attempts to cure
any breach, are delayed or prevented by reason of circumstance beyond its
reasonable control, including, without limitation, fire, natural disaster,
earthquake, accident or other acts of God ("Force Majeure"), provided that the
Party seeking to delay its performance gives the other written notice of any
such Force Majeure within Fifteen (15) days after the discovery of the Force
Majeure, and further provided that such Party uses its good faith efforts to
cure the Force Majeure. If there is a Force Majeure, the time for performance or
cure will be extended for a period equal to the duration of the Force Majeure.
This Article will not be applicable to any payment obligations of either Party.
14.3 Settlement of Disputes. Each Party acknowledges that, if there is
any breach including, without limitation, unauthorized use of Confidential
Information, the non-breaching Party will suffer injury that cannot be
compensated by money and therefore will not have an adequate remedy at law. If
either Party institutes an action to enforce the provisions of this Agreement,
such Party will be entitled to obtain such injunctive relief or other remedy
from a court of competent jurisdiction as may be necessary to prevent or curtail
any such breach. These will be in addition to and without prejudice to such
other rights as such Party may have in law or in equity.
14.3.1 Any dispute or claim arising out of this Agreement, or
any aspect of the creation, validity, interpretation, breach, or termination of
this Agreement will be submitted to binding arbitration to be held in
Providence, Rhode Island before a panel of three arbitrators.
Either Party may demand arbitration in writing, serving on the other
Party a statement of the dispute, controversy, or claim, and the fact relating
to it, in reasonable detail, and the arbitrator nominated by that Party. Within
thirty (30) days after such demand, the other Party will name its arbitrator,
and the two arbitrators named by the Parties will, within ten (10) days, select
a third arbitrator. The arbitration will be governed by the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA").
The expenses of arbitration will be borne by the Party against whom the
decision is rendered, or apportioned in accordance with the decision of the
arbitrators if there is a compromise decision. Judgment upon any award may be
entered in any court of competent jurisdiction. All notices from one Party to
the other relating to any arbitration under this Agreement will be in writing
and will be effective if given in accordance with Section 14.2 below.
14.4 Proprietary Information. Each Party acknowledges that it may be
furnished with or may receive or have access to information or material that
relates to past, present or future Products and marketing plans, "Proprietary
Information." The Parties agree to preserve the confidentiality of the
Proprietary Information, whether disclosed to the other Party before this
Agreement is signed or afterward, including the terms of this Agreement. A Party
will not disclose or disseminate the Proprietary Information for its own benefit
or of any third party.
The previously stated obligations do not apply to any information that
is publicly known, is given to a party by someone else who is not obligated to
maintain confidentiality or a party had already developed prior to the day this
Agreement is signed, as evidenced by documents. Neither Party will take or cause
to be taken any physical forms of Proprietary Information without the other
Party's written permission. Within three (3) days after the termination of this
Agreement, a Party will return to the other Party all copies of Proprietary
Information in tangible form. Despite any other provisions of this Agreement,
this Section will survive termination of this Agreement.
14.5 Cumulative Rights. Any specific right or remedy provide in this
Agreement will not be exclusive but will be cumulative upon all other rights and
remedies set forth in this section and allowed under applicable law.
14.6 Governing Law. This Agreement will be governed by the substantive
laws of the State of Rhode Island applicable to Agreements made and fully
performed in Rhode Island by Rhode Island residents. The Parties acknowledge
that this Agreement expresses their entire understanding and agreement, and that
there have been no warranties, representations, covenants or understandings made
by either Party to the other except such as are expressly set forth in this
section. This Agreement may be executed in multiple counterparts, any one of
which will be deemed an original, but all of which will constitute one and the
same instrument. If any provision of this Agreement is found invalid or
unenforceable under judicial decree or decision, the remainder will remain valid
and enforceable according to its terms.
14.7 Notices. All notices required or permitted under this Agreement
will be in writing and will be delivered or mailed, certified, return receipt
requested, to the respective Parties at the addresses set forth above or at such
other address as such Party will specify to the other Party in writing. Any
notice required or permitted to be given by the provisions of this Agreement
will be conclusively deemed to have been received on the day it is delivered to
that Party by U.S. Mail with Acknowledgement of Receipt or by any commercial
courier providing equivalent acknowledgment of receipt. Captions and section
headings used in this Agreement are for convenience only and are not a part of
this Agreement and will not be used in construing it.
We have carefully reviewed this contract and agree to and accept its
terms and conditions. We are executing this Agreement as of the day and year
first written above.
SUPPLIER DISTRIBUTOR
/s/ /s/
- ------------------------ -------------------------------------
Richard Wagner David DeBaene, Open Door Music, Inc.
(Title) President
<PAGE>
EXHIBIT A
Products
--------
"Bossmen" Dick Wagner
Frost "This Band Can Rock"
"Remember The Child" (tape) Richard Wagner
"Creating Love" (tape) Richard Wagner
"Rock History" Dick Wagner
"Matt Besey" Matt Besey
"Brother Love" Brother Love
"Breaking Through" Sonic Vibe
"Church of the Open Bottle" Church of the Open Bottle
"River of Grace" Christine Smith
forthcoming: Hound Dog Moonshine
<PAGE>
EXHIBIT B
---------
Supplier Customers
<PAGE>
\
EXHIBIT C
Suggested List Price Schedule
-----------------------------
Wholesale Price Suggested Retail Supplier's Share Distributor's Share
75.00% 25.00%
$4.83 $8.97 $3.62 $1.21
$5.29 $9.97 $3.96 $1.33
$6.07 $10.97 $4.55 $1.52
$6.44 $11.97 $4.83 $1.61
$7.18 $12.97 $5.38 $1.80
$7.73 $13.97 $5.79 $1.94
$8.19 $14.97 $6.14 $2.05
$8.83 $15.97 $6.62 $2.21
$9.29 $16.97 $6.96 $2.33
$10.03 $17.97 $7.52 $2.51
<PAGE>
ADDENDUM
PROMOTION ADDENDUM
WMG RECORDS W/OPEN DOOR MUSIC INC.
1. Open Door will construct "hot links" connecting Suppliers Web sties with the
Distributor's website as well as other key sites.
2. Distributor will construct a special "Dick Wagner Link" which will lead
visitors to an area dedicated to Supplier's artists and roster. It will feature
a complete and updated listing of past, present and future Supplier projects.
3. On a weekly basis, we will allot one hour of on-air time on Open Door's radio
station for your use to be programmed at Supplier's discretion. Said air time
shall be used solely to promote Supplier's roster, the time and the production
choices to be determined by Supplier. Each program shall be taped and repeated
at various times with all repeat scheduling to be approved by Supplier.
4. Distributor will provide additional exposure to Supplier or Supplier's
Product, by offering an open invitation to participate in Distributor's
Specialty Shows such as its interactive advice/talk show.
5. Supplier will be included in Distributor's Cybercast scheduling.
6. Distributor will include Supplier in its Summer Concert Series which will be
held at Water Place Park in Providence, RI. One evening in the five concert
series shall be dedicated, all or in part, to Supplier or Supplier's roster of
artists.
7. At its discretion, Distributor will include Supplier as part of its weekly
advertising display page of Valley Media's weekly sales magazine.
8. In addition to inventory management and control for Supplier's Product,
Distributor is willing to provide fulfillment, inventory management and
reporting on any and all merchandising items sold by Supplier.
No Soap
OPEN DOOR RECORDS, INC.
EXCLUSIVE RECORDING CONTRACT
Agreement made as of the ____ day of _______, 1999, by and between Open
Door Records, Inc. ("Open Door"), a Rhode Island Corporation, doing business at
10 Dorrance Street, Suite 540, Providence, Rhode Island, 02903 and Christopher
O'Hara residing at 24 Cedar Grove Parkway, Cedar Grove, NJ 07009, Daniel Roselle
residing at 773 Colonial Arms Road, Union, NJ 07083, Roselle Park, NJ 07204,
James Farrell residing at 23 Feldbaum Place, Spotswood, NJ 08884 and Walter
Lockhart residing at 207 Lindsey Ct., Franklin Park, NJ 08823, all of whom are
professionally known at No Soap Radio and (referred to herein, individually and
collectively as "you," "Artist" or "Parties"). (You are sometimes called "the
Artist" below: all references in this agreement to "you and the Artist" and the
like, are understood to refer to you, alone.)
1. TERM
1.1 The Initial Term of this agreement will begin on the above written date and
continue, unless extended as provided herein, for a minimum of Ninety (90)
days from the date first written above. The Initial Period of this
Agreement is designed for the sole purpose of developing and selecting the
compositions to be recorded in the First Option Period. Open Door does
hereby guarantee the release of the recording to be completed in the First
Option Period of this Agreement when said compositions have been developed,
selected and approved by Open Door.
1.2 At the end of the Initial Term, you grant Open Door the first of its Three
(3) Option Periods to extend the Term for additional Contract Periods
(sometimes referred to herein as "Option Periods"). Open Door does hereby
exercise its First Option option, This and all other Option Periods will
commence upon the end of the current Contract Period (or, if Open Door so
advises in writing, such period will begin on the date of such written
notice) and end nine (9) months after delivery of the last Master
Recordings comprising the Recording Obligation for such Contract Period,
provided, however, that if, in any Contract Period, such delivery is made
in September or October, the months of November and December shall not be
included when computing the ending date of that particular Contract Period
and said Contract Period shall be automatically extended accordingly.
Notwithstanding anything in the foregoing Paragraph, it is understood and
agreed upon by all Parties that Open Door is hereby granted the right of
first refusal for a Fourth Option Period. All Parties agree to negotiate in
good faith at that time.
2. RECORDING OBLIGATION
Open Door hereby engages you to render service hereunder and at your
discretion, to furnish the services of individual producers to produce and
deliver to Open Door, master Recordings as provided herein. During the
Initial Term and any options exercised by us, you shall perform for the
purpose of making Phonograph Records exclusively for Open Door.
Said recordings generated during the Initial Term are to be tracked and
rough mixed. Further any existing recordings, including but not limited to
the body of work entitled "Just Visiting" and any other recorded
compositions suitable for promotional or commercial release which were made
by you prior to entering into this exclusive recording agreement with Open
Door will become the exclusive property of Open Door upon execution of this
Agreement. Open Door's exclusive ownership will include all art, graphics
packaging, labels, stickers, related merchandising such as hats, tee-shirts
or other designs associated with all existing recordings.
(a) Notwithstanding anything described in Item 2.1 of this Agreement
relative to Open Door's ownership of previously recorded materials by
Artist, the following will be excluded:
(i). The demonstration tapes embodying the performances, musicianship
and/or compositions of Walter Lockhart as recorded by the group now
known as "Those Bleeding Tulip" or known in the future by any other
name. Further, in the event that said recording is released for
commercial sale, it is agreed that Artist will use best efforts to
comply with the terms and conditions pertaining to "sideman" work as
set forth in the terms of this Agreement; and
(ii). The demonstration tape embodying the performances, musicianship
and/or compositions of Christopher O'Hara as recorded by the group now
known as Our Savage Garden or known in the future by any other name.
Further, in the event that said recording is released for commercial
sale it is agreed that Artist will use best efforts to comply with the
terms and conditions pertaining to "sideman" work as set forth in the
terms of this Agreement.
2.2 During the Initial Term, Open Door does hereby agree to provide you with
access and use of their in-house recording facility. Said recording
sessions to be scheduled at the rate of at least one (1) session per month
throughout the Initial Term and at specific times convenient to all
parties. Each of the four (4) recording sessions will be at least two (2)
days in length, each day affording you unlimited access to the recording
facilities owned and operated by Open Door. Further Open Door will provide
Artist with food, accommodations and travel expenses, which shall be
estimated by Artist prior to each session and approved by Open Door before
expenses are incurred by Artist, for each of the recording sessions
described herein.
2.3 Artist will perform for and you will record and deliver to Open Door a
minimum number of Master Recordings specified in the following schedule:
CONTRACT PERIOD MINIMUM RECORDING OBLIGATION
Initial Period Pre-production
First Option Period One (1) Album
Second Option Period One (1) Album
Third Option Period One (1) Album
The Master Recordings required to be delivered under this paragraph 2.2 shall
hereafter be referred to in this agreement as the "Minimum Recording
Obligation."
3. PROCEDURE
3.1. Open Door shall be responsible for the coordination of all recording
sessions. In consideration of your need for artistic freedom and Open
Door's respect for same, all creative input by you will be accepted by and
strongly considered by Open Door for approval and inclusion in the Minimum
Recording Obligation set forth herein. You, as the Artist and any
individual producer of your choice, shall render their services subject to
the terms and conditions hereof to the best of their abilities and in
accordance with first-class standards of performance for production in the
Phonograph Record Industry. Further, Open Door will, at its sole
discretion, assign an Executive Producer from its staff or professionals to
oversee your project and to assist you in meeting the conditions and terms
of this Agreement.
3.2. Prior to the expiration of the Initial Term of this Agreement and for any
and all option periods executed by Open Door, you shall obtain Open Door's
approval (not to be unreasonably withheld) of each of the following in
order before proceeding further: (a) selection of the individual producer
of the Master Recordings hereunder, (b) selection of the Compositions to be
recorded and 9c) selection of the dates of recording and the studios where
recording is to take place. At least fourteen (14) days prior to the date
of the first recording session for the recording of any Master Recordings,
you will submit to Open Door for its written approval, a written proposed
budget setting forth, in itemized detail, all anticipated Recording Costs.
3.3. With respect to Master Recordings hereunder, you shall deliver to Open Door
tracked and mixed tape masters and reference copies in DAT form which are
representative of such tape masters, which tapes shall be satisfactory for
the manufacture and sale of Phonograph Records hereunder in then current
analog or digital formats. You shall edit, sequence, and leader multi-track
master tapes for Master Recordings hereunder, in parallel sequence to any
two-track master tapes delivered hereunder, and shall further deliver same
to Open Door. At Open Door's request, you shall re-record any Master
Recording that Open Door deems unsatisfactory. Concurrently with delivery
of the foregoing items under this paragraph 3.3, you shall deliver to Open
Door all work parts of whatever nature (including, without limitation,
out-takes or other tracks recorded during the Term), together with, if Open
Door requests, cover artwork necessary to reproduce the covers and
packages, all internal artwork, if any, and all negatives for such artwork,
for each Record to be produced embodying Master Recordings delivered
hereunder. If Open Door in its sole discretion elects to prepare any such
artwork or negatives, all costs incurred in connection therewith shall be
deemed Advances chargeable against the recoupable form any and all amounts
otherwise payable by Open Door to Artist.
You shall furnish Open Door, in writing, with all information, consents and
clearances required for the manufacture and distribution of Phonograph
Records hereunder including, timings, any credits to arrangers or
accompanists, names of engineers, list of musicians with instruments
played, exact recording date(s), studio location(s), and album liner
credits.
Under a separate Agreement, you will enter into a co-publishing agreement
with the publishing division of Open Door known as Diamond Music Publishing
for the purpose of publishing all compositions that are covered under both
Agreements. Said co-publishing Agreement will provide an equal ownership,
50/50, of each composition's copyright. Further, Diamond Music Publishing
will be responsible for soliciting and administrating said copyrights for
an administration fee equal to the sum of Seven and one-half (7-1/2%)
percent of gross earnings derived from all publishing income.
3.4. You shall secure on behalf of Open Door, from the copyright proprietors of
Compositions not subject to compulsory license, and embodied on Recording
to be delivered to Open Door hereunder, executed mechanical licenses
granting Open Door the right to manufacture and distribute copies of such
Recordings.
3.5. Artist's performances hereunder shall be reasonably consistent in concept
and style and Master Recordings delivered hereunder (including the
Compositions embodied therein) will in general artistic concept and style
be similar to Master Recordings previously delivered hereunder. Neither
"live" performances, multiple LP Albums, joint recordings with other
royalty-receiving artists, instrumental recordings, nor recordings which
were not made in compliance with the provisions of this agreement, shall
satisfy the delivery requirements of the Minimum Recording Obligation
without Open Door's prior written consent. Without limitation of the
foregoing, any multiple LP Album delivered hereunder shall be deemed a
single LP for the purposes of product delivery and payment thereof.
4. DELIVERY PROCEDURE
4.1 The Minimum Recording Obligation with respect to each Contract Period shall
be delivered no later than ninety (90) days following commencement of such
Period.
4.2. In addition to the satisfactory completion by you of the procedures in
Article 3 the Recording Obligation and in this Article 4, Procedure as
necessary conditions to determine whether any Recording has been delivered
within the meaning of this agreement.
(a). "Deliver" or "Delivery" or "Delivered" (or any said terms in lower
case) when used with Masters means Open Door's receipt of newly-recorded
satisfactory Masters to constitute the recording concerned (two track,
stereo, digital or analog tapes, fully edited, mixed, leadered and
equalized, together with one (1) reference therefor, any and all proposed
artwork or art concepts and all necessary licenses, approvals, consents and
permissions in accordance with the terms of this Agreement.
4.3 No Master Recordings delivered hereunder shall embody Compositions which
have been previously recorded by Artist (whether in a group or as an
individual) unless Open Door provides you with prior written approval.
5. RIGHTS
5.1 All Master Recordings delivered hereunder or recorded by Artist during the
Term and the performances contained thereon and recordings delivered
therefrom shall from inception to their creation be entirely the property
of Open Door in perpetuity throughout the universe, free of any claim
whatsoever by you or any other Persons, and Open Door shall have the right
to register the copyright in such master Recordings in Open door's name or
in the name of Open Door's designee as owners and author (as employer for
hire, such relationship being solely for the purpose of applicable
copyright law) and to secure any and all renewals and extensions of such
copyright. In the event and to the extent that, by operation of law or for
any other reason, Open Door or Open Door's designee is not or cannot be an
employer for hire as provided in the immediately preceding sentence, you
hereby assign to Open Door all of your right and title to the copyright in
and to such master Recordings, and all renewals and extensions of such
copyright. Without limitation of the foregoing, Open Door and its
subsidiaries, affiliates, and licensees shall have the sole, exclusive and
unlimited right throughout the universe to manufacture Records, by any
method(s) now or hereafter known, embodying any portion(s) or all of the
performances embodied on Master Recordings hereunder; to use the Master
Recordings hereunder for background music, synchronization in motion
pictures and television soundtracks and other similar purposes, including,
without limitation, use on transportation facilities without any additional
payments to you; or notwithstanding the provisions hereof, Open Door and
its subsidiaries, affiliates and licensees may, at their election, delay or
refrain from doing any one or more of the foregoing.
(a) Without limiting the generality of paragraph 5.1 Open Door shall have
the exclusive right to utilize Artist's performances in connection with
Audio-Visual Recordings for release on Audio-Visual Devises. Artist shall
perform for said recordings upon Open Door's request and in connection
therewith shall perform such Composition(s) as Open Door, in its sole
discretion shall determine, provided that Artist shall not be required to
perform in any Contract Period for the recording of Audi-visual Recordings
greater in playing time than the playing time of the sound Recordings
constituting the Recording Obligation in such Contract Period. The budget
and financial terms to be negotiated, in good faith, at the time the
decision is made by Open Door to produce said audio-visual device.
(b) In addition, Artist shall be available from time to time at Open Door's
request to perform for the purpose of recording by means of film,
videotape, or other audio-visual media performances of Compositions
embodied on Master Recordings hereunder. No compensation shall be payable
to you or Artist in connection with such Audio-Visual Recordings.
(c) You shall procure for Open Door from the copyright proprietor of each
Composition embodied in any Audio-Visual Recording such proprietor's
irrevocable written consent to the use of such Composition in such
Recording and to the exploitation thereof without payment by Open Door.
5.2 Within seven (7) days from Open Door's request, you will approve, said
approval not to be unreasonably withheld, execute and deliver to Open Door
any instruments of transfer and other documents necessary for Open Door to
secure copyright protection in the Master Recordings hereunder.
5.3 Open Door shall have the perpetual right, which right shall be exclusive
during the Term, without any liability to any Person, to use and to
authorize other Persons to use the names (including any professional names
or sobriquets) likenesses, whether or not current (including pictures,
portraits and caricatures) and biographical material of or relating to
Artist, each other artist, if any, whose performance is contained on Master
Recordings hereunder, and each producer of one or more Master Recording
hereunder, for the purposes of advertising, promotion and trade and in
connection with other merchandising of any kind, including the making and
solicitation of Records hereunder and in general goodwill advertising. You
warrant and represent that you have the exclusive right to so use and
authorize the use of such names, likenesses and biographical material and
that the use of same will not infringe upon the rights of any Person. If
any Person challenges Artist's right to use a professional name or
sobriquet, Open Door may, at its election and without limiting its rights,
require Artist to adopt another professional name or sobriquet approved by
Open Door without awaiting the determination of the validity of such
challenge. Furthermore, during the Term Artist will not change the name by
which Artist is professionally known without the approval of Open Door.
6. ADVANCES - RECOUPABLE AND NON RECOUPABLE
6.01 Open Door shall pay, as a non-recoupable advance, the sum of Five Hundred
($500.00) Dollars for each recording session scheduled and completed during
the Initial Term of this Agreement. Said funds to be used by you for
expenses, travel or any other expense connected with the execution of the
recording sessions for the Initial Term. Further, if you decide to secure
the services of an outside producer during the recording sessions scheduled
for the Initial Term, Open Door will provide you with an additional sum of
One Hundred ($100.00) Dollars, in the form of non-recoupable advance, for
the purpose of covering any additional expenses associated with the
services of said producer.
6.02 All recoupable advances which will apply to all option periods will be
charged against and recoupable from royalties accruing to your account
hereunder, the following:
(a) Following the completion of the Initial Period of this Agreement, Open
Door agrees to pay Artist Ten Thousand ($10,000.00) Dollars, which amount
shall be deemed a recoupable Advance. Said advance would be payable fifty
(50%) percent upon commencement of the First Option Period and Fifty (50%)
percent upon approval and delivery of the Album.
(b) Open Door will pay all recording costs in the approved budget directly
to creditors, as they are incurred. You shall be responsible for the
payment of all Recording Costs or other costs in connection with making
Master Recordings, which have not been specifically approved by Open Door.
If Open Door elects to pay any such costs for which you are responsible,
then Open Door shall have the right to charge the additional costs against
any and all royalties accruing to your account hereunder. The supplemental
Recording Budget shall be that amount, calculated as of the end of the
accounting period immediately preceding the period in which the Master
Recordings constituting the applicable Album are delivered, equal to
Sixty-six and two-thirds percent (66-2/3%) of the average of the royalties
earned on Net Sales through normal channels in the United States of the
immediately preceding two (2) Albums of the Minimum Recording Obligation
(except that with respect to the Album for the First Option Period, it will
be based on sales of the preceding album only) provided that such Recording
Budget shall not be less than the minimum set forth below nor more than the
maximum amounts set forth below with respect to each Album.
Minimum Maximum
------- -------
First Option Period $20,000 $50,000
Second Option Period $25,000 $65,000
Third Option Period $60,000 $80,000
If any Album of the Minimum Recording Obligation is not timely delivered, the
Recording Budget for such Album will be the minimum Recording Budget set forth
for such Album. Costs in excess of the Recording Budget shall be Artist's
responsibility and, to the extent Open Door elects to pay same, Open Door shall
have the right to demand reimbursement therefor from Artist (and you shall
immediately make such reimbursement) and/or give Open Door the right to deduct
such costs from any payments to you.
(c) With respect to the Album to be delivered within the First Option
Period, Open Door agrees to invest an amount equal to or greater than
Twenty-Thousand ($20,000.00) Dollars for the purposes of but not limited to
the following: (i) distribution, (ii) radio promotion, (iii) tour support,
(iv) merchandising, and (v) Internet promotion and support.
(d) With respect to the Album to be delivered within the First Option
Period and all other future options if exercised by Open Door, Open Door is
willing to provide Artist with unlimited access and use of its own
recording facility, known as the Rock & roll Ranch with an hourly rate
levied at Forty ($40.00) Dollars per hour. If Artist decides to record any
or all of the project at said facilities the expenses and costs incurred by
Open Door would be deemed a non-recoupable advance to Artist.
(e) From the Recording Budget as set forth in Item 6.2(b) of this
Agreement, Artist will be responsible for paying for any recording,
tracking, overdubbing or mixing performed at any other studio besides The
Rock & Roll Ranch. Further, from this same Recording Budget, Artist will be
responsible for paying for the services of any outside producer used on the
project. Any additional compensation paid to any outside producer, in the
form of points, will be the sole responsibility of Artist and will be
payable from the points allotted to Artist herein.
6.03 Any monies paid to you or Artist during the Term and any monies paid by
Open Door on your or Artist's behalf or at your direction, other than
royalties paid pursuant to Articles 5.1, 6 and 8, shall be deemed an
Advances.
7. ROYALTIES
In consideration for your services hereunder and your warranties and
representations, Open Door shall accrue to your account in accordance with
the provisions of Article 7, the following royalties for the sale of
Phonograph Records derived from Master Recordings hereunder:
7.01.(a) A royalty of thirteen percent (13%) of the Royalty Base for Net Sales
of all Albums sold by Open Door for distribution through Normal Retail
Channels in the United States (collectively "U.S.N.R.C.") derived from the
Recording Obligations for all executed Option Periods.
(b) In the event any Album of the Recording Obligation shall have Net Sales
in the U.S. through Normal Retail Channels in excess of 500,000 units, but
less than 1,000,000 units, Open Door shall pay an additional royalty of
one-half (1/2%) percent but only with respect to those Net Sales in excess
of 500,000 units, but less than 1,000,000 units, Open Door shall pay an
additional royalty of one (1%) percent, but only with respect to those Net
Sales in excess of 1,000,000 units of that particular Album. The foregoing
escalated royalties shall not be applicable to sales that are subject to
"the otherwise applicable rate" referred to in the provisions below, the
royalties for which sales shall all be calculated solely on the basis of
the basic rate.
7.02 The royalty for Net Sales of Singles shall be accrued at One Hundred (100%)
percent of the otherwise applicable royalty rate.
7.03 The royalty for Net Sales of Records sold by Open Door for distribution
through Normal Retail Channels outside the United States shall be accrued
at one-half (1/2) of the otherwise applicable royalty rate. Notwithstanding
anything in the foregoing sentence the royalty for Net Sales of Records
sold outside the United States by Open Door for distribution through its
Internet Retail Channels shall be accrued at One Hundred (100%) percent of
the otherwise applicable royalty rate.
7.04 The royalty for Net Sales of Records sold in the form of compact discs,
digital audio tapes, via satellite or in any form, configuration, format or
technology not herein described, which is now known but not widely
distributed or which hereafter becomes known but not widely distributed or
which hereafter becomes known (collectively "New Technology
Configurations") shall be accrued at Seventy-five percent (75%) of the
otherwise applicable royalty rate.
7.05 The royalty for Net Sales of EP Records, premium Records, Long-Play
singles, Budget Records, sampler Records, soundtrack Records, compilation
Records, Records sold in Armed Forces Post Exchanges or to the United
States or a state or local government, Multiple-Record Albums or Records
other than Albums shall be accrued at one-half (1/2) of the otherwise
applicable royalty rate.
7.06 If Open Door sells Audio-Visual Devises or licenses the use of Audio-Visual
Recordings, the royalty shall be computed as follows: (a) If Open Door
manufactures and distributes such Audio-Visual Devices, the royalty shall
be computed as provided herein, but the following rates shall apply instead
of the rates specified in paragraph 7.1 above: (i) on units sold for
distribution through Normal Retail Channels in the United States: ten
percent (10%) of the lowest wholesale price, exclusive of excise, sales and
similar taxes, payable by Open Door's customers in respect of such
Audio-Visual Devices; and (ii) on units sold for distribution outside the
United States: six percent (6%) of the lowest wholesale price, exclusive of
excise, sales and similar taxes, payable by Open Door's customers in
respect of such Audio-Visual Devices; and (b) With respect to distribution
of Audio-Visual Devices by third parties or licensing of Audio-Visual
Recordings to third parties, one-half (1/2) of Open Door's Net Royalty
Receipts derived therefrom after deducting: (i) any and all direct costs
and/or third party payments in connection with the creation, manufacture,
solicitation or use of said Audio-Visual Recordings.
7.07 With respect to the following Records, merchandising rights for all usual
and customary items such as, but not limited to, tee-shirts, hats,
stickers, and other objects manufactured by Open Door for sale and or
distribution, a sum equal to Fifty (50%) percent of Open Door's Net Royalty
Receipts with respect to such activity.
7.08 For Master Recordings, the royalty to be accrued hereunder shall be a sum
equal to fifty percent (50%) of Open Door's Net Royalty Receipts with
respect to: (a) Records derived from Master Recordings hereunder sold
through record clubs or similar sales plans or devices, (b) licenses of
Master Recordings for methods of distribution such as "key outlet
marketing" (distribution through retail fulfillment centers in conjunction
with special advertisements on radio or television), director mail, or mail
order, or by any combination of the methods set forth above or other
methods, (c) licenses of Master Recordings on a flat-fee basis, and (d) any
other licensing of Master Recordings or merchandising rights not
specifically provided for above.
7.09 If any Recordings made hereunder embody Artist's performances together with
the performances of any other parties to whom Open Door is obligated to pay
royalties, then the royalty due hereunder for such joint performances shall
be the royalty provided for herein divided by the number of royalty-earning
artists participating therein including Artist.
7.10 As to Records not consisting entirely of Master Recordings delivered
hereunder, your royalty otherwise payable shall be prorated on the basis of
the number of Master Recordings hereunder, which are on such Records
compared to the total number of Master Recordings on such Records.
8. ACCOUNTING
8.1 Accountings as to royalties payable hereunder shall be made by Open Door to
you on or before September 30 of the period ending the preceding June 30,
and on or before March 30 for the period ending the preceding December 31,
or such other accounting periods as Open Door may in general adopt, but in
no case less frequently than semiannually, together with payment of accrued
royalties, if any, earned by you during such preceding half-year, less
advances or other recoupable amounts hereunder. Open door shall have the
right to hold reserves in respect of sales of Records hereunder providing
that said reserves do not exceed Ten (10%) percent.
8.2 Royalties for Records sold for distribution outside the United States shall
be computed in the same national currency as Open Door is accounted to by
its licensees and shall be paid at the same rate of exchange as Open Door
is paid, and shall be subject to any taxes applicable to royalties remitted
by or received from foreign sources provided, however, that royalties on
Records sold outside the United States shall not due and payable by Open
Door until payment therefor has been received by Open Door in the United
States in United States Dollars. If Open Door shall not receive payment in
the United States, or in United States Dollars, and shall be required to
accept payment in foreign currency or in a foreign country, Open Door shall
deposit to your credit (at your request and expense) in such currency in a
depository in the country in which Open Door is required to accept payment,
your share of royalties due and payable to you with respect to such sales.
Deposit as aforesaid shall fulfill the obligations of Open Door as to
Record sales to which such royalty payments are applicable. Open Door shall
notify you of, or include on the appropriate royalty statement, the amount
of funds so held in a foreign territory under this paragraph 7.2. If any
law, government ruling or any other restriction affects the amount of the
payments which Open Door's licensee can remit to Open Door, Open Door may
deduct, from your royalties an amount proportionate to the reduction in
such licensee's remittances to Open Door.
8.3 All royalty statements rendered by Open Door to you shall be binding upon
you and not subject to any objection by you for any reason unless specific
objection in writing, stating the basis thereof, is given to Open Door
within two (2) years from the date rendered. Failure to make specific
objections within said time period shall be deemed approval of such
statement. You will not have the right to bring an action against Open Door
in connection with any royalty statement or payment hereunder unless you
commence the suit within one (1) year from the date such written objection,
if any, is so given. If you commence suit on any controversy or claim
concerning royalty accountings rendered to you under this agreement, the
scope of the proceedings will be limited to determination of the amount of
the royalties due for accounting periods concerned, and the court will have
no authority to consider any other issues or award any relief except
recovery of any royalties found owing.
Your recovery of any such royalties will be the sole remedy available to you or
the Artist by reason of any claim related to Open Door royalty accountings.
Without limiting the generality of the preceding sentence, neither you nor the
Artist will have any right to seek termination of this agreement or avoid the
performance of your obligations under it by reason of any such claim.
8.4 You shall have the right, at your own expense, to audit Open Door's books
and records as the same pertain to sales under this agreement for the four
(4) accounting periods prior to such audit. You may make such an
examination for a particular statement only once, and only within one year
after the date when Open Door sends you said statement under paragraph 8.1.
Such audit shall be conducted during Open door's usual business hours, and
at Open Door's regular place of business in the United States or where Open
Door keeps the books and records to be examined.
8.5 You hereby authorize and direct Open Door to withhold from any monies due
you from Open Door any part thereof required by the United States Internal
Revenue Service and/or any other governmental authority to be withheld, and
to pay same to the United States Internal Revenue Service and/or such other
authority.
9. MECHANICAL COPYRIGHT LICENSES
9.1 Subject to the provisions of this Article 9, each Controlled Composition is
hereby licensed to Open Door at a copyright royalty rate equal to One
Hundred (100%) percent of the Statutory Rate prevailing at the time or
recording of the Master Recording embodying such Controlled Composition.
With respect to Records sold and/or distributed in the manner described in
paragraphs 7.5 or 7.6 or 7.7, the royalty rate shall be three-fourths (3/4)
of the rate set forth in the preceding sentence.
9.2 Copyright royalties with respect to Controlled Compositions shall be
payable only on Net Sales hereunder. Copyright royalties shall not be
payable with respect to Records otherwise not royalty-bearing hereunder, or
with respect to Compositions which are in public domain or are arranged
versions of Compositions in the public domain, or for nonmusical material.
9.3 The provisions of this Article 9 shall constitute and are accepted by you,
on your own behalf and on behalf of any other owner of any Controlled
Composition(s) or any rights therein, as full compliance by Open Door with
all of its obligations under the compulsory license provisions of the
applicable copyright law, arising from any use by Open Door of controlled
compositions as provided for herein. Mechanical royalty reserves not to
exceed Ten (10%) percent at any time and maintained by Open Door against
anticipated returns and credits will not be held for an unreasonable period
of time; retention of a reserve for two (2) years after it is established
will not be considered unreasonable in any case. Open door shall account
for mechanical royalties on a quarterly basis. Your right to audit Open
Door's books and records as the same relate to the royalties for Controlled
Compositions shall be subject to the terms and conditions set forth in
Article 8 in connection with your audit rights.
9.4 Any assignment made of the ownership or copyright in any Controlled
Composition shall be made subject to the provisions of this Article 9.
9.5 Notwithstanding anything to the contrary contained herein, you warrant,
represent, and agree that Open door shall have no obligation whatsoever to
pay an aggregate copyright royalty rate in respect of any Record hereunder,
regardless of the number of Controlled Compositions and/or other
Compositions contained thereon, in excess of the following sums:
(a) In respect of an Album (in any configuration): ten (10) times the
applicable amount set forth in paragraph 9.1.
(b) In respect of a Single, EP Record, Long Play Single or any Record other
than an Album: two (2) times the applicable amount set forth in paragraph
9.1.
9.6 Without limitation of the generality of paragraph 9.2, if the aggregate
copyright royalty rate in respect of any Record hereunder is more than the
applicable amounts set forth in this Article 9, then, without limitation of
Open Door's rights, Open Door shall have the right, at its election, if its
elects to release such Recording, to demand reimbursement from you of such
excess (and you shall immediately make such reimbursement) and/or to deduct
the amount of such excess from payments due hereunder, including copyright
royalties.
9.7 If any Recordings made under this Agreement contain copyrighted
Compositions, which are not Controlled Compositions, you will obtain
mechanical licenses covering those Compositions for Open Door's benefit on
terms equal to Seventy-five (75%) percent of the Statutory Rate prevailing
at the time of recording of the Master Recording embodying such Controlled
Compositions hereunder unless Open Door agrees otherwise.
10. ADDITIONAL WARRANTIES AND REPRESENTATIONS
10.1You warrant and represent the following:
(a) You are authorized, empowered and able to enter into and fully perform
your obligations under this agreement. Neither this agreement nor the
fulfillment thereof by any party infringes or will infringe the rights of
any Person. You have no knowledge of any claim or purported claim, which
would interfere with Open Door's rights hereunder or create any liability
on the party of Open Door.
(b) There now exist no prior released or unreleased-recorded performances
by Artist (other than the masters comprising the Initial Period Album,
which have previously been commercially released).
(c) The Master Recordings hereunder and performances embodied thereon shall
not be produced in accordance with the rules and regulations of the
American Federation of Musicians or the American Federation of Television
and Radio Artists or other unions. In the event any Master Recordings
hereunder or performances thereon are produced within the jurisdiction of
any union, in addition to all other remedies Open Door may have against
you, Open Door shall have the right to charge against any sums due to you
hereunder any Music Performance Trust Fund or Special Payment Fund or other
union-required payments becoming payable by reason thereof.
(d) During the Term, Artist's recording services will be rendered
exclusively to Open Door. During the "Restriction Period," Artist will not
perform for (nor will you or Artist's license, consent to, or permit the
use by any Person other than Open Door of Artist's name or likeness for or
in connection with) the recording or solicitation of any Phonograph Record
(including, without limitation, any Audio-Visual Device) embodying any
Composition recorded by Artist under this agreement. As used herein,
"Restriction Period" means the period commencing on the expiration or
earlier termination of the Term and continuing until the later of the date
years subsequent to the date of delivery to Open Door of the Master
Recording embodying the applicable Composition hereunder, or the date three
(3) years subsequent to the expiration or termination of the Term.
(e) Notwithstanding anything to the contrary contained in paragraph 10.2,
any member of Artist may perform as a background musician ("sideman")
accompanying a featured artist for the purpose of making Recordings for
phonograph record purposes for third parties during the term provided that:
(i) Such engagement does not interfere with the continuing prompt
performance of your obligation to Open Door;
(ii) The member of Artist shall not perform solo or step-out
performances on Recordings for such parties in excess of ten (10)
seconds on any Single record or more than one solo or step-out
performance on more than one composition on any multiple record
release or be separately identified in connection with any solo or
step-out performances on such Recordings;
(iii) The name of the member of Artist performing may not be used
except in a courtesy credit to Open Door or its designee on the liners
used for such phonograph records, which courtesy credits shall appear
in the same position as the credits accorded to other sidemen and in
type identical in size, prominence and all other respects; without
limiting the generality of the foregoing, in no event may the likeness
of the member of Artist, or the group or professional name of Artist
be used in connection with such phonograph records. Neither the
members' nor Artist's name or likeness shall appear in any advertising
or promotion in connection with such Recordings, on the front covers
of Album containers, on sleeves or labels used for Singles, or in any
other form, including (without limitation) in Audio-Visual Recordings,
without Open Door's prior written consent, which may be withheld for
any reason, in Open Door's sole discretion;
(iv) The member of Artist shall not perform compositions on such
Recordings that Artist records hereunder, nor shall artist be
restricted from recording hereunder compositions performed by the
member of Artist on Such Recordings, nor shall any member of Artist be
a writer or co-writer or owner of a composition so performed;
(v) No more than two (2) members of Artist shall perform on such other
Recording; and
(vi) The third party record company that distributes the Records on
which Artist's performances are contained executes an agreement with
Open Door in a form satisfactory to Open Door.
10.2 Neither Master Recordings hereunder nor the performances embodied thereon,
nor any other Materials, as hereinafter defined, nor any use thereof by
Open Door or its grantees, licensees or assigns will violate or infringe
upon the rights of any third party. "Materials," as used in this paragraph,
means all Controlled Compositions; each name or sobriquet used by Artist,
and all other musical, dramatic, artistic and literary materials, ideas,
and other intellectual properties furnished or selected by you, Artist or
any producer and contained in or used in connection with any Recordings
made hereunder or the packaging, sale, distribution, advertising,
publicizing or other solicitation thereof.
10.3 Artists shall be available from time to time to appear for photography,
poster, and cover art, and the like, under the direction of Open Door or
its nominees and to appear for interviews with representatives of the
communications media and Open Door's publicity personnel.
10.4 Neither you nor Artist shall authorize or knowingly permit the Artist's
performances to be recorded for any purpose without an express written
agreement prohibiting the use of such recording on Phonograph Records or
Audio-Visual Devices in violation of the restrictions herein, and you and
Artist shall take reasonable measures to prevent the manufacture,
distribution and sale at any time by any Person other than Open Door if
such Phonograph Records and Audio-Visual Devices. Neither you, Artist, nor
any person deriving any rights from you or Artists, shall use or authorize
or permit any Person other than Open Door to use Artist's name (including
any professional name or sobriquet), likeness (including picture, portrait
or caricature) or biography in connection with the manufacture and/or
solicitation of Master Recordings or Records (including Audio-Visual
Devices).
10.5 Neither you nor Artist nor any Person deriving any rights from you or
Artist, shall at any time do, or authorize any Person to do, anything
inconsistent with, or which might diminish or impair, any of Open Door's
rights hereunder. Neither you nor Artist shall endorse any products whose
use would be detrimental to the Phonograph Record industry, including but
not limited to, blank tapes and tape recording equipment.
10.6 You agree to and do hereby indemnify, save and hold Open Door harmless from
and against any and all loss and damage (including reasonable attorneys'
fees) arising out of or connected with any breach or alleged breach of this
agreement or any claim which is inconsistent with any of the warranties or
representations made by you in this agreement, and agree to reimburse Open
Door on demand for any payment made or incurred by Open Door with respect
to any liability or claim to which the foregoing indemnity applies. Pending
the determination of any claim involving such alleged breach of failure,
Open Door may withhold sums due to you under this or any other agreement.
11. FAILURE OF PERFORMANCE
11.1 Open Door reserves the right by written notice to you to suspend the
operation of this agreement and its obligations hereunder for the duration
of any contingencies by reason of which Open Door is materially hampered in
its recording, manufacture, distribution or sale of Records, or its normal
business operations become commercially impracticable: for example, labor
disagreements; fire; catastrophe; shortage of materials; or any cause
beyond Open Door's control. A number of days equal to the total of all such
days of suspension may be added to the Contract Period in which such
contingency occurs and the dates for the exercise by Open Door of its
options as set forth in Article 1, the dates of commencement of subsequent
Contract Periods and the Term shall be deemed extended accordingly.
11.2 If in respect of any Contract Period Open Door, except for reasons set
forth in paragraph above, refuses without cause to allow you to fulfill the
Minimum Recording Obligation for such Period, and if no later than thirty
(30) days after that refusal takes place, you notify Open Door in writing
of your desire to fulfill such Minimum Recording Obligation, then if Open
Door does not allow you either to record sufficient Master Recordings to
fulfill the Minimum Recording Obligation within sixty (60) days of such
notice, or commence recording of such Minimum Recording Obligation if it
cannot be recorded within said sixty (60) days, the Term of this agreement
shall terminate upon the expiration of such sixty (60) day period. Upon
such termination, the parties hereto shall be deemed to have fulfilled all
of their obligations hereunder and shall be given a written release except
those obligations which survive the end of the Term, such as warranties,
indemnities, re-recording restrictions, and the obligation to accrue and
pay royalties hereunder, if payable, and Open Door shall pay you for the
Minimum Recording Obligation not fulfilled for the applicable period of the
Term in full settlement of its obligations in connection with such
unrecorded Album, which amounts shall constitute Advances against royalties
payable hereunder. This shall be your sole remedy in connection with Open
Door's failure to allow you to fulfill the Minimum Recording Obligation. If
you shall fail to give notice to Open Door within the period specified
therefor, Open Door shall be under no obligation for its failure to allow
you to fulfill such Minimum Recording Obligation
12. ADDITIONAL REMEDIES
12.1 Without limitation of any other rights and remedies of Open Door, if you
fail to deliver Recordings in accordance with paragraphs 3 and 4, then Open
Door may, at its election, suspend its obligations hereunder for a number
of days equal to the number of days between the last date on which you
actually deliver such Master Recordings and the date on which you actually
deliver such Master Recordings, and the then-current Contract Period, the
dates for exercise of Open Door's options to extend the Term, the dates of
commencement of subsequent Contract Periods, and the Term may be extended
accordingly. If any such failure exceeds ninety (90) days, Open Door may,
in addition to its other rights and remedies, terminate this agreement by
written notice to you, and upon such termination Open Door shall have no
obligations to you hereunder except the obligation to pay royalties if due.
12.2 It is recognized that Artist's services are of special, unique, unusual,
extraordinary and intellectual character involving skill of the highest
order, which gives them a peculiar value, the loss of which cannot be
reasonably or adequately compensated for by damages in an action of law.
Inasmuch as any breach of this agreement with respect to such services
would cause Open Door irreparable damage, Open Door shall be entitled to
injunctive and other equitable relief, in addition to whatever legal
remedies are available to Open Door, to prevent or cure any such breach or
threatened breach.
(a) As condition precedent to any assertion by either Party that the other
is in default in performing any obligations contained herein, the Party
alleging the default must advise the other, in writing via Registered or
Certified Mail return receipt requested, of the specific facts upon which
it is claimed that the other is in default and of the specific obligation
which is claimed to have been breached, and the other Party shall be
allowed a period of thirty (30) days after the receipt of such written
notice within which to cure such alleged default. During such period, no
breach of any obligation shall be deemed to be incurable.
12.5 In the event of any breach of this agreement by Open Door which has not
been cured as provided in paragraph 12.2(a), your sole remedy shall be an
action at law for damages, and in no event shall you be entitled to seek
equitable or other injunctive relief.
12.6 The rights and remedies of Open Door as specified in this agreement are not
to the exclusion of each other or of any other rights or remedies of Open
Door; Open Door may decline to exercise any one or more of its rights and
remedies as Open Door may deem fit, without jeopardizing any other rights
and remedies of Open Door; and all of Open Door's rights and remedies in
connection with this agreement shall survive the expiration of the Term,
and upon such expiration or termination the parties shall be deemed to have
fulfilled all their obligations hereunder except those obligations which
survive such expiration or termination, such as warranties, re-recording
restrictions, and the obligations to pay royalties, if due and payable.
13. DEFINITIONS
13.1 "Master", "Recording", "Master Recording": Any recording of sound, whether
or not coupled with a visual image, by any method and on any substance or
material, whether now or hereafter known, which is used or useful in the
recording, production, reproduction or manufacture of Phonograph Records,
or otherwise, including Audio-Visual Recordings.
13.2 "Records", "Phonograph Records": Any device now or hereafter known, on or
by which sound may be recorded and reproduced, which is manufactured or
distributed primarily for home use and/or consumer use and/or juke box use
and/or use on or in means of transportation, including, without limitation,
"sight and sound" devices and Audio-Visual Devices.
13.3 "Audio-Visual Devices": All forms of reproductions of Audio-Visual
Recordings, now or hereafter known, manufactured or distributed primarily
for home and/or juke box use and/or on or in means of transportation.
13.4 "Audio-Visual Recordings": Every form of recording embodying performances
of Artist wherein are fixed visual images, whether of Artist or otherwise,
together with sound.
13.5 "Side": A Recording of sufficient playing time to constitute one (1) side
of a 7 inch, 45 RPM disc Phonograph Records, but not less than two and
one-half (2 1/2) minutes of continuous sound, embodying performances of
Artist. Recordings of more than one arrangement or version of the same
Composition, reproduced on the same Record, will be considered,
collectively, one Side for all purposes under this agreement.
13.6 "Single": A 7 inch, 45 RPM, double sided Phonograph Record or equivalent
embodying thereon on ------ at least one (1) Side.
13.7 "Album": One (1) or more LPs, sold in a single package (an Album of more
than one (1) LP sometimes being referred to as "Multiple-Records Album").
13.8 "LP": A 12 inch, long-play Phonograph Record or the equivalent thereof
embodying thereon the equivalent of not fewer than ten (1) Sides and hving
not less than thirty-five (35) minutes playing time.
13.9 "EP Record": A 12 inch, 33 1/3 RPM or 45 RPM double sided long-play disc
Phonograph Record or equivalent embodying thereon not less than four (4)
Sides nor more than six (6) Sides.
13.10"Long Play Single" or "LP Single": A 12 inch 33 1/3 RPM or 45 RPMN double
sided long play disc Phonograph Record or equivalent embodying thereon not
more than three (3) Sides.
13.11"Retail List Price": With respect to Recors sold in the United States,
Open Door's suggested retail list price in the United States, and with
respect to Recors sold outside the United States, Open Door's or its
licensee's suggested or applicable retail price in the country of
manufacture or sale, as Open Door is paid, or, in the absence in a
particular country of such suggested retail price, the price as may be
established by Open Door or its licensee(s) in conformity with the general
practice of the Record Industry in such country, proviced that Open Door
may, but shall not be obligated to, utilize the price adopted by the local
merchanical copyright collection agency for the collection of mechanical
copyright royalties.
3.12 "Container Charge": The following applicable percentage of the Retail List
Price of each Record: ten percent (10%) for a Record in a single sleeve
other than a black vinyl Single in a stock paper sleeve; twenty percent
(20%) for a Record (including a Single) in the form of a pre-recorded
analog tape (other than a chrome treated tape) or a Record in a gatefold
sleeve; twenty-five percent (25%) for Records (including a Single) sold in
boxed sets or in the form of a pre-recorded chrome treated tape, digital
audio tape, compact disc, New Technology Configurations, via satellite or
in any other form or configuration of Records, package, container or box
other than as described herein; plus an additional two and one-half percent
(2 1/2%) for each of the following: printed bag, insert, wrapping other
than shrink wrap, and other special element (including, without limitation,
a sticker) that is included with any of the coinfigurations of a Record
described in this paragraph 13.12.
3.13 "Royalty Base": The Retail List Price less all excise, sales and similar
taxes (to the extent such taxes are included in the Retail List Price) and
less the applicable Container Charge.
(a) Open Door may at some time change the method by which it computes
royalties in the United States from a retail basis to some other basis (the
"New Basis") such as, without limitation, a wholesale basis. The New Basis
will replace the then current Royalty Base and the royalty rates shall be
adjusted to the appropriate royalty which would be applied to the New Basis
so that the dollars-and-cents royalty amounts payable with respect to the
top-line product through normal retail channels would be the same as that
which was payable immediately prior to such New Basis; for sales other than
top-line product, for which there is a New Basis, the adjusted royalty rate
shall be reduced in the ratio of the royalty rate for such sales to the
royalty rates for sales that would otherwise make the New Basis more
favorable (a particular example of which might be the distribution of
smaller quantities of free goods than theretofore distributed) then the
benefits of such other adjustments will be taken into consideration in
adjusting the royalty rate.
(b) Notwithstanding anything to the contrary contained herein, the Royalty
Base for premium Records shall, at Open Door's election, be Open Door's
actual sales price of such Records.
13.14"Recording Costs": All costs including pre-production, production and
post-production costs incurred for and with respect to the production and
solicitation of Master Recordings, including Audio-Visual Recordings,
Recording Costs include, without limitation, payments for musicians,
vocalists, conductors, arrangers, orchestrators, copyists, etc.; producer's
fees' studio charges; costs of tape, editing, mixing, mastering, reference
discs, and engineering; expenses of travel, per diems and rehearsal halls;
costs of non-studio facilities and equipment; dubbing; costs and
transportation of instruments including cartage and rental fees; payments
required by law or contract (including agreements with any labor
organization); payments of third parties which Open Door is required by law
or contract to pay in connection with the Recordings; costs of clearing
so-called "samples" and other rights; and other costs which are customarily
recognized as recording costs in the Record Industry or production costs in
the audiovisual recording industry.
13.15"Composition": A musical composition or medley consisting of words and/or
music, or any dramatic material, whether in the form of instrumental and/or
vocal music, prose or otherwise, irrespective of length. Recordings or more
than one arrangement or version of the same Composition, reproduced on the
same Record, will be considered, collectively, a recording of one
Composition for all purposes under this agreement.
13.16"Controlled Composition": Any Composition written or composed, or owned or
controlled, in whole or in part, directly or indirectly, by you or Artist
or any individual producer of Master Recordings and/or any Person
affiliated with one or more of the foregoing or in which one or more of the
foregoing has a direct or an indirect interest.
13.17"Advances": An "advance" shall be deemed a prepayment of royalties and
shall be charged against and recoupable from all amounts otherwise payable
to you hereunder or pursuant to any other agreement between Open Door and
you.
13.18"Non-Recoupable Advances": An advance shall be deemed as a bonus to artist
and shall not be charged against or recoupable from any amounts otherwise
payable to you hereunder or pursuant to any other agreement between Open
Door and you.
13.19"Budget Records": Albums sold in a particular country at a Royalty Base
which is eighty percent (80%) or less of the Royalty Base in such country
of any of the foregoing.
13.20"Person": Any individual, corporation, partnership, association, or other
business entity, or the legal successors or representative of any of the
foregoing.
13.21"Net Sales": Sales of Records hereunder, paid for and not returned, less
returns and credits. Net Sales shall specifically exclude the following:
(a) Records given away gratis or sold for fifty percent (50%) or less of
the "Gross Price" (as hereinafter defined); Records distributed to disc
jockeys, radio or television stations, publishers, distributors, dealers,
consumers, or others for publicity, advertising, or promotional purposes;
and Records sold as cutouts, surplus or for scrap.
(b) Free or bonus Records given away together with Records sold for
monetary consideration (known in the Phonograph Record Industry as the
giving of "Free Goods") (The number of records automatically deemed not
sold for royalty purposes under this paragraph 13.21(b) shall be,
regardless of whether such Records were shipped under a "free goods"
program, for Singles, twenty-three percent (23%) of the gross total
distributed and, for all other Records, fifteen percent (15%) of the gross
total distributed of the gross total distributed.)
(c) To the extent that Records hereunder are sold subject to a sales plan
entailing a selling price for such Records reduced by a percentage discount
from Open Door's Gross Price (i.e., the selling price to distributors
before any discounts or Free Goods or bonus plans), the number of such
Records deemed to be Net Sales shall be determined by reducing the number
of Records actually sold by the percentage of discount granted applicable
to such sale.
(d) Without limitation of the foregoing, (i) royalties shall not be payable
with respect to distributions which are "Net Sales"; and (ii) the terms
"Net Sales" and/or "net royalty-bearing sales" shall not include the sales
described in this paragraph 13.21 and shall not include any sales for which
royalty reserves are being held.
(e) Without limitation of the generality of paragraph 13.21(a), Open Door
shall have the right to deduct from the number of Records sold returns and
credits of any nature, including without limitation: (i) those on account
of any return or exchange privilege; (ii) defective merchandise; and (iii)
errors in billing or shipment.
13.22"Net Royalty Receipts": Royalty amounts actually received by open Door in
the United States in United States dollars (excluding advances until
earned), less any third party payments and expenses that Open Door may be
required to pay (such as, without limitation, production costs and
mechanical royalties).
13.23"Contract Period": The Initial Period or an Option Period as defined
above.
13.24"Statutory Rate": The minimum statutory compulsory license rate applicable
to a Composition of less than five (5) minutes under the copyright laws of
the applicable country. With respect to any Master Recordings not delivered
within the time prescribed in Article ___ and ____ above, the Statutory
Rate shall be deemed to be the rate in effect upon release of the record.
13.25"Normal Retail Channels": or "N.R.C.": Sales through all channels of
distribution other than the sales described in paragraphs ______, ______,
and ______ and any other distribution not to the normal retail trade.
13.26"Audiophile Records": Records (other than Audio-Visual Devices) marketed
in specially priced catalog series by reason of their superior sound
quality or other distinctive technical or artistic characteristics.
Audiophile Records shall include, without limitation, all Records made for
digital playback, including, without limitation, compact discs, mini-discs,
and digital audiotapes.
13.27"Interactive Technology": Any and all devices now or hereafter known,
whether fixed or not fixed, on or by which a user may enter a command in
order to experience music, including, without limitation of the foregoing,
CD ROM, video games, CD Interactive, computer software, the World Wide Web,
the Internet and any other interactive multimedia.
13.28"Deliver" or "Delivery" or "Delivered" (or any said terms in lower case)
when used with Master means Open Door's receipt of newly-recorded
satisfactory Masters to constitute the recording concerned (two track,
stereo, digital or analog tapes, fully edited, mixed, leadered and
equalized, together with one (1) reference therefor, any and all proposed
artwork or art concepts and all necessary licenses, approvals, consents and
permissions in accordance with the terms of this Agreement.
13.29"Distribution": The process by which audio product, in all configurations
reaches the public via wholesale and retail channels. For the purposes of
this Agreement it relates to National Distribution with an organization
possessing a proven track record. Distribution can be achieved via an
independent distribution company as well as a distribution system
affiliated with a major recording company or an independent label
affiliated with a major distribution chain or organization.
13.30"Notice": Except as otherwise specifically provided herein, all notices
under this Agreement shall be in writing and shall be given by courier or
other personal delivery, by overnight delivery by an established overnight
delivery service (e.g., Federal Express or United Parcel Service), or by
registered or certified mail at the appropriate addresses as set forth
herein, or at a substitute address designated in a written notice sent by
the party concerned to the other party hereto. Each notice shall be
addressed to the attention of Open Door's CEO. Each notice to you shall
simultaneously be sent to your attorney or legal representative as defined
by you. Notices shall be deemed given when mailed or deposited into the
custody of an overnight delivery service for overnight delivery, or if
personally delivered, when so delivered, except that a notice of change of
address shall be effective only from the date of its receipt.
14. MISCELLANEOUS
14.1 Whenever your approval or consent is required, you shall give Open Door
written notice of approval or disapproval (the reasons for such disapproval
being specifically stated) within five (5) business days after notice from
Open Door requesting same. If you shall fail to give such notice to Open
Door as aforesaid, you shall be deemed to have given such consent or
approval.
14.2 You recognize that the sale of Records is speculative and agree that the
judgment of Open Door with regard to any matter affecting the promotion,
sale, distribution and solicitation of such Records shall be binding and
conclusive upon you. Nothing contained in this agreement shall obligate
Open Door to make, sell, license, or distribute Records manufactured from
the Master Recordings recorded hereunder other than as specifically
provided herein. The method, manner and extent of release, packaging,
promotion, advertising, distribution and solicitation of Master Recordings
and Records shall be within the sole discretion of Open Door unless
otherwise herein specifically provided. Open Door will however consult with
Artist regarding a marketing program. Open Door may, at its election,
assign this agreement in whole or in part.
14.3 All notices required to be given to Open Door shall be sent to Open Door at
its address first mentioned herein, and all royalties, royalty statements
and payments and any and all notices to you shall be sent to you at your
address first mentioned herein, or such other address as each party
respectively may hereafter designate by notice in writing to the other. All
notices sent under this agreement shall be in writing and, except for
royalty statements, shall be sent by registered or certified mail, return
receipt requested, and the day of mailing of any such notice shall be
deemed the date of the giving thereof (except notices of change of address,
the date of which shall be the date of receipt by the receiving party). All
notices to Open Door shall be served upon Open Door to the attention of its
President. A copy of all notices to Open Door shall be sent to the office
address as first written above.
14.4 You shall not be entitled to recover damages by reason of any breach of
Open Door of its material obligations hereunder, unless Open Door has
failed to remedy such breach subject to the terms and conditions as set
forth in Item13.02(a), following receipt of your notice thereof.
14.5 You shall agree to, at the discretion of Open Door, to participate in and
attend any sessions, lessons, seminars, appointments or other meetings with
vocal and instrumental coaches or teachers, image consultants, staging
experts, lighting professionals and any other third party artist
developers. Said expenditure to be deemed recoupable advances and subject
to the terms and conditions set forth in this Agreement.
14.6 This agreement is entered into in the State of Rhode Island and shall be
construed in accordance with the laws of Rhode Island applicable to
contracts to be wholly performed therein. The parties agree that any
controversy arising hereunder shall be adjudicate solely under the
jurisdiction of a competent court within the county of Providence. Any
process in any action or proceeding commenced in any such court arising out
of this agreement may, among other methods, be served upon you or any other
Person who approves, ratifies, or assents to this agreement to induce Open
Door to enter into it, by delivering the processor mailing it to you or the
other Person concerned in the manner prescribed in paragraph 14.03. Any
such delivery or mail service shall be deemed to have the same force and
effect as personal service within the State of Rhode Island.
14.7 The invalidity or unenforceability of any provision hereof shall not affect
the validity or enforceability of any other provision hereof. This writing
sets forth the entire understanding between the parties with respect to the
subject matter hereof, and no modification, amendment, waiver, termination
or discharge of this agreement shall be binding upon you unless confirmed
by written instrument signed by you, nor shall same be binding upon Open
Door unless confirmed by written instrument signed by the President of Open
Door.
15. GROUP artist
15.1 You warrant, represent and agree that, for so long as this agreement shall
be in effect, Artist will perform together as a group for Open Door. If any
individual comprising Artist refuses, neglects or fails to perform together
with the other individuals comprising Artist in fulfillment of the
obligations agreed to be performed under this agreement or leaves the
group, you shall give Open Door prompt written notice thereof. (The term
"leaving member" shall hereinafter be used to define each individual who
leaves the group or no longer performs with the group, or each member of
the group if the group disbands.) Open Door shall have the right, to be
exercised within six (6) months following its receipt of your notice:
(a) To terminate this agreement with respect to any member (failure to send
such notice being deemed Open Door's exercise of its right to terminate);
(b) To continue with the services of any such leaving member pursuant to
paragraph 15.4 below;
(c) To terminate this agreement with respect to the remaining members of
the group Artist whether or not Open Door has exercised its right to
continue with the services of a leaving member (failure to send such notice
shall be deemed Open Door's decision not to so terminate with respect to
the remaining member(s) of the group); and/or
(d) To treat all members of Artist as leaving members, and have the right
to exercise its rights with respect to each in accordance with this
paragraph 15 (failure to send such notice being deemed Open Door's decision
not to so treat the remaining members of the Artist as leaving members).
(e) To approve, not to be unreasonably withheld, the appointment of the
replacement member of the Group and to, at Open Door's discretion, enter
into and negotiate in good faith a recording agreement, comparable to this
Agreement, with the new member.
15.2 A leaving member, whether or not his or her engagement is terminated
hereunder, may not perform for others for the purpose of recording any
selection as to which the applicable restrictive period specified in
paragraph 10.4of this agreement has not expired.
15.3 A leaving member shall not, without Open Door's consent, use the
professional name of the group in any commercial or artistic endeavor; the
said professional name shall remain the property of those members of Artist
who continue to perform their obligations hereunder and whose engagements
are not terminated; and, the person, if any, engaged to replace the
individual whose engagement is terminated shall be mutually agreed upon by
Open Door and you and each such person added to Artist, as a replacement or
otherwise, shall become bound by the terms and conditions of this agreement
and shall execute a letter in the form attached hereto as Exhibit "A" as a
condition precedent to being so added.
15.4 In addition to the rights provided in the preceding paragraphs, Open Door
shall have, and you hereby grant to Open Door, an irrevocable option for
the individual and exclusive services of each leaving member as follows:
Said option, with respect to such individual, may be exercised by Open Door
giving you notice in writing within three (3) months after Open Door
receives the notice provided for in paragraph 15.1 above. In the event of
Open Door's exercise of such option, then such leaving member and you (if
the term "you" as used in this agreement refers to Artist's furnishing
company instead of Artist itself) shall be deemed to have entered into an
agreement with Open Door with respect to such individual's exclusive
recording services upon all the terms and conditions of this agreement
except that: (a) the Minimum Recording Obligation in the Initial Period
shall be for sufficient Sides and a reference disc to constitute four (4)
Sides and the right to overcall such number of master Recordings as shall
constitute up to two (2) Albums with six (6) additional options granted to
Open Door to extend the term of such agreement for consecutive option
periods for one (1) Album each, which options shall be exercised within
nine (9) months after delivery to Open Door of the Minimum Recording
Obligation for the Initial Period of such leaving member's agreement; (b)
the provisions contained in paragraph 6.01(b) shall not be applicable but
Open Door shall pay all Recording Costs for Master Recordings to be
recorded by such individual up to the amount of the budget approved by Open
Door therefor; (c) Open Door's royalty obligation in respect of Recordings
by such individual shall be the payment of the royalties computed as set
forth in this agreement but at only three quarters (3/4) the rates set
forth herein; (d) Open Door shall be entitled to combine such leaving
member's account with the Artist account hereunder; and (e) Recordings by
such individual shall not be applied in diminution of your Minimum
Recording Obligation as set forth in this agreement.
15.5 Changes in the individuals comprising Artist shall be made by mutual
agreement between you and Open Door. Neither you nor Artist shall have the
right, so long as this agreement is in effect, to assign Artist's
professional name(s) or to permit its use by any other individual or said
professional name. Open Door shall have the right to use said professional
name in accordance with the provisions hereof.
15.5 In the event that any member of group becomes incapacitated due to the use
of drugs or excessive amounts of alcohol, is unable to perform for any
reason, commits any illegal act of, but not limited to, fraud, larceny or
theft or compromises the position of Open Door as a corporation in good
standing, both Open Door and Artist must agree, mutually to dismiss said
member. In addition, the Term of this Agreement will be extended for an
amount of time equal to time it takes to replace said leaving member and to
restore the performance and professional function of the Group.
15.6 This agreement shall be considered as the joint obligation of each member
of Artist and as the individual agreement of each with the same force and
effect as if each had entered into separate agreements with Open Door
embodying all the terms and conditions hereof, and the rights and
obligations of Artist shall be joint and several as among such members.
15.7 Artist agrees to be solely responsible for the actual clearance,
registration and trademark of its name, "No Soap Radio" in addition to any
costs incurred in the completion of the registration and trademark process.
Upon completion of the legal proceeding procuring all rights to this name
and/or any logo, Artist will present fully executed document to Open Door
for its files.
16. EXERCISE OF OPTION
16.1 Whenever Open Door exercises an option as set forth in paragraph 2.02
hereof, the Option Period will commence at the end of the then current
period and end nine (9) months after delivery of the last Master Recordings
constituting the Recording Obligation for the applicable Option Period.
Open Door's election to exercise said option whenever required (including
without limitation, written agreement, approval or consent), shall be
deemed to have been given unless Open Door notifies Artist otherwise within
ten (10) business days before the expiration of the then current Period. If
Open Door exercises said option, the Option Period will commence upon the
end of the then current Period (or if Open Door so advises, such period
will begin on the date of such exercise notice.
Very truly yours,
Open Door Records, Inc.
By: /s/
-----------------------
Mr. David DeBaene
AGREED TO AND ACCEPTED:
/s/
- ---------------------
Christopher O'Hara DATE OF BIRTH:
SOCIAL SECURITY NUMBER:
/s/
- ---------------------
Daniel Roselle DATE OF BIRTH:
SOCIAL SECURITY NUMBER:
/s/
- ---------------------
James Farrell DATE OF BIRTH:
SOCIAL SECURITY NUMBER:
/s/
- ---------------------
Walter Lockhart DATE OF BIRTH:
SOCIAL SECURITY NUMBER:
NOTARIZED BY:
INTERSHOW LICENSE AGREEMENT
LICENSE AGREEMENT
made effective, October 4, 1999, by and between
INTERSHOW RECORDS AG,
Grenzzstr. 24, CH-9430 St. Margrethen,
Switzerland,
legally represented by its CEO Gerhard Stube
(hereinafter referred to as "Licensor")
and
OPEN DOOR MUSIC,
10 Dorrance Street, Suite 501,
Providence, Rhode Island 02903,
legally represented by its duly authorized officer(s)
(hereinafter referred to as "Licensee").
WHEREAS, Licensor is in the position to grant to Licensee rights to the
exploitation of certain "Master Recordings" (as herein defined) which are owned
or otherwise controlled by Licensor at least for the "Territory" (as herein
defined) and which embody the performances of the Artists "QUEEN ESTHER MARROW"
and "THE HARLEM GOSPEL SINGS" ("Artists").
WHEREAS, Licensee wishes to be granted the right to exploit the Master
Recordings hereunder in the Territory upon the terms and conditions herein
contained and Licensee warrants that it is in a position to perform and fulfill
all the terms and conditions of such grant.
THEREFORE, in consideration of the above and the mutual promises hereinafter set
forth, it is hereby agreed as follows:
I. General Conditions
The terms, "this Agreement," the Agreement," "herein," "hereunder," "hereto," or
other words of similar connotation shall mean the License Agreement construed in
conjunction with the appendices attached hereto and made a part hereof
(appendices from time to time being attached hereto in alphabetical order as
"Appendix A," "Appendix B" and for the purposes hereof jointly and separately
being referred to as "Appendix"), provided that any reference to this Agreement
shall be deemed to mean this Agreement as so supplemented in accordance with the
immediately aforesaid.
Whenever examples are used with the words "including," "form example," "e.g.,"
"such as," "etc." or any derivation thereof, such examples are intended to be
illustrative and not in limitation thereof. Paragraph headings are used for
convenience only and shall not affect the scope, meaning, or intent of this
Agreement or any provisions therein. Except as otherwise provided for in this
Agreement, the singular shall include the plural and vice versa.
II. Subject Matter of the Agreement
The subject matter of this Agreement shall be the deliver to and use by Licensee
of the "Specified Album(s)." "Specified Album" means the "Album(s)," entitled as
set forth in Clause 1 of the Appendix. Unless otherwise agreed to the opposite
hereunder, each Specified Album may only be used and exploited as "Source
Materials" and "Masters" are delivered by Licensor to Licensee.
III. Territory.
The "Licensed Territory" or "Territory" shall mean the country or countries as
specified in Clause 2 of the Appendix.
IV. Exploitation Period.
Unless sooner terminated or further extended in accordance with applicable
provisions herein contained, the "Exploitation Period" for each Specified Album
hereunder means the period specified in Clause 3 of the Appendix, PROVIDED THAT
upon the expiration or other termination of the Exploitation Period hereof, the
right to manufacture the Records hereunder shall cease, and Licensee shall
thereupon procure for the return of the "Source Materials" (as hereinafter
defined) and all other parts containing the Master Recordings which were used to
manufacture the Records hereunder, such return to be effected free of charge to
Licensor. Licensee shall be entitled to an additional sell-off period of six (6)
months from and after the end of the Term hereof ("Sell-off Period"); it is
being understood and agreed that, during the Sell-off Period Licensee shall have
the right to continue to sell any remaining stocks of Records hereunder
manufactured according to clause II, provided further that, upon the expiration
of the Sell-off Period, Licensor shall forthwith destroy all stocks of Records
hereunder which remained unsold, such destruction to be effected free of charge
to Licensor and to be confirmed by written notification from Licensee to
Licensor, such destruction to be effected free of charge to Licensor and to be
confirmed by written notification from Licensee to Licensor.
V. Grant.
A. Subject to Licensee's complying with the terms and conditions of this
Agreement and fulfilling all of Licensee's corresponding obligations and subject
to the provisions herein contained Licensor hereby grants to Licensee the
following exclusive rights during the Exploitation Period throughout the
Licensed Territory:
The right to manufacture, advertise, promote (Radio, Press, TV, Internet),
distribute and sell the specified Album(s) solely in the specified Amount and
solely in the configuration and/or system as specified under Clause 4 of the
Appendix (the "Authorized Record Configuration") through any and all channels of
trade (including without limitation regular trade channels, clubs, direct mail
and mail order operations), including the Internet, under any trademark, logo
and/or label owned and/or otherwise controlled by Licensee (whereby Licensee
hereby warrants and represents that any use of such trademark, logo and/or label
shall not violate any rights of any third party, and Licensee shall hold
Licensor free and harmless from any and all liability with respect thereto).
Licensor's grant to Licensee shall further include Licensee's right to permit
the public performance and/or broadcasting in the Territory of the Specified
Album(s) as we as the right to use the names, likenesses and/or biographies (as
approved or supplied by Licensor) of the Artists whose performances are embodied
in the Specified Album(s) in connection with the advertising, publicizing,
distribution, sale and/or other exploitation hereunder of the Specified Album.
Notwithstanding anything to the contrary herein contained, any manufacture,
distribution or sale of any Records hereunder by any party other than Licensee
shall be subject to Licensor's prior written consent from time to time (not to
be unreasonably withheld), provided always that Licensee shall in any event
ensure that the exercise by any third party of any of Licensee's right hereunder
shall be in accordance with the terms and conditions hereof and subject to
applicable limitations herein contained, provided further that Licensee shall
not be released of any of its obligations hereunder but shall at all times
remain directly responsible in the event of any failure on the part of any of
Licensee's affiliates, subsidiaries, sub-licensees and assigns.
B. All rights not expressly granted by Licensor to Licensee under this Agreement
shall be reserved for Licensor and shall be free of all claims from Licensee
and/or any party(ies) deriving rights from and/or acting on behalf of Licensee
("Licensor's Reserved Rights'). It is understood that Licensee may request
Licensor's grant of additional rights such as sell-trough videos and
merchandising items of any kind not being mentioned hereunder whereas the
granting of such rights will be upon Licensor's sole discretion. In the event of
any Licensee's requests, Licensor warrants that any of its decisions will not be
unreasonably withheld. Nothing contained in this Agreement shall be deemed to
restrict Licensor's rights at any time to exercise in the Licensed Territory any
or all of Licensor's Reserved Rights either directly and/or through any of
Licensor's parents, affiliates, subsidiaries, licensees, sub-licensees, and/or
assigns.
C. Notwithstanding Licensee's exclusive exploitation rights hereunder in the
Territory during the continuance of the applicable Exploitation Period, all of
the following rights are herein granted on an approval basis, i.e. the exercise
hereunder of any of the following rights shall be subject to Licensor's prior
written approval from time to time whereas it is understood that Licensor's
decision shall not be unreasonably withheld and shall be declared within ten
working days after the receipt of Licensee's respective request:
1. To manufacture, distribute, sell, or otherwise exploit any of the Master
Recordings in any format, form, or manner other than the Authorized Record
Configuration(s) of the Records;
2. to distribute and/or sell or otherwise exploit any of the Records
hereunder in any manner other than as provided for under sub-clause V.A.1.
hereof;
3. to use or license any Records, Master Recording(s), and/or any part(s)
thereof on a flat fee basis, or otherwise, including without limitation for
synchronization in any cinematographic, television, and/or video film;
4. to authorize and/or instigate the production of any "video clip" or
"video" or "graphic files" for any Records and/or Master Recording(s), except
that if Licensor shall expressly approve the production by or on behalf of
Licensee of any such video clip or video, then same shall be deemed to be "works
made for hire" which from the inception of the making thereof shall be owned by
Licensor in perpetuity throughout the world and the universe without any
restrictions whatsoever, PROVIDED THAT (unless Licensor expressly agrees to the
contrary from time to time) any use(s) hereunder of any such video clips or
videos shall be made solely for promotional purposes in the Licensed Territory
during the continuance of the applicable Exploitation Period and only in
connection with the distribution and/or sale and/or other approved exploitation
of the respective Records and/or Master Recording(s) hereunder.
5. to distribute and/or sell or otherwise exploit any of the
soundrecordings hereunder through the Internet via soft downloads by the use of
technologies such as MP3, MP4 or and other applicable technologies always
provided however, that the exploitation of the rights of Licensor and/or any
third party on the soundrecording shall be applied in accordance to the actual
technical security standards and shall be sufficiently protected.
6. to promote the soundrecordings in the Internet by use of digitized music
clips with a duration of maximum thirty (30) seconds.
D. Licensee shall procure that all packaging of Records subject to this
Agreement shall bear appropriate credit on the inlay cards, labels and/or
packaging of the Records and shall read as follows: "Under Exclusive License of
INTERSHOW RECORDS AG, SWITZERLAND.
VI. Advances.
Licensee shall pay to Licensor by way of advances on royalties hereunder
("Advance(s)") the sum(s) specified in Clause 5 of the Appendix. The Advance(s)
shall be non-returnable but fully recoupable from any and all "Royalties" (as
defined in sub-clause VI.A. above) and due to Licensor pursuant to this
Agreement and otherwise subject to the following:
A. If Royalties earned hereunder as of the last day of any accounting period are
in excess of the Advance(s) theretofore paid hereunder, ("Excess Royalties"),
then such Excess Royalties shall be payable to Licensor as and when so earned
and due pursuant hereto, it being hereby expressly clarified and agreed that
Excess Royalties so payable from time to time shall not be deducted from nor
shall such Excess Royalties be applied towards the recoupment of any other
Advance(s) payable thereafter to Licensor.
B. If as of the last day of any accounting period the Advance(s) theretofore
paid hereunder shall not have been fully recouped from Royalties due hereunder
and earned up such date ("Unrecouped Balances"), then such Unrecouped Balances
shall continue to be recoupable from any Royalties subsequently earned by
Licensor hereunder.
C. Each Advance due to Licensor hereunder as specified in Clause 5 of the
Appendix. For the avoidable of doubt it is expressly understood, that all
Advances payable on the individual days according to the schedule as under
Clause 5 of the Appendix are the dates of receipt of any advance payments
hereunder.
D. There shall be no cross-collateralisation between the respective Advance(s)
payable under the Agreement.
VII. Royalty.
A. In full and final consideration of Licensor's services and the rights
licensed to Licensee hereunder, Licensee shall pay to Licensor (subject to
applicable recoupment provisions hereunder) royalties and royalty-like sums (if
any) such as flat fees (royalties and royalty-like sums collectively being
referred to as "Royalty/Royalties") for any and all sales of the Records
hereunder effected by or on behalf of Licensee and/or any of Licensee's
affiliates, subsidiaries, sub-licensees and assigns as well as for any and all
other uses of any of the Master Recordings or any part(s) thereof at the
applicable rate(s) and/or in the amount(s) specified in Clause 6 of the
Appendix.
B. for the purpose of computing Royalties at any percent rage(s) due to Licensor
hereunder, it is agreed that Royalties will be computed on the basis of
1. the "Royalty Base Selling Price" or "RBSP" means the applicable "New
Selling Price" (as herein defined) less the applicable "Container
Deduction") permitted to be made hereunder for the purpose of constructing
the applicable RBSP;
2. "Net Selling Price" shall mean the applicable "Selling Price," exclusive
of any sales taxes (if any) actually included in the Selling Price;
3. "Selling Price" means the applicable "Published Price to Dealer" (PPD)
for the respective Record configuration in the respective price category as
so published from time to time by the respective distributor in the country
where such Records are sold to the respective dealers, which for the
Territory of the USA, are being specified in Clause 7 of the Appendix
except that
a. where Records are sold hereunder as finished product to any
educational institutions, libraries, or to any commercial purchaser
for sale and/or re-sale to or through club channels, mail order,
direct mail, or army sales channels (including without limitation Pxes
or the European Exchange System), or for use as any Premium or
promotional items, the "Selling Price" shall mean the purchase price
per unit payable by the respective commercial purchaser for Records so
purchased; or
b. where Records are sold hereunder through direct-to-consumer
(including door-to-door sales), the "Selling Price" shall mean the
selling price per unit payable by any third party to Licensee.
c. where Records and/or songs are sold hereunder through downloads
and/or E-Commerce via the Internet, the "Selling Price" shall mean the
selling price per download and/or shipment payable by any third party
to Licensee.
For the avoidance of doubt, it is expressly understood that "Selling Price"
or "PPD" means "Wholesale Price" as mentioned under the Short Form License
Agreement between the parties as of July 27th, 1999.
4. the applicable "Container Deduction" permitted to be made for the
purpose of constructing the applicable Royalty Base Selling Price shall be
as follows:
a. In respect of any Records hereunder which fall within the
definitions of "Audiophile Records" or "Videograms" or "multimedia"
configurations or "New Technology Configurations," 10% (ten percent)
of the applicable "Net Selling Price" and
b. in respect only of audio-only Records which are not included in the
definition of any of the expressions referred to in subparagraph
VII.B.4.a. the Container Deduction permitted to be made hereunder
shall equal 10% (ten percent) of the applicable Net Selling Price.
C. "Records sold," "sales," "sold," or "net sales means in each instance one
(100%) percent of any and all Records sold hereunder. Subject to the immediately
aforesaid, it is hereby further agreed that subject to applicable recoupment
provisions hereunder, Licensor's Royalties in respect of any and all Records
hereunder shall in each instance be calculated, accounted, and paid for as of
the first unit sold hereunder. For the period of six (six) months after the
release date of each record under this Agreement, Licensee shall be entitled to
deduct a reserve of 5% (five percent) for free goods, usable for the purpose of
the promotion and the marketing of records. During such term, Licensee shall be
entitled to account and pay royalties only on the basis of 95% (ninety-five
percent) of the amount of records sold.
D. Notwithstanding anything to the contrary herein contained and subject always
to Licensor's prior written approval (which may be given or withheld at
Licensor's sold discretion), in the event that any Records hereunder are sold
under the terms and conditions of any licensing arrangement(s) made between
Licensee and anything third party company (collectively "Third Party Licensing
Arrangements"), Licensee shall assure that the applicable royalty terms
(including without limitation royalty rates, container deductions, royalty base
prices, royalty-bearing units and reserves provisions) respecting any such Third
Party Licensing Arrangements shall be negotiated and agreed in good faith
between Licensee and the respective third party licensee from time to time
PROVIDED THAT, subject to the foregoing provisions of this sub-clause D and
subject to applicable recoupment provisions hereunder, the Royalty due to
Licensor in respect of any Records hereunder which are sold pursuant to any
Third Party Licensing Arrangements shall in each instance equal six tenths
(6/10) of Licensee's net royalty receipts but a minimum of 19 (nineteen) percent
(exclusive of taxes and duties and after deduction of all royalty payments due
to any third party such as by way of Mechanical Copyrights Royalties and union
fees, if any) which are attributable to any Records so sold under the provisions
of any such Third Party Licensing Arrangements. For the avoidance of doubt, it
is hereby expressly clarified and agreed that any moneys due to Licensor under
the foregoing provisions of this sub-clause D shall be deemed to be additional
Royalties earned hereunder which are equally subject to recoupment provisions
otherwise applicable pursuant hereto.
E. Notwithstanding anything to the contrary herein contained, if at any time
during the applicable Exploitation Period and subject to Licensor's approval
from time to time, Licensee wishes to use or license any of the Master
Recordings or any part(s) thereof for commercial exploitation in the Territory
on the basis of a flat fee payment (as opposed to any per unit Royalty),
including without limitation for synchronization in any film or commercial, then
and in any of such events Licensee shall (concurrently with Licensee's notice to
Licensor requesting Licensor's approval for each respective use or exploitation
as aforesaid) inform Licensor in writing of all relevant details (including
without limitation the licensed period and the proposed flat fee payment for
such use or exploitation), provided that if Licensor at Licensor's discretion
from time to time shall approve any such use(s) or exploitation, then the
Royalty due to Licensor shall in each instance equal six tenths (6/10) of the
applicable flat fee approved by Licensor and payable by any third party in
respect of such use or exploitation SAVE THAT if any such approved use or
exploitation shall be made by Licensee itself, then the flat fee payable by
Licensee to Licensor shall amount to such sum as the parties shall have mutually
agreed form time to time.
F. Notwithstanding anything to the contrary herein contained, if Licensor shall
have approved any Master Recording(s) for use on any Record which couples any
Master Recording(s) subject to this Agreement together with any other record(s)
which are not subject to this Agreement (any such Record as immediately
aforesaid being sometimes herein referred to as a "Compilation"), then any
applicable percentage rate Royalty due to Licensor in respect of the Master
Recording(s) contained in such Compilation shall be computed on a pro rata
numeris basis, subject to any minimum royalty provisions where applicable.
VIII. Payments and Accountings
A. Except as specifically agreed to the contrary by Licensor in writing,
Licensee shall bear, pay, and discharge all taxes, assessments, duties,
outgoings, and burdens which arise out of the manufacture, distribution, sale or
other exploitation of the Records hereunder. All sums due to Licensor by way of
Royalties hereunder are intended to include provisions for all royalties due to
artist(s), producer(s), and/or any third party licensor(s) of Licensor as a
result of the distribution, sale or other exploitation in the Territory in
accordance with this Agreement.
B. Within thirty (30) calendar days following after the end of the quarter of
each calendar year during which any Records hereunder have been sold by or on
behalf of Licensee and/or any of Licensee's affiliates, subsidiaries,
sub-licensees and assigns, Licensee shall furnish to Licensor a formal detailed
statement (signed by Licensee's authorized officer) specifying (1) all Record
sales and/or other exploitation hereunder during the respective quarterly
accounting period and (2) the respective Royalties and royalty-like sums (such
as flat fees) due to Licensor hereunder with respect thereto. Subject to
applicable recoupment provisions hereunder, each statement described hereinabove
shall be accompanied by payment of Royalties and/or other applicable sums due to
Licensor under this Agreement, provided always that the Advances (if any) and
other recoupable sums (if any) paid to Licensor hereunder shall only be
recoupable in accordance with applicable recoupment provisions herein contained
or otherwise approved by Licensor from time to time.
C. Licensee shall have the right to compute Royalties and/or royalty-like sums
resulting from sales and/or other exploitation hereunder in the Licensed
Territory in the national currency of the country of sale or exploitation. All
payments due to Licensor hereunder, however, shall be made in US Dollars, or if
required by a superseding body of law governing currencies and/or monetary
payments hereunder, in the appropriate currency substitute of the US Dollar as
shall have been notified by Licensor to Licensee if and when applicable. It is
agreed that any conversions required for the purpose of paying Licensor
hereunder shall be made at the official rate of exchange prevailing in the
Licensed Territory when payment shall be made and due pursuant hereto, provided
that in the case of "Late Payment" by Licensee, the conversion rate applicable
on the actual date of payment or on the original due date for payment shall
apply, whichever shall be more favorable to Licensor. "Late Payment" shall mean
any payment by Licensee to Licensor at any date later than the contractual due
date pursuant hereto, PROVIDED THAT in the event of the Late Payment by Licensee
of any monies due to Licensor hereunder, Licensee shall pay to Licensor the
applicable monies so due to Licensor pursuant hereto plus simple interest
thereon at the rate of 10% (ten percent) per annum from the time when payment
thereof should have been made pursuant thereto until the time of actual payment
thereof by or on behalf of Licensee.
D. Advances, Royalties and other sums due pursuant to this Agreement shall be
exclusive of any value added tax ("VAT") or similar tax payment, provided that
if Licensor is subject to VAT or similar tax payment, then such VAT or similar
tax payment shall be due and payable to Licensor in addition to the Royalty,
Advances, and/or other sums so due. If the laws of the Territory require that
income or similar withholding tax on moneys due to Licensor hereunder be
withheld at the source, then the moneys due to Licensor hereunder shall be
reduced by the same withheld, provided that in the event that Licensee receives
a credit with respect to taxes so withheld, then Licensor's royalty account
hereunder shall be credited by the proportion of such credit which is
attributable to Licensor's moneys hereunder. Licensee shall give Licensor
reasonable assistance in obtaining a certificate setting forth the amount of tax
withheld or deducted so as to enable Licensor to apply for tax credit from
Licensor's local tax authorities for taxes so withheld or deducted. In the event
that due to governmental restrictions any payment to Licensor hereunder cannot
be made (for example, due to government regulations under a "blocked currency"
situation), then Licensee shall deposit such moneys in a depository selected by
Licensor. Such deposit in accordance with the foregoing provisions shall be
deemed to fulfill Licensee's respective payment obligation hereunder.
E. Licensee shall keep detailed, true and correct books and accounts relating to
the manufacture, distribution, sale and other exploitation of Records hereunder.
Licensor's representative(s) shall have the right at any time and from time to
time until the expiry of two (2) years after the date of the expiration or other
termination of the Term, but not more than once during any calendar year, to
inspect and take notes of all documents which pertain to the exercise by
Licensee of any exploitation rights granted to Licensee hereunder, provided
that, in connection with the exercise from time to time of Licensor's audit
rights hereunder, all such documents shall be made available to Licensor at
Licensee's principal place of business in the Licensed Territory. Any inspection
by or on behalf of Licensor shall be made on not less than thirty (30) calendar
days where the documents are made available to Licensor. If any such aforesaid
inspection reveals an accounting error of more than five percent (5%) for the
period under review, then Licensee shall reimburse Licensor an amount equal to
the reasonable costs directly incurred by Licensor from such particular
inspection and, in addition, Licensee shall pay to Licensor any amount
discovered to be still due, together with simple interest thereon at the rate of
ten percent (10%) per annum for the amount due from the time when payment
thereof should have been made pursuant hereto until the time of actual payment
thereof on behalf of or by Licensee.
F. Notwithstanding anything to the contrary herein contained, it is hereby
agreed that any royalty statement or other account rendered by Licensee
hereunder shall be binding and not subject to any objection for any reason
unless such objection is made by Licensor in writing stating the basis thereof
and delivered to Licensee within one (1) year from the date of Licensor's
receipt of such statement or account, and if Licensee denies the validity of
Licensor's objection unless proceedings are instituted in a court of competent
jurisdiction within one (1) yar after Licensor's receipt of Licensee's written
notice to Licensor stating that Licensee denies the validity of Licensor's
objection.
IX. Copyright Royalties.
Licensee, its affiliates, subsidiaries, sub-licensees and assigns shall be
liable and responsible for the payment of any and all mechanical copyright
royalties and obtaining all necessary clearances and licenses for the
distribution and/or sale and/or other exploitation of Master Recording(s)
hereunder, such payment to be made directly to the applicable copyright
proprietors or their duly authorized agents, and Licensee shall hold Licensor
free and harmless from any and all claims with respect hereto.
X. Representations and Warranties.
A. Licensor represents, warrants, and agreed that Licensor has all necessary
authorizations to enter into and fully perform this Agreement. Licensor warrants
that Licensor owns or otherwise controls the rights for the Licensed Territory
in and to the Specified Album(s) and shall continue to own or otherwise control
such rights for the duration of the Term and Sell-Off Period. Licensor will not
grant any exclusive right to any person to Master Recording(s) which would
derogate from or be in conflict with the rights granted to Licensee hereunder.
B. Each Party represents, warrants, and agrees that Each Party has all necessary
authorizations to enter into and full perform this Agreement. Licensee further
warrants and represents that the distribution, sale and/or other exploitation of
Records comprising the Master Recording(s) shall not infringe upon the rights of
any third party, and Licensee hereby agrees to hold Licensor free and harmless
from any and all claims with respect thereto. Each party will not knowingly
incur any liability, restriction, or prohibition which would detrimentally
affect Licensee's fulfillment of its performances or obligations hereunder or
any of Licensor's rights hereunder. Licensee shall manufacture Records
consistent with the standards Licensee normally utilizes for the configurations
concerned.
XI.Termination.
A. Licensor shall have the right (exercisable at the sole discretion of
Licensor) to forthwith terminate this Agreement in the event that
1. Licensee fails or refuses to render any of the statements or to make any
of the payments due to Licensor pursuant hereto or fails or refuses to
perform any other material obligation on Licensee's part to be performed
hereunder and any such default is not cured within thirty (30) days after
Licensee's receipt of a written notice from Licensor by fax or certified
mail, return receipt requested, requesting its cure; or
2. Licensee has gone into receivership or has made any assignment for the
benefit of creditors or made any composition with creditors or any action
or proceeding under any bankruptcy or insolvency law is taken by or against
Licensee which is not discharged within fourteen (14) days after it is
commenced; or
3. any attachment, execution, or encumbrance is levied against any of
Licensee's property whereby such attachment, execution, or encumbrance has
not been removed within thirty (30) calendar days; or
4. if any provision relating to payment by Licensee to Licensor shall be
legally declared invalid or unenforceable; or,
5. Licensor discovers that Licensee and/or any parent or affiliate of
Licensee has been operating as "Pirate Company(ies)" or has knowingly been
represented by or connected with any Pirate Company, regardless of whether
such pirating activity(ies) and/or Pirate Company(ies) are located in or
outside of the Licensed Territory. "Pirate Company(ies)" means any
company(ies) which effectuated or was/were involved in the manufacture,
export, import, and/or sale of any record(s) without having first obtained
all required authorizations from the respective copyright proprietor(s) and
the rightful owner(s) in and to the master recording(s) embodied on such
record(s).
B. If and when any termination event under the provisions of sub-clause 11.1.
should occur, then and in any of such events Licensor may exercise Licensor's
termination right by written notice to Licensee, such termination to be
effective as of the date of Licensee's receipt of such notice, provided that
(unless Licensee's applicable Exploitation period has already expired prior to
the effective date of Licensor's termination) Licensee's applicable Exploitation
Period in respect of the Records and Master Recordings hereunder and all rights
granted to Licensee pursuant hereto shall automatically and without any further
formality concurrently terminate as of the effective date of such termination
and Licensee shall not be entitled to any Sell-off Period.
C. Licensee shall have the right (exercisable at the sole discretion of
Licensee) to forthwith terminate this Agreement in the event that
1. Licensor fails or refuses to perform any of its material obligations
hereunder and such default is not cured within thirty (30) days from
Licensor's receipt of Licensee's written notice requesting its cure; or
2. Licensor has gone into receivership or has made any assignment for the
benefit of creditors or made any composition with creditors or any action
or proceeding under any bankruptcy or insolvency law is taken by or against
Licensor which is not discharged within fourteen (14) days after it is
commenced or
3. any attachment, execution, or encumbrance is levied against any of
Licensor's property whereby such attachment, execution, or encumbrance has
not been removed within thirty (30) calendar days.
D. If and when an early termination event under the provisions of clause 11.3
hereof should occur, then Licensee may exercise Licensee's termination right by
written notice to Licensor, such termination to be effective as of the date of
Licensor's receipt of such notice, provided that Licensee's applicable
Exploitation Period in respect of the Records and Master Recordings hereunder
and all rights granted to Licensee pursuant hereto shall automatically and
without any further formality concurrently terminate as of the effective date of
such termination but Licensee shall be entitled to the Sell-off Period in
accordance with applicable provisions herein contained.
E. Any termination of this Agreement by either party shall be without prejudice
to any other rights and/or claims which either party may have at law, in equity
or otherwise, and such rights and/or claims shall survive the termination of the
Agreement.
XII Force Majeure.
If Force Majeure prevents the hindered party from fulfilling its obligations
hereunder for a period longer than 6 (six) weeks, then Licensor and Licensee
shall enter into good faith negotiations to reform the obligation concerned.
XIII. Indemnity.
Licensee and Licensor agree to defend, indemnify, and hold each other harmless
from and against any and all liability, loss, damage, cost, and expense,
including reasonable legal fees, arising out of or by reason of any breach of
any of the covenants, warranties, or representations hereunder. The indemnitor
shall receive prompt written notice of any claim or action, at its expense, with
counsel of its own choice. The foregoing indemnity shall apply to the claim or
action proven to be legitimate as a result of any settlement entered into with
the indemnitor's prior written consent, or as a result of any final
non-appealable adverse judgment. In the event that litigation should arise
between Licensor and Licensee, then the prevailing party shall have the right to
be reimbursed for reasonable attorney's fees and reasonable court costs.
XIV. Assignment.
So long as the rights, duties, and obligations hereunder will not be
detrimentally affected, Licensor and Licensee may assign, transfer, sub-license,
or charge any of their respective rights hereunder to their respective parent,
subsidiary, affiliated company, or any entity with whom Licensor or Licensee
respectively enters into a merger, consolidation, sale of stock, sale of assets
or other reorganization. Licensor warrants that as of the signing hereof,
Licensor has not made any assignment as aforesaid.
XV. Notices/Definitions
A. All notices must be in writing to be effective. Essential notices shall be
served or confirmed by cable, registered mail, certified mail, or airmail at the
addresses stated hereinabove or as otherwise directed by the addressee, whereby
all charges are to be pre-paid by the addressor.
B. The words and expressions used herein shall have the meanings respectively
ascribed to same hereunder or, in the absence of respective definition(s), as
same are generally understood by industry experts. As used hereunder,
"Audiophile record" means an audio-only record which is made for digital
playback and includes without limitation compact discs ("CD"), digital audio
tapes ("DAT"), digital compact cassettes ("DCC"), Compact Disc Interactive
("CD-I"), Compact Disc Read only Memory (CD-ROM) and mini discs ("MD");
"Biographical Material" shall mean the name(s), voice(s), likeness(es), and
biography(ies) of the Artist(s) as delivered and/or approved by Licensor.
Licensee may only use such Biographical Material in connection with the sale,
promotion, broadcast of the Records containing the performance(s) of the
respective Artist(s). If Licensor should be bound by any restrictions affecting
the use of any Biographical Material, then (subject to Licensee having been
informed thereof in writing) any such restriction(s) shall equally apply to
Licensee. Any permitted use by Licensee of any Biographical Material shall be on
a non-exclusive basis for the Licensed Territory during the Exploitation Period
and Sell-Off Period; should the Exploitation Period or Sell-Off Period be
terminated, then all permitted usage(s) by Licensee of any Biographical Material
shall be deemed to have been automatically revoked.
"Master recording" means the original material object in which sounds, whether
or not coupled with visual images, are fixed by any method now known or later
developed and from which sounds, whether or not coupled with visual images, can
be perceived, reproduced or otherwise communicated, either directly or with the
aid of a machine, device or process. For the purposes of this Agreement, "Master
Recordings" or "Masters" means and includes all master recordings subject to
this Agreement, all playbacks, mixes and re-mixes thereof in whole or in part as
well as all Video-clips and/or Videos which embody any of the Master Recordings
in whole or in part.
The noun "record" means any mechanical reproduction, in any form now known or
later developed from which sounds (whether or not coupled with visual images)
can be perceived, reproduced or otherwise communicated, either directly or with
the aid of a machine, device or process. For the purposes of this Agreement,
"Master Recordings" or "Masters" means and includes all master recordings
subject to this Agreement, all playbacks, mixes and re-mixes thereof in whole or
in part as well as all Video-clips and/or Videos which embody any of the Master
Recordings in whole or in part.
The noun "record" means any mechanical reproduction, in any form now known or
later developed from which sounds (whether or not coupled with visual images)
can be perceived, reproduced or otherwise communicated, either directly or with
the aid of a machine, device or process, and which is manufactured or exploited
primarily for home use, provided that, for the purpose hereof, "Record" means
any record which contains the Specified Album subject to this Agreement.
"Source Materials" means all materials and artwork, all copyright, tracklisting
and label information which are necessary for Licensee to implement its
exploitation rights hereunder, including a DAT technically suitable for use in
the manufacture of Records hereunder, PROVIDED THAT (a) Licensor shall provide
Licensee with the Source Materials upon execution hereof (b) the Licensee shall
use the Source Material only as delivered by Licensor to Licensee and Licensee
shall not use the Masters nor permit the use thereof for any purpose other than
the manufacture of the Authorized Record Configurations of the Records as
provided for in this Agreement; (c) the supply to the Licensee of the Masters
shall not imply any change of ownership or control in the Master Recording
contained therein, and all such Master Recording(s) shall continue to be owned
or controlled by Licensor, subject only to the rights herein granted to
Licensee; and (d) Licensee shall be responsible for payment of the reasonable
duplicational costs (at Licensor's cost price), packing and shipping expenses as
well as taxes, customs and/or duties, if and to the extent that such costs and
expenses are actually incurred as a result of the delivery to and/or importation
by Licensee of the Source Material and invoiced by Licensor to Licensee (unless
paid directly by Licensee), provided that any sums payable by Licensee to
Licensor in accordance with the immediately aforesaid shall be so payable within
thirty (30) calendar days from the later of Licensee's receipt of the applicable
Source Material or Licensee's receipt of the respective invoice therefor in
accordance with the immediately aforesaid.
"videogram" means a mechanical reproduction in any form now or hereafter known
from which sounds coupled with visual images can be perceived, reproduced or
otherwise communicated, either directly or with the aid or a machine, device or
process and which is manufactured or exploited primarily for home use and
"Videogram" means only the videograms subject to this Agreement.
XVI. Miscellaneous.
A. This Agreement shall not be construed as a partnership, employment, joint
venture or agency agreement between Licensor and Licensee.
B. Licensee and Licensor shall have no obligation to make any investigation of
the facts relevant to any warranty and/or representation herein made to the
other party.
C. The validity, construction and effect of this Agreement shall be governed by
the laws of Germany, and Licensee and Licensor hereby agree that courts of
Munich, Germany, shall have jurisdiction over any of Licensor's claims regarding
any dispute or controversy arising under or in connection with this Agreement.
Notwithstanding the foregoing, the parties hereby agree, that any of Licensee's
claims regarding any dispute or controversy arising under or in connection with
this Agreement shall be governed by the Laws of the United States of America and
ruled by the courts of Rhode Island. In the event that any provision of this
Agreement shall be legally declared invalid or unenforceable, Licensee and
Licensor shall enter into good faith negotiations to reform the provision
concerned, however, the remainder of this Agreement shall continue in full force
and effect.
D. This Agreement is intended by Licensee and Licensor as a complete and final
expression of their understanding and agreement of the subject matter hereunder,
and this Agreement supersedes all prior and contemporaneous agreements relating
to the subject matter hereunder. No amendment to or modification of this
Agreement shall be binding upon the parties hereto unless made in writing and
signed by the party sought to be bound. No waiver of any provision or any
default under this Agreement shall affect either party's right thereafter to
enforce such provision or to exercise any right or remedy arising by virtue of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
ACCEPTED AND AGREED: ACCEPTED AND AGREED:
By and on behalf of LICENSOR, By and on behalf of LICENSEE,
/s/ (not legible)
- --------------------------- -----------------------------
<PAGE>
APPENDIX A
To the License Agreement made effective as of October 4, 1999 by and between
INTERSHOW RECORDS AG, Grenzsstr. 24, CH- 9430 St. Margrethen, Switzerland
(hereinafter called "Licensor") of the one part and OPEN DOOR MUSIC; 10 Dorrance
Street, Suite 501, Providence, Rhode Island 02903 (hereinafter called
"Licensee") of the other part.
Licensor and Licensee hereby agree that the following terms and conditions (the
"Appendix A") shall be deemed to have been incorporated into and made a part of
the License Agreement:
Clause 1:
"Specified Album" means the following album licensed by Licensor to Licensee and
which embodies the recorded performance of the artist(s) specified below
("Artist"):
Name of Artist(s): Title:
- -------------------------------------------------------------------------------
1. The Harlem Gospel Singers "Live at the Cologne Philharmonic Hall"
2. Queen Esther Marrow "feat. The Harlem Gospel Singers"
Clause 2:
The Licensed Territory shall be: USA including US Government and Military
possessions outside of the USA, Canada and Mexico for the non-Internet related
exploitation of records. The World and the Universe for the Internet related
exploitation of records.
Clause 3:
The "Exploitation Period" hereunder shall commence as of the date above
("Commencement Date") and, unless sooner terminated under any provisions of
Section 11 hereof shall thereafter continue up to the earlier of August 1, 2002.
Clause 4:
The "Authorized Record Configuration(s)" shall mean Compact Disc (CD) and music
Cassette (MC) only.
Clause 5:
a. With respect to the Master Recordings licensed to Licensee under the terms
of this Agreement as supplemented by this Appendix A, Licensee shall pay to
Licensor Advances in the aggregate amount of US $ 75,000.00 (seventy-five
thousand).
b. The Royalty-Advance due to Licensor hereunder shall be payable as follows:
1. US $ 18,750.00 on 08/15/1999
2. US $ 6,250.00 on 09/15/1999
3. US $ 15,000.00 on 12/15/1999
4. US $ 15,000.00 on 02/01/2000
5. US $ 10,000.00 on 05/01/2000
6. US $ 10,000.00 on 08/01/2000
Clause 6:
a. The Royalty due to Licensor in respect of Records hereunder sold through
Licensees' regular trade channels in full price category shall be 30%
(thirty percent) of the applicable "Royalty Base Selling Price" (as defined
and subject as further specified in the License Agreement).
b. The Royalty due to Licensor in respect of Records hereunder sold through
Licensee's Internet channel(s) shall be 75% (seventy-five percent) of all
revenues relating to Licensee's direct Internet exploitation. For the
Internet exploitation by third parties 50% (fifty percent) of all revenues.
c. The Royalty payable to Licensor in respect to Sublicensing shall be split
between the parties in a relation of 60% (sixty percent) to 40% (forty
percent) to the favor of Licensor.
Clause 7:
The published prices to dealer (PPDs) are:
1. for CD 1 : US $ 8.60
2. for CD 2 : US $ 12.00
3. for MC 1 : US $ 5.25
4. for MC 2 : US $ 8.15
Miscellaneous:
a. For the purpose of on-site sales, Licensor is entitled to purchase sound
carriers from Licensee at cost-price. Cost price means actual pressing
costs, inclusive mechanical royalties, excluding artist royalties.
b. Licensor shall compensate Licensee with US $ 2.00 (two) per CD sold
on-site, during the concert tour of the Harlem Gospel Singers in the
Territory. Licensor will provide monthly sales statements within 15 days
after the end of the month. All payments by Licensor will be due within 15
days after the date of issue of the respective sales statement.
c. Licensee commits to marketing spendings of US $ 35,000.00 (thirty-five
thousand). All special marketing campaigns have to be coordinated with
Licensor and Sundance US.
d. Licensee guarantees the release of the double CD as specified under Clause
1 hereunder in the territory of San Francisco, USA for August 52, 1999 and
guarantees to use best efforts for the release of the 1-CD and double CD in
the rest of Territory by August 25, 1999.
e. Licensee coordinates all marketing activities with Licensor and provides a
monthly marketing and activity statement to Licensor within the first 6
(six) months after the release of each record under the Agreement.
f. All payments of Licensee to Licensor under this Agreement have to be wired
to the Licensor's following account:
Account No. : 911 529.61 U
Bank : USB AG
Branch : Rathhausstr.11
8570 Weinfelden
Banking Code : 219
Account Holder : Intershow Records AG
Date hereof: (not legible)
---------------
ACCEPTED AND AGREED: ACCEPTED AND AGREED:
By and on behalf of LICENSOR, By and on behalf of LICENSEE,
/s/ not legible /s/ not legible
- ----------------------------- ------------------------------
AGREEMENT
This agreement (the "Agreement") is entered into by and between LiveOnTheNet.com
and Open Door Music, Inc., known jointly as "the parties," this 1st day of July,
1999.
1. DEFINITIONS:
1.1 Programming. The Programming ("Programming") shall include those broadcasts
aired or produced by or on behalf of Open Door Music for viewing via the
Internet, and which conform to the content policies of LiveOnTheNet.com,
and excluding those broadcasts with respect to which Open Door Music has
provided LiveOnTheNet.com written notification that Open Door Music does
not have the right to distribute or archive such broadcasts on the system,
as defined in 1.2.
1.2 System. The System ("System") is any wireless network (including, without
limitation, direct broadcast satellites, hand held devices, microwave dish
Facilitated Data Transmission, Vertical Blinking Interval (VBI), wireless
cable and data broadcasting and any and all other wireless networks) or
wired networking (including without limitation, the Internet, the Internet
II, or any other online services network which utilizes computer terminals
and modems, cable modems, HFC, coaxial cable, xDSL, routers, splitters,
switches, multicasting technology, power lines, or other high speed data
connections and any and all other wired networks) that distributes audio,
video, or other programming using digital algorithms, one and/or two-way
digital services, traditional network or cable broadcast media or any other
media (except AM/FM radio broadcasts).
1.3 Open Door Music Channel. The Open Door Music Channel shall mean any and all
URL's provided to Open Door Music by LiveOnTheNet as part of LiveOnTheNet's
primary multimedia URL, as it may be known from time to time, and URL's
provided to LiveOnTheNet.com by Open Door Music, for the purpose of
multimedia broadcasting via the System.
1.4 Time Period. ("Time Period") for the Agreement shall be for a two (2) year
period beginning upon the execution of the Agreement. This Agreement may be
extended for subsequent one-year periods by mutual consent of the parties.
2. OPEN DOOR MUSIC COVENANTS:
2.1 Open Door Music hereby grants to LiveOnTheNet.com the worldwide exclusive
right to distribute, copy and market, syndicate, and archive on the Open
Door Music Channel all Open Door Music Programming on the System (including
Programming broadcast by all Open Door Music affiliates) for the Time
Period set forth above, with the exception of Open Door Music, who will be
allowed to archive its own content on its site. In addition,
LiveOnTheNet.com has the right to maintain a copy of the Programming to be
included in LiveOnTheNet.com's historical archives at LiveOnTheNet.com's
discretion for on-demand access on the LiveOnTheNet.com size for a period
of 6 months after the expiration of this Agreement. Open Door Music will
provide current schedules, lists of guests, updates of Programming and any
and all information and materials required for fulfillment by
LiveOnTheNet.com of any part of this Agreement and that said information
and materials are to be provided in a timely fashion for placement on an
Open Door Music's URL on LiveOnTheNet.com
2.2 LiveOnTheNet.com shall make any and all of its promotional opportunities
available to Open Door Music.com, either at no charge or at a reasonable
cost as outlined in LiveOnTheNet.com's published promotional rate book as
presented in Appendix A, advertising and Sponsorship Opportunities.
2.3 Open Door Music shall be allowed to keep on hundred percent (100%) of the
advertising revenues generated and hosted on the Open Door Music Channel
and any sub-channels utilized by Open Door Music, provided, however, that
should Open Door Music fail to secure an advertiser for any event on the
Open Door Music access page, complete or sub-channel, LiveOnTheNet shall be
permitted to place said advertisement in which case LiveOnTheNet and Open
Door Music shall share fifty (50%) of gross monies received as a result of
that advertising. Said advertisement placed by LiveOnTheNet, however, shall
be keeping with the wishes of the programming owners in accordance with 3.5
below.
Advertising revenues will be tracked through standard server reports and
manually rendered on a monthly. Any payments due Open Door Music.com will
be made within 30 days of the payable month based upon the server reports.
2.4 Open Door Music shall adhere to all commercially reasonable formatting and
click through policies for channel partners as may be mutually adopted from
time to time by LiveOnTheNet and Open Door Music. Current specifications
published by LiveOnTheNet.com as "Advertising and Sponsorship Opportunities
for LiveOnTheNet.com Channel Partners" may be considered as appendix A of
this Agreement and incorporated herein by reference.
32.5 At Open Door Music's sole cost and expense Open Door Music will provide or
otherwise service necessary support personnel to administrate the Open Door
Music programming and coordinate with the appropriate personnel at
LiveOnTheNet.
2.6 Open Door Music hereby grants to LiveOnTheNet.com the right to use Open
Door Music's approved logos, call letters, trademarks and other
intellectual property rights in print, audio, online and other advertising
for the System and the Programming, and in other means in connections with
this Agreement with prior written approval, not to be unreasonable
withheld.
2.7 With respect to the programming on the Open Door Music Channel, Open Door
Music shall provide LiveOnTheNet, with reasonable notice, copies of all
contracts necessary to secure the right of Open Door Music to air said
programming provided said contracts are not held as confidential in which
case Open Door Music shall provide an affidavit setting forth the
appropriate clearances have been secured. LiveOnTheNet.com shall make
copies of the contracts it uses to Open Door Music.com.
3. COVENANTS OF LIVEONTHENET.COM
3.1 LiveOnTheNet.com will provide Internet distribution of the Programming on
the System at no cost to Open Door Music. Additionally, LiveOnTheNet.com
will maintain, at its cost, any technical equipment necessary to receive
and distribute the Programming over its System along with providing the
audio streams (or video stream, as applicable in LiveOnTheNet.com's sole
discretion) and licensed software for the System. LiveOnTheNet.com shall
possess the right to choose which audio (or video) streaming software to
use, and shall choose when to upgrade said software. Software and hardware
used in the reception and distribution of Open Door Music content on the
LiveOnTheNet.com network shall at all times be and remain the exclusive
property of LiveOnTheNet.com.
3.2 LiveOnTheNet.com will provide access for Open Door Music in the same size
and manner as other channels on the LiveOnTheNet.com ("Access Page"). The
Programming will be accessible on the System from such locations designated
by LiveOnTheNet.com, including, but not limited to, the Access Page but
shall be the same or substantially similar to other channel access pages.
Overall web site and page sponsorship and advertising revenue for Open Door
Music template, Open Door Music's main access page and sub channel pages
shall belong to Open Door Music in its entirety subject to the revenue
sharing agreement as expressed in 2.3 above.
3.3 LiveOnTheNet.com will promote Open Door Music in the LiveOnTheNet.com site
and provide a hyperlink in the form of a channel bar access button (as
described in 3.2) to the Open Door Music channel from the main LiveOnTheNet
access page.
3.4 LiveOnTheNet.com will provide Open Door Music information about Open Door
Music's site and event traffic in a reasonable amount of time as it is
available to LiveOnTheNet.com.
3.5 LiveOnTheNet.com reserves the right to refuse any advertising by existing
sponsors obtained by Open Door Music for its broadcast which does not
conform to LiveOnTheNet's programming standards. At no time may Open Door
Music allow an adult industry advertiser the right to advertise on any
page, template or subchannel of Open Door Music. Conversely, LiveOnTheNet
shall not allow any adult advertiser which does not conform to
LiveOnTheNet's programming standards on the main access page or
LiveOnTheNet template. Open Door Music shall be allowed to make reasonable
requests to exclude from the LiveOnTheNet template certain advertisers that
are offensive or in direct competition with the major sponsors of an Open
Door Music program. Said exclusion of advertisers shall be for those
programs only and may resume on all over subchannels or templates.
3.6 LiveOnTheNet.com shall be able to perform the responsibilities of this
contract, including every aspect of content acquisition, promotion,
programming and distribution, in matters of resources, finances and
response time, in a commercially reasonable manner in all areas.
3.7 Open Door Music acknowledges that LiveOnTheNet.com does not make any
representations or warranties regarding the ability or exposure of the
System, amount of revenue to be realized from the System or associated
advertising, and there are no guarantees regarding it.
4. OPEN DOOR MUSIC HEREBY WARRANTS THE FOLLOWING:
4.1 Open Door Music has all requisite corporate power and authority to execute
and deliver the Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been
duly authorized, executed and delivered by Open Door Music, constitutes the
valid and binding agreement of Open Door Music, enforceable against Open
Door Music in accordance with its terms.
4.2 The Programming is either owned or controlled by Open Door Music, and Open
Door Music has the right and authority to assign retransmission and
distribution rights to LiveOnTheNet.com on the System. Open Door Music.com
has the right to archive and re-broadcast any of its content to its own
site.
4.3 Open Door Music hereby indemnifies and holds LiveOnTheNet.com harmless from
any such fees, liabilities, claims, losses, damages or penalties incurred
by LiveOnTheNet.com as a result of (I) for transmission and/or distribution
of the Programming in accordance with the terms of the Agreement (II) Open
Door Music's breach of any terms of the Agreement including, but not
limited to, breach of these representations and warranties. The provisions
of this Paragraph 4.3 shall survive termination of this Agreement.
5. LIVEONTHENET.COM HEREBY WARRANTS THE FOLLOWING:
5.1 LiveOnTheNet.com has the requisite corporate power and authority to execute
and deliver this agreement, to former its obligations hereunder, and to
consummate the transactions contemplated hereby.
5.2 Open Door Music or rightsholder shall not incur any expense related to the
transmission or distribution of the Programming by LiveOnTheNet, except as
otherwise specified in this Agreement.
6. GENERAL:
6.1 This Agreement shall constitute the entire understanding between the
Parties, and supercedes all prior negotiations or understandings between
the parties concerning the subject matter contained herein. Various content
acquisition technologies, developed by or made available to
LiveOnTheNet.com, may be offered to Open Door Music by LiveOnTheNet.com
from time to time they require additional appendices to this contract.
6.2 Each party acknowledges and agrees that (I) the other party's logos, trade
names, trademarks and service marks (collectively, "Marks") are and shall
remain the sole property of the other part, (II) nothing in this Agreement
shall confer in either party any right of ownership in the other party's
Marks, and (III) the party shall not now or in the future contest the
validity of the other party's Marks.
6.3 This Agreement shall be governed by the laws of the State of Alabama or the
State of Rhode Island.
6.4 LIVEONTHENET.COM HEREBY DISCLSIMS ALL WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY WITH RESPECT TO THE SERVICES PROVIDED HEREUNDER.
6.5 LIVEONTHENET.COM WILL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO
THIS AGREEMENT, HOWEVER CAUSED AND ON NY THEORY OF LIABILITY (INCLUDING
NEGLIGENCE) AND EVEN IF LIVEONTHENET.COM HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
6.6 LIVEONTHENET.COM SHALL NOT BE LIABLE FOR ANY LOSS OF DATA, OR ANY
INTERRUPTION OF SERVICE, DUE TO ANY CAUSE.
6.7 Should any part of this Agreement be found to be illegal or otherwise
unenforceable, both Parties shall continue to be bound under the remaining
terms of the Agreement, if the purpose and intent of the Parties can be
carried out under the remaining parts of the Agreement. A facsimile
signature shall be deemed an original for the purposes of this Agreement.
6.8 This agreement shall be binding upon and insure to the benefit of the
Parties hereto and their respective successors, assigns or purchases of the
respective companies.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing agreement to be
signed by a duly authorized agent of each party, the day and year first above
written.
OPEN DOOR MUSIC: LIVEONTHENET.COM
2104 West Ferry Way
Huntsville, AL (35801)
- -------------------------
By: /s/ By: /s/
---------------------- ------------------------------
Name: Camille P. Barbone Jim Felder, V.P. Marketing
Its: Vice President and General Manager
<PAGE>
APPENDIX A
Live and On-Demand: Live Events
Bandwidth Base Rate 2 hours 3 hours
14.4K* $1,200 $2,000 $2,800
28.8K $1,600 $2,800 $4,000
56.5K $2,000 $3,400 $4,800
*14.4 adequate for audio only
On-Demand Only: 28.8K Hosting
Duration 1 hour 2 hours 3 hours
3 months $240 $480 $720
6 months $480 $960 $1,440
9 months $720 $1,440 $2,160
12 months $960 $1,920 $2,880
On-Demand Only: 56.6K Hosting
Duration 1 hour 2 hours 3 hours
3 months $300 $600 $900
6 months $600 $1,200 $1,800
9 months $900 $1,800 $2,700
12 months $800 $2,400 $3,600
Encoding
Type 1 hour 2 hours 3 hours
Audio $40 $80 $120
Video $80 $160 $240
Special $160 $320 $480
Features and Custom Development
Development of AdStream custom player, audio or video $2,500
Webdev event back-office, per single event:
launch page and promo page development
from customer-supplied graphics and text $500
Registration $600
Web stats $800
Chat $1,200
Banner Ads $20/M
Audio Ad $1.0030 sec.
Video Ad $3.6030 sec.
Event Sponsorship Negotiated
Showbot Lease $1000/month
Showbot Sponsorship Negotiated
Showbot connection (ISDN and fees) Negotiated
Services and Equipment
Director, per day $450
Crew, per day $350/person
Camera, per day $200
Audio, per day $ 60
Lights, per day $ 60
EXCLUSIVE DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is entered into as of the 1st day of
June, 1999 between KnowSavage Productions, Inc., a New York State corporation
with its principal location at 655 Fulton Street, Brooklyn, NY 11217
(hereinafter referred to as "Artist," "Label" or "Supplier") and Open Door Music
Distribution, a Rhode Island Corporation with its principal place of business at
10 Dorrance Street, Providence, Rhode Island, 02903 (hereinafter referred to as
"Distributor").
WHEREAS The Supplier is in the business of recording, developing, marketing and
supporting certain Products as defined below and the Distributor wishes to
manufacture and distribute to the dealers and the re-marketers of these Products
and assures the Supplier that it has the facilities, personnel, and technical
expertise necessary to do so, The Supplier is willing to grant to the
Distributor, the exclusive right to manufacture and distribute these Products to
such dealers and re-marketers as qualify and as defined below for resale
purposes. In consideration for the mutual promises, covenants, and Agreements
made below, the parties, intending to be legally bound, agree as follows:
1. Definitions
"End-User." Any person or entity who purchases or licenses the Product(s).
"Information." The technical or business information, either oral or
written that the Supplier or the Distributor furnishes to the other marked as
proprietary or confidential or simply treated as such by the disclosing party.
It includes research, development or business activities, including any
unannounced Products and services, as well as any information relating to
services, developments, processes, plans, financial information, customer and
Supplier lists, forecasts and projections. Information will also include the
terms of this Agreement.
"Intellectual Property Rights." Any work of authorship, regardless of
copyrightability, including copyrights and any moral rights recognized by law;
and any other similar rights, in each case on a national and international basis
"Products." The audio, digital or any other technical form, MP3, MP4 or
other soft music downloads now known or later developed, of the musical,
theatrical or literary performances developed or owned by the Supplier that are
specifically listed in Exhibit A attached, along with enhancements, revisions,
remixes or modifications made to the Products by the Supplier.
2. Term. This Agreement will begin on the date first written and will terminate
twenty-four (24) months following the start date, unless sooner or later in
accordance with the terms of this Agreement. Certain sections, as indicated
below, will survive and remain effective even after the termination or
expiration of this Agreement. All other rights and obligations of each party to
the other will terminate upon the termination of this Agreement.
2.1 Advances. Following the full execution of this Agreement and during the
initial twenty-four (24) month term, Distributor shall pay advances for
Supplier's promotional expenses (the "Promotional Fund") of up to twenty-five
($25,000) dollars, which shall be recoupable as Advances. The Promotional Fund
shall be administered exclusively by Distributor. Supplier shall give
Distributor reasonable prior notice of any sums to be disbursed by Distributor
on Supplier's behalf from the Promotional Fund including the payee's full name,
street address, telephone number, contact person and other information
reasonably requested by Distributor (such as, but not limited to, payee's
federal identification number of social security number, copies of the contract
between Supplier and payee, invoices, description of services to be provided,
professional references, etc.).
Upon verification through Soundscan, of sales of at least five thousand (5000)
units of the Product set forth in Exhibit A, Distributor shall pay advances for
Supplier's promotional expenses from the Promotional Fund of up to fifteen
($15,000) dollars, which shall be recoupable as Advances. The Promotional Fund
shall be administered exclusively by Distributor. Supplier shall give
Distributor reasonable prior notice of any sums to be disbursed by Distributor
on Supplier's behalf from the Promotional Fund including the payee's full name,
street address, telephone number, contact person and other information
reasonably requested by Distributor (such as, but not limited to, payee's
federal identification number of social security number, copies of the contract
between Supplier and payee, invoices, description of services to be provided,
professional references, etc.).
3. Exclusive Distributor. The Supplier grants the Distributor an irrevocable
exclusive right and license to manufacture and distribute the Products alone or
with other Products and to affix its own label in addition to the Suppliers on
prior notice and consultation with Supplier. Except as provided, the Distributor
will have sole control over methods of manufacturing, distributing, marketing,
pricing, labeling, advertising, and the terms and conditions of any sale, unless
otherwise provided for herein on prior notice and consultation with supplier.
3.1 Independent Contractors. The Supplier and the Distributor agree that their
relationship is not that of joint venturers, principals or agents, or franchiser
and franchisee. Both are independent contractors acting for their own accounts,
and neither is authorized to make any commitment or representation, express or
implied, on the other's behalf unless authorized to do so by the other in
writing.
3.2 Use of Trademarks and Trade Names. No right, title or interest in or to any
trademarks, trade names, professional names, slogans, labels and designs used by
either the Supplier or the Distributor, nor the goodwill connected, is conveyed
by this Agreement. The Distributor may, in connection with the manufacture,
distribution and sale of the Products pursuant to the terms of this Agreement,
refer to the Supplier's applicable trade names o trademarks provided that all
such references are in conformance with the Supplier's requirements regarding
such use, as such requirements are communicated to the Distributor in writing
from time to time by the Supplier. The Supplier, in connection with the
promotion of the Products, may refer to Distributor's applicable trade names or
trademarks provided that all such references conform to the Distributor's
requirements communicated to Supplier.
4. Distribution Rights. In recognition of the investment to be made by the
Distributor in connection with its manufacture, marketing and distribution of
the Products, the parties agree to the following: The Supplier hereby grants the
Distributor the exclusive right to distribute the Products in all of North
America, including Canada, Mexico and Central America (the "Primary
Territories") in which it is legal to sell the Products, subject to the
limitations below and in Section 4.1.
Notwithstanding anything in the foregoing sentence, the Supplier does hereby
grant Distributor the exclusive right to solicit the distribution, sale or
licensing of the Product in the following territories-Western and Eastern
Europe, Japan, Singapore, Thailand, South America and Australia (the "Secondary
Territories") under the terms set forth in this Agreement for a period of twelve
(12) months from the date first written above.
The Distributor shall distribute the Products to any and all wholesale and
retail outlets, key outlets, direct mail, mail order, audiophile or other
specialty stores, chains, franchises, one stops, individual stores or any other
stores who normally and traditionally sell audio and video products embodying
the performances of musical, literary or theatrical talent. These outlets
include, without limitation, any " Internet," "online" or new technological
sales outlets such as MP3, MP4, soft music downloads now know or to be developed
in the future. The exclusive distribution rights granted to the Distributor
pursuant to this Agreement expire twenty-four (24) months (the "Primary Contract
Period") from the date first written above. The Supplier controls the exclusive
right to extend and renew this Agreement by exercising options ("Option
Periods") as defined in this Paragraph. The length of each consecutive option
shall be for a period of One (1) year commencing upon the expiration of the
Primary Contract Period or the then current Option Period. Each option will be
deemed automatically exercised by Supplier unless Supplier delivers notice to
Distributor of its intention to terminate. Said notice to terminate shall be
delivered to Distributor no later than Thirty (30) days prior to the expiration
of the current Primary Contract or Option Period. It shall be made in writing
and mailed to Distributor by Certified or Registered mail, return receipt
requested in order to be deemed delivered. The Supplier will not sell any
products with specifications substantially comparable to those of the Products.
Notwithstanding anything in the foregoing paragraph, in the event Supplier
wishes to exercise its option to terminate this Agreement at the end of the
Primary Contract Period or the then current Option Period and in consideration
of the fact that the Distributor shall be responsible for manufacturing,
duplicating and packaging of the Products as set forth herein, the then current
Primary Contract or Option Period shall be extended until such time as
Distributor has recouped any and all expenses, costs or other recoupable amounts
as incurred by the Distributor as a result of the sale of Products. Once
Distributor has recovered any and all expenses, costs or other recoupable
amounts, the Supplier shall have the right to exercise its option to terminate
this Agreement.
5. Distributor's Responsibilities. The Distributor agrees to manufacture and
distribute the Products to any authorized dealers as defined herein. The
Distributor will maintain an inventory of Products and warehousing facilities
sufficient to adequately serve the demands of its dealers on a timely basis. The
Supplier agrees to provide the Distributor with the necessary Masters, complete
artwork, including label copy, liner notes and credits in completed film form,
as well as licenses, approvals, consents and permissions necessary to
manufacture, duplicate and distribute the Products.
5.1 Supplier's Responsibilities. Supplier agrees to supply Distributor with
different photographs and biographical material pertaining to the Products as
may be needed for promotion, merchandising, in-store display and advertising. If
any such material is inaccurate, misleading, obscene or an invasion of anyone's
privacy, then Distributor shall have the right, but not the obligation, to
correct, edit, delete or revise such information and to eliminate any
inaccuracy, or misleading materials.
Distributor shall have the right to charge the actual cost or expense of making
such changes against any sums due Supplier under this Agreement. Distributor
agrees to consult with Supplier before making any of the changes. Distributor's
inadvertent failure to consult with Supplier regarding the changes shall not be
deemed a breach of this Agreement.
5.1.1 Live Performances. The Supplier does hereby agree to perform or to permit
the public performance of the Masters by means of radio broadcast, television
broadcast or any other method now or hereafter known including new technologies.
5.2 Promotional Efforts. The Supplier will be solely responsible for
all-promoting, publicizing, advertising, marketing, and merchandising efforts
necessary to generate airplay and the sale of the Products. Excluding Section
5.2, the Distributor shall, at its sole discretion, advertise, publicize, market
and promote the Products in the media of its choice after prior notice and
consultation with Supplier. For each one hundred (100) compact discs, LP's,
singles or tapes that Distributor ships to its dealers for which royalties shall
be payable hereunder, Distributor shall have the right to ships its dealers, on
a no-charge basis or at a cost which is fifty (50%) percent or less of
Distributor's regular wholesale price five (5) compact discs, ten (10) LP's,
singles or tapes for which royalties shall not be payable to Supplier. No
royalties shall be payable for compact discs, LP's, singles or tapes used for
the purpose of publicity or advertising, for records distributed to radio
stations, television stations, motion picture companies, publishers or others,
for Product used on transportation facilities or as in-store play samplers, for
records sold as cutouts or overstock or for records sold as scrap after prior
notice to and consultation with Supplier. Notwithstanding anything to the
contrary hereinabove set forth, if Distributor changes its overall policy with
respect to Product shipped to dealers on a no-charge basis or at a cost which is
fifty (50%) percent or less of Distributor's regular wholesale price on which
royalties are not payable, then Distributor shall have the right to change the
limitations hereinabove set forth in accordance with such new policy after prior
notice and consultation with Supplier.
5.3 Participation by Distributor. For Products selling One Thousand (1000) units
and for each increment of One Thousand units sold thereafter, Distributor agrees
to hold from its share of royalties and to place in a separate Advertising
Escrow Account, an amount equal to fifty ($0.50) cents per unit sold. Said
account to be used for the purpose of advertising and promoting the Product.
This expense will be deemed a non-recoupable advance to the Supplier and is
meant to promote, expose and market the Products.
5.3.1 Participation by Supplier. For Products selling One Thousand (1000) units
and for each increment of One Thousand units sold thereafter, Supplier
authorizes Distributor to hold from its share of royalties and to place in a
separate Advertising Escrow Account, an amount equal to Fifty ($0.50) cents per
unit sold. Said escrowed amounts to be used for the purpose of advertising and
promoting the Product.
5.3.2 Use of Advertising Escrow Account. It is the sole discretion of the
Supplier to direct the Distributor, in writing, as to whether funds deposited in
it Advertising Escrow Account are to be used for advertising space or time
solely for the promotion of its Products or as part of cooperative advertising
buys in which Supplier is promoted along with other Suppliers or Artists of like
or similar style, image and audience appeal. If Supplier agrees to participate
in cooperative advertising buys, Distributor agrees to allocate advertising
space, type size, placement and all other aspects of the advertising equally
among the participant Suppliers. Notwithstanding anything in Section 11.1.1,
upon expiration of this Agreement, including all extensions and renewals, the
Supplier's share, in the amount of fifty (50%) percent of the balance remaining
in the Advertising Escrow Account will be credited against any recoupable
advances, costs, expenses advanced to the Supplier by the Distributor. Any
remaining funds will be payable to the Supplier in the form of a certified check
during the quarterly payment period directly after the date of expiration or
termination.
5.4 Supplier Packaging. The Distributor will distribute Products with all
packaging, warranties, and disclaimers designated by the Supplier and will
require all the Dealers to adhere to the terms applicable to such Products.
5.5 Reports. The Distributor will mail to Supplier no later than fifteen (15)
days after the end of each month during the term of this Agreement including any
extensions, renewals or revisions and quarterly for twenty-four (24) months
after the expiration or termination of this Agreement, a report customized to
the Supplier's needs, showing the preceding month's current inventory of each
Product, the quantity of each Product shipped, the number of returns or refunds
on Products, the balance of Supplier's Advertising Escrow Account and other
relevant information for the prior month as requested by Supplier.
5.6 Compliance with Laws. The Distributor will comply with all material
applicable present and future federal, state, county, local, and, where
necessary, foreign laws, ordinances, and regulations relating to the sale of the
Products.
5.7 Service Support. Subject to the Distributor's customer service policy and in
union with the Supplier, the Distributor will provide sales support including
without limitation, returns processing, End-User inquiries, field account
maintenance and mutually approved sales incentives, in the form of "free goods",
etc.
6. Payment Terms. Distributor will pay to Supplier, on a quarterly basis, fifty
(50%) percent of the wholesale price as set forth in Exhibit B of this Agreement
after deducting all taxes and duties and Distributor's customary container
charges (i.e. the container charges which Distributor customarily charges a
majority of the suppliers then under exclusive term distribution agreements with
Distributor). With respect to the distribution of Product outside of the United
Stated for which Distributor receives payment or credit, Distributor shall
calculate the applicable container charge on the basis of the retail price less
all taxes and duties only if the licensee accounting to Distributor for the
particular sales concerned ha computed the container charge applicable to the
Distributor on a basis which is less all taxes and duties; otherwise Distributor
shall calculate the applicable container charge hereunder on the basis of the
wholesale list price inclusive of taxes and duties. At the present time,
Distributor's customary container charges are as follows for the following
Products: twelve (12%) percent of the retail list price for compact discs, disc
records, (other than seven-inch singles released in a standard generic sleeve,
(for which there is no packaging deduction and other than those listed below);
ten (10%) percent of the retail list price for cassette tapes or digital audio
tapes (DATS). For all sales transacted through Distributor's Internet retail CD
store, Distributor will pay to Supplier, on a quarterly basis, fifty (50%)
percent of the retail price for any sales transacted through Distributor's
on-line CD retail store and MP3, MP4 or other soft music download site owned and
controlled by Distributor.
6.1 Masters & Packaging. The Supplier will provide appropriate art and masters
as requested by the Distributor to permit Products to be manufactured by
Distributor at the manufacturing facility of Distributor's choice. The Supplier
agrees to comply with these requests at no additional charge (other than
transportation charges) provided that the Distributor furnishes the Supplier
with shipping instructions at least five (5) days prior to shipment. The
Supplier agrees to supply art, graphics, film, geographical material, press
clippings or any other item to be used for promotional or advertising purposes
by the Distributor. The Distributor agrees to provide displays, rack dividers or
other forms of " in-store" display as required or by its distribution outlets.
The Distributor's costs would be recoupable expenses, deductible from Supplier's
royalties payable, itemized and included on the reports as defined in Section
5.4 herein.
6.2 Warehousing. Deleted intentionally.
7. Financial Condition. The Distributor represents and warrants that it is and
at all times during the term of this Agreement will remain in good financial
condition, solvent and able to pay its bills when due. From time to time, on
reasonable notice by the Supplier, an audit of the Books and Records pertaining
to this Agreement can be scheduled as long as it is during normal business
hours, at Suppliers sole expense, at a place and time designated by Distributor
and no more frequently than once in any contractual year of this Agreement. If
errors or discrepancies are found, the responsible Party shall reimburse or
correct the error within thirty (30) business days together with Supplier's
reasonable audit cots. Interest will accrue on any delinquent amounts owed to
the Supplier at the rate of one (1%) percent per month, or at the maximum
permitted by applicable law, whichever is less.
7.1 Pricing. The Supplier is free to determine its own suggested resale prices
for the Products.
8. Risk of Loss. The Distributor assumes the risk of loss and damage of the
products in transit from the Distributor's shipping point to the point of
destination as well as once Product is warehoused.
9. Distributor Duties. The Distributor agrees to honor all replacement requests
from Dealers or End-Users pursuant to the terms of the End-User Agreement
pertaining to the defective units. The Distributor will instruct all the Dealers
to submit all replacement requests to the Distributor.
9.1 Additional Protection. If, within any six (6) month period, twenty (20%)
percent or more of the Products, while within the warranty period specified in
this Agreement, exhibit defects of the same kind and nature, and such defects
are the result of faulty design or workmanship or defects in materials arising
from any cause for which the Distributor is responsible, then the Distributor
agrees to give compensation, or render assistance, at the Distributor's sole
expense, by delivery of replacement Products found to be effective to the place
designated by the Distributor. If the cause of the defects is the responsibility
of the Supplier, then the Supplier agrees to give compensation or render
assistance to re-record, mix or master the Product to correct the defects. The
Distributor will provide the Supplier a written report of all warranty claims at
least once every three (3) months.
9.2 Indemnification. Deleted Intentionally.
10. Ownership Warranty and Indemnification. The Supplier warrants to the
Distributor that the Products are the originals with the Supplier, the Products
do not infringe upon any copyright or other proprietary rights of others, the
Supplier has full power and authority to grant the rights herein granted to the
Distributor and the Supplier has not previously or otherwise granted any other
rights in the Products to any third party that conflict with the rights in this
Agreement granted to the Distributor. The Supplier agrees to defend at its
expense and hold the Distributor harmless from any claim against the Distributor
resulting from a breach of any of the warranties set forth above and to pay any
reasonable costs, damages, or expenses (including attorneys' fees) arising from
any such claim. The Supplier will have sole control of the defense, all
negotiations and settlement. The Distributor will promptly notify the Supplier
in writing of any such claim and, at the Supplier's request and expense, provide
the Supplier with all available information to enable the Supplier to defend the
same. Following notice of a claim or a threatened or actual suit, the Supplier
will immediately, at its own expense, procure for the Distributor the right to
continue the use of the Products subject to such claim, demand, or, having
failed to obtain such right, replace or modify such Products to make them
non-infringing, or having failed to replace or modify the Products, refund to
the Distributor the purchase price of all unsold products. If the Distributor
elects to replace any of the Products, such replacement will substantially meet
the performance and interface specifications of the replaced Products. The
warranties stated in this Section would survive the expiration or termination of
this Agreement.
11. Terminate Events. This Agreement may be terminated by either Party upon the
occurrence of any assignment for the benefit of the creditors, or any
bankruptcy, reorganization, or other proceeding under any bankruptcy or
insolvency law which is initiated by the other party, or is initiated against it
and not dismissed or stayed within thirty (30) days, a material breach by the
other party of any of the terms of this Agreement, which breach is not remedied
by the other party within thirty (30) days of the other party's receipt of
notice of such breach or upon the sale or distribution of the Products in
violation of the Distributor's exclusive distribution rights as described in
Section 4.1. The written notice of termination will be given by registered or
certified mail, in which event this Agreement will terminate thirty (30) days
from the date of mailing of the notice providing Distributor is not able to cure
said breach during that time and without relinquishing any of Supplier's right
to pursue remedies other than termination. Distributor warrants and represents
that Supplier's Products shall be distributed via Valley Media, if distributor
discontinues or terminates its distribution agreement with Valley Media
Distributor has ninety (90) days to secure comparable distribution or Supplier
shall have the right to terminate this Agreement.
11.1 Supplier's Early Termination. The Supplier may terminate this Agreement at
any time during the Primary Contact Period or in any of the Option Periods upon
receipt of a bona fide offer to Supplier from a major record or distribution
company, major being defined by the standards and traditions of the Music
Industry (i.e. Sony, Universal, etc.). Notwithstanding anything in the foregoing
sentence, the Distributor is hereby granted the right of first refusal providing
Distributor with the opportunity to submit a counter-offer within five (5)
business days from the date of the bona fide offer to Supplier, that is of a
comparable or more favorable term to the Supplier . If Supplier accepts
Distributors counter-offer then both Parties agree to negotiate the new
agreement in good faith.
11.1.1 Early Termination. If Supplier declines Distributor's counter-offer, and
chooses to terminate this Agreement, entering into a new recording or
distribution agreement, as defined herein within twelve (12) months from the
date of the early termination, Supplier agrees to pay or cause to be paid
directly to the Distributor a sum equal to one (1) percent of retail sales on
any product released by Supplier during the term of any new agreement.
Distributor will continue to distribute any and all product distributed under
this Agreement to date. Not withstanding any rates as set forth in Exhibit B,
upon early termination of this Agreement, the following Post Term Royalty rates
will apply to the Product set forth in Exhibit A and be payable to Distributor;
Year One-After Early Termination -fifteen (15%) percent; Year two-After Early
Termination-ten (10%) percent; Year Three-After Early Termination five (5%)
percent; and nothing thereafter. Further, Supplier agrees to abide by all other
terms and provisions governing the manufacture, distribution, sale, quality
control and End-User services as set forth herein including, but not limited to
the Supplier's Advertising Escrow account. The Distributor may, at its
discretion, choose to manufacture the distributed product in order to maintain
inventory levels as needed. In the event that Distributor does manufacture
Products, all expenses and costs shall be deemed recoupable advances and be
deductible from Supplier's share of royalties as et forth herein upon expiration
of the Post Term, all rights, inventories, Product, royalties and Supplier's
share of the Advertising Escrow Account will revert to Supplier.
11.2.1 Early Termination Buy Out. Notwithstanding anything stated in the above
Sections, in the event of early Termination as set forth in Section 11.1.1,
Supplier may elect to buy out Distributor by way of a flat fee buy out. Said
amount to be negotiated at the time of Early Termination, in good faith and
agreed upon, in writing by all Parties.
In the event of a flat fee buy out all rights, product, inventory, royalties,
future overrides, accrued Advertising Escrow Accounts, art, masters and other
items as set forth herein shall revert back to Supplier.
12. Fulfillment of Obligations. Any termination of this Agreement will not
otherwise release either party from its obligation to pay any sum that may be
then or thereafter owing to the other party nor operate to discharge any
liability incurred by either party prior to any such termination. Except as
qualified by the preceding sentences, neither party will, by reason of the
termination of this Agreement, be liable to the other for any damages arising
out of any such termination.
12.1 Effect of Termination and Survival. Except in the event of Early
Termination, the Distributor shall have the right to continue all display,
advertising, and use of all the Supplier names, trademarks, logos, and
designations and will use, advertise or display any such names, logos
trademarks, or designations.
13. Protection of Information. The Parties agree to hold Information in
confidence, except as permitted by this Agreement, as it uses to protect its own
confidential information. If used in a manner contrary to the terms of this
Section, the other party will have the right. To injunctive relief enjoining
such attempts, it being agreed that legal remedies are inadequate. No press
releases or other like publicity or advertising of any nature regarding this
Agreement that mentions this Agreement or the other party by name will be
released by a party without the prior written agreement of the other party.
Without the prior written consent of the Supplier, the distributor will refrain
from copying, reverse engineering, disassembling, de-compiling, translating, or
modifying the Products, or granting any other person or entity the right to do
so.
13.1 Notification. The Distributor will promptly notify the Supplier of any
claims, or notification that its marketing, licensing, support, or service may
or will infringe the Intellectual Property Rights of any other person or entity
and any determination or notification that any person or entity is or may be
infringing the Intellectual Property Rights of the Supplier. The Distributor
will assist the Supplier in the protection and defense of such Intellectual
Property Rights.
14. Assignment. Except as set forth herein, neither this Agreement nor any of
its rights, in whole or in part, will be assignable or transferable by either
party without the express written consent of the other party. This Agreement
will be binding upon and take effect for the benefit of the successors and
assigns of the parties to this Agreement.
14.1 Waiver, Amendment, Modification. No waiver, amendment or modification,
including those by custom, usage of trade, or course of dealing, of any
provision of this Agreement will be effective unless in writing and signed by
the party against whom such waiver, amendment or modification is sought to be
enforced. No waiver by any party of any default in performance by the other
party under this Agreement or of any breach or series of breaches by the other
party of any of the terms or conditions of this Agreement will constitute a
waiver of any subsequent default in performance under this Agreement or any
subsequent breach of any terms or conditions of that Agreement. Performance of
any obligation required of a party under this Agreement may be waived only by a
written waiver signed by a duly authorized officer of the other party, that
waiver will be effective only with respect to the specific obligation described
in that waiver.
14.2 Force Majeure. Neither party will be deemed in default of this Agreement to
the extent that performance of its obligations, or attempts to cure any breach,
are delayed or prevented by reason of circumstance beyond its reasonable
control, including without limitation fire, natural disaster, earthquake,
accident or other acts of God ("Force Majeure"), provided that the party seeking
to delay its performance gives the other written notice of any such Force
Majeure within 15 days after the discovery of the Force Majeure, and further
provided that such party uses its good faith efforts to cure the Force Majeure.
If there is a Force Majeure, the time for performance or cure will be extended
for a period equal to the duration of the Force Majeure. This Article will not
be applicable to any payment obligations of either party.
14.3 Settlement of Disputes. Each party acknowledges that, if there is any
breach including, without limitation, unauthorized use of Confidential
Information, the non-breaching party will suffer injury that cannot be
compensated by money and therefore will not have an adequate remedy at law. If
either party institutes an action to enforce the provisions of this Agreement
which may be brought in either New York County or Rhode Island, such party will
be entitled to obtain such injunctive relief or other remedy from a court of
competent jurisdiction as may be necessary to prevent or curtail any such
breach. These will be in addition to and without prejudice to such other rights
as such party may have in law or in equity.
14.3.1 Any dispute or claim arising out of this Agreement other than those set
forth in Section 14.3, or any aspect of the creation, validity, interpretation,
breach, or termination of this Agreement will be submitted to binding
arbitration to be held in Providence, Rhode Island before a panel of three
arbitrators.
Either party may demand arbitration in writing, serving on the other party a
statement of the dispute, controversy, or claim, and the facts relating to it,
in reasonable detail, and the arbitrator nominated by that party. Within thirty
(30) days after such demand, the other party will name its arbitrator, and the
two arbitrators named by the parties will, within ten (10) days, select a third
arbitrator. The arbitration will be filed with and governed by the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"). The
reasonable expenses of arbitration will be borne by the party against whom the
decision is rendered, or apportioned in accordance with the decision of the
arbitrators if there is a compromise decision. Judgment upon any award may be
entered in any court of competent jurisdiction. All notices from one party to
the other relating to any arbitration under this Agreement will be in writing
and will be effective if given in accordance with Section 14.7 below.
14.4 Proprietary Information. Each party acknowledges that it may be furnished
with or may receive or have access to information or material that relates to
past, present or future Products, and marketing plans, "Proprietary
Information." The Parties agree to preserve the confidentiality of the
Proprietary Information, whether disclosed to the other party before this
Agreement is signed or afterward, including the terms of this Agreement. A party
will not disclose or disseminate the Proprietary Information for its own benefit
or of any third party. The previously stated obligations do not apply to any
information that is publicly known, is given to a party by someone else who is
not obligated to maintain confidentiality or a party had already developed prior
to the day this Agreement is signed, as evidenced by documents. Neither party
will take or cause to be taken any physical forms of Proprietary Information
without the other party's written permission. Within three (3) days after the
termination of this Agreement, a party will return to the other party all copies
of Proprietary Information in tangible form. Despite any other provisions of
this Agreement, this Section will survive termination of this Agreement.
14.5 Cumulative Rights. Any specific right or remedy provided in this Agreement
will not be exclusive but will be cumulative upon all other rights and remedies
set forth in this section and allowed under applicable law.
14.6 Governing Law. This Agreement will be governed by the substantive laws of
the State of Rhode Island applicable to Agreements made and fully performed in
Rhode Island by Rhode Island residents. The parties acknowledge that this
Agreement expresses their entire understanding and Agreement, and that there
have been no warranties, representations, covenants or understandings made by
either party to the other except such as are expressly set forth in this
section. This Agreement supersedes and otherwise renders null and void any and
all prior Agreements or contracts, whether written or oral. This Agreement may
be executed in multiple counterparts, any one of which will be deemed an
original, but all of which will constitute one and the same instrument. If any
provision of this Agreement is found invalid or unenforceable under judicial
decree or decision of the American Arbitration Association or of a court, the
remainder will remain valid and enforceable according to its terms.
14.7 Notices. All notices required or permitted under this Agreement will be in
writing and will be delivered or mailed certified return receipt requested to
the respective parties at the addresses set forth above or at such other address
as such party will specify to the other party in writing. Any notice required or
permitted to be given by the provisions of this Agreement will be conclusively
deemed to have been received on the day it is delivered to that party by U.S.
Mail with Acknowledgment of Receipt or by any commercial courier providing
equivalent acknowledgment of receipt. Captions and section headings used in this
Agreement are for convenience only and are not a part of this Agreement and will
not be used in construing it.
We have carefully reviewed this contract and agree to and accept its terms and
conditions. We are executing this Agreement as of the day and year first written
above.
SUPPLIER DISTRIBUTOR
/S/ /S/
- ---------------------------------------- --------------------------------
Kendrick J. Davis p/k/a "Jeru the Damaja" David DeBaene
President, Knowsavage Productions, Inc. President, Open Door Music, Inc.
<PAGE>
Exhibit A
Products
--------
JERU THE DAMAJA PRESENTS THE SUPA-HUMAN KLIK
FEATURING MIZMARVEL
<PAGE>
Exhibit B
CDs, Vinyl, EPs, Double Disc Sets 50% 50%
Suggested Retail Price Net Royalty Artist Share OD Share
- --------------------------- ---------------- ---------------- ---------------
$8.97 $4.30 $2.15 $2.15
$9.97 $4.80 $2.40 $2.40
$10.97 $5.25 $2.63 $2.62
$11.97 $5.75 $2.88 $2.87
$12.97 $6.20 $3.10 $3.10
$13.97 $6.70 $3.35 $3.35
$14.97 $7.20 $3.60 $3.60
$15.97 $7.65 $3.83 $3.82
$16.97 $8.15 $4.08 $4.07
$17.97 $8.60 $4.30 $4.30
$18.97 $9.10 $4.55 $4.55
$19.97 $9.60 $4.80 $4.80
$20.97 $10.05 $5.03 $5.02
$21.97 $10.55 $5.28 $5.27
$22.97 $11.00 $5.50 $5.50
$23.97 $11.50 $5.75 $5.75
$24.97 $120.00 $6.00 $6.00
Cassettes & EPs 50% 50%
Suggested Retail Price Net Royalty Artist Share OD Share
- --------------------------- ---------------- ---------------- ---------------
$5.90 $2.80 $1.40 $1.40
$6.98 $3.35 $1.68 $1.67
$7.98 $3.80 $1.90 $1.90
$9.98 $4.80 $2.40 $2.40
$10.98 $5.25 $2.63 $2.62
$11.98 $6.76 $2.88 $2.87
$12.98 $6.20 $3.10 $3.10
$13.98 $6.70 $3.35 $3.35
$14.98 $7.20 $3.60 $3.60
$15.98 $7.65 $3.83 $3.82
$16.98 $8.15 $4.08 $4.07
Cassette Singles & EPs 50% 50%
Suggested Retail Price Net Royalty Artist Share OD Share
- --------------------------- ---------------- ---------------- ---------------
$4.99 $2.40 $1.20 $1.20
$5.49 $2.64 $1.32 $1.32
$5.99 $2.85 $1.43 $1.42
$6.49 $3.10 $1.55 $1.55
$6.99 $3.35 $1.68 $1.67
$7.99 $3.85 $1.93 $1.92
BOWVAU DISTRIBUTION AGREEMENT
EXCLUSIVE DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is entered into as of the 12th day of
April, 1999 between Quincy Vaughn and Norman Bowman doing business as Bowvau
Records, LTD., a New Jersey Corporation with its principal location c/o Anetra
Tilley, 50 Greenwood Avenue, D23, Montclair, New Jersey 07042 (hereinafter
referred to as "Artist," "Label" or "Supplier") and Open Door Music
Distribution, a Rhode Island corporation with its principal place of business at
10 Dorrance Street, Providence, Rhode Island, 02903 (hereinafter referred to as
"Distributor").
WHEREAS, the Supplier is in the business of developing, marketing and supporting
certain Products as defined below and the Distributor wishes to distribute to
the dealers and the re-marketers of these Products and assures the Supplier that
it has the facilities, personnel, and technical expertise necessary to market
the Products. The Supplier is willing to grant to the Distributor, the exclusive
right to distribute these Products to such dealers and re-marketers as qualify
and as defined below for resale purposes. In consideration for the mutual
promises, covenants, and Agreements made below, the parties, intending to be
legally bound, agree as follows:
1. Definitions.
"End-User." Any person or entity who purchases or licenses the Product(s).
"Information." The technical or business information, either oral or
written that the Supplier or the Distributor furnishes to the other marked as
proprietary or confidential or simply treated as such by the disclosing party.
It includes research, development or business activities, including any
unannounced Products and services, as well as any information relating to
services, developments, processes, plans, financial information, customer and
Supplier lists, forecasts and projections. Information will also include the
terms of this Agreement.
"Intellectual Property Rights." Any work of authorship, regardless of
copyrightability, including copyrights and any moral rights recognized by law;
and any other similar rights, in each case on a national and international
basis.
"Products." The audio, digital or any other technical form, now known or
later developed, of the musical, theatrical or literary performances developed
or owned by the Supplier that are specifically listed in Exhibit A attached,
along with enhancements, revisions, remixes or modifications made to the
Products by the Supplier.
2.0 Term. This Agreement will begin on the date first written and will terminate
Twenty-Four (24) months following the start date, unless sooner or later in
accordance with the terms of this Agreement. Certain sections, as indicated
below, will survive and remain effective even after the termination of this
Agreement. all other rights and obligations of each party to the other will
terminate upon the termination of this Agreement.
3.0 Exclusive Distributor. The Supplier grants the Distributor, an irrevocable
exclusive right and license to distribute the Products alone or with other
Products and to affix its own label in addition to the Suppliers on prior notice
and consultation with Supplier. Except as providee, the Distributor will have
sole control over methods of distributing, marketing, pricing, naming,
packaging, labeling, advertising, and the terms and conditions of any sale,
unless otherwise provided for herein.
3.1 Independent Contractors. The Supplier and the Distributor agree that their
relationship is not that of joint venturers, principals or agents, or franchiser
and franchisees. Both are independent contractors acting for their own accounts,
and neither is authorized to make any commitment or representation, express or
implied, on the other's behalf unless authorized to do so by the other in
writing.
3.2 Use of Trademarks and Trade Names. No right, title or interest in or to any
trademarks, trade names, professional names, slogans, labels and designs used by
either the Supplier or the Distributor, nor the goodwill connected, is conveyed
by this Agreement. All Parties may, in connection with the promotion and sale of
the Products pursuant to the terms of this Agreement, refer to the other's
applicable trade names or trademarks provided that all such references are in
conformance with requirements regarding such use, as such requirements are
communicated in writing from time to time by the Parties.
4.0 Distribution Rights. In recognition of the investment to be made by the
Distributor in connection with its marketing and distribution of the Products,
the parties agree to the following: The Supplier hereby grants the Distributor
the exclusive right to distribute the Products in all countries in the world in
which it is legal to sell the Products, subject to the limitations below and in
Section 4.1. The Distributor shall distribute the Products to any and all
wholesale and retail outlets, chains, franchises, one stops, individual stores,
or specialty stores or any store who normally and traditionally sell audio and
video products embodying the performances of musical, literary or theatrical
talent. These outlets include, without limitation, to any "Internet," "On-line"
or new technological sales outlets now known or developed in the future.
The exclusive distribution rights granted to the Distributor pursuant to this
Agreement expires Twenty-Four (24) months (the "Primary Contract Period") from
the date first written above. Notwithstanding anything in the previous sentence,
the Supplier controls the exclusive right to extend and renew this Agreement by
exercising options ("Option Periods") as defined in this Paragraph. The length
of each consecutive option shall be for a period of One (1) year commencing upon
the expiration of the Primary Contract Period or the then current Option Period.
Each option will be deemed automatically exercised by Supplier unless Supplier
delivers notice to Distributor of its intention to terminate. Said notice to
terminate shall be delivered to Distributor no later than Thirty (30) days prior
to the expiration of the current Primary Contract or Option Period. It shall be
made in writing and mailed to distributor by Certified or Registered mail,
return receipt requested in order to be deemed delivered. The Supplier agrees to
not sell any products or compete with the rights and responsibilities granted
herein to the Distributor.
4.1 Reservation of Rights by Supplier. Despite the exclusive distribution rights
granted to the Distributor pursuant to Section 4, the Supplier specifically
reserves the following rights with respect to the sale of the Products.
5.0 Distributor's Responsibilities. During the term of this Agreement, the
Distributor agrees to distribute the Products to any authorized dealers as
defined herein. The Distributor will maintain an inventory of Products and
warehousing facilities sufficient to adequately serve the demands of its dealers
on a timely basis.
5.1 Promotional Efforts. Excluding Section 5.2, the Distributor shall, at its
discretion, advertise and promote the Products in the advertising media of its
choice after prior notice to and consultation with Supplier.
5.2. Participation by Distributor. For Products selling One Thousand (1,000)
units and for each increment of One Thousand units sold thereafter, Distributor
agrees to hold from its share of royalties and to place in a separate
Advertising Escrow Account, an amount equal to Fifty ($0.50) cents per unit
sold. Said account to be used for the purpose of advertising and promoting the
Product. This expense will be deemed a non-recoupable advance to the Supplier
and is meant to promote, expose and market the Products.
5.2.1 Participation by Supplier. For Products selling One thousand (1,000) units
and for each increment of One Thousand units sold thereafter, Supplier
authorizes Distributor to hold from its share of royalties and to place in a
separate, interest bearing, Advertising Escrow Account, an amount equal to Fifty
($0.50) cents per unit sold. Said escrowed amounts to be used for the purpose of
advertising and promoting the Product.
5.2.2 Use of Advertising Escrow Account. It is the sole discretion of the
Supplier to direct the Distributor, in writing, as to whether funds deposited in
its Advertising Escrow Account are to be used for advertising space or time
solely for the promotion of its Products or as part of cooperative advertising
buys in which Supplier is promoted along with other Suppliers or Artists of like
or similar style, image and audience appeal. If Supplier agrees to participate
in cooperative advertising buys, Distributor agrees to allocate advertising
space, type size, placement and all other aspects of the advertising equally
among the participant Suppliers.
Notwithstanding anything in Paragraph 11.1.1, upon expiration of this Agreement,
including all extensions and renewals, the Supplier's share, in the amount of
Fifty (50%) percent of the balance, remaining in the Advertising Escrow Account
will be credited against any recoupable advances, expenses or costs advanced to
the Supplier by the Distributor. Any remaining funds will be payable to the
Supplier, in the form of a certified check, during the quarterly payment period
directly after the date of expiration.
5.3 Supplier Packaging. The Distributor will distribute Products with all
packaging, warranties, and disclaimers shipped by the Supplier and will require
all the Dealers to adhere to the terms applicable to such Products.
5.4 Reports. The Distributor will mail to supplier no later than Fifteen (15)
days after the end of each month during the term of this Agreement including any
extensions, renewals or revisions and quarterly for Twenty-four (24) months
after the expiration or termination of this Agreement, a report, customized to
the Supplier's needs, showing the preceding month's current inventory of each
Product, the quantity of each Product shipped, the number of returns or refunds
on Products, the balance of Supplier's Advertising Escrow Account and other
relevant information for the prior month.
5.5 Compliance with Laws. The Distributor will comply with all material
applicable present and future federal, state, county, local, and, where
necessary, foreign laws, ordinances, and regulations relating to the sale of the
Products.
5.6 Service Support. Subject to the Distributor's customer service policy as set
forth herein, and in union with the Supplier, the Distributor will provide sales
support including without limitation, returns processing, End-User inquiries,
field account maintenance and mutually approved sales incentives, in the form of
"free goods, etc." The Supplier agrees to provide quality control support and
will adjust or change manufacturing sources in the event that an inordinate
amount of Product is found to be defective and is returned to the Distributor
for replacement or credit by End-Users.
6.0 Orders. The Distributor hereby places, upon execution of this Agreement, an
initial inventory order for Product to be received no later than fourteen days
from the date of the written order. Said order to be deemed the Initial
Inventory (the "Initial Inventory"). All subsequent orders will be in writing or
if placed orally, will be confirmed in writing within Five (5) business days via
fax, e-mail or regular mail and shipped to be received by Distributor no later
than fourteen days from the date the order is first written. All orders, whether
in writing or verbal will specify the quantity and description of the Products,
requested delivery dates and any special instructions. All orders will be
governed solely by the terms and conditions of this Agreement unless otherwise
agreed upon, in writing, by the Parties. No Partial shipment will be made
without the Distributor's prior written approval. At no charge, the Distributor
may at any time with at least fourteen (14) days' prior written notice to the
Supplier, reschedule and postpone for up to Thirty (30) days the delivery of any
Products.
6.1 Cancellation of Orders. Any order under this Agreement, including, without
limitation, the Initial Order will be cancelable by the Distributor, without
charge, upon an adverse ruling in the form of a restraining order, injunction,
or other remedy issued by any court of competent jurisdiction preventing or
restraining the Supplier from selling, or the distributor from reselling, the
Products. In the event of such an adverse court ruling the supplier will, at its
own expense, immediately procure for the Distributor the right to continue the
use, sale or resale of such Products purchased under this Agreement or having
failed to obtain such right, replace or modify such products in order that the
Distributor may continue to use, sell or resell such products or having failed
to replace or modify such Products in order that the Distributor may continue to
sue, sell or resell such Products or having failed to replace of modify such
Products, refund to the Distributor any related reasonable expenses, future
advertising, marketing or merchandising expenses that cannot be canceled or any
other financial expense incurred by the Distributor in conjunction with the sale
and distribution of the Products. If the Supplier reasonably elects to replace
or modify any of the Products, such replacement or modification will
substantially meet the respective performance and quality specifications of the
replaced or modified Products. Cancellations of deliveries scheduled more than
Forty-Five (45) days from the date of the cancellation may be made without
charge to the Distributor.
6.2 Supplier Cancellation. The Supplier reserves the right to cancel any orders
placed by the Distributor and accepted by the Supplier, or refuse or delay
thereof, if the Distributor fails to make any payment as provided in this
Agreement.
6.3 Freight and Tax Charges. The Supplier will pay the cost of freight and
taxes, levies, duties or fees of any kind, whatsoever applicable to the shipment
of any Products to the Distributor. The Distributor will not be required to pay
taxes if tax exemption certificates or licenses acceptable to the appropriate
taxing authorities are in its possession. If the Distributor fails to designate
in writing, not less than Fourteen (14) business days prior to shipment, the
carrier, the amount of insurance and nature of coverage, the Supplier may
specify any item not so designated.
6.4 Payment Terms. Distributor will pay to Supplier, on a quarterly basis,
Seventy-Five (75%) Percent of the purchase price as set forth in Exhibit "B" of
this Agreement.
6.5 Packaging. The supplier will provide appropriate packaging as requested by
the Distributor to permit Products to be shipped directly into the Distributor's
system without reopening the boxes or re-handling the finished goods. The
Distributor may request that the Supplier ship directly to any location
designated by the Distributor. The Supplier agrees to comply with these requests
at no additional charge (other than transportation charges) provided that the
Distributor furnishes the supplier with shipping instructions at least Five (5)
days prior to shipment. The Supplier agrees to supply art, graphics, film,
biographical material, press clippings or any other item to be used for
promotional or advertising purposes by the Distributor. The Distributor agrees
to provide displays, rack dividers or other forms of "in-store" display, on
prior notice and consultation with Supplier, as required or by its distribution
outlets. The Distributor's costs, with prior notice and consultation with
Supplier, would be recoupable expenses, deductible from Supplier's royalties
payable, itemized and included on the Reports as defined in Section 5.4 herein.
6.6 Warehousing. The Distributor may request that the Supplier ship to its own
warehouse, or to another warehouse owned by a third party. In the event, the
Supplier's shipment will constitute delivery to the Distributor. The supplier
will procure insurance to cover damage or loss to these shipments while in the
warehouse awaiting final delivery to the Distributor as set forth in this
Agreement. The Supplier will arrange for final shipment to the dealers or
warehouse designated at the Distributor's instruction. The Distributor agrees to
procure insurance to cover damage or loss to these shipments while in the
warehouse awaiting final delivery to dealers or customers as se forth in this
Agreement.
7.0 Financial Condition. The Distributor represents and warrants that it is and
at all times during the term of this Agreement will remain in good financial
condition, solvent and able to pay its bills when due. From time to time, on
reasonable notice to the Distributor, an audit of the Books and Records
pertaining to this Agreement can be scheduled as long as it is during normal
business hours, at Supplier's sole expense, at a place and time designated by
Distributor and no more frequently than once in any contract year of this
Agreement. If errors or discrepancies are found, the responsible Party shall
reimburse or correct the error within Thirty (30) business days together with
Supplier's reasonable audit costs. Interest will accrue on any delinquent
amounts owed to the Supplier at the rate of One (1%) percent per month, or at
the maximum permitted by applicable law, whichever is less.
7.1 Pricing. The Supplier is free to determine its own suggested resale prices
for the Products.
8.0 Risk of Loss. The Supplier assumes the risk of loss and damage of the
Products in transit from the Supplier's shipping point to the point of
destination while the Distributor assumes the risk once Product is warehoused.
8.1 Shipment. All Products will be shipped F.O.B. the Supplier's point of
shipment to the Distributor's identified warehouse facilities or freight
forwarded to be received no later than fourteen days from the date the order was
first written. Unless specified in the order, the Supplier will select the
carrier and mode of shipment. Unless the Distributor clearly advises the
Supplier to the contrary in writing, the Supplier may make partial shipments of
the Distributor's orders. Delay in delivery of any installment will not relieve
the Distributor of its obligation to accept the remaining deliveries, unless
canceled pursuant to this Agreement. The Supplier will use reasonable efforts to
meet the Distributor's requested delivery schedules. Should orders exceed the
Supplier's available inventory, the Supplier will allocate its available
inventory and make deliveries on a basis the Supplier deems equitable, in its
sole discretion, and without liability to the Distributor on account of the
method of allocation chosen.
9.0 Warranty to Distributor's Customers. The Distributor will pass on to its
End-User customers a One-Year Limited Warranty--For one (1) year after the date
of shipment to End-User the Supplier will at its sole discretion, replace or
furnish credit for any Product purchased by End-User that, in the Supplier's
judgment, has a defect in material or workmanship provided the Product is
returned, transportation charges prepaid, to the Supplier with the Supplier's
prior permission and return authorization number, and provided further that the
Product has not been misused (including electrostatic discharge) or improperly
operated. If the Supplier's examination does not disclose a defect in material
or workmanship on a Product clai9med to be defective, the End-User agrees to pay
the Supplier's established charges for unpacking, testing, and repackaging the
Product for re-shipment to the End-User. This provision states the End-User's
exclusive and sole remedy for Supplier's breach of warranty. This provision does
not extend the original warranty period of any Product that has been replaced by
the Supplier. It may be modified or amended only by a written instrument signed
by a corporate officer of the Supplier and accepted by the End-User. The
Supplier" liability under the warranty will be limited to replacement or credit
for the customer's purchase price. In no event will the Supplier be liable for
the cost of procurement of substitute goods by the customer or for any special,
consequential or incidental damages for breach of warranty.
9.1 Distributor Duties. The Distributor agrees to honor all replacement requests
from Dealers or End-Users pursuant to the terms of the End-User Agreement
pertaining to the defective units. The Distributor will instruct all the Dealers
to submit all replacement requests to the Distributor.
9.2 Additional Protection. If, within any Six (60) month period, Twenty (20%)
percent or more of the Products, while within the warranty period specified in
this Agreement, exhibit defects of the same kind and nature, and such defects
are the result of faulty design or workmanship or defects in materials arising
from any cause for which the Supplier is responsible, then the Supplier agrees
to give compensation, or render assistance, at the Supplier's sole expense, to
the Distributor by delivery of replacement Products found to be defective to the
place designated by the Distributor. The Distributor will provide the Supplier a
written report of all warranty claims at least once every Three (3) months.
9.3 Indemnification. The Supplier will indemnify the Distributor from any claim
brought against the Distributor on Product liability. The supplier will defend
or settle and the Supplier agrees, at its own expense, to defend or settle any
claim brought against the Distributor on the issue of Product liability, subject
to the limitations in this Agreement. The Supplier agrees to pay, subject to
this Agreement, any final, non-appealable judgment entered against the
Distributor on such issue in any such suit defended by the Supplier. The
Supplier will be relieved of the foregoing obligations unless the Distributor or
its Customer notifies the Supplier promptly in writing or such claim and gives
the Supplier authority to proceed as contemplated herein, and, at the Supplier's
expense, gives proper and full information and assistance to settle or defend
any such claim. The foregoing provisions of this Section states the entire
liability and obligations of the Supplier and the exclusive remedy of the
Distributor and its Customers, with respect to any alleged Product liability
suit related to the Products or any part thereof.
10.0 Ownership Warranty and Indemnification. The Supplier warrants to the
Distributor that the Products are the originals with the Supplier, the Products
do not infringe upon any copyright or other proprietary rights of others, the
Supplier has full power and authority to grant the rights herein granted to the
Distributor and the Supplier has not previously or otherwise granted any other
rights in the Products to any third party that conflict with the rights in this
Agreement granted to the Distributor. The supplier agrees to defend at its
expense and hold the distributor harmless from any claim against the Distributor
resulting from a breach of any of the warranties set forth above and to pay any
reasonable costs, damages, or expenses (including attorneys' fees) arising from
any such claim. The Supplier will have sole control of the defense, all
negotiations and settlement. The Distributor will promptly notify the Supplier
in writing of any such claim and, at the Supplier's request and expense, provide
the Supplier with all available information to enable the Supplier to defend the
same. Following notice of a claim or a threatened or actual suit, the Supplier
will immediately, at its own expense, procure for the Distributor the right to
continue the use of the Products subject to such claim, demand, or, having
failed to obtain such right, replace or modify such Products to make them
non-infringing, or having failed to replace or modify the Products, refund to
the Distributor the purchase price of all unsold Products. If the distributor
elects to replace any of the Products, such replacement will substantially meet
the performance and interface specifications of the replaced Products. The
warranties stated in this Section will survive the expiration or termination of
this Agreement.
11.0 Termination Events. This Agreement may be terminated by either Party upon
the occurrence of any assignment for the benefit of the creditors, or any
bankruptcy, reorganization, or other proceeding under any bankruptcy or
insolvency law which is initiated by the other party, or is initiated against it
and not dismissed or stayed within Thirty (30) days, a material breach by the
other party of any of the terms of this Agreement, which breach is not remedied
by the other party within thirty 930) days of the other party's receipt of
notice of such breach or upon the sale or distribution of the Products in
violation of the Distributor's exclusive distribution rights as described in
Section 4.1. Distributor warrants and represents that Supplier's Products shall
be distributed via Valley Media. Distributor shall notify Supplier if its
Products ceases to be distributed via Valley Media, in which case Distributor
has Ninety (90) days to secure comparable distribution or supplier shall have
the right to terminate this Agreement. The written notice of termination will be
given by registered or certified mail, in which event this Agreement will
terminate thirty (30) days from the date of mailing of the notice providing
Distributor is not able to cure said breach during that time and without
relinquishing any of Supplier's rights to pursue remedies other than
termination.
11.1 Supplier's Early Termination. This Agreement may be terminated by the
Supplier at any time during the Primary Contract Period or any other option
period, upon receipt of a bona fide offer to Supplier from a major record or
distribution company, major being defined by the standards and traditions of the
Music Industry (i.e. Sony, Universal, etc.). Notwithstanding anything in the
foregoing sentence, the Distributor is hereby granted the right of first refusal
providing Distributor with the opportunity to submit a counter-offer, that is of
a comparable or more favorable term, to the Supplier within Three (3) business
days of said bona fide offer. If Supplier accepts Distributor's counter-offer,
then both Parties agree to negotiate the new agreement in good faith.
11.1.1 Early Termination. If supplier declines Distributor's counter-offer, and
chooses to terminate, entering into a new recording or distribution agreement,
as defined herein within Twelve (12) months from the date of the early
termination, Supplier agrees to pay or cause to be paid directly to the
Distributor a sum equal to One (1%) percent of retail sales on any product
released by supplier during the term of any new agreement. Distributor will
continue to distribute any distributed under this Agreement to date.
Notwithstanding any rates as set forth in Exhibit "C," upon early termination of
this Agreement, the following Post Term Royalty rates will apply to the Product
set forth on Exhibit "A" and be payable to the Distributor as follows: Year
One--After Early termination--Fifteen (15%) percent; year Two-After Early
Termination--Ten (10%) percent; Year Three--After Early Termination--Five (5%)
percent; and Nothing thereafter. Further, Supplier agrees to provide Distributor
with adequate inventory levels, and to abide by all other terms and provisions
governing the distribution, sale, quality control and End-User services as set
forth herein including, but not limited to the Supplier's Advertising Escrow
account. The Distributor may, at its discretion, choose to manufacture the
distributed product in order to maintain inventory levels as needed. In the
event that Distributor does manufacture Products, all expenses and costs shall
be deemed recoupable advances and be deductible from Supplier's share of
royalties as set forth herein. Upon expiration of the Post Term term, all
rights, inventories, Product, royalties, and Supplier's share of Advertising
Escrow Account will revert back to Supplier.
11.1.2 Early Termination Buy Out. Notwithstanding anything stated in the above
Sections, in the event of Early Termination as set forth in Section 11.1.1,
Supplier may elect to buy out Distributor by way of a flat fee buy out. Said
amount to be negotiated at the time of Early Termination, in good faith and
agreed upon, in writing by all Parties. In the event of a flat fee buy out all
rights, product, inventory, royalties, future overrides, accrued Advertising
Escrow Accounts, art, masters or other item as set forth herein would revert
back to Supplier.
12.0 Fulfillment of Obligations. Any termination of this Agreement will not
otherwise release either party from its obligation to pay any sum that may be
then or thereafter owing to the other party nor operate to discharge any
liability incurred by either party prior to any such termination. Except as
qualified by the preceding sentences, neither party will, by reason of the
termination of this Agreement, be liable to the other for any damages arising
out of any such termination.
12.1 Effect of Termination and Survival. Except in the event of Early
Termination, the Distributor shall cease all display, advertising, and use of
all the Supplier names, trademarks, logos, and designations and will not
thereafter use, advertise, or display any such names, logos trademarks, or
designations. Upon termination of this Agreement, the due date of all
outstanding invoices will automatically be accelerated and all such invoices
will become due and payable. All orders or portions thereof remaining unshipped
as of the effective date of termination may be canceled by the Supplier, at its
option, to the extent they call for delivery more than Thirty (30) days after
the date of termination. Upon receipt of any Products so reacquired from the
Distributor, the Supplier will issue the appropriate entry to the Distributor's
ledgers and accounts.
13.0 Protection of Information. The Parties agree to hold Information in
confidence, except as permitted by this Agreement, as it uses to protect its own
confidential information. If used in a manner contrary to the terms of this
Section, the other party will have the right, to injunctive relief enjoining
such attempts, it being agreed that legal remedies are inadequate. No press
releases or other like publicity or advertising of any nature regarding this
Agreement that mentions the terms and conditions of this Agreement or the other
party by name will be released by a party without the prior written agreement of
the other party. Without the prior written consent of the Supplier, the
Distributor will refrain from copying, reverse engineering, disassembling,
de-compiling, translating, or modifying the Products, or granting any other
person or entity the right to do so.
13.1 Notification. The Distributor will promptly notify the Supplier of any
claims, or notification that its marketing, licensing, support, or service may
or will infringe the Intellectual Property Rights of any other person or entity
and any determination or notification that any person or entity is or may be
infringing the Intellectual Property Rights of the Supplier. The Distributor
will assist the Supplier in the protection and defense of such Intellectual
Property Rights.
14.0 Assignment. Except as set forth herein, neither this Agreement nor any of
its rights, in whole or in part, will be assignable or transferable by either
party without the express written consent of the other party. This Agreement
will be binding upon and take effect for the benefit of the successors and
assigns of the parties to this Agreement.
14.1 Waiver, Amendment, Modification. No waiver, amendment or modification,
including those by custom, usage of trade, or course of dealing, of any
provision of this Agreement will be effective unless in writing and signed by
the party against whom such waiver, amendment or modification is sought to be
enforced. No waiver by any party of any default in performance by the other
party under this Agreement or of any breach or series of breaches by the other
party of any of the terms or conditions of this Agreement will constitute a
waiver of any subsequent default in performance under this Agreement or any
subsequent breach of any terms or conditions of that Agreement. Performance of
any obligation required of a party under this Agreement may be waived only by a
written waiver signed by a duly authorized officer of the other party, that
waiver will be effective only with respect to the specific obligation described
in that waiver.
14.2 Force Majeure. Neither party will be deemed in default of this Agreement to
the extent that performance of its obligations, or attempts to cure any breach,
are delayed or prevented by reason of circumstance beyond its reasonable
control, including without limitation fire, natural disaster, earthquake,
accident or other acts of God ("Force Majeure"), provided that the party seeking
to delay its performance gives the other written notice of any such Force
Majeure within 15 days after the discovery of the Force Majeure, and further
provided that such party uses its good faith efforts to cure the Force Majeure.
If there is a Force Majeure, the time for performance or cure will be extended
for a period equal to the duration of the Force Majeure. This Article will not
be applicable to any payment obligations of either party.
14.3 Settlement of Disputes. Each party acknowledges that, if there is any
breach including, without limitation, unauthorized use of Confidential
Information, the non-breaching party will suffer injury that cannot be
compensated by money and therefore will not have an adequate remedy at law. If
either party institutes an action to enforce the provisions of this Agreement
which may be brought in either Rhode Island or New York County, such party will
be entitled to obtain such injunctive relief or other remedy from a court of
competent jurisdiction as may be necessary to prevent or curtail any such
breach. These will be in addition to and without prejudice to such other rights
as such party may have in law or in equity.
14.3.1 Any dispute or claim arising out of this Agreement other than those set
forth in Paragraph 14.3, or any aspect of the creation, validity,
interpretation, breach, or termination of this Agreement will be submitted to
binding arbitration to be held in Providence, Rhode Island before a panel of
three arbitrators. Either party may demand arbitration in writing, serving on
the other party a statement of the dispute, controversy, or claim, and the facts
relating to it, in reasonable detail, and the arbitrator nominated by that
party. Within thirty (30) days after such demand, the other party will name its
arbitrator, and the two arbitrators named by the parties will, within ten (10)
days, select a third arbitrator. The arbitration will be filed with and governed
by the Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). The reasonable expenses of arbitration will be borne by the party
against whom the decision is rendered, or apportioned in accordance with the
decision of the arbitrators if there is a compromise decision. Judgment upon any
award may be entered in any court of competent jurisdiction. All notices from
one party to the other relating to any arbitration under this Agreement will be
in writing and will be effective if given in accordance with Section 14.7.
below.
14.4 Proprietary Information. Each party acknowledges that it may be furnished
with or may receive or have access to information or material that relates to
past, present or future Products, and marketing plans, "Proprietary
Information." The Parties agree to preserve the confidentiality of the
Proprietary Information, whether disclosed to the other party before this
Agreement is signed or afterward, including the terms of this Agreement. A party
will not disclose or disseminate the Proprietary Information for its own benefit
or of any third party. The previously stated obligations do not apply to any
information that is publicly known, is given to a party by someone else who is
not obligated to maintain confidentiality or a party has already developed prior
to the day this Agreement is signed, as evidenced by documents. Neither party
will take or cause to be taken any physical forms of Proprietary Information
without the other party's written permission. Within three (3) days after the
termination of this Agreement, a party will return to the other party all copies
of Proprietary Information in tangible form. Despite any other provisions of
this Agreement, this Section will survive termination of this Agreement.
14.5 Cumulative Rights. Any specific right or remedy provided in this Agreement
will not be exclusive but will be cumulative upon all other rights and remedies
set forth in this section and allowed under applicable law.
14.6 Governing Law. This Agreement will be governed by the substantive laws of
the State of Rhode Island applicable to Agreements made and fully performed in
Rhode Island by Rhode Island residents. The parties acknowledge that this
Agreement expresses their entire understanding and Agreement, and that there
have been no warranties, representations, covenants or understandings made by
either party to the other except such as are expressly set forth in this
section. This Agreement supersedes and otherwise renders null and void any and
all prior Agreements or contracts, whether written or oral. This Agreement may
be executed in multiple counterparts, any one of which will be deemed an
original, but all of which will constitute one and the same instrument. If any
provision of this Agreement is found invalid or unenforceable under judicial
decree or decision of the American Arbitration Association or of a Court, the
remainder will remain valid and enforceable according to its terms.
14.7 Notices. All notices required or permitted under this Agreement will be in
writing and will be delivered or mailed certified return receipt requested to
the respective parties at the addresses set forth above or at such other address
as such party will specify to the other party in writing. Any notice required or
permitted to be given by the provisions of this Agreement will be conclusively
deemed to have been received on the day it is delivered to that party by U.S.
Mail with Acknowledgment of Receipt or by any commercial courier providing
equivalent acknowledgment of receipt. Captions and section headings used in this
Agreement are for convenience only and are not a part of this Agreement and will
not be used in construing it.
We have carefully reviewed this contract and agree to and accept its
terms and conditions. We are executing this Agreement as of the day and year
first written above.
SUPPLIER: Bow Vau Records, LTD DISTRIBUTOR: Open Door Music, Inc.
By: /S/ By: /S/
----------------------------- -------------------------------
Norman Bowman David DeBoene, President
Title: Chairman
By:
Quincy Vaughn
Title: President and CEO
<PAGE>
EXHIBIT A
Products
--------
The Doobeez, Drama in Jersey
Millenium Men 4000k, Forever
Gee Rock & the CND Coalition
EXHIBIT B
Supplier Customers
------------------
<PAGE>
EXHIBIT C
Suggested List Price Schedule
-----------------------------
CDs, Vinyl & EP's
-----------------
Wholesale Retail Supplier's Share** Distributor's Share**
75.00% 25.00%
$4.83 $8.97 $3.62 $1.21
$5.29 $9.97 $3.96 $1.33
$6.07 $10.97 $4.55 $1.52
$6.44 $11.97 $4.83 $1.61
$7.18 $12.97 $5.38 $1.80
$7.73 $13.97 $5.79 $1.94
$8.19 $14.97 $6.14 $2.05
$8.83 $15.97 $6.62 $2.21
$9.29 $16.97 $6.96 $2.33
$10.03 $17.97 $7.52 $2.51
**In the event wholesale prices shall be adjusted upward or downward,
corresponding adjustments shall be made to reflect Seventy-Five (75%) percent of
the actual wholesale price for the Supplier or Twenty-Five (25%) percent of the
actual wholesale price for the Distributor as the case may be.
Suggested List Price Schedule
-----------------------------
Cassettes & EP's
Wholesale Retail Supplier's Share** Distributor's Share**
75.00% 25.00%
$2.25 $5.90 $1.69 .56
$2.94 $6.98 $2.21 .74
$3.77 $7.98 $2.83 .94
$4.36 $9.98 $3.27 $1.09
$5.34 $10.98 $4.01 $1.34
$5.99 $11.98 $4.49 $1.50
$6.28 $12.98 $4.71 $1.57
$7.14 $13.98 $5.36 $1.79
$7.31 $14.98 $5.48 $1.83
$7.89 $15.98 $5.92 $1.97
$8.76 $16.98 $6.57 $2.19
**In the event wholesale prices shall be adjusted upward or downward,
corresponding adjustments shall be made to reflect Seventy-Five (75%) percent of
the actual wholesale price for the Supplier or Twenty-Five (25%) percent of the
actual wholesale price for the Distributor as the case may be.
<PAGE>
Cassette Singles & EP's
-----------------------
Wholesale Retail Supplier's Share** Distributor's Share**
75.00% 25.00%
$1.75 $4.99 $1.31 $.44
$2.25 $5.49 $1.69 $.56
$2.65 $5.99 $1.99 $.66
$2.80 $6.49 $2.10 $.70
$2.94 $6.99 $2.21 $.74
$3.77 $7.99 $2.83 $.94
**In the event wholesale prices shall be adjusted upward or downward,
corresponding adjustments shall be made to reflect Seventy-Five (75%) percent of
the actual wholesale price for the Supplier or Twenty-Five (25%) percent of the
actual wholesale price for the Distributor as the case may be.
<TABLE>
<CAPTION>
OPEN DOOR ONLINE, INC.
(FORMERLY GENESIS MEDIA GROUP, INC.)
COMPUTATION OF NET INCOME PER COMMON SHARE
For end year ended For the nine months
December 31 September 30
1998 1999 1998
<S> <C> <C> <C>
Income (Loss) as reported $(13,948.00) $(151,238.00) $(8,729.00)
Income tax expense ------------ ------------- -------------
Net income (loss) $(8,729.00) $(13,948.00) $(151,238.00)
Basic earnings per share $(13.95) $(0.04) $(8.73)
Diluted earnings per share $(13.95) $(0.04) $(8.73)
Weighted average shares outstanding 1,000 3,790,916 1,000
Fully diluted average shares 1,000 3,790,916 1,000
outstanding
</TABLE>
<TABLE>
<CAPTION>
GENESIS MEDIA GROUP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
For end year ended For the six months
December 31 ended June 30
1998 1997 1999
<S> <C> <C> <C>
Income (Loss) as reported $(373,973.00) $251,758.00 $(783,940.00)
Income tax expense 53,503.00 (100,703.00) (39,200.00)
Net income (loss) $(320,470.00) $151,055.00 $58,795.00
Basic earnings per share $(0.01) $0.02 $(0.02)
Diluted earnings per share $(0.01) $0.02 $(0.02)
Weighted average shares outstanding: 22,742,150 8,242,323 32,495,574
21,049,975
Fully diluted average shares 22,742,150 8,242,323 32,495,574
outstanding: 21,049,975
</TABLE>
Exhibit 23.1
[JAMES C. MARSHALL, CPA, PC LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our audit of the balance sheets of
Genesis Media Group, Inc. as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended in the Form 10-SB of Open Door Online, Inc.
James C. Marshall, CPA, PC
Scottsdale, Arizona
April 8, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001098125
<NAME> OPEN DOOR ONLINE, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 78,580
<SECURITIES> 0
<RECEIVABLES> 438,082
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 532,283
<PP&E> 14,382,954
<DEPRECIATION> 302,630
<TOTAL-ASSETS> 14,918,974
<CURRENT-LIABILITIES> 1,368,780
<BONDS> 0
0
0
<COMMON> 1,013
<OTHER-SE> 13,564,367
<TOTAL-LIABILITY-AND-EQUITY> 14,918,974
<SALES> 190,606
<TOTAL-REVENUES> 191,064
<CGS> 118,385
<TOTAL-COSTS> 215,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,224
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (151,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,238)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
