<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 2-74785-B
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Next Generation Media Corp.
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(Exact name of registrant as specified in its charter)
Nevada 88-0169543
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 N. Stafford St., Suite 2003
Arlington, VA 22203
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(Address of principal executive offices)
(Zip Code)
(703) 516-9888
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
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The total number of issued and outstanding shares of the
registrant's common stock, par value $0.01, as of April 1, 1998 was
3,113,450.
Transitional Small Business Disclosure Format (Check one):
Yes No x
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<PAGE> 3
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
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<S> <C> <C>
ASSETS
CURRENT
Accounts receivable, less allowance for doubtful
accounts of $42,560 $ 198,335 $ 182,670
Accrued interest receivable 15,785 20,946
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TOTAL CURRENT ASSETS 214,120 203,616
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PROPERTY AND EQUIPMENT 71,135 101,752
Less: Accumulated depreciation (3,354) (7,474)
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NET PROPERTY AND EQUIPMENT 67,781 94,278
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OTHER
Intangibles, net 192,648 222,684
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TOTAL ASSETS 474,549 $ 520,578
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</TABLE>
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NEXT GENERATION MEDIA
CORPORATION
CONSOLIDATED BALANCE SHEET
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<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued against future deposits $ 44,821 $ 23,251
Accounts payable 248,666 325,689
Notes payable 25,449 20,115
Due to shareholders 10,255 10,255
Accrued interest payable 235 344
Note payable-employee 11,669 11,669
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TOTAL CURRENT LIABILITIES 341,095 391,313
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LONG TERM DEBT
Note payable - employees 85,027 24,190
Due to shareholders 24,400 41,880
Note payable 27,505 87,505
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TOTAL LONG TERM DEBT 136,932 153,575
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Commitments
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 authorized
3,113,450 issued and outstanding 31,134 31,134
Additional paid in capital 419,616 419,616
Accumulated deficit (95,178) (116,010)
Less stock subscription receivable (359,050) (359,050)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,478) (24,310)
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Total liabilities and stockholders' equity 474,549 $ 520,578
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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NEXT GENERATION MEDIA
CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
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<TABLE>
<CAPTION>
Three months ended March 31, 1997 1998
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<S> <C> <C>
SALES $ - $ 434,896
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COST OF GOODS SOLD - 160,636
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GROSS PROFIT - 274,260
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OPERATING EXPENSES
Selling, general and administrative - 286,835
Depreciation and amortization - 13,320
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TOTAL OPERATING EXPENSES - 309,155
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LOSS FROM OPERATIONS - (34,895)
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OTHER INCOME (EXPENSE)
Interest income - 5,161
Interest expense - (99)
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TOTAL OTHER INCOME (EXPENSE) - 5,062
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NET LOSS $ - $ (20,833)
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BASIC AND DILUTED LOSS PER COMMON SHARE $ - $ (.007)
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Weighted average common shares outstanding 800,389 3,113,450
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
NEXT GENERATION MEDIA
CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
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<TABLE>
<CAPTION>
Three months ended March 31, 1997 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net loss - (20,833)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 13,320
(INCREASE) DECREASE IN ASSETS
Accounts receivable - 15,665
Accrued interest receivable - (5,161)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable - 77,023
Accrued interest payable - 99
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NET CASH USED IN OPERATING ACTIVITIES - (80,113)
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INVESTING ACTIVITIES
Acquisition of property and equipment - (30,617)
Deferred acquisition costs - (39,235)
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CASH USED IN INVESTING ACTIVITIES - (69,852)
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FINANCING ACTIVITIES
Increase in checks issued against future deposits - (21,570)
Proceeds of loans from shareholders - 36,822
Proceeds of note payable - 60,000
Repayment of note payable - (5,334)
Repayment of shareholder note payable - (19,342)
Repayments of employee notes payable - (60,837)
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CASH USED IN FINANCING ACTIVITIES - (10,261)
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</TABLE>
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NEXT GENERATION MEDIA
CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
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<TABLE>
<CAPTION>
Three Months ended March 31, 1997 1998
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<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS $ - $ -
Cash and cash equivalents, beginning of period - -
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CASH AND CASH EQUIVALENTS, end of period $ - $ -
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
NEXT GENERATION MEDIA
CORPORATION
SUMMARY OF ACCOUNTING POLICIES
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BASIS OF The consolidated financial statements include the statements
PRESENTATION of Next Generation Media Corporation (the "Company") and its
wholly owned subsidiary Independent News, Inc. All
significant intercompany transactions have been eliminated.
BUSINESS The Company operates a newspaper publishing business
DESCRIPTION distributing free newspapers, supported by local advertising
in New Jersey. Primarily all of its customers are located in
New Jersey.
INTERIM FINANCIAL In the opinion of management, the interim financial
INFORMATION information as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 contains all adjustments,
consisting only of normal recurring adjustments, necessary
for a fair presentation of the results for such periods.
Results for interim periods are not necessarily indicative
of results to be expected for an entire year.
RISK AND The publishing industry is highly competitive. The Company's
UNCERTAINTIES revenue consists of amounts received for advertising space in
the newspaper. Publication of the newspaper is dependent on
future advertising revenue or obtaining additional outside
financing. Management believes that it can continue to meet
working capital requirements as they arrive.
USE OF ESTIMATES The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make certain estimates and assumptions, particularly
regarding valuation of accounts receivable, recognition of
liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual
results could differ from those estimates.
CONCENTRATION Financial instruments that potentially subject the Company
OF CREDIT RISK to concentrations of credit risk consists primarily of
accounts receivable.
<PAGE> 9
NEXT GENERATION MEDIA
CORPORATION
SUMMARY OF ACCOUNTING POLICIES
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EARNINGS (LOSS) Loss per share for the three months ended March 31, 1997 and
PER COMMON SHARE 1998, has been computed using the weighted average number of
shares outstanding. The outstanding stock options were not
considered in the computation because their inclusion would
have been anti-dilutive.
INCOME Income taxes are calculated using the liability method
TAXES specified by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". Deferred income tax
reflects the net tax effect of temporary differences between
the carrying amounts of assets and liabilities for financial
purposes and the amounts used for income tax purposes. The
net deferred tax asset is reduced, if necessary, by a
valuation allowance for the amount of any tax benefits that,
based on available evidence, are not expected to be realized.
RECENT In March 1997, the Financial Accounting Standards Board
ACCOUNTING issued Statement of Financial Accounting Standards No. 128,
PRONOUNCEMENTS Earnings Per Share (SFAS 128"). SFAS 128 provides a different
method of calculating earnings per share than is currently
used in APB Opinion 15. SFAS 128 provides for the calculation
of basic and diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income
available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity,
similar to existing fully diluted earnings per share. The
Company adopted the provisions for computing earnings per
share set forth in SFAS 128 in December 1997. There is no
difference in basic and diluted earnings per share.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130"), which
establishes standards for reporting and display of
comprehensive income, its components, and accumulated
balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are
<PAGE> 10
NEXT GENERATION MEDIA
CORPORATION
SUMMARY OF ACCOUNTING POLICIES
================================================================================
required to be recognized under current accounting standards
as components of comprehensive income be reported in a
financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of a Business Enterprise ("SFAS
131"), establishes standards for the way that public
enterprises report information about operating segments in
interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and
services, geographic areas, and major customers. SFAS 131
defines operating segments as components of an enterprise
about which separate financial information is available that
is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing
performance.
<PAGE> 11
NEXT GENERATION MEDIA
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. INCOME TAXES The Company, based on the information currently available,
does not believe it will generate taxable income, after
considering net operating loss carry-forwards, for the year
ending December 31, 1998. Accordingly, the Company did not
recognize an income tax benefit for the quarter ended March
31, 1998.
2. PURCHASE OF On February 6, 1997, an unrelated third party purchased
MICROTECH 85.72% of the outstanding stock of Microtech Industries,
INDUSTRIES Inc., from its majority shareholder for $50,000 in cash.
Effective March 31, 1997 Microtech Industries changed its
name to Next Generation Media Corporation. Current management
believes that prior to February 6, 1997, the Company was a
"shell" company for at least five years without assets and
liabilities. Current management is unaware of any operating
history of the Company prior to February 6, 1997. As a result
of the transaction, goodwill of $50,000 was recorded and is
being amortized on a straight line basis over ten years.
3. ACQUISITION On September 29, 1997, Pompton Valley Publishing Co. (PVP)
OF POMPTON sold to Independent News, Inc. (INI) all of its tangible
VALLEY property, all accounts receivable, all intellectual property,
PUBLISHING certain contracts, and all other business property. INI
CO. assumed certain liabilities of PVP. In addition to the
assumption of certain liabilities, INI also paid PVP 100,000
shares of the Company's common stock and $15,000 in cash for
a covenant not to compete. The shares were valued at $16,700
based on a recent stock sale. The acquisition was accounted
for as a purchase. In conjunction with this transaction the
Company has recorded approximately $140,000 of goodwill which
is being amortized on a straight line basis over 5 years.
The following unaudited pro forma summary presents the
combined results of operations of the Company and the
acquired business, as if the acquisition had occurred on
January 1, 1997. The pro forma amounts give effect to certain
adjustments, including the amortization of intangibles. This
pro forma summary does not necessarily reflect the results of
operations as they would have been if the businesses had
constituted a single entity during such periods and is not
necessarily indicative of results
<PAGE> 12
NEXT GENERATION MEDIA
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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which may be obtained in the future.
(UNAUDITED)
Three months ended March 31, 1997
Net sales $ 357,605
Net loss (29,575)
Loss per common share (.03)
4. SUBSEQUENT EVENTS On March 18, 1998 the Company signed an agreement to
acquire all of the outstanding Series C Preferred
Stock and certain subordinated debt totaling
$1,034,000 of UNICO, Inc. ("Unico"), pending approval
by 100% of the debtholders and preferred shareholders.
In exchange for Unico's preferred stock and debt, the
Company will pay $100,000 and issue 250,000 shares of
callable, cumulative, preferred stock with a $5 face
value. In addition, each 1.5 preferred shares shall be
accompanied by a warrant to purchase one share of the
Company's common stock. Such warrants will have an
exercise price of $.16 and be valid for 5 years from
the date of issue. In conjunction with this
transaction, the Company has agreed to acquire all of
the outstanding common stock of United Coupon
Corporation ("United"), a wholly owned subsidiary of
Unico. The sale of United by Unico is subject to Unico
shareholder approval. United had sales of approximately
$5,800,000 and a net loss of approximately $(407,000)
for the year ended December 31, 1997.
As part of the financing of the Company's planned
acquisition of United, the Company agreed to issue
70,000 preferred shares, issue 250,000 warrants, and
transfer ownership of the preferred stock in Unico to
T.C. Equities Ltd. in exchange for $350,000. Such
preferred shares shall have a redemption price of $5
per share, pay a cumulative dividend of $.50 per share,
and be redeemable at the sole option of the holder
within nine months from their date of issue. The
warrants will have an exercise price of $0.16 and
be valid for five years from the date of issue.
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Management cannot fully assess material changes in the
registrant's results of operations with respect to the 1998 fiscal year to March
31, 1998 from the corresponding year to date period of the preceding fiscal
year, for the reasons set forth in the registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1997.
The following discussion is based on assumptions made by
management as to the registrant's results of operations and financial condition
as of March 31, 1997 and for the period then ended as reported in the
registrant's Quarterly Report on Form 10-Q for that period. No assurances can be
given as to the accuracy of such assumptions. However, management has no
knowledge of any information that would make reliance on such assumptions
unwarranted.
As of March 31, 1997, the registrant had $69,167 in total assets.
As of March 31, 1998, the registrant had assets totaling $520,578. This increase
is due to the acquisition by the registrant of Independent News, Inc. ("INI") in
the third quarter of 1997.
The registrant had current liabilities as of March 31, 1997 of
$32,469. As of March 31, 1998, the registrant had current liabilities of
$391,313. This increase is due primarily to the assumption of liabilities of
INI.
The registrant had revenues of $434,896 from operations during
the period covered by this report, all of which derived from the operations of
its sole operating subsidiary, INI, resulting in an operating loss of $34,895.
INI engages in the community newspaper publishing business in several townships
in northern New Jersey. The registrant had no income in the three month period
through March 31, 1997.
The registrant had $13,302 in professional expenses during the
first fiscal quarter of 1997. During the period covered by this report, the
registrant incurred expenses for professional services of $39,233.
<PAGE> 14
The registrant's principal sources of liquidity are shareholder
loans. On January 15, 1998, Kenneth Brochin, a director and shareholder of the
registrant ("Brochin"), loaned the registrant $20,000 that was provided to INI
for working capital. On February 10, 1998, Brochin guaranteed a $60,000 loan to
the registrant by Key Bank, and the loan proceeds were provided to INI for
working capital. On February 11, 1998, Joel Sens, a director and shareholder of
the registrant ("Sens"), loaned the registrant $5,000 to enable the registrant
to engage a consulting company to develop a business plan for the registrant.
On March 13, 1998, Sens loaned INI $5,000 in working capital. On March 18,
1998, Sens loaned INI $5,334.33 to pay other indebtedness of INI. The
registrant expects that sales of securities and/or shareholder loans will be
its principal source of future liquidity.
The registrant had a net loss per share during the first fiscal
quarter of 1997 of $0.12. During the period covered by this report, the
registrant had a net loss per share of $0.007 on both a basic and diluted basis.
On March 18, 1998, the registrant entered into a definitive
agreement to acquire all of the outstanding Series C Preferred Stock and certain
subordinated debt totaling $1,034,000 in UNICO, Inc. ("Unico"), pending approval
by 100% of the preferred stockholders and debt holders. In exchange for Unico's
preferred stock and debt, the registrant will pay $100,000 and issue 250,000
shares of callable, cumulative, preferred stock, par value $0.01 per share (the
"Series A Preferred Stock").
The Series A Preferred Stock will be redeemable at the option of
the holder at a price of $6.00 per share five years from the date of issue. The
Series A Preferred Stock will be callable by the registrant at $5.00 or $6.00
per share, plus accumulated dividends, depending on when the registrant offers
to redeem such securities. The Series A Preferred Stock shall pay a dividend of
$0.30 per share per annum for the first six months after the date of issue and
$0.50 per share per annum thereafter. Dividends will accrue and not be payable
until 18 months following the date of merger between a subsidiary of the
registrant and United Marketing Solutions Inc. ("UMSI"), the sole operating
subsidiary of Unico (see below). The Series A
<PAGE> 15
Preferred Stock shall have a $5.00 per share liquidation preference. The Series
A Preferred Stock will be convertible into common stock at a ratio based upon
the price of common stock at the time of such conversion. In addition, each 1.5
shares of Series A Preferred Stock shall be accompanied by one warrant to
purchase common shares. Such warrants will have an exercise price of $0.16 per
share and be valid for five years from the date of issue.
The Series A Preferred Stock shall vote on equal terms with the
registrant's common stock with the following exceptions. The holders of the
Series A Preferred Stock, as a class, shall alone be entitled to vote for the
election of one director of the registrant's board of directors for the first
nine months from the date of issue and shall be entitled to vote for the
election of two directors of the registrant's board of directors following nine
months from the date of issue. Further, in the event that the registrant
proposes to engage in a sale of substantially all of its assets, merge with or
into another corporation, change its primary lines of business (those businesses
being the direct mail marketing business and community newspaper business),
incur more than $5,000,000 in indebtedness or acquire property valued in excess
of $5,000,000 and not in the ordinary course of business, such transaction must
be approved in advance by at least a majority of the Series A Preferred Stock
issued and outstanding at the time of such vote in addition to any other
requirements for the registrant to take such action.
The purchase of the preferred stock and debt of Unico and the
issuance of the Series A Preferred Stock is the first step in a series of
transactions that together are intended to result in the acquisition by the
registrant of 100% of the capital stock of UMSI, a Virginia corporation engaged
in the direct mail marketing business (the "Transaction"). The Transaction will
take the form of a merger between UMSI and a special purpose subsidiary of the
registrant, with UMSI being the surviving corporation. As of the end of the
period covered by this report, the registrant had not consummated any of the
transactions described above, purchased the preferred stock and certain
indebtedness of Unico or issued the Series A Preferred Stock.
<PAGE> 16
The registrant's ability to consummate the Transaction is
dependant upon its ability to raise additional capital, primarily through the
sale of additional securities and/or shareholder loans. There can be no
assurance that the registrant will be able to engage in such transactions or
obtain such funds. If the registrant is unable to obtain sufficient additional
funds, it will be unable to complete the Transaction, the registrant will be in
breach of its contractual obligations to, among others, Unico, and the
registrant's business, financial condition and results of operations will be
materially adversely affected.
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 2.1 Letter agreement dated as of March 18, 1998
among the registrant, Renaissance Capital
Partners I and the Duncan-Smith Company
providing for the purchase of the Series C
Preferred stock and certain indebtedness of
UNICO, Inc.
Exhibit 27 Financial data schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the period covered
by this report.
<PAGE> 18
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXT GENERATION MEDIA CORP.
Date: June 11, 1998 By: /s/ Larry Grimes
---------------------------
Larry Grimes, President
(Duly Authorized Officer)
Date: June 11, 1998 By: /s/ Kenneth Brochin
---------------------------
Kenneth Brochin, Treasurer
(Principal Financial Officer)
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
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<C> <C> <C>
2.1 -- Letter agreement dated as of March 18, 1998
among the registrant, Renaissance Capital and the Duncan
Smith Company providing for the purchase of the Series C
Preferred stock and certain indebtedness of UNICO, Inc.
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
March 18, 1998
Via Facsimile
Mr. Vance M. Arnold
Renaissance Capital Group, Inc.
Mr. Goodhue Smith
The Duncan-Smith Co.
c/o Vincent Slusher, Esq.
Snell, Brannian & Trent
8160 North Central Expressway, Suite 1800
Dallas, Texas 75208
c/o Matthew Clary, Esq.
Clary & Moore
10306 Eaton Place, Suite 240
Fairfax, Virginia 22030
Gentlemen:
This letter outlines a proposal by which Next Generation Media Corp.
(the "Buyer") will acquire:
- - all of the issued and outstanding shares of Series C Preferred stock (the
"Preferred C Shares") of UNICO, Inc., a Delaware corporation (the
"Company"), and
- - all of (1) the promissory notes issued pursuant to the Subordinated Loan
agreement with an outstanding principal balance of $300,000 dated June 30, 1995
among the Company, Cal-Central Marketing Corporation and the Harlon Morse
Fentriss Trust, Philip Stephenson, Jr., RHOJOAMT Partnership Ltd., CITCAM Stock
Co., Barbara Grinnan and Goose Creek, (2) the subordinated debentures having an
outstanding principal balance of $460,000 issued pursuant to an Indenture and
placed by The Duncan-Smith Company with various investors and (3) the promissory
note(s) issued to Renaissance Capital pursuant to an interim financing agreement
between with the Company with an aggregate principal balance of $274,000
(collectively, the "Subordinated Debt").
The holders of the Preferred C Shares and the Subordinated Debt are collectively
referred to herein as the "Sellers." The
<PAGE> 2
proposed acquisition is subject to and encompasses the following terms and
conditions:
1. The effective date of this acquisition (the "Series C/Sub Debt
Purchase") will be as of the date on which Buyer and the Company execute a
definitive agreement providing for the acquisition by Buyer of all of the
outstanding shares of United (the "United Purchase"). The closing will be at
Washington, D.C. at a time selected by the Buyer and the Sellers'
representatives upon execution of the definitive agreement. The Buyer shall
endeavor to effect the closing of the Series C/Sub Debt Purchase and the
execution of the definitive agreement for the United Purchase by March 31, 1998,
but in no case will the closing take place later than May 1, 1998, unless
mutually agreed by the parties.
Buyer will pay $1,350,000 (the "Purchase Price") for the Preferred C Shares
and the Subordinated Debt in the form of (1) $100,000 cash and (2) 250,000
shares of its Callable Cumulative Convertible Preferred stock ("NexGen
Preferred").1/ Each 1 1/2 shares of NexGen Preferred will be accompanied by one
stock purchase warrant that will entitle the holder to purchase one share of the
Buyer's common stock at an exercise price of $0.16, valid for five years from
the date of issue.
The number of warrants to be provided to Sellers will be subject to
adjustment based on the price per share at which the Buyer effects a private
placement or initial public offering of its common stock following the Buyer's
acquisition of United (the "NexGen Placement/Offering"). If the NexGen
Placement/Offering is made at a price up to $3.50 per share, Sellers will
receive a total of 250,000 warrants; if the NexGen Placement/Offering is made at
a price in the range $3.51 - $4.00 per share, Sellers will receive a total of
200,000 warrants; if the NexGen Placement/Offering is made at a price in the
range $4.01 -$4.50 per share, Sellers will receive a total of 185,000 warrants;
and if the NexGen Placement/Offering is made at a price of $4.51 per share or
higher, there will be no adjustment to the warrants issued to Sellers. The Buyer
shall endeavor to ensure that the NexGen Placement/Offering will result in the
receipt of a minimum of $2,000,000 of net proceeds to Buyer. Buyer agrees to use
(1) 35% of the first $1,000,000 and (2) 50%
- --------
1/Buyer will not issue fractional shares and will issue NexGen Preferred shares
to each Seller by rounding up or down to the nearest whole number of shares.
<PAGE> 3
of any net proceeds in excess of $1,000,000 from the NexGen Placement/Offering
to redeem NexGen Preferred stock. In the event the proceeds of more than one
placement or offering at different prices are used to redeem the NexGen
Preferred Stock, the warrant adjustment contemplated by this paragraph will be
applied on a weighted average basis of the various offering prices in the
placements or offerings, the proceeds of which are used to effect such
redemption. The balance of the net proceeds from the NexGen Placement/Offering
shall be used to provide a capital infusion to Buyer's newly acquired
subsidiary, United, except for payments of obligations of Buyer approved by
Buyer's board of directors after the United Purchase.
2. As part of the transaction, the Sellers represent and warrant to Buyer,
among other things, that the Preferred C Shares and Subordinated Debt they are
selling represent all of the Preferred C Shares or Subordinated Debt of the
Company. In addition, the Sellers shall agree to execute powers of attorney to
provide for the authority of one or more representatives of Sellers to effect
the sale of the Preferred C Shares and the Subordinated Debt to Buyer at the
closing.
3. At the closing, the Sellers shall deliver to Buyer stock certificates
endorsed in blank for all of the Class C Preferred Shares as well as the
promissory notes endorsed to the order of Buyer. Sellers represent and warrant
that they have good title to the Class C Preferred Stock and the promissory
notes, that the Class C Preferred Stock is validly issued, fully paid and
nonassessable, that the Class C Preferred Stock and promissory notes are free
and clear of liens and encumbrances, and that the Sellers can transfer them
without the consent of any third parties. As part of these transactions, Sellers
shall convey to Buyer all right, title and interest in and to any claims or
causes of action they may have against the Company, its affiliates or any member
of its board of directors (the "Unico Board"), in their capacity as Sellers,
creditors or as common shareholders in the Company, from the beginning of time
to the date of these transactions, as a result of any past actions taken or not
taken by the Unico Board or the Unico Board's decision to enter into the United
Purchase. Buyer agrees that it will assert no claims or bring no actions against
the Sellers or any of them as a result of any actions by the Unico Board from
the beginning of time to the date of these transactions, including without
limitation any action or failure to act by the Unico Board with respect to the
acquisition of United by NexGen.
<PAGE> 4
4. Upon the approval by Unico's Board of the purchase of United by Buyer,
you will not discuss or negotiate with any other corporation, firm or other
person, or entertain or consider any inquiries or proposals relating to the
possible disposition of the Preferred C Shares, the Subordinated Debt or the
business of the Company, including United.
5. The Duncan-Smith Co. shall recommend to and undertake their best efforts
to obtain the approval of all Sellers to the Series C/Sub Debt Purchase. To
facilitate the foregoing approval, the Company will send a copy of this letter
and an outline of the terms of agreement to the other Sellers together with such
other information as may be required by law or determined by the Company to be
necessary in order to obtain the consent of the holder of the Series C Preferred
Stock and the Subordinated Debt. This offer and the closing herein contemplated
is contingent upon Buyer's acquiring one hundred percent (100%) of the Preferred
C Shares and the Subordinated Debt free and clear of all options, liens and
other claims.
6. The closing hereunder is subject, among other things, to the following:
a. Approval by the board of directors of Buyer;
b. Approval by the Board and shareholders of the Company of the
United Purchase;
c. Any necessary approvals required under all loan agreements,
indentures or other debt documents of the Company, including
without limitation with BancFirst;
d. Approval by any necessary governmental authorities; and
e. Receipt of all necessary third party consents.
7. Any and all expenses incurred on behalf of the Sellers in connection
with the Series C/Sub Debt Purchase hereunder, including, but not
limited to, attorney's fees, accounting fees and other services and
expenditures on their behalf, shall be borne by the Sellers and shall not be
paid by or incurred for the account of the Company.
The Series C/Sub Debt Purchase and the United Purchase are further
described in the term sheet attached hereto as Annex A. The terms of agreements
between Mr. Joel Sens, majority
<PAGE> 5
shareholder of Buyer, and Mr. Gerard Bernier, President of United, are described
in the term sheet attached hereto as Annex B.
This letter agreement shall terminate upon the earliest of (a) Wednesday,
March 25, 1998 at 5:00 p.m. if the Unico Board has failed to elect by that time
to enter into the United Purchase; (b) the closing of the Series C/Sub Debt
Purchase and execution of a definitive agreement for the United Purchase and (c)
May 1, 1998, unless the parties hereto otherwise agree in writing. No public
announcement of the matters contemplated herein shall be made by any party
hereto without the prior consent of the other parties hereto.
Very truly yours,
BUYER:
By: /s/ Larry Grimes
----------------------
Name: Larry Grimes
Title: President
<PAGE> 6
AGREED AND ACCEPTED:
Renaissance Capital
By: /s/ Vance Arnold
----------------------
Name: Vance M. Arnold
Title:
--------------------
Duncan-Smith Company
By: /s/ Goodhue Smith
----------------------
Name: Goodhue Smith
Title:
----------------------
<PAGE> 7
I. ANNEX A
UNICO - NEXT GENERATION MEDIA CORP. TRANSACTION
TERM SHEET
-------------------------------------
TRANSACTION: A purchase of the preferred stock and
subordinated debt of UNICO, Inc. ("Unico") with
preferred stock of Next Generation Media Corp.
("NexGen") and cash followed by a merger between United
Marketing Solutions, Inc., formerly known as United
Coupon Corporation ("United"), a subsidiary of Unico,
and a newly formed subsidiary ("MergerCo") of NexGen, in
which MergerCo will be merged into United with United as
the surviving entity. NexGen will acquire 100% of the
securities in United making it a wholly-owned subsidiary
of NexGen.
PROPOSED TERMS
1. SERIES C PREFERRED STOCK AND SUBORDINATED DEBT
Unico's existing subordinated debt and Series C Preferred stock holders
will receive 250,000 shares of NexGen's newly issued Callable Cumulative
Convertible Preferred Stock, par value $0.01 per share ("NexGen Preferred"). The
shares will have a $5.00 per share preference on liquidation or dissolution
after corporation. In addition, NexGen will issue one common stock purchase
warrant for each 1.5 shares of NexGen Preferred with an exercise price of $0.16
per share, valid for five years.2/ The number of warrants issued by NexGen in
conjunction with the NexGen Preferred will be subject to adjustment upon the
completion of private place or initial public offerings of NexGen's common stock
following the acquisition of United (the "NexGen Placement/Offering") based on
the per share price of NexGen common stock in the NexGen Placement/Offering.
- -------------
2/This results in the issuance of 166,667 stock purchase warrants to the NexGen
Preferred shareholders.
<PAGE> 8
The NexGen Preferred will be callable, in whole or in part, at the sole
option of NexGen at any time. Upon a call by NexGen, NexGen Preferred
shareholders will have twenty (20) days to elect to convert their NexGen
Preferred to NexGen common stock or be redeemed. If the NexGen Preferred is
called within the first six months after the closing3/ it will have a redemption
price of $5.00 per share plus all accrued but unpaid dividends up through the
date ten days following the call date. If the NexGen Preferred is called more
than six months after the closing, the redemption price will be $6.00 per share
plus all accrued but unpaid dividends up through the date ten days following the
call date. The NexGen Preferred will pay a cumulative dividend of $.30 per share
per annum for the first six months and $.50 per share per annum thereafter.
Dividends will accrue and not be payable until eighteen months following the
closing. Dividends will become payable provided that the indebtedness to
BancFirst is current, in accordance with the restructuring agreement to be
reached with BancFirst.
The NexGen Preferred will be redeemable, at the sole option of the
holder, five years from their date of issuance at a price of $6.00 per share
plus all accrued but unpaid dividends.
The holders of NexGen Preferred shares will vote on equal terms with
the holders of NexGen common shares with the exception that the NexGen Preferred
shareholders, as a class, will be entitled to elect one member to the NexGen
board of directors (the "NexGen Board"). Additionally, in the event that the
NexGen Preferred shares are not called for redemption, or converted into commons
stock within nine (9) months of the Closing, the holders of the NexGen Preferred
Shares, as a class, will be entitled to elect one additional member to the
NexGen Board and the independent director (hereinafter defined) designated by
the other directors shall be replaced in that event. Approval by the NexGen
Preferred shareholders, as a class, will be necessary for certain extraordinary
transactions, including a sale of substantially all of NexGen's assets, a change
in NexGen's primary line of business, incurrence of more than $5 million of
indebtedness and an acquisition of property
- ----------
3/"Closing" means the closing of the merger transaction between MergerCo and
United.
<PAGE> 9
out of the ordinary course of business in excess of $5 million. NexGen shall
enact a bylaw restricting the number of NexGen Board seats to five, including
the director selected by the NexGen Preferred. Two of the current directors
shall remain on the NexGen Board. One director will be selected by Mr. Gerard
Bernier. The fifth director shall be an independent director nominated by the
other four directors.
The conversion price for NexGen Preferred will be affected by whether
or not NexGen has filed a preliminary Form S-1 (or other applicable registration
statement form for an initial public offering) with the Securities and Exchange
Commission for an offering of NexGen's common stock (an "IPO") prior to the
expiration of six months after the closing of the proposed transaction.
NexGen Stock Sale Before Six Months
The NexGen Preferred will be convertible into NexGen common stock, at
the holder's option, beginning six months after the closing at a conversion
price which is the lesser of (a) $5.00 and (b) 110% of the price for common
stock issued in a private placement or initial public offering of NexGen
securities ("NexGen Stock Sale"). For example, if the NexGen Stock Sale occurs
at $6.00 per share, the conversion price used will be $5.00 and the 250,000
shares of NexGen Preferred would be convertible into 250,000 shares of NexGen
common stock. If the NexGen Stock Sale occurs at $4.50 per share, the conversion
price would be $4.95 (110%), and the 250,000 shares of NexGen Preferred would be
convertible into approximately 252,525 shares of NexGen common stock.4/
- ------------
4/No fractional shares will be issued. Fractional shares of .5 and above will be
rounded up to the nearest whole share; fractional shares below .5 will be
rounded down.
<PAGE> 10
No NexGen Stock Sale Before Six Months
The NexGen Preferred will be convertible into NexGen common stock at a
conversion price which is the lesser of (a) $4.50 and (b) 110% of the price for
the stock, in the NexGen Stock Sale. For example, if the NexGen Stock Sale
occurs at $5.00 per share of NexGen Common, the conversion price used will be
$4.50 and the 250,000 shares of NexGen Preferred would be convertible into
approximately 300,000 shares of NexGen common stock. If the NexGen Stock Sale
occurs at $3.00 per share, the conversion price would be $3.30 (110%), and the
270,000 shares of NexGen Preferred would be convertible into approximately
409,091 shares of NexGen common stock.
2. COMMON STOCK
Unico will receive 200,000 shares of NexGen common stock in exchange
for all the stock of United. Alternatively, NexGen has agreed to pay cash
consideration equal to Unico for each Unico shareholder that affirmatively
elects, at the time of the Unico shareholder vote concerning the transactions
described herein, to receive a cash dividend from Unico in lieu of NexGen common
stock (the total number of such Unico common shares, the "electing shares"). In
the event that there are any electing shares, (1) the amount of NexGen common
stock paid to Unico will be reduced by the nearest whole number equal to 200,000
multiplied by a fraction, the numerator of which is the number of electing
shares and the denominator of which is the number of issued and outstanding
common shares of Unico and (2) NexGen will also pay Unico in cash $0.10
multiplied by the number of electing shares. The merger and exchange of common
stock will follow appropriate filings by Unico and NexGen with the Securities
Exchange Commission and a shareholder vote by the Unico common shareholders.
NexGen will vote its Unico Series C Preferred in favor of the transaction and
will agree to allow those shares to be retired by Unico for nominal
consideration. NexGen will also agree to allow the cancellation of the Unico
subordinated debt and associated warrants. NexGen will pay additional cash
consideration to the extent necessary to extinguish additional debt of
approximately $150,000 of Unico to the extent that creditors holding such debt
do not consent to the assignment of such debt to NexGen and release of Unico
within ninety (90) days of closing.
<PAGE> 11
3. NO OTHER SECURITIES
No other securities (i.e., outstanding warrants and options) will be
exchanged by NexGen.
4. MISCELLANEOUS
The acquisition of the Unico subordinated debt and Series C Preferred
shares and the common shares of United by NexGen is contingent upon a
satisfactory restructuring of Unico's debt to BancFirst. The balance of the
proceeds of the any IPO or private placement of NexGen common stock, not used to
redeem NexGen Preferred or to pay obligations of NexGen agreed to by its board
of directors after the merger transaction, will be used to provide a capital
infusion to United. So long as NexGen Preferred shares are outstanding, Mr. Joel
Sens will not be an officer or director of NexGen.
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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<RECEIVABLES> 182,670
<ALLOWANCES> 42,560
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<CURRENT-ASSETS> 203,616
<PP&E> 101,752
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0
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<SALES> 434,896
<TOTAL-REVENUES> 434,896
<CGS> 160,636
<TOTAL-COSTS> 309,155
<OTHER-EXPENSES> 5,062
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