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Item 1. Changes in Control of Registrant
General
On July 7, 2000,
Electro-Kinetic Systems, Inc. (“EKS”) and Sterling Media Fund
Managers, L.L.C., an Oklahoma limited liability company (“Sterling
Managers”), completed the transactions contemplated by the Letter Agreement
(the “Letter Agreement” dated June 7, 2000 and attached hereto as
Exhibit “A”) pursuant to which EKS acquired 15% of the equity
interests in Sterling Managers. On the same day EKS changed its name to Sterling
Media Capital Group, Inc. (“Sterling Media” or the
“Registrant” or the “Company”). Thereafter, on the
10th day of July 2000, Sterling Media acquired the remaining 85%
equity interest in Sterling Managers with Sterling Managers continuing as a
wholly-owned subsidiary of Sterling Media. Sterling Managers currently manages a
pool of non-cash assets with a total net value, based on independent third party
appraisals, of approximately $500,000,000. Sterling intends to leverage the
assets under its management to raise investment capital and to invest in growth
companies as venture capital as well as asset backed investments. As a result of
the acquisition, the equity holders of Sterling Managers and the persons holding
contingent right to an equity interest in Sterling Managers now own
approximately 91.5% of the voting stock of Sterling Media, which has changed its
name to Sterling Media Capital Group, Inc. Neither the acquisition nor the name
change required the approval of stockholders of Sterling Media.
As provided for
in the June 7, 2000 Letter of Agreement, upon completion of the first step in
the transaction, Dwight L. Pierce was appointed as the new President/CEO and
director, Bob L. McGiboney as Executive Vice President and director and David C.
Annin as the new Secretary and director, Paul A. Nussbaum as director and
Chairman of the Board of Directors and Gilbert F. Amelio as director of Sterling
Media. The previous officers and directors thereby resigning.
Because of the
change in ownership of voting stock and the composition of the board after the
acquisition, there was a change in control of EKS upon completion of the
acquisition.
Upon completion
of the acquisition, all of the outstanding equity interests and commitments to
issue equity interests of Sterling Managers were converted into:
46,000,000 shares of Sterling Media common stock; and
4,276,471 shares of Sterling Media Series A Convertible Senior Preferred Stock, no par value, convertible into
427,647,100 shares of Sterling Media common stock (or 100 shares of common stock for each share of preferred stock).
The Sterling
Media preferred stock gives the holder thereof the right to vote together with
the Sterling Media common stock. Each of the 4,276,471 shares of Sterling Media
preferred stock issued in the acquisition entitle the holder thereof to 100
votes on all matters, except as otherwise required by law, with the Sterling
Media common stock.
The Sterling Media preferred stock was issued in the acquisition
because the Articles of Incorporation of Sterling Media currently authorize
Sterling Media to issue 90,000,000 shares of common stock and 10,000,000 shares
of preferred stock, the latter with such powers and preferences as the board of
directors of Sterling Media shall determine. As of July 3, 2000, Sterling Media
had 44,000,000 shares of common stock outstanding and reserved for issuance upon
exercise of outstanding options and warrants. Therefore, the Sterling Media
preferred stock was issued because of the inadequacy of the number of shares of
Sterling Media common stock authorized and available for issuance in the
acquisition.
It is intended
that an amendment of the Articles of Incorporation of Sterling Media will be
proposed to Sterling Media stockholders for amendment to increase the number of
shares of common stock that Sterling Media is authorized to issue. If the
Articles of Incorporation are so amended, all outstanding shares of the Sterling
Media preferred stock issued and reserved for issuance in the acquisition will
be automatically converted into Sterling Media common stock by their terms. The
former holders of equity interests in Sterling Managers as majority stockholders
of Sterling Media and the newly elected board of directors of Sterling Media
have the power to cause such an amendment to be adopted and approved which will
occur at a special meeting of Sterling Media stockholders.
The acquisition
will be accounted for as a reverse acquisition of Sterling Media by Sterling
Managers under the purchase method. As a result, the historical financial
statements of Sterling Managers prior to the acquisition will become the
financial statements of the registrant, and the results of operations of
Sterling Media will be combined with Sterling Managers effective with the
acquisition.
Item 2. Acquisition or Disposition of Assets
See discussion
under Item 1 above. For more information concerning the acquisition, please see
(i) the Letter Agreement which has been filed as an exhibit, and (ii) the
information set forth in the Information Statement, dated June 21, 2000 and
filed with the Securities and Exchange Commission on June 21, 2000, pursuant to
Section 14(f) of the Securities Exchange Act of 1934 and SEC Rule 14f-1.
Item 3. Forward-Looking Statements
The information
in this Form 8-K includes “forward-looking” statements within the
meaning of Section 27A of the Securities Act of 1933, Section 21E of the
Securities Exchange Act of 1934, and the Private Securities Litigation Reform
Act of 1995. Sterling Managers includes this statement for the express purpose
of availing itself of the protections of these safe harbor provisions with
respect to all of the forward-looking statements Sterling Managers makes. The
forward-looking statements in this Form 8-K reflect Sterling Managers’s
current views with respect to possible future events and financial performance.
They are subject to certain risks and uncertainties, including without
limitation the absence of significant revenues, financial resources, significant
competition and those other risks and uncertainties discussed herein that could
cause Sterling Managers’s actual results to differ materially from its
historical results or those that Sterling Managers hopes to achieve. In this
Form 8-K, the words, “anticipates,” “plans,”
“believes,” “expects,” “intends,”
“future” and similar expressions identify certain forward-looking
statements. Please do not place undue reliance on the forward-looking statements
contained in this Form 8-K. Sterling Managers undertakes no obligation to
announce publicly revisions Sterling Managers may make to these forward-looking
statements to reflect the effect of events or circumstances that may arise after
the date of this Form 8-K. All written and oral forward-looking statements made
subsequent to the date of this Form 8-K and attributable to Sterling Managers or
persons acting on its behalf are expressly qualified in their entirety by this
section.
Sterling Managers
Sterling
Managers was established in April 1999 as an asset management company that
manages a pool of non-cash, media-based assets with a total appraised fair
market value, based on independent third party appraisals, of $476,694,000
(unaudited) as of 3-31-00. These media credits are held in Sterling Media
Capital Fund I, L.P. By late summer of 2000, three new media based mutual funds
are planned to be added under the management of Sterling Managers such that the
total net asset base under management could substantially increase by the end of
the year. If Sterling Managers are able to execute on their business plan, then
the assets under management by Sterling Managers are intended to be used in such
a fashion so as to provide income from a combination of management fees plus a
“profits interest” to Managers in concert with other third parties.
The pools of assets under management are planned to be held by four different
entities, namely:
Sterling Media Capital Fund I, L.P. and subsidiaries
Sterling
Managers is the managing general partner of Sterling Media Capital Fund I, L.P.
(“Fund I”), its operating subsidiary, Sterling Media Investment Group,
L.P. (“SMIG”), and other Portfolio subsidiaries (collectively the
“portfolio companies”). Fund I, operating in conjunction with SMIG,
operates as a non-cash, media-based mutual fund with Sterling Managers acting as
its financial advisor and managing partner. Fund I and SMIG receive non-cash
investment capital in the form of pre-paid advertising time and/or space
(“media credits”) in exchange for its equity securities (partnership
participations). It is then the responsibility of Sterling Managers to invest
those media credits in one form or another into projects in exchange for a
profits/equity interest in each such project.
Fund I and SMIG
are in the process of negotiating a credit facility using a pool of media
credits into cash for direct investment. There can be no assurance that the
Company will be successful in this objective. The methodology being used in this
process requires first an appraisal of the “fair market value” of each
of its media credits from two third-party, independent and credentialed
professionals, then the utilization of these appraisals as a basis of value in
the securitization process of the media credits. The plan is to use the media
credits as collateral enhancement for certain targeted assets to be purchased
which would form the asset backed collateral package for multiple debt issues,
which are intended to be funded by the private or public capital markets. The
third-party appraisers are JWT Specialized Communications, a division of the J.
Walter Thompson Company, and Satterfield & Perry, appraisers of media
properties.
If successful,
the funds raised from the capital markets in this manner would be invested in
companies or projects in selected industries, which could include real estate,
Internet and hi-tech, education for profit, consumer products, and others, in
exchange for equity positions in those companies or projects. Some of the media
credits could be invested directly into companies which need media for growth
and are willing to exchange a portion of their equity securities for media
credits. It is intended that most of the media credits would be used by Sterling
Managers to collaterally enhance other assets, being acquired by its portfolio
companies and others, to facilitate the funding for the portfolio companies
projects through access to the capital markets.
Sterling
Managers’ principal responsibility is to manage the media credits and cash
assets of its various affiliated funds and partnerships, and to offer proactive
investment and management direction to its investee portfolio companies. As its
compensation, Sterling Managers is to be paid origination fees upon initiation
of the investments, annual residual fees from its ongoing projects and portfolio
companies, plus a participation in the profits of the projects/portfolio
companies (which, according to the partnership agreements, are intended to range
up to 50% of the partnership’s share of the profits realized by the
projects/portfolio companies).
Additionally,
other projects are being planned which would be managed through Sterling Media
Capital Group, Inc. or one of its affiliates. Those plans include:
Guaranty Capital Credit, L.L.C.
Sterling
Managers, has in the planning stages, a transaction involving SMIG and two other
unrelated third-party companies, which would establish a new financial guaranty
company, to be named Guaranty Capital Credit, L.L.C. (“GCC”). Plans
call for it to be capitalized for $600,000,000 in cash and other auditable
non-cash assets. The business model for GCC calls for GCC to be a monoline
insurance company which would be in business to issue investment grade financial
guaranties to credit enhance debt for qualified companies. The GCC financial
guarantees would give the recipient companies access to the capital markets for
investment grade rated corporate debt issues (which projects would normally be
relegated to the high-yield debt markets). This could save the otherwise
high-yield debt candidate companies substantial dollars in financing costs, plus
should allow their corporate debt issues to be more marketable. The investment
grade debt markets also provide the investors in the debts much greater
marketability and liquidity in the secondary markets. Sterling Managers views
this market for rated financial guarantees as a niche in the corporate debt
financing markets that is not being adequately served today.
The plan calls
for Sterling Managers to own one-third of GCC and control one-third of the board
seats and to participate in the management of GCC’s intended initial
$600,000,000 net asset base. Because of the conservative underwriting guidelines
which GCC intends to implement, the net asset reserves of GCC should grow
ratably with its growing book of business, which could conceivably reach
$2,000,000,000 in risk coverage per year.
For its
investment position, the plan calls for Sterling Managers to be compensated by
certain management fees and profit participations. The implementation of the
plan is highly speculative and there can be no assurance that the GCC plan will
materialize and if it does materialize that it will be profitable.
Sterling Media Capital Fund III, L.P. and Sterling Media Capital Fund IV, L.P.
Two new media
based mutual funds are planned to be established for which Sterling Managers
would be the managing general partner. Those would be designated Sterling Media
Capital Fund III, L.P. respectively and Sterling Media Capital Fund IV, L.P.
Negotiations are under way with two New York media buying companies, each of
which would serve as the non-managing general partner of Fund III and Fund IV
respectively and each would be responsible for acquiring the limited partner
investors to exchange media credits for an interest in the respective fund in
which the non-managing general partner participates.
A similar
business model would be used by Fund III and Fund IV as in Fund I. The
profitability of Fund III and Fund IV would depend on the same factors as Fund
I. There can be no assurance that Funds III or V will be established and if they
are established that the business plan will be executed in a profitable way.
Sterling Media Capital Fund V, L.P.
Another media
based mutual fund is being planned for which Sterling Managers would be the
managing general partner, namely Sterling Media Capital Fund V, L.P. Discussions
are presently in progress for the prospective non-managing general partner of
Fund V to be a major rebate and rewards services firm based in Los Angeles, CA
that has a client base that includes a number of Internet-based companies who
collectively exercise control over the banner advertising media activity in and
around 50,000 or more Internet web sites which have traffic of over
1,250,000,000 “hits” per month. Accordingly, Fund V will represent
mostly Internet-related media-based assets.
A similar
business model will be used for Fund V as is being used for Fund I. There can be
no assurance that Fund V will materialize and if it does materialize that it
will execute its business plan in a profitable manner.
The Market
Although there
are companies that are engaged in the barter of media credits for goods,
services and equity participations, Sterling Media believes it has developed a
distinctive business model whereby non-cash assets in the form of media credits
are acquired from the media industry and used as a form of collateral, by means
of securitization. The media credits are monetized when they are pledged along
with other assets which are being acquired with the borrowed funds. The assets
which are acquired with the borrowed funds are expected to produce a sufficient
return to enable the repayment of the debt and return a profit to the fund
partnerships. This is an unproven business model and there can be no assurance
that the business plan can be executed in such a fashion so as to, at a minimum,
repay its debt, and at optimum, render a profit for distribution to the
partners. Sterling Media does not know of any other company operating with the
same or similar business plan and therefore cannot evaluate the market with
respect to the effect of competition on the business plan.
How Media Companies Benefit by Using Sterling Mangers and the Pools of Assets it Manages
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It is estimated
that the traditional media industry (not including the internet based media) in
the United States sells over $215,000,000,000 of its available advertising time
and/or space for cash. It is further estimated that this aggregate sales volume
represents, at most, only 70% of the industry’s total available advertising
time and/or space. Therefore, 30% of the available media time/space goes unsold
each year.
The Sterling
Media Capital Fund business model offers those smaller and less recognized media
companies the opportunity to join together with other such smaller media
companies and pool the resources of their respective unsold media inventories,
which, under the management of Sterling Managers and Sterling Media, has the
prospect of producing a financial return on their investment.
Growth Strategy
The ability of
Sterling Media to grow its assets and develop its income base is directly
related to its ability to increase the amount of assets under its management and
its ability to successfully access the corporate capital markets. Recognizing
this, Sterling Media has put in place a two level growth strategy which is
designed to both significantly increase the amount of non-cash media based
assets under its management and to increase it chances of success in accessing
the capital markets.
Sterling Media
is planning to establish three new media capital funds, namely, Funds III, IV
and V to increase its non cash assets under management. Sterling Media will be
the managing general partner for each of these planned new asset pools.
Sterling Media's management has been involved for several months in extended negotiations with a major reinsurance company,
in an effort to establish and operate a new partially owned subsidiary, Guaranty Capital Credit, L.L.C. ("GCC"), which could, with
the sponsorship and assistance of the reinsurer, be able to issue investment grade rated financial guaranties to credit enhance the
proposed corporate debt issues of the Sterling Media Capital Group portfolio companies and other third parties.
There can be no
assurance that either or both of these growth strategies will be successful.
Customers and Services
The Sterling Media business model recognizes two types of customers:
1. The owners of the media based assets that it manages. Sterling Media proposes three types of services to its media
investors who have contributed the media credits:
(a) management of the media credits after they are invested in the fund, including (but not limited to managing the process
of converting the media credit to cash; and
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(b)
management of the process of investing the media credits and/or cash derived
from same into investment opportunities; and (c) management of the process of
overseeing the investment portfolios and providing continued management
assistance and |
expertise (from inside and outside of Sterling Media) to the investee Sterling Media Capital portfolio companies.
2. The
recipient projects or portfolio companies who receive the media credits and/or
cash derived from same. Sterling Media proposes two types of services to its
project/portfolio company clients:
(a) Venture Capital in the form of media credits or cash or combination thereof, which is provided in a somewhat conventional
format, except that Sterling Media, through one or more of its subsidiaries plans to take a significant, and, in most
cases, a controlling position in the asset or company which receives the investment capital;
(b) Management expertise and assistance, provided to the projects or portfolio company(s) by one or more members of the Sterling
Media Capital Group's management team.
Sales and Marketing
All sales and
marketing efforts of Sterling Media are carried out by its directors, top
management, and a small staff of media, financial, and management personnel.
Also, Sterling Media plans to engage and rely on outside third party
professionals to assist in sales, marketing, and management of its business
activities.
Competition
Except for media
barter companies referred to earlier, the management of Sterling Media believes
there is no significant competition for its efforts to acquire media credits
from small to middle size media company investors with the concept of converting
those media credits received into currency and investing same for profit.
With regard to
the investing side of Sterling Media’s and its media capital fund
customers, the major competition is the vast number of private and public
venture capital companies that offer, in one form or another, venture capital to
start up and emerging companies and projects.
It is the view
of management that Sterling Media will have a significant and sufficient flow of
good and qualified investment opportunities from which to choose in its planned
function as the manager of the investment portfolios of its media capital funds.
With regard to
Guaranty Capital Credit, LLC, substantial competition will come from the many
other qualified and well capitalized companies in the financial guaranty/surety
bond industry.
Government Regulation
Currently, the
company has no operations which, to its knowledge, would be considered a
“Regulated Business.” The company is subject to the various federal
and state securities regulations. To the extent that a portfolio company is in a
regulated business, it would be subject to those regulations and appropriate
disclosure.
Item 4. Management of Sterling Media Capital Group, Inc.
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Name Age Position
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Paul A. Nussbaum 53 Chairman of the Board of Directors
Dwight L. Pierce 54 President/CEO and Director
Bob L. McGiboney 58 Executive Vice President and Director
David C. Annin 33 Vice President, Secretary and Director
Gilbert F. Amelio 57 Director
Mr. Paul A. Nussbaum became a Director and Chairman of the Board of Directors of the company in July 2000. Mr. Nussbaum is
a private investor and Chairman Emeritus of Wyndham International, Inc., (NYSE: WYN), successor by merger to Patriot American
Hospitality, Inc. From 1991-1999 he served successively as the Founder, Chairman and Chief Executive Officer of Patriot American
Hospitality, Inc., a real estate investment trust (and its predecessor Patriot American Group). From 1979 to 1991, Mr. Nussbaum
served as Chairman of the real estate practice group of Schulte Roth and Zabel, a law firm with offices in New York, New York and Palm
Beach, Florida. From 1971 to 1979, he was an associate and later a partner for Dreyer and Traub law firm in New York City. Mr.
Nussbaum has a Bachelors of Art from the State University of New York at Buffalo and a Juris Doctors Degree from Georgetown
University Law Center.
Mr. Dwight L. Pierce became President, CEO and a Director of the company in April 1999. Prior to his association with
Sterling Mr. Pierce served as President of Remington University, a six campus technical college institution from 1991 thru 1997. He
is currently a Principal, since 1996 in SunLase, Inc. Mr. Pierce holds the Juris Doctors Degree from the University of Arkansas at
Little Rock.
Mr. Bob L.
McGiboney became a Director and Executive Vice President of the company
in June of 2000 and has been a member of the Advisory Board of Directors since
August of 1999. Mr. McGiboney has been President and CEO of Lucre Funding Group,
Inc. since 1991, a private investment banking firm. He has also served as
Managing Director of Capital Markets for First London Securities and Managing
Director of Corporate Finance for MG Securities Corporation. In 1971 Mr.
McGiboney began with Prudential Bache Securities as an Account Executive, served
as Senior Vice President from 1977, and was appointed to serve on the
Chairman’s Council. From 1968 to 1971 he served as Quality Control Manager
at Texas Instruments in Dallas, Texas. He has worked as a laboratory manager
specializing in Laser and Fiber Optic Research and Standards, and Environmental
Testing with two large aerospace and defense contractors. Mr. McGiboney has a
Bachelors of Science degree in Physics and a degree in Systems Management at
Florida Institute of Technology.
Mr. David
C. Annin became Vice President, Secretary and a Director of the
company in April 1999. Prior to his association with Sterling Mr. Annin was
involved in several medium sized real estate development projects throughout
California and Texas. From 1989 to 1998 he was the principal of a mid-sized
sales and distribution organization based in Los Angeles, California. He has a
background in strategic planning, operations and business administration.
Dr. Gilbert F. Amelio became a Director of the company in October of 1999. Dr. Amelio served as chairman and CEO of Apple
Computer from February 1996 to July 1997. Prior to that, he was chairman, president and CEO of National Semiconductor, and before
that, president of Rockwell Communications Systems. Dr. Amelio began his career with Bell Laboratories in 1968. Since then he has
accumulated over 30 years of high technology experience and has managed businesses in semiconductors, telecommunications and
computers. He holds 16 patents alone or jointly. Dr. Amelio is an IEEE Fellow. He served as a director of the Semiconductor
Industry Association and as its chairman for two years. He also served on the board of governors of the Electronics Industries
Association and as a member of the executive committee of the Business and Higher Education Forum. Dr. Amelio is a director of SBC,
Inc. (NYSE: SBC) and a director of 6 other private company boards. He is a principal in a private venture capital fund. Dr. Amelio
earned bachelors, masters and doctorate degrees in Physics from the Georgia Institute of Technology.
The post-merger entity, Sterling Media Investment Group, Inc., is to be viewed as a continuation of Sterling Media Fund
Managers, L.L.C.
Item 5. Indemnification and Conflicts of Interest Policies
The Board of
Directors has adopted the following Officer and Director Indemnification Policy
and Conflicts of Interest Policy:
Officer and Director Indemnification Policy
The Board of
Directors has authorized indemnification of each of the officers and directors.
A copy of the Indemnification Agreement is attached as Exhibit B.
Conflicts of Interest Policy
The Board of Directors has adopted the following Conflicts of Interest Policy:
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The
Officers and Directors have the unlimited right to make investments and
participate in businesses for their own account, including investments and
businesses competitive with the Corporation, without having or incurring any
obligation to disclose or to offer any such investment or business opportunity
to the Corporation. Furthermore, the Officers and Directors will not be required
to devote full time to the business of the Corporation but rather only such time
as is necessary to carry out and conduct the business of the Corporation.
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The
Officers and Directors shall have the right to invest privately in securities of
organizations with the same business objective as those of the Corporation. The
Officers and Directors may trade for their own account in public or private
securities that are purchased or held by the Corporation, and do business with
independent entities that have the same investment objectives as the
Corporation. In addition, it may occasionally be necessary for the Officers and
Directors to allocate limited investment opportunities among the Corporation and
others on a basis deemed appropriate. Shareholders of the Corporation will not
have access to the trading records of the Officers and Directors.
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Item 6. Employees and Facilities
At this time, Sterling Media Capital Group, Inc. and its subsidiaries collectively have 10 personnel employed which are
located in two locations. The corporate offices of Sterling Media Capital Group, Inc. are located at 7136 S. Yale Ave., Suite 300,
Tulsa, OK 74136. Some administrative offices are located at 4570 Westgrove Drive, Suite 220, Addison, TX 75001.
Item 7. Litigation
The Company is
not a defendant in any past or present litigation. The Company is a plaintiff in
a Declaratory Judgment Action in state court, Tulsa County, Tulsa, Oklahoma.
There are no monetary issues involved in the litigation.
Item 8. Risk Factors
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE
PURCHASING SHARES IN THE COMPANY. INVESTING IN THE COMPANY'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK
INVESTMENT RISK IN THE STOCK OF STERLING MEDIA CAPITAL GROUP, INC.
INVESTING IN THE
COMPANY’S STOCK IS HIGHLY SPECULATIVE AND YOU COULD LOSE SOME OR ALL OF THE
AMOUNT YOU INVEST. The value of the Company’s common stock may decline and
may be affected by numerous market conditions, which could result in the loss of
some or all of your investment in the Company’s shares. The securities
markets frequently experience extreme price and volume fluctuation which affect
market prices for securities of companies. General economic conditions will also
affect the Company’s stock price.
INVESTING IN THE
COMPANY’S SHARES MAY BE INAPPROPRIATE FOR YOUR RISK TOLERANCE. Investing in
the Company’s shares may be inappropriate for your risk tolerance. The
Fund’s investments in accordance with its investment objective and
principal strategies may result in an above average amount of risk and
volatility or loss of principal. The Funds investments in portfolio companies
may be highly speculative and aggressive and, therefore, an investment in the
Company’s shares may not be suitable for you.
THERE CAN BE NO
ASSURANCE THAT THE COMPANY, ACTING AS A GENERAL PARTNER TO VARIOUS MEDIA FUNDS,
WILL BE ABLE TO USE THE MEDIA CREDITS AS AN ASSET FROM WHICH BORROWING CAN BE
ACCOMPLISHED. The business model in managing the various media credit funds is
primarily dependent on being able to access the capital markets using the media
credits as collateral. This is a new and innovative financial model, which as
yet is unproven. Not only does a significant amount of the Company’s
revenue come from placement fees associated with the successful securitization
and monetization of the media credits, but also a significant amount of the
Company’s revenue is expected to come from a profit’s participation
with the limited partners in the expected profits to be achieved from the
investing of the funds accessed from the capital markets using the media credits
as collateral.
PORTFOLIO INVESTMENT RISKS
The investments which Sterling Media Capital Group, Inc. makes through various subsidiaries and portfolio companies must be
profitable in order for the business model to be competent. The following risk must be considered.
THE INABILITY OF
THE STERLING MEDIA PORTFOLIO COMPANIES TO DEVELOP COMMERCIALLY VIABLE PRODUCTS
OR BUSINESSES WOULD HAVE A NEGATIVE IMPACT ON THE COMPANY’S INVESTMENT
RETURNS. The possibility that the Sterling Media portfolio companies will not be
able to commercialize their product or business concept presents significant
risk. Thus, the ultimate success of these companies often depends on their
ability to continually innovate in increasingly competitive markets. Their
inability to do so could affect the Company’s investment returns.
THE INABILITY OF
THE STERLING MEDIA PORTFOLIO COMPANIES TO SUCCESSFULLY MARKET THEIR PRODUCTS OR
SERVICES WOULD HAVE A NEGATIVE IMPACT ON THE COMPANY’S INVESTMENT RETURNS.
Even if the Sterling Media portfolio companies are able to develop commercially
viable products or services, the market for new products and services is highly
competitive and rapidly changing. Commercial success is difficult to predict and
the marketing efforts of the Sterling Media portfolio companies may not be
successful.
AN INVESTMENT
STRATEGY FOCUSED PRIMARILY ON PRIVATELY-HELD COMPANIES PRESENTS CERTAIN
CHALLENGES, INCLUDING THE LACK OF AVAILABLE INFORMATION ABOUT THESE COMPANIES, A
DEPENDENCE ON THE TALENTS AND EFFORTS OF ONLY A FEW INDIVIDUAL PORTFOLIO COMPANY
MANAGERS AND A GREATER VULNERABILITY TO ECONOMIC DOWNTURNS. Sterling Media will
invest primarily in privately-held companies. Generally, very little public
information exists about these companies and Sterling Media will be required to
rely on the Company’s ability to obtain adequate information to evaluate
the potential returns from investing in these companies. Also, privately-held
companies frequently have less diverse product lines and smaller market presence
than larger competitors. They are thus generally more vulnerable to economic
downturns and may experience substantial variations in operating results. These
factors could affect the Company’s investment returns.
THE STERLING
MEDIA PORTFOLIO COMPANIES WILL LIKELY HAVE SIGNIFICANT COMPETITION, BOTH FROM
OTHER EARLY-STAGE COMPANIES AND MORE ESTABLISHED COMPANIES. Emerging growth
companies often face significant competition, both from other early-stage
companies and from more established companies. Early-stage competitors may have
strategic capabilities such as an innovative management team or an ability to
react quickly to changing market conditions, while more established companies
may possess significantly more experience and greater financial resources than
the Sterling Media portfolio companies. These factors could affect the
Company’s investment returns.
THE
COMPANY’S INVESTMENT RETURNS WILL DEPEND ON THE SUCCESS OF THE STERLING
MEDIA PORTFOLIO COMPANIES AND, ULTIMATELY, THE ABILITIES OF THEIR KEY PERSONNEL.
The Company’s success will depend upon the success of the Sterling Media
portfolio companies. Their success, in turn, will depend in large part upon the
abilities of their key personnel. The day-to-day operations of the Sterling
Media portfolio companies will remain the responsibility of their key personnel.
Competition for qualified personnel is intense at any stage of a company’s
development and high turnover of personnel is common in a booming economy. The
loss of one or a few key managers can hinder or delay a company’s
implementation of its business plan. The Sterling Media portfolio companies may
not be able to attract and retain qualified managers and personnel. Any
inability to do so may negatively impact the Company’s investment returns.
SOME OF THE
STERLING MEDIA PORTFOLIO COMPANIES MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE
READILY AVAILABLE. Companies in which we make seed or expansion round
investments will often require substantial additional equity financing to
satisfy their continuing working capital requirements. Each round of venture
financing is typically intended to provide a company with only enough capital to
reach the next stage of development. The Company cannot predict the
circumstances or market conditions under which the Sterling Media portfolio
companies will seek additional capital. It is possible that one or more of the
Sterling Media portfolio companies will not be able to raise additional
financing or may be able to do so only at a price or on terms which are
unfavorable to the Company, either of which could negatively impact the
Company’s investment returns.
THERE ARE
SIGNIFICANT POTENTIAL CONFLICTS OF INTEREST WHICH COULD IMPACT THE
COMPANY’S INVESTMENT RETURNS. There are significant potential conflicts of
interest inherent in the Company’s structure and business model. The
principals of the company perform or may perform similar services for other
investment funds and serve as officers or directors of other entities, and are
thus not able to devote all of their time to the Company. They may also have
obligations to investors in those other investment funds, the fulfillment of
which might not be in the best interests of the Company. Finally, the interests
of a company in which we invest may, from time to time, conflict with the best
interests of one or more of the Sterling Media shareholders.
VALUING THE
COMPANY’S PORTFOLIO IN THE FUTURE WILL BE DIFFICULT AND INEXACT AND MAY NOT
REFLECT THE TRUE VALUE OF THE COMPANY’S INVESTMENTS IN PORTFOLIO COMPANIES.
The Sterling Media board of directors will value the Company’s portfolio
from time to time based on their best estimate of the value of each of the
Company’s individual investments in portfolio companies. There is typically
no public market for the securities of small, privately-held companies. The
Sterling Media board of directors may also consult with accounting firms,
investment banks and other consulting firms when needed, to assist in valuation
of the Company’s investments. Portfolio valuation, however, is inherently
subjective. The net asset value set by the Sterling Media board of directors may
not reflect the price at which you could sell the Company’s shares in the
open market.
THE
COMPANY’S RETURNS MAY BE SUBSTANTIALLY LOWER THAN THE AVERAGE RETURNS
HISTORICALLY REALIZED BY PORTFOLIO MANAGERS WHO INVEST IN SIMILAR INDUSTRIES.
THE BUSINESS OF
CAPITAL INVESTING IS GROWING, AND WITH MORE CAPITAL READILY AVAILABLE, THE
COMPANY’S SUCCESS WILL BE LARGELY DEPENDENT ON A CONTINUING SUPPLY OF
FAVORABLE INVESTMENT OPPORTUNITIES. There has been a significant amount of new
capital invested in venture capital funds in recent years and this trend is
likely to continue. With the amount of capital available, some companies that
may have had difficulty in obtaining funding in the past may be able to do so,
notwithstanding that the chances for success in these investments may be
marginal. In addition, there is likely to be an increasing amount of competition
among venture capital funds for the best investment prospects, particularly in
the Internet and information technology sectors. Thus, Sterling Media’s
success will be largely dependent on the Company’s ability to find the most
favorable opportunities in a highly competitive venture capital market, while
avoiding the marginal prospects.
Item 9. Financial Statements and Exhibits
(a) Financial Statements.
Financial Statements for the Company are not included in this Filing. The financial statements will be filed within the
required statutory period by an amended filing of this form.
(b) Pro Forma Financial Statements
Financial Statements for the Company are not included in this Filing. The financial statements will be filed within the
required statutory period by an amended filing of this form.
Item 10. Exhibits
(a) Letter Agreement among Electro-Kinetic Systems, Inc., Sterling Media Fund Managers, L.L.C. and on behalf of the
shareholders of membership interest of Sterling Media Fund Managers, L.L.C. dated as of June 7, 2000 (incorporated by reference to
Form 8-K (File No. 000-12564) filed with the SEC on June 14, 2000).
(b) Press Release of Electro-Kinetic Systems, Inc. dated June 8, 2000 (incorporated by reference to Form 8-K (File No.
000-12564) filed with the SEC on June 14, 2000).
(c) Certificate of Designations of Series A Convertible Preferred Stock of Sterling Media.
(d) Press Release of Sterling Media Capital Group, Inc. dated July 7, 2000.
SIGNATURE
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.
Sterling Media Capital, Inc.
By:/s/Dwight L. Pierce
-----------------------------
Dwight L. PiercePresident
and Chief Executive
Officer
Date: July 24, 2000
EXHIBIT A
ELECTRO-KINETIC SYSTEMS, INC.
525 Washington Blvd., Ste. 3600, Jersey City, New
Jersey 07310
Telephone (201) 216-0100 - Facsimile (201)
216-1105
June 6, 2000
Mr. Dwight L. Pierce, President/CEO
Mr. David Annin, Vice President
Sterling Media Fund Managers, L.L.C.
General Partner
Sterling Media Capital Fund, L.P. and
Sterling Media Investment Group, L.P. Via Facsimile No. (972) 248-4815
--------------------------------
7136 S. Yale Avenue, Suite 300
Tulsa, Oklahoma 74136
Re: Acquisition of Sterling Media Fund Managers, L.L.C. by Electro-Kinetic Systems, Inc.
------------------------------------------------------------------------------------
Gentlemen:
The Board of
Directors of Electro-Kinetic Systems, Inc. (“EKS”), a
Pennsylvania corporation, has authorized the undersigned to execute this Letter
Agreement whereby EKS shall acquire Sterling Media Fund Managers, L.L.C.
(“Managers”), an Oklahoma limited liability company, from its
shareholders of membership interest (the “Managers
Shareholders”) in an exchange (the “Exchange Transaction”) for
Forty Six Million of EKS Class A common stock (the
“Acquisition EKS Shares”). After the Exchange Transaction,
Managers will be fifteen percent (15%) owned by EKS, and the
Acquisition EKS Shares would be owned collectively by the Managers
Shareholders (and individually by each of the Managers Shareholders
in their appropriate pro-rata amounts). This letter (the “Letter
Agreement”) will set forth the terms and conditions upon which the
Exchange Transaction shall be consummated.
1. Legal Effect.
------------
This Letter
Agreement is intended to be, and does constitute, a legally binding contract
between the parties for the transactions contemplated herein.
2. Exchange Transaction.
--------------------
A. The closing of the Exchange Transaction contemplated herein is contingent upon the approval by 100% of the
Managers Shareholders and the holders of all of the "Convertible Promissory Note(s)" now issued by Managers, such approvals
to be evidenced by written consent to be duly requested and received on or before 5:00 P.M. on June 16, 2000.
B. Immediately after receipt of notice by Managers of the approvals required in paragraph 2.A. above, the
Board of Directors of EKS will adopt, by unanimous consent as provided in Section 1727 of the Pennsylvania Business
Corporation Law of 1988, resolutions authorizing:
(i) the change of name by EKS to Sterling Media Fund Managers, Inc. or other name selected by the holders
of the newly issued Acquisition EKS Shares;
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(ii)
execution of this Letter Agreement and issuance of the 46,000,000 common shares
of EKS upon the terms and subject to the conditions contained herein;
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(iii)
cancellation of all outstanding warrants, options or obligations to issue any
securities of EKS over and above a total of 44,000,000 common shares
issued or to be issued. However, while included in the 44,000,000 share total,
the two outstanding options for 3,500,000 shares may be exercised up to 30 days
after closing otherwise they will expire; and
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(iv)
appointment of Atlas Stock Transfer Corporation, Salt Lake City, Utah, as
transfer agent for all of the shares of capital stock of EKS;
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The closing (the “Closing”) shall take place upon such date (the
“Closing Date”) as the parties hereto may mutually agree upon, but
shall be no later than June 27, 2000. The Closing shall take place at the
offices of Ballon, Stoll, Bader & Nadler, P.C., 1450 Broadway, New York, New
York 10018-2268, or at such place in New York, New York as may be mutually
agreed upon by the parties. At the Closing, the following will occur: |
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(i)
EKS will deliver to Managers Shareholders certificates
representing 46,000,000 authorized and previously unissued shares of common
stock of EKS. The certificates shall contain the customary restrictive
legend and be issued in names of registered owners and in such denominations
requested by Managers Shareholders. The Acquisition EKS Shares
shall represent a majority of the total issued and outstanding equity interest
of EKS as of the date of Closing;
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(ii)
Managers Shareholders will deliver to EKS the certificates
representing fifteen percent (15%) of the outstanding equity interest of
Managers, duly endorsed (or with duly executed stock powers) so as to
make EKS the sole owner thereof free and clear of all claims and
encumbrances except as specifically assumed by EKS. Simultaneously, on
the Closing date, EKS will deliver the certificates representing the
Acquisition EKS Shares to Managers Shareholders;
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(iii)
EKS will deliver to Managers a certificate from the Department of
State of the Commonwealth of Pennsylvania dated not more than fifteen (15) days
prior to the date of Closing to the effect that EKS is in good standing
under the laws of the said Commonwealth;
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(iv)
EKS will deliver to Managers all corporate records of EKS,
including without limitation corporate minute books (which shall contain copies
of the Articles of Incorporation and By-Laws, as amended to the Closing), stock
books, stock transfer books, corporate seals, and such other corporate books and
records as may reasonably requested by the Managers Shareholders and
their counsel;
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(v) Managers will deliver to EKS a Certificate from the Secretary of State of Oklahoma dated at or about
the date of Closing that Sterling Media Capital Fund I, L.P. and Sterling Media Investment Group, L.P. are each in
good standing under the laws of said state;
(vi) Managers is now and, following the Closing, shall be the sole general partner of Sterling Media Capital
Fund I, L.P., and Sterling Media Investment Group, L.P., each of which is an Oklahoma limited partnership (a copy of
each Limited Partnership Agreement has been delivered to representatives of EKS); and
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(vii)
The corporate financial records, minute books, and other documents and records
of EKS are to be available to Managers at the time of the Closing and
turned over to new management in their entirety at Closing. Such records are
complete and correct and have been maintained in accordance with good business
and accounting practices.
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D. Immediately after the closing the existing Board of Directors of EKS will resign and cause the designees of
the holders of the newly issued Acquisition EKS Shares to be elected to fill the vacancies created by the resignations of
the present EKS directors. The newly elected directors of EKS will take the following corporate action:
(i) cause EKS to:
(a) indemnify the former officers and directors against any liability, cost or expense
arising out of the Exchange Transaction; and
(b) provide piggy-back registration rights to the holders of restricted securities issued
upon exercise of conversion rights or options prior to the Closing;
(ii) authorize the payment of all reasonable attorneys' fees to Ballon, Stoll, Bader and Nadler, P.C. that
remain unpaid after the Closing;
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(iii)
amend the capitalization of EKS such that after the amendment a total of
17 million common shares are outstanding of which the present holders of
44,000,000 shares of Class A Common Stock own not less than 1,445,000 shares
(being 8.5% of the total) of common stock and the holders of the remaining
46,000,000 shares of Class A Common Stock and remaining outstanding equity
interest of Managers own 15,555,000 shares of new Common stock and 100%
of the equity interest of Managers is owned by EKS;
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(iv)
procure the prompt preparation and file with the Securities and Exchange
Commission appropriate notice describing this transaction on Form 8-K or other
applicable form, and otherwise comply with the provisions of the Securities
Exchange Act of 1934;
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(v)
procure the preparation of a disclosure statement containing the necessary
information to comply with Rule 15(c)2(11) promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 and file
such forms with one or more firms who are members of the National Association of
Securities Dealers, Inc. (“NASD”) who make a market in the securities
of EKS;
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(vi)
as promptly as possible after the Exchange Transaction, prepare, file with the
Securities and Exchange Commission pursuant to the Exchange Act of 1934 and
distribute to Shareholders of EKS an information statement pursuant to
SEC Rule 14-F, and 10 days thereafter resign as directors of EKS (prior
to definitive action being taken regarding an information statement containing
the information specified in Schedule 14-C, which Managers agree will be
prepared, filed with the Securities and Exchange Commission and distributed to
Shareholders of EKS 20 days prior to any shareholder or corporate action
taken by EKS to acquire the balance of the shares of ownership interest
in Managers);
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(vii)
prepare and file with the Securities and Exchange Commission a Preliminary and
Definitive Schedule 14-C and 14-F as may be required within the time allowed,
together with an Information Statement for distribution to the shareholders of
EKS describing the amendment to the Articles of Incorporation, the
reincorporation as well as any other action to be taken by the shareholders at a
special meeting called for that purpose; and
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(viii)
apply to the Standard & Poor’s editorial board to approve the Company
for a full description in Standard & Poor’s Standard Corporation
Manual, Standard & Poor’s Daily News Section, coverage of the Company
as part of the S&P Market Access Program and coverage on Standard &
Poor’s Internet Site, www.advisorinsight.com, as well as S&P
Marketscope and the S&P Stock Guide database.
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3. Representations and Warranties of the Managers Shareholders
-----------------------------------------------------------
A. Subject to the shareholder's written consent as set forth in Paragraph 2.A. above, the record and
beneficial owners of 100% of the shares of ownership interest in Managers shall agree to the terms of this Letter Agreement
and authorize the undersigned representatives of Managers Shareholders to execute this Letter Agreement and consummate the
Exchange Transaction in accordance with its terms.
B. The Managers Shareholders who will participate (in person or by written proxy) in the Exchange Transaction
shall be the record and beneficial owners of 100% of the equity interest of the Managers as of the date of Closing.
C. Managers is the general partner and manager in good standing of Sterling Media Capital Fund I, L.P., an
Oklahoma limited partnership and Sterling Media Investment Group, L.P., an Oklahoma limited partnership.
D. At the time of the Closing, except for this Agreement, there will be no outstanding options, contracts,
calls, commitments, agreements or demands of any character relating to the equity ownership interest of the Managers.
E. The unaudited financial statements of the Managers as at May 31, 2000 have been delivered to
representatives of EKS. The financial statements of Managers as at May 31, 2000 shall be examined by independent auditors
and delivered by the Managers Shareholders to EKS prior to the Closing. Based on internal preliminary unaudited financial
statements, it is estimated that Managers will have a net worth in excess of $2,000,000.
F. The outstanding shares of ownership interest of Managers are validly issued, fully paid and non-assessable.
G. Upon receipt of a written request to do so, the representatives of the Managers Shareholders executing this
Agreement shall cause to be delivered to EKS prior to closing, copies of complete and accurate records of all meetings,
filings, and other corporate actions of the shareholders and board of directors of Managers.
H. The execution and delivery of this Letter Agreement does not, and the consummation of the transaction
contemplated hereby will not, violate any provision of the certificate/articles of formation or bylaws of Managers, or any
provisions thereof, or result in the acceleration of any obligation under, any mortgage lien, lease, agreement, instrument,
court order, arbitration award, judgment or decree to which Managers is a party, or by which it is bound, and will not
violate any other restriction of any kind or character to which it is subject.
I. To the best
of the knowledge of the parties signing on behalf of the Managers
Shareholders (which parties constitute the management of Managers), there
are no material liabilities of Manager except as represented on the unaudited
and audited financial statements described in paragraph E of this Section 3,
whether accrued, absolute, contingent or otherwise, which arose or relate to any
transaction of Managers, its agents or servants occurring prior to the
statement date, which are not disclosed by or reflected in the current reported
financial statements. There are no such liabilities of Managers which
have arisen or relate to any transaction of Managers, its agents or
servants, occurring since the statement date, other than normal liabilities
incurred in the normal conduct of the business of Managers, and none of
which have a material adverse effect on the business or financial condition of
Managers. As of the date hereof, there are no known circumstances,
conditions, happenings, events or arrangements, contractual or otherwise, which
may hereafter give rise to liabilities, except in the normal course of business
of the Managers. The representations made herein shall also be true and
correct as of the date of Closing.
J.
Managers is duly formed and validly existing and in good standing under
the laws of the State of Oklahoma and has all requisite power necessary to do
business in any jurisdiction wherein Managers conducts its business.
4. Representations and Warranties of the EKS
------------------------------------------
A. EKS has, and at the Closing will have, authority to issue the Acquisition EKS Shares, representing a
majority interest in EKS, which are being transferred hereunder to the Managers Shareholders.
B. EKS shall be the record and beneficial owner of 100% of the ownership interests in the Acquisition EKS
Shares prior to Closing.
C. EKS is a Pennsylvania corporation whose shares are, and as of the date of Closing, registered pursuant to
Section 12 (G) of the Securities Exchange Act of 1934 and qualified for quotation on the NASD Electronic Bulletin Board
operated by the NASD.
D. At the time of the Closing, except for this Agreement, there will be no outstanding options, contracts,
calls, commitments, agreements or demands of any character relating to the capital stock of EKS.
E. The financial statements of EKS shall be current and in accordance with the routine reporting status of the
NASD Electronic Bulletin Board (current 10-K's, 10-Q's, etc.).
F. At the time of Closing, EKS shall be trading on the NASD Electronic Bulletin Board with at least two market makers active
and trading in EKS common stock.
G. The outstanding shares of EKS are and on the Closing Date will be, legally and validly issued and
non-assessable.
H. EKS shall deliver to the Managers Shareholders, at their written request prior to closing, copies of
complete and accurate records of all meetings, filings, and other corporate actions of the shareholders and Board of
Directors of EKS.
I. The execution and delivery of this Letter Agreement does not, and the consummation of the transaction
contemplated hereby will not violate any provision of the certificate/articles of incorporation or bylaws of EKS, or any
provisions thereof, or result in the acceleration of any obligation under, any mortgage, lien lease, agreement, instrument,
court order, arbitration award, judgment or decree to which EKS is a party, or by which it is bound, and will not violate
any other restriction of any kind or character to which it is subject.
J. EKS has the authority to issue one hundred million (100,000,000) shares of capital stock, of which ninety
million (90,000,000) are shares of Class A common stock, no par value, and ten million (10,000,000) are shares of preferred
stock, no par value. At the date of Closing, including the Acquisition EKS Shares to be issued hereunder, ninety million
(90,000,000) shares of Class A common stock and none of the preferred shares will be issued and outstanding.
K. To the best
of the knowledge of management of EKS, there are no material liabilities
of EKS, whether accrued, absolute, contingent or otherwise, which arose
or relate to any transaction of EKS, its agents or servants occurring
prior to the date of the financial statements included in EKS’s Form
10-QSB for the quarterly period ended March 31, 2000 filed with the Securities
and Exchange Commission (“Statement Date”), which are not disclosed by
or reflected in said financial statements, (i) except an accrued tax liability
of approximately $5,000 by a former subsidiary, and (ii) except a note payable
by EKS in the amount of $25,000 that is deemed uncollectable because of
the four year statute of limitations. There are no such liabilities of
EKS which have arisen or relate to any transaction of EKS, its
agents or servants, occurring since the Statement Date, other than liabilities
incurred in the ordinary conduct of the business of EKS consistent with
the prior conduct of its business, and none of which have a material adverse
effect on the business or financial condition of EKS. As of the date
hereof, there are no known circumstances, conditions, happenings, events or
arrangements, contractual or otherwise, which may hereafter give rise to
liabilities, except in the ordinary course of business of the EKS
consistent with the prior conduct of its business.
L. The representations made herein shall also be true and correct as of the date of Closing.
M. EKS is
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all requisite power necessary to do
business in any jurisdiction wherein EKS conducts its business.
5. Miscellaneous.
--------------
A. The
EKS shares will be issued to the Managers Shareholders without
registration under the Securities Act of 1933 or the securities laws of any
state of the United States. Therefore, the EKS shares will be restricted
securities as defined in Rule 144 of the Securities Act of 1933, an appropriate
legend will be stamped on each certificate representing such shares and stop
orders will be issued to the transfer agent.
B. It is the
intention of the parties hereto to cooperate with each other to raise up to
$3,000,000 in cash for EKS from the sale of certain debt and/or equity
securities of EKS, immediately after the Closing. However, there is no
assurance that the parties hereto will be successful is raising these. The
cooperative best efforts of the parties hereto to raise such funds shall
continue after Closing toward that end, such that as soon as is practicable the
total $3,000,000 in cash funds will be raised for the use and benefit of
EKS.
C. At any time, and from time to time, after the Closing, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party to confirm or perfect title to any property
transferred hereunder or otherwise to carry out the intent and purposes of this Agreement;
D. Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions
hereunder may be waived in writing by the party to whom such compliance is owed.
E. All notices and other communications hereunder shall be in writing and shall be deemed to have been given
if delivered in person or sent by prepaid first class registered or certified mail, return receipt requested to the
following addresses, or such other addresses as are given to other parties in the manner set forth herein.
EKS: Electro-Kinetic Systems, Inc.
525 Washington Blvd., Suite 3600
Jersey City, New Jersey 07310
Attn: Raymond L. Burke, President and CEO
Tel: (201) 216-0100
Fax: (201) 216-1105
With a copy to: Ballon, Stoll, Bader and Nadler, P.C.
1450 Broadway
New York, New York 10018-2268
-----------------------------
Attn: Robert M. Shepard, Esq.
Tel: (212) 575-7900
Fax: (212) 764-5060
Managers: Sterling Media Fund Managers, L.L.C.
7136 S. Yale Avenue, Suite 300
------------------------------
Tulsa, Oklahoma 74136
Attn: Dwight L. Pierce, President and CEO
Tel: (972) 248-1601
Fax: (972) 248-4815
With a copy to: Robert L. Sonfield, Jr., Esq.
Sonfield and Sonfield
770 South Post Oak Lane, Suite 435
Houston, Texas 77056-1913
Tel: (713) 877-8333
Fax: (713 877-1547
F. The section and subsection headings in this Agreement are inserted for convenience and shall not affect in
any way the meaning or interpretation of this Agreement.
G. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. A facsimile signature by any party on a
counterpart of this Agreement shall be binding and effective for all purposes. Such party shall, however, subsequently
deliver to the other party an original executed copy of this Agreement.
H. The commitment of EKS to consummate the transaction contemplated hereby (the "Sterling Transaction") is
intended to be binding. However, the parties acknowledge that the steps outlined in this letter are based on a very
preliminary analysis of the extant facts and applicable legal requirements presented hereby. Accordingly, the parties agree
as follows:
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(i)
in the event that a third party offers to enter into a transaction with
EKS (“Alternative Transaction”) which would be significantly
more attractive to the EKS shareholders than the Sterling Transaction,
which the directors of EKS determine that they have a fiduciary duty to
pursue, EKS may terminate this letter. In the event of a termination as
the result of such determination, EKS shall be required, at the effective
date of the Alternative Transaction, to pay a break-up fee of $350,000 in cash
to Sterling as a contribution to its expenses; provided, however, that such
break-up fee shall be required to be paid only if this letter is terminated
because an Alternative Transaction is presented, a letter of intent regarding
the Alternative Transaction is presented, a letter of intent regarding the
Alternative Transaction is executed within three months of the date hereof and
the Alternative Transaction is consummated within one year thereafter;
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(ii)
in the event that prior to consummation of an Alternative Transaction, either
party (“Injured Party”) becomes aware of the facts not previously
known to such party as a result of which the Sterling Transaction becomes
significantly less attractive to the Injured Party or its security holders than
contemplated hereby, the parties shall negotiate in good faith to adjust the
terms of this Agreement to accommodate such new state of facts, but if such
adjustment proves not to be feasible, the Injured Party shall have the right to
terminate this Agreement without liability of either party to the other; and
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(iii)
in the event that any requirement of law applicable to the Sterling Transaction
is identified which requires action not contemplated by this Agreement, the
parties will negotiate in good faith to adjust the terms of this Agreement to
accommodate such requirement with a view to either (a) complying with such
requirement, or (b) if such compliance is deemed by the parties hereto not to be
feasible within the time and expense constraints of the Sterling Transaction, to
terminate this Agreement without liability of either party to the other, it
being agreed that any action required to be authorized or taken before either
(x) control of EKS changes hands, or (y) the present directors of
EKS (“Present Directors”) are replaced by new directors in
compliance with applicable law, shall be taken by the Present Directors only
after they are satisfied in their reasonable discretion that such action meets
all requirements of law.
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I. This Agreement shall be governed by the laws of New York.
J. This Agreement shall be binding upon the parties hereto and inure to the benefit of the parties, their
respective heirs, administrators, executors, successors and assigns.
K. This Agreement is the entire agreement of the parties covering everything agreed upon or understood in the
transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind
as conditions or inducements to the execution hereof.
L. Time is of the essence.
M. If any part of this Agreement is determined by a court of competent jurisdiction to be unenforceable, the
balance of the Agreement shall remain in full force and effect.
N. In the event any party hereto has to resort to legal action to enforce any of the terms hereof, such party
shall be entitled to collect attorneys' fees and other costs from the party in default.
If the foregoing terms are acceptable, please acknowledge your acceptance by signing below in the space indicated and
forwarding an executed copy of this Letter Agreement by facsimile transmission to the undersigned on or before 5:00 P.M. (CDST), June
7, 2000.
Sincerely,
/s/Raymond L. Burke
__________
Raymond L. Burke, President
President and CEO
Electro-Kinetic Systems, Inc.
Fax. No. (201) 216-1105
AGREED and ACCEPTED this 6th day of June, 2000:
STERLING MEDIA FUND MANAGERS, L.L.C. and Managers Shareholders
By: _/s/Dwight L. Pierce_______________ By: _/s/David Annin______________________
-------------------- --------------- -
Mr. Dwight L. Pierce Mr. David Annin
President/CEO Vice President of Administration
Sterling Media Fund Managers, L.L.C. Sterling Media Fund Managers, L.L.C.
General Partner General Partner
Sterling Media Capital Fund I, L.P. Sterling Media Capital Fund I, L.P.
Sterling Media Investment Group, L.P. Sterling Media Investment Group, L.P.
EXHIBIT B
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of _____________, between Sterling Media Capital Group, Inc., a Pennsylvania corporation (the
"Company"), and ___________________ ("Indemnitee").
WHEREAS, Indemnitee is a director (or officer) of the Company;
WHEREAS,
both the Company and Indemnitee recognize the increased risk of litigation and
other claims being asserted against directors and officers of public companies
at a time when it has become increasingly difficult to obtain adequate insurance
coverage at reasonable costs;
WHEREAS,
in recognition of Indemnitees need for substantial protection against personal
liability in order to enhance Indemnitees continued service to the Company in an
effective manner, the Company wishes to provide in this Agreement for the
identification of and the advancing of expenses to Indemnitee to the full extent
(whether partial or complete) permitted by law and as set forth in this
Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company’s directors’ and
officers’ liability insurance policies, regardless of any future change in
the Certificate of Incorporation, By-Laws, composition of the Board of
Directors, or structure of the Company.;
NOW,
THEREFORE, in consideration of the premises and of Indemnitee’s service
to the Company, directly or indirectly, including to its subsidiaries or
affiliates and intending to be legally bound hereby, the parties hereto agree as
follows:
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In the event Indemnitee was, is, or becomes a party to or a witness or other
participant in, or is threatened to be made a party to or a witness or other
participant in, any threatened, pending or completed action, suit or proceeding,
or any inquiry or investigation, whether conducted by the Company or any other
party, that Indemnitee in good faith believes might lead to any such action,
suit or proceeding, whether civil, criminal, administrative, investigative or
otherwise (a “Claim”) by reason of (or arising in part out of) the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity (an
“Indemnifiable Event”), the Company shall indemnify Indemnitee to the
full extent permitted by law (the determination of which shall be made by the
Reviewing Party referred to below) as soon as practicable but in any event no
later than thirty days after written demand is presented to the Company, against
any and all expenses (including attorneys’ fees and all other costs,
expenses, and obligations paid or incurred in connection with investigating,
preparing for and defending or participating in the defense of (including on
appeal) any Claim relating to any Indemnifiable Event) (collectively
“Expenses”), judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such judgments, fines, penalties or
amounts paid in settlement) of such Claim and, if so requested by Indemnitee,
the Company shall advance (within two business days of such request) any and all
such Expenses to Indemnitee; provided, however, that (i) the foregoing
obligation of the Company shall not apply to a Claim that was commenced by the
Indemnitee without the prior approval of the Board of Directors of the Company
unless the Claim was commenced after a Change in Control (as defined in Section
5 herein); (ii) the foregoing obligation of the Company shall be subject to the
condition that an appropriate person or body (the “Reviewing Party”)
shall not have determined (in a written opinion in any case in which the
special, independent counsel referred to in Section 4 hereof is involved) that
Indemnitee would not be permitted to be indemnified for such Expenses under
applicable law; and (iii) if, when and to the extent that the Reviewing Party
determines that Indemnitee would not be permitted to be indemnified for such
Expenses under applicable law, the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid (unless Indemnitee has commenced legal proceedings in a court
of competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, in which event Indemnitee shall not be
required to so reimburse the Company until a final judicial determination
requiring such reimbursement is made with respect thereto as to which all rights
of appeal therefrom have been exhausted or lapsed) and the Company shall not be
obligated to indemnify or advance any additional amounts to Indemnitee under
this Agreement (unless there has been a determination by a court of competent
jurisdiction that the Indemnitee would be permitted to be so indemnified or
entitled to such expense advances under applicable law). |
| 2. |
If there has not been a Change in Control of the Company (as hereinafter
defined), the Reviewing Party shall be (1) quorum of the Board of Directors
consisting of directors who are not parties to the action, suit or proceeding
acting by majority vote, or, (2) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, independent legal
counsel by the use of a written opinion or (3) the stockholders. If there has
been a Change in Control of the Company, the Reviewing Party shall be the
special, independent counsel referred to in Section 4 hereof. |
| 3. |
If Indemnitee has not been indemnified by the expiration of the foregoing
thirty-day period or received expense advances or if the Reviewing Party
determines that Indemnitee would not be permitted to be indemnified or be
entitled to receive expense advances within two days of the request therefor in
whole or in part under applicable law, Indemnitee shall have the right to
commence litigation seeking from the court a finding that Indemnitee is entitled
to indemnification and expense advances or enforcement of Indemnitee’s
entitlement to indemnification and expense advances or challenging any
determination by the Reviewing Party or any aspect thereof that Indemnitee is
not entitled to be indemnified or receive expense advances and the burden of
proving that indemnification or advancement of expenses is not appropriate shall
be on the Company; any determination by the Reviewing Party in favor of
Indemnitee shall be conclusive and binding on the Company, unless facts supplied
by Indemnitee which form the basis for the determination are subsequently
determined to have been materially incorrect at the time supplied. Indemnitee
agrees to bring any such litigation in any court in the States of Delaware
having subject matter jurisdiction thereof and in which venue is proper, and the
Company hereby consents to service of process and to appear in any such
proceeding. |
| 4. |
The Company agrees that if there is a Change in Control of the Company (as
hereinafter defined), then with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnity payments and expense advances
under this Agreement or any other agreement or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from special, independent counsel selected by Indemnitee who a
majority of the disinterested Directors approves (which approval shall not be
unreasonably withheld), and who has not otherwise performed services for the
Company or Indemnitee. Such counsel, among other things, shall determine whether
and to what extent Indemnitee is permitted to be indemnified or is entitled to
expense advances under applicable law and shall render its written opinion to
the Company and Indemnitee to such effect. The Company agrees to pay the
reasonable fees of the special, independent counsel referred to above and to
fully indemnify such counsel against any and all expenses (including
attorney’s fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto except for willful
misconduct or gross negligence. |
| 5. |
For purposes of this Agreement, (a) “Change in Control of the Company”
shall be deemed to have occurred if (i) any “person” (as such term is
used in Sections 13(d)(3) and 14(d) of the Securities Exchange Act of 1934, as
amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, is or becomes the beneficial owner (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company’s then outstanding securities, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company’s stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 80% of the combined
voting power of the voting securities of the Company of such surviving entity
outstanding immediately after such merger or consolidation, or if the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company’s assets. |
| 6. |
To the extent Indemnitee is successful in such proceeding, the Company shall
indemnify Indemnitee against any and all expenses (including attorney’s
fees) which are incurred by the Indemnitee in connection with any claim asserted
or action brought by Indemnitee for (i) indemnification or advance payment of
Expenses by the Company under this Agreement or any other agreement or Company
By-laws now or hereafter in effect relating to Claims for Indemnifiable Events
and/or (ii) recovery under any directors’ and officers’ liability
insurance policies maintained by the Company, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advance payment
of Expenses or insurance recovery, as the case may be. |
| 7. |
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses, judgments,
fines, penalties and amounts paid in settlement of any Claim but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in the defense of any
Claim relating in whole or in part to any Indemnifiable Event or in defense of
any issue or matter therein, including dismissal without prejudice, Indemnitee
shall be indemnified against all Expenses incurred in connection therewith. |
| 8. |
For purposes of this Agreement, the termination of any Claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that Indemnitee is not entitled
to indemnification or expense advance or that indemnification or expense advance
is not permitted by applicable law. |
| 9. |
The Company hereby agrees that, so long as Indemnitee shall continue to serve in
a capacity referred to in Section 1 hereof, and thereafter so long as Indemnitee
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that Indemnitee served in any capacity
referred to in Section 1 hereof, the Company shall maintain in effect for the
benefit of Indemnitee any Directors’ and Officers’ Liability Insurance
presently in force and effect, providing, in all respects, coverage at least
comparable to that presently provided; provided, however, if, in the business
judgment of the then Board, either (a) the premium cost for such insurance is
substantially disproportionate to the amount of coverage, or (b) the coverage
provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance, then and in that event the Company
shall not be required to maintain such insurance but shall and hereby agrees to
the full extent permitted by law to hold harmless and indemnify Indemnitee to
the fullest extent of the coverage which would otherwise have been provided for
the benefit of Indemnitee. |
10. (a) In the event of any changes after the date of this Agreement in any applicable law, statute, or rule which expands
the right of the Company to indemnify a person serving in a capacity referred to in Section 1 hereof, such change
shall be within the purview of Indemnitee's rights, and the Company's obligations, under this Agreement. In the
event of any changes in any applicable law, statute, or rule which narrow the right of the Company to indemnify a
person serving in a capacity referred to in Section 1 hereof, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties'
rights and obligations hereunder.
(b) The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may
be entitled under the Company's Certificate of Incorporation, its By-laws, any agreement, any vote of stockholders
or disinterested directors, laws and regulations in effect now or in the future, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while holding such office.
| 11. |
If the indemnification provided in Section 1 is unavailable and may not be paid
to Indemnitee because such indemnification is not permitted by law, then in
respect of any threatened, pending or completed action, suit or proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), the Company shall contribute to the full
extent permitted by law, to the amount of expenses, judgments, fines (including
excise taxes and penalties) and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Company on
the one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to among other things, the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and equitable if contribution pursuant to this paragraph
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations. |
| 12. |
All obligations of the Company contained herein shall continue during the period
Indemnitee serves in a capacity referred to in Section 1 hereof of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible Claim relating to an Indemnifiable Event. |
13. (a) Promptly after receipt by Indemnitee of notice of the commencement of any Claim relating to an Indemnifiable Event
or proceeding in which Indemnitee is made or is threatened to be made a party or a witness, Indemnitee shall notify
the Company of the commencement of such Claim; but the omission so to notify the Company shall not relieve the
Company from any obligation it may have to indemnify or advance expenses to Indemnitee otherwise than under this
Agreement.
(b) Indemnitee shall not settle any claim or action in any manner which would impose on the Company any penalty,
constraint, or obligation to hold harmless or indemnify Indemnitee pursuant to this Agreement without the Company's
prior written consent, which consent shall not be unreasonably withheld.
| 14. |
If any Claim relating to an Indemnifiable Event, commenced against Indemnitee is
also commenced against the Company, the Company shall be entitled to participate
therein at its own expense, and, except as otherwise provided hereinbelow, to
the extent that it may wish, the Company shall be entitled to assume the defense
thereof. After notice from the Company to Indemnitee of its election to assume
the defense of any Claim, the Company shall not be obligated to Indemnitee under
this Agreement for any legal or other expenses subsequently incurred by
Indemnitee in connection with the defense thereof other than reasonable costs of
investigation, travel, and lodging expenses arising out of Indemnitee’s
participation in such Claim. Indemnitee shall have the right to employ
Indemnitee’s own counsel in such Claim, but the fees and expenses of such
counsel incurred after notice from the Company to Indemnitee of its assumption
of the defense thereof shall be at the expense of Indemnitee unless (i)
otherwise authorized by the Company, (ii) Indemnitee shall have reasonably
concluded, and so notified the Company, that there may be a conflict of interest
between the Company and Indemnitee in the conduct of the defense of such Claim,
or (iii) the Company shall not in fact have employed counsel to assume the
defense of such Claim, in which cases the fees and expenses of Indemnitee’s
counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any Claim brought by or on behalf of the
Company or its stockholders or as to which Indemnitee shall have made the
conclusion set forth in (ii) of this Section 14. |
| 15. |
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver. |
| 16. |
In the event of payment under this Agreement, the Company shall be subrogated to
the extent of such payment to all of the rights of recovery of Indemnitee, who
shall execute all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents necessary to
enable the Company effectively to bring suit to enforce such rights. |
| 17. |
The Company shall not be liable under this Agreement to make any payment in
connection with any claim made against Indemnitee to the extent Indemnitee has
otherwise actually received payment (under any insurance policy, By-law or
otherwise) of the amounts otherwise indemnifiable hereunder. |
| 18. |
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors, assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business and/or assets of the
Company, spouses, heirs, executors, and personal and legal representatives. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as an officer or director of the Company or of any other enterprise at the
Company’s request. |
| 19. |
The provisions of this Agreement shall be severable in the event that any of the
provisions hereof (including any provision within a single section, paragraph or
sentence) are held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, and the remaining provisions shall remain enforceable
to the full extent permitted by law. |
| 20. |
This Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware applicable to contracts made and to be performed in such
state, but excluding any conflicts-of-law rule or principle which might refer
such governance, construction or enforcement to the laws of another state or
country. |
IN WITNESS
WHEREOF, the parties hereto have executed this Agreement on and as of the
day and year first above written.
STERLING MEDIA CAPITAL GROUP, INC.
By:.......................................................
Dwight L. Pierce, President
INDEMNITEE
..........................................................
__________
EXHIBIT C
ARTICLES OF DESIGNATIONS
OF
POWERS, RIGHTS, PREFERENCES, PRIVILEGES,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
STERLING MEDIA CAPITAL GROUP, INC.
(a Pennsylvania corporation)
.........Dwight L. Pierce and David C. Annin certify that:
A. They are the duly elected and acting President and Corporate Secretary respectively of Sterling Media
Capital Group, Inc., a Pennsylvania corporation (the "CORPORATION").
B. The Articles of Incorporation authorizes the directors to adopt resolutions fixing the rights, preferences,
restrictions and other matters of wholly unissued series of Preferred Stock, and pursuant to this authority given by the
Corporation's Articles of Incorporation, the Board of Directors of the Corporation has duly adopted the following recitals
and resolutions:
| |
WHEREAS,
the Articles of Incorporation of the Corporation provides for the Preferred
Stock, consisting of 10,000,000 shares issuable from time to time in one or more
series;
|
| |
WHEREAS,
the Board of Directors of the Corporation is authorized to fix by resolution or
resolutions the classes or series of Preferred Stock to have such designations
and powers, rights, preferences, privileges, qualifications, limitations and
restrictions granted to or imposed upon the Preferred Stock or any class or
series thereof;
|
WHEREAS, the Corporation has no issued or outstanding shares of Preferred Stock; and
| |
WHEREAS,
the Board of Directors desires, pursuant to its authority as aforesaid, to
designate 4,276,471 shares of the Preferred Stock as “SERIES A CONVERTIBLE
SENIOR PREFERRED STOCK” and to fix the powers, rights, preferences,
privileges, qualifications, limitations and restrictions relating to such series
of Preferred Stock.
|
| |
RESOLVED,
that the Board of Directors hereby fixes the designation and the number of
shares constituting, and the powers, rights, preferences, privileges,
qualifications, limitations and restrictions relating to, the Series A
Convertible Preferred Stock as follows:
|
1. DESIGNATION. This series of Preferred Stock shall be designated "Series A Convertible
-----------
Preferred Stock" (the "SERIES A PREFERRED STOCK").
2. NUMBER OF SHARES AND PAR VALUE. The number of shares constituting the Series A Preferred
------------------------------
Stock shall be equal to 4,276,471. Each share of the Series A Preferred Stock shall have no par value.
| |
3.
RELATIVE SENIORITY. The Series A Preferred Stock shall, in respect of the
right to participate in distributions or payments in the event of any
liquidation, dissolution or winding up of the Corporation, rank (a) pari passu
with the Common Stock (as defined below) of the Corporation and with any other
class or series of stock of the Corporation, the terms of which specifically
provide that such class or series shall rank pari passu with the Series A
Preferred Stock in respect of the right to participate in distributions or
payments in the event of any liquidation, dissolution or winding up of the
Corporation; and (b) junior to any other class or series of stock of the
Corporation, the terms of which specifically provide that such class or series
shall rank senior to the Series A Preferred Stock in respect of the right to
participate in distributions or payments in the event of any liquidation,
dissolution or winding up of the Corporation. The term “COMMON STOCK”
shall mean all shares now or hereafter authorized of any class of common stock
of the Corporation. |
| |
4.
NO LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution, or winding-up of the Corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders of
shares of any series of Preferred Stock, having a priority on liquidation
superior to that of the Series A Preferred Stock, the holders of shares of
Series A Preferred Stock shall be entitled to participate with the Common Stock
in all of the remaining assets of the Corporation available for distribution to
its stockholders, ratably with the holders of Common Stock in proportion to the
number of shares of Common Stock held by them, assuming for each holder of
Series A Preferred Stock on the record date for such distribution that each
holder was the holder of record of the number (including any fraction) of shares
of Common Stock into which the shares of Series A Preferred Stock then held by
such holder are then convertible. A liquidation, dissolution, or winding-up of
the Corporation, as such terms are used in this Section 4, shall not be deemed
to be occasioned by or to include any merger of the Corporation with or into one
or more corporations or other entities, any acquisition or exchange of the
outstanding shares of one or more classes or series of the Corporation, or any
sale, lease, exchange, or other disposition of all or a part of the assets of
the Corporation. |
| |
5.
VOTING RIGHTS. Except as otherwise required by law, each share of
outstanding Series A Preferred Stock shall entitle the holder thereof to vote on
each matter submitted to a vote of the stockholders of the Corporation and to
have the number of votes equal to the number (including any fraction) of shares
of Common Stock into which such share of Series A Preferred Stock is then
convertible pursuant to the provisions hereof at the record date for the
determination of shareholders entitled to vote on such matters or, if no such
record date is established, at the date such vote is taken or any written
consent of stockholders becomes effective. Except as otherwise required by law
or by this Certificate, the holders of shares of Common Stock and Series A
Preferred Stock shall vote together and not as separate classes. |
| |
6.
DIVIDENDS AND DISTRIBUTIONS. If any dividend or other distribution
payable in cash, securities or other property, including a dividend payable in
shares of Common Stock, is declared on the Common Stock, each holder of shares
of Series A Preferred Stock on the record date for such dividend or distribution
shall be entitled to receive on the date of payment or distribution of such
dividend or other distribution the same cash, securities or other property which
such holder would have received on such record date if such holder was the
holder of record of the number (including any fraction) of shares of Common
Stock into which the shares of Series A Preferred Stock then held by such holder
are then convertible. No dividend or other distribution shall be declared or
paid on the Common Stock unless an equivalent dividend or other distribution
that satisfies this Section 6 is declared or paid on the Series A Preferred
Stock. |
7........CONVERSION. The holders of the Series A Preferred Stock shall have conversion rights as follows:
----------
| |
(a)
Optional Conversion. The holder of each share of Series A Preferred Stock
shall have the right (the “CONVERSION RIGHT”), at such holder’s
option, to convert such share at any time, without cost, on the terms of this
Section 7, into the number of fully paid and non-assessable shares of Common
Stock as specified by the Conversion Ratio that is in effect at the time of
conversion; provided that, and only to the extent that, the Corporation has a
sufficient number of shares of authorized but unissued and unreserved Common
Stock available to issue upon conversion. The initial “CONVERSION
RATIO” for the Series A Preferred Stock is 100:1. The Conversion Ratio
shall be subject to adjustment from time to time as provided in this Section 7. |
| |
(b)
Mandatory Conversion. Upon the occurrence of an Increase in Authorized
Common Stock, each outstanding share of Series A Preferred Stock shall
automatically be converted, without cost, on the terms set forth in this Section
into the number of fully paid and non-assessable shares of Common Stock as
specified by the Conversion Ratio that is in effect at the time of conversion.
An “INCREASE IN AUTHORIZED COMMON STOCK” shall be deemed to occur upon
either (i) effectiveness of a filing in the office of the Secretary of State of
Pennsylvania, or such other state in which the Corporation is legally domiciled,
of an amendment to (or amendment and restatement of) the Articles of
Incorporation or other charter document of the Corporation that increases the
number of authorized shares of Common Stock to a sufficient number (after taking
into account all shares reserved for issuance by the Board of Directors) so as
to enable the conversion of all outstanding shares of Series A Preferred Stock
into such number of fully paid and non-assessable shares of Common Stock as
specified by the Conversion Ratio then in effect, or (ii) the effective date of
any other corporate action that enables the conversion of all outstanding shares
of Series A Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as specified by the Conversion Ratio then in effect. |
.................. (c) Mechanics of Conversion.
| |
(i)
Optional Conversion. A holder of any share of Series A Preferred Stock
may exercise the Conversion Right of such share by surrendering the certificate
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A Preferred Stock, together with a written notice to the
Corporation which shall state: (A) that such holder elects to convert the same;
and (B) the number of shares of Series A Preferred Stock being converted.
Thereupon the Corporation shall promptly issue and deliver to the holder of such
shares a certificate or certificates for the number of whole shares of Common
Stock to which such holder shall be entitled. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then fair market value (as determined
in good faith by the Board of Directors of the Corporation) of the Common Stock.
If the certificate evidencing the Series A Preferred Stock being converted shall
also evidence shares of Series A Preferred Stock not being converted, then the
Corporation shall also deliver to the holder of such certificate a new stock
certificate evidencing the Series A Preferred Stock not converted. The
conversion of any shares of Series A Preferred Stock shall be deemed to have
been made immediately prior to the close of business on the date that the shares
of Series A Preferred Stock to be converted are surrendered to the Corporation,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. Any dividends or
distributions declared but unpaid at the time of conversion with respect to the
Series A Preferred Stock so converted, including any dividends declared on the
Common Stock to which the Series A Preferred Stock is entitled pursuant to
Section 6 above, shall be paid to the holder of Common Stock issued upon
conversion of the Series A Preferred Stock upon the payment date therefore. |
The Corporation shall give written notice to each holder of a share of Series A Preferred Stock promptly upon the
liquidation, dissolution or winding up of the Corporation, and not more than fifty (50) nor less than twenty (20) days
before the anticipated date of consummation of any acquisition of the Corporation or any sale of all or substantially all of
the assets of the Corporation and no such acquisition of the Corporation or sale of assets shall be effective until such
notice shall have been given.
| |
(ii)
Mandatory Conversion. The Corporation shall give written notice to each
holder of a share of Series A Preferred Stock within ten (10) days after the
effectiveness of an Increase in Authorized Common Stock. Following the
conversion of such shares, each holder of shares so converted may surrender the
certificate therefor at the office of the Corporation or any transfer agent for
the Series A Preferred Stock. Upon such surrender, the Corporation shall issue
and deliver to each holder a certificate or certificates for the number of whole
shares of Common Stock to which such holder is entitled. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value (as determined in good faith by the Board of Directors of the
Corporation) of the Common Stock. |
| |
The
conversion of shares of Series A Preferred Stock shall be effective
simultaneously with the effectiveness of an Increase in Authorized Common Stock,
whether or not the certificates representing such shares of Series A Preferred
Stock shall have been surrendered or new certificates representing the shares of
Common Stock into which such shares have been converted shall have been issued
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. Any dividends or
distributions declared but unpaid at the time of a mandatory conversion with
respect to the Series A Preferred Stock so converted, including any dividends
declared on the Common Stock to which the Series A Preferred Stock is entitled
pursuant to Section 6 above, shall be paid on the payment date therefore. |
| |
(d)
Adjustment of Conversion Ratio. The Conversion Ratio for each share of
Series A Preferred Stock and the kind of securities issuable upon the conversion
of any share of Series A Preferred Stock shall be adjusted from time to time as
follows: |
| |
(i)
Subdivision or Combination of Shares. If the Corporation at any time
effects a subdivision or combination of the outstanding Common Stock, the
Conversion Ratio shall be increased, in the case of a subdivision, or decreased,
in the case of a combination, in the same proportions as the Common Stock is
subdivided or combined, in each case effective automatically upon, and
simultaneously with, the effectiveness of the subdivision or combination which
gives rise to the adjustment. |
| |
(ii)
Reclassification, Consolidation or Merger. If at any time, as a result of
(A) a capital reorganization or reclassification (other than a subdivision or
combination which gives rise to an adjustment of the Conversion Ratio pursuant
to Section 7(d)(i)); or (B) a merger or consolidation of the Corporation with
another corporation (whether or not the Corporation is the surviving
corporation), the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into or exchanged for the same or a different
number of shares of any class or classes of stock of the Corporation or any
other corporation, or other securities convertible into such shares, then, as a
part of such reorganization, reclassification, merger or consolidation,
appropriate adjustments shall be made in the terms of the Series A Preferred
Stock (or of any securities into which the Series A Preferred Stock is changed
or for which the Series A Preferred Stock is exchanged), so that: (x) the
holders of Series A Preferred Stock or of such substitute securities shall
thereafter be entitled to receive, upon conversion of the Series A Preferred
Stock or of such substitute securities, the kind and amount of shares of stock,
other securities, money and property which such holders would have received at
the time of such capital reorganization, reclassification, merger, or
consolidation, if such holders had converted their Series A Preferred Stock
immediately prior to such capital reorganization, reclassification, merger, or
consolidation, and (y) the Series A Preferred Stock or such substitute
securities shall thereafter be adjusted on terms as nearly equivalent as may be
practicable to the adjustments theretofore provided in this Section 7(d). No
consolidation or merger in which the Corporation is not the surviving
corporation shall be consummated unless the surviving corporation shall agree,
in writing, to the provisions of this Section 7(d)(ii). The provisions of this
Section 7(d)(ii) shall similarly apply to successive capital reorganizations,
reclassifications, mergers, and consolidations. |
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(iii)
Other Action Affecting Common Stock. If at any time the Corporation takes
any action affecting its Common Stock which, in the opinion of the Board of
Directors of the Corporation, would have an adverse effect upon the Conversion
Rights of the Series A Preferred Stock and the foregoing conversion ratio
adjustment provisions are not strictly applicable but the failure to make any
adjustment would adversely affect the Conversion Rights, then the Conversion
Ratio and the kind of securities issuable upon the conversion of Series A
Preferred Stock shall be adjusted to preserve, without dilution, the Conversion
Rights in such manner and at such time as the Board of Directors of the
Corporation may in good faith determine to be equitable in the circumstances. |
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(iv)
Notice of Adjustments. Whenever the Conversion Ratio or the kind of
securities issuable upon the conversion of any one of or all of the Series A
Preferred Stock shall be adjusted pursuant to Sections 7(d)(i) - (iii) above,
the Corporation shall make a certificate signed by its Chief Financial Officer,
Secretary or Assistant Secretary, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors of the Corporation made any determination hereunder), and the
Conversion Ratio and the kind of securities issuable upon the conversion of the
Series A Preferred Stock after giving effect to such adjustment, and shall cause
copies of such certificate to be mailed (by first class mail postage prepaid) to
each holder of Series A Preferred Stock promptly after each adjustment. |
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(e)
Full Consideration. All shares of Common Stock which shall be issued upon
the conversion of any Series A Preferred Stock (which is itself fully paid and
non-assessable) will, upon issuance, be fully paid and non-assessable. The
Corporation will pay such amounts and will take such other action as may be
necessary from time to time so that all shares of Common Stock which shall be
issued upon the conversion of any Series A Preferred Stock will, upon issuance
and without cost to the recipient, be free from all pre-emptive rights, taxes,
liens and charges with respect to the issue thereof. |
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(f)
No Impairment. The Corporation will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of this Section 7 and in
the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series A Preferred Stock
against impairment. |
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(g)
Cancellation of Series A Preferred Stock. No share of Series A Preferred
Stock acquired by the Corporation upon conversion, redemption or purchase shall
be reissued and all such shares shall be canceled, retired and returned to the
status of authorized and unissued shares of undesignated preferred stock. The
Corporation may take such appropriate corporate action to reduce the authorized
number of Series A Preferred Stock accordingly. |
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8.
PROTECTIVE PROVISIONS. In addition to any other rights provided by law,
so long as at least one share of Series A Preferred Stock is outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
the Series A Preferred Stock voting together as a single class: |
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(a)
amend or repeal any provision of the Corporation’s Articles of
Incorporation, Bylaws or this Articles of Designations if such action would
materially and adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the Series A
Preferred Stock; |
(b) increase or decrease (other than by conversion) the total number of authorized shares
of Series A Preferred Stock;
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(c)
create or issue any series or class, reclassify any authorized capital stock of
the Corporation into stock of any series or class, increase the authorized or
issued amount of any class or series of stock, or authorize, create, issue or
reclassify any obligation or security convertible or exchangeable into or
evidencing a right to purchase capital stock of any class or series, that ranks
prior to the Series A Preferred Stock as to dividends or rights upon
liquidation, dissolution or winding up; |
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(d)
issue any Common Stock after the date on which Series A Preferred Stock has been
last issued and sold, whether or not subsequently reacquired or retired by the
Corporation, for a consideration per share less than fair market value of the
Common Stock (as determined in good faith by the Board of Directors of the
Corporation) at such issuance or deemed issuance other than: (1) shares of
Common Stock issued in transactions giving rise to adjustments under Sections
7(d)(i) or (ii) above, (2) shares of Common Stock issued upon conversion of
shares of Series A Preferred Stock, or (3) shares issued upon the conversion of
Convertible Securities (as defined below) if the issuance of such Convertible
Securities did not violate Section 8(e) below; |
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(e)
issue any Convertible Securities with respect to which the Effective Price is
less than the fair market value of the Common Stock (as determined in good faith
by the Board of Directors of the Corporation), at such issuance or deemed
issuance. “CONVERTIBLE SECURITIES” means all rights or options for the
purchase of, or stock or other securities convertible into, Common Stock (other
than Common Stock issued for the purposes set forth in Sections 8(d)(1) or (2)
above) or other Convertible Securities, whenever and each time issued. The
“EFFECTIVE PRICE” with respect to any Convertible Securities means the
result of dividing: (1) the sum of (x) the total consideration, if any, received
by the Corporation for the issuance of such Convertible Securities, plus (y) the
minimum consideration, if any, payable to the Corporation upon exercise or
conversion of such Convertible Securities (assuming that the full amount of
securities issuable upon exercise or conversion are issued), plus (z) the
minimum consideration, if any, payable to the Corporation upon exercise or
conversion of any Convertible Securities issuable upon exercise or conversion of
such Convertible Securities, by: (2) the maximum number of Common Stock (other
than Common Stock issued for the purposes set forth in Sections 8(d)(1) or (2)
above) issuable upon exercise or conversion of such Convertible Securities or of
any Convertible Securities issuable upon exercise or conversion of such
Convertible Securities; or |
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(f)
sell, convey, or otherwise dispose of or encumber all or substantially all of
its property or business or merge or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Corporation is disposed of. |
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9.
SEVERABILITY OF PROVISIONS. If any voting powers, preferences and
relative, participating, optional and other special rights of the Series A
Preferred Stock and qualifications, limitations and restrictions thereof set
forth in this resolution (as such resolution may be amended from time to time)
is invalid, unlawful or incapable of being enforced by reason of any rule of law
or public policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
resolution (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations, and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein. |
C. The authorized number of shares of Preferred Stock of the Corporation is 10,000,000 and the number of
shares constituting the Series A Convertible Preferred Stock, consisting of the shares authorized hereby, is 4,276,471.
IN WITNESS
WHEREOF, the undersigned have executed this certificate as of July 5, 2000, on
behalf of the Corporation, and certify under penalty of perjury that this is the
act and deed of the Corporation, and that the facts stated herein are true.
STERLING MEDIA CAPITAL GROUP, INC.
By: .........
-------------------------------------------------
Dwight L. Pierce, President
ATTEST:
By: .........
--------------------------------------------------
David C. Annin, Secretary
EXHIBIT D
PRESS RELEASE
STERLING MEDIA CAPITAL GROUP, INC.
4570 WESTGROVE DRIVE, SUITE 220, ADDISON, TX 75001
Telephone (972) 248-4411 - Facsimile (972) 248-4815
Contact: Dwight L. Pierce, President & CEO
STERLING MEDIA CAPITAL GROUP, INC. (FORMERLY ELECTRO-KINETIC SYSTEMS) ANNOUNCES COMPLETION OF THE FIRST STEP OF THE ACQUISITION OF
STERLING MEDIA CAPITAL GROUP
DALLAS, Texas - July 7, 2000 - Sterling Media Capital Group, Inc. (formerly Electro-Kinetic Systems, Inc., OTC BB: EKSIA,
now OTC BB: SMCIA.) ("Sterling Media") announced today that it has completed the first step of the planned acquisition of Sterling
Media Fund Managers, L.L.C. dba Sterling Media Capital Group ("Sterling Managers"). Sterling Managers is a privately-held asset
management group operating in the media/communications and financial services industries. Upon completion of both steps of a
two-step acquisition, the stockholders of Sterling Managers will own approximately 91.5% of the equity and voting rights of Sterling
Media, (which has changed the name of Electro-Kinetic Systems to Sterling Media Capital Group, Inc.)
Under the Letter
Agreement previously announced June 8, 2000, following the first step of the
acquisition, Dwight L. Pierce, President and Chief Executive Officer of Sterling
Managers has been appointed President, CEO and a director of Sterling Media.
Raymond L. Burke has resigned from these positions with the parent company upon
Mr. Pierce’s appointment. Mr. Pierce has appointed Paul Nussbaum as
Chairman of the Board of Directors, Gilbert F. Amelio as Vice Chairman of the
Board and Director, David C. Annin as Vice President, Secretary, Treasurer and
Director and Bob L. McGiboney as Executive Vice President and Director.
The acquisition
is to be completed in two steps. The first step was completed today, July 7,
2000, by the issuance of 46,000,000 (a majority) of the common stock to the
shareholders of Sterling Managers in exchange for approximately 15% of the
equity interests of Sterling Managers. The parent company has today changed its
name to Sterling Media Capital Group, Inc. The second step will be completed
early next week by the acquisition of the remaining 85% of Sterling Managers, by
the issuance of 3,535,358 shares of Sterling Media Series “A”
convertible preferred shares followed by an issuance of 741,113 of these same
convertible preferred shares which will be held in reserve for future issuance
to convertible securities and option holders. After completion of the second
step of the acquisition process, Sterling Managers will be a wholly-owned
subsidiary of Sterling Media and the present stockholders of Sterling Managers
will own approximately 91.5% of the outstanding equity interest and voting
rights of the parent company, Sterling Media.
It is expected
that following completion of the acquisition, the stockholders of Sterling Media
will be presented a proposal to “reverse-split” the outstanding shares
of common stock and amend the Articles of Incorporation to increase the number
of shares of common stock that Sterling Media is authorized to issue. If the
“reverse-split” is approved and the amendment to the Articles is
authorized, upon completion of the acquisition, there will be approximately
17,000,000 outstanding common shares. Approximately 15,555,000 common shares
(91.5%) will be held by the old Sterling Managers stockholders and approximately
1,445,000 common shares (8.5%) will be held by the old Electro-Kinetic
stockholders.
Mr. Pierce
stated “Sterling Media is one of the first financial service entities in
the world to convert under utilized media and internet properties into
investment capital. Sterling Managers currently manages a pool of non-cash media
based assets with a total net value, based on third party appraisals, of
approximately $500,000,000 and it is expected to grow rapidly over the next few
years, which gives Sterling Media significant investment resources.”
Sterling Media and Sterling Managers use the assets under management to raise
investment capital, which they, in turn, invest in emerging growth companies as
venture capital. The assets managed now and presumably in the future by Sterling
provide a “profits interest” to Sterling in concert with other third
parties.
Sterling Media's executive offices are to be located in Dallas, TX, the subsidiary Sterling Managers will continue to be
located in with its administrative offices in Tulsa, Okalahoma. Sterling Media presently has 10 employees, most of whom are
shareholders.
Except for
historical information, all of the statements, expectations and assumptions
contained in the foregoing are forward-looking statements. The realization of
any or all of these expectations is subject to a number of risks and
uncertainties and it is possible that the assumptions made by management may not
materialize.
