<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________
Commission File Number: 0-19997
CTN MEDIA GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Delaware 13-3557317
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
5784 Lake Forrest Drive, Suite 275 30328
Atlanta, Georgia (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Issuer's Telephone Number, Including Area Code: (404) 256-9630
College Television Network, Inc.
---------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of common stock outstanding as of November 9, 1999: 14,411,755
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<PAGE>
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
CTN MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1999
(Unaudited)
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents -
Accounts receivable, net of allowance of $497,586 15,094,372
Prepaid expenses 523,180
Other current assets 133,469
------------
Total current assets 15,751,021
Property and equipment, net 10,506,336
Other assets 193,482
Intangible assets, net 30,685,494
------------
Total assets $ 57,136,333
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,024,498
Accrued expenses 1,602,263
Deferred revenue 1,097,275
Current portion of notes payable 1,000,000
------------
Total current liabilities $ 15,724,036
Long-term debt:
Accrued severance, net of current portion 281,201
Line of credit 1,500,000
Notes payable, less current portion 14,000,000
------------
Total liabilities $ 31,505,237
------------
Mandatory redeemable preferred stock 24,902,593
------------
Commitments and Contingencies
Stockholders' equity:
Common stock - $.005 par; authorized 50,000,000 shares;
issued and outstanding 14,411,755 shares 72,059
Additional paid in capital 36,194,454
Unearned compensation (883,370)
Accumulated deficit (34,654,640)
------------
Total stockholders' equity 728,503
------------
Total liabilities, mandatorily redeemable preferred stock and stockholders'
equity $ 57,136,333
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CTN MEDIA GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 8,831,381 $ 2,175,447 $ 13,871,234 $ 5,850,415
---------------------------------------------------------
Expenses
Operating 6,151,742 1,339,164 9,935,767 2,971,263
Selling, general and administrative 4,701,722 2,450,322 11,861,056 7,758,844
Depreciation and amortization 638,183 736,506 1,305,576 1,743,768
---------------------------------------------------------
Total Expenses 11,491,647 4,525,992 23,102,399 12,473,875
Interest Income (expense), net (172,209) 38,784 (112,846) 295,822
---------------------------------------------------------
Loss before income taxes and cumulative effect
of change in accounting principle (2,832,475) (2,311,761) (9,344,011) (6,327,638)
Provision for income taxes - - - -
Loss before cumulative effect of change
in accounting principle (2,832,475) (2,311,761) (9,344,011) (6,327,638)
Cumulative effect of change in accounting
principle - - - 140,044
---------------------------------------------------------
Net loss $ (2,832,475) $(2,311,761) $ (9,344,011) $(6,187,594)
Dividends and accretion on mandatorily
redeemable preferred stock (7,892,758) - (7,892,758) -
---------------------------------------------------------
Net Loss available to common stockholders (10,725,233) (2,311,761) (17,236,769) (6,187,594)
=========================================================
Basic and diluted loss per common share
Loss before cumulative effect of change in
accounting principle $ (.74) $ (.28) $ (1.20) $ (.79)
Cumulative effect of change in accounting - - .02
principle
---------------------------------------------------------
Net Loss $ (.74) $ (.28) $ (1.20) $ (.77)
=========================================================
Weighted average number of common shares
outstanding (basic and diluted) 14,410,360 8,127,532 14,342,052 8,052,613
=========================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Form 10-QSB
Page 3 of 19
<PAGE>
CTN MEDIA GROUP, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1999 1998
------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,344,011) $(6,187,594)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,305,216 1,743,768
Other non-cash amortization 37,625
Bad debt 149,006 -
Compensation from stock options 928,165 -
Cumulative effect of change in accounting principle - (140,044)
Fixed asset impairment loss - 122,207
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (4,302,252) (687,525)
Prepaid expenses 54,409 (237,267)
Other assets 59,030 (267,604)
Accounts payable 3,169,752 101,899
Accrued expenses 400,291 795,041
Deferred revenue 481,463 (236,252)
------------ -----------
Net cash used in operating activities (7,061,306) (4,993,371)
------------
Cash flows from investing activities:
Purchases of property and equipment (3,839,808) (4,368,619)
Cash paid for acquisitions, net of cash received (30,429,554) (123,090)
------------ -----------
Net cash used in investing activities (34,269,362) (4,491,709)
------------ -----------
Cash flows from financing activities:
Payments on notes payable and capital leases - (160,674)
Redemption of preferred stock - (5,809)
Net proceeds from issuance of common stock - 610,207
Proceeds from exercise of warrants and stock options 370,912 -
Net proceeds borrowings 15,684,699 -
Net proceeds from issuance of mandatorily redeemable preferred
stock 18,863,634 -
------------ -----------
Net cash provided by (used in) financing activities 34,919,245 443,724
------------ -----------
Net (decrease) increase in cash and cash
equivalents........................................................... (6,411,423) (9,041,356)
Cash and cash equivalents, beginning of period......................... 6,411,423 11,438,289
------------ -----------
Cash and cash equivalents, end of period............................... - $ 2,396,933
============ ===========
</TABLE>
Form 10-QSB
Page 4 of 19
<PAGE>
CTN MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated financial statements (the
"financial statements") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the Company's financial
statements for the fiscal year ended December 31, 1998 included in the Annual
Report as filed on Form 10-KSB with the United States Securities and Exchange
Commission.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position as of September 30, 1999 and
the results of operations and of cash flows for the nine months ended September
30, 1999 and 1998.
The results of operations for the nine months ended September 30, 1999 and
1998 are not necessarily indicative of the results of operations for a full
fiscal year of the Company. Certain prior period amounts have been reclassified
to conform with current period presentation.
NOTE (A) - The Company
- ----------------------
CTN Media Group, Inc., formally known as College Television Network, Inc.
(the "Company"), owns and operates the College Television Network ("CTN"), "Link
Magazine", Sadler & Streib, and Armed Forces Communications, Inc., doing
business as Market Place Media, a wholly owned subsidiary ("MPM"). CTN is a
proprietary commercial television network operating on college and university
campuses, through single channel television systems placed free of charge
primarily in campus dining facilities and student unions. CTN generates revenue
from advertising displayed on the network. At September 30, 1999 and 1998, CTN
was installed or contracted for installation at approximately 1,387 and 553
locations, respectively, at various colleges and universities throughout the
United States. The Company believes CTN currently reaches a viewership of
approximately 1,500,000 daily impressions. Link Magazine is a publication
having a circulation in excess of one million students. Link Magazine is
distributed free of charge to more than 650 campuses nationwide. Sadler &
Streib is an Atlanta-based advertising agency primarily involved in placing
media buys and providing creative services for its clients. Link Magazine and
Sadler & Streib are included within the CTN operating segment.
During the current quarter, as discussed in Note (B), the Company purchased
MPM, the leading media placement company in the military, college, minority, and
senior markets. MPM provides one-stop shopping to both advertisers and
advertising agencies by providing media placement through print, broadcast,
promotional events and the Internet.
Certain of the Company's revenues are affected by the pattern of
seasonality common to most school-related businesses. Historically, the Company
has generated a significant portion of its revenue during the period from
September through May and substantially less revenue during the summer months
when colleges and universities do not hold regular classes.
Form 10-QSB
Page 5 of 19
<PAGE>
NOTE (B) - The Acquisition
- --------------------------
On August 31, 1999, the Company acquired all of the issued and outstanding
capital stock of MPM (the "MPM Acquisition"). MPM has its primary place of
business in Santa Barbara, California. The Company paid $30,000,000 to the
shareholders of MPM ("MPM Shareholders"), subject to certain adjustments to be
made, if any, as defined in the stock purchase agreement for the transaction.
On the closing date of the MPM Acquisition, MPM borrowed $15,000,000 from a
financial institution (the "Term Loan") pursuant to a Credit Agreement dated
August 31, 1999, as discussed in Note (D). In addition, as discussed in Note
(C), on August 31, 1999, the Company received a $15,000,000 investment from U-C
Holdings, L.L.C ("Holdings"), the Company's majority shareholder. The Company
used the proceeds from the Term Loan and the investment by Holdings to pay the
purchase price to the MPM Shareholders. Of the $30,000,000 purchase price,
$2,500,000 is being held in escrow until a determination can be made by the
Company regarding adjustments to the purchase price for MPM, if any, and for
satisfaction of any post-closing claims against the MPM Shareholders.
The MPM Acquisition was accounted for under the purchase method of
accounting. The results of operations of MPM are included in the Company's
Consolidated Statement of Operations subsequent to the acquisition date, which
was August 31, 1999. Intangible assets, consisting primarily of customer
relationships, tradenames/trademarks and goodwill of approximately $29,000,000
have been recorded in connection with the Company's preliminary purchase price
allocation and are being amortized on a straight line basis over 15 years.
The following unaudited pro forma financial information reflects the
results of operations for the nine months ended September 30, 1999 and the year
ended December 31, 1998, as if the MPM Acquisition had occurred on January 1,
1998. These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what operating results
would have been had the acquisition actually taken place on January 1, 1998 and
may not be indicative of future operating results. The unaudited pro forma
results are summarized as follows:
<TABLE>
<CAPTION>
Nine Months ended Year Ended
September 30, 1999 December 31, 1998
---------------------------------------------------
<S> <C> <C>
Revenue $ 35,537,405 $ 38,259,659
Net loss from operations (11,171,851) (10,858,384)
Net loss available to common stockholders (11,171,851) (10,718,340)
Basic and diluted net loss per common share (.78) (1.12)
</TABLE>
Basic and diluted net loss per common share calculated above do not include
the effect of accretion of mandatorily redeemable preferred stock as such amount
is not calculable as of December 31, 1998. If such accretion had been included
at September 30, 1999, the basic and diluted earnings per share would have been
$(1.29).
NOTE (C) - Mandatorily Redeemable Preferred Stock
- --------------------------------------------------
Pursuant to a Purchase Agreement dated July 23, 1999 (the "Initial Purchase
Agreement") between the Company and Holdings, Holdings purchased 309,998 shares
of the Company's convertible preferred stock, $0.001 par value per share
("Convertible Preferred"), for a purchase price of $4,649,970. The proceeds
were used for general working capital purposes of the Company. The conversion
ratio of the Convertible Preferred is computed by multiplying the number of
shares of Convertible Preferred to be converted by the $15.00 per share purchase
price and dividing the result by the conversion price of the Convertible
Preferred (the "Conversion Price") then in effect with respect
Form 10-QSB
Page 6 of 19
<PAGE>
to such shares. On the date of issuance, the Conversion Price was $6.854 (the
30-day average trading price of the Common Stock listed on The Nasdaq SmallCap
Market ("Average Trading Price")). The market price of the Common Stock on July
23, 1999 was $7.25. In accordance with the terms of the Initial Purchase
Agreement, from the date of issuance to and including the third anniversary of
the date of issuance of the Convertible Preferred, the Conversion Price was
subject to adjustment if at the end of a quarter the Average Trading Price of
the Common Stock was less than the Conversion Price then in effect; provided
that, the Conversion Price could not be reduced below $2.75. The Convertible
Preferred was voting stock on an as-converted basis to Common Stock based upon
the number of shares of Common Stock the Convertible Preferred was convertible
into on the date of issuance or 678,432 shares of voting stock. The Convertible
Preferred accrued a cumulative dividend of 12% per annum. Additionally, pursuant
to the Initial Purchase Agreement, the Company issued a Class D warrant (the
"Class D Warrant") to Holdings entitling Holdings to purchase 135,686 shares of
Common Stock with an initial exercise price of $6.854 per share subject to the
same adjustment as discussed above in connection with the Convertible Preferred.
Effective October 18, 1999, the Board of Directors and a majority of the
shareholders effectuated the modification and reclassification of the
Convertible Preferred into shares of Series A Convertible Preferred stock of the
Company, $.001 par value per share ("Series A Preferred"). This modification and
reclassification resulted in the elimination of the variable conversion price
feature outlined in the Initial Purchase Agreement and fixed the conversion
price at $4.50 per share. In addition, the Company and Holdings entered into a
Cancellation Agreement, effective August 31, 1999, whereby the Company
cancelled, for no additional consideration, the Class D Warrant. The
reclassification and warrant cancellation was undertaken in order for the
Company to have a single type of preferred stock outstanding.
Pursuant to a Purchase Agreement dated August 31, 1999, (the "Second
Purchase Agreement") between the Company and Holdings, Holdings purchased
1,000,000 shares of the Company's Series A Preferred for an aggregate purchase
price of $15,000,000. Proceeds to the Company, net of related issuance costs,
were $14,213,664. These proceeds were used to pay a portion of the purchase
price to the MPM Shareholders in connection with the MPM Acquisition.
The Conversion Price associated with the Series A Preferred is $4.50, which
was a 34.9% discount from the 30 day average market price of the Common Stock as
of August 31, 1999, the date of issuance. The market price of the Common Stock
on August 31, 1999 was $6.63. Currently, the Series A Preferred is non-voting
stock; however, after the effective date of a Schedule 14C Information Statement
to be sent to the stockholders of the Company in connection with the
ratification and approval of the issuance of the Series A Preferred, Holdings
will gain the right to vote the Series A Preferred on an as-converted basis to
Common Stock based upon the number of shares of Common Stock the Series A
Preferred was convertible into on the date of issuance (i.e., 3,333,333 shares).
The Series A Preferred accrues a cumulative dividend of 12% per annum.
The new equity issued to Holdings in the form of Convertible Preferred and
Series A Preferred has been recorded on the Balance Sheet of the Company net of
the value associated with the favorable conversion terms of each type of
security (the "Beneficial Conversion Value"). The Beneficial Conversion Value is
calculated as the difference between the conversion price of the security and
the market price of the Common Stock on the respective dates of issuance. In
connection with the Beneficial Conversion Value of each security, because these
securities are immediately convertible, the charges against Shareholders Equity
this quarter for the Beneficial Conversion Value of the Convertible Preferred
and the Series A Preferred were approximately $270,000 and $7,080,000,
respectively. The Company recorded an additional charge against Shareholders
Equity of approximately $543,000 to accrete these securities to their highest
redemption value as of September 30, 1999.
Form 10-QSB
Page 7 of 19
<PAGE>
Pursuant to the Second Holdings Purchase Agreement, if Holdings contributes
up to $6,000,000 in cash to the Company to repay the Term Loan discussed in Note
(D) in connection with certain guaranty agreements executed by Holdings, Willis
Stein & Partners, L.P. (the managing member of Holdings) ("Willis Stein") and
certain affiliates of Willis Stein, Holdings will receive up to an additional
400,000 shares of Series A Preferred. The maximum amount of the guarantee is
$6,000,000.
NOTE (D) - Debt
- ---------------
On July 26, 1999, the Company obtained a $12,000,000 revolving credit loan
(the "CTN Loan") from a financial institution for working capital purposes. A
condition to the CTN Loan was the $4,649,970 investment by Holdings discussed in
Note (C). The CTN Loan, as amended, is on a revolving credit basis and requires
the Company to obtain equity investments, from Holdings or other investors, on a
dollar-for-dollar basis for every dollar borrowed under the CTN Loan up to the
$12,000,000 credit limit, excluding the $4,649,970 previously invested by
Holdings. The CTN Loan bears interest at either (i) the Base Rate which is
equal to the greater of (a) the Federal Funds Rate plus 0.5% or (b) the Prime
Rate, plus 2.00% per annum; or (ii) the Eurodollar Rate, plus 3.50% per annum.
The CTN Loan is due and payable in full on December 29, 2000. There are several
financial and operating covenants in the loan agreement, including a prohibition
on dividends paid by the Company until the CTN Loan is paid in full. In
addition, it is a default under the CTN Loan if Holdings owns less than 51% of
the Company or certain members of Holdings are no longer members of the Board of
Directors of the Company. The CTN Loan is guaranteed by a negative pledge
agreement of outstanding shares of stock of the Company owned by Holdings.
On August 31, 1999, MPM obtained a $15,000,000 Term Loan ("Term Loan") and
a $2,000,000 revolving credit line ("Revolver Loan") from a separate financial
institution and its affiliates for the purchase of MPM by the Company. MPM
distributed the proceeds of the Term Loan to the Company to pay the MPM
Shareholders in the MPM Acquisition. MPM also borrowed $1,000,000 under the
Revolver Loan to pay expenses associated with the MPM Acquisition and certain
loan costs.
Both the Term Loan and the Revolver Loan bear interest at either the
"Alternate Base Rate" which is the higher of the Prime Rate (the rate of
interest most recently announced by the financial institution as the prime rate)
or the Federal Funds Rate (the interest rate offered in the interbank market to
the financial institution as the overnight Federal Funds Rate at or about 10:00
am New York City time) plus 0.5%, or the "Eurodollar Base Rate" (the rate per
annum determined on the basis of the rate for deposits in U.S. dollars appearing
on page 3750 of the Telerate screen at or about 11:00 am London Time) plus the
applicable margin, which is variable depending on various financial conditions
set forth in the credit agreement. The Revolver Loan is due and payable on
September 30, 2004. The Term Loan is payable quarterly commencing June 30,
2000, and due in full on September 30, 2004.
The Term Loan and Revolver Loan are secured by the assets of MPM and are
guaranteed by Holdings, Willis Stein and certain affiliates of Willis Stein.
Each of the Company, Holdings and Willis Stein entered into guaranty agreements
in favor of the financial institution dated August 31, 1999. The guaranty
agreements are conditional and limited to circumstances in which the Company
receives funds from Holdings to repay the financial institution. Additionally,
the Company entered into a Pledge Agreement with the financial institution,
dated August 31, 1999, whereby the Company pledged to the financial institution
the MPM capital stock it acquired in the MPM Acquisition.
Form 10-QSB
Page 8 of 19
<PAGE>
NOTE (E) - Property and Equipment
- ---------------------------------
Property and equipment consists of the following:
- -------------------------------------------------
<TABLE>
<CAPTION>
September 30, Estimated useful lives
1999
---------------------------------------------
<S> <C> <C>
Entertainment systems completed 9,513,802 5 years
Entertainment systems in progress 134,877 N/A
Machinery and equipment 1,689,751 5-7 years
Software 745,958 5 years
Furniture and Fixtures 829,012 7 years
Leasehold improvements 289,064 7-11 years
---------------------------------------------
$13,202,464
Less: Accumulated depreciation (2,696,128)
----------------
Total $10,506,336
</TABLE>
Depreciation expense for the nine months ended September 30, 1999 and the nine
months ended September 30, 1998 was approximately $1,102,012 and $1,743,768
respectively. The decrease in depreciation during the current year is a result
of the increased depreciation in the comparable period of the prior year in
connection with the accelerated depreciation taken on certain program equipment.
NOTE (F) - Commitments and Contingencies
- ----------------------------------------
The Company is currently utilizing Crawford Communications, Inc.
("Crawford") and Viatech International, Inc. to complete installations in new
locations. The Company has also entered into an Origination Services Contract
with Crawford. Both agreements provide for payments of approximately $1,320,000
over a five year period ending on July 15, 2003. In accordance with the
Origination Services Contract, Crawford is responsible for the transmission via
satellite of CTN's daily programming, including encoding signals, testing,
maintaining CTN's programming library, and obtaining programming from Turner
Private Networks, Inc. ("Turner") pursuant to the Company's programming
agreement with Turner, as well as other programming from other CTN sources.
Crawford is also responsible for the uplink of the programming to a satellite as
well as the downlink of the signal from the satellite at each installation site.
The Origination Services Contract has a five-year term. As of September 30,
1999, the Company has paid approximately $308,000 to Crawford pursuant to the
Origination Services Contract.
On March 21, 1998, the Company entered into a severance agreement with one
of its senior executives. The agreement provides for payments of approximately
$870,000 over a three year period ending in April 2001. A provision for this
obligation is included in the Company's statement of operations for the fiscal
year ended December 31, 1998. As of September 30, 1999, the Company has paid
approximately $433,000 of this obligation.
On March 27, 1998, the Company signed an agreement with Turner to provide
news and sports programming on CTN through December 31, 2002. The total license
fee is approximately $2,900,000. This agreement supercedes the prior
programming agreement entered into on November 5, 1996. As of September 30,
1999, the Company has paid approximately $887,000 pursuant to this agreement.
In connection with the delivery platform conversion during 1998, the
Company entered into a Transponder Use Agreement with Public Broadcasting
Service ("PBS") on April 30, 1998. The Company has subleased capacity on a
satellite owned and operated by GE American Communications, Inc. ("GE") and
leased to PBS by GE. This agreement provides for payments of approximately
$3,924,000 over a five year period that terminates on July 31, 2003. The
Company has protected status on this satellite, where in the event of a
satellite failure or performance problem, the Company's
Form 10-QSB
Page 9 of 19
<PAGE>
programming will preempt transmissions of other users on this satellite or on
another satellite. As of September 30, 1999, the Company has paid approximately
$915,600 pursuant to this agreement.
In May, 1998, the Company entered into a lease for new space in New York
City. The New York operations of CTN and Link Magazine were consolidated in
this new office space, effective October 1, 1998. The lease term is for ten
(10) years and the initial annual rent in $249,900, subject to annual increases
based upon certain economic factors.
On February 19, 1999, the Company entered into a severance agreement with
one of its senior executives and former member of the Board of Directors. The
agreement provides for payments of approximately $476, 000 over a 26 month
period through April 2001. In conjunction with the severance agreement, the
Company also granted the officer an option to purchase 100,000 shares of the
Company's common stock at an exercise price of $2.75 per share. The options
vested immediately and expire five years from the date of the severance
agreement. In connection with the severance agreement, the Company recorded
charges of $436,300, representing the present value of the cash severance
payments and $240,000, representing the fair value of the stock options. As of
September 30,1999, the Company has paid approximately $128,000 under this
agreement.
On July 13, 1999, the Company entered into an agreement with Contemporary
Marketing Incorporated ("CMI") for the management of a sixteen week promotional
concert tour. The concert tour will run from the Fall of 1999 through the
Spring of 2000 on 25 college campuses nationwide. CTN has committed to pay
CMI's program and administrative costs of approximately $1,200,000 over that 16
week period.
NOTE (G) - Comprehensive Income
- -------------------------------
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This standard
establishes new rules for reporting and display of comprehensive income and its
components. The adoption of this statement has no impact on the Company's net
loss or stockholders' equity. During fiscal 1999 and the prior periods
presented, total comprehensive income substantially equaled net loss.
NOTE (H) - Segment Reporting
- ----------------------------
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). This statement establishes new standards for the
manner in which companies report operating segment information as well as
disclosures about products and services and major customers. In connection with
the acquisition of MPM, management has re-evaluated the manner in which the
business is operated and reported. The Company currently has two reportable
segments as defined under SFAS No. 131: (i) CTN and (ii) MPM. Segment
information previously reported has been restated to conform to the current
presentation. See Note A for a description of the products and services
provided by each segment. The Company evaluates each segment's performance
based on income or loss before income taxes. Information regarding the
operations of these reportable segments are as follows:
Form 10-QSB
Page 10 of 19
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Three Months Ended Three Months Ended
September 30, 1999 September 30,1998 September 30, 1999 September 30, 1998
<S> <C> <C> <C> <C>
Revenues
CTN $ 8,076,058 $ 5,850,415 $ 3,036,205 $ 2,175,447
MPM 5,795,176 - 5,795,176 -
-----------------------------------------------------------------------------------------------------
Total $13,871,234 $ 5,850,415 $ 8,831,381 $ 2,175,447
-----------------------------------------------------------------------------------------------------
Loss before income
taxes and cumulative
effect of change in
accounting principle
CTN (9,908,127) (6,327,638) (3,396,591) (2,311,761)
MPM 564,116 - 564,116 -
-----------------------------------------------------------------------------------------------------
Total $(9,344,011) $(6,327,638) $(2,832,475) $(2,311,761)
-----------------------------------------------------------------------------------------------------
September 30, 1999 September 30, 1998
Total Assets
CTN 27,865,943 10,267,424
MPM 29,270,390 -
-----------------------------------------------
Total $57,136,333 $10,267,424
-----------------------------------------------
</TABLE>
Substantially all of the property and equipment owned by the Company is used in
the operations of CTN.
NOTE (I) - Subsequent Events
- ----------------------------
On October 8, 1999, the Company issued to Holdings 33,333 shares of Series
A Preferred, for $15.00 per share or an aggregate purchase price of
approximately $500,000, pursuant to the Second Purchase Agreement. On October
18, 1999, Holdings purchased an additional 153,334 shares of Series A Preferred,
for $15.00 per share or an aggregate purchase price of approximately $2,300,000
pursuant to an Amended and Restated Purchase Agreement between the Company and
Holdings ("Amended Second Purchase Agreement"). The purpose of Holdings'
purchase of these shares was to enable the Company to raise $2,800,000 in gross
proceeds for the Company's working capital needs and capital expenditures and to
enable the Company to make a possible future investment in another entity
strategic to its business. In connection with this $2,800,000 equity investment
in the Company by Holdings, the Company was able to borrow $2,800,000 under the
CTN Loan on October 21,1999.
As of the balance sheet date, the Amended Second Purchase Agreement further
provides that the Company has the right to require Holdings to purchase, subject
to various conditions, certain of which are at the discretion of Holdings, up to
an additional 800,000 shares of Series A Preferred for an aggregate purchase
price of approximately $12,000,000. This right expires on August 31,2000. As
discussed above, as of October 18, 1999, the Company has issued 186,667 of the
800,000 shares.
The obligation of Holdings to purchase Series A Preferred at subsequent
dates is conditioned upon the Company providing certain information to Holdings
and Holdings' satisfaction, in its sole discretion, with the Company's ability
to meet certain other conditions. In the event the Company cannot satisfy these
conditions and Holdings elects not to provide additional funding to the Company,
the Company's ability to meet its obligations and continue its expansion will be
impaired. However, Willis Stein has committed to provide sufficient funds to
Holdings to enable Holdings to infuse working capital into the Company during
1999 to fund cash flow deficits, if any. Based on this commitment, the Company
believes Holdings will provide this additional funding.
On October 13, 1999, the Company organized a subsidiary called Wetair.com,
L.L.C. ("Wetair") which will develop and operate a proprietary internet site for
the Company called
Form 10-QSB
Page 11 of 19
<PAGE>
"Wetair.com". As of the formation date, the Company owns 90% of the outstanding
stock and Wetair will operate as a subsidiary of the Company. In conjunction
with the creation of the Company's internet website, a 10% minority ownership
has been granted to an unrelated third party internet consulting group. In
addition, the Company has entered into an Interactive Services Agreement with
THINK New Ideas, Inc. ("THINK"). THINK has been contracted to design and manage
services relating to the Company website and Wetair.com. The project is
estimated to cost approximately $500,000 through the end of 1999.
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Statements
Certain forward-looking information contained in this Quarterly Report is
being provided in reliance upon the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 as set forth in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies and
objectives concerning the Company's future financial and operating performance.
Such forward-looking information is subject to assumptions and beliefs based on
current information known to the Company and factors that could yield actual
results differing materially from those anticipated. The Company undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in future
operating results. Please see Exhibit 99.1 "Safe Harbor Compliance Statement
for Forward-Looking Statements" for additional factors to be considered by
shareholders and prospective shareholders.
Overview
The Company commenced operations in January 1991. The Company owns and
operates CTN, Link Magazine, Sadler & Streib and MPM. CTN is a proprietary
commercial television network that operates on college and university campuses
through single-channel television systems placed free of charge primarily in
campus dining facilities and student unions. At September 30, 1999, CTN was
installed or contracted for installation at approximately 1,387 locations at
various colleges and universities throughout the United States. The Company
believes CTN currently reaches a viewership of approximately 1,500,000 daily
impressions.
The Company also owns and publishes Link Magazine, a publication having an
approximate circulation in excess of one million students. Link Magazine is
distributed free of charge to more than 650 campuses nationwide. In addition,
the Company owns Sadler & Streib, an Atlanta-based advertising agency primarily
involved in placing media buys and providing creative services for its clients.
On August 31, 1999, the Company acquired all of the outstanding stock of
MPM in exchange for $30,000,000. MPM is a leading media placement company in
the military, college, minority, and senior markets. MPM is increasing its
presence in the high school, alternative lifestyles, and local consumer markets
among others. The results of operations of MPM are included in the Consolidated
Statement of Operations of the Company subsequent to the purchase date. The
Company financed the $30 million purchase price and related acquisition costs
through the issuance of $15,000,000 of Series A Preferred to Holdings, the
Company's majority stock shareholder, and the incurrence of $15,000,000 of bank
debt. See Notes (B), (C) and (D) of "Item 1. Financial Statements" for further
discussion.
Form 10-QSB
Page 12 of 19
<PAGE>
Certain of the Company's revenue is affected by the pattern of seasonality
common to most school-related businesses. Historically, the Company has
generated a significant portion of its revenue during the period of September
through May and substantially less revenue during the summer months when
colleges and universities do not hold regular classes.
Results of Operations
The following table sets forth certain financial data derived from the
Company's statement of operations for the nine months ended September 30, 1999
and September 30, 1998:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999 September 30, 1998
-------------------------------------------------------------------------------
% of % of
$ Revenue $ Revenue
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue.................................... 8,831,381 100 2,175,447 100
Operating expenses......................... 6,151,742 70 1,339,164 62
Selling, general and administrative........ 4,701,722 53 2,450,322 113
Depreciation and amortization.............. 638,183 7 736,506 34
Interest income (expense), net............. (172,209) 2 38,784 2
Loss before cumulative effect of change in
accounting principle...................... 2,832,475 32 2,311,761 106
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999 September 30, 1998
-------------------------------------------------------------------------------
% of % of
$ Revenue $ Revenue
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue.................................... 13,871,234 100 5,850,415 100
Operating expenses......................... 9,935,767 72 2,971,263 51
Selling, general and administrative........ 11,861,056 86 7,758,844 133
Depreciation and amortization.............. 1,305,576 9 1,743,768 30
Interest expense income, net............... (112,846) 1 295,822 5
Loss before cumulative effect of change in
accounting principle...................... 9,344,011 67 6,327,638 108
</TABLE>
Revenue increased to $8,831,381 and $13,871,234 for the three and nine
month periods ended September 30, 1999, versus $2,175,447 and $5,850,415 for the
comparable periods in the prior year. The primary source for the revenue
increase was derived from the acquisition of MPM in August 1999 and Sadler &
Streib in July 1998. Furthermore, advertising sales for Link Magazine increased
due to the publication of one additional issue and increased advertisers for the
period ended September 30, 1999. The Company anticipates that it will experience
continued sales growth at CTN throughout the fiscal year ending December 31,
1999 by continuing to expand its advertiser base and by increasing the rates
charged for its advertising spots to reflect an anticipated increase in
viewership. Although the Company has agreements with national advertisers and
has held discussions or had prior agreements with other national advertisers, no
assurance can be given that these or other advertisers will continue to purchase
advertising from the Company, or that future significant advertising revenue
will ever be generated. Failure to significantly increase advertising revenue
could have a material impact on the operations of the Company.
Operating expenses increased to $6,151,742 and $9,935,767, respectively,
for the three and nine-month periods ended September 30, 1999, as compared to
$1,339,164 and $2,971,263 for the
Form 10-QSB
Page 13 of 19
<PAGE>
comparable periods in the prior year. The increase over the comparable prior
year period is primarily attributable to costs relating to MPM and the
advertising agency business with no corresponding amount for the prior year and
the first two quarters of 1998, respectively, as MPM was acquired in August 1999
and the agency was acquired in July 1998. Publishing costs associated with
producing larger and higher quality issues of Link Magazine also account for a
portion of the increase. The increase over the prior year also reflects
additional costs incurred at CTN for improved network programming and satellite
transmission expenses.
Selling, general and administrative expenses increased to $4,701,722 and
$11,861,056, respectively, for the three and nine-month periods ended September
30, 1999, versus $2,450,322 and $7,758,844 for the comparable periods in the
prior year. The increase is primarily attributable to increased marketing,
research and expanded sales efforts associated with CTN and the acquisition of
MPM. Additionally, due to the accelerated ramp-up of affiliate locations of
CTN, payroll and related higher commission expenses were recognized.
Depreciation and amortization expense totaled $638,183 and $1,305,576 for
the three and nine-month periods ended September 30, 1999, as compared to
$736,506 and $1,743,768 for the comparable periods in the prior year. The
decrease in depreciation expense is directly related to the acceleration of
depreciation on obsolete system equipment recorded in June 1998 in connection
with the conversion of the network delivery platform to the Digital Video
Broadcast system ("DVB").
Interest income (expense) amounted to ($172,209) and $(112,846) for the
three and nine-month periods ended September 30, 1999, versus $38,784 and
$295,822 for the comparable periods in the prior year. The decrease in interest
income is attributable to the Company's lower cash position as a result of
expenditures at CTN directly related to the equipment required for the increased
number of installed affiliate locations coupled with one month of interest
expense recorded for the loans in conjunction with the purchase of MPM.
The Company has incurred substantial losses since commencement of its
operations and anticipates that such losses will continue through the remainder
of 1999. The net loss before the cumulative effect of a change in accounting
principle amounted to $2,832,475 and $9,344,011 for the three and nine-month
periods ended September 30, 1999, versus $2,311,761 and $6,327,638 for the
comparable periods in the prior year. The net loss during the respective
periods for the quarter reflects the Company's continued efforts to expand its
advertiser and affiliate bases.
Financial Condition and Liquidity
At September 30, 1999, the Company had working capital of $26,985.
Cash used in operations increased to $7,061,306 during the nine-months
ended September 30, 1999, from $4,993,371 for the comparable period in the prior
year. The impact of an increased loss and increasing accounts receivable was
offset by a build up of accounts payable. The Company has obtained an equity
infusion from Holdings and a credit facility from a lending institution to fund
current working capital needs. Additionally, the Company has obtained a
commitment from Willis Stein to fund cash flow deficits, if any, through
December 31, 1999. See Notes (C) and (D) of "Item 1 Financial Statements", for
further discussion of transactions.
Acquisitions and purchases of property and equipment increased to
$34,269,362 during the nine-months ended September 30, 1999 from $4,491,709 for
the comparable period in the prior year due primarily to the purchase of MPM on
August 31, 1999.
Form 10-QSB
Page 14 of 19
<PAGE>
Cash provided by financing activities was $34,919,245 for the nine-months
ended September 30, 1999, compared to cash provided by financing of $443,724 for
the same period in the prior year. The majority of the proceeds came from the
issuance of $4,600,000 of Convertible Preferred Stock, $15,000,000 Series A
Convertible Preferred Stock, and the increase of $16,500,000 of bank debt.
See Notes (C) and (D) of "Item 1. Financial Statements" for further discussion.
The Company has incurred substantial losses since commencement of its
operations and anticipates that such losses will continue through December 31,
1999. In order to reach the stage where the Company is profitable, it is
expected that additional expenditures will be required to increase the affiliate
base and to more aggressively market CTN to attract more advertisers.
Year 2000
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, those date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, prior to
December 31, 1999, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. The Company
relies on computer applications provided by third parties to deliver and track
its programming on CTN as well as to manage and monitor its accounting,
advertising sales and administrative functions. Because the Company is
dependent on vendor compliance, its ability to assure Year 2000 compliance is
limited. The Company has obtained representations from its most significant
computer system and software vendors that the services and products provided
are, or will be, Year 2000 compliant, with the exception that it has not
obtained any such representations from Public Broadcasting Service under its
Transponder Use Agreement, dated April 30, 1998. The Company has obtained
insurance for certain of the costs associated with a failure of the satellite
transmission equipment upon which CTN's programming delivery is based, including
the cost of redirecting satellite dishes, securing a new satellite transponder,
and lost advertising revenue resulting from an interruption in programming.
However, this business interruption insurance would not cover all costs
associated with a satellite failure. Despite the Company's efforts to address
the Year 2000 impact on its business operations and internal systems, there can
be no assurance that such impact will not result in a material disruption of its
business or have a material adverse effect on the Company's business, financial
condition or results of operations.
Form 10-QSB
Page 15 of 19
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
Item 2. Changes in Securities.
(a) On July 23, 1999, the Company sold 309,998 shares of Convertible
Preferred to the Company's majority shareholder, Holdings, for a per share price
of $15.00, or an aggregate purchase price of $4,649,970. Pursuant to Section
4(2) and Rule 506 of the Securities Act of 1933 (the "Act"), this sale of
securities by the Company to one accredited investor (as defined in Rule 501(a))
was exempt from registration. The proceeds were used for general working
capital purposes of the Company. The conversion ratio of the Convertible
Preferred is computed by multiplying the number of shares of Convertible
Preferred to be converted by the $15.00 per share purchase price and dividing
the result by the conversion price of the Convertible Preferred (the "Conversion
Price") then in effect with respect to such shares. On the date of issuance,
the Conversion Price was $6.854 (the 30-day average trading price of the Common
Stock listed on The Nasdaq SmallCap Market ("Average Trading Price")). From the
date of issuance to and including the third anniversary of the date of issuance
of the Convertible Preferred, the Conversion Price was subject to adjustment if
at the end of a quarter the Average Trading Price of the Common Stock was less
than the Conversion Price then in effect; provided that, the Conversion Price
could not be reduced below $2.75, as adjusted for stock splits, stock dividends
and other similar events. The Convertible Preferred was voting stock on an as-
converted basis to Common Stock based upon number of shares of Common Stock the
Convertible Preferred was convertible into on the date of issuance or 678,432
shares of voting stock. The Convertible Preferred accrued a cumulative dividend
of 12% annum.
The Convertible Preferred shares issued to Holdings, as discussed
herein above, were subsequently reclassified into shares of Series A Preferred
on a one-for-one basis as of the effective date (October 18, 1999) of the
approval of such reclassification by a majority of the shareholders.
Thereafter, all authorized but unissued shares of Convertible Preferred were
redesignated by the Board of Directors as Series A Preferred, and the
Convertible Preferred is no longer a designated series of the Company's
preferred stock.
(b) On August 31, 1999, the Company sold 1,000,000 share of Series A
Preferred to Holdings for a per share price of $15.00, or an aggregate purchase
price of $15,000,000. Pursuant to Section 4(2) and Rule 506 of the Act, this
sale of securities by the Company to one accredited investor was exempt from
registration. The conversion ratio of the Series A Preferred is computed by
multiplying the number of shares of Series A Preferred to be converted by the
$15.00 per share purchase price and dividing the product by the conversion price
of the Series A Preferred (the "Series A Conversion Price") then in effect with
respect to such shares. On the date of issuance, the Series A Conversion Price
was $4.50. The Series A Preferred is currently non-voting stock; however, after
the effective date of the shareholder approval described in a Schedule 14C
Information Statement to be sent to the stockholders of the Company in
connection with the ratification and approval of the issuance of the Series A
Preferred, Holdings will obtain the right to vote its shares of Series A
Preferred as if such shares were converted into shares of Common Stock on the
date of issuance which equals 3,333,333 voting shares. The Convertible
Preferred accrued a cumulative dividend of 12% annum. The conversion ratio and
voting rights of the Series A Preferred could cause dilution in the voting power
of the common stockholders.
Form 10-QSB
Page 16 of 19
<PAGE>
Item 3. Defaults Upon Senior Securities.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On August 31, 1999, by written consent in lieu of a meeting, the holder
of a majority of the voting stock of the Company approved the Plan of
Reclassification and the Third Certificate of Designation of the Series A
Convertible Preferred Stock of the Company ("Third Certificate"). The majority
-----------------
stockholder consent with respect to these matters took effect 20 days after the
mailing of a Schedule 14C Information Statement to the shareholders of the
Company. Both the Plan of Reclassification (filed as an Amendment to the
Certificate of Incorporation) and the Third Certificate were filed with the
Secretary of State of Delaware and made effective as of October 18, 1999.
(b) On August 31, 1999, the holder of all of the outstanding preferred
stock of the Company, by written consent in lieu of a meeting, approved (i) a
reduction in the Company's authorized Convertible Preferred stock from 2,000,000
shares to 309,998 shares and (ii) the Plan of Reclassification discussed in Item
4(a) above.
Item 5. Other Information.
No events occurred during the quarter covered by this Report that would
require a response to this Item.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed with this Report:
Exhibit 3.1 Certificate of Designation, Powers, References and
Rights of the Preferred Stock of College Television Network, Inc.
(incorporated by reference to Exhibit 4.3 to Form 8-K filed
August 3, 1999).
Exhibit 3.2 Second Certificate of Designation, Powers,
References and Rights of the Series A Convertible Preferred Stock
of College Television Network, Inc. (incorporated by reference to
Exhibit 5.3 to Form 8-K filed September 15, 1999).
Exhibit 3.3 Plan of Reclassification, dated August 31, 1999
(incorporated by reference to Exhibit I to the Schedule 14C
Information Statement filed by the Company on September 22,
1999).
Exhibit 10.1 Stock Purchase Agreement, dated July 16, 1999,
among the Company, Armed Forces Communications, Inc., Kevin West
and Colleen Gordon (incorporated by reference to Exhibit 2.1 to
Form 8-K filed September 15, 1999).
Exhibit 10.2 Purchase Agreement, dated as of July 23, 1999,
between the Company and U-C Holdings, L.L.C. (incorporated by
reference to Exhibit 4.1 to Form 8-K filed August 3, 1999).
Form 10-QSB
Page 17 of 19
<PAGE>
Exhibit 10.3 Purchase Agreement, dated August 31, 1999, between
the Company and U-C Holdings, L.L.C. (incorporated by reference
to Exhibit 5.1 to Form 8-K filed September 15, 1999).
Exhibit 10.4 Cancellation Agreement, dated August 31, 1999,
between the Company and U-C Holdings, L.L.C. (incorporated by
reference to Exhibit 5.2 to Form 8-K filed September 15, 1999).
Exhibit 10.5 Interactive Services Agreement, dated as of
September 27, 1999, between the Company and THINK New Ideas, Inc.
Exhibit 10.6 Agreement, dated as of September 22, 1999, between
the Company and Contemporary Marketing Inc.
Exhibit 10.7 Amended and Restated Purchase Agreement, dated as
of October 18, 1999, between the Company and U-C Holdings, L.L.C.
(incorporated by reference to Exhibit 5.1 to Form 8-K filed
October 27, 1999).
Exhibit 10.8 Employment Agreement, dated as of July 16, 1999,
between the Company and Geoffrey Kanter.
Exhibit 27.1 Financial Data Schedule.
Exhibit 99.1 Safe Harbor Compliance Statement for Forward
Looking Statements.
(b) Reports on Form 8-K.
A report on Form 8-K dated August 3, 1999 disclosed (i) the MPM
Acquisition, (ii) the $12,000,000 revolving credit line and (iii) the issuance
of 309,998 shares of Convertible Preferred and the Class D Warrant to Holdings.
A report on Form 8-K dated September 15, 1999 disclosed (i) the
closing of the MPM Acquisition, (ii) the $15,000,000 Term Loan and $2,000,000
Revolver Loan, (iii) issuance of 1,000,000 shares of Series A Preferred to
Holdings, plus the guaranty commitment by Willis Stein & Partners, L.P. and its
affiliates, (iv) the cancellation of the Class D Warrant, and (v) the Plan of
Reclassification of the Convertible Preferred.
Form 10-QSB
Page 18 of 19
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLLEGE TELEVISION NETWORK INC.
Registrant
Date: November 15, 1999 /s/ Jason Elkin
---------------------------------------------
Jason Elkin
Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
Date: November 15, 1999 /s/ Patrick Doran
---------------------------------------------
Patrick Doran
Chief Financial Officer, Secretary
and Treasurer
(Principal Accounting and Financial Officer)
Form 10-QSB
Page 19 of 19
<PAGE>
EXHIBIT 10.6
INTERACTIVE SERVICES AGREEMENT
Date: as of September 27, 1999
CTN CONTRACTOR
--- ----------
College Television Network THINK new ideas, Atlanta
5784 Lake Forest Dr NW 1450 West Peachtree Street
Suite 275 Atlanta, Georgia 30309
Atlanta, Georgia 30328 Contact: Tillman Douglas
Contact: Daniel Davenport Ph: 404/817-7757
Ph: 404/256-4444 Fax: 404/817-7738
Fax: 404/257-9517
(Tax ID # 95-4578104)
This Interactive Services Agreement (this "Agreement") is made as of
the date specified above between College Television Network ("CTN") and THINK
new ideas, Atlanta ("Contractor"), in connection with Contractor's performance
for CTN, its member companies and affiliates of services more specifically
described below and subject to the following terms and conditions:
1. Services
a. Project Order Forms. Contractor agrees to provide to CTN, as an
independent contractor, certain design and project management services
relating to the CTN Website on the World Wide Web (the "Sites") and
other services as may be agreed upon by the parties from time to time
(the "Services"). The Services shall be performed as individual
projects (a "Project") as agreed upon by Contractor and CTN or a CTN
member Company. Services to be provided by Contractor in connection
with each Project, the compensation therefor, the Project schedule, and
any terms or conditions relating to the Project additional to or
inconsistent with terms contained in this Agreement shall be set forth
separately in a Project Order Form (a "POF") in substantially the form
as set forth in Exhibit A attached hereto, which is incorporated herein
by reference. Unless otherwise noted in the applicable POF, all
Services shall be rendered according to the terms and conditions set
forth in this Agreement. A POF shall not be effective unless signed by
authorized representatives of Contractor and of CTN or a CTN member
Company engaging Contractor's Services for that Project. Except as set
forth in this Agreement and a fully executed POF, no agreement,
representation, warranty or other communication by either party,
whether oral or written, shall be binding or effective.
A-1
<PAGE>
b. Editorial and Creative Control. CTN shall retain editorial and
creative control over the design and all content of the Sites and all
materials and/or information delivered by Contractor for display on the
Sites or for any other purpose. Contractor agrees to perform, and to
cause its employees and agents to perform all Services in consultation
and coordination with CTN, to CTN's satisfaction, in accordance with
the schedule set forth in the applicable POF for each Project. All
content, design, coding and other elements of each Project shall be
subject to CTN's prior approval, and CTN reserves the right to approve
or reject, in CTN's sole discretion, any such element at any stage of a
Project, in accordance with the terms set forth herein. Without
limiting the foregoing, CTN reserves the right to alter or modify the
scope of the services required by a POF by issuing a written change
order; Such change order shall only be effective upon the agreement of
the parties in a written amendment to the applicable POF.
c. Equipment, Supplies, Third Party Technology and Content. Contractor
shall be responsible for securing, at Contractor's sole expense, unless
otherwise expressly provided in the applicable POF: (i) any and all
equipment and supplies necessary to provide the Services; (ii) any and
all rights, licenses or other permissions necessary to allow Contractor
and/or CTN to use and/or incorporate in a Site or other deliverable,
any software or other technology owned or otherwise controlled by any
third party ("Third Party Technology"); and (iii) any and all rights,
licenses or other permissions necessary to allow Contractor and/or CTN
to use and/or incorporate in a Site or other deliverable any and all
graphics, photographs, animation, text or other content owned or
otherwise controlled by any third party ("Third Party Content"). To the
extent that Contractor determines that it is advisable and/or necessary
to use Third Party Technology or Third Party Content in or in
connection with a Site or other deliverable, Contractor shall clearly
identify in the applicable POF any licensed elements of such technology
and/or content, the licensor thereof, and any restrictions or
limitations associated with the license and/or on any further use or
exploitation of any of the Sites and/or the deliverable by CTN.
d. Ownership; Results and Proceeds. Contractor shall retain ownership
of all rights, including any patent, copyright, trademark, trade secret
or any other intellectual property right associated with the computer
programming/formatting code or operating instructions previously
developed by Contractor and used in the course of Contractor's
performance of Services hereunder, incorporated into the Sites, or used
to operate the Sites or a Web Server in connection with the Sites (such
as, for example, HTML, Perl, C, C++, Java, Java Script, UNIX Shell,
Visual Basic Script, and VRML code)("Contractor Technology").
Notwithstanding the foregoing, Contractor agrees that the deliverables
required hereunder, including without limitation, digitized versions of
any and all materials provided to Contractor by CTN for incorporation
into the Sites, software, technology protocols, and any other
copyrightable materials designed, developed and/or created heretofore
or hereafter by Contractor for use in or in connection with a Project
(collectively, "Contractor Works"), shall be deemed written, specially
ordered and commissioned at the request of CTN and shall be considered
"works made for hire" under the United States Copyright Act of 1976, as
amended (the "Act"). Contractor further agrees that all such Contractor
Works, all elements contained therein (other than Contractor
Technology), and any and all documentation and related materials
associated therewith, including without limitation, all derivative
products, are owned by CTN and all right,
A-2
<PAGE>
title and interest therein and thereto (including without limitation
the trademark, copyright, and other intellectual property interests)
throughout the universe in perpetuity belong solely and exclusively to
CTN, unless specified differently in the corresponding POF.
Accordingly, but without limiting the generality of the foregoing, CTN
may, in its sole discretion, modify, edit, add to, delete from,
distribute, license, duplicate, use, and otherwise exploit the
Contractor Works in any manner and by any means, media, method, device,
process or medium now known or hereafter developed. Contractor further
agrees that to the extent that any such Contractor Works, or any
portion thereof, is not determined to be a "work made for hire,"
Contractor, in consideration of one dollar and other good and valuable
consideration paid by CTN hereby, exclusively and irrevocably assigns
to CTN, throughout the universe in perpetuity, all rights (including
but not limited to all intellectual property rights, trademarks,
copyrights, patents and renewals and extensions thereof) in and to any
and all such Contractor Works. Without limiting the generality of the
foregoing, Contractor will, upon request by CTN, promptly execute,
acknowledge and deliver any documentation deemed reasonably necessary
by CTN to document, enforce, protect and otherwise perfect CTN's rights
in the Contractor Works. Notwithstanding Contractor's ownership of all
rights, title and interest in and to the Contractor Technology,
Contractor agrees that under no circumstances will it use the
Contractor Technology to create any separate products, services or
other works which infringe or violate in any respect the ownership
interest of CTN in the Contractor Works. Contractor hereby irrevocably
assigns all right, title and interest it may have in the Contractor
Works (but specifically excluding the underlying and/or referenced
Contractor Technology) to CTN. Contractor hereby grants CTN in
perpetuity a nonexclusive, non-transferable license throughout the
universe to copy, distribute, transmit, display, perform, create
derivative works, and otherwise use the Contractor Technology in object
code form, in whole or in part, including, without limitation, the
right to add to, subtract from, arrange, rearrange, revise, modify,
change and adapt the Contractor Technology and any part or element
thereof.
e. Moral Rights. Without limiting the generality of the foregoing,
Contractor specifically waives, forfeits, relinquishes and abandons all
claims of "moral rights," "droit moral," attribution and/or integrity
as to any and all Contractor Works and conveys the same to CTN without
reservation or limitation. For purposes of this Agreement, "moral
rights" means any rights of paternity or integrity, any right to claim
authorship of the Contractor Works, to object to any distortion,
mutilation or other modification of, or other derogatory action in
relation to, any Contractor Work, whether or not such would be
prejudicial to Contractor's honor or reputation, and any similar rights
existing under judicial or statutory law or any country in the world,
or under any treaty, regardless whether or not such right is
denominated or generally referred to as a "moral" right.
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2. Compensation. In full and final consideration for performance of all
Services and all rights granted hereunder, CTN agrees to pay Contractor
for each Project the fee specified in the applicable POF according to
the terms of the POF. Contractor shall provide all equipment and
supplies necessary for performance of the Services and shall be solely
responsible for any and all costs and expenses incurred by Contractor
in the performance of the Services, and shall not be entitled to
reimbursement therefor from CTN unless and to the extent the cost
and/or expense is approved in writing in advance by CTN, or in the
applicable POF.
3. Delivery and Acceptance. All Contractor Works to be created and/or
delivered by Contractor hereunder shall be subject to CTN's absolute
approval. For each Project, Contractor will develop and submit all
deliverables to CTN for approval in the manner and on the dates
indicated in the POF for that Project. Delivery of any Site or
component thereof in final form must be received by CTN at least five
(5) business days before the launch date of that Site or component as
specified in the applicable POF. Upon receipt of any deliverable, CTN
shall examine the deliverable and determine whether, in CTN's sole
discretion, it is acceptable. CTN shall notify Contractor of CTN's
acceptance or rejection of the deliverable and, in the case of
rejection, will provide Contractor with a reasonably detailed list of
deficiencies therein. Contractor shall correct any such deficiencies
and will resubmit the deliverable, as corrected, within three (3)
business days of its receipt of notice of the deficiency, or within
such other time as may be specified in the applicable POF.
4. Relationship. Contractor's relationship to CTN shall be that of an
independent contractor. Nothing herein shall create any association,
partnership, or joint venture relationship between Contractor and CTN.
5. No Obligation to Proceed. Notwithstanding any other provisions in this
Agreement, CTN shall have no obligation to utilize Contractor's
Services or to include any Contractor Works in any of the Sites, or to
produce, release, distribute or otherwise exploit any of the Sites, or
to exercise any or all of CTN's rights under this Agreement, or to
continue any of the foregoing if commenced. Accordingly, but without
limiting the generality of the foregoing or any other rights available
to CTN, CTN may terminate this Agreement or any Project hereunder at
any time for any reason by notifying Contractor, and CTN's obligations
hereunder shall be fully performed by payment for work actually
performed as of the date of such termination. Upon any such
termination, Contractor shall immediately deliver to CTN all works in
progress, and all materials created by Contractor, provided to
Contractor by CTN or otherwise utilized by Contractor in connection
therewith. Contractor may terminate this Agreement for material breach
of this Agreement by CTN by providing written notice of CTN's alleged
material breach to CTN. Upon receipt of such written notice, CTN shall
have 10 business days to cure any alleged breach that involves
non-payment of any sums due under this Agreement; or 30 business days
for any other type of alleged material breach of the terms of this
Agreement (provided such alleged breach can be cured within 30 business
days, otherwise provided CTN begins a cure of the alleged default and
diligently pursues such cure to completion). Upon termination,
Contractor shall immediately deliver to CTN all works in progress, all
materials created by Contractor for CTN, all materials provided by CTN
and derivates of the foregoing.
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Contractor will be paid for services up to the point of termination and
be reimbursed any additional costs incurred due to termination of work.
6. Warranty. Contractor represents and warrants that (i) the Contractor
Works shall be original with Contractor except as to matters within the
public domain which are clearly identified by Contractor as such; (ii)
the Contract Works shall conform to any and all plans, writings,
documents (in whatever form) and specifications contained in the
Request for Proposal, Response to Request for Proposal, Project Plan
and Cost Estimate and Project Order Form; (iii) Contractor has taken
all steps necessary and appropriate to authorize the execution and
performance hereof; (iv) neither the Contractor Works nor their use
shall infringe upon or violate the intellectual property rights,
including without limitation any patent, copyright, trademark, trade
secret or other proprietary right of, or violate any common law or
other right of, any person, firm or entity, and contractor has secured
all third party rights, licenses or other permissions necessary to
allow Contractor and CTN to use and/or incorporate such third party's
technology, graphics, consent or other materials in the Sites; (v)
Contractor has not previously granted and will not grant any rights in
the Contractor Works to any third party which are inconsistent with the
rights granted and/or assigned to CTN herein; (vi) Contractor has full
power to enter into this Agreement, to carry out its obligations
hereunder and to grant/assign the rights herein granted/assigned to CTN
and the person executing this Agreement on behalf of Contractor is
authorized to do so on behalf of Contractor; (vii) the Services
provided hereunder shall be performed in a good and workmanlike manner,
free of errors or defects in design, material and workmanship; and
(viii) upon completion of the development of any and all Contractor
Works hereunder, CTN shall have unencumbered title to such Contractor
Works free and clear of all defects, liens and imperfections; and (ix)
Contractor will not take any action or fail to take any action which
would interfere with the release of any and all Contractor Works; (x)
the Contractor Works shall be "Year 2000 Compliant" as follows: the
coding, software, hardware, firmware, middleware, embedded chips and
other technology components of the Contractor Works will, without
interruption or manual intervention, (1) perform all functions required
by this Agreement through 1999 and following December 31, 1999 with no
diminution or change in performance, functionality, accuracy or
otherwise; (2) provide correct results in forward and backward data
calculation spanning century boundaries, and otherwise correctly
process, provide and/or receive date data within and between the
twentieth and twenty-first centuries; (3) accept date data from other
systems and sources (whether in two digit or four digit format) and
properly recognize, calculate, sort, store, output, sequence and
otherwise process such data in a manner that eliminates any century
ambiguity; (4) recognize February 29, 2000 and correctly process date
data for the year 2000 and all subsequent leap years; (xi) as soon as
practicable after execution of this Agreement Contractor will obtain
appropriate and enforceable agreements with its employees and
independent contractors in order to effectuate the provisions contained
in Section 12; and (xii) Contractor shall not, during the term of this
Agreement and continuing for a period of twelve months after the
termination of services by Contractor, employ directly or indirectly
any CTN employee or employee of CTN's member Companies who has worked
directly with an employee or agent of Contractor in connection with
this Agreement.. The foregoing shall not apply to elements or materials
provided to Contractor by or on behalf of CTN for use in creating the
Contractor Works.
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<PAGE>
7. Indemnification. Contractor shall indemnify, defend (at CTN's election)
and hold CTN, its member and affiliated companies, its and their
licensees, successors and assigns, and each of its and their officers,
directors, agents and employees harmless from all liabilities or losses,
including, without limitation, reasonable attorneys' fees, arising out
of any claims, lawsuits or judgments, whether threatened or actual,
fixed or contingent, known or unknown, arising out of the breach by
Contractor of any representation, warranty or covenant of Contractor
under this Agreement. Contractor shall promptly inform CTN in writing of
any such claim, demand or suit and Contractor shall fully cooperate in
the defense thereof.
8. Limited Liability. In no event will either party be liable to the other
or to any third party for loss of profits, lost business opportunity,
loss of data, interruption of business, or for any special, indirect
consequential, exemplary or incidental damages, arising out of or
related to this Agreement, however caused, and whether arising under
contract, tort (including negligence) or any other theory of liability
The limits set forth in this section will apply even if a party or
third party has been advised of the possibility of such damages. The
limitations of the foregoing shall not apply to the following:
(a) liabilities arising from gross negligence or intentional misconduct
of a party;
(b) a breach of Contractor's obligations under Sections 6 (other than
paragraph (x) of Section 6) and Section 7 of this Agreement;
(c) a breach by either party of its obligations under Section 12.
9. Insurance Requirements. During the term of this Agreement and
continuing thereafter, Contractor shall obtain and maintain in force at its sole
expense all necessary and adequate insurance with respect to the Services,
including, general liability insurance having a minimum policy limit of One
Million Dollars ($1,000,000), an errors and omissions policy having a minimum
policy limit of liability of Three Million Dollars ($3,000,000) and worker's
compensation insurance coverage in amounts required by law. Contractor shall pay
any deductibles due under such policies. Contractor shall cause CTN to be added
as an additional insured under the general liability and errors and omissions
policies and to furnish certificates evidencing such policies within thirty (30)
days of execution of this Agreement.
10. Assignments. Contractor acknowledges that the Services to be performed
hereunder are of a unique and personal nature and may not be assigned
or subcontracted to any other party without the prior written approval
of CTN, which may be withheld, for any reason. CTN may assign its
rights and obligations under this Agreement in whole or in part.
11. Taxes. Except as otherwise expressly provided in this Agreement,
Contractor agrees to pay the full amount of any and all taxes, levies
or charges (including without limitation, any penalties or interest
thereon) howsoever denominated, imposed or levied against Contractor or
CTN by any law, rule or regulation now in effect or hereafter enacted
including without limitation, sales, use, property and excise or other
similar taxes, licenses, import permits or fees, and customs duties
relating to or imposed upon the Services provided hereunder, the use or
possession of same by CTN, or the amounts payable to Contractor under
this
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Agreement, it being the intent hereof that the amounts payable to
Contractor under this Agreement, except as otherwise expressly provided
herein, shall be inclusive of any and all taxes, levies, or charges of
whatsoever kind or nature howsoever denominated.
12. Confidentiality. Contractor acknowledges that it will have access to
certain Trade Secrets and other Confidential Information of CTN during
and in connection with its performance of Services hereunder
("Confidential Information"), and hereby agrees not to disclose any
Confidential Information to any third party and not to use any such
Confidential Information for any purpose other than the performance of
Services for CTN pursuant to this Agreement. All such Confidential
Information and trade secrets are and shall remain the exclusive
property of CTN and no license shall be granted or implied with respect
to such Confidential Information by reason of Contractor's access to
the same in connection with its performance of Services hereunder.
Contractor hereby agrees that it shall not disclose, transfer, use,
copy or allow access to any such Trade Secrets or Confidential
Information to any agents or employees, except to such agents or
employees (a) who require the access to such Trade Secrets and
Confidential Information in order to give effect to CTN's rights
hereunder and (b) who have bound themselves to respect and protect the
confidentiality of the Trade Secrets and the Confidential Information.
"Confidential Information" of a party means confidential data and
confidential information relating to the business of such party which
is or has been disclosed to the other party or of which the other party
becomes aware as a consequence of or through its relationship with the
disclosing party hereunder and which has value to the disclosing party
and is not generally known to its competitors and which is designated
by the disclosing party as confidential. Confidential Information shall
not include any data or information that (i) has been voluntarily and
with proper authorization disclosed to the general public by the
disclosing party, (ii) has been independently developed and disclosed
to the general public by others, or (iii) otherwise enters the public
domain through lawful means. "Trade Secrets" of a party means the
Confidential Information of such party, without regard to form,
including, but not limited to, technical or non-technical data,
formulas, patterns, compilations, programs, devices, methods,
techniques, drawings, processes, financial data, financial plans,
product or service plans or lists of actual or potential customers or
suppliers which is not commonly known by or available to the public and
which information (i) derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its
disclosure or use; and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Nothing in
this agreement shall be construed to prohibit Contractor from providing
any services, including but not limited to, consulting, marketing or
strategy services, for any other competitors of CTN or its member
companies.
13. Notices. All notices under this Agreement or with respect thereto shall
be in writing and deemed received when delivered personally, by express
courier service (i.e., Federal Express, DHL, etc.) or telefaxing to the
addresses set forth herein, assuming the sender retains some
confirmation of delivery. All notices mailed through the U.S. mail,
postage pre-paid, first class, to the addresses set forth herein shall
be deemed received the third business day after deposit in the U.S.
mail. All notices to the parties shall be sent to the addresses set
forth above and to the individual identified in the applicable POF as
the "Contact" for each party.
14. Further documents. Contractor agrees to execute, deliver and/or file
any and all further instruments, which CTN may deem necessary to carry
out the purposes of this Agreement. If
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Contractor fails to execute, deliver and/or file any such instruments
within ten (10) days of such a request by CTN, Contractor hereby
appoints CTN or CTN's designee as Contractor's attorney-in-fact (which
appointment shall be deemed a power coupled with an interest) to
execute, deliver and/or file all such documents. CTN agrees to
appropriately remunerate Contractor if agreed to in writing prior to
execution of such instruments if so necessary.
15. Miscellaneous Provisions
a. Severability. In the event any provision of this Agreement shall be
found to be contrary to any law or regulation of any federal, state or
municipal administrative agency or body, the other provisions of this
Agreement shall not be affected thereby but shall notwithstanding
continue in full force and effect.
b. Attorney's Fees. If any legal action or other proceeding is brought
with respect to the subject matter of this Agreement, its enforcement
or as a result of a breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or
prevailing party shall be entitled to recover reasonable attorneys'
fees and other costs incurred in such action or proceeding, in addition
to any other relief to which such party may be entitled.
c. Non-Waiver. No waiver by either party hereto of any breach or
default by the other party shall be construed to be a waiver of any
other breach or default by such other party. Resort to any remedies
referred to herein shall not be construed as a waiver of any other
rights and remedies to which either party is entitled under this
Agreement or otherwise, nor shall an election to terminate be deemed an
election of remedies or a waiver of any claim for damages or otherwise.
d. Entire Agreement. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter
hereof and all prior understandings, whether oral or written, have been
merged herein and are superseded hereby. This Agreement may not be
altered or modified except in writing signed by both parties hereto.
Without limiting the foregoing, it is specifically agreed that no terms
contained on any payment documentation (regardless of origin) such as
invoices, purchase orders, etc., shall in any way effect the terms of
this Agreement.
e. Governing Law. Regardless of the place of execution or performance,
this Agreement and each POF executed hereunder shall be governed,
construed and enforced in accordance with the laws of the State of
Georgia applicable to agreements entered into and to be wholly
performed therein, and Contractor hereby agrees to the exclusive
jurisdiction of the courts of the State of Georgia and United States
courts located in the State of Georgia in connection with any suit,
action or proceeding brought by Contractor arising out of or related in
any manner to this Agreement. Contractor agrees that the service of
process by mail shall be effective service of same and that such
service shall have the same effect as personal service within the State
of Georgia and result in jurisdiction over Contractor in the
appropriate forum in the State of Georgia.
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f. Third Party Beneficiaries. This Agreement is not for the benefit of
any third party and shall not be deemed to give any right or remedy to
any third party whether referred to herein or not.
g. Headings. Paragraph headings as used in this Agreement are for
convenience only and are not a part hereof, and shall not be used in
any manner to interpret or otherwise modify any provision of this
Agreement.
h. "CTN". As used herein, "CTN" shall also include CTN's member
Companies, subsidiaries and parent, and its parent's subsidiaries,
affiliates and related entities.
i. "Persons". As used herein, the word "person" means any individual,
firm, partnership, association, corporation or other entity.
j. Survival. All representations, warranties and indemnities shall
survive the execution, delivery, suspension, expiration and/or
termination of this Agreement or any provision hereof.
16. Effectiveness. This Agreement shall not be effective until
countersigned on behalf of CTN and delivered to Contractor.
College Television Network THINK new ideas, Atlanta
("CTN") ("CONTRACTOR")
By: /s/ Patrick Doran By: /s/ Chris Wilson
--------------------------- -------------------------------
Title: Chief Financial Officer Title: Director of Client Services
------------------------ ----------------------------
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EXHIBIT A
PROJECT ORDER FORM DATE:
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FROM: ___________________________ TO: THINK new ideas, ATLANTA
(A CTN COMPANY)
Contact: ________________________ Contact: ______________________
Phone: __________________________ Phone: ________________________
Fax: ____________________________ Fax: __________________________
This Project Order Form ("POF") is entered into by and between the
undersigned parties pursuant to the Interactive Services Agreement between
College Television Network ("CTN") and Think new ideas, Atlanta
("Contractor") dated September 27, 1999 (the "Agreement"), which is
incorporated herein by reference. Each section below must be completed in
detail or specifically designated as not applicable. Additional pages
should be attached as needed.
1. Contractor shall provide the following Services:
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2. The Deliverables shall consist of the following:
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3. The Deliverables shall be delivered according to the following
schedule:
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4. Specify if the method or terms of delivery and acceptance differ
from the Agreement:
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5. In full consideration for performance of all Services and all rights
granted hereunder, Contractor shall receive payment in the total
amount of $______________________, which shall be payable as follows:
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6. Specify any Third Party Content and/or Third Party Technology,
including software or internet applications, to be incorporated into
the Deliverables, and any and all restrictions or limitations
pertaining thereto:
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7. Specify any terms for this Project that are in addition to or
different from those contained in the Interactive Services Agreement:
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CONTRACTOR _________________________
NAME OF CTN COMPANY)
By: ________________________ By: __________________________
Title: _____________________ Title: _______________________
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================================================================================
Exhibit A-Strategy Services
Wetair.com
October 13, 1999
================================================================================
Scope of Work for Start-Up Services
Project Description:
1. Strategy Development
The overall objective for this initial scope of work is to develop the strategic
blueprints for creating a market defining Web presence for Wetair.com. The
initial concepts presented in the THINK New Ideas, Inc. (THINK) proposal will be
a key driver in defining the project.
THINK agrees to provide the services in the following categories to accomplish
the above stated objective:
I. Account Management
a. Provide account management services.
1) Overall project and team coordination and reporting
2) Inject and provide insight and expertise throughout the strategic
blueprint stage
3) Provide transition consistency and knowledge from the
strategic blueprint phase through the following implementation
stages of Wetair.com
4) Scheduling and coordination of all internal and/or client meetings
5) Coordination and management of all project relevant client review
and/or approval processes
6) Maintenance and distribution of all applicable project documentation
7) Collection & management of all applicable content and/or other
miscellaneous project requirements
8) Overall management of project budget, production schedule and quality
assurance
9) Construct and launch Project Intranet with designated features and
functionality, and distribute Intranet address to Wetair.com.
b. Retained Account Team. In order to best manage this initial stag in the
strategic foundation building for Wetair.com, THINK will also provide the
following Account Management team, with estimated percentages of their time
between the official signing of this Exhibit A and December 31, 1999. If
the project (as outlined in the Exhibit A) extends beyond the end of the
year THINK will provide Wetair.com with a `change order' or a new Exhibit A
for continued account management services. Once the strategic phase is
complete, and implementation begins (sometime after the first of the year)
a larger, dedicated account team will be needed.
1) Account Director - (15%)*
2) Senior Account Manager - (50%)*
*(Estimated time percentages based upon a standard eight (8) hour workday.)
II. Strategic Services
The following provides a review of the specific strategic services THINK
will provide in accordance with this Exhibit A. The strategic blueprint
that THINK will construct for Wetair.com will build off of the previously
submitted and approved strategy outlined in the original proposal to
Wetair.com (see proposal for details) allowing for a modification of the
THINKVision Strategy Development Process.
THINK agrees to provide the services in the following categories to
accomplish the above stated objective:
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a. Provide Internet strategy consulting services.
1) Kick Off Meeting and Kick Off Presentation
2) Available Research review
3) Available Technology Environment review
4) Participation in Round Table Strategy Sessions with Wetair.com and
partners
5) Discovery Findings Presentation
6) Strategic Blueprint Presentation
o Identify key Go-To-Market issues
o Assess Resource Needs
o Implementation Launch planning
o Identify Linkages
o User Content Submission strategies, gathering and distribution,
and ongoing management
7) High Level Information Architecture
o Organization
o Labeling
o Naming
o Indexing
8) Launch Plan
9) Leadership of other team members in Strategy Development, e.g.
Dennis Interactive, Monumental, Fatwire, etc.
10) Functional Specifications
o Transfer, i.e. Tempest
o Content management
o Personalization
o Ad banner management
o Membership database
b. Retained Strategy Team. In order to best manage this initial stag in the
strategic foundation building for Wetair.com, THINK will provide the
following Strategic team, with estimated percentages of their time
between the official signing of this Exhibit A and November 30, 1999. If
the project (as outlined in the Exhibit A) extends beyond the end of the
year THINK will provide Wetair.com with a `change order' or an new
Exhibit A for continued strategic planning services.
1) Director, Strategic Planning, Gib Fenning - (20%)*
2) Associate Director, Strategy & Technology, Paul Goggin - (20%)*
3) Senior Strategist - (60%)*
4) Director, Technology - (20%)*
5) Technology Strategist - (2x75% for 6weeks)
6) Information Architect - (100% for 6weeks)
*(Estimated time percentages based upon a standard eight (8) hour workday.)
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2. Service Fees
Upon signing of this Exhibit A, THINK will be paid half, and the other half
at the end of the engagement (November 30,999).
Account Management $ 40,000
Strategic Service $200,000
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Total for Project $240,000.00
- ------------------------------------------------------------------------------
THINK New Ideas reserves the right to adjust cost estimates accordingly based on
any unforeseen circumstances, adjustments or addition of content not previously
agreed upon. All outcosts (i.e. out-of-pocket expenses) including, but not
limited to the following: travel, couriers, shipping, color copies, disks and
scanning will be billed to the client separately as incurred.
This contract is only valid for 30 days from the date indicated above. After 30
days, THINK New Ideas will consider this estimate null and void and reserves the
right to submit an updated estimate.
Wetair.com Signature: Daniel Davenport THINK Signature: Chris Wilson
---------------- ----------------
Date: October 13, 1999 Date: October 13, 1999
------------------- -------------------
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================================================================================
Exhibit A-Design Services
Brand Development - Wetair.com
October 13, 1999
================================================================================
I. Wetair.com Brand Development: THINK will be creating an environment
that will serve as a catalyst for the evolution of the Wetair.com
brand. The brand identity of this online enterprise will be largely
experiential therefore the development needs to include both graphic
identity tools and a demo web site for proof of concept testing.
a) Wetair.com Graphic Identity:
1) Concept Development of marks and taglines
o Initial Concept Development Design/Copy writing
o Client Revisions
o Approval of Test Candidate Concepts
o Comp Construction
2) Production of Graphic Asset and Media
1) Usage Survey and Identification
of Media Specific Deliverables
2) Scheduling
3) Graphic Production
4) Media Production
b) Wetair.com Demo Site:
THINK will create a 6-10 page proof of concept demo site that will
convey the essence of the Wetair.com user experience. Functionality
will include the ability to view streaming video and mp3's.
Wetair.com Demo:
1) Demo Site Map and Design development
2) 2 Client Revisions
3) Content and Asset inventory and creation
4) Client approvals
5) Production and Site construction
6) Internal Beta Review
7) Client Beta Review
8) Additional Revisions
9) Final Approval
c) Wetair.com Content Submission Site:
1) THINK will prepare, design, and code a "content submission
site" for the purposes of gathering content for the
eventual site, pre-launch.
2) Site will be live in time for the LINK magazine November-
December issue which will have advertisement included with
active url.
3) THINK will design advertisement for LINK magazine.
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II. Concept Testing: The scheduled CTN/Mentos Tour/Festivals will provide an
excellent environment to test the validity of the Wetair.com concept and
functionality with the target users. THINK will use this opportunity to
gather user input concerning messaging, graphic look, usability and
navigation.
o Demo will be performed on-site in a "non-live" environment (i.e. CD-ROM,
etc.)
o THINK team members will not be on-site during concept testing
III. Service Fees
Upon signing of this Exhibit A, THINK will be paid half, and the other half at
the end of the engagement (November 30,999).
Design and Brand Development Services: $70,000
================================================================================
THINK New Ideas reserves the right to adjust cost estimates accordingly based on
any unforeseen circumstances, adjustments or addition of content not previously
agreed. All outcosts (i.e. out-of-pocket expenses) including, but not limited to
the following: travel, couriers, shipping, color copies, disks and scanning will
be billed to the client separately as incurred. All such items will be submitted
for approval by Wetair.com prior to expenditure.
This contract overwrites any previously submitted contracts or proposals and is
only valid for 30 days from the date indicated above. After 30 days, THINK New
Ideas will consider this estimate null and void and reserves the right to submit
an updated estimate.
Wetair.com Signature: /s/ Daniel Davenport Agency Signature: /s/ Chris Wilson
-------------------- -----------------
Date: October 13, 1999 Date: October 13, 1999
-------------------- --------------------
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EXHIBIT 10.7
COLLEGE TELEVISION NETWORK
CTN presents the "Mentos Freshmaker" Tour
Agreement
September 22, 1999
The following Agreement (the "Agreement") shall serve as the complete
understanding between Contemporary Marketing Inc. ("CMI") and COLLEGE TELEVISION
NETWORK ("CTN") as it relates to the CTN presents the "Mentos Freshmaker" Tour
(the "Tour"). This Agreement covers work from July 1999 to the completion of
the Tour scheduled to end on or about May 2000. The duties of the respective
parties to this Agreement are specified below and in the Cost Summary dated
July 20, 1999, attached as Exhibit A, a copy of which is annexed hereto and is
hereby incorporated into this Agreement by reference and is made a part hereof.
I. CTN presents the "Mentos Freshmaker" Tour
CMI will provide the following services associated with the design,
sell-in, management and touring of the Tour. The Tour will consist of five
interactive activities housed under one 20' x 30' tent, four 10' x 10'
tents, and one 20' x 20' tent to be used as the CTN/Link Magazine area,
which will be the gateway to the "Activity Village."
Project Administration
The management of a twenty-five campus Tour including: operating budget,
client meetings/reporting and all communication with CTN staff necessary
for the successful execution of the CTN/Freshmaker Tour. Includes the
services of Senior Management, Account Executive, Associate Account
Executive, Project Coordinator and support staff necessary to implement,
manage and coordinate the Tour, prepare all financial reports and recaps.
CMI will provide the campus recap within two (2) business days after
completion of each event. Recaps will include campus participation and
premiums/samples distributed per sponsor.
Campus Services
Costs include all research, sell-in and follow-up communication necessary
to secure event sites. CMI will develop a routing schedule and manage and
coordinate all parties on a per venue basis including sell-in kits, event
booking, local staffing, advertising placement, electrical and security.
Includes the services of the Director or Production and coordination of
staff to facilitate the above and troubleshoot as necessary.
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College Television Network
Tour Contract Agreement
Page 2
Producer Services
Cost includes the salary for one (1) Tour Manager, one (1) Technical
Director and three (3) Event Producers to coordinate events and local
market training for the Tour. The Tour Manager's responsibilities include:
management of local venues, load-in and load-out of the events, overseeing
the event to maintain quality control, management of all event activities
and execution of repairs necessary to keep the Tour operational.
Event Travel
Includes travel expenses associated with the training and recaps of one
(1) Tour Manager, one (1) Technical Director and three (3) Event Producers
for sixteen (16) weeks. Also includes standard grade hotel accommodations
and per diem, as well as airfare necessary to successfully execute the
Tour.
Local Labor/Event Day Staffing/Security
Cost for contracting a combination of student and private agency labor to
fulfill each campus' specific on-site needs. Costs are based on twenty-
five (25) event days plus load-in/load-out and security requirements.
. 4 student laborers to assist with load-in and load-out
. 4 student laborers during event operating hours
. 4 concert security guards
. 1 overnight security guard
. 2 concert technicians
. 1 rigger
Set Construction/Event Elements
Includes costs to create and produce the following:
. (1) 20' x 30' Tent
. (4) 10' x 10' Tents
. Includes estimated costs for four (4) co-sponsor(s) activities (includes
sponsor specific A/V Equipment).
Road Equipment/Tools/Supplies/Repairs On-going
All estimated costs associated with road equipment materials, supplies, and
wireless headsets for logistical communication that keep the Tour
operational.
<PAGE>
College Television Network
Tour Contract Agreement
Page 3
Audio/AV Equipment (Event)
Includes cost to purchase the following equipment:
. Monitors with Road Case (for Stage Area, Antennae and
Activities Structure)
. Video Camera for Stage
. AV Control Rack for Camera and Audio/Monitor Control
. Rack Construction/Cable Production
. Gobo Lights
Audio/AV Equipment (Concert)
Includes cost to lease/purchase the following equipment:
. Stage Trailer
. Concert Lighting
. Concert Sound
. Generator
. Venue Fees and Permitting (TBD)
Graphics
Includes cost to produce and develop the following creative materials:
. Tent Graphics/Header/Signage
. Stage Graphics Backdrop
. Activity Area Graphics
. Banners/Flags/Signage/etc.
. Sandwich Boards
. Campus Newspaper Ads
Truck Graphics
Includes cost to design and produce truck graphics for two (2) 48'
trailers. Also includes cost for application and deapplication of
graphics.
Stage/Concert Requirements
Includes cost to purchase materials for stage and concert areas such as
snow fencing equipped with poles, clips and bases as well as a 10' x 20'
"backstage" tent.
Technical/Power/Generator Fuel (Event Only)
Includes costs to rent and maintain one (1) generator and distribution
panel. Also includes cost to purchase fuel and cable for the generator.
<PAGE>
College Television Network
Tour Contract Agreement
Page 4
Trucking/Transportation
Cost to lease and operate two (2) 48' tractor-trailers throughout the
duration of the Tour. Also includes costs associated with an additional
truck rental for (miscellaneous storage; tow generator, etc.), as well as
trucking costs for the in-active weeks of the tour.
Staff Vehicles
Includes costs to rent one (1) staff vehicle for travel throughout the Tour
and training. Also includes mileage, fuel, tolls and maintenance of the
vehicle.
Creative Development
Includes the services of a Creative Director, Art Director, Copywriter,
Graphic Production Artist and Traffic Manager necessary to produce the
booth signage and creative materials.
Concept Development
Cost includes creative and production hours necessary to develop and design
the concept for the CTN/Mentos FreshMaker Tour. Includes materials and
hours to produce sell-in materials.
Agency Travel
All travel expenses incurred by CMI, including Senior Management, Account
Executive, Creative Director and the Director of Production to attend
events/client meetings, reviews and events requested by CTN and the
sponsors over the course of the Tour. All associated costs will be treated
as a pass through expense with approval from CTN prior to finalizing
arrangements.
Print Advertising
Includes placement of promotional ads at twenty-five (25) campuses. Costs
are based on the following schedule:
Full Page Week prior to event
Hospitality Tent
Costs associated with purchasing one (1) 20' x 20' tent, to be used for
sponsor hospitality purposes, and talent autograph signings. Also includes
costs for tables, table skirts, chairs and miscellaneous signage.
CTN/LINK Tent
Includes costs for client requested additional 20' x 20' tent to be
utilized by CTN and Link Magazine. Costs include all signage for the tent.
<PAGE>
College Television Network
Tour Contract Agreement
Page 5
Mentos Activity
Costs for Mentos blue screen activity tent, which is in addition to the
previously submitted concert cost.
Climbing Wall
Includes costs for Colgate/Palmolive climbing wall as a part of the
activity village. Includes all incremental costs associated with the
climbing wall activity. Costs include the following: two (2) dedicated
event producers, staff training equipment and vehicle upgrade to tow the
wall throughout the duration of the Tour. CMI shall be responsible for the
utilization, maintenance and use of such climbing wall.
Pre-Promotion
Includes costs for production and distribution of posters for each school
throughout the Tour. Costs also include pre-promotion labor of two (2)
students to distribute material throughout each of the campuses.
Co-Sponsor Activity Enhancement
Costs associated with enhancing the activity of each co-sponsor activity,
which includes intensified requirements for AV equipment and additional
signage, if necessary.
Shipping/Communications
Costs associated with the shipment of various CTN materials, drop shipping
to specific event locations and any shipping necessary to implement the
program. Includes estimated costs associated with the Tour Manager's
pager, fax services and other means of communication necessary to
successfully execute the Tour. All associated costs will be treated as a
pass through expense, calculator and billed monthly.
Warehousing/Consolidation/Distribution Services
Includes estimated costs necessary for storing and distributing premium
items and materials over the course of the program. This will be re-
evaluated once program has been defined and material quantities have been
determined.
<PAGE>
College Television Network
Tour Contract Agreement
Page 6
Legal
CMI will provide a certificate of General Liability Insurance of five
million dollars ($5,000,000), listing CTN as an additional insured with
respect to CMI's negligence, performance, or non performance in executing
any of CMI's responsibilities as set forth herein, or for any information,
materials or artwork supplied by CMI hereunder. Cost is estimated and will
be billed as a pass through expense.
CTN Supplied Materials
It is assumed that the sponsors will supply all Tour apparel and premiums.
Miscellaneous
The costs associated with miscellaneous materials supplies or components,
which may arise over the course of the program.
Program Documentation
Cost to purchase and develop film over the course of the Tour.
II. Insurance
CMI shall, at all times during the term of this Agreement keep in full force and
effect with a responsible insurance company a commercial general liability
policy or policies with combined limits of no less than Five Million Dollars
($5,000,000.00) per occurrence and workers' compensation coverage covering the
employees of CMI with minimum statutory limits as required by the State and
employers' liability limits of $1,000,000 per accident. Additionally, CMI will
maintain commercial property coverage with respect to CTN items and materials
while in the care, custody and control of CMI. Policies in force shall comply
with applicable insurance laws in the State of New Jersey.
CTN will self insure for its product liability risks and will meet the financial
and regulatory requirements of a self-insured entity. CTN shall maintain excess
coverage above its self insured program and will keep in full force and effect
with a responsible insurance company a policy or policies for its general
liability risks not assumed under its self-insured program with limits no less
than $5,000,000 per occurrence.
<PAGE>
College Television Network
Tour Contract Agreement
Page 7
Prior to the performance of the first event under this agreement, CMI shall
provide CTN with a certificate of insurance evidencing the existence of the
general liability, workers compensation and property policies required by this
Agreement. Similarly, CTN shall provide CMI evidence its self-insured program
and coverage not assumed under said program as required by this Agreement. Each
party to this Agreement will provide the other with sixty (60) days written
notice prior to the termination of coverages noted herein prior to the
expiration noted on the certificate.
Throughout the term of this Agreement CMI shall at its sole cost and expense
maintain insurance covering all risks of physical loss or damage for the full
replacement cost value of the property owned and/or supplied by CTN while it
remains in CMI's care, custody and control.
III. Indemnification
CMI agrees to indemnify, defend and hold harmless CTN, its parent, affiliates
and subsidiaries and all of its respective employees, officers, directors and
agents from and against any and all third-party liabilities, demands, suits,
damages, claims, causes of action, costs and expenses (including reasonable
attorney fees and court costs), arising directly or indirectly, in connection
with CMI's breach of the provisions hereof, as a result of CMI's negligence,
performance, or non-performance in executing any of CMI's responsibilities as
set forth herein, or as a result of injury, damage or any other occurrence
relating to the concert tour including but not limited to the climbing wall
referred to herein or from any information, materials or artwork supplied by
CMI hereunder.
CTN agrees to indemnify, defend and hold harmless CMI, its parent, affiliates
and subsidiaries and all of its respective employees, officers, directors and
agents, from and against any and all third-party claims, demands, damages,
causes of action, liabilities, costs and expenses (including reasonable attorney
fees and court costs), arising directly or indirectly from any information,
materials, and art work that CTN supplies to CMI and or CTN breach of the
provisions hereof.
<PAGE>
College Television Network
Tour Contract Agreement
Page 8
Each party shall give the other prompt notice of any claim covered by this
Section III. The indemnifying party shall be entitled to control the defense of
such claim with counsel reasonably satisfactory to the indemnified party. The
indemnified party may, at its own expense, participate in the defense of any
claim after the indemnifying party assumes control of the defense thereof. In
no event shall either party be liable to the other party, under this Agreement
or otherwise, for special damages, consequential damages or lost profits or
revenues, even if informed of the possibility of such damages or losses. The
indemnities in this Section III shall survive any termination or expiration of
this Agreement.
IV. Terms
In full consideration for the execution of the Promotion as detailed herein, CTN
shall pay CMI the amounts specified in Exhibit A. CTN shall pay CMI in
accordance with the payment schedule attached as Exhibit B, a copy of which is
annexed hereto and is hereby incorporated into the Agreement by reference and is
made a part hereof.
CTN agrees to reimburse CMI for any additional costs and additional fees
incurred provided said costs have CTN's prior written approval. CMI shall
submit all invoices and support materials for said costs to CTN and CTN shall
remit payment for such invoices pursuant to CMI's invoice terms.
III. Terms (cont.)
CMI reserves the right to charge interest at the rate of 1.5% per month if
payment per the attached schedules is not received within the forty-five (45)
day period from each invoice date. CTN agrees that payment shall not be
unreasonably withheld and shall in good faith make every effort to meet the
dates as outlined in the payment schedules.
<PAGE>
College Television Network
Tour Contract Agreement
Page 9
V. Incremental/Production Schedule
If CTN should request or cause a delay in implementing and executing the Tour,
make additions or deletions which will change the overall scope of the Tour or
the schedule of the Tour, or increase the cost of the Tour then, before
implementing any such change, CMI will: 1) submit a detailed description of the
change itemizing the incremental costs and fees to be signed and dated by CTN,
and 2) adjust the payment schedule to reflect additional costs subject to CTN
approval. CTN agrees to pay for the incremental costs and fees associated with
any incrementals requested by CTN subject to the notification and approval
requirements contained herein.
VI. Termination
This Agreement may be terminated by either party upon thirty- (30) days written
notice to the other party in the event that the other party breaches any
material term or condition of this Agreement (a "default"). However, if the
defaulting party cures such default within such thirty- (30) day period, the
termination notice will be deemed to have been withdrawn. If this Agreement is
terminated by CMI due to a default by CTN, CTN agrees to pay CMI for all
services and fees incurred up to the date of termination including any
liabilities to third party vendors which CMI may have incurred and which are
within the attached budget or approved incremental.
VII. Force Majeure
Neither party hereto shall be considered in default of this Agreement or be
liable for damages, for any failure of performance hereunder occasioned by an
act of God, force of nature, accident, war or warlike activity, insurrection or
civil commotion, labor dispute, transportation delay, governmental regulatory
action (whether or not with proper authority) or other cause similar or
dissimilar to the foregoing and beyond its reasonable control, provided the
party so affected gives prompt notice to the other. In the event of a
suspension of any obligation by reason of this section which extends beyond ten
(10) days, the party not affected may, at its option, elect to cancel those
aspects of this Agreement that is reasonably feasible to terminate.
<PAGE>
College Televisions Network
Tour Contract Agreement
Page 10
VIII. Ownership
CMI agrees that all signage and promotional materials developed, constructed or
purchased by CMI in respect to CTN are the sole and exclusive property of CTN
and, as between CTN and CMI, CTN shall own all rights, titles and interest in
such materials. CMI shall notify CTN of any and all third-party rights in or to
any materials furnished by CMI hereunder. CMI agrees to store all program
components after completion of the program for a period of time specified by
CTN. CTN agrees to pay CMI a fee to be agreed upon in advance and in writing by
CTN and CMI for said storage.
IX. Complete Agreement
This Agreement sets forth the entire agreement between the parties concerning
the Tour, superseding all prior verbal or written communications with respect to
the terms hereof, and may not be altered, modified or changed in any way by
either party without the prior express written consent of the other.
X. Confidentiality
In connection with the services provided hereunder, each party may, from time to
time, be exposed to and will be furnished with certain information, material and
data including but not limited to marketing plans and financial data, which are
confidential. Each party, its parent, subsidiaries and affiliates and employees
shall keep confidential and shall not reveal or disclose any of said
information, material or data to anyone, during the term of this Agreement or
thereafter, without the express written permission of the other party or in
compliance with a court order.
<PAGE>
College Televisions Network
Tour Contract Agreement
Page 11
XI. Governing Law
This Agreement shall be deemed to have been made in the State of Missouri and
governed by the laws of the State of Missouri applicable to contracts performed
entirely herein.
If the foregoing is in accordance with your understanding and is acceptable to
you, please so indicate by signing all copies of the enclosed Agreement and
returning one of them to CMI.
AGREED AND ACCEPTED:
BY: /s/ Peter Kauff DATE: September 22, 1999
--------------------------------- ------------------
College Television Network
Peter Kauff
Vice Chairman
BY: /s/ Stephen Greifer DATE: September 22, 1999
--------------------------------- ------------------
Contemporary Marketing Inc.
Stephen Greifer
Senior Vice President, General Manager
<PAGE>
CTN presents the "Mentos Freshmaker" Tour
Exhibit A
Cost Summary 7/20/99
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Element BUDGET
Project Administration 100,000.00
Concept Development 15,000.00
Agency Travel As Incurred
Road Equipment/Tools/Supplies 5,250.00
Shipping/Communication As Incurred
Warehousing/Consolidation/Distribution Services 5,156.25
Film Development 687.50
Insurance/Legal 8,000.00
CTN Supplied Materials Client Provided
Miscellaneous 5,031.25
Set Construction 34,062.50
Event Elements 87,500.00
Audio/A/V Equipment (Event) 35,000.00
Audio/A/V Equipment (Concert) 120,512.50
Creative Development 18,750.00
Graphics 52,500.00
Truck Graphics 27,500.00
Stage/Concert Requirements 10,875.00
Producer Services 69,495.00
Event Day Staffing/Security 114,270.00
Event Travel 63,384.00
Load-in/Load-out Labor 17,500.00
Trucking/Transportation 114,073.75
Staff Vehicles 26,197.50
Campus Services 6,250.00
Technical/Power/Generator Fuel (Event Only) 18,915.00
Hospitality Tent 12,650.00
CTN/Link Tent 12,500.00
Mentos Activity 37,500.00
Climbing Wall 47,417.00
Pre-Promotion 41,250.00
Co-Sponsor Activity Enhancement 11,000.00
Project Total $1,118,227.00
=============
</TABLE>
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT made as of July 16, 1999, between Armed Forces
Communications, Inc., d/b/a Market Place Media, a New York corporation (the
"Company") and Geoffrey E. Kanter ("Executive").
In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive accepts
----------
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the Effective Date and ending as provided
in paragraph 4 hereof (the "Employment Period").
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the
President of the Company and shall have such duties, responsibilities and
authority of the President subject to the direction of College Television
Network, Inc.'s ("CTN") Chairman of the Board, Chief Executive Officer, and
CTN's board of directors (the "Board") and the board of directors of the Company
(the "MPM Board"). Executive shall also become appointed to CTN's Board, at its
next meeting, in accordance with the governing documents of the Company.
Executive must be ready to begin work in Santa Barbara, California by the
Effective Date.
(b) Executive shall report to CTN's Chairman of the Board, Chief
Executive Officer, the MPM Board and the Board, and Executive shall devote his
full business time, attention and skills to the business and affairs of the
Company, except as otherwise approved by the Board.
3. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be
Three Hundred Thousand and No/ 100 Dollars ($300,000.00) per annum or such
higher rate as the Board may designate from time to time (the "Base Salary"),
which salary shall be payable semi-monthly in regular installments in accordance
with the Company's general payroll practices. Executive and the Chief Executive
Officer shall have an annual review of Executive's performance hereunder and
shall discuss Executive's Base Salary and potential raises.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses. All travel shall be first class accommodations. In addition, during
the Employment Period, the Company shall provide Executive with an automobile
<PAGE>
allowance of Seven Hundred Fifty and No/ 100 Dollars ($750.00) per month for the
monthly payments, maintenance and operating expenses for any automobile used by
Executive.
(c) In addition to the Base Salary, on a fiscal year basis for the
Company, Executive shall receive an annual bonus of One Hundred Thousand and No/
100 Dollars ($100,000) (the "Performance Bonus"), to be paid within 15 days
following receipt by the Board of the results of the yearly audit of the
financial statements performed by the Company's independent auditors for each
fiscal year during the Employment Period, or the determination of the auditors
(on a reviewed basis) on a partial year basis for the last year of the
Employment Period. Such Performance Bonus shall only be earned if the Company's
achieves at least 100% of its EBITDA (as defined below) projection for the
Company's for the applicable fiscal year, which projections are attached hereto
as Exhibit A and are subject to adjustment by the Board in its reasonable
judgment from time to time to account for acquisitions, divestitures, asset
sales or asset purchases. There is no Performance Bonus if less than 100% of
the EBITDA projections is achieved. For the first five (5) months of the
Employment Period only, Executive shall be guaranteed a $50,000 Performance
Bonus regardless of the EBITDA for the Company actually achieved. For any
partial fiscal year during the Employment Period after December 31, 1999, the
Performance Bonus shall be paid based upon a pro rata portion of $100,000 based
upon the portion of the year worked (nothing herein shall be deemed to grant to
Executive the right to receive a prorata portion of the Performance Bonus upon
termination for any reason and is intended to address partial years during the
Employment Period as contemplated by this Agreement). Executive agrees to
accept the judgment of the independent auditors for the Company with regard to
the attainment of Company's projections as final and binding. "EBITDA" shall
mean earnings before interest, taxes, depreciation and amortization of the
Company determined in accordance with the CTN generally accepted accounting
principles.
(d) In addition, the Board may also from time to time, in its sole
discretion, award Executive bonuses, in addition to those bonuses set forth
above.
(e) In addition to the Base Salary and any Performance Bonus payable
to Executive pursuant to this paragraph 3, Executive shall be entitled to
participate in all employee benefit plans and programs for which senior
executive officers of CTN are eligible, including, to the extent available or
established by the Company, any:
(i) family health insurance, disability insurance, and dental
insurance coverage;
(ii) 401(k), retirement or similar benefit plans; and
(iii) Executive shall be entitled to four (4) weeks paid
vacation from working days per year.
(f) Executive will be granted options to purchase 50,000 shares of
Common Stock of the Company at the beginning of each year of the Employment
Period. Such options will vest 12 months after granting, with immediate vesting
upon a Sale of the Company. The grant of such options is subject to the
approval of the Board.
<PAGE>
(g) The Company shall pay Executive reasonable moving expenses upon
submission of an invoice. Executive shall obtain three (3) estimates for the
moving expenses. In addition, the Company will pay for Executive's rent at his
current house in New Jersey, up to $1,860 per month through December 31, 1999
from the Effective Date and shall pay for temporary housing for Executive
(approved by CTN) in Santa Barbara for 30 days after the Effective Date.
4. Term.
----
(a) Provided CTN has entered into an acceptable Stock Purchase
Agreement with the shareholders of the Company and completed due diligence on or
before July 23, 1999 and given notice of such completion to Executive, the
Employment Period shall commence on August 23, 1999 (the "Effective Date") and
end on August 23, 2002 (the "Expiration Date"); provided, however, that the
Employment Period may be extended for one year on the Expiration Date and at the
end of each subsequent year of the Executive's employment (an "Extension
Period"; any such Extension Periods shall be included in the definition of
Employment Period) upon the mutual written agreement of the Company and
Executive; and provided, further, that (i) the Employment Period shall terminate
-------- -------
prior to such date upon Executive's death, permanent disability or incapacity
(determined as set forth below), or resignation and (ii) the Employment Period
may be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause. Permanent Disability or incapacity shall occur
if Executive misses ninety (90) consecutive days of work due to illness or
disability.
(b) If the Employment Period is terminated by the Company without
Cause, Executive shall be entitled to receive an aggregate amount equal to his
Base Salary, payable for the remainder of the Employment Period. This amount
shall be payable by the Company in equal monthly installments over the remainder
of the Employment Period to be paid when other employees of the Company are
paid, so long as Executive has not breached any of the provisions of Paragraphs
5, 6, 7, or 8 hereof. Executive shall be entitled to no other compensation.
(c) If the Employment Period is terminated by the Company for Cause,
upon the Executive's resignation, Executive's death or disability, or upon the
expiration of the Employment Period, Executive shall be entitled to receive his
Base Salary through the date of termination and shall not be entitled to any
other amounts hereunder. Executive shall be entitled to no other compensation
upon termination pursuant to this Section 4(c). Notwithstanding the foregoing,
if Executive is terminated for Cause due to failure to meet the projected
EBITDA, he shall receive severance for the lesser of (i) the remaining portion
of the Employment Period; or (ii) 18 months from the date of termination, to be
paid monthly.
(d) All of Executive's rights to fringe benefits hereunder (if any)
accruing at any time prior to or after the termination of the Employment Period
shall cease upon such termination, provided, however, that if Executive is
-------- -------
terminated by the Company without Cause, the Company shall permit Executive to
continue to receive benefits under the Company's health insurance policies to
the extent permitted by such policies and applicable law by paying for
Executive's COBRA payment, and provided that the Company shall only maintain
--------
such
<PAGE>
insurance coverage until the earlier of (y) the end of the period for which
Executive is receiving severance payments pursuant to paragraph 5 hereof and (z)
the date Executive accepts other employment.
(e) For purposes of this Agreement, "Cause" shall mean (i) the
conviction of a felony or a crime involving moral turpitude or any other crime
involving dishonesty, disloyalty or fraud with respect to the Company or
Holdings, or (ii) gross negligence or willful misconduct with respect to the
Company, or (iii) any other material breach of this Agreement; or (iv) the
repeated failure to perform Executive's duties as directed by the Chief
Executive Officer of CTN or the Board; provided, however, that with respect to
-------- -------
clause (iii) or (iv) above, if such failure or breach is capable of cure as
determined by the Chief Executive Officer of CTN, in his reasonable judgment,
such failure or breach, as the case may be, shall not be deemed to constitute
Cause unless such failure or breach remains uncured after the expiration of ten
(10) days after notice thereof to Executive. In addition, the Employment Period
may be terminated for "Cause" by the Chairman of the Board of CTN, in his sole
discretion, within 90 days after the end of the Company's fiscal year in the
event of the failure of Company to achieve at least 80% of its projected EBITDA
(according to the goals set forth on Exhibit A attached hereto), during the
fiscal year preceding such termination. The "Cause" for failure to meeting the
projected EBITDA shall not be effective if the sales departments of CTN and the
Company are combined and Executive no longer controls the Company's sale
department.
(f) If Executive is terminated without Cause and he obtains another
job, it shall reduce the payments hereunder.
5. Confidential Information. The Executive acknowledges that the
------------------------
information, observations and data obtained by him while employed by the
Company, concerning the business or affairs of the Company and CTN
("Confidential Information") are the property of the Company or CTN. Therefore,
Executive agrees that, except in the performance of duties for the Company, he
shall not disclose to any unauthorized person or use for his own account any
Confidential Information without prior written consent of the Board, except (i)
to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's wrongful
acts or omissions to act, (ii) as necessary to comply with compulsory legal
process, provided that Executive shall provide prior notice to CTN regarding
--------
such disclosure and the Company or CTN, as applicable, shall have the right to
contest such disclosure, (iii) as necessary to counsel and other professional
advisors retained by the Executive, subject to the attorney/client privilege or
a valid and binding non-disclosure agreement between Executive and such
professional and (iv) disclosures of information obtained from a third party
free of restrictions or disclosure of information in Executive's possession
prior to the date hereof which was obtained from a source other than the
Company, CTN or its predecessors. Executive shall deliver to the Company and CTN
at the termination of the Employment Period, all memoranda, notes, plans,
records, reports, computer tapes and software and other documents and data (and
copies thereof) relating to Confidential Information, Work Product or the
business of the Company which he may then possess or have under his control.
<PAGE>
6. Inventions and Patents. Executive agrees that all ideas, concepts,
----------------------
marketing strategies, management techniques, product development, methods,
designs, analyses, drawings, reports, and all similar or related information
which relates to the Company's actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Executive while employed by the Company ("Work Product")
belong to the Company. Executive will promptly disclose such Work Product to the
Board and perform all actions reasonably requested by the Board (whether during
or after the Employment Period) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. Non-Compete, Non-Solicitation.
-----------------------------
(a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the Company's and CTN's trade secrets
and with other confidential information concerning the Company, or CTN and that
his services will be of special, unique and extraordinary value to the Company
or CTN. Therefore, Executive agrees that, during the Employment Period, during
any period in which he is receiving payments pursuant to paragraph 4 or for
which he has received a lump sum payment pursuant to this Agreement or any
subsequent agreement, and, if terminated for Cause or by Executive's resignation
before the Expiration Date, for two years after such termination (the "Non-
Compete Period"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of CTN (which business is an
information or entertainment network marketing to colleges and universities) or
the Company (which business is providing, placing and distributing advertising
to third parties targeting military personnel and their dependents, minorities,
all types and levels of schools and the elderly), within any geographical area
in which the Company or CTN engages or plans to engage in such businesses, which
is the United States of America. Notwithstanding the foregoing, nothing herein
shall prohibit Executive from (i) continuing his ownership, management and/or
control of any business in which and to the extent which he held such interests
and managed such interests prior to the Non-Compete Period, or (ii) being a
passive owner of not more than 5% of the outstanding stock of any class of a
company which is publicly traded, so long as Executive has no active
participation in the management or the business of such company.
(b) During the Employment Period and for eighteen months thereafter,
Executive shall not directly or indirectly through another entity (i) solicit,
encourage, interview, entice, discuss with or induce or attempt to induce any
employee of the Company or CTN to leave the employ of the Company or CTN, or in
any way interfere with the relationship between the Company or CTN and any
employee thereof, (ii) hire any person who was an employee of the Company or CTN
at any time during the Employment Period or (iii) induce or attempt to induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company or CTN with whom he had contact to cease doing business with the
Company or CTN, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and the Company or CTN.
<PAGE>
8. Enforcement. If, at the time of enforcement of paragraphs 5, 6, and 7
-----------
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parities hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope and area.
Because Executive's services are unique and because Executive has access to
Confidential Information and Work Product, the parties hereto agree that money
damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or CTN or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provision hereof (without posting a bond or
other security).
9. Executive Representations. Executive hereby represents and warrants to
-------------------------
the Company that (i) the execution, delivery and performance of this Agreement
by Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity, which would prohibit
his performance under this Agreement, and (iii) upon the execution and delivery
of this Agreement by the Company, this Agreement shall be valid and binding
obligation of Executive, enforceable in accordance with its terms.
10. Survival. Paragraphs 5, 6, 7, 8, and 9 shall survive and continue in
--------
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
11. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by telecopy or reputable
overnight courier service (charges prepaid) to the recipient at the address or
telecopy number below indicated:
Notices to Executive:
Geoffrey E. Kanter
17 Aldgate Court
Princeton, New Jersey 08540
Notices to Company or CTN:
College Television Network, Inc.
5784 Lake Forrest Drive
Suite 275
Atlanta, GA 30328
Telecopy No.: (404) 257-9517
Attn: Mr. Jason Elkin
<PAGE>
With a copy to:
Morris, Manning & Martin, L.L.P.
3343 Peachtree Road, N.E.
1600 Atlanta Financial Center
Atlanta, Georgia 30326
Telecopy No.: (404) 365-9532
Attention: Neil H. Dickson, Esq.
or such other address or telecopy number or to the attention of such other
person as the recipient party shall have specified by prior written notice to
the sending party, any notice under this Agreement will be deemed to have been
given when so delivered or sent or, if mailed, five days after deposit in the
U.S. mail.
12. Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which to be an original and all of which taken together
constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by all parties and their respective heirs,
successors and assigns, except that Executive may not assign his rights or
delegate his obligations hereunder without the prior written consent of CTN.
16. Choice of Law. This Agreement will be governed by the internal law,
--------------
and not the laws of conflicts, of the State of Georgia.
17. Amendment and Waiver. The provisions of this Agreement may be amended
---------------------
or waived with the prior written consent of CTN and Executive, and no course of
conduct or failure or delay in enforcing the provisions of this Agreement shall
affect the validity binding effect or enforceability of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ARMED FORCES COMMUNICATIONS, INC.,
D/BA MARKET PLACE MEDIA
By: /s/ Jason Elkin
------------------------------------------
Its: Chief Executive Officer
-----------------------------------------
/s/ Geoffrey E. Kanter
----------------------------------------------
Geoffrey E. Kanter
<PAGE>
EXHIBIT 99.1
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
You should consider carefully the following factors in evaluating us and our
business. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us, which we
currently deem immaterial or that are similar to those faced by other companies
in our industry or business in general, may also impair our business operations.
If any of the following risks actually occurs, our business, financial condition
or results of future operations could be materially and adversely affected.
We have experienced, and continue to experience, net losses.
- -----------------------------------------------------------
Since our inception, we have experienced, and are continuing to experience,
operating losses and negative cash flow from operations. Our statements of
operations for the fiscal year ended October 31, 1997, for the two-month
transition period ended December 31, 1997, for the fiscal year ended December
31, 1998, and for the nine-month period ended September 30, 1999, reflect net
losses of approximately $4,003,590, $1,135,927, $8,453,903, and $9,344,011,
respectively, or approximately $.77, $.14, $.89 and $1.20 per share,
respectively. In addition, we expect to incur operating losses in the near
future and until such time as operations generate sufficient revenues to cover
our costs.
We may require additional working capital or financing to meet our operating
- ----------------------------------------------------------------------------
demands in 1999 and 2000.
- ------------------------
The rapid development of our business will continue to require substantial
capital expenditures for additional installations. Our future financial results
will depend primarily on our ability to increase our number of affiliate
locations, maintain our existing installations and increase advertising
revenues. We cannot assure that we will achieve or sustain profitability or
positive cash flows from future operating activities. If we fail to increase
the number of installation sites or experience operating difficulties, or if
advertising revenues do not increase substantially, it is likely that we may be
required to raise additional capital or obtain additional financing to fund our
operations.
We depend upon our advertising revenues.
- ---------------------------------------
We derive a significant portion our revenues from advertisers displaying
their commercials on CTN. Although we have agreements with certain national
advertisers and have held discussions or had prior agreements with other
national advertisers, we cannot assure that these advertisers will continue to
purchase advertising from us, that new advertisers will purchase advertising
from us, or that future significant advertising revenues will be generated.
Because certain advertisers may discontinue or reduce advertising on CTN from
time to time, we anticipate that we could experience fluctuations in operating
results and revenues. The failure to attract and enter into new and/or
additional agreements with national advertisers and to derive
<PAGE>
significant revenues from these advertisers would have a material adverse effect
on our business and financial results.
We must secure new installations and maintain existing installations.
- --------------------------------------------------------------------
Our growth is dependent upon our ability to increase the number of
installation sites at colleges and universities. If we increase our
installation sites, we will have increased viewership and should be able to
increase our advertising revenue. In addition, we believe that if we are able
to increase our installation sites, it will become more difficult for a
competitor to enter the market. We have increased our number of installations,
including contracts for future installations, from 265 as of December 31, 1997,
to 736 as of December 31, 1998 and to 1,387 as of September 30, 1999. Although
we have been successful in increasing our installation sites, we cannot assure
that this growth will continue and that colleges and universities will not
require the removal of our system from current locations. Our contracts with
colleges and universities for installation sites typically have a three-year
term. The failure to increase installation sites would have a material adverse
effect on our business and financial results.
We depend upon satellite technology.
- -----------------------------------
The ability of CTN to transmit our programming, and thereby derive
advertising revenue, is dependent upon proper performance of the satellite
transmission equipment upon which CTN's programming delivery is based. Our
contract with Public Broadcasting Service, Inc. provides for our sublease of
transponder capacity on a satellite owned and operated by GE American
Communications, Inc. We are entitled to limited protected service under the
sublease in the event the satellite fails, which would enable CTN's programming
to be redirected to a different satellite under certain circumstances and
subject to certain limitations. However, in the event that CTN's programming is
required to be redirected to a different satellite, our satellite dishes
installed in each of our affiliate locations would be required to be redirected
in order for the programming signals to be received from the satellite. This
redirection procedure could take up to 21 days for completion and would involve
significant cost to us. We have obtained insurance for certain of the costs
associated with such a satellite failure, including the costs of redirecting the
satellite dishes and securing a new satellite transponder, and the lost
advertising revenues resulting from the interruption in programming.
We depend on our agreements with third parties.
- ----------------------------------------------
The ability of CTN to transmit our programming and to maintain and install
our equipment is dependent upon performance by certain third parties under
contracts with us. We are substantially dependent upon performance by
unaffiliated companies for our day-to-day programming operations and system
installation and maintenance.
<PAGE>
Any failure to maintain or improve market acceptance for CTN would adversely
- ----------------------------------------------------------------------------
affect our business.
- -------------------
Our prospects will be significantly affected by the success of our
affiliate marketing efforts, the acceptance of our programming by potential
viewers and our ability to attract advertisers. Achieving market acceptance for
CTN will require significant effort and expenditures by us to enhance awareness
and demand by viewers and advertisers. Our current strategy and future marketing
plans may be subject to change as a result of a number of factors, including
progress or delays in our affiliate marketing efforts, the nature of possible
affiliation and other broadcast arrangements that may become available to us in
the future and factors affecting the direct broadcast industry. We cannot assure
that our strategy will result in initial or continued market acceptance for CTN.
We depend upon our access to programming.
- ----------------------------------------
We believe that our ability to maintain access to music videos and other
programming on a regular, long-term basis, on terms favorable to us is important
to our future success and profitability. We obtain music videos pursuant to
oral agreements with music companies. We have such agreements or arrangements
with a number of the major music company labels, which include Sony, Warner
Elektra, EMI, Columbia, MCA and BMG. We also receive CNN news and sports
programming pursuant to our agreement with Turner Private Networks, Inc.
Termination of substantially all or a large number of our programming agreements
would have a material adverse effect on our business and financial results.
We depend upon our key executives.
- ---------------------------------
We are substantially dependent on the efforts of Jason Elkin, our Chairman
and Chief Executive Officer, Peter Kauff, our Vice Chairman, and Martin Grant,
our President. The loss of any of these executives could have a material
adverse effect on our business and financial results. All of these executives
have entered into multi-year employment agreements with us.
We may not be able to compete successfully with other companies.
- ---------------------------------------------------------------
CTN competes for advertisers with many other forms of advertising media,
including television, radio, print, direct mail and billboard. There are no
meaningful intellectual property barriers to prevent competitors from entering
into this market, and we cannot assure that a competitor with greater resources
than us will not enter into the market. We believe that competition could
increase as other organizations perceive the potential for commercial
application of our product or service.
We must continue to advance our technology.
- ------------------------------------------
We expect technological developments and enhancements to continue at a
rapid pace in the direct broadcast satellite network industry and related
industries, and we cannot assure that technological developments will not
require us to switch to a different transmission technology
<PAGE>
or cause our technology and products to be dated. Our future success could be
largely dependent upon our ability to adapt to technological change and remain
competitive.
Our principal stockholder continues to control our affairs.
- ----------------------------------------------------------
U-C Holdings, L.L.C. beneficially owns approximately 80.3% of our
outstanding common stock. As a result of its ownership, Holdings has, and will
continue to have, sufficient voting power to determine our direction and
policies, the election of our directors, the outcome of any other matter
submitted to a vote of stockholders and to prevent or cause a change in our
control. See "We may be subject to conflicts of interest and related party
transactions."
We may be subject to conflicts of interest and related party transactions.
- -------------------------------------------------------------------------
Certain conflicts of interest may arise as a result of the beneficial
ownership interests in Holdings that are held by a majority of our directors,
including our chairman and chief executive officer. Several members of our
Board of Directors may be deemed to be an indirect beneficial owner of the
securities beneficially owned by Holdings. Conflicts of interest may arise as a
result of these affiliated relationships. Although no specific measures to
resolve such conflicts of interest have been formulated, our management has a
fiduciary obligation to deal fairly and in good faith with us and will exercise
reasonable judgment in resolving any specific conflict of interest that may
occur.
The holders of our common stock could be materially diluted under certain
- -------------------------------------------------------------------------
circumstances.
- -------------
The conversion of the shares of convertible preferred stock into common
stock will result in dilution of voting rights of the currently outstanding
public holders of the common stock.
Our revenues are subject to seasonality.
- ---------------------------------------
Our revenues are affected by the pattern of seasonality common to most
school-related businesses. Historically, we generate a significant portion of
our revenues during the period of September through May and substantially less
revenues during the summer months when most colleges and universities do not
hold regular classes.
Our stock price and ability to raise capital or obtain financing could be hurt
- ------------------------------------------------------------------------------
by our outstanding warrants and options.
- ---------------------------------------
As of September 30, 1999, there are outstanding options to purchase
1,554,413 shares of our common stock granted to certain of our officers and
directors pursuant to our stock option plans. In addition, there are warrants
outstanding that permit their holders to purchase 2,158,337 shares of our common
stock. Holdings has entered into certain Equity Protection Agreements, dated
April 25, 1997, which allow Holdings to purchase additional shares of our common
stock upon the exercise of options or warrants that were outstanding on April
25, 1997 at a price of $2.75 per share (as adjusted). Holdings also received a
warrant to purchase 152,100 shares of our common stock in connection with the
standby commitment Holdings made to us pursuant to the
<PAGE>
rights offering we completed in October 1998. Certain other holders of options
and warrants also have demand and piggy-back registration rights. While such
rights, warrants and options are outstanding, they may (i) adversely affect the
market price of our common stock and (ii) impair our ability to, and the terms
on which we can, raise additional equity capital or obtain debt financing.
Sales of our shares could cause our stock price to fall.
- -------------------------------------------------------
Sales of a substantial number of shares of common stock in the public
market could adversely affect the market price of our common stock prevailing
from time to time. All shares of our common stock, including shares held by
Holdings, are freely tradable without restriction, or may be sold pursuant to
Rule 144 under the Securities Act. The sale of the shares of our common stock
acquired by Holdings are subject to certain limitations set forth in Rule 144
under the Securities Act. As of September 30, 1999, options to purchase
1,554,413 shares and warrants to purchase 2,158,337 shares of our common stock
were outstanding, of which options to purchase 685,389 shares and warrants to
purchase 2,158,337 shares were exercisable.
There are several risks associated with our acquisition strategy.
- ----------------------------------------------------------------
In addition to the MPM Acquisition, we may seek to expand or complement our
operations through the possible acquisition of other companies or through the
licensing of programs that we believe are compatible with our business. While we
explore acquisition opportunities from time to time, as of the date of this
report, we have no definitive plans, agreements, commitments, arrangements or
understandings with respect to any significant acquisition other than the MPM
Acquisition. We have not established any minimum criteria for any other
acquisition, and our management and Board of Directors will have complete
discretion in determining the terms of any such acquisition. We cannot assure
that we will be able to ultimately effect any acquisition, including the MPM
Acquisition, or successfully integrate into our operations any business that we
may acquire, including MPM. Under Delaware law, various forms of business
combinations can be effected without stockholder approval and, accordingly,
stockholders will, in all likelihood, neither receive nor otherwise have the
opportunity to evaluate any financial or other information which may be made
available to us in connection with any acquisition and must rely entirely upon
the ability of management in selecting, structuring and consummating
acquisitions that are consistent with our business objectives.
Year 2000 risks may result in material adverse effects on our business.
- ----------------------------------------------------------------------
Many currently-installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the Year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, over the
next six months, computer systems and/or software used by many companies will
need to be upgraded to comply with such "Year 2000" requirements. Because we are
dependent on vendor compliance, our ability to assure Year 2000 compliance is
limited. We have required certain of our computer system and software vendors to
represent that the services and products provided are, or will be, Year 2000
compliant.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS CONTAINED IN THE SEPTEMBER 30, 1999 REPORT FILED
ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,591,958
<ALLOWANCES> 497,586
<INVENTORY> 0
<CURRENT-ASSETS> 15,751,021
<PP&E> 13,202,464
<DEPRECIATION> 2,696,128
<TOTAL-ASSETS> 57,136,333
<CURRENT-LIABILITIES> 15,724,036
<BONDS> 0
24,902,593
0
<COMMON> 72,059
<OTHER-SE> 656,444
<TOTAL-LIABILITY-AND-EQUITY> 57,136,333
<SALES> 13,871,234
<TOTAL-REVENUES> 13,871,234
<CGS> 0
<TOTAL-COSTS> 23,102,399
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,846
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,344,011)
<EPS-BASIC> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
