UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 0-26368
TRANSMEDIA ASIA PACIFIC, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3760219
- -------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
11 ST. JAMES'S SQUARE, LONDON SW1Y 4LB, ENGLAND
-----------------------------------------------
(Address of principal executive offices) (zip code)
U.K. 011-44-171-930-0706
------------------------
(Registrant's telephone
number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes |X| No |_|
37,039,404 Shares, $.00001 par value, as of May 15, 2000
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date)
<PAGE>
TRANSMEDIA ASIA PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
March 31, September 30,
2000 1999
(Unaudited) (Audited)
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 5,595,595 $ 548,576
Trade accounts receivable 601,296 267,771
Restaurant credits (net of allowance for
irrecoverable credits of $76,273 as of
March 31, 2000 and $ 65,761 as of
September 30, 1999) 50,900 128,599
Amounts due from related parties (note 7) 2,533,364 22,665
Prepaid expenses and other current assets 498,114 172,617
Prepaid fees 711,724 711,724
----------- -----------
Total current assets 9,990,993 1,851,952
----------- -----------
Non current assets
Investment in affiliated companies (note 4) 8,179,338 9,437,824
Property and equipment, (net of accumulated
depreciation of $627,605 as of March 31, 2000
and $647,875 as of September 30, 1999) 120,146 132,870
Goodwill, (net of accumulated
amortization of $818,290 as of March 31, 2000
and $ 642,545 as of September 30, 1999) (note 5) 4,454,017 4,629,762
Other intangible assets, (net of accumulated
amortization and impairment write-off of
$1,840,790 as of March 31, 2000 and
$1,149,783 as of September 30, 1999) (note 5) 784 691,791
Prepaid fees 355,862 711,724
Other assets 61,151 221,420
----------- -----------
Total non-current assets 13,171,298 15,825,391
----------- -----------
TOTAL ASSETS $23,162,291 $17,677,343
=========== ===========
See accompanying notes
2
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
- --------------------------------------------------------------------------------
March 31, September 30,
2000 1999
(Unaudited) (Audited)
------------ ------------
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 633,485 $ 630,694
Deferred income 65,286 70,258
Accrued liabilities 992,575 636,491
Amount due to related parties (note 7) 1,632,931 2,051,188
Notes payable -- 3,688,186
Deferred payment -- 562,500
Bank lines of credit -- 18,740
------------ ------------
Total Current Liabilities 3,324,277 7,658,057
------------ ------------
Minority interest 103,800 60,771
------------ ------------
Preferred stock
Authorized 5,000,000 shares, $0.01 par
value per share. Issued and outstanding
as of March 31, 2000 10,000 convertible
preferred shares (nil as of
September 30, 1999) (note 8) 10,000,000 --
------------ ------------
Stockholders' equity
Common stock $0.00001 par value per share
authorized 95,000,000 shares; (34,076,631
issued and outstanding as of March 31, 2000
and 29,487,048 as of September 30, 1999) 341 295
Additional paid in capital 32,138,947 28,086,369
Cumulative foreign currency translation
adjustment 448,886 (185,717)
Accumulated deficit (22,853,960) (17,942,432)
------------ ------------
Total Stockholders' Equity 9,734,214 9,958,515
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,162,291 $ 17,677,343
============ ============
See accompanying notes
3
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues $ 534,561 $ 900,724 $ 1,109,704 $ 2,034,869
Cost of revenues (156,680) (193,599) (291,285) (411,288)
------------ ------------ ------------ ------------
Gross profit 377,881 707,125 818,419 1,623,581
Selling, general and
administrative expenses (1,643,735) (1,159,016) (2,946,346) (2,936,153)
------------ ------------ ------------ ------------
Loss from operations (1,265,854) (451,891) (2,127,927) (1,312,572)
Share of profits/losses and amortization of
goodwill of affiliated companies (783,910) (53,886) (1,367,674) (118,348)
Interest expense (134,292) (115,103) (393,969) (222,748)
Interest income 1,886 3,543 4,633 7,967
------------ ------------ ------------ ------------
Loss before income taxes (2,182,170) (617,337) (3,884,937) (1,645,701)
Income taxes (benefit) (1,049) 58,545 (1,049) 71,793
------------ ------------ ------------ ------------
Loss after income taxes (2,183,219) (558,792) (3,885,986) (1,573,908)
Minority Interest -- (33,976) -- (4,309)
------------ ------------ ------------ ------------
(2,183,219) (592,768) (3,885,986) (1,578,217)
Preferred stock dividend (note 8) (1,025,542) -- (1,025,542) --
------------ ------------ ------------ ------------
Net loss (3,208,761) (592,768) (4,911,528) (1,578,217)
============ ============ ============ ============
Loss per common share $ (0.09) $ (0.03) $ (0.15) $ (0.08)
Weighted average number of common
shares outstanding 34,040,520 20,713,316 32,518,991 20,116,426
</TABLE>
See accompanying notes
4
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED SEGMENTATION REPORT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statement of operations
Revenues:
Member benefits/loyalty programs $ 381,488 $ 558,912 $ 804,944 $ 1,366,884
Travel services 153,073 341,812 304,760 667,985
------------ ------------ ------------ ------------
Revenue for reportable segments
and consolidated revenues 534,561 900,724 1,109,704 2,034,869
============ ============ ============ ============
Operating loss:
Member benefits/loyalty programs (694,306) (141,334) (947,753) (176,873)
Travel services 31,301 (45,241) (116,509) (182,026)
Corporate overhead (602,849) (265,316) (1,063,665) (953,673)
------------ ------------ ------------ ------------
Total operating loss for
reportable segments (1,265,854) (451,891) (2,127,927) (1,312,572)
------------ ------------ ------------ ------------
Share of affiliate profits/(losses):
Member benefits/loyalty programs (25,938) (53,886) (14,696) (118,348)
Direct marketing (757,972) -- (1,352,978) --
------------ ------------ ------------ ------------
Total share of affiliate profits
(losses) (783,910) (53,886) (1,367,674) (118,348)
------------ ------------ ------------ ------------
Net interest expense (132,406) (111,560) (389,336) (214,781)
------------ ------------ ------------ ------------
Loss before taxation and
minority interests (2,182,170) (617,337) (3,884,937) (1,645,701)
============ ============ ============ ============
Depreciation and amortization:
Member benefits/loyalty programs 114,880 99,434 186,652 224,124
Travel services 16,470 15,310 15,482 14,322
------------ ------------ ------------ ------------
Total 131,350 114,744 202,134 238,446
============ ============ ============ ============
Total assets
Member benefits/loyalty programs 6,734,616 6,723,942
Travel services 372,654 1,078,971
Investment in affiliates 8,179,338 9,437,824
Unallocated 7,443,463 436,606
------------ ------------
Total assets 22,730,071 17,677,343
============ ============
</TABLE>
See accompanying notes
5
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $(3,208,761) $ (592,768) $(4,911,528) $(1,578,217)
Other comprehensive income (loss)
Foreign currency translation
adjustment 867,148 179,215 634,603 187,470
----------- ----------- ----------- -----------
Comprehensive loss $(2,341,613) $ (413,553) $(4,276,925) $(1,390,747)
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Six months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from Operating Activities:
- - Net loss $(4,911,528) $(1,578,217)
Adjustment to reconcile net loss to net cash
used in operating activities:
- - Depreciation 26,390 96,364
- - Amortization of license 61,360 61,360
- - Amortization of goodwill - subsidiaries 175,745 130,718
- - Amortization of goodwill - affiliates 462,431 71,187
- - Amortization of prepaid fees 355,862 --
- - Provision for irrecoverable restaurant credits 10,512 3,946
- - Share of losses of affiliates 905,243 (5,692)
- - Preferred stock dividend 1,025,542 --
- - Minority interests -- 4,309
- - Provision for bad debts -- (11,563)
- - Loss on termination of Transmedia license 629,647 --
- - Shares issued re termination of employment contract 137,500 --
Changes in assets and liabilities:
- - Trade accounts payable 2,791 370,688
- - Accrued liabilities 447,817 (268,463)
- - Accrued interest expense (267,100) (94,848)
- - Accounts receivable (333,525) 290,166
- - Restaurant credits 67,187 37,994
- - Prepaid expense and other current assets (325,497) 148,433
- - Deferred income (4,972) (181,512)
- - Accrued sign-on fees -- (296,500)
- - Other assets 302,269 (324,944)
----------- -----------
Net cash used in operating activities (1,237,138) (1,546,575)
----------- -----------
Cash flows from investing activities:
- - Purchase of NHS -- (1,233,451)
- - Investment in Countdown USA -- (24,967)
- - Investment in Porkpine -- (25,575)
- - Investment in DBS Direct (562,500) --
- - Purchase of fixed assets (13,666) (33,962)
----------- -----------
Net cash used in investing activities (576,166) (1,317,955)
----------- -----------
Cash flows from financing activities:
- - Net proceeds received from issuance of:
common stock 3,539,582 1,507,000
- - Net proceeds from issuance of convertible
preferred stock 9,350,000 --
- - Due from / (to) related parties (2,999,965) (2,060,747)
- - Proceeds from (repayment of) notes payable (3,688,186) 3,335,519
- - Bank credit line (18,740) --
----------- -----------
Net cash (used in)/provided by financing
activities 6,182,691 2,781,772
----------- -----------
(Decrease)/increase in cash and
cash equivalents carried forward $ 4,369,387 $ (82,758)
=========== ===========
</TABLE>
7
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Six months ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
(Decrease)/increase in cash and
cash equivalents brought forward $ 4,369,387 $ (82,758)
Effect of foreign currency on cash 677,632 (538,509)
Minority Interest -- 182,437
----------- -----------
Net (decrease)/increase in cash and
cash equivalents 5,047,019 (438,830)
Cash and cash equivalents at beginning of period 548,576 1,504,921
----------- -----------
Cash and cash equivalents at end of period $ 5,595,595 $ 1,066,091
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 247,412 $ 158,494
Income taxes 1,047 --
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING ACTIVITIES
1. In March 2000 the Company issued 50,000 shares of its common stock to its
former Chief Executive Officer in part payment of a settlement agreement.
8
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company
Transmedia Asia Pacific, Inc. ("the Company") is a global provider of
membership-based consumer and business services through its subsidiaries and
affiliates. These services are primarily marketed to major corporations
providing specifically designed loyalty programs to aid customer acquisition,
activation and retention. The Company's various member benefit programs are
currently offered in 28 countries and globally via the internet. The Company
estimates that it currently has over 9 million members participating in its
various loyalty programs.
The Company was incorporated under the laws of the State of Delaware in March
1994. On May 2, 1994 the Company acquired the right, pursuant to a Master
License Agreement ("License Agreement") dated March 21, 1994, an exclusive
license ("License") to use certain trademarks and service marks, proprietary
computer software programs and know-how of Transmedia Network, Inc. ("Network")
to establish and operate a discount restaurant charge card business in clearly
defined geographical areas. On April 7, 2000 the Company and Network executed a
termination agreement ("Termination Agreement") pursuant to which the Company
agreed to cancel License Agreement (see below). The License was limited to
Australia and New Zealand (the "Licensed Territories"). The Company commenced
operations as a discount restaurant charge card business in Sydney, Australia in
November 1994. Network was issued 590,790 shares of common stock, par value
$.00001 per share ("Common Stock") of the Company, as part consideration for the
License and had the right to designate one director to the board of directors of
the Company, which right was not exercised. Additionally, under the License
Agreement certain changes in key executives and principal shareholdings in the
Company required the prior written approval of Network.
The Company has worked closely with Transmedia Europe, Inc. ("TME") for a number
of years. TME is a company which acquired a similar license to that of the
Company to operate a discount restaurant charge card business in Europe, Turkey
and certain other countries outside of Europe. TME commenced operations in the
United Kingdom in January 1994.
Through 1996 the operations of the Company consisted of a discount restaurant
charge card business in Australia. In 1996 management decided to expand the
Company's operations by providing broader based "member benefits" to its
corporate clients and individual members. Such benefits included discount
shopping, travel, hotel accommodation and telephone helpline services. TME made
a similar strategic decision. As a result the Company and TME jointly acquired
in April 1997 Countdown Holdings Limited ("Countdown"), an international
provider of membership based discount shopping services. In December 1997 the
Company and TME acquired control of NHS Australia Pty Limited ("NHS") through
Transmedia Australia Holdings Pty Limited ("Transmedia Australia"). NHS owned
the business operations of Nationwide Helpline Services Pty Limited
("Nationwide"). NHS is a provider of telephone helpline services covering advice
on legal, tax, accounting, medical and home emergency. In addition, NHS offers
travel related products such as airline tickets, vacation packages, insurance
and provides international medical case management and repatriation services to
a number of insurance companies.
The Company and TME on May 14, 1998 jointly acquired Porkpine Limited
("Porkpine"). Porkpine trades as Logan Leisure, a business which produces and
sells discount shopping and services directories in Ireland. On May 22, 1998 the
Company and TME jointly acquired, through Transmedia Australia Travel Holdings
Pty Limited ("Transmedia Travel"), Breakaway Travel Club Pty Limited
("Breakaway"). Breakaway is a licensed travel agent specializing in discount
packaged vacations for individuals employed in the travel industry in Australia.
In July 1998 the Company and TME jointly established
9
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
Countdown USA, Inc. ("Countdown USA"), to offer member benefits in the United
States and in November 1998 Countdown USA acquired the membership base and
certain assets of National Association of Mature Americans, Inc. ("NAMA") a
provider of discounted mail order and retail pharmacy products as well as other
benefit programs such as discounted eyewear, dental services and leisure
products. On November 17, 1998 Transmedia Australia acquired the balance of 49%
of the shares of common stock of NHS. On June 15, 1999 the Company and TME
jointly acquired DSS Direct Connect, L.L.C. ("DBS Direct"), a marketer and
full-service installer of DirecTV in the United States. Finally, on April 13,
2000 the Company acquired MonsterBook.com, Inc. ("MonsterBook"). MonsterBook
produces and distributes a printed e-business directory which is also available
via its web site MonsterBook.com (See "Subsequent Events")
In light of the close collaboration between the Company and TME since
incorporation and, more particularly, in view of the joint ownership of
Countdown, NHS, DBS Direct, Countdown USA, Logan Leisure and Breakaway Travel,
management of the Company and TME assessed the rationale of a merger of the two
entities. Management believed that keeping the two companies distinct and
separate was not appropriate or advantageous to shareholders and therefore on
December 28, 1999 the Company and TME executed a definitive merger agreement.
("Merger Agreement"). Under the terms of the Merger Agreement, the Company will
issue one share of its common stock for each share of common stock of TME. The
merger, which is expected to be completed in the third quarter of 2000, is
subject to a number of conditions, including shareholder approval. The Company
and TME each established independent committees to determine the fairness of the
proposed transaction from a financial point of view.
On April 7, 2000 the Company and Network executed the Termination Agreement
pursuant to which the Company agreed to cancel the License Agreement in return
for forgiveness of a promissory note in default in the sum of $250,000 together
with accrued interest of approximately $69,000 and forgiveness of past due
royalty payments under the License Agreement in the sum of approximately
$43,000. The Company believes that termination of the License Agreement was in
the best interests of the Company because the License Agreement was no longer
fundamental to the success of the Company's restaurant card business. The
restaurant card business is now an integral part of the Company's member
benefit/loyalty marketing operations and therefore is expected to operate more
favorably under a brand developed by the Company. Further, the Company developed
its own software and systems and therefore the Company received no benefit from
the systems and software provided under the License Agreement for the conduct of
its day-to-day operations. The Company derived direct financial benefit from the
Termination Agreement.
As of March 31, 2000, the Company had the following equity interests in its
direct subsidiaries:
Name Country of Incorporation % Owned
Transmedia Australia Pty Ltd Australia 100
Transmedia Australasia Pty Ltd New Zealand 100
Transmedia Australia Holdings Pty Ltd Australia 50
Transmedia Australia Travel
Holdings Pty Ltd Australia 50
Asia Merger Sub I, Inc. United States 100
Asia Merger Sub II, Inc. United States 100
10
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - The Company (continued)
As of March 31, 2000, the Company had the following equity interests in its
affiliates:
Countdown Holdings Limited UK 50
Porkpine Limited Channel Islands 50
Countdown USA, Inc. United States 50
DSS Direct Connect, LLC United States 50
All references herein to "Company" and "TMAP" include Transmedia Asia Pacific,
Inc. and its subsidiaries unless otherwise indicated.
Note 2 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, the statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the financial position as of March 31, 2000, the results of
operations for the three and six months ended March 31, 2000 and 1999 and the
changes in cash flows for the six months ended March 31, 2000 and 1999. The
results of operations for the three and six months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year.
The September 30, 1999 balance sheet has been derived from the audited
consolidated financial statements as of that date included in the Company's
Annual Report on Form 10-K. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
Although the Company has significant influence over the operating and financial
decisions of its affiliates, it does not have effective control over their
operations and therefore they are accounted for under the equity method.
Note 3 - Significant accounting policies
(a) Principles of consolidation
The consolidated unaudited financial statements include the financial
statements of the Company and its subsidiaries and affiliates, including
50% held subsidiaries where effective control is exercised by the Company
over the financial and operational decisions of the subsidiary. All
significant inter-company transactions have been eliminated on
consolidation.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
11
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(b) Restaurant credits
Restaurant credits represent the total advances made to
participating restaurants in exchange for credits less the amount by
which these food and beverage credits are recouped by the Company as
a result of Company cardholders utilizing their cards at
participating restaurants. The amount by which such food and
beverage credits are recouped amounts to approximately 50% of the
retail value of food and beverages consumed by cardholders. The
Company reviews recoverability of restaurant credits and establishes
an allowance for restaurant credits to restaurants that have ceased
operations or whose credits may not be utilized by cardholders.
The amount of funds advanced to participating restaurants are
generally unsecured and are recoverable as cardholders utilize their
restaurant charge card at the respective restaurant. In certain
cases the Company may request a personal guarantee from the owner of
a restaurant with respect to the recoverability of the advance if
the restaurant ceases operations or ceases to be a participating
restaurant. Generally no other forms of collateral or security are
obtained from the restaurant owners.
(c) Long-lived assets
Long-lived assets, such as office furniture and equipment, goodwill
and other intangibles, are evaluated for impairment when events or
changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted
future cash flows from the use of these assets. When any such
impairment exists, the related assets are written down to fair
value. An impairment of $629,647 was recorded for the three month
period to March 31, 2000.
(d) Intangible assets excluding goodwill
Other intangible assets consist primarily of the cost of the
Transmedia License paid to Network in cash plus the fair value of
shares of Common Stock granted in exchange for the Transmedia
License to operate in the licensed territories using the systems,
procedures and 'know how' of the Transmedia business. The license
cost was being amortized on a straight-line basis over its estimated
useful life of 15 years from the commencement of operations in
November 1994, until terminated.
(e) Office furniture and equipment
Office furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line
method over the estimated lives which are between 3-5 years.
(f) Goodwill
The excess of cost of investments over the fair value of net assets
acquired which is not otherwise allocated is determined to be
goodwill and is amortized on a straight-line basis over a period of
ten or fifteen years.
12
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(g) Income taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Accordingly, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation
allowance is established to reduce the deferred tax assets when
management determines it is more likely than not that the related
tax benefits will not be realized.
(h) Cash equivalents
For purposes of the statements of cash flows, the Company considers
all investments with an original maturity of three months or less to
be a cash equivalent.
(i) Financial instruments
Financial instruments held by the Company include cash and cash
equivalents, notes payable, restaurant credits and amounts due
from/to related parties and approximated fair value as of December
31 and September 30, 1999 due to either short maturity or terms
similar to those available to similar companies in the open market.
(j) Revenue recognition
Revenues and fees comprise:
i) the retail value of food and beverages purchased from
participating restaurants by the Company's Transmedia
cardholders (less the cardholders' 20% or 25% discount) and
cardholders' membership fees.
ii) NHS membership fees paid by sponsoring corporations;
iii) Travel agency commissions earned by the Teletravel division of
NHS and Breakaway.
Transmedia card membership fees are recognized as revenue in equal monthly
installments over the membership period. All other components of revenue,
including NHS membership fees paid by corporations for the provision of
helpline services, are non-refundable and recognized as revenue when the
related services have been performed.
(k) Foreign currencies
The reporting currency of the Company is the United States dollar.
The Company's functional currencies are the Australian dollar, the
UK pound sterling and the Irish punt. The Australian dollar is the
functional currency of the Company's member benefits and travel
businesses because it is the primary currency of the environment in
which the businesses operate as
13
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Significant accounting policies (continued)
(k) Foreign currencies(continued)
autonomous units. All cash generated and expended by these
businesses is primarily in Australian dollars. For the same reasons
the functional currency of the company's interest in Countdown is
the UK pound sterling because that business is located, and
primarily operates in, the United Kingdom. Similarly the functional
currency of the Company's interest in Porkpine is the Irish punt
because that business is located, and primarily operates in the
Republic of Ireland. For consolidation purposes, the assets and
liabilities of overseas subsidiaries are translated at the closing
exchange rates. Consolidated statements of income of such
subsidiaries are consolidated at the average rates of exchange
during the period. Exchange differences arising on the translation
of subsidiaries' financial statements are recorded in the cumulative
foreign currency translation adjustment account as a component of
stockholders' equity. Transactions in foreign currencies are
recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are translated using the rate of exchange ruling at the
balance sheet date and the gains or losses on translation are
included in the consolidated statement of operations.
The average exchange rates during the three months ended December
31, 1999 and 1998 and the exchange rates in effect at December 31,
1999 and September 30, 1999 were as follows:
UK Pound Australian Irish
Sterling ((pound)) Dollar Punt
Average exchange rates:
3 months ended March 31, 2000 1.5802 0.6096 1.2247
3 months ended March 31, 1999 1.6145 0.6292 1.4883
6 months ended March 31, 2000 1.6172 0.6363 1.2825
6 months ended March 31, 1999 1.6757 0.6434 1.4969
Closing exchange rate:
March 31, 2000 1.5921 0.6066 1.2152
September 30, 1999 1.6463 0.6528 1.3513
(l) Comprehensive income
The Company adopted Statement of Financial Accounting Standard
("SFAS") No.130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income (loss),
its components and accumulated balances. Comprehensive income (loss)
is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No.130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income (loss) be reported in a financial statement
that is displayed with the same prominence as other financial
statements. The only item of comprehensive income (loss) is foreign
currency translation adjustments.
14
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(m) Recent accounting pronouncements not yet implemented
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No.133, "Accounting for Derivative Instruments and
Hedging Activities", which establishes standards for accounting for
the various derivative instruments commonly used in hedging
activities. This standard is now effective for fiscal years
beginning after June 15, 2000. While management is still reviewing
the statement, it believes the adoption of this statement will not
have a material effect on the Company's consolidated financial
position, results of operations or cash flows, and any effect will
generally be limited to the form and content of its disclosures.
Note 4 - Investment in Affiliated Companies
Investment in affiliated companies is made up as follows:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
(unaudited) (audited)
<S> <C> <C>
Countdown
Cost of investment $ 2,682,487 $ 2,682,487
Cost of Option 171,860 171,860
Share of profits/(losses)
- From acquisition date to September 30, 1999 (798,274) (798,274)
- Six months ended March 31, 2000 142,314
Amortization of goodwill on investment (500,653) (405,503)
----------- -----------
$ 1,697,734 $ 1,650,570
=========== ===========
Porkpine Limited
Cost of investment $ 922,372 $ 922,372
Share of profits/(losses)
- From acquisition date to September 30, 1999 (75,119) (75,119)
- Six months ended March 31, 2000 77,215 --
Amortization of goodwill on investment (111,742) (81,849)
----------- -----------
$ 812,726 $ 765,404
=========== ===========
DBS Direct
Cost of investment $ 7,538,821 $ 7,538,821
Share of profits/(losses)
- From acquisition to September 30, 1999 (320,161) (320,161)
- Six months ended March 31, 2000 (1,015,590)
Amortization of goodwill on investment (534,192) (196,810)
----------- -----------
$ 5,668,878 $ 7,021,850
=========== ===========
Total investment in affiliates $ 8,179,338 $ 9,437,824
----------- -----------
</TABLE>
15
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Investment in Affiliated Companies (continued)
March 31, September 30,
2001 1999
(unaudited) (audited)
Countdown USA
Cost of investment $ 24,990 $ 24,990
Share of profits/(losses)
- From inception to September 30, 1999 (186,602) (186,602)
- Six months ended March 31, 2000 (109,182) --
Amounts due from/(to) Countdown America -- 37,510
--------- ---------
Included within related parties (see Note 5) $(270,794) $(124,102)
========= =========
Note 5 - Goodwill and other intangible assets
Goodwill is made up as follows:
March 31, September 30,
2000 1999
(unaudited) (audited)
Acquisition of NHS $ 5,213,510 $ 5,213,510
Acquisition of Breakaway 58,797 58,797
----------- -----------
5,272,307 5,272,307
Less: Accumulated amortization (818,290) (642,545)
----------- -----------
$ 4,454,017 $ 4,629,762
=========== ===========
Other intangible assets is made up as follows:
Formation expenses $ 784 $ 784
Transmedia License 1,840,790 1,840,790
----------- -----------
1,841,574 1,841,574
Less: Accumulated amortization (1,211,143) (889,061)
Impairment write-down (629,647) (260,722)
----------- -----------
$ 784 $ 691,791
=========== ===========
16
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6 - Notes Payable
On November 30, 1999 the Company and TME executed a Promissory Note ("Note"),
payable on February 15, 2000, in the principal sum of $3 million with FAI
General Insurance, a shareholder of the Company. Interest on the Note accrued at
the rate of 10% per annum and was payable at maturity. The Note was secured by a
charge over Transmedia Australia and was guaranteed by TME. The Company repaid
the Note in full on March 30, 2000 together with accrued interest.
Note 7 - Related Parties
Amounts due from related parties comprise the following:
March 31 September 30
2000 1999
(unaudited) (audited)
Related Party
Transmedia Europe, Inc. 2,509,303 --
Countdown 24,061 22,665
---------- ----------
Total $2,533,364 $ 22,665
---------- ----------
Amounts due to related parties comprise the following:
March 31 September 30
2000 1999
Related Party
J. V. Vittoria 1,362,137 1,302,137
TMNI -- 355,443
Transmedia Europe, Inc. -- 269,506
Countdown USA, Inc. 270,794 124,102
---------- ----------
Total $1,632,931 $2,051,188
---------- ----------
The Company and TME have a joint responsibility to fund the operations of their
jointly held businesses. The monies advanced by the Company to TME in the six
months ended March 31, 2000 were primarily to fund the operations of the
Company's affiliates DBS Direct and Countdown USA. The advances to TME and its
subsidiaries (the Company's affiliates) were not made against formal loan
documentation, are not interest bearing and are repayable on demand. The
advances were made to protect the Company's interest in its affiliates. Such
cash advances will be eliminated on consolidation post completion of the merger
of the Company and TME.
17
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8 - Series A Convertible Preferred Stock
On March 27, 2000 the Company sold, in a private placement (the "Placement")
pursuant to the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder,
10,000 shares of a newly designated Series A Convertible Preferred Stock, par
value $.01 ("Preferred Shares") resulting in net proceeds to the Company of
approximately $9,350,000. In connection with the Placement the Company paid due
diligence costs of $50,000 in cash and granted to the purchasers of the
Preferred Shares five year warrants to purchase in aggregate 385,542 shares of
the Company's common stock at an exercise price of $6.225 per share.
Additionally, the Company paid a cash fee of $600,000 to Reedland Capital
Partners for services in connection with the Placement and granted them five
year warrants to purchase an aggregate of 250,000 shares of the Company's common
stock at an exercise price of $6.225 per share. The value of the warrants issued
to the purchasers of the Preferred Shares totaled $1,025,542 using the
Black-Scholes model and the Company recorded such amount as preferred stock
dividends in the quarter ended March 31, 2000, with a related credit to
additional paid-in capital. The cash fee paid to Reedland Capital partners was
applied to additional paid-in capital.
The Preferred Shares rank senior to all common stock and to all other series of
preferred stock when and if issued unless, otherwise agreed to by the holders of
the Preferred Shares and entitle the holder to dividends as declared on a
non-cumulative basis. The principal terms of the Preferred Shares are:
(i) Liquidation Preference: $1,000 per share plus 5% per annum subject
to certain adjustments. Neither a consolidation, merger nor sale of
all of the Company's assets shall in and of itself shall be
considered a liquidation.
(ii) Conversion: Preferred Shares can be converted into common stock
through December 27, 2000 at a price of $6.225 per share. Thereafter
the conversion ratio shall be the lower of $6.74375 and the average
market price determined as of December 27, 2000, as reset at the end
of each six month period thereafter through March 27, 2003. The
average market price shall be the average of the five lowest sale
prices for five of the twenty trading days immediately preceding the
relevant determination date. The applicable conversion price shall
also be reduced, on a weighted average basis, to adjust for
issuances of equity at a price per share lower than the conversion
price then in effect. In addition, adjustments shall be made to
reflect dividends made with respect to capital stock ranking junior
as to dividends or liquidation rights to the Preferred Shares as
well as the issuance of options or warrants. Additionally, holders
of the Preferred Shares can require redemption by the Company upon
the occurrence of certain events, including but not limited to,
delisting of the Company's shares of common stock from the NASDAQ
SmallCap market, absence of a closing bid price for five consecutive
trading days, restriction on sale for thirty or more days after a
registration statement covering the shares of common stock
underlying the Preferred Shares has been declared effective or the
taking of any action without the authorization of a majority in
interest of the holders of the Preferred Shares which would be
adverse to their rights.
18
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8 - Series A Convertible Preferred Stock (continued)
(iii) Optional Redemption by the Company: Under certain circumstances
where the Company is in full compliance with all its obligations to
the holders of Preferred Shares, the Company shall have the right,
upon giving notice not later than twenty trading days nor more than
thirty trading days prior to the proposed redemption date to redeem
the Preferred Shares at the applicable redemption price. Such
redemption price shall be the higher of (A.) the product obtained by
multiplying (i) $1,000 plus (ii) accrued dividends calculated at 5%
thereof per annum times 120% or (B) the number of shares of common
stock which would be issuable upon conversion of the Series A
Convertible Preferred Stock on the date of determination times the
average closing bid price for the common stock for the five trading
days immediately preceding the redemption date.
(iv) Final Redemption: The Company shall have the right commencing March
28, 2003 to redeem the Series A Convertible Preferred Stock at any
time thereafter so long as it is in compliance with all requirements
and notice is given not less than thirty trading days nor more than
fifty trading days prior to the final redemption date. The final
redemption price shall be the sum of $1,000 plus accrued dividends
calculated thereon at 5% per annum.
(v) Voting Rights: Holders of the Preferred Shares do not have voting
rights other than with respect to matters adversely effecting the
rights of such holders.
Note 9 - Loss per common share
The following table summarizes securities that were outstanding at March 31,
2000 and 1999 but not included in the calculation of diluted loss per share
because such shares are anti-dilutive.
March 31, March 31,
2000 1999
Stock options and warrants 8,328,507 5,118,809
Note 10 - Industry and geographic area segments
The Company, its subsidiaries and affiliates are engaged in four lines of
business: member benefits/loyalty programs, travel services direct marketing and
e-commerce, with the latter being insignificant in the three and six ended March
31, 2000 and 1999. The operations of subsidiary companies are conducted in
Australia and New Zealand and the operations of affiliates are conducted in
Europe and the Unites states. The accounting policies of the segments are those
described in Note 3 - Significant accounting policies.
19
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11 - Stockholders' equity
On September 30, 1999 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on October 5, 1999 upon the sale of 625,000 shares of common stock at $0.65 per
share resulting in net proceeds to the Company of $406,250.
On October 21, 1999 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on November 20, 1999 upon the sale of 3,906,250 shares of common stock at $0.80
per share resulting in net proceeds to the Company of $3,125,000.
During the quarter ended March 31, 2000 the Company issued 50,000 shares of its
common stock in part payment of its obligations pursuant to a settlement
agreement executed by the Company and Michael R. Chambrello, former Chief
Executive Officer of the Company. Additionally, the Company issued 8,333 shares
of its common stock upon exercise of a warrant resulting in net proceeds to the
Company of $8,333.
Note 12 - Subsequent Events
Acquisition of MonsterBook.com, Inc.
On April 13, 2000 (the "Effective Date") the Company, Asia Merger Sub II, Inc.,
a wholly owned subsidiary of the Company ("Merger Sub"), and MonsterBook.com,
Inc. ("MonsterBook") consummated a merger (the "Merger") of Merger Sub with and
into MonsterBook pursuant to which MonsterBook became a wholly owned subsidiary
of the Company. The Merger was consummated pursuant to the terms of an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of March 8, 2000, by and
among the Company, Merger Sub, MonsterBook and William H. McKee and Frank T.
Vega.
MonsterBook produces and distributes a printed e-business directory for the
Internet. Additionally, the e-business directory is available via the internet
at www.monsterbook.com. MonsterBook's headquarters are located in San Francisco,
California. The Company presently intends to operate MonsterBook as a subsidiary
under the name MonsterBook.com.
Pursuant to the terms of the Merger Agreement, as of the Effective Time, each of
the outstanding shares of common stock of MonsterBook, par value $0.0001 per
share, was converted into the right to receive either (a) $0.27105114 in cash,
without interest (the "Cash Consideration") or (b) 0.0735054 of a share of
common stock of the Company, par value $0.00001 per share (the "Stock
Consideration" and, together with the Cash Consideration, the "Merger
Consideration"). The Merger Consideration was negotiated by the parties at the
time they entered into the Merger Agreement. The Stock Consideration to be
issued by the Company will consist of approximately 2,962,773 shares of its
common stock, and the Cash Consideration to be paid by the Company will consist
of approximately $138,000. Based on the closing price of the Company's common
stock on April 13, 2000 of $5.3125 per share, the Stock Consideration has a
value of approximately $15,739,732, and the Merger Consideration has a value of
approximately $15,877,732. The funds to be used by the Company to pay the Cash
Consideration will be supplied by the Company's working capital. In addition,
the Company converted existing MonsterBook options into options to acquire
approximately 362,749 shares of the Company's common stock.
20
<PAGE>
TRANSMEDIA ASIA PACIFIC, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12 - Subsequent Events (continued)
Acquisition of MonsterBook.com, Inc. (continued)
It is intended that the Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and it is expected that the Merger will be a tax-free event to the MonsterBook
stockholders for federal income tax purposes. The descriptions contained herein
of the Merger are qualified in their entirety by reference to the Company's
Current Report on Form 8-K filed April 28, 2000 and the Merger Agreement
attached thereto as Exhibit 2.1.
21
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q and the documents incorporated herein contain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those described below and those presented elsewhere by management
from time to time. When used in this Quarterly Report, statements that are not
statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "anticipate", "plan,"
"intend," "believe", "estimate" and similar expressions are intended to identify
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and notes thereto.
General
Historically, the business of the Company was the design and supply of a range
of member benefit programs to corporations, affinity groups and individuals. In
1996 the Company and TME decided to work closely to implement a strategy to
create a broader based international member benefits/loyalty marketing business.
As a result the Company currently has established business operations in
Australia and through its affiliates, Countdown, Countdown USA, DBS Direct and
Logan Leisure, has an interest in business operations in Europe and elsewhere.
In addition, the Company recently acquired MonsterBook.com, Inc.
The business of the Company today comprises four segments:
1. The design and supply of a range of loyalty marketing and member benefit
programs to corporations and affinity groups. Additionally, the Company
provides member benefit packages to individuals on an international scale,
2. E-commerce and internet services and directories,
3. Travel services, and
4. Direct marketing through its affiliate DBS Direct.
The future success of the Company is primarily dependent upon its ability
implement its strategy to leverage its existing assets to develop and expand its
internet activities and generate additional revenues from its member and
merchant bases. In its member benefit/loyalty marketing, the Company has
recently focused its sales effort as a loyalty and affinity marketing service to
corporate clients. Management will continue to build the Company's membership
base and broadening the range of member benefit programs offered. As of the date
hereof, management is actively recruiting senior sales, marketing and other
executives to strengthen the management team and facilitate such development and
expansion. The Company will continue to look for new opportunities within the
member benefits industry and may expand its operations through further
acquisitions.
Management believes there is significant opportunity for the Company in its
e-commerce and internet services business. Such opportunity includes revenue
generation, not only through the Countdown-Arcade shopping web site and the
Company's e-business directory business, but also by providing Internet services
to its merchant base, corporate clients and Countdown licensees. The Company
will continue to develop and expand its e-commerce and Internet activities
primarily through strategic alliances.
22
<PAGE>
In the United States the Company intends to aggressively develop the business of
its subsidiary MonsterBook.com as well as its affiliates Countdown USA and DBS
Direct, through cross-marketing and strategic partnerships. The Company is
actively recruiting senior sales, marketing and program executives to be based
in the United States to support the development and expansion of Countdown USA
and DBS Direct. This strengthening of the Company's United States based
management team will also help to facilitate the expansion of its e-commerce and
other Internet activities in the United States marketplace.
In light of the close collaboration between the Company and TME since
incorporation and, more particularly, in view of the joint ownership of
Countdown, Countdown USA, DBS Direct, NHS, Logan Leisure and Breakaway Travel,
management of the Company and TME have executed a merger agreement, subject to
shareholder approval. The proposed merger is also subject to fairness opinions
by independent investment advisers. Post completion of the merger the Company
aims to become a leading global provider of customized loyalty programs and
services to corporations worldwide, providing superior business to consumer
solutions for businesses. The Company's objective is to package online commerce
and Internet content with traditional offline commerce into a web-based and real
world affinity solution for corporations and associations. For members, online
offerings will include Internet access (free in some jurisdictions), a
customized multi-media portal, targeted e-commerce and global directory
services. The Company's (including its affiliates) offline content is currently
available in 28 countries and includes a wide range of products and services
such as discount shopping, discount dining, travel and telephone helpline
services.
Results of Operations
Three Months ended March 31, 2000 compared to Three Months ended March 31, 1999
The Company generated revenues of $534,561 (1999: $900,724) in the three months
ended March 31, 2000, a decrease of $366,163 or 40.7% over the corresponding
period in 1999. The Company's member benefit/loyalty marketing businesses, NHS
and the restaurant card business, recorded a 32% decline in revenues of
approximately $181,000, primarily in the restaurant card operations. Revenues at
NHS were impacted by the loss of a number of contracts which have yet to be
replaced. The Company has recruited additional sales staff who are progressing a
number of new business opportunities. The decline in revenues in the restaurant
card business resulted from lower card usage by cardholders and the Company's
inability to fund advances to new restaurants. Additionally, in light of
termination of the Transmedia License, the Company has not promoted its
restaurant card business for some time. Teletravel and Breakaway recorded a
54.8% decline in revenues as compared to the corresponding period in 1999. Both
businesses experienced a downturn in trading activity generally and suffered
from high staff turnover.
Cost of revenues totaled $156,680 (1999: $193,599) for the three months ended
March 31, 2000, generating a gross profit percentage of 70.7% (1999: 78.5%). The
gross profit percentage achieved in the period by NHS was 77.7% (1999: 75.5%)
and the restaurant card business achieved 9.9% (1999: 48.2%). The decline in the
restaurant card business gross margin is due to cardholders being given
discounts of up to 40% as opposed to the normal 25%. The increase in discount
was given to cardholders to encourage card usage to utilize restaurant credits
prior to termination of the License Agreement. The Company's travel businesses
operate at 100% gross margin.
Selling, general and administrative expenses totaled $1,643,735 (1999:
$1,159,016) for the three months ended March 31, 2000, an increase of $484,719
or 41.8% over the corresponding period in 1999. Selling, general and
administrative expenses of NHS and the restaurant card business recorded an
increase of $110,388 as compared to the corresponding period in 1999. The travel
businesses recorded decreases in selling, general and administrative expenses of
$283,983 as compared to the corresponding period in 1999. Head office selling,
general and administrative expenses increased by $468,453 as compared to the
corresponding period in 1999. The net increase comprised an increase in
professional fees of $318,721.
23
<PAGE>
$177,931 of such increase relates to amortization of prepaid fees to Gleacher &
Co., the Company's investment banker and $140,790 relates to the proposed merger
with TME. Such increases in professional fees were partially offset by expense
decreases, primarily in payroll and marketing costs. In addition, the Company
incurred a net expense of $255,733 with respect to termination of the License
Agreement.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $67,493, $(757,969), $(47,729) and
$(45,703) respectively for the three months ended March 31, 2000 (1999: $4,336,
nil, $(20,001) and $(38,222). Such profits (losses) include amortization of
underlying goodwill in the Company's investment in its affiliates.
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
Six months ended March 31, 2000 compared to six months ended March 31, 1999
The Company generated revenues of $1,109,704 (1999: $2,034,869) in the six
months ended March 31, 2000, a decrease of $925,165 or 45.5% over the
corresponding period in 1999. The Company's member benefit/loyalty marketing
businesses, NHS and the restaurant card business, generated revenues of $804,944
(1999: $1,366,529), a decrease of 41.1%. Revenues in the Company's travel
operations totaled $304,760 (1999: $668,340), a decline of approximately 54%.
Revenues in all business sectors were impacted in the six months ended March 31,
2000 by the loss of a number of contracts, a shortage of senior sales personnel
and limited working capital for much of the period. The Company has recruited
additional sales staff who are progressing a number of new business
opportunities. Additionally, the Company will launch its new dining product at
the end of the third quarter of fiscal 2000.
Cost of revenues totaled $291,285 (1999: $411,288) for the six months ended
March 31, 2000, generating a gross profit percentage of 73.8% (1999: 79.8%). The
gross profit percentage achieved in the period by NHS was 77.1% (1999: 80.1%)
and the restaurant card business achieved 27.0% (1999: 49.6%). The Company's
travel businesses operate at 100% gross margin.
Selling, general and administrative expenses totaled $2,946,346 (1999:
$2,936,153) for the six months ended March 31, 2000, an increase of $10,193 over
the corresponding period in 1999. Selling, general and administrative expenses
of NHS and the restaurant card business recorded a decrease of $145,619. The
travel businesses also recorded decreases in selling, general and administrative
expenses of $428,742. Decreases in expenses in all businesses were recorded
across most cost categories reflecting lower activity levels. Head office
selling, general and administrative expenses increased by $397,640 as compared
to the corresponding period in 1998. $355,862 of such increase relates to
amortization of prepaid fees to Gleacher & Co. and $140,790 relates to the costs
of the proposed merger with TME. Such increases in professional fees were
partially offset by expense decreases, primarily in payroll and marketing costs.
In addition, the Company incurred a net expense of $255,733 with respect to
termination of the License Agreement.
The Company's share of profits/(losses) of its affiliates Countdown, DBS Direct,
Countdown USA and Logan Leisure were $47,164, $(1,352,972), $(109,182) and
$47,321 respectively for the six months ended March 31, 2000 (1999: $(55,549),
nil, $(85,158) and $22,359). Such profits (losses) include amortization of
underlying goodwill in the Company's investment in its affiliates.
Minority interests comprise TME's 50% interest in Transmedia Australia and
Transmedia Travel.
24
<PAGE>
Liquidity and Capital Resources
The following chart represents the net funds provided by or used in operating,
financing and investment activities for each period as indicated:
Six Months Ended
----------------
March 31, 2000 March 31, 1999
Cash (used in)/provided by
Operating Activities $(1,237,138) $(1,546,575)
Cash used in
Investing activities $ (576,166) $(1,317,955)
Cash provided by financing
Activities $ 6,182,691 $ 2,781,772
The Company incurred a net loss of $4,911,528 in the six months ended March 31,
2000, which when adjusted for non-cash items resulted in funds used in operating
activities totaling $1,237,138, net of working capital movements. Non-cash items
comprised preferred stock dividend $1,025,542, depreciation and amortization
charges $1,081,788, the Company's share of losses of affiliates of $905,243,
loss on termination of the Transmedia License $629,467, provision against
irrecoverable restaurant credits $10,512 and employment termination compensation
$137,500.
Net cash used in investing activities of $576,166 in the six months ended March
31, 2000 comprised the Company's investments in its affiliate DBS Direct
$562,500 and in fixed assets $13,566. In the corresponding period in 1999, net
cash used in investing activities comprised the cash elements of the Company's
investment in Transmedia Australia to complete the acquisition of NHS
($1,233,451) and the Company's investment of $50,542 in its affiliates Countdown
America ($24,967) and Porkpine ($25,575). In addition, the Company invested
$33,962 in fixed assets in the six months ended March 31, 1999.
To meet its cash requirements during the six months ended March 31, 2000, the
Company issued in aggregate 4,531,250 shares of Common Stock in equity private
placements, resulting in net proceeds to the Company of $3,531,250. $406,250 of
the net cash proceeds were received in October 1999 and the balance in early
November. In March 2000, the Company sold, in a private placement 10,000 shares
of Convertible Preferred Stock, par value $.01 ("Preferred Shares"), resulting
in net proceeds to the Company of approximately $9,350,000. The proceeds were
received in March 2000 and were applied to loan repayments and working capital.
Additionally, the Company issued 8,333 shares of its common stock upon exercise
of a warrant resulting in net proceeds to the Company of $8,333.
In November 1998 the Company raised approximately $3,400,000 through the
issuance of a secured 10% promissory note. Such promissory note fell due for
payment on November 16, 1999. The Company repaid $400,000 of principal and
executed a new note representing the balance of $3 million on November 30, 1999.
The new note was payable on February 15, 2000, together with accrued interest.
The Company repaid the note, together with accrued interest, from the proceeds
of the Preferred Share placement. Cash generated by financing activities was
partially off set by the repayment of short-term loans totaling $3,688,186 and
advances to related parties of $2,999,965, net primarily TME to fund the
operations of the Company's affiliates.
25
<PAGE>
Historically, the Company's ability to grow and generate cash from operations
has been restricted by the implementation of its strategy to create a broad
based international member benefit/loyalty marketing business primarily through
the joint acquisition of synergistic businesses with TME. The Company currently
has established business operations in Australia and the United States and
through its affiliates, Countdown, Countdown USA, DBS Direct and Logan Leisure,
has an interest in business operations in Europe, the United States and
elsewhere. While the Company will continue to operate cash negative in the short
term, management believes that after completion of the proposed merger with TME,
the Company and TME will be well positioned to achieve profitability in the
medium term. However, there can be no assurance given that the proposed merger
will be completed or when, if at all, profitability will be achieved.
Inflation and Seasonality
The Company does not believe that its operations have been materially influenced
by inflation in the six months ended March 31, 2000, a situation which is
expected to continue for foreseeable future. The business of Breakaway is to
some extent seasonal. However, the Company has no basis at this time on which to
project the effects, if any, on its business as a whole.
Year 2000 disclosure issues
The Company has considered the guidance of the Statement of the Commission
regarding disclosure of Year 2000 issues for public companies (Release No.
33-7558) effective date August 4, 1998. Full disclosure of Year 2000 issues was
made in the Company's Annual Report on Form 10-K for the year ending September
30, 1999.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, the Company and its subsidiaries are subject to legal
proceedings and claims in the ordinary course of business.
On September 29, 1999 NAMA of Texas filed a civil action against the Company,
TME and Countdown USA in Harris County, Texas. NAMA of Texas is a licensee of
NAMA, a business acquired by the Company and TME through Countdown USA in
November 1998. NAMA of Texas is claiming breach of contract pursuant to a
License and Consulting Agreement for the provision, by NAMA, of medical and
other benefit programs to NAMA of Texas. NAMA of Texas is claiming damages for
loss of business and income in the sum of $5 million, punitive damages in the
sum of $3 million, interest, attorney fees and all costs including court costs.
Management of the Company, TME and Countdown USA believe that the claims of NAMA
of Texas are unfounded and that they have meritorious defenses against such
claims. The Company, TME and Countdown USA filed their original answer on
November 5, 1999 and on November 12, 1999 filed a Notice of Removal to Federal
Court. The Federal Court ordered an initial pre-trial conference for May 18,
2000. At the pre-trial conference the Judge dismissed the case against the
Company and TME with the condition that should Countdown USA ultimately lose the
case and is not capable of paying any judgment against it, then the Company and
TME could be enjoined again.
The Company is engaged in a dispute with Edward J. Guinan, III, its former Chief
Executive Officer, with respect to amounts which the Company claims Mr. Guinan
owes to the Company and with respect to amounts which Mr. Guinan claims are owed
to him by the Company. Mr. Guinan's employment agreement was terminated for
cause on September 30, 2000 and the Company considers the employment agreement
to no longer be effective. Mr. Guinan's attorneys recently have challenged this
position and have also asserted claims for various advances which Mr. Guinan
asserts were made on behalf of the Company and for which he claims to be
entitled to reimbursement. No legal action has been commenced by the Company or
Mr. Guinan. At this time it cannot be determined when and if this dispute can be
resolved or what the net amount, if any, which Mr. Guinan owes to the Company or
the Company owes to Mr. Guinan.
The Company is engaged in a dispute with Carl Freyer, a former director and
consultant to the Company. Mr. Freyer claims that an agreement was reached in
December 1999 pursuant to which he, or his affiliate was granted warrants plus
cash payments in lieu of prior compensation arrangements. The Company asserts
that there is no such valid agreement and that the only rights of Mr. Freyer, or
his affiliate, relate to the Company's obligation to submit for shareholder
approval, warrants previously granted covering 300,000 shares exercisable at
$1.00 per share. At this time no litigation has been commenced.
Except as disclosed above, the Company is not aware of any material pending
legal proceedings or claims against the Company or any of its subsidiaries.
ITEM 2. Change in Securities and Use of Proceeds
On September 30, 1999 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on October 5, 1999 upon the sale of 625,000 shares of common stock at $0.65 per
share resulting in net proceeds to the Company of $406,250. The proceeds were
received in October 1999 and were applied to working capital.
27
<PAGE>
On October 21, 1999 the Company commenced a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder. The placement closed
on November 20, 1999 upon the sale of 3,906,250 shares of common stock at $0.80
per share resulting in net proceeds to the Company of $3,125,000. The proceeds
were received in November 1999 and were applied to loan repayments and working
capital.
On March 27, 2000 the Company sold, in a private placement pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder, 10,000 shares of
Convertible Preferred Stock, par value $.01 ("Preferred Shares"), resulting in
net proceeds to the Company of approximately $9,350,000. The proceeds were
received in March 2000 and were applied to loan repayments and working capital.
The Preferred Shares rank senior to all common stock and to all other series of
preferred stock when and if issued, unless otherwise agreed to by the holders of
the Preferred Shares. Holders of the Preferred Shares do not have voting rights
other than with respect to matters adversely affecting the rights of such
holders.
ITEM 3. Default Upon Senior Securities
On April 29, 1998 the Company engaged in a private placement of securities. The
placement was made pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The placement consisted of three 250,000 pounds sterling
(approximately $425,000) face amount 8% promissory notes payable on November 1,
1998 and one 200,000 pounds sterling (approximately $340,000) face amount 8%
promissory note payable on the same date. The holders of the 250,000 pounds
sterling promissory notes each received a three and a half year warrant to
purchase 41,660 shares of the Common Stock at an exercise price of $2.00 per
share and the holder of the 200,000 pounds sterling promissory note received a
warrant to purchase 33,328 shares on the same terms. The Company failed to pay
the promissory notes on the due date and accordingly, pursuant to the terms of
the promissory notes, the holders each received additional warrants for the same
number of shares and exercisable on the same terms as the original warrants. The
warrants are exercisable at any time after issuance through November 1, 2001.
The Company has now repaid all the promissory notes in full, together with
accrued interest.
On November 17, 1998 the Company and TME executed a One Year Secured Promissory
Note ("Promissory Note") in the principal sum of $3.4 million with FAI General
Insurance, a shareholder of the Company. Interest on the Promissory Note accrued
at the rate of 10% per annum and was payable quarterly in arrears. The
Promissory Note was secured by a charge over Transmedia Australia and was
guaranteed by TME. The Promissory Note holder received a three-year warrant to
purchase 1 million shares of Common Stock at an exercise price of $1.00 per
share. In addition, the Company agreed to exchange warrants to purchase 633,366
shares of Common Stock at exercise prices of $1.00 to $1.40, already held by the
Promissory Note holder, for a warrant to purchase 633,366 shares of Common Stock
at an exercise price of $1.00. The warrant is exercisable at any time from
November 16, 1998 through November 15, 2001. The Promissory Note holder also
held warrants on similar terms to purchase 633,366 shares of the common stock of
TME. Such warrants were exchanged by TME for a new warrant on the same terms as
those of the Company. Interest on the Promissory Note was paid to November 15,
1999 and the Company repaid $400,000 of principal in November 1999. On November
30, 1999 the Promissory Note holder and the Company executed a new note
representing the balance of principal of $3 million. The new note was payable on
February 15, 2000, together with accrued interest at the rate of 10% per annum.
The new note was secured by a charge over Transmedia Australia and was
guaranteed by TME. The Company was unable to repay the new note on the due date.
However as of the date hereof the new note has been repaid in full, together
with accrued interest.
ITEM 4. Submission of Matters to a Vote of Security Holders
28
<PAGE>
On March 16, 2000 the Company held its annual meeting of stockholders. The only
business conducted was the election of three directors, Joseph Vittoria, James
Fyfe and William Marks constituting the entire board of directors. Each nominee
received a total of 18,150,185 votes for election and 19,500 votes were withheld
with respect to each.
29
<PAGE>
ITEM 6. Exhibits and Reports on Forms 8-K
(A) Exhibits filed herewith:
3.3 Certificate of Designations of Series A Convertible Preferred Stock
10.2(i) Termination Agreement dated as of April 7, 2000 by and among
Transmedia Network, Inc., TMNI International Incorporated,
Transmedia Europe, Inc. and Transmedia Asia Pacific, Inc.
(B) Forms 8-K filed during quarter
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMEDIA ASIA PACIFIC, INC.
By: /s/ Grant White
--------------------------------
President and Chief Executive Officer
30
Exhibit 10.2(i)
TERMINATION AGREEMENT
This Termination Agreement ("Agreement") dated as of the date last signed by the
Parties, by and among Transmedia Network, Inc., TMNI International Incorporated
(Transmedia Network, Inc. and TMNI International Incorporated are collectively
referred to herein as "Network" and individually as "TMN" and "International"
respectively), Transmedia Europe, Inc. and Transmedia Asia Pacific, Inc.
(Transmedia Europe Inc. and Transmedia Asia Pacific, Inc. are individually
referred to as "TMNE" and "TMNA" respectively and are collectively referred to
as "Membertek").
WHEREAS, International and TMNE are parties to a Master License
Agreement dated December 14, 1992 as amended (the "TMNE License");
WHEREAS, International and TMNA are parties to a Master License
Agreement dated March 21, 1994 (the "TMNA License"). The TMNE and TMNA Licenses
are collectively called the "Licenses";
WHEREAS, Membertek issued to TMN a convertible promissory note dated
April 3, 1997 in the principal amount of $500,000 (the "Convertible Note");
WHEREAS, Network and Membertek are parties to an Agreement dated
December 6, 1996, as amended April 1, 1997, covering the restructuring of
business activities of TMNE and TMNA and providing for certain payments to
Network (the "Restructuring Agreement");
WHEREAS, Network and TMNE are parties to an Agreement dated December
20, 1996 governing the payment of certain license fees due to Network under the
TMNE License ("Deferred Royalty Agreement");
WHEREAS, TMNE, with the permission of International, entered into a
sub-license agreement dated June 30, 1995, as amended January 13, 1997, under
the TMNE License ("La Carte Sublicense") pursuant to which Transmedia La Carte
Restaurant, S.A. ("La Carte") was authorized to operate in certain territories
under the TMNE License;
WHEREAS, the parties hereto wish to terminate all existing
agreements between them and all obligations and rights under said agreements;
and
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth in this Agreement and for other good and valuable
consideration, the receipt and adequacy of which the parties acknowledge, the
parties agree as follows:
1. Definitions. Except as otherwise specifically defined herein,
capitalized terms used herein shall have the same meanings ascribed to them in
the Licenses.
2. Termination. The parties hereby terminate the agreements listed
below (the "Transmedia Agreements"), which, except as specifically set forth in
Section 6 below with respect to the Transition Period only, shall have no
further force and effect.
<PAGE>
(a) The TMNE License between International and TMNE
(b) The TMNA License between International and TMNA
(c) The Restructuring Agreement between Network and Membertek
(d) The Deferred Royalty Agreement between Network and TMNE Except
as set forth in Section 6, and except for the provisions of the Transmedia
Agreements pertaining to derogation of the Marks, representations, warranties
and covenants, indemnification, confidentiality, and rights and duties upon
termination -- all of which the parties expressly confirm shall survive
termination of the Transmedia Agreements, as of the date hereof, no party shall
have any further rights or obligations under any such agreement, including,
without limitation, any amounts owing under the Transmedia Agreements.
3. Conditions to Termination. As a condition to terminating the
Transmedia Agreements, Network requires that, prior to the execution of this
Agreement:
(a) TMNE shall have delivered to Network evidence of the dissolution
of La Carte, which resulted in the termination of the La Carte Sublicense.
(b) TMNE and TMNA each shall have provided a complete and accurate
list of all pending or threatened claims against it relating to its operation of
the Business.
4. Consideration. As consideration for terminating the Transmedia
Agreements, Network hereby agrees that:
(a) Any amounts owed by TMNE or TMNA to Network under the
Restructuring Agreement, the Deferred Royalty Agreement, or the Licenses are
hereby canceled and forgiven.
(b) All obligations of Membertek with respect to the (i) the payment
of principal or interest under the Convertible Note, and (ii) the conversion of
the Convertible Note into shares of TMNE and TMNA stock, are hereby released,
canceled and of no further force and effect. TMN will return the original
Convertible Note to Membertek promptly after the execution of this Agreement.
(c) The parties acknowledge that Network will retain the TMNE and
TMNA stock that it owns to dispose of or hold as it sees fit, without
restriction or obligation to TMNE or TMNA (referred to below as "Network's
TMNE/A Stock").
5. Release.
(a) Except for the obligations of TMN and International under this
Agreement, TMNE and TMNA each hereby for itself and on behalf of its
predecessors, parents, subsidiaries and Affiliates, and each of their respective
directors, officers, shareholders, employees, licensees, partners, members and
agents, releases and forever discharges TMN and International, their
predecessors, parents, subsidiaries and Affiliates, and each of their respective
directors, officers, shareholders, employees, licensees, franchisees, partners,
members and agents, from any and all
<PAGE>
claims, rights or causes of action of any kind or nature, that it ever had, now
has or ever may have, including those related to or arising out its operation of
the Business.
(b) Except for the obligations of TMNE and TMNA under this
Agreement, TMN and International each hereby for itself and on behalf of its
predecessors, parents, subsidiaries and Affiliates, and each of their respective
directors, officers, shareholders, employees, licensees, partners, members and
agents, releases and forever discharges TMNE and TMNA, their predecessors,
parents, subsidiaries and Affiliates, and each of their respective directors,
officers, shareholders, employees, licensees, franchisees, partners, members and
agents, from any and all claims, rights or causes of action of any kind or
nature, that it ever had, now has or ever may have, including those related to
or arising out its operation of the Business.
6. Transition Period. In order to provide for an orderly termination
of the TMNE and TMNA Licenses, the following events will take place as specified
below with the time periods noted following the execution of this Agreement:
(a) As of the date of this Agreement, TMNE and TMNA shall
immediately cease (or have already ceased) the following activities under their
respective Licenses:
i. Permitting TMNE and TMNA TRANSMEDIA cardholders to use
their TRANSMEDIA Cards in Network's territory,
ii. Permitting Network TRANSMEDIA cardholders to use their
cards in TMNE and TMNA's territories,
iii. Sublicensing the TRANSMEDIA business anywhere in Europe
or Asia, and
iv. Soliciting and/or signing up new restaurants in Europe and
Asia.
(b) No later than April 30, 2000, TMNE and TNMA shall cease the
following activities under their respective licenses:
i. Issuing new TRANSMEDIA Cards to any new or renewal members,
and ii. Advancing funds to any new and/or renewal Member Restaurants.
(c) TMNE and TMNA shall as promptly as practicable, but in no event
later than May 31, 2000, notify all of their, as well as their licensees',
cardholders, Member Restaurants, suppliers, joint venture partners and joint
promotion partners, as well as the public at large, that their affiliation with
Network and their operation of the TRANSMEDIA Card Business has terminated.
i. Any such notice given by TMNE or TMNA to its cardholders shall
state clearly that such cardholders will no longer be able to use their
TRANSMEDIA Cards in the relevant Territory(ies) after June 30, 2000;
ii. Any such notice given by TMNE or TMNA to its Member Restaurants
shall state clearly that such restaurants will no longer be permitted to honor
the TRANSMEDIA Card at their establishments after June 30, 2000.
<PAGE>
(d) TMNE and TMNA shall each promptly initiate the transfer of the
existing rights-to-receive meal credits of its Member Restaurants to Membertek,
and complete this transfer as soon as practicable after June 30, 2000 to allow
for substantially all cardholder transactions through June 30, 2000 to be
processed promptly and completely.
(e) TMNE and TMNA shall each contact its TRANSMEDIA cardholders and
either convert their memberships in the TRANSMEDIA program to memberships in the
Membertek program, or terminate those memberships by June 30, 2000. TMNE and
TMNA will endeavor to distribute replacement cards and directories to former
TMNA and TMNE TRANSMEDIA cardholders, under a name not confusingly similar to
TRANSMEDIA, no later than June 30, 2000.
(f) TMNE and TMNA shall each promptly (and in no event later than
May 31, 2000) advise the companies responsible for processing its TRANSMEDIA
card charges that their affiliation with Network and their operation of the
TRANSMEDIA Card Business is terminating, and instruct such companies that they
should not process any charges made after June 30, 2000 to any TRANSMEDIA card.
(g) TMNE and TMNA shall each be solely responsible for terminating
or converting any and all of its agreements with its Member Restaurants,
cardholders and sublicensees by the License Termination Date, including, but not
limited to, resolving issues related to unusable rights-to-receive meal credits
and refunding subscription fees to cardholders. TMNE and TMNA shall each be
solely liable for any costs, losses and expenses arising from or relating to its
termination or conversion of such agreements.
(h) TMNE and TMNA shall each, as promptly as practicable, but in no
event later than June 30, 2000, cease using the TRANSMEDIA mark in the Territory
in connection with the Business or for any other purpose, and shall refrain from
any further use of the TRANSMEDIA mark or any similar mark either within or
outside of the Territory.
(i) TMNE and TMNA shall each, as promptly as practicable, but in no
event later than June 30, 2000, cease using "Transmedia" as part of their
corporate names. Notwithstanding the foregoing, should delay in receiving
Securities and Exchange Commission ("SEC") approval prevent TMNE or TMNA from
complying with this provision, TMNE and TMNA may continue to use "Transmedia" as
part of their corporate names solely to the extent that such use is required in
connection with the SEC approval process, and for no other reason; in such
event, TMNE and TMNA will use all reasonable efforts to expedite their ability
to cease use of "Transmedia" in their corporate name.
(j) TMNE and TMNA shall each, as promptly as practicable, but in no
event later than May 31, 2000, (i) return to Network any and all copies, in
whole or in part, of the Operations Manual and any similar operations manual
that TMNE or TMNA may have developed for its own business, (ii) return to
Network any and all copies, in whole or in part, of the Licensed Software and
any revised or modified versions of the Licensed Software created by TMNE or
TMNA under the Licenses, and (iii) submit a written statement to Network
attesting to the fact that it has deleted and fully erased any and all
electronic versions of the Operations Manual, any TMNE or TMNA operations
manual, the Licensed Software and any revised or modified versions of the
Licensed Software from its systems.
<PAGE>
7. Representations and Warranties of TMNE and TMNA. TMNE and TMNA
each represents and warrants as follows:
(a) Each is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full corporate power
and authority to own its property and to carry on its business all as and in the
places where such properties are now owned or operated or such business is now
being conducted.
(b) Each has the full corporate power and authority to make,
execute, deliver and perform this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by each and the
consummation of the transactions contemplated hereby have been duly authorized
by all required corporate action on behalf of each. This Agreement has been duly
and validly executed and delivered by each and constitutes a legal, valid and
binding obligation of each.
(c) The execution, delivery and performance by each of its
obligations hereunder and the consummation of the transactions contemplated
hereby, will not (i) violate, conflict with or result in the breach of any
provision of the Certificate of Incorporation or By-Laws of each, or (ii) result
in the violation by each of any laws or orders of any governmental or regulatory
authority applicable to each.
(d) No consent, approval or action of, filing with or notice to any
governmental or regulatory authority or other public or private third party is
necessary or required under any of the terms, conditions or provisions of any
law or order of any governmental or regulatory authority or any instrument to
which each is a party or by which each is bound for the execution and delivery
of this Agreement by each, the performance by each of its obligations hereunder
or the consummation of the transactions contemplated hereby.
(e) There is no action, suit, proceeding at law or in equity by any
person, or any arbitration or any administrative or other proceeding by or
before (or to the best knowledge, information and belief of each, any
investigation by), any governmental or regulatory authority, pending or, to the
best knowledge, information and belief of each threatened, against each with
respect to this Agreement or the transactions contemplated hereby.
(f) Except for cardholder and restaurant agreements, TMNA has not
entered into any licensees, sublicenses, franchises, subfranchises, use
agreements, permission agreements, letters of intent, memoranda of
understanding, or other agreements or arrangements that did or do permit or
contemplate any third party to use the TRANSMEDIA mark, operate as part of the
TRANSMEDIA program, otherwise hold themselves out as associated in any way with
TMNA or Network, or that otherwise would expose Network to liability
(collectively, "Third Party Agreements").
(g) Except for cardholder and restaurant agreements and its
agreement with La Carte, TMNE has not entered into any Third Party Agreements.
(h) Except for cardholder and restaurant agreements, La Carte has
not entered into any Third Party Agreements.
<PAGE>
(i) La Carte has been dissolved and the rights of La Carte under the
La Carte Sublicense Agreement have been terminated.
(j) TMNE, TMNA and La Carte have not entered into any cardholder and
restaurant agreements with anyone or any entity who or that to the best of their
knowledge will object to the termination of their or its right to (i) use or
accept a TRANSMEDIA Card, (ii) be featured in a TRANSMEDIA directory, or (iii)
otherwise be associated with the TRANSMEDIA program or Network.
(k) To the extent TMNE, TMNA or La Carte have entered into any
promotional or other marketing arrangements with co-sponsors or other third
parties, such agreements have been terminated or will be terminated prior to the
License Termination Date.
(l) TMNE, TMNA and La Carte are not using any software owned or
provided by Network or in which Network owns any interest, including any
copyright rights.
(m) TMNE, TMNA and La Carte have not either directly or indirectly
applied to register or registered the TRANSMEDIA mark or any similar mark in any
country or location whether or not located within the Territory under the TMNE
License or the TMNA License.
(n) Neither TMNE nor TMNA is aware of any litigation, threatened or
pending, that (i) addresses or otherwise affects rights in the TRANSMEDIA mark
or name or other intellectual property rights owned by Network, or (ii) asserts
any claim against TMNE, TMNA or Network.
(o) Neither TMNE nor TMNA has pledged, mortgaged or otherwise
transferred or assigned any right, title, or interest in, to or under their
respective agreements with Network, nor has TMNE pledged, mortgaged or otherwise
transferred or assigned any right, title, or interest in, to or under its
agreement with La Carte.
(p) Neither TMNE nor TMNA will take any action at any time to treat
Network's TMNE/A Stock any less favorably, or cause that stock to be treated any
less favorably, than any shares in TMNA or TMNE held by unrelated third parties.
8. Representations and Warranties of TMN and International. TMN and
International each represents and warrants as follows:
(a) Each is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full corporate power
and authority to own its property and to carry on its business all as and in the
places where such properties are now owned or operated or such business is now
being conducted.
(b) Each has the full corporate power and authority to make,
execute, deliver and perform this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by each and the
consummation of the transactions contemplated hereby have been duly authorized
by all required corporate action on behalf of each. This Agreement has been duly
and validly executed and delivered by each and constitutes a legal, valid and
binding obligation of each.
<PAGE>
(c) The execution, delivery and performance by each of its
obligations hereunder and the consummation of the transactions contemplated
hereby, will not (i) violate, conflict with or result in the breach of any
provision of the Certificate of Incorporation or By-Laws of each, or (ii) result
in the violation by each of any laws or orders of any governmental or regulatory
authority applicable to each.
(d) No consent, approval or action of, filing with or notice to any
governmental or regulatory authority or other public or private third party is
necessary or required under any of the terms, conditions or provisions of any
law or order of any governmental or regulatory authority or any instrument to
which each is a party or by which each is bound for the execution and delivery
of this Agreement by each, the performance by each of its obligations hereunder
or the consummation of the transactions contemplated hereby.
(e) There is no action, suit, proceeding at law or in equity by any
person, or any arbitration or any administrative or other proceeding by or
before (or to the best knowledge, information and belief of each, any
investigation by), any governmental or regulatory authority, pending or, to the
best knowledge, information and belief of each threatened, against each with
respect to this Agreement or the transactions contemplated hereby.
9. Indemnification. TMNE and TMNA each jointly and severally
indemnify and hold TMN and International, their predecessors, parents,
subsidiaries and Affiliates, and each of their respective directors, officers,
shareholders, employees, licensees, franchisees, partners, members and agents,
harmless against any and all claims, actions, demands, liabilities, losses,
damages, judgments, settlements, costs, and expenses (including reasonable
attorneys' fees) arising from or related to (i) its operation of the Business or
La Carte's operation of the Business, (ii) its actions or omissions during the
Transition Period and any period after the Transition Period during which it has
not yet ceased using "Transmedia" as part of its corporate name, (iii) any
breach or alleged breach by it of any provision of this Agreement or its License
or any sublicense, including, but not limited to, the representations,
warranties and covenants made herein, or (iv) any claim by any of its or La
Carte's cardholders, Member Restaurants, licensees, suppliers, joint venture
partners, joint promotion partners or other third parties.
10. Competition. The parties agree that from and after the date of
this Agreement, no party hereto shall have any restrictions on its right to
fully compete with the business of any other party; provided, however, that TMNE
and TMNA each shall continue to be bound by the confidentiality obligations set
forth in Section 11 of the Licenses.
11. Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to any other
party shall be in writing and shall be deemed to have been given (i) upon
personal delivery, if delivered by hand, (ii) three (3) days after the date of
deposit in the mails, postage prepaid, if mailed by certified or registered
mail, or (iii) the next business day if sent by facsimile transmission (if
receipt is electronically confirmed) or by a prepaid overnight courier service,
and in each case at the respective addresses or numbers set forth below or such
other address or number as such party may have fixed by notice:
<PAGE>
If to Network: President
Transmedia Network Inc.
TMNI International, Inc.
11900 Biscayne Boulevard
Miami, FL 33181
Fax: (305) 892-3317
with a copy to: Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attention: James R. Sims III, Esq.
Fax: (202) 467-7176
If to Membertek: President
Transmedia Europe Inc.
Transmedia Asia Pacific Inc.
11 St. James's Square
London SW1Y 4LB
England
Fax: 011 44 171 839-5727
with a copy to: Davis & Gilbert
1740 Broadway
New York, New York 10019
Attention: Walter M. Epstein, Esq.
Fax: (212) 468-4888
12. Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
successors and permitted assigns.
13. Severability. In the event any provision of this Agreement is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
14. Waiver. The failure of Network to enforce any provision of this
Agreement will in no way be construed to be a waiver of such provision, nor in
any way affect the right of Network to enforce each and every provision of this
Agreement thereafter. The express waiver by Network of any provision, condition
or requirement of this Agreement will not constitute a waiver of any future
obligation to comply with such provision, condition or requirement.
<PAGE>
15. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument. A
facsimile transmission of the signed Agreement shall be legal and binding on all
parties.
16. Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
17. Amendments. This Agreement may not be amended, supplemented or
modified orally, but only by an agreement in writing signed by the parties.
18. Applicable Law. This Agreement shall be construed, interpreted
and enforced in accordance with, and governed by, the laws of the State of New
York for contracts executed and performed in that state, without reference to
choice of law principles thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have duly executed, sealed and delivered this Agreement the day
and year first above written.
TRANSMEDIA NETWORK INC.
ATTEST:
By:________________________________
Title:
April 7, 2000
TMNI INTERNATIONAL INCORPORATED
ATTEST:
By:________________________________
Title:
April 7, 2000
TRANSMEDIA EUROPE, INC.
ATTEST:
By: Paul L. Harrison
--------------------------------
Title: Director
April 7, 2000
TRANSMEDIA ASIA PACIFIC, INC.
ATTEST:
By: /s/ James J. Fyfe
--------------------------------
Title: Director
April 7, 2000
EXHIBIT 3.3
TRANSMEDIA ASIA PACIFIC, INC.
CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
--------------------
Transmedia Asia Pacific, Inc., a Delaware corporation (the
"Corporation"), in accordance with the provisions of Section 103 of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation by unanimous written consent dated March 24, 2000,
adopted a resolution providing for the creation of a series of the Corporation's
Preferred Stock, $.01 par value, which series is designated as "Series A
Convertible Preferred Stock," which resolution is as follows:
RESOLVED, that pursuant to authority vested in the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors does hereby provide for the creation of a series of the Preferred
Stock, $.01 par value (hereinafter called the "Preferred Stock"), of the
Corporation, and to the extent that the voting powers and the designations,
preferences and relative, participating, optional or other special rights
thereof and the qualifications, limitations or restrictions of such rights have
not been set forth in the Certificate of Incorporation of the Corporation, does
hereby fix the same as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
Section 1. Definitions. As used herein, the following terms shall
have the following meanings:
"Accrual Amount" means with respect to any share of Series A
Convertible Preferred Stock on any date an amount calculated at the rate of 5%
per annum of the Conversion Amount of such share from the Issuance Date to the
date of determination.
"Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
"Aggregated Person" means, with respect to any person, any person
whose beneficial ownership of shares of Common Stock would be aggregated with
the beneficial ownership of shares of Common Stock by such person for purposes
of Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.
"AMEX" means the American Stock Exchange, Inc.
<PAGE>
"Auditors" means BDO Stoy Hayward or such other firm of independent
public accountants of recognized standing as shall have been engaged by the
Corporation to audit its financial statements.
"Auditors' Determination" means a determination requested by the
Corporation and signed by the Auditors concurring with the Company's conclusion
that a requirement of the Corporation to redeem, or a right of any holder of
shares of Series A Convertible Preferred Stock to require redemption of, shares
of Series A Convertible Preferred Stock by reason of the occurrence of a
specified Inconvertibility Day or a specified Optional Redemption Event would
result in the Corporation being required to classify the Series A Convertible
Preferred Stock as redeemable preferred stock on a balance sheet of the
Corporation in accordance with Generally Accepted Accounting Principles and
Regulation S-X of the SEC. To the extent any facts are assumed for purposes of
either the Company's conclusion or the Auditors' Determination, the validity of
such conclusion or determination shall depend upon such assumed facts being true
and complete in all material respects.
"Average Market Price" for any date means the arithmetic average of
the Market Price for each of the five Trading Days, whether or not consecutive,
during the applicable Measurement Period on which the lowest Market Prices
occurred.
"Biannual Reset Date" means the date occurring every six months
after the Initial Reset Date on the same day of each sixth month as the Initial
Reset Date through the third anniversary of the Issuance Date (for example, if
the Issuance Date is March 10, 2000 and the Initial Reset Date is December 10,
2000, Biannual Reset Dates shall occur on each June 10 and December 10
thereafter through March 10, 2003).
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or required
by law to remain closed.
"Ceiling Price" means $6.74375 (subject to equitable adjustments
from time to time on terms reasonably acceptable to the Majority Holders for
stock splits, stock dividends, combinations, recapitalizations,
reclassifications, distributions, Tender Offers and similar events relating to
the Common Stock occurring or with respect to which "ex-" trading commences on
or after the date of filing of this Certificate of Designations with the
Secretary of State of the State of Delaware).
"Closing Bid Price" of the Common Stock on any date means the
closing bid price for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal securities market for the Common Stock on such date, or (c) the Nasdaq
SmallCap, if the Nasdaq SmallCap constitutes the principal securities market for
the Common Stock on such date, in any such case as reported by Bloomberg, L.P.
(subject to equitable adjustments from time to time on terms reasonably
acceptable to the Majority Holders for stock splits, stock dividends,
combinations, recapitalizations, reclassifications, distributions, Tender Offers
and similar events relating to the Common Stock occurring or with respect to
which "ex-" trading commences on or after the date of filing of this Certificate
of Designations with the Secretary of State of Delaware).
"Common Stock" means the Common Stock, $.00001 par value, of the
Corporation.
<PAGE>
"Control Notice" means a notice given by the Corporation to the
holders of shares of the Series A Convertible Preferred Stock, in accordance
with Section 7(a)(5) or Section 11(b)(4), (i) stating that an Inconvertibility
Day or an Optional Redemption Event, as the case may be, has occurred by reason
of events which are not solely within the control of the Corporation and (ii)
enclosing an executed copy of an Auditors' Determination.
"Conversion Agent" means American Stock Transfer & Trust Company, or
its duly appointed successor, as conversion agent for the Series A Convertible
Preferred Stock pursuant to the Transfer Agent Agreement.
"Conversion Amount" initially shall be equal to $1,000.00, subject
to adjustment as herein provided.
"Conversion Date" means, with respect to each conversion of shares
of Series A Convertible Preferred Stock pursuant to Section 10, the date on
which the Conversion Notice relating to such conversion is actually received by
the Conversion Agent, whether by mail, courier, personal service, telephone line
facsimile transmission or other means.
"Conversion Notice" means a written notice, duly signed by or on
behalf of a holder of shares of Series A Convertible Preferred Stock, stating
the number of shares of Series A Convertible Preferred Stock to be converted in
the form specified in the Subscription Agreements.
"Conversion Price" means:
(1) for any Conversion Date during the period from the Issuance
Date through the day immediately prior to the Initial Reset
Date, the Fixed Conversion Price; and
(2) for any Conversion Date during the Reset Period commencing on
each Reset Date, the lesser of:
(a) the Ceiling Price; and
(b) the Average Market Price during the Measurement Period
for such Reset Date;
provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6).
"Conversion Rate" shall have the meaning provided in Section 10(a).
"Converted Market Price" means, for any share of Series A
Convertible Preferred Stock as of any date of determination, an amount equal to
the product obtained by multiplying (x) the number of shares of Common Stock
which would, at the time of such determination, be issuable on conversion in
accordance with Section 10(a) of one share of Series A Convertible Preferred
Stock if a Conversion Notice were given by the holder of such share of Series A
Convertible Preferred Stock on the date of such determination (determined
without regard to any limitation on conversion based on beneficial ownership
contained in Section 10(a)) times (y) the average Closing Bid Price of the
Common Stock during the five Trading Days immediately prior to the date of such
determination.
"Corporation Optional Redemption Notice" means a notice given by the
Corporation to the holders of shares of Series A Convertible Preferred Stock
pursuant to Section 9(a) which notice shall state (1) that the Corporation is
exercising its right to redeem all or a portion of the
<PAGE>
outstanding shares of Series A Convertible Preferred Stock pursuant to Section
9(a), (2) the number of shares of Series A Convertible Preferred Stock held by
such holder which are to be redeemed, (3) the Redemption Price per share of
Series A Convertible Preferred Stock to be redeemed or the formula for
determining the same, determined in accordance herewith, and (4) the applicable
Redemption Date.
"Current Price" means with respect to any date the arithmetic
average of the Closing Bid Price of the Common Stock on the 30 consecutive
Trading Days commencing 45 Trading Days before such date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Final Redemption Date" means the date or dates of redemption of
shares of Series A Convertible Preferred Stock pursuant to Section 9(b),
determined in accordance therewith.
"Final Redemption Notice" means a notice given by the Corporation to
each holder of Series A Convertible Preferred Stock pursuant to Section 9(b),
which notice shall state (1) that the Corporation is exercising its right to
redeem outstanding shares of Series A Convertible Preferred Stock pursuant to
Section 9(b), (2) the number of shares of Series A Convertible Preferred Stock
held by such holder which are to be redeemed, (3) the Final Redemption Price per
share of Series A Convertible Preferred Stock held by such holder which are to
be redeemed, determined in accordance herewith, and (4) the Final Redemption
Date.
"Final Redemption Price" means, for any share of Series A
Convertible Preferred Stock on any date, an amount equal to the sum of (i)
$1,000 plus (ii) an amount equal to the Accrual Amount on the share of Series A
Convertible Preferred Stock to be redeemed to the Final Redemption Date.
"Fixed Conversion Price" means $6.225 (subject to equitable
adjustments from time to time on terms reasonably acceptable to the Majority
Holders for stock splits, stock dividends, combinations, recapitalizations,
reclassifications, distributions, Tender Offers and similar events relating to
the Common Stock occurring or with respect to which "ex-" trading commences on
or after the date of filing of this Certificate of Designations with the
Secretary of State of the State of Delaware).
"Generally Accepted Accounting Principles" for any person means the
generally accepted accounting principles and practices applied by such person
from time to time in the preparation of its audited financial statements.
"Inconvertibility Day" means any Reset Date on which the Corporation
would not have been required to convert in accordance with Section 10(a) any
shares of Series A Convertible Preferred Stock held by a holder as a consequence
of the limitations set forth in Section 7(a)(1) had all outstanding shares of
Series A Convertible Preferred Stock held by such holder on such Trading Day
been converted into Common Stock on such Trading Day (without regard to the
limitation, if any, on beneficial ownership by such holder contained in Section
10(a)).
"Inconvertibility Notice" shall have the meaning provided in Section
7(a)(2).
"Initial Reset Date" means December 28, 2000.
"Issuance Date" means the first date of original issuance of any
shares of Series A Convertible Preferred Stock.
"Junior Dividend Stock" means, collectively, the Common Stock and
any other class or series of capital stock of the Corporation ranking junior as
to dividends to the Series A
<PAGE>
Convertible Preferred Stock as to any dividends which have been declared on the
Series A Convertible Preferred Stock.
"Junior Liquidation Stock" means the Common Stock or any other class
or series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series A Convertible Preferred Stock.
"Junior Stock" shall have the meaning provided in Section 10(b)(8).
"Liquidation Preference" means, for each share of Series A
Convertible Preferred Stock, the sum of (i) an amount equal to the Accrual
Amount thereon to the date of final distribution to the holders of shares of
Series A Convertible Preferred Stock in connection with the liquidation,
dissolution or winding up of the Corporation plus (ii) $1,000.00.
"Majority Holders" means at any time the holders of shares of Series
A Convertible Preferred Stock which shares constitute a majority of the
outstanding shares of Series A Convertible Preferred Stock.
"Market Price" of the Common Stock on any date means the lowest sale
price for one share of Common Stock on such date on the first applicable among
the following: (a) the national securities exchange on which the shares of
Common Stock are listed which constitutes the principal securities market for
the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the principal
securities market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, L.P.
(subject to equitable adjustments from time to time on terms reasonably
acceptable to the Majority Holders for stock splits, stock dividends,
combinations, recapitalizations, reclassifications, distributions, Tender Offers
and similar events relating to the Common Stock occurring or with respect to
which "ex-" trading commences on or after the date of filing of this Certificate
of Designations with the Secretary of State of the State of Delaware).
"Maximum Share Amount" means 6,815,000 shares of Common Stock, or
such greater number of shares as permitted by the rules of the Nasdaq SmallCap
or such other securities market on which the Common Stock is then listed for
trading (such amount to be subject to equitable adjustment from time to time on
terms reasonably acceptable to the Majority Holders for stock splits, stock
dividends, combinations, recapitalizations, reclassifications, distributions,
Tender Offers and similar events relating to the Common Stock occurring or with
respect to which "ex-" trading commences after the date of filing of this
Certificate of Designations with the Secretary of State of the State of
Delaware).
"Measurement Period" means, with respect to any date, the period of
20 consecutive Trading Days ending on the Trading Day prior to such date.
"Merger" means the proposed merger of a subsidiary of the Company
with Transmedia Europe, Inc., a Delaware corporation, pursuant to the Merger
Agreement, dated as of December 28, 1999, among such parties.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1933 Act" means the Securities Act of 1933, as amended.
"NYSE" means the New York Stock Exchange, Inc.
<PAGE>
"Option Share Surrender" means the surrender of shares of Common
Stock to the Corporation in payment of the exercise price or tax obligations
incurred in connection with the exercise of a stock option granted by the
Corporation to any of its employees, directors or consultants.
"Optional Redemption Event" means any one of the following events:
(1) For any period of five consecutive Trading Days there shall be
no closing bid price of the Common Stock on the Nasdaq SmallCap, the NYSE, the
AMEX or the Nasdaq;
(2) The Common Stock ceases to be listed for trading on any of the
Nasdaq SmallCap, the NYSE, the AMEX or the Nasdaq;
(3) The inability for 30 or more days (whether or not consecutive)
commencing on or after the SEC Effective Date of any holder of shares of Series
A Convertible Preferred Stock to sell any shares of Common Stock issued or
issuable on conversion of shares of Series A Convertible Preferred Stock
pursuant to the Registration Statement for any reason on each of such 30 days;
(4) The Corporation shall (A) default in the timely performance of
the obligation to issue shares of Common Stock upon conversion of shares of
Series A Convertible Preferred Stock as and when required by Section 10 or (B)
fail or default in the timely performance of any material obligation (other than
as specifically set forth elsewhere in this definition) to a holder of shares of
Series A Convertible Preferred Stock under the terms of this Certificate of
Designations or under the Subscription Agreements, the Registration Rights
Agreements, the Warrants or any other agreement or document entered into in
connection with the issuance of shares of Series A Convertible Preferred Stock,
as such instruments may be amended from time to time;
(5) Any consolidation or merger of the Corporation with or into
another entity (other than a merger or consolidation of a subsidiary of the
Corporation into the Corporation or a wholly-owned subsidiary of the
Corporation) where the shareholders of the Corporation immediately prior to such
transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such consolidation or merger
immediately following such transaction or the common stock of such surviving
corporation is not listed for trading on the NYSE, the AMEX, the Nasdaq or the
Nasdaq SmallCap; or any sale or other transfer of all or substantially all of
the assets of the Corporation; or
(6) The taking of any action, including any amendment to the
Corporation's Certificate of Incorporation, without the consent of the Majority
Holders which materially and adversely affects the rights of any holder of
shares of Series A Convertible Preferred Stock; provided however, that no
Optional Redemption Event shall be deemed to occur by reason of an amendment to
the Corporation's Certificate of Incorporation which increases the number of
authorized shares of Common Stock in connection with the Merger.
"Optional Redemption Notice" means a notice from a holder of shares
of Series A Convertible Preferred Stock to the Corporation which states (1) that
the holder delivering such notice is thereby requiring the Corporation to redeem
shares of Series A Convertible Preferred Stock pursuant to Section 11, (2) in
general terms the Optional Redemption Event giving rise to such redemption, and
(3) the number of shares of Series A Convertible Preferred Stock held by such
holder which are to be redeemed.
"Parity Dividend Stock" means any class or series of the
Corporation's capital stock ranking, as to dividends, on a parity with the
Series A Convertible Preferred Stock as to any dividends which have been
declared on the Series A Convertible Preferred Stock.
<PAGE>
"Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series A Convertible Preferred Stock.
"Premium Percentage" means 120%.
"Premium Price" means, for any share of Series A Convertible
Preferred Stock as of any date of determination, the product obtained by
multiplying (a) the sum of (1) the Conversion Amount plus (2) an amount equal to
the Accrual Amount on such share of Series A Convertible Preferred Stock to the
date of determination times (b) the Premium Percentage.
"Redemption Date" means the date of a redemption of shares of Series
A Convertible Preferred Stock pursuant to Section 9(a) or 11(a), as the case may
be, determined in accordance therewith.
"Redemption Price" means the greater of (i) the Premium Price on the
applicable Redemption Date and (ii) the Converted Market Price on the applicable
Redemption Date.
"Registration Rights Agreements" means the several Registration
Rights Agreements entered into between the Corporation and the original holders
of the shares of Series A Convertible Preferred Stock, as amended or modified
from time to time in accordance with their respective terms.
"Registration Statement" means the Registration Statement required
to be filed by the Corporation with the SEC pursuant to Section 2(a) of the
Registration Rights Agreements.
"Reset Date" means the Initial Reset Date and each Biannual Reset
Date thereafter.
"Reset Period" means the applicable six month period commencing on
the Initial Reset Date and on each Biannual Reset Date thereafter and ending on
the day immediately prior to the next Biannual Reset Date.
"SEC" means the United States Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
first declared effective by the SEC.
"Senior Dividend Stock" means any class or series of capital stock
of the Corporation ranking senior as to dividends to the Series A Convertible
Preferred Stock as to any dividends which have been declared on the Series A
Convertible Preferred Stock.
"Senior Liquidation Stock" means any class or series of capital
stock of the Corporation ranking senior as to liquidation rights to the Series A
Convertible Preferred Stock.
"Series A Convertible Preferred Stock" means the Series A
Convertible Preferred Stock, $.01 par value, of the Corporation.
"Share Limitation Redemption Date" means each date on which the
Corporation is required to redeem shares of Series A Convertible Preferred Stock
as provided in Section 7(a).
"Stockholder Approval" shall mean the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the
<PAGE>
Corporation (duly convened at which a quorum was present), or a written consent
of holders of shares of Common Stock entitled to such number of votes given
without a meeting, of the issuance by the Corporation of 20% or more of the
Common Stock of the Corporation outstanding on the Issuance Date for less than
the greater of the book or market value of such Common Stock on conversion of
the Series A Convertible Preferred Stock, as and to the extent required under
the Stockholder Approval Rule.
"Stockholder Approval Rule" means Rule 4310(c)(25)(H) of the Nasdaq
SmallCap as in effect from time to time or any successor, replacement or similar
rule or regulation of the Nasdaq SmallCap or any other principal securities
market on which the Common Stock is listed for trading.
"Subscription Agreements" means the several Subscription Agreements
by and between the Corporation and the original holders of shares of Series A
Convertible Preferred Stock pursuant to which the shares of Series A Convertible
Preferred Stock were issued.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national
securities exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap which at the time
constitutes the principal securities market for the Common Stock is open for
general trading.
"Transfer Agent Instructions" means the Transfer Agent Instructions
from the Corporation to the Conversion Agent issued pursuant to the Subscription
Agreements for the benefit of the holders from time to time of shares of Series
A Convertible Preferred Stock.
"Warrants" means the Common Stock Purchase Warrants issued by the
Corporation in connection with the issuance of the shares of Series A
Convertible Preferred Stock.
Section 2. Designation and Amount. The shares of such series shall
be designated as "Series A Convertible Preferred Stock", and the number of
shares constituting the Series A Convertible Preferred Stock shall be 10,000,
and shall not be subject to increase. The Corporation shall not issue any shares
of Series A Convertible Preferred Stock other than pursuant to the Subscription
Agreements, unless such issuance shall have been approved by the Majority
Holders. Any shares of Series A Convertible Preferred Stock which are redeemed
by the Corporation and retired and any shares of Series A Convertible Preferred
Stock which are converted in accordance with Section 10 shall be restored to the
status of authorized, unissued and undesignated shares of the Corporation's
class of Preferred Stock and shall not be subject to issuance, and may not
thereafter be outstanding, as shares of Series A Convertible Preferred Stock.
Section 3. Series A Convertible Preferred Stock Capital. The amount
to be represented in the Series A Convertible Preferred Stock capital of the
Corporation at all times for each outstanding share of Series A Convertible
Preferred Stock shall be the greater of (i) the Premium Price and (ii) the
Converted Market Price. The Corporation shall take such action as may be
required to maintain the amount required by this Section 3 to be represented in
stated capital for the Series A Convertible Preferred Stock capital not less
frequently than quarterly.
Section 4. Rank. Subject to the provisions of Section 12(b), all
Series A Convertible Preferred Stock shall rank (i) senior to the Common Stock,
now or hereafter issued, as to payment of dividends and distribution of assets
upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, (ii) senior to any additional series of the class of
Preferred Stock which series the Board of Directors may from time to time
authorize, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, and (iii) senior to any additional class of preferred
stock (or series of
<PAGE>
preferred stock of such class) which the Board of Directors or the stockholders
may from time to time authorize in accordance herewith.
Section 5. Dividends and Distributions. (a) The holders of shares of
Series A Convertible Preferred Stock shall be entitled to receive, when, as, and
if declared by the Board of Directors out of funds legally available for such
purpose, dividends in such amounts as determined from time to time by the Board
of Directors. Dividends on the shares of Series A Convertible Preferred Stock
shall not be cumulative.
If at any time any dividend on any Senior Dividend Stock shall be in
arrears, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series A Convertible Preferred Stock unless and until
all accrued and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest. No dividends
shall be paid or declared and set apart for payment on any Parity Dividend Stock
for any period unless dividends have been, or contemporaneously are, paid or
declared and set apart for such payment on the Series A Convertible Preferred
Stock. No dividends shall be paid or declared and set apart for payment on the
Series A Convertible Preferred Stock for any period unless all accrued but
unpaid dividends have been, or contemporaneously are, paid or declared and set
apart for payment on the Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such dividends.
Any references to "distribution" contained in this Section 5 shall
not be deemed to include any stock dividend or distributions made in connection
with any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
(b) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Parity Dividend Stock,
Parity Liquidation Stock, Junior Dividend Stock or Junior Liquidation Stock if
the number of shares so repurchased, redeemed or otherwise acquired in such
transaction or series of related transactions (excluding any Option Share
Surrender) is more than either (x) 5% of the number of shares of Common Stock,
Parity Dividend Stock, Parity Liquidation Stock, Junior Dividend Stock or Junior
Liquidation Stock, as the case may be, outstanding immediately prior to such
transaction or series of related transactions or (y) 1% of the number of shares
of Common Stock, Parity Dividend Stock, Parity Liquidation Stock, Junior
Dividend Stock or Junior Liquidation Stock, as the case may be, outstanding
immediately prior to such transaction or series of related transactions if such
transaction or series of related transactions is with any one person or group of
affiliated persons, unless the Corporation or such subsidiary offers to purchase
for cash from each holder of shares of Series A Convertible Preferred Stock at
the time of such redemption, repurchase or acquisition the same percentage of
such holder's shares of Series A Convertible Preferred Stock as the percentage
of the number of outstanding shares of Common Stock, Parity Dividend Stock,
Parity Liquidation Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, to be so redeemed, repurchased or acquired at a purchase price
per share of Series A Convertible Preferred Stock equal to the greater of (i)
the Premium Price in effect on the date of purchase pursuant to this Section
5(b) and (ii) the Converted Market Price on the date of purchase pursuant to
this Section 5(b).
(c) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series A Convertible Preferred Stock to
purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series A Convertible Preferred Stock held by such holder
as the percentage of outstanding shares of Common Stock offered to be purchased
in such Tender Offer at a price per share of Series A Convertible Preferred
Stock equal to the greater of (i) the
<PAGE>
Premium Price in effect on the date of purchase pursuant to this Section 5(c)
and (ii) the Converted Market Price on the date of purchase pursuant to this
Section 5(c).
Section 6. Liquidation Preference. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series A Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided, however, that such rights shall accrue to the
holders of Series A Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series A Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series A Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution or winding up of the Corporation.
Section 7. Mandatory Redemption.
(a) Mandatory Redemption Based on Maximum Share Amount. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq SmallCap or other securities market on which the Common Stock is then
listed, so long as the Common Stock is listed on the NYSE, the AMEX, the Nasdaq
or the Nasdaq SmallCap, the Corporation shall not be required to issue upon
conversion of shares of Series A Convertible Preferred Stock pursuant to Section
10 more than the Maximum Share Amount. The Maximum Share Amount shall be
allocated among the shares of Series A Convertible Preferred Stock at the time
of initial issuance thereof pro rata based on the initial issuance of 10,000
shares of Series A Convertible Preferred Stock. Each certificate for shares of
Series A Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series A Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof. Upon surrender of any
certificate for shares of Series A Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series A Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series A Convertible Preferred Stock evidenced by
such new certificate. If any certificate for shares of Series A Convertible
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series A Convertible Preferred
Stock equal to the number of shares of Series A Convertible Preferred Stock
represented by the certificate so surrendered (as reduced by any contemporaneous
conversion of shares of Series A Convertible Preferred Stock represented by the
certificate so surrendered), each certificate issued on such split-up shall bear
a notation of the portion of the Maximum Share Amount allocated thereto
determined by pro rata allocation from among the remaining portion of the
Maximum Share Amount allocated to the certificate so surrendered. If any shares
of Series A Convertible Preferred Stock represented by a single certificate are
converted in full pursuant to Section 10, all of the portion of the Maximum
Share Amount allocated to such shares of Series A Convertible Preferred Stock
which remains unissued after such conversion shall be re-allocated pro rata to
the outstanding shares of Series A Convertible Preferred Stock held of record
<PAGE>
by the holder of record at the close of business on the date of such conversion
of the shares of Series A Convertible Preferred Stock so converted, and if there
shall be no other shares of Series A Convertible Preferred Stock held of record
by such holder at the close of business on such date, then such portion of the
Maximum Share Amount shall be allocated pro rata among the shares of Series A
Convertible Preferred Stock outstanding on such date.
(2) The Corporation shall promptly, but in no event later than three
Business Days after the occurrence, give notice to each holder of shares of
Series A Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series A Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if on any Reset Date
or on any ten Trading Days within any period of 20 consecutive Trading Days the
Corporation would not have been required to convert shares of Series A
Convertible Preferred Stock of such holder in accordance with Section 10(a) as a
consequence of the limitations set forth in Section 7(a)(1) had the shares of
Series A Convertible Preferred Stock held by such holder been converted in full
into Common Stock on such Reset Date or on each such day of such ten Trading
Days, as the case may be, determined without regard to the limitation, if any,
on such holder contained in the proviso to the second sentence of Section 10(a)
(any such notice, whether given by the Corporation or a holder, an
"Inconvertibility Notice"). If the Corporation shall have given or been required
to give any Inconvertibility Notice, or if a holder shall have given any
Inconvertibility Notice, then within ten Trading Days after such
Inconvertibility Notice is given or was required to be given, the holder
receiving or giving, as the case may be, such Inconvertibility Notice shall have
the right by written notice to the Corporation (which written notice may be
contained in the Inconvertibility Notice given by such holder) to direct the
Corporation to redeem the portion of such holder's outstanding shares of Series
A Convertible Preferred Stock (which, if applicable, shall be all of such
holder's outstanding shares of Series A Convertible Preferred Stock) as shall
not, on the Business Day prior to the date of such redemption, be convertible
into shares of Common Stock by reason of the limitations set forth in Section
7(a)(1) (determined without regard to the limitation, if any, on beneficial
ownership of Common Stock by such holder contained in the proviso to the second
sentence of Section 10(a)), within 15 Trading Days after such holder so directs
the Corporation, at a price per share equal to the Converted Market Price. If a
holder of shares of Series A Convertible Preferred Stock directs the Corporation
to redeem outstanding shares of Series A Convertible Preferred Stock and, prior
to the date the Corporation is required to redeem such shares of Series A
Convertible Preferred Stock, the Corporation would have been able, within the
limitations set forth in Section 7(a)(1), to convert all of such holder's shares
of Series A Convertible Preferred Stock (determined without regard to the
limitation, if any, on beneficial ownership of shares of Common Stock by such
holder contained in the proviso to the second sentence of Section 10(a)) on any
ten Trading Days within any period of 15 consecutive Trading Days commencing
after the Reset Date or after the period of 20 consecutive Trading Days, as the
case may be, which gave rise to the applicable Inconvertibility Notice from the
Corporation or such holder of shares of Series A Convertible Preferred Stock, as
the case may be, had all of such holder's shares of Series A Convertible
Preferred Stock been surrendered for conversion into Common Stock on each of
such ten Trading Days within such 15 Trading Day period, then the Corporation
shall not be required to redeem any shares of Series A Convertible Preferred
Stock by reason of such Inconvertibility Notice.
(3) Notwithstanding the giving of any Inconvertibility Notice by the
Corporation to the holders of Series A Convertible Preferred Stock pursuant to
Section 7(a)(2) or the giving or the absence of any notice by the holders of the
Series A Convertible Preferred Stock in response thereto or any redemption of
shares of Series A Convertible Preferred Stock pursuant to Section 7(a)(2),
thereafter the provisions of Section 7(a)(2) shall continue to be applicable on
any occasion unless the Stockholder Approval shall have been obtained from the
stockholders of the Corporation or waived by the Nasdaq SmallCap, or other
securities market on which the Common Stock is listed for trading.
<PAGE>
(4) On each Share Limitation Redemption Date (or such later date as
a holder of shares of Series A Convertible Preferred Stock shall surrender to
the Corporation the certificate(s) for the shares of Series A Convertible
Preferred Stock being redeemed pursuant to this Section 7(a)), the Corporation
shall make payment in immediately available funds of the applicable Converted
Market Price per share to such holder of shares of Series A Convertible
Preferred Stock to be redeemed to or upon the order of such holder as specified
by such holder in writing to the Corporation at least one Business Day prior to
such Share Limitation Redemption Date. Upon redemption of less than all of the
shares of Series A Convertible Preferred Stock evidenced by a particular
certificate, promptly, but in no event later than three Business Days after
surrender of such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series A Convertible Preferred Stock
evidenced by such certificate which have not been redeemed. Only whole shares of
Series A Convertible Preferred Stock may be redeemed.
(5) (A) Notwithstanding any other provision of this Certificate of
Designations, if an Inconvertibility Day occurs by reason of events which are
not solely within the control of the Corporation, the Corporation shall have the
right to give a Control Notice to the holders of Series A Convertible Preferred
Stock at any time after such Inconvertibility Day occurs and prior to the
earlier of (1) the date on which all holders of shares of Series A Convertible
Preferred Stock who had the right (other than as limited by this Section
7(a)(5)) to require redemption of any shares of Series A Convertible Preferred
Stock by reason of the occurrence of such Inconvertibility Day no longer have
such right and (2) the applicable Share Limitation Redemption Date by reason of
the earliest notice given by any holder of shares of Series A Convertible
Preferred Stock directing the Corporation to redeem such shares in accordance
with Section 7(a)(2) by reason of such Inconvertibility Day. For purposes of
this Section 7(a)(5), an Inconvertibility Day shall be deemed to have occurred
by reason of events which are not solely within the control of the Corporation
if a requirement of the Corporation to redeem, or a right of any holder of
shares of Series A Convertible Preferred Stock to require redemption of, shares
of Series A Convertible Preferred Stock by reason thereof would result in the
Corporation being required to classify the Series A Convertible Preferred Stock
as redeemable preferred stock on a balance sheet of the Corporation prepared in
accordance with Generally Accepted Accounting Principles and Regulation S-X of
the SEC. If the Corporation timely gives a Control Notice to the holders of
shares of Series A Convertible Preferred Stock, then, in lieu of payment of the
Converted Market Price per share pursuant to a redemption notice given by any
holder of shares of Series A Convertible Preferred Stock in accordance with
Section 7(a)(2) by reason of such Inconvertibility Day and commencing on such
Inconvertibility Day, the Conversion Price for all outstanding shares of Series
A Convertible Preferred Stock will be 80% of the amount the Conversion Price
would otherwise be. Such adjustment of the Conversion Price shall continue in
effect until the earliest of (x) the date which is 90 days after the Stockholder
Approval shall have been obtained from the stockholders of the Corporation or
waived by the NYSE or other securities market on which the Common Stock is then
listed, (y) the date any further adjustments are made following a failure to
obtain the Stockholder Approval as provided below, and (z) the date when shares
of Series A Convertible Preferred Stock are no longer outstanding. On or after
the date the Corporation gives such Control Notice, upon notice from the
Majority Holders, the Corporation promptly shall call a special meeting of its
stockholders, to be held not later than 60 days after such notice is given, to
seek the Stockholder Approval and shall use its best efforts to obtain the
Stockholder Approval. The Corporation shall prepare and file with the SEC within
20 days after such notice is given preliminary proxy materials which set forth a
proposal to seek such Stockholder Approval. The Corporation shall provide the
Majority Holders an opportunity to consult with the Corporation regarding the
content of such proxy materials insofar as it relates to the Stockholder
Approval by providing copies of such preliminary proxy materials and any revised
preliminary proxy materials to the Majority Holders a reasonable period of time
prior to their filing with the SEC. The Corporation shall furnish to each holder
of shares of Series A Convertible Preferred Stock a copy of its definitive proxy
materials for such special meeting and any amendments or supplements thereto
promptly after the same are mailed to stockholders or filed with the SEC. Upon
the earlier of (i) the failure to obtain the Stockholder Approval at the special
meeting or (ii) the failure to hold the special meeting within such 60-day
period, the Corporation shall so notify the
<PAGE>
holders of shares of Series A Convertible Preferred Stock and, if requested by
notice to the Corporation from the Majority Holders, commencing on the Business
Day following the Corporation's receipt of such notice, the Conversion Price of
the outstanding shares of Series A Convertible Preferred Stock will be 60% of
the amount the Conversion Price would otherwise be without regard to other
adjustments pursuant to this Section 7(a)(5) or Section 11(b)(4).
(B) If and for so long as an adjustment of the Conversion Price is
simultaneously required by this Section 7(a)(5) and by Section 11(b)(4), the
applicable Conversion Price shall be the lower of the two amounts required by
each such section.
(C) The rights of holders of shares of Series A Convertible
Preferred Stock to require redemption of their shares and exercise other rights
pursuant to Sections 7(a)(1) through 7(a)(4) by reason of an Inconvertibility
Day as to which the Corporation does not have a right to give a Control Notice,
or fails to exercise such right on a timely basis, shall not be limited by the
operation of this Section 7(a)(5).
(b) No Other Redemption at Holders' Option. The shares of Series A
Convertible Preferred Stock shall not be subject to redemption by the
Corporation at the option of the Holders except as provided in Section 7(a) and
Section 11.
Section 8. No Sinking Fund. The shares of Series A Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.
Section 9. Optional Redemption.
(a) Corporation Optional Redemption. If (1) the Corporation shall be
in compliance in all material respects with its obligations to the holders of
shares of Series A Convertible Preferred Stock (including, without limitation,
its obligations under the Subscription Agreements, the Registration Rights
Agreements, the Warrants and the provisions of this Certificate of
Designations), (2) on the date the Corporation Optional Redemption Notice is
given and at all times until the Redemption Date, the Registration Statement is
effective and available for use by each holder of shares of Series A Convertible
Preferred Stock for the resale of shares of Common Stock acquired by such holder
upon conversion of all shares of Series A Convertible Preferred Stock held by
such holder and (3) no Optional Redemption Event shall have occurred with
respect to which, on the date a Corporation Optional Redemption Notice is to be
given or on the Redemption Date, any holder of shares of Series A Convertible
Preferred Stock (A) shall be entitled to exercise optional redemption rights
under Section 11 by reason of such Optional Redemption Event or (B) shall have
exercised optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Redemption Price to
such holder, then the Corporation shall have the right, exercisable by giving a
Corporation Optional Redemption Notice not less than 20 Trading Days or more
than 30 Trading Days prior to the Redemption Date to all holders of record of
the shares of Series A Convertible Preferred Stock, at any time to redeem all or
from time to time to redeem any part of the outstanding shares of Series A
Convertible Preferred Stock in accordance with this Section 9(a). If the
Corporation shall redeem less than all outstanding shares of Series A
Convertible Preferred Stock, such redemption shall be made as nearly as
practical pro rata from all holders of shares of Series A Convertible Preferred
Stock. Any Corporation Optional Redemption Notice under this Section 9(a) shall
be given to the holders of record of the shares of Series A Convertible
Preferred Stock at their addresses appearing on the records of the Corporation;
provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series A Convertible Preferred Stock of any other holder. On the
Redemption Date (or such later date as a holder of shares of Series A
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series A Convertible Preferred
<PAGE>
Stock to be redeemed pursuant to this Section 9(a)), the Corporation shall make
payment of the applicable Redemption Price to each holder of shares of Series A
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one Business Day prior to the Redemption Date. A holder of shares of Series A
Convertible Preferred Stock to be redeemed pursuant to this Section 9(a) shall
be entitled to convert in accordance with Section 10 such shares of Series A
Convertible Preferred Stock (x) through the tenth day prior to the Redemption
Date and (y) if the Corporation shall fail to pay the Redemption Price of any
share of Series A Convertible Preferred Stock when due, at any time after the
due date thereof until such date as the Corporation pays the Redemption Price of
such share of Series A Convertible Preferred Stock. Subject to the limitation on
conversion in clause (x) of the immediately preceding sentence, no share of
Series A Convertible Preferred Stock as to which the holder exercises the right
of conversion pursuant to Section 10 or the optional redemption right pursuant
to Section 11 may be redeemed by the Corporation pursuant to this Section 9(a)
on or after the date of exercise of such conversion right or optional redemption
right, as the case may be, regardless of whether the Corporation Optional
Redemption Notice shall have been given prior to, on or after the date of
exercise of such conversion right or optional redemption right, as the case may
be.
(b) Final Redemption. The Corporation shall have the right to redeem
all or from time to time any part of the outstanding shares of Series A
Convertible Preferred Stock at any time on or after the date which is 1,096 days
after the Issuance Date so long as (1) the Corporation shall be in compliance in
all material respects with its obligations to the holders of the Series A
Convertible Preferred Stock (including, without limitation, its obligations
under the Subscription Agreements, the Registration Rights Agreements, the
Warrants and this Certificate of Designations) and (2) no Optional Redemption
Event shall have occurred with respect to which on the date a Final Redemption
Notice is to be given or on the Final Redemption Date, any holder of shares of
Series A Convertible Preferred Stock (a) shall be entitled to exercise optional
redemption rights under Section 11 by reason of such Optional Redemption Event
or (b) shall have exercised optional redemption rights under Section 11 by
reason of such Optional Redemption Event and the Corporation shall not have paid
the Redemption Price to such holder. In order to exercise its rights under this
Section 9(b), the Corporation shall give a Final Redemption Notice not less than
30 Trading Days or more than 50 Trading Days prior to the Final Redemption Date
to all holders of record of the shares of Series A Convertible Preferred Stock.
Any Final Redemption Notice shall be given to the holders of record of the
shares of Series A Convertible Preferred Stock by telephone line facsimile
transmission to such number as shown on the records of the Corporation for such
purpose; provided, however, that any failure or defect in the giving of such
notice to any such holder shall not affect the validity of notice to or the
redemption of shares of Series A Convertible Preferred Stock of any other
holder. On the Final Redemption Date (or such later date as a holder of shares
of Series A Convertible Preferred Stock surrenders to the Corporation the
certificate(s) for shares of Series A Convertible Preferred Stock to be redeemed
pursuant to this Section 9(b)), the Corporation shall make payment of the
applicable Final Redemption Price to each holder of shares of Series A
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one Business Day prior to the Final Redemption Date. A holder of shares of
Series A Convertible Preferred Stock to be redeemed pursuant to this Section
9(b) shall be entitled to convert in accordance with Section 10 such shares of
Series A Convertible Preferred Stock (x) through the day prior to the Final
Redemption Date and (y) if the Corporation shall fail to pay the Final
Redemption Price of any share of Series A Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Final Redemption Price of such share of Series A Convertible Preferred Stock
to such holder. No share of Series A Convertible Preferred Stock as to which a
holder exercises the right of conversion pursuant to Section 10 or the optional
redemption right pursuant to Section 11 may be redeemed by the Corporation
pursuant to this Section 9(b) on or after the date of exercise of such
conversion right or optional redemption right, as the case may be, regardless of
whether the Final Redemption Notice shall have been given prior to, on or after
the date of exercise of such conversion right or optional redemption right, as
the case may be.
<PAGE>
(c) No Other Optional Redemption. The shares of Series A Convertible
Preferred Stock shall not be subject to redemption at the option of the
Corporation except as provided in Sections 9(a) and 9(b).
Section 10. Conversion.
(a) Conversion at Option of Holder. The holders of the Series A
Convertible Preferred Stock may at any time on or after the Issuance Date
convert at any time all or from time to time any part of their shares of Series
A Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as herein provided. Each share of
Series A Convertible Preferred Stock may be converted at the office of the
Conversion Agent or at such other additional office or offices, if any, as the
Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the
Conversion Amount and (ii) an amount equal to the Accrual Amount on the share of
Series A Convertible Preferred Stock being converted to the applicable
Conversion Date by (y) the Conversion Price for such Conversion Date (the
"Conversion Rate"); provided, however, that in no event shall any holder of
shares of Series A Convertible Preferred Stock be entitled to convert any shares
of Series A Convertible Preferred Stock in excess of that number of shares of
Series A Convertible Preferred Stock upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by such holder and all
Aggregated Persons of such holder (other than shares of Common Stock deemed
beneficially owned through the ownership of (x) unconverted shares of Series A
Convertible Preferred Stock and (y) the unconverted or unexercised portion of
any instrument, including, without limitation, the Warrants, which contains
limitations similar to those set forth in this sentence) and (2) the number of
shares of Common Stock issuable upon the conversion of the number of shares of
Series A Convertible Preferred Stock with respect to which the determination in
this proviso is being made, would result in beneficial ownership by such holder
and all Aggregated Persons of such holder of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and Regulation 13D-G thereunder, except as otherwise
provided in clause (1) of the proviso to the immediately preceding sentence.
(b) Other Provisions. (1) Notwithstanding anything in this Section
10(b) to the contrary, no change in the Conversion Amount pursuant to this
Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made.
(2) Notwithstanding anything in this Section 10(b), no change in the
Conversion Amount shall be made that would result in the price at which a share
of Series A Convertible Preferred Stock is converted being less than the par
value of the Common Stock into which shares of Series A Convertible Preferred
Stock are at the time convertible.
(3) (A) The right of the holders of Series A Convertible Preferred
Stock to convert their shares shall be exercised by giving (which may be done by
telephone line facsimile transmission) a Conversion Notice to the Conversion
Agent, with a copy to the Corporation. If a holder of Series A Convertible
Preferred Stock elects to convert any shares of Series A Convertible Preferred
Stock in accordance with Section 10(a), such holder shall not be required to
surrender the certificate(s) representing such shares of Series A Convertible
Preferred Stock to the Corporation unless all of the shares of Series A
Convertible Preferred Stock represented thereby are so converted. Subject to the
provisions of clause (B) of this Section 10(b)(3), each holder of shares of
Series A Convertible Preferred Stock and the Corporation shall maintain records
showing the number of shares so converted
<PAGE>
and the dates of such conversions or shall use such other method, satisfactory
to such holder and the Corporation, so as to not require physical surrender of
such certificates upon each such conversion. In the event of any dispute or
discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any shares of Series A Convertible Preferred Stock evidenced by a particular
certificate therefor are converted as aforesaid, the holder of Series A
Convertible Preferred Stock may not transfer the certificate(s) representing
such shares of Series A Convertible Preferred Stock unless such holder first
physically surrenders such certificate(s) to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such holder of
shares of Series A Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series A Convertible Preferred Stock
(upon payment by such holder of shares of Series A Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series A Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series A Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series A Convertible Preferred Stock represented by such
certificate, the number of shares of Series A Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate, and (2) the Corporation may place a legend on the certificates
for shares of Series A Convertible Preferred Stock which refers to or describes
the provisions of this paragraph.
(B) Within five Business Days after the end of each calendar month
in which one or more Conversion Notices are given by a holder, such holder shall
physically surrender to the Corporation the applicable certificate(s)
representing such shares of Series A Convertible Preferred Stock so converted
during such calendar month. Within three Business Days after receiving such
certificate(s), the Corporation will issue and deliver upon the order of such
holder of shares of Series A Convertible Preferred Stock, new certificate(s) of
like tenor, registered as such holder of shares of Series A Convertible
Preferred Stock may request, representing in the aggregate the number of shares
of Series A Convertible Preferred Stock remaining as of the close of business on
the last day of such calendar month.
(C) The Corporation shall pay any transfer tax arising in connection
with any conversion of shares of Series A Convertible Preferred Stock except
that the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the holder of the shares of the Series A Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid. The number of
shares of Common Stock to be issued upon each conversion of shares of Series A
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error. The
Corporation shall notify a holder who has given a Conversion Notice of any claim
of manifest error within two Trading Days after such holder gives such
Conversion Notice and no such claim of error shall limit or delay performance of
the Corporation's obligation to issue upon such conversion the number of shares
of Common Stock which are not in dispute. A Conversion Notice shall be deemed
for all purposes to be in proper form unless the Corporation notifies a holder
of shares of Series A Convertible Preferred Stock being converted within two
Trading Days after a Conversion Notice has been given (which notice shall
specify all defects in the Conversion Notice) and any Conversion Notice
containing any such defect shall nonetheless be effective on the date given if
the converting holder promptly corrects all such defects.
(4) The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series A Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the
<PAGE>
Corporation (or any successor corporation), free from preemptive rights, for
such conversion, subject to the provisions of the next succeeding paragraph. If
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series A Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series A Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series A Convertible Preferred Stock, the Corporation promptly shall
seek, and use its best efforts to obtain and complete, such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(5) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series A Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series A Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series A Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series A Convertible
Preferred Stock on a basis as nearly as practical as such rights exist hereunder
prior thereto. If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is entitled
to elect to receive securities, cash, or other assets upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series A Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series A Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to elect, limitations on the period in which such election shall be made, and
the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(6) If a holder shall have given a Conversion Notice for shares of
Series A Convertible Preferred Stock, the Corporation shall issue and deliver to
such person certificates for the Common Stock issuable upon such conversion
within three Trading Days after such Conversion Notice is given and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided. If a holder
shall have given a Conversion Notice as provided herein, the Corporation's
obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of any action or inaction by the
converting holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion. If the Corporation
fails to issue and deliver the certificates for the Common Stock to the holder
converting
<PAGE>
shares of Series A Convertible Preferred Stock pursuant to the first sentence of
this paragraph within three Trading Days after such Conversion Notice is given,
in addition to any other liabilities the Corporation may have hereunder and
under applicable law (1) the Corporation shall pay or reimburse such holder on
demand for all out-of-pocket expenses including, without limitation, reasonable
fees and expenses of legal counsel incurred by such holder as a result of such
failure, (2) for each Trading Day thereafter on which the Corporation so fails
to deliver such certificates, the Conversion Price applicable to such conversion
shall be reduced by an amount equal to one percent of the amount that the
Conversion Price would otherwise be, and (3) such holder may by written notice
(which may be given by mail, courier, personal service or telephone line
facsimile transmission) or oral notice (promptly confirmed in writing) given at
any time prior to delivery to such holder of the certificates for the shares of
Common Stock issuable upon such conversion of shares of Series A Convertible
Preferred Stock, rescind such conversion, whereupon such holder shall have the
right to convert such shares of Series A Convertible Preferred Stock thereafter
in accordance herewith.
(7) No fractional shares of Common Stock shall be issued upon
conversion of Series A Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation shall pay in cash an amount equal to the product of
(i) the arithmetic average of the Closing Bid Price of one share of Common Stock
on the three consecutive Trading Days ending on the Trading Day immediately
preceding the Conversion Date times (ii) such fraction of a share.
(8) The Conversion Amount shall be adjusted from time to time under
certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:
(i) In case the Corporation shall issue rights or warrants on a pro
rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Price for such record date, then in each
such case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the following formula:
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock issuable pursuant
to the exercise of such rights or warrants.
P = the offering price per share of the additional shares (which
amount shall include amounts received by the Corporation in
respect of the issuance and the exercise of such rights or
warrants).
M = the Current Price per share of Common Stock on the record date.
<PAGE>
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C1 = C x M
-------
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Price per share of Common Stock on the record date
mentioned below.
F = the aggregate amount of such cash dividend and/or the fair market
value on the record date of the assets or securities to be
distributed divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors shall
determine such fair market value, which determination shall be
conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest cent
or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant to
Section 10(b)(5), the holder of any shares of Series A Convertible Preferred
Stock thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
(9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
(10) Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each holder and each transfer agent, if any, for
the Series A Convertible Preferred Stock and the transfer agent for the Common
Stock, a statement signed by the Chairman of the Board, the President, or any
Vice President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the
<PAGE>
Corporation. Whenever the Conversion Amount is adjusted, the Corporation will
give notice by mail to the holders of record of Series A Convertible Preferred
Stock, which notice shall be made within 15 days after the effective date of
such adjustment and shall state the adjustment and the Conversion Amount.
Notwithstanding the foregoing notice provisions, failure by the Corporation to
give such notice or a defect in such notice shall not affect the binding nature
of such corporate action of the Corporation.
(11) Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
ten days prior to the date on which the books of the Corporation will close or
on which a record will be taken for such action, to the holders of record of the
outstanding Series A Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.
(c) Notice to Holder Prior to Certain Actions. In case on or after
the Issuance Date:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than in cash out of retained
earnings); or
(ii) the Corporation shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
share of any class or any other rights or warrants; or
(iii) the Board of Directors shall authorize any reclassification of
the Common Stock (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from par value to
no par value, or from no par value to par value), or any consolidation or
merger or other business combination transaction to which the Corporation
is a party and for which approval of any stockholders of the Corporation
is required, or the sale or transfer of all or substantially all of the
assets of the Corporation; or
(iv) there shall be pending the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;
the Corporation shall give the Holders as promptly as possible but in any event
at least ten Trading Days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, other business
combination transaction, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record who shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, other business combination
transaction, sale, transfer, dissolution, liquidation or winding-up shall be
determined. Such notice shall not include any information which would be
material non-public information for purposes of the 1934 Act. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up. In the case of
<PAGE>
any such action of which the Corporation gives such notice to the Holders or is
required to give such notice to the Holders, the Holders shall be entitled to
give a Conversion Notice which is contingent on the completion of such action.
Section 11. Redemption at Option of Holders.
(a) Redemption Right. If an Optional Redemption Event occurs, then,
in addition to any other right or remedy of any holder of shares of Series A
Convertible Preferred Stock, each holder of shares of Series A Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series A Convertible
Preferred Stock, or any portion thereof, on the date which is three Business
Days after the date such holder gives the Corporation an Optional Redemption
Notice with respect to such Optional Redemption Event at any time while any of
such holder's shares of Series A Convertible Preferred Stock are outstanding, at
a price equal to the Redemption Price.
(b) Notices; Method of Exercising Optional Redemption Rights, Etc.
(1) On or before the fifth Business Day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series A Convertible Preferred Stock a notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof. Such notice from the Corporation shall set forth:
(i) the date by which the optional redemption right must be
exercised, and
(ii) a description of the procedure (set forth below) which each
such holder must follow to exercise such holder's optional redemption
right.
No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series A Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series A Convertible Preferred
Stock.
(2) To exercise its optional redemption right, each holder of
outstanding shares of Series A Convertible Preferred Stock shall deliver to the
Corporation on or before the 30th day after the notice required by Section
11(b)(1) is given to such holder (or if no such notice has been given by the
Corporation to such holder, within 40 days after such holder first learns of
such Optional Redemption Event) an Optional Redemption Notice to the
Corporation. An Optional Redemption Notice may be revoked by such holder giving
such Optional Redemption Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the Redemption
Price to such holder.
(3) If a holder of shares of Series A Convertible Preferred Stock
shall have given an Optional Redemption Notice, on the date which is three
Business Days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's certificates for the shares
of Series A Convertible Preferred Stock to be redeemed) the Corporation shall
make payment in immediately available funds of the applicable Redemption Price
to such account as specified by such holder in writing to the Corporation at
least one Business Day prior to the applicable redemption date.
(4) Notwithstanding any other provision of this Certificate of
Designations, if an Optional Redemption Event occurs by reason of events which
are not solely within the control of the Corporation, the Corporation shall have
the right to give a Control Notice to the holders of shares of Series A
Convertible Preferred
<PAGE>
Stock at any time after such Optional Redemption Event occurs and prior to the
earlier of (1) the date on which all holders of shares of Series A Convertible
Preferred Stock who had the right (other than as limited by this Section
11(b)(4)) to require redemption of any shares of Series A Convertible Preferred
Stock by reason of the occurrence of such Optional Redemption Event no longer
have such right and (2) the applicable Redemption Date by reason of the earliest
Optional Redemption Notice given by any holder of shares of Series A Convertible
Preferred Stock by reason of such Optional Redemption Event. If the Corporation
timely gives such Control Notice to the holders of shares of Series A
Convertible Preferred Stock, then in lieu of payment of the Redemption Price by
reason of any such Optional Redemption Event and commencing on the first date on
which such Optional Redemption Event occurs the following adjustments shall take
effect (subject to the provisions of Section 7(a)(5)(B)):
(A) In the case of an Optional Redemption Event described in clauses
(1), (2), (3), (4) or (6) of the definition of the term Optional
Redemption Event, for so long as such Optional Redemption Event continues
and for a period of 60 days thereafter the Conversion Price will be 70% of
the amount which the Conversion Price would otherwise be; and
(B) In the case of an Optional Redemption Event described in clause
(5) of the definition of the term Optional Redemption Event, for so long
as any shares of Series A Convertible Preferred Stock are outstanding the
Conversion Price will be 70% of the amount which the Conversion Price
would otherwise be.
For purposes of this Section 11(b)(4), an Optional Redemption Event shall be
deemed to have occurred by reason of events which are not solely within the
control of the Corporation if a requirement of the Corporation to redeem, or a
right of any holder of shares of Series A Convertible Preferred Stock to require
redemption of, shares of Series A Convertible Preferred Stock by reason thereof
would result in the Corporation being required to classify the Series A
Convertible Preferred Stock as redeemable preferred stock on a balance sheet of
the Corporation prepared in accordance with Generally Accepted Accounting
Principles and Regulation S-X of the SEC, and, in the case of an Optional
Redemption Event described in clause (5) of the definition of the term Optional
Redemption Event, the Board or the stockholders of the Corporation do not have
the right to approve or disapprove the transactions resulting in such event.
(c) Other. (1) In connection with a redemption pursuant to this
Section 11 of less than all of the shares of Series A Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Business Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series A Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.
(2) An Optional Redemption Notice given by a holder of shares of
Series A Convertible Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
Business Days after such Optional Redemption Notice has been given (which notice
shall specify all defects in such Optional Redemption Notice), and any Optional
Redemption Notice containing any such defect shall nonetheless be effective on
the date given if such holder promptly undertakes to correct all such defects.
No such claim of error shall limit or delay performance of the Corporation's
obligation to redeem all shares of Series A Convertible Preferred Stock not in
dispute whether or not such holder makes such undertaking.
Section 12. Voting Rights; Certain Restrictions.
(a) Voting Rights. Except as otherwise required by law or expressly
provided herein, shares of Series A Convertible Preferred Stock shall not be
entitled to vote on any matter.
<PAGE>
(b) Certificate of Incorporation; Certain Stock. The affirmative
vote or consent of the Majority Holders, voting separately as a class, will be
required for (1) any amendment, alteration, or repeal, whether by merger or
consolidation or otherwise, of the Corporation's Certificate of Incorporation if
the amendment, alteration, or repeal materially and adversely affects the
powers, preferences, or special rights of the Series A Convertible Preferred
Stock, or (2) the creation and issuance of any Senior Dividend Stock, Senior
Liquidation Stock, Parity Dividend Stock or Parity Liquidation Stock; provided,
however, that (i) any increase in the authorized Preferred Stock of the
Corporation, (ii) an increase in the authorized Common Stock of the Corporation
in connection with the Merger or (iii) the creation and issuance of any stock
which is both Junior Dividend Stock and Junior Liquidation Stock shall not be
deemed to affect materially and adversely such powers, preferences, or special
rights and any such increase or creation and issuance may be made without any
such vote by the holders of Series A Convertible Preferred Stock except as
otherwise required by law.
Section 13. Outstanding Shares. For purposes of this Certificate of
Designations, all authorized and issued shares of Series A Convertible Preferred
Stock shall be deemed outstanding except (i) from the applicable Conversion
Date, each share of Series A Convertible Preferred Stock converted into Common
Stock, unless the Corporation shall default in its obligation to issue and
deliver shares of Common Stock upon such conversion as and when required by
Section 10; (ii) from the date of registration of transfer, all shares of Series
A Convertible Preferred Stock held of record by the Corporation or any
subsidiary or Affiliate of the Corporation (other than any original holder of
shares of Series A Convertible Preferred Stock) and (iii) from the applicable
Redemption Date, Share Limitation Redemption Date, Final Redemption Date or date
of redemption pursuant to Section 11, all shares of Series A Convertible
Preferred Stock which are redeemed or repurchased, so long as in each case the
Redemption Price, the Final Redemption Price or other repurchase price, as the
case may be, of such shares of Series A Convertible Preferred Stock shall have
been paid by the Corporation as and when due hereunder.
Section 14. Miscellaneous.
(a) Notices. Any notices required or permitted to be given under the
terms of this Certificate of Designations shall be in writing and shall be
delivered personally (which shall include telephone line facsimile transmission)
or by courier and shall be deemed given upon receipt, if delivered personally or
by courier (a) in the case of the Corporation, addressed to the Corporation at
11 St. James's Square, London SW1Y 4LB, England, Attention: Chief Executive
Officer (telephone line facsimile transmission number 011-44-171-839-5727, or
(b) in the case of any holder of shares of Series A Convertible Preferred Stock,
at such holder's address or telephone line facsimile transmission number shown
on the stock books maintained by the Corporation with respect to the Series A
Convertible Preferred Stock or such other address as the Corporation shall have
provided by notice to the holders of shares of Series A Convertible Preferred
Stock in accordance with this Section or any holder of shares of Series A
Convertible Preferred Stock shall have provided to the Corporation in accordance
with this Section.
(b) Replacement of Certificates. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series A
Convertible Preferred Stock and (1) in the case of loss, theft or destruction,
of indemnity from the record holder of the certificate for such shares of Series
A Convertible Preferred Stock reasonably satisfactory in form to the Corporation
(and without the requirement to post any bond or other security) or (2) in the
case of mutilation, upon surrender and cancellation of the certificate for such
shares of Series A Convertible Preferred Stock, the Corporation will execute and
deliver to such holder a new certificate for such shares of Series A Convertible
Preferred Stock without charge to such holder.
(c) Overdue Amounts. Except as otherwise specifically provided in
Section 5 with respect to dividends in arrears on the Series A Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series A Convertible Preferred Stock is not paid to such holder
<PAGE>
when due, such amount shall bear interest at the rate of 14% per annum (or such
other rate as shall be the maximum rate allowable by applicable law) until paid
in full.
IN WITNESS WHEREOF, Transmedia Asia Pacific, Inc. has caused this Certificate of
Designations to be signed by James J. Fyfe, its Vice President and Assistant
Secretary, as of the 27th day of March, 2000.
TRANSMEDIA ASIA PACIFIC, INC.
By: /s/ James J. Fyfe
-------------------------------------
Title: Vice President and Assistant
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10K and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-2000
<CASH> 5,595,595
<SECURITIES> 0
<RECEIVABLES> 601,296
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,990,993
<PP&E> 120,146
<DEPRECIATION> 627,605
<TOTAL-ASSETS> 23,162,291
<CURRENT-LIABILITIES> 3,324,277
<BONDS> 0
0
0
<COMMON> 341
<OTHER-SE> 9,733,473
<TOTAL-LIABILITY-AND-EQUITY> 23,162,291
<SALES> 0
<TOTAL-REVENUES> 1,109,704
<CGS> 291,285
<TOTAL-COSTS> 2,946,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,969
<INCOME-PRETAX> (3,884,937)
<INCOME-TAX> 1,049
<INCOME-CONTINUING> (3,885,986)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,911,528)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
