<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-25112
ADVANCED MEDIA, INC
(Exact name of registrant as specified in its charter)
DELAWARE 11-2899603
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
80 ORVILLE DRIVE
BOHEMIA, NEW YORK 11716
(Address of Principal Executive Offices) (Zip Code)
(516)244-1616
(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__
---
There were 69,558,438 shares of registrant's common stock outstanding as of
October 31, 1996.
<PAGE> 2
ADVANCED MEDIA INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Balance Sheets 3
Statements of Operations 4
Statements of Changes in Stockholders' Equity (Deficit) 5
Statements of Cash Flows 6
Notes to Financial Statements 7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE> 3
ADVANCED MEDIA, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 75,452 $ 151,463
Accounts receivable, net of allowance for
doubtful accounts of $7,124 and $15,218, respectively 485,256 307,535
Note receivable from stockholder -- 100,000
Inventories, net 74,230 169,002
Prepaid expenses and other 66,790 15,155
----------- -----------
Total current assets 701,728 743,155
Fixed assets, net 349,752 283,170
Intangible assets, net 1,516,341 1,709,859
Other assets 63,674 27,834
----------- -----------
Total assets $ 2,631,495 $ 2,764,018
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 446,171 $ 334,345
Accrued expenses and other 315,077 185,816
Payable to related parties 17,912 41,381
Due to broker -- 100,000
Current portion of capital lease obligations 17,109 9,499
----------- -----------
Total current liabilities 796,269 671,041
Loan payable - stockholder 1,171,495 1,007,550
Long-term debt -- 950,500
Capital lease obligations, net of current portion 35,699 --
Payable to related parties, long term 333,493 153,608
----------- -----------
Total liabilities 2,336,956 2,782,699
----------- -----------
Stockholders' equity (deficit):
Preferred stock, $.0001 par value,
10,000,000 shares authorized,
issued Series A convertible 600,000 shares
(entitled in liquidation to $600,000) 60 --
Common stock, $.0001 par value,
100,000,000 shares authorized,
Shares issued and outstanding:
1996 - 67,223,464
1995 - 55,319,810 6,720 5,532
Additional paid-in capital 8,456,635 6,179,372
Accumulated deficit (8,086,058) (6,093,555)
Less treasury stock at cost, 50,000 shares (6,516) --
Less deferred compensation (76,302) (110,030)
----------- -----------
Total stockholders' equity (deficit) 294,539 (18,681)
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit) $ 2,631,495 $ 2,764,018
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ADVANCED MEDIA, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 2,709,014 $ 1,934,076 $ 1,001,620 $ 721,144
Cost of sales 2,041,538 1,143,526 719,308 413,914
------------ ------------ ------------ ------------
Gross profit 667,476 790,550 282,312 307,230
Expenses:
Development 16,222 262,560 -- 79,654
Selling and marketing 456,768 663,191 188,932 203,210
General and administrative 1,573,588 1,385,713 683,973 489,835
Amortization of intangible assets 168,518 216,585 56,172 72,195
Debt conversion expense 309,375 -- -- --
Loss on conversion below market 36,826 -- 36,826 --
------------ ------------ ------------ ------------
Total expenses 2,561,297 2,528,049 965,903 844,894
------------ ------------ ------------ ------------
Loss from operations (1,893,821) (1,737,499) (683,591) (537,664)
Other income (expense):
Unrealized loss on available-for
sale securities -- (1,195,313) -- --
Interest expense (135,109) (412,099) (33,180) (157,503)
Gain on sale of trademark, net 31,697 -- (4,674) --
Other income 4,730 7,041 1,895 7,041
------------ ------------ ------------ ------------
(98,682) (1,600,371) (35,959) (150,462)
------------ ------------ ------------ ------------
Net loss $ (1,992,503) $ (3,337,870) $ (719,550) $ (688,126)
============ ============ ============ ============
Net loss per share $ (.03) $ (.07) $ (.01) $ (.01)
============ ============ ============ ============
Weighted average number of
common shares outstanding 60,803,914 51,105,605 63,372,915 54,974,369
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ADVANCED MEDIA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
0.0001 PAR 0.0001 PAR ADDITIONAL
--------------------------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DEC. 31, 1994 48,531,144 $ 4,853 -- -- $ 4,805,621
Sales to outside investors 10,180,824 1,018 -- -- 1,717,034
Sales to 401K Plan 6,391 1 -- -- 3,175
Contribution by officer:
Common stock (2,000,000) (200) -- -- 200
Issuance of common stock for
services 20,000 2 -- -- 10,935
Commissions on note 800,000 80 -- -- 296,795
Acquisition revaluations 1,031,451 103 -- -- (103)
Issuance of options as
commission on note -- -- -- -- 73,875
Amortization of deferred comp -- -- -- -- --
Change in valuation allowance -- -- -- -- --
Cancellation of shares due to:
Employment termination (2,250,000) (225) -- -- (9,510)
Agreement termination (1,000,000) (100) -- -- (718,650)
Net loss -- -- -- -- --
---------------------------------------------------------------------
BALANCE AT DEC. 31, 1995 55,319,810 5,532 -- -- 6,179,372
Issuance of common stock for:
Sales to outside investors 1,941,369 194 600,000 60 840,694
Sales to 401K Plan 6,565 -- -- -- 1,518
Acquisition revaluation 1,477,220 147 -- -- (147)
Commission due to broker 1,000,000 100 -- -- 130,210
Rental expense 40,000 4 -- -- 8,596
Issuance of options for legal
services -- -- -- -- 7,500
Issuance of warrants for
commission due to broker -- -- -- -- 6,516
Additional stock issuance 1,631,250 163 -- -- (163)
Treasury stock -- -- -- -- --
Amortization of deferred comp -- -- -- -- --
Cancellation of shares due to:
Employment termination (292,750) (30) -- -- (1,121)
Debt conversion 6,100,000 610 -- -- 1,283,660
Net loss -- -- -- -- --
---------------------------------------------------------------------
BALANCE AT SEPT. 30, 1996 67,223,464 $ 6,720 600,000 $60 $ 8,456,635
=====================================================================
<CAPTION>
TREASURY DEFERRED TOTAL
ACCUM. STOCK COMPEN- VALUATION DOLLAR
DEFICIT AT COST SATION ALLOWANCE AMOUNTS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DEC. 31, 1994 $(1,846,669) -- $(188,324) $(951,563) $ 1,823,918
Sales to outside investors -- -- -- -- 1,718,052
Sales to 401K Plan -- -- -- -- 3,176
Contribution by officer:
Common stock -- -- -- -- --
Issuance of common stock for
services -- -- -- -- 10,937
Commissions on note -- -- -- -- 296,875
Acquisition revaluations -- -- -- -- --
Issuance of options as
commission on note -- -- -- -- 73,875
Amortization of deferred comp -- -- 68,559 -- 68,559
Change in valuation allowance -- -- -- 951,563 951,563
Cancellation of shares due to:
Employment termination -- -- 9,735 -- --
Agreement termination -- -- -- -- (718,750)
Net loss (4,246,886) -- -- -- (4,246,886)
-------------------------------------------------------------------------------
BALANCE AT DEC. 31, 1995 (6,093,555) -- (110,030) -- (18,681)
Issuance of common stock for:
Sales to outside investors -- -- -- -- 840,948
Sales to 401K Plan -- -- -- -- 1,518
Acquisition revaluation -- -- -- -- --
Commission due to broker -- -- -- -- 130,310
Rental expense -- -- -- -- 8,600
Issuance of options for legal
services -- -- -- -- 7,500
Issuance of warrants for
commission due to broker -- -- -- -- 6,516
Additional stock issuance -- -- -- -- --
Treasury stock -- (6,516) -- -- (6,516)
Amortization of deferred comp -- -- 32,580 -- 32,580
Cancellation of shares due to:
Employment termination -- -- 1148 -- (3)
Debt conversion -- -- -- -- 1,284,270
Net loss (1,992,503) -- -- -- (1,992,503)
-------------------------------------------------------------------------------
BALANCE AT SEPT. 30, 1996 $(8,086,058) $(6,516) $ (76,302) -- $ 294,539
===============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ADVANCED MEDIA, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,992,503) $(3,337,870)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Unrealized loss on available-for-sale
securities -- 1,195,313
Gain on sale of trademark, net (31,697) --
Loss on conversion below market 36,826 --
Debt conversion expense 309,375 --
Depreciation and amortization 130,562 401,498
Amortization of intangibles 168,518 216,585
Amortization of deferred compensation 32,580 --
Interest on loan payable - officer 67,385 68,885
Provision for doubtful accounts (323) 15,914
Writeoff of note receivable from stockholder 93,484 --
Issuance of common stock and options
for services and expenses 16,100 4,062
Options issuable to officer as compensation 112,500 --
Changes in operating assets and liabilities:
Receivables, net (177,400) (98,963)
Inventories 50,810 (4,721)
Prepaid expenses and other (45,851) (63,916)
Accounts payable 111,826 (437,818)
Accrued expenses and other 129,261 134,871
Payable to related parties (23,469) --
----------- -----------
Net cash used for operating activities (1,012,016) (1,906,160)
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of trademark 56,697 --
Purchases of fixed assets (69,784) (41,046)
Issuance of note receivable, net (24,500) (46,950)
Increase in security deposits (17,124) --
----------- -----------
Net cash used for investing activities (54,711) (87,996)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 242,466 1,589,768
Proceeds from sale of preferred stock 600,000 --
Proceeds from loan payable - officer 176,000 23,373
Payment of loan payable - officer (12,056) --
Payment of capital lease obligations (15,694) (15,377)
Proceeds from notes payable -- 1,500,000
Payments of notes payable -- (506,253)
----------- -----------
Net cash provided by financing activities 990,716 2,591,511
----------- -----------
Net increase (decrease) in cash and cash equivalents (76,011) 597,355
Cash and cash equivalents:
Beginning of period 151,463 44,195
----------- -----------
End of period $ 75,452 $ 641,550
=========== ===========
Cash paid during the period for:
Interest $ 29,699 $ --
=========== ===========
Taxes $ 1,950 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
ADVANCED MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The unaudited interim financial statements of Advanced Media, Inc. (the
"Company") for the nine and three month period ended September 30, 1996 and 1995
have been prepared by management and include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the unaudited interim
periods. The results of operations for the nine and three month period ended
September 30, 1996 are not necessarily indicative of the results to be expected
for the full year. These interim financial statements should be read in
conjunction with the financial statements and related notes contained in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Any forward looking statements contained in this document reflect management's
current intentions and expectations. Actual future results could vary materially
depending on certain risks and uncertainties, including factors such as
financing, operational spending, revenue levels, and the other factors referred
to in the Company's Form 10-K for the year ended December 31, 1995.
2 - LIQUIDITY
The Company incurred a net loss of $1,992,503 for the nine months ended
September 30, 1996 and cumulative net losses of $8,086,058 from inception
through September 30, 1996. As of September 30, 1996 the Company had a working
capital deficit of $94,541 as compared to working capital of $72,114 at December
31, 1995.
The Company's plan for improving liquidity includes both growth in its core
interactive multimedia application systems business as well as strategic
acquisitions of profitable businesses. Subject to financing, the Company has
multiple potential acquisitions under consideration and in various stages of
discussion. Although management believes, based on the development of the
Company's business and its preliminary discussions with various potential
investors and other sources of financing, that it will be able to raise
additional capital sufficient to meet its working capital needs over the next
twelve months, no assurance can be given that it will be successful in this
respect. Additionally, the Company's chief executive officer and largest
stockholder has indicated his intent to provide certain additional funding to
the Company, if necessary; however, there is no legal obligation on the part of
the Company's chief executive officer to so provide funding. The Company
currently has no line of credit or other access to debt financing from any
financial institution. Furthermore, the Company's assets are pledged as part of
the value guaranty described in Note 3 below.
3 - DEBT AND EQUITY TRANSACTIONS
In March 1996, the Company reached agreement with Suan Investments Corp. (Suan)
and an assignee thereof to convert their $1,000,000 principal amount of notes
into 6,000,000 shares of common stock of the Company, at a conversion price of
$.1667 per share. The agreement provides the noteholders a guaranteed value of
$.33 per share, twice the conversion price, on certain valuation dates, as
defined. To secure the Company's value guaranty obligation, the Company has left
in place the security agreements relating to the original Note Purchase
Agreements, pursuant to which substantially all of the Company's assets serve as
collateral for these obligations. Originally, Suan had agreed to convert their
note into 5,000,000 shares of the Company's common stock (at a conversion price
of $.20 per share). As an inducement to convert at the March 31, 1996 date, the
Company agreed to the new conversion price of $.1667 per share and to issue an
additional 100,000 shares as a further inducement. In accordance with Financial
Accounting Standards No. 84, the Company recorded the additional 1,100,000
shares issued at their fair market value at the date of conversion as debt
conversion expense of $309,375. At September 30, 1996, there is $93,650 of
interest payable to Suan related to the previously outstanding principal. The
amount is included in accrued expenses and other.
7
<PAGE> 8
ADVANCED MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
3 - DEBT AND EQUITY TRANSACTIONS (CONTINUED)
As a condition of certain agreements entered into by the Company in 1995
pursuant to which 7,250,000 shares of common stock were issued for $1,450,000 in
gross proceeds, the Company was required to issue an additional 1,631,250 shares
of common stock. According to the agreements, if as of January 1, 1996 the
Company did not have an effective registration statement covering the initial
7,250,000 shares, then the Company would be required to make monthly payments,
in shares of common stock, to each purchaser equal to 2.5% of the purchase
price, valued at $.20 per share, until such registration is declared effective.
The Company has satisfied such obligation through September, 1996 by issuing
these additional shares of common stock.
In August, 1996, the Company issued 1,477,220 additional shares of common stock
to the former shareholders of Pyros Computer Corporation (Pyros) in connection
with a stock value guarantee provision made by the Company during it's
acquisition of Pyros.
In August, 1996, the Company issued 1,000,000 shares of common stock and 250,000
warrants in exchange for a $100,000 commission due a broker. The warrants are
exercisable through December 31, 1997 at $.10 per share of common stock. The
transaction resulted in a $36,826 loss on conversion below the applicable market
price.
In August, 1996, the Company received $600,000 for 600,000 shares of it's Series
A Convertible Preferred Stock. (Class A Preferred) The Class A Preferred will be
convertible to common stock of the Company after a designated holding period
beginning 60 days and ending 150 days after issuance. The Class A Preferred will
convert at 55% of the lesser of the average closing bid price of the common
stock on the five trading days immediately prior to (a) the date of issuance of
the Class A Preferred to be converted or, (b) the conversion date. In connection
with the aforementioned funding, the broker for this transaction is entitled a
commission in the form of warrants for the purchase of common stock equivalent
to 100% of the common stock issuable upon conversion of $150,000 liquidation
preference of the Class A Preferred. The warrants are exercisable through
December 31, 1997 and will convert at the same price as that of the converted
Class A Preferred.
In August, 1996, the Company granted options to purchase 100,000 shares of
common stock to its corporate counsel for legal services under its long term
incentive plan.
4 - RELATED PARTY TRANSACTIONS
Revenue and receivables for the nine months ended September 30, 1996 included
$65,000 and $15,000, respectively, from a corporation which is a stockholder of
the Company.
Expenses for the nine and three months ended September 30, 1996 include certain
amounts payable to the Company's chief executive officer, $112,500 and $37,500,
respectively, representing compensation payable, and $67,385 and $23,717,
respectively, representing interest on the loan from officer. The Company
incurred consulting expenses of $58,911 and $19,879 and legal expenses of
$14,968 and $8,488, respectively, to a stockholder. Interest expense of $93,650
is due a stockholder as indicated in Note 3.
5 - INCOME TAXES
At September 30, 1996 the Company has net operating loss carryforwards for tax
purposes of approximately $6,000,000 which expire through 2011. Deferred tax
assets are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Gross deferred tax assets $ 2,193,519 $ 1,576,855
Valuation allowance (2,193,519) (1,576,855)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
8
<PAGE> 9
ADVANCED MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
5 - INCOME TAXES (CONTINUED)
The gross deferred tax assets arise primarily from net operating loss
carryforwards and differences in the valuation of receivables, inventory,
accruals and deferred compensation. The Company did not record a net tax benefit
from its gross deferred tax assets because a valuation allowance of an equal
amount was provided.
The Company had a significant change in its ownership during the nine months
ended December 31, 1993, which will result in a statutory annual limitation on
utilization of the loss carryforwards. Any significant future changes in
ownership could require further limitations of the loss carryforwards.
6 - STATEMENTS OF CASH FLOWS
Noncash activities for the nine months ended September 30, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Transfer of inventory to fixed assets $ 43,962 $ 89,122
Issuance of stock for notes payable and options $ -- $370,750
Partial termination of deferred compensation $ 1,148 $ 9,735
Exchange of common stock for note receivable $ 6,516 $ --
Exchange of common stock for due to broker
liability $100,000 $ --
Fixed assets purchased pursuant to capital lease obligations $ 59,003 $ --
Exchange of common stock for long-term debt $950,500 $ --
</TABLE>
7 - JOINT VENTURE AGREEMENT
On May 2, 1996 the Company entered into a joint venture agreement with a
privately held corporation located in Ohio which specializes in the design and
development of interactive kiosks. The purpose of the joint venture is to
develop and service a kiosk project for a mutual customer. The parties have
agreed to share profits and losses equally.
8 - CONTINGENCIES
Legal Proceedings
On September 29, 1995, a former employee and owner of a business acquired by the
Company, Decision Vision, Inc., and his wife, also a former employee, initiated
a lawsuit seeking damages of $1,000,000 from the Company, and certain present
and former officers. The lawsuit is based on claims arising out of the
employees' termination and also arising out of the sale of the assets of
Decision Vision to the Company. The scope of the lawsuit was substantially
narrowed in October, 1996, when the court dismissed four of the eight causes of
action and all individual defendants and eliminated any possible punitive
damages award. The only remaining claims are two alleged breaches of term
specific employment contracts, and one for breach of contract. The Company had
previously filed an action against the Plaintiff in this case, in the Supreme
Court of the State of New York, seeking $53,000 in damages for alleged breaches
arising from the same acquisition. Management believes the former employee's
case is a reaction to this case and is without merit. The Company plans to
vigorously contest the action which is set for trial in San Diego in February of
1997, along with the Company's lawsuit against the former employee and owner of
Decision Vision, Inc. which was transferred to San Diego. The Company has not
set aside any reserves for this matter as management believes that it is not
probable that the Company will suffer any material loss as a result.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net revenues for the nine and three months increased $774,938 and $280,476, or
36.7%, and 38.9%, respectively, as compared to the nine and three months ended
September 30, 1995. Application development sales increased $317,068 and
$23,254, respectively, as compared to the nine and three months ended September
30, 1995, reflecting the Company's continuing engagement with a customer for
whom it has installed fifteen interactive kiosks at their retail stores under a
pilot program and is currently working on adjunct applications. Tradeshow and
exhibit sales increased $233,886 and $76,889, respectively, as compared to the
nine and three months ended September 30, 1995, reflecting an expanded customer
base and an increase in services rendered. Hardware and software sales increased
$335,132 and $169,523, respectively, as compared to the nine and three months
ended September 30, 1995, reflecting greater demand for architectural design
products and increased sales of computer peripherals. Proprietary software sales
declined $72,791 and $18,500, respectively, as compared to the nine and three
months ended September 30, 1995, reflecting the Companys change in strategic
focus to utilize this software in larger scale applications rather than as a
revenue source.
Gross profit for the nine and three months has declined $123,074 and $24,918, or
15.6% and 8.1%, respectively, as compared to the nine and three months ended
September 30, 1995. Application development is labor intensive and the Company
has not yet been able to price its products competitively due to the low product
volumes associated with existing orders. Management believes the costs incurred,
and which are reflected in the reduced margins, are indicative of the efforts to
design and develop high quality interactive applications which are expected to
provide increases in future sales and marketing activities. Management has
attempted to increase its sales efforts at larger volume orders which would be
expected to have a positive impact on the Companys gross profit. Gross profit,
as a percentage of sales, for the three months ended September 30, 1996 was
28.2% as compared to 24.6% for the nine months ended September 30, 1996
reflecting higher volumes and lower unit costs.
Expenses for the nine and three months increased $33,248 and $121,009, or 1.3%
and 14.3%, respectively, as compared to the nine and three months ended
September 30, 1995. Development expense for the nine and three months decreased
$246,338 and $79,654, or 93.8% and 100%, respectively, as compared to the nine
and three months ended September 30, 1995, due to the Company focusing more on
revenue producing activities and, trying to bring to market development
activities incurred over the past years of operations. Selling and marketing
expense for the nine and three months decreased $206,423 and $14,278, or 31.1%
and 7%, respectively, as compared to the nine and three months ended September
30, 1995, reflecting a reduction in the Company's salesforce as well as lower
sales commissions. General and administrative expenses for the nine and three
months increased $187,875 and $194,138, or 13.6% and 39.6%, respectively, as
compared to the nine and three months ended September 30, 1995. These increases
reflect an increase in legal services of $141,963 and $102,259 over the
respective periods, which relate to the Company's defense costs in the
litigation outlined in Note 8 to the accompanying unaudited financial
statements. Also reflected in general and administrative expenses is a $93,484
charge incurred during the quarter reflecting the decline in the value of the
pledged collateral (the Company's common stock), which the Company received as
payment of a note receivable reflected on the Companys books, which came due
during the quarter. The decrease of $48,067 and $16,023, or 22.2%, in
amortization of intangible assets is related to the reduction in goodwill
recorded by the Company in the fourth quarter of 1995 and reflected as an
impairment loss. The debt conversion expense of $309,375 was related to the
costs associated with inducing Suan Investments Corporation and its assignee to
retire their outstanding debt in the first quarter of 1996 in exchange for the
Company's equity securities and is more fully described in Note 3 to the
accompanying unaudited financial statements. The loss on conversion below market
is described in Note 3 to the accompanying unaudited financial statements.
Interest expense reflects the accelerated amortization of deferred financing
costs in the second quarter of 1995. 1996 expenses reflect approximately $94,000
of interest costs associated with the conversion of Suan Investment
Corporation's and its assignee's Notes to equity at March 31, 1996.
10
<PAGE> 11
RESULTS OF OPERATIONS (continued)
During the fiscal quarter ended June 30, 1996, the Company sold the rights to
it's "Autosoft" trademark for $65,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company incurred a net loss of $1,992,503 for the nine months ended
September 30, 1996 and cumulative net losses of $8,086,058 through September 30,
1996. As of September 30, 1996 the Company had a working capital deficit of
$94,541 as compared to working capital of $72,114 at December 31, 1995. The
decrease in working capital is primarily attributable to the use of $1,012,016
for operating activities.
The Company's plan for improving liquidity includes both growth in its core
interactive multimedia application systems business as well as strategic
acquisitions of profitable businesses. Subject to financing, the Company has
multiple potential acquisitions under consideration and in various stages of
discussion. Although management believes, based on the development of the
Company's business and its preliminary discussions with various potential
investors and other sources of financing, that it will be able to raise
additional capital sufficient to meet its working capital needs over the next
twelve months, no assurance can be given that it will be successful in this
respect. Additionally, the Company's chief executive officer and largest
stockholder has indicated his intent to provide certain additional funding to
the Company, if necessary; however, there is no legal obligation on the part of
the Company's chief executive officer to so provide funding. The Company
currently has no line of credit or other access to debt financing from any
financial institution. Furthermore, the Company's assets are pledged as part of
the value guaranty described in Note 3 in the accompanying unaudited financial
statements.
The Company has determined not to proceed with its previously announced
proposed acquisition of Renaissance Computer Art Center, Inc. as a result of
its due diligence investigation.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
.
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.26 Advanced Media, Inc. Certificate of Designations of the Class A
Preferred Stock.
10.27 Form of Preferred Stock Subscription Agreement used for the purchase
of $600,000 liquidation preference of Class A Convertible Preferred
Stock.
10.28 Warrant to Viking Fund, Ltd. to purchase up to 150,000 shares of
common stock.
10.29 Subscription agreement for 1,000,000 shares of common stock between
Montmelian Investisements Ltd. and Advanced Media, Inc.
10.30 Release between Advanced Media, Inc. and Montmelian Investisements
Ltd.
10.31 Warrants to Montmelian Investisements Ltd. to purchase 250,000
shares of common stock.
10.32 Contract for BioNutritional Encyclopedia between Advanced Media,
Inc., Performance Concepts, Inc., and General Nutrition, Inc.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended September
30, 1996.
12
<PAGE> 13
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.
ADVANCED MEDIA, INC.
Date: 11/07/96 By /s/ Hans J. Kaemmlein
---------------- -------------------------
Hans J. Kaemmlein, Chairman of the Board,
President and Chief Executive Officer
Date: 11/07/96 By /s/ Alan W. Schoenbart
---------------- --------------------------
Alan W. Schoenbart,
Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -----------
10.26 Advanced Media, Inc. Certificate of Designations of the Class A
Preferred Stock.
10.27 Form of Preferred Stock Subscription Agreement used for the purchase
of $600,000 liquidation preference of Class A Convertible Preferred
Stock.
10.28 Warrant to Viking Fund, Ltd. to purchase up to 150,000 shares of
common stock.
10.29 Subscription agreement for 1,000,000 shares of common stock between
Montmelian Investisements Ltd. and Advanced Media, Inc.
10.30 Release between Advanced Media, Inc. and Montmelian Investisements
Ltd.
10.31 Warrants to Montmelian Investisements Ltd. to purchase 250,000
shares of common stock.
10.32 Contract for BioNutritional Encyclopedia between Advanced Media,
Inc., Performance Concepts, Inc., and General Nutrition, Inc.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.26 PAGE 1 OF 7
ADVANCED MEDIA, INC.
CERTIFICATE OF DESIGNATIONS
OF THE
CLASS A PREFERRED STOCK
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
ADVANCED MEDIA, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies that the
following resolution was duly adopted by the Board of Directors of the
Corporation at a meeting duly convened on July 31, 1996, at which meeting a
quorum of the directors was present and acting throughout:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation, as amended, which creates and authorizes 10,000,000 shares of
Preferred Stock of the par value of $.0001 per share (hereinafter called the
"Serial Preferred Stock"), of which no shares are currently issued and
outstanding so that all 10,000,000 shares of Serial Preferred Stock have the
status of authorized but unissued shares and are available for issuance, the
Board of Directors of the Corporation hereby establishes a series of Serial
Preferred Stock to consist of 600,000 shares, and hereby fixes the powers,
designation, preferences and relative, participating, optional and other rights
of such series of Serial Preferred Stock, and the qualifications, limitations
and restrictions thereof, in addition to those set forth in said Article Fourth,
as follows:
1. Designation. (a) The designation of the series of Serial Preferred
Stock created by this resolution shall be "Class A Convertible Preferred Stock"
(hereinafter called the "Class A Preferred"), and the number of shares
constituting the Class A Preferred is 600,000.
(b) All shares of Class A Preferred shall be identical with each other in
all respects. All shares of Class A Preferred shall rank, as to the payment of
dividends and of distributions of assets upon any dissolution, liquidation or
winding up of the Corporation, prior to the common stock, par value $.0001 per
share, of the Corporation, and any other stock which by its terms ranks junior
to the Class A Preferred, and on a parity with all shares designated as
Preferred Stock.
(c) Shares of the Class A Preferred that have been redeemed, purchased or
otherwise acquired by the Corporation shall not be reissued as Class A Preferred
and when retired as provided by the General Corporation Law of the State of
Delaware, and shall have the status of authorized but unissued shares of Serial
Preferred Stock, without designation as to series until such shares are once
14
<PAGE> 2
EXHIBIT 10.26 PAGE 2 OF 7
more designated as part of a particular series by the Board of Directors of the
Corporation or a duly authorized committee thereof.
2. Dividends. Each issued and outstanding share of Class A Preferred shall
entitle the holder of record thereof to receive out of funds legally available
therefor, when, as and if declared by the Board of Directors, dividends accruing
at the annual rate of two percent (2%) of the liquidation preference thereof,
commencing on the date of issuance, which shall be payable on January 1, April
1, July 1 and October 1 in each year, at the option of the Corporation in cash
or in shares of Common Stock valued for these purposes at the average of the
closing bid price of the Common Stock for the twenty (20) trading days prior to
the declaration of such dividend. Whenever all dividends which have been
declared upon the issued and outstanding shares of Class A Preferred as
aforesaid for all past annual periods shall have been paid, without interest,
the Board of Directors may declare, set aside, or pay additional cash dividends
on each share of Common Stock.
3. Liquidation Rights. (a) Upon the dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or involuntary, the Holders
of shares of Class A Preferred then outstanding shall be entitled to receive,
out of the assets of the Corporation available for distribution to stockholders
after satisfying claims of creditors but before distributions of assets shall be
made on the Common Stock or any other class or series of stock ranking junior to
the shares of Class A Preferred upon liquidation, dissolution or winding up of
the Corporation, the amount of $1.00 per share plus an amount equal to all
accrued but unpaid dividends on such shares to the date of final distribution.
(b) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all the property and
assets of the Corporation, nor the merger or consolidation of the Corporation
into or with any other corporation, or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the purposes of this
paragraph.
(c) After payment to the Holders of the full preferential amount provided
for in this paragraph 3, holders of shares of Class A Preferred in their
capacity as Holders shall have no right or claim to any of the remaining assets
of the Corporation.
(d) If the assets of the Corporation available for distribution to the
Holders upon dissolution, liquidation or winding up of the Corporation, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which the Holders are entitled pursuant to clause (a) of this paragraph 3, and
to which holders of any other class or series of stock of the Corporation
ranking on a parity with the Class A Preferred as to distribution upon
dissolution, liquidation or winding up of the Corporation (collectively, the
"Parity Stockholders") are entitled pursuant to the Certificate of
Incorporation, as it may be amended from time to time (including any Certificate
of Designations), then such assets shall be distributed among the Holders of the
Class A Preferred and the Parity Stockholders ratably in proportion to the full
amounts otherwise due such Holders and Parity Stockholders.
4. Voting Rights. Except as expressly otherwise provided by law, the
holders of the Class A Preferred shall not be entitled to vote at any meeting of
the stockholders or to receive notice
15
<PAGE> 3
EXHIBIT 10.26 PAGE 3 OF 7
of such meeting, all voting rights to the fullest extent permitted by law being
vested exclusively in the holders of the Common Stock.
5. Conversion. (a) The shares of Class A Preferred of the
Corporation shall be convertible, in whole or in parts comprising not less than
100,000 shares of Class A Preferred, at the option of the holder thereof, at any
time during the period commencing 60 days after issuance and ending 150 days
after issuance, upon not less than 7 days prior written notice to the
Corporation and, if not earlier converted, shall automatically be converted on
the 150th day after issuance into fully paid and nonassessable shares of Common
Stock of the Corporation. Upon receipt by the Corporation or its designee of
surrendered certificate or certificates representing the shares of Class A
Preferred to be converted, with any appropriate endorsement thereon, as may be
prescribed by the Board of Directors, such holder shall be entitled to receive a
certificate or certificates representing the shares of Common Stock into which
such share(s) of Class A Preferred are converted, and such holder shall be
deemed to be a holder of record of said shares of Common Stock, and no longer a
holder of such shares of Class A Preferred to be so converted, as of the time of
such conversion. The basis for such conversion shall be the "conversion rate" in
effect at the time of conversion, which for the purposes hereof, shall mean the
number of shares of Common Stock issuable for each share of Class A Preferred
surrendered for conversion. The conversion rate shall be such number of shares
of Class A Preferred the liquidation preference of which equals 55% of the
lesser of (a) the average closing bid price of the Common Stock on the five
trading days immediately prior to the conversion date or (b) the average closing
bid price of the Common Stock on the five trading days prior to the date of
issuance of the Class A Preferred to be converted, for each share of Common
Stock obtainable upon conversion. In connection with effecting any transfer to
the Corporation for cancellation of any shares of Class A Preferred upon
conversion of the same into Common Stock, the Corporation may, but shall not be
obliged to, issue a certificate or certificates for fractions of a share of
Common Stock. If the Corporation elects not to issue a certificate or
certificates for fractions of a share of Common Stock, the Corporation shall pay
in lieu thereof an amount equal to the conversion price of such fractional share
(computed to the nearest one hundredth of a share) in effect at the close of
business on the date of conversion. Any shares of Class A Preferred which have
been converted shall be canceled and shall be restored to the status of
authorized but unissued shares of Class A Preferred. Except as such requirement
may otherwise be dispensed with by law, the Corporation shall at all times
reserve and keep available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of shares of the Class A Preferred, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all shares of the Class A Preferred from time to time
outstanding.
(b) The number of shares of Common Stock into which each share of Class A
Preferred is convertible shall be subject to adjustment from time to time only
as follows:
(A) For the purposes of this paragraph 4(b), the following provisions (1)
through (4), inclusive, shall be applicable:
(1) In case of the issue of any shares of Common Stock for (a) cash,
the consideration received by the Corporation therefor shall be deemed to be the
amount of case received by the Corporation for such shares; or (b) consideration
other than cash, the value of such consideration
16
<PAGE> 4
EXHIBIT 10.26 PAGE 4 OF 7
shall be deemed to be the fair market value thereof as of the date of adoption
of the resolution authorizing such transaction, as determined by the Board of
Directors at or as of such date.
(2) For the purpose of determining the amount of consideration
received by the Corporation for the issue of shares of Common Stock or for
obligations or securities of the Corporation converted into or exchanged for
shares of Common Stock as specified in the foregoing subparagraph (1) of this
subparagraph 5(b)(A), deduction shall be made for such compensation or discount
in the sale, underwriting, or purchase of such obligations or securities by
underwriters or dealers or others performing similar services or for such
expenses incurred in connection therewith as may be paid or allowed by the
Corporation.
(3) In case the Corporation shall issue any shares of Common Stock
as a dividend or make any other distribution upon its Common Stock in Common
Stock, the aggregate number of shares of Common Stock issued in payment of such
dividend or distribution shall be deemed to have been issued without
consideration.
(4) The terms "issue" and "issued", as used herein, shall include
the transfer and delivery of treasury shares by the Corporation.
(B) (1) In case shares of Common Stock are issued as a dividend or other
distribution on the Common Stock, the conversion price in effect at the opening
of business on the business day next succeeding the date fixed for the
determination of the holders of Common Stock entitled to receive such dividend
or other distribution shall be decreased to an amount equal to the conversion
price so in effect multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock issued and outstanding at the close of business
on the date fixed for such determination and the denominator of which shall be
the sum of said number of shares issued and outstanding at the close of business
on the date fixed for such determination and the number of shares constituting
such dividend or other distribution, such decrease becoming effective
immediately after the opening of business on the business day next succeeding
the date fixed for such determination. The Corporation will not pay any dividend
or make any distribution on the Common Stock held in the treasury of the
Corporation.
(2) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares or outstanding shares shall be combined into a
smaller number of shares, the conversion price in effect at the opening of
business on the business day next succeeding the day upon which such subdivision
or combination becomes effective shall be decreased or increased, as the case
may be, to an amount equal to the conversion price so in effect multiplied by a
fraction, the numerator of which shall be the number of shares outstanding
immediately before such subdivision or combination becomes effective and the
denominator of which shall be the number of shares outstanding at the opening of
business on the business day next succeeding the day upon which such subdivision
or combination becomes effective, such increase or decrease becoming effective
immediately after the opening of business on the business day next succeeding
the day upon which such subdivision or combination becomes effective.
17
<PAGE> 5
EXHIBIT 10.26 PAGE 5 OF 7
(3) If the Corporation shall issue any securities by
recapitalization or reclassification of the Common Stock, each share of Common
Stock into which a share of the Class A Preferred may immediately prior thereto
be converted shall be replaced for the purposes hereof by the securities
issuable or distributable in respect to each such share of Common Stock upon
such recapitalization or reclassification and appropriate adjustment of the
conversion rate in effect immediately prior to such recapitalization or
reclassification shall be made, such adjustment to become effective immediately
after the opening of business on the day on which such recapitalization and
reclassification shall become effective. If, as a result of an adjustment made
pursuant to this subparagraph (B)(3), the holder of any Class A Preferred
thereafter surrendered for conversion shall become entitled to receive shares of
two or more classes of capital stock or shares of Common Stock and other capital
stock of the Corporation, such holders of the Class A Preferred shall be
entitled to receive such securities as would the holder of such number of shares
of Common Stock as would at that time be obtainable upon conversion of such
shares of Class A Preferred into shares of Common Stock.
(C) In case of any consolidation or merger of the Corporation with or into
another corporation, or in case of any sale, lease, mortgage, pledge, conveyance
or other disposition to another corporation of all or substantially all the
property of the Corporation, each holder of a share of Class A Preferred then
outstanding and thereafter remaining outstanding shall have the right thereafter
to convert each share held into the kind and amount of shares, other securities,
cash and property receivable upon such transaction by a holder of the number of
shares of Common Stock into which such shares of Class A Preferred might have
been converted immediately prior to such transaction; in any such event,
effective provision shall be made, in the certificate of incorporation of the
resulting or surviving corporation or otherwise, so that the provisions set
forth herein for the protection of the conversion rights of the Class A
Preferred shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares, other securities, cash and property deliverable upon
conversion of the shares of Class A Preferred remaining outstanding or other
convertible shares or securities received by the holders in place thereof, and
any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, other securities, cash or property as the holders of the shares of Class
A Preferred remaining outstanding, or other convertible shares or securities
received by the holders in place thereof, shall be entitled to receive pursuant
to the provisions hereof, and to make provision for the protection of the
conversion right as above provided.
(D) Whenever the conversion rate and conversion price are adjusted as
herein provided, the Treasurer of the Corporation shall compute the adjusted
conversion rate and conversion price in accordance with the foregoing provisions
and shall prepare a written instrument setting forth such adjusted conversion
rate and conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be delivered to
the holders of the Class A Preferred.
(E) In case: (i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock payable otherwise than in shares of Common
Stock or in cash out of its capital surplus; or (ii) of any reclassification of
the capital stock of the Corporation (other than a subdivision or combination of
outstanding shares of Common Stock), or of any consolidation or merger to which
18
<PAGE> 6
EXHIBIT 10.26 PAGE 6 OF 7
the Corporation is a party or of the sale, lease, mortgage, pledge, conveyance
or other disposition of all or substantially all of the property of the
Corporation; or (iii) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation; then the Corporation shall cause to be mailed
to the record holders of the Class A Preferred at least twenty (20) days prior
to the applicable record 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, if a record is not be taken, the date as of which
the holders of record of Common Stock to be entitled to such dividend,
distribution or rights are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, lease, mortgage, pledge,
conveyance, other disposition, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, liquidation, merger, sale, lease, mortgage,
pledge, conveyance, other disposition, dissolution, liquidation or winding-up.
(F) The Corporation shall pay all issue taxes, if any, incurred in respect
of the issue of shares of Common Stock on conversion. If a holder of shares
surrendered for conversion specifies that the shares of Common Stock to be
issued on conversion are to be issued in a name or names other than the name of
names in which such surrendered shares stand, the Corporation shall not be
required to pay any transfer or other taxes incurred by reason of the issuance
of such shares of Common Stock to the name of another, and if the appropriate
transfer taxes shall not have been paid to the Corporation or the transfer agent
for the Class A Preferred at the time of surrender of the shares involved, the
shares of Common Stock issued upon conversion thereof may be registered in the
name or names in which the surrendered shares were registered, despite the
instructions to the contrary.
(G) The reference to Common Stock herein shall be deemed to include shares
of any class into which said Common Stock may be changed. Notwithstanding any
provision of the Corporation's certificate or incorporation or of law, by reason
of which limited or unlimited preemptive rights are otherwise conferred upon the
holders of any class of shares of the Corporation, no preemptive right shall
accrue solely by reason of the issuance by the Corporation of shares in
satisfaction of the conversion rights and privileges of the holders of the Class
A Preferred as aforesaid.
7. Sinking Fund. No share of Class A Preferred shall be entitled to the
benefit of any sinking fund or purchase fund to be applied to the redemption or
purchase thereof.
19
<PAGE> 7
EXHIBIT 10.26 PAGE 7 OF 7
IN WITNESS WHEREOF, Advanced Media, Inc. has caused this Certificate to be
signed by Hans Kaemmlein, its Chairman, and attested by Alan Schoenbart, its
Assistant Secretary, this 31st day of July, 1996.
ADVANCED MEDIA, INC.
By: /s/Hans J. Kaemmlein
--------------------
Hans J. Kaemmlein
Chairman
[CORPORATE SEAL]
ATTEST:
By: /s/ Alan W. Schoenbart
----------------------
Alan W. Schoenbart
Assistant Secretary
20
<PAGE> 1
EXHIBIT 10.27 PAGE 1 OF 6
THE SECURITIES TO BE PURCHASED AND SOLD PURSUANT TO THIS SUBSCRIPTION AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS
(OTHER THAN DISTRIBUTORS), AS SUCH TERMS ARE DEFINED IN REGULATIONS PROMULGATED
BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT, UNLESS THE SECURITIES
ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENT
OF THE ACT IS AVAILABLE.
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") dated as of the
_______ day of __________, 1996, by and between ______________________________
(the "Purchaser") and Advanced Media, Inc. (the "Company").
WHEREAS, subject to the terms and conditions herein contained,
Purchaser desires to purchase shares of Class A Convertible Preferred Stock
("Preferred Stock") of the Company, with the terms set forth in Exhibit A
hereto, and the Company desires to sell shares of Common Stock to the Purchaser.
NOW, THEREFORE, in consideration of the premises and the terms,
conditions and covenants herein contained, the parties hereto do hereby agree as
follows:
1. SUBSCRIPTION. Purchaser hereby subscribes for __________________
shares of Preferred Stock (the "Shares") at a purchase price equal to $1.00 per
share. The total consideration for the Shares shall be _____________________.
Purchaser shall pay the purchase price by delivering good funds in United
States Dollars by wire transfer to the Company for closing by delivery of
securities versus payment, the time and place to be mutually agreed.
2. REPRESENTATIONS OF PURCHASER. In order to induce the Company to
accept this subscription and sell to the Purchaser the Shares, the Purchaser
does hereby represent, warrant and covenant to and agree with the Company, which
representations, warranties, covenants and agreements shall be deemed to be
continuing and shall survive the execution of this Agreement by the Company and
the consummation of the transactions herein contained, as follows:
(a) RECEIPT OF DISCLOSURE DOCUMENTS; AVAILABILITY OF
DOCUMENTS; INDEPENDENT Investigation. The Purchase has been furnished with the
Company's press releases, Annual Report on Form 10-K for the year ended December
31, 1995, Quarterly Report on Form 10-Q for the period ended March 31, 1996 and
most recent proxy statement (the "Disclosure Documents"). The Purchaser
acknowledges that the Company has offered to provide copies of any documents
identified in the Disclosure Documents requested by the Purchaser. In addition,
prior to the sale of the Shares, all documents, records and books pertaining to
an investment in the Company have been made available to the Purchaser and the
Purchaser's advisers for inspection during reasonable business hours at the
office of the Company. In making the decision to purchase the Shares, the
Purchaser has relied upon independent investigations made by Purchaser and
Purchaser's representatives, if any.
21
<PAGE> 2
EXHIBIT 10.27 PAGE 2 OF 6
(b) OPPORTUNITY TO TALK WITH MANAGEMENT. The Purchaser has
been given the opportunity and has been encouraged to discuss with management of
the Company the present and contemplated business, operations and financial
condition of the Company and the estimated expenses of this transaction and the
contemplated use of the net proceeds from this transaction.
(c) ACCREDITED INVESTOR; KNOWLEDGE AND EXPERIENCE. The
Purchaser is an "accredited investor" as that term is defined in Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"), and has
such knowledge or experience in financial and business matters that the
Purchaser is capable, either alone or together with the Purchaser's purchaser
representative (if any) of evaluating the merits and risks of investing in the
Company.
(d) NO U.S. PERSON. The Purchaser is not a U.S. Person as that
term is defined in Rule 902(o) of Regulation S.
(e) OFFSHORE TRANSACTION. The offer and sale of the Shares is
not taking place in the United States but rather in an offshore transaction. The
Purchaser was outside the United States at the time his buy order originated and
is outside the United States as of the date of the execution and delivery of
this Agreement.
(f) OFFERING RESTRICTIONS. All offers and sales of the Shares
prior to the expiration of a period commencing on the date of this Agreement and
ending 40 days thereafter shall only be made in compliance with the safe harbor
contained in Regulation S, pursuant to registration of the Shares under the
Securities Act, or pursuant to an exemption from the registration requirements
of the Securities Act. All offers and sales after the expiration of the 40-day
period in the United States or to U.S. Persons shall be made only pursuant to
such a registration or to such exemption from registration.
(g) STATEMENTS CONCERNING OFFERING PROVISIONS. All offering
materials and documents received by Purchaser include statements to the effect
that the Shares have not been registered under the Securities Act and may not be
offered or sold in the United States or to U.S. Persons prior to the expiration
of a period commencing on the date of this transaction and ending 40 days
thereafter unless the Shares are registered under the Securities Act or an
exemption from the registration requirements of the Securities Act is available.
(h) RISK OF PURCHASE. The Purchaser understands that the
purchase of the Shares is speculative and involves a high degree of risk, and
the Purchaser is able to bear the economic risk of the purchase of the Shares.
(i) PURCHASE FOR OWN ACCOUNT. The Purchaser is purchasing the
Shares for its own account and not on behalf of any U.S. Person, and the sale
has not been prearranged with a purchaser in the United States.
(j) U.S. ACCOUNTS. During the 40-day period referred to in
paragraph (f) above, the Shares may not be held in the United States unless held
by a dealer or other professional
22
<PAGE> 3
EXHIBIT 10.27 PAGE 3 OF 6
fiduciary organized, incorporated or (if an individual) resident in the United
States pursuant to a discretionary account or similar account (other than estate
or trust) held for the benefit or account of the Purchaser.
(k) BENEFICIARIES. If the certificate(s) for the Shares is
requested to be issued in the name of a nominee during the 40-day period
referred to in paragraph (f) above, each and every beneficiary for which said
certificate(s) is held by the nominee will be a non-U.S. Person.
(l) RELIANCE BY COMPANY ON REPRESENTATIONS. The Purchaser
understands that the Shares are being offered and sold to Purchaser in reliance
on specific exemptions from the registration requirements of federal and
applicable state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, covenants, agreements and
acknowledgments of Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of the Purchaser to acquire
the Shares.
(m) COMPLIANCE WITH REGULATION S. The Purchaser has no reason
to believe, and does not believe, that the sale of the Shares does not comply
with the requirements of Regulation S.
(n) COMPLIANCE BY DISTRIBUTORS. Each Distributor (as that term
is defined in Regulation S) participating in the offering of the Shares, if any,
has agreed that all offers and sales of the Shares prior to the expiration of a
period commencing on the date of the closing of the offering of the Shares and
ending 40 days thereafter shall only be made in compliance with the safe harbor
provisions contained in Regulation S, or pursuant to registration of the Shares
under the Securities Act or pursuant to an applicable exemption from
registration under the Act. No Distributor of the Shares of any affiliate
thereof has engaged in any "Directed Selling Efforts" (as defined in Rule 902(b)
of Regulation S).
(o) NO AFFILIATION WITH COMPANY. The Purchaser is not an
officer, director or "affiliate" (as that term is defined in Rule 405 under the
Securities Act) of the Company.
(p) NO REGULATORY ENDORSEMENT OF APPROVAL. The Purchaser
understands that no United States federal or stare agency has made any finding
or determination regarding the fairness of the offering of the Shares for
investment, or any recommendation or endorsement of the offering of the Shares.
(q) NO SCHEME TO AVOID REGISTRATION. The Purchaser understands
that in the view of the Securities and Exchange Commission, the statutory basis
for the exemption claimed for the transaction would not be present if the
offering of Shares, although in technical compliance with Regulation S, is part
of a plan or scheme to evade the registration provisions of the Securities Act.
The Purchaser hereby confirms that its purchase is not part of any such plan or
scheme.
(r) NO OTHER REPRESENTATIONS TO PURCHASERS. The Purchaser
understands and acknowledges that no other person has made any representations
or warranties as to the accuracy
23
<PAGE> 4
EXHIBIT 10.27 PAGE 4 OF 6
or completeness of the information contained in the Company reports and filings
provided to Purchaser or this Agreement.
(s) COMPLIANCE WITH APPLICABLE FOREIGN LAW. The purchase of
the Shares by the Purchaser is not in violation of any securities law of the
country or territory in which Purchaser is located.
(t) NO SHORT SELLING DURING THE 40-DAY PERIOD. Purchaser has
not sold short any shares of the Company's Common Stock during the past thirty
(30) days and until the expiration of the 40-day period referred to in paragraph
(f) above, will not sell short or engage in any other hedging transaction with
respect to any shares of the Common Stock of the Company.
3. REPRESENTATIONS OF THE COMPANY. In order to induce the Purchaser
to purchase the Shares, the Company does hereby represent, warrant and covenant
to and agree with the Purchaser, which representations, warranties, covenants
and agreements shall be deemed to be continuing and shall survive the execution
of this Agreement by the Purchaser and the consummation of the transactions
herein contained as follows:
(a) REPORTING COMPANY STATUS. The Company has a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and has filed all the material
required to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act for
a period of at least twelve (12) months immediately preceding the date of this
Agreement and the date on which the Purchaser was offered an opportunity to
purchase the Shares.
(b) OFFSHORE TRANSACTION. The Company has not knowingly
offered shares of Common Stock or the Shares in this transaction to any persons
in the United States or to any U.S. Persons.
(c) NO DIRECTED SELLING EFFORTS. The Company has not conducted
any Directed Selling Efforts as that term is defined in Rule 902(b) of
Regulation S.
(d) CORPORATE AUTHORITY; VALIDITY OF THE SHARES. The Company
has all corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The Shares, when issued pursuant to the terms
of this Agreement, will be validly issued, fully paid and non-assessable.
(e) NO PRE-ARRANGEMENT WITH U.S. PERSONS. The Company believes
that the purchase of the Shares has not been pre-arranged with a purchaser in
the United States.
(f) ONE DISTRIBUTOR. The Company believes that Eric
Wachmeister is the only distributor (as such term is defined in Rule 902(c) of
Regulation S) of the Shares.
(g) LITIGATION. Except as disclosed in the Disclosure
Documents, there is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or
24
<PAGE> 5
EXHIBIT 10.27 PAGE 5 OF 6
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates, that would
materially affect the execution by the Company of the performance by the Company
of its obligation under this Agreement.
ADDITIONAL ISSUANCES. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of, any shares of Common Stock or equity of the Company or
other equity interest in any of the subsidiaries of the Company, except as
described in the Disclosure Documents.
4. INDEMNIFICATION. The Purchaser does hereby agree to indemnify
and hold harmless the Company and its officers, directors, stockholders,
employees, agents and affiliates from and against any and all loss, damage,
liability, cost and expense (including reasonable attorneys' fees) arising out
of or relating to a breach by the Purchaser of any of the representations,
warranties or covenants herein contained. The Company does hereby agree to
indemnify and hold harmless the Purchaser from and against any and all loss,
damage, liability, cost and expense (including reasonable attorneys' fees)
arising out of or relating to a breach by the Company of any of the
representations, warranties or covenants herein contained.
5. VALIDITY AND BINDING NATURE OF AGREEMENT. This Agreement and
the subscription herein contained shall not be binding upon the Company until
accepted by the Company by execution of this Agreement by the Company. This
Agreement and the subscription herein contained shall be valid and binding upon
and irrevocable as to the Purchaser during the period commending on the date
hereof and terminating upon the acceptance or rejection of this subscription by
the Company.
6. TRANSFERABILITY. Neither this Agreement, nor the rights,
benefits, duties or obligations of the Purchaser hereunder can be transferred,
sold, assigned or conveyed by the Purchaser without the express written consent
of the Company in each instance, which consent may be given or withheld in the
sole and absolute discretion of the Company.
7. CLOSING. The date of the issuance and sale of the Shares shall
be within five (5) business days after the acceptance of this executed Agreement
by the Company. The exact date and place of the closing shall be determined by
the mutual agreement of the parties hereto.
8. MISCELLANEOUS TERMS. This Agreement sets forth the entire
agreement between the parties hereto with respect to the subject matter herein
contained and shall be governed and construed in accordance with the laws of the
State of New York applicable to contracts made and to be fully performed
therein, without regard to conflicts of laws, cannot be altered, amended,
modified, terminated, or rescinded except by a writing executed by the Purchaser
and the Company, or as herein otherwise provided; and shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
transferees, heirs, assigns and beneficiaries. There are no third party
beneficiaries of this Agreement except as expressly provided herein.
25
<PAGE> 6
EXHIBIT 10.27 PAGE 6 OF 6
IN WITNESS WHEREOF, the Purchaser has executed this Subscription
Agreement as of this ___ day of __________________, 1996.
By:_________________________________
Name:_______________________________
Title:______________________________
Address
____________________________________
____________________________________
____________________________________
Accepted this ___ day of __________________, 1996
ADVANCED MEDIA, INC.
By: /s/ Hans J. Kaemmlein
_______________________
Name: Hans J. Kaemmlein
Title: Chairman
26
<PAGE> 1
EXHIBIT 10.28 PAGE 1 OF 7
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OF SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 FORMING A PART OF A
REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS EFFECTIVE
UNDER SAID ACT, OR UNLESS IN THE OPINION OF COUNSEL TO THE CORPORATION, SUCH
OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
W A R R A N T
For the Purchase of Common Stock, Par Value $.0001 per Share of
ADVANCED MEDIA, INC.
(Incorporated under the Laws of the State of Delaware)
VOID AFTER 5 P.M. December 31, 1997
No. D-1 Warrant to Purchase
____________Shares
THIS IS TO CERTIFY that, for value received, Viking Fund Ltd., is
entitled, subject to the terms and conditions set forth herein, at or before 5
P.M., New York City time, on December 31, 1997, but not thereafter, to purchase
_________ shares of Common Stock, par value $.0001 per share (the "Common
Stock"), of ADVANCED MEDIA, INC., a Delaware corporation (the "Corporation"),
[equal to 1 times the number of shares of Common Stock issuable upon conversion
of shares of Class A Preferred Stock of the Corporation purchased by Viking Fund
Ltd. which are or have been converted into shares of Common Stock on or prior to
such date and after the immediately preceeding date on which shares of Class A
Preferred Stock have been converted], from the Corporation, at a purchase price
per share equal to $_____ per share [the conversion price of the shares of Class
A Preferred Stock of the Corporation giving rise to the issuance of this
Warrant], if and to the extent this Warrant is exercised, in whole or in part,
during the period this Warrant remains in force, and to receive a certificate or
certificates representing the shares of Common Stock so purchased, upon
presentation and surrender to the Corporation of this Warrant, with the form of
exercise notice attached hereto as Exhibit A (the "Exercise Notice") duly
executed, and accompanied by payment of the purchase price of each share
purchased either in cash or by certified or bank cashier's check payable to the
order of the Corporation.
27
<PAGE> 2
EXHIBIT 10.28 PAGE 2 OF 7
1. The Corporation covenants and agrees that all shares of Common
Stock may be delivered upon the exercise of this Warrant and will, upon
delivery, be fully paid and non-assessable. The Corporation covenants and agrees
that it will from time to time take all such action as may be requisite to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then current Warrant purchase price per share of the Common
Stock issuable upon exercise of this Warrant. The Corporation agrees at all
times to reserve or hold available a sufficient number of shares of Common Stock
to cover the number of shares issuable upon the exercise of this Warrant.
2. The rights represented by this Warrant are exercisable at the
option of the holder hereof in whole at any time, or in part from time to time,
within the period above specified at the prices specified in Section 1 hereof.
3. The holder hereof agrees that the Warrants and shares of Common
Stock will not be offered or sold (1) unless at the time of such offer or sale,
there is delivered a prospectus meeting the requirements of the Securities Act
of 1933, as amended, forming a part of an applicable post-effective amendment to
the Registration Statement, or forming a part of a new registration statement
with respect to such offer and sale, or (2) unless in the opinion of counsel to
the Corporation satisfactory to the holder hereof, such offer and sale is exempt
from the provisions of Section 5 of the Act. Subject to the foregoing, this
Warrant may be transferred by the holder hereof to any person(s) or entity(ies).
Any such transfer shall be effected by the holder hereof by surrender of this
Warrant for cancellation to the Company accompanied by a certificate signed by
the holder hereof stating that such holder has authorized such transfer and
indicating for each such person and entity the number of shares of Common Stock
to be purchasable by each such person; whereupon the Company shall issue in the
name or names specified by the holder hereof (including himself) a new Warrant
or Warrants of like tenor and representing in the aggregate rights to purchase
same number of shares of Common Stock as are purchasable hereunder.
4. (a) Subject to paragraph 2 above, as promptly as practicable (but
in any event within ten [10] business days) after the receipt of an Exercise
Notice and payment of the exercise price as aforesaid, the Company shall issue
and deliver to the holder, issued in the name of such holder or such other
person or persons as such holder may reasonably request, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
exercise of this Warrant (or specified portion thereof). Such exercise shall be
deemed to have been effected as of the close of business on the date on which
such Exercise Notice shall have been received by the Company, and at such time
the rights of the Holder (or specified portion thereof) as such Holder shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such exercise
shall be deemed to have become the Holder or Holders of record of the shares of
Common Stock represented thereby.
(b) No payment or adjustment shall be made upon any exercise on
account of any cash dividends declared for payment as of a record date prior to
the date of exercise of this Warrant. In the case of any Warrant which is
exercised in part only, the Company shall, upon such exercise, execute and
deliver to the Holder thereof, at the expense of the Company a new Warrant in
amount equal to the unexercised portion of the Warrant surrendered and otherwise
of like tenor therewith. No
28
<PAGE> 3
EXHIBIT 10.28 PAGE 3 OF 7
fractional shares of Common Stock shall be issued upon exercise of this Warrant,
but if the exercise results in a fraction, an amount equal to such fraction
multiplied by the applicable exercise Price shall be paid in cash to the Holder
of the Warrant being exercised.
The Exercise Price and the number of shares deliverable hereunder
shall be adjusted from time to time as hereinafter set forth.
A. Stock Dividends, Subdivisions and Combinations. If after the date
hereof the Company shall:
(1) pay a dividend or make a distribution in shares of Common
Stock to holders of its capital stock of any class, or
(2) subdivide the outstanding shares of its Common Stock into a
larger number of shares, or
(3) combine the outstanding shares of its Common Stock into a
smaller number of shares, or
(4) issue by reclassification of its shares of Common Stock any
shares of Common Stock of the Company.
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction (i) the numerator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately prior to such event, and (ii)
the denominator of which shall be the total number of outstanding shares of
Common Stock of the Company immediately after such event. An adjustment made
pursuant to this paragraph A shall become effective immediately after the record
date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
B. Minimum Adjustment. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than one cent ($.01) per
share. Any adjustment of less than one cent ($.01) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to one cent ($.01) per share or more. However, upon
exercise of this Warrant, the Company shall make all necessary adjustments (to
the nearest cent) not theretofore made to the Exercise Price up to and including
the date upon which this Warrant is exercised.
C. Notice of Adjustments. Whenever the Exercise Price shall be
adjusted pursuant to this Section 4, the Company shall promptly deliver a
certificate signed by the President or Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis
29
<PAGE> 4
EXHIBIT 10.28 PAGE 4 OF 7
on which the Board of Directors of the Company made any determination
hereunder), by first class mail postage prepaid to each Holder.
(c) In the case of any consolidation or merger of the Company with
another entity, or the sale of all or substantially all of its assets to another
entity, or any reorganization or reclassification of the Common Stock or other
equity securities of the Company (except a split-up, combination or
reclassification, provision for which is made in paragraph A of Section 4(c)
hereof), then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the Common Stock
immediately theretofore receivable upon exercise of this Warrant, such shares of
stock, securities, assets or cash as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of Common Stock immediately theretofore so
receivable hereunder had such consolidation, merger, sale, reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the Holder to the end
that the provisions of this Section 4 (including, without limitation, provisions
for adjustment of the per share Exercise Price) shall thereafter be applicable
as nearly as may be, in relation to any shares of stock, securities, assets or
cash thereafter deliverable upon exercise of this Warrant.
(d) The right to exercise this Warrant shall not be suspended
during any period while the stock transfer books of the Company for its Common
Stock may be closed. The Company shall not be required, however, to deliver
certificates of its Common Stock upon such exercise while such books are duly
closed for any purpose, but the Company may postpone the delivery of the
certificates for the Common Stock until the opening of such books, and they
shall, in such case, be delivered forthwith upon the opening thereof, or as soon
as practicable thereafter.
5. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a shareholder of the Corporation, or to any other
rights whatsoever except the rights herein expressed, and no dividends shall be
payable or accrue in respect of this Warrant or the interest represented hereby
or the shares purchasable hereunder until or unless, and except to the extent
that, this Warrant shall be exercised.
6. This Warrant is exchangeable upon the surrender hereof by the
holder hereof to the Corporation for new Warrants of like tenor representing in
the aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the holder hereof at the time of such
surrender.
7. The Corporation will transmit to the holder of this Warrant such
information, documents and reports as are generally distributed to shareholders
of the Corporation concurrently with the distribution thereof to such
shareholders.
8. Notices to be given to the holder of this Warrant shall be deemed
to have been sufficiently given if delivered or mailed, addressed in the name
and at the address of such holder
30
<PAGE> 5
EXHIBIT 10.28 PAGE 5 OF 7
appearing in the records of the Corporation, and if mailed, sent first class
registered or certified mail, postage prepaid. The address of the Corporation is
80 Orville Drive, Bohemia, New York 11716, and the Corporation shall give
written notice of any change of address to the holder hereof.
9. Notwithstanding the above, except as otherwise provided in
Regulation S adopted under the United States Securities Act of 1933, as amended
(the "Act"):
(i) This Warrant may not be exercised by a U.S. Person (as defined
in Regulation 230.902 of the Regulation S, and all references below to "U.S.
Person" shall be as defined in Regulation 230.902):
(ii)This Warrant may not be exercised within the United States and
the shares of Common Stock issued upon exercise of this Warrant may not be
delivered upon such exercise within the United States; and
(iii) The person exercising this Warrant must either (a) certify
to the Company in writing that he is not a U.S. Person and is not exercising
this Warrant on behalf of a U.S. Person or (b) deliver an opinion of counsel
that this Warrant and the underlying Common Stock have been registered under the
Act or are exempt from registration under the Act.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by the signature of its Chairman of the Board and its seal affixed and
attested by its Assistant Secretary.
Dated: As of August 12, 1996
ADVANCED MEDIA, INC.
By: /s/ Hans J. Kaemmlein
_______________________
Hans J. Kaemmlein
Chairman of the Board
[Corporate Seal]
ATTEST:
By: /s/ Alan W. Schoenbart
______________________
Alan W. Schoenbart
Assistant Secretary
31
<PAGE> 6
EXHIBIT 10.28 PAGE 6 OF 7
Exhibit A
[FORM OF]
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise __________
of the Warrants represented by this Warrant and to purchase the shares of Common
Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:
(NAME)
(ADDRESS, INCLUDING ZIP CODE)
(SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER)
DELIVER TO:
(NAME)
at
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant, the undersigned requests that a new
Warrant representing the number of full Warrants not exercised be issued and
delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_________ by certified check or money order payable in United States currency
to the order of the Company.
Dated ____________________, 19__
Name of Warrant Holder: ______________________________________________________
Address: _____________________________________________________________________
_______________________________________________________________________________
Signature: ___________________________________________________________________
<PAGE> 7
EXHIBIT 10.28 PAGE 7 OF 7
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant, with respect to the number of Warrants set
forth below:
Name of Assignee Address No. of Warrants
and does hereby irrevocably constitute and appoint ___________ Attorney to make
such transfer on the books of Advanced Media, Inc. maintained for that purpose,
with full power of substitution in the premises.
Dated:, 199_.
Signature
SIGNATURE(S) GUARANTEED
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
Signature
NOTICE: The signature(s) on this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
34
<PAGE> 1
EXHIBIT 10.29 PAGE 1 OF 7
THE SECURITIES TO BE PURCHASED AND SOLD PURSUANT TO THIS SUBSCRIPTION AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS
(OTHER THAN DISTRIBUTORS), AS SUCH TERMS ARE DEFINED IN REGULATIONS PROMULGATED
BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT, UNLESS THE SECURITIES
ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENT
OF THE ACT IS AVAILABLE.
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") dated as of the 1st
day of August, 1996, by and between Montmelian Investisements Limited (the
"Purchaser") and Advanced Media, Inc. (the "Company").
WHEREAS, subject to the terms and conditions herein contained,
Purchaser desires to purchase shares of common stock, par value $.0001 per share
("Common Stock") of the Company, and the Company desires to sell shares of
Common Stock to the Purchaser.
NOW, THEREFORE, in consideration of the premises and the terms,
conditions and covenants herein contained, the parties hereto do hereby agree as
follows:
1. SUBSCRIPTION. Purchaser hereby subscribes for an aggregate
1,000,000 shares of Common Stock (the "Shares") at a purchase price equal to
$0.10 per share. The consideration for the Shares shall be the full discharge of
the Company's obligations to Montmelian Investisements Limited, pursuant to that
certain letter agreement dated June 6, 1995, including the obligation to pay the
amount of $100,000. Purchaser shall pay the purchase price for the Shares by
delivering to the Company at the closing, the time and place to be mutually
agreed, a written release by Montmelian Investisements Limited in respect of the
Company's obligations thereto
2. REPRESENTATIONS OF PURCHASER. In order to induce the Company to
accept this subscription and sell to the Purchaser the Shares, the Purchaser
does hereby represent, warrant and covenant to and agree with the Company, which
representations, warranties, covenants and agreements shall be deemed to be
continuing and shall survive the execution of this Agreement by the Company and
the consummation of the transactions herein contained, as follows:
(a) RECEIPT OF DISCLOSURE DOCUMENTS; AVAILABILITY OF
DOCUMENTS; INDEPENDENT INVESTIGATION. The Purchase has been furnished with the
Company's press releases, Annual Report on Form 10-K for the year ended December
31, 1995, Quarterly Report on Form 10-Q for the period ended March 31, 1996 and
most recent proxy statement (the "Disclosure Documents"). The Purchaser
acknowledges that the Company has offered to provide copies of any documents
identified in the Disclosure Documents requested by the Purchaser. In addition,
prior to the sale of the Shares, all documents, records and books pertaining to
an investment in the Company have been made available to the Purchaser and the
Purchaser's advisers for inspection during reasonable business hours at the
office of the Company. In making the decision to purchase the Shares, the
35
<PAGE> 2
EXHIBIT 10.29 PAGE 2 OF 7
Purchaser has relied upon independent investigations made by Purchaser and
Purchaser's representatives, if any.
(b) OPPORTUNITY TO TALK WITH MANAGEMENT. The Purchaser has
been given the opportunity and has been encouraged to discuss with management of
the Company the present and contemplated business, operations and financial
condition of the Company and the estimated expenses of this transaction and the
contemplated use of the net proceeds from this transaction.
(c) ACCREDITED INVESTOR; KNOWLEDGE AND EXPERIENCE. The
Purchaser is an "accredited investor" as that term is defined in Regulation D
under the Securities Act of 1933, as amended (the "Securities Act"), and has
such knowledge or experience in financial and business matters that the
Purchaser is capable, either alone or together with the Purchaser's purchaser
representative (if any) of evaluating the merits and risks of investing in the
Company.
(d) NO U.S. PERSON. The Purchaser is not a U.S. Person as that
term is defined in Rule 902(o) of Regulation S.
(e) OFFSHORE TRANSACTION. The offer and sale of the Shares is
not taking place in the United States but rather in an offshore transaction. The
Purchaser was outside the United States at the time his buy order originated and
is outside the United States as of the date of the execution and delivery of
this Agreement.
(f) OFFERING RESTRICTIONS. All offers and sales of the Shares
prior to the expiration of a period commencing on the date of any sale pursuant
to this Agreement and ending (i) in the case of the first sale hereunder, 55
days thereafter and (ii) in the case of the other sales hereunder, 40 days
thereafter, shall only be made in compliance with the safe harbor contained in
Regulation S, pursuant to registration of the Shares under the Securities Act,
or pursuant to an exemption from the registration requirements of the Securities
Act. All offers and sales after the expiration of any such 55-day or 40-day
periods, as applicable, in the United States or to U.S. Persons shall be made
only pursuant to such a registration or to such exemption from registration.
(g) STATEMENTS CONCERNING OFFERING PROVISIONS. All offering
materials and documents received by Purchaser include statements to the effect
that the Shares have not been registered under the Securities Act and may not be
offered or sold in the United States or to U.S. Persons prior to the expiration
of a period commencing on the date of the purchase and sale of such Shares
pursuant to this Agreement and ending (i) in the case of the first sale
hereunder, 55 days thereafter and (ii) in the case of the other sales hereunder,
40 days thereafter, unless such Shares are registered under the Securities Act
or an exemption from the registration requirements of the Securities Act is
available.
(h) RISK OF PURCHASE. The Purchaser understands that the
purchase of the Shares is speculative and involves a high degree of risk, and
the Purchaser is able to bear the economic risk of the purchases of the Shares.
36
<PAGE> 3
EXHIBIT 10.29 PAGE 3 OF 7
(I) PURCHASE FOR OWN ACCOUNT. The Purchaser is purchasing the
Shares for its own account and not on behalf of any U.S. Person, and the sale
has not been prearranged with a purchaser in the United States.
(j) U.S. ACCOUNTS. During the 55-day and 40-day periods
referred to in paragraph (f) above, the Shares may not be held in the United
States unless held by a dealer or other professional fiduciary organized,
incorporated or (if an individual) resident in the United States pursuant to a
discretionary account or similar account (other than estate or trust) held for
the benefit or account of the Purchaser.
(k) BENEFICIARIES. If the certificate(s) for the Shares is
requested to be issued in the name of a nominee during any 55-day or 40-day
period referred to in paragraph (f) above, each and every beneficiary for which
said certificate(s) is held by the nominee will be a non-U.S. Person.
(l) RELIANCE BY COMPANY ON REPRESENTATIONS. The Purchaser
understands that the Shares are being offered and sold to Purchaser in reliance
on specific exemptions from the registration requirements of federal and
applicable state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, covenants, agreements and
acknowledgments of Purchaser set forth herein in order to determine the
applicability of such exemptions and the suitability of the Purchaser to acquire
the Shares.
(m) COMPLIANCE WITH REGULATION S. The Purchaser has no reason
to believe, and does not believe, that the sale of the Shares does not comply
with the requirements of Regulation S.
(n) COMPLIANCE BY DISTRIBUTORS. Each Distributor (as that term
is defined in Regulation S) participating in the offering of the Shares, if any,
has agreed that all offers and sales of the Shares prior to the expiration of a
period commencing on the date of the closing of each offering of the Shares and
ending (i) in the case of the first sale hereunder, 55 days thereafter and (ii)
in the case of the other sales hereunder, 40 days thereafter shall only be made
in compliance with the safe harbor provisions contained in Regulation S, or
pursuant to registration of the Shares under the Securities Act or pursuant to
an applicable exemption from registration under the Act. No Distributor of the
Shares of any affiliate thereof has engaged in any "Directed Selling Efforts"
(as defined in Rule 902(b) of Regulation S).
(o) NO AFFILIATION WITH COMPANY. The Purchaser is not an
officer, director or "affiliate" (as that term is defined in Rule 405 under the
Securities Act) of the Company.
(p) NO REGULATORY ENDORSEMENT OF APPROVAL. The Purchaser
understands that no United States federal or stare agency has made any finding
or determination regarding the fairness of the offering of the Shares for
investment, or any recommendation or endorsement of the offering of the Shares.
37
<PAGE> 4
EXHIBIT 10.29 PAGE 4 OF 7
(q) NO SCHEME TO AVOID REGISTRATION. The Purchaser understands
that in the view of the Securities and Exchange Commission, the statutory basis
for the exemption claimed for the transaction would not be present if the
offering of Shares, although in technical compliance with Regulation S, is part
of a plan or scheme to evade the registration provisions of the Securities Act.
The Purchaser hereby confirms that its purchase is not part of any such plan or
scheme.
(r) NO OTHER REPRESENTATIONS TO PURCHASERS. The Purchaser
understands and acknowledges that no other person has made any representations
or warranties as to the accuracy or completeness of the information contained in
the Company reports and filings provided to Purchaser or this Agreement.
(s) COMPLIANCE WITH APPLICABLE FOREIGN LAW. The purchase of
the Shares by the Purchaser is not in violation of any securities law of the
country or territory in which Purchaser is located.
(t) NO SHORT SELLING DURING THE 40-DAY PERIOD. Purchaser has
not sold short any shares of the Company's Common Stock during the past thirty
(30) days and until the expiration of each applicable 55-day or 40-day period
referred to in paragraph (f) above, will not sell short or engage in any other
hedging transaction with respect to any shares of the Common Stock of the
Company.
(u) TIME PERIODS FOR SALES OF SHARES. Notwithstanding anything
to the contrary contained herein, Purchaser agrees that it shall not engage in
any offer or sale of the Shares purchased hereunder until (i) 55 days from
August 1, 1996, with respect to 300,000 Shares; (ii) 90 days from August 1,
1996, with respect to 350,000 Shares and (iii) 135 days from August 1, 1996,
with respect to the balance of the Shares.
3. REPRESENTATIONS OF THE COMPANY. In order to induce the Purchaser
to purchase the Shares, the Company does hereby represent, warrant and covenant
to and agree with the Purchaser, which representations, warranties, covenants
and agreements shall be deemed to be continuing and shall survive the execution
of this Agreement by the Purchaser and the consummation of the transactions
herein contained as follows:
(a) REPORTING COMPANY STATUS. The Company has a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and has filed all the material
required to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act for
a period of at least twelve (12) months immediately preceding the date of this
Agreement and the date on which the Purchaser was offered an opportunity to
purchase the Shares.
(b) OFFSHORE TRANSACTION. The Company has not knowingly
offered shares of Common Stock or the Shares in this transaction to any persons
in the United States or to any U.S. Persons.
38
<PAGE> 5
EXHIBIT 10.29 PAGE 5 OF 7
(c) NO DIRECTED SELLING EFFORTS. The Company has not conducted
any Directed Selling Efforts as that term is defined in Rule 902(b) of
Regulation S.
(d) CORPORATE AUTHORITY; VALIDITY OF THE SHARES. The Company
has all corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The Shares, when issued pursuant to the terms
of this Agreement, will be validly issued, fully paid and non-assessable.
(e) NO PRE-ARRANGEMENT WITH U.S. PERSONS. The Company believes
that the purchase of the Shares has not been pre-arranged with a purchaser in
the United States.
(f) ONE DISTRIBUTOR. The Company believes that Eric
Wachmeister is the only distributor (as such term is defined in Rule 902(c) of
Regulation S) of the Shares.
(g) LITIGATION. Except as disclosed in the Disclosure
Documents, there is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates, that would materially affect the execution by the
Company of the performance by the Company of its obligation under this
Agreement.
(h) ADDITIONAL ISSUANCES. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of, any shares of Common Stock or equity of the Company or
other equity interest in any of the subsidiaries of the Company, except as
described in the Disclosure Documents.
4. INDEMNIFICATION. The Purchaser does hereby agree to indemnify
and hold harmless the Company and its officers, directors, stockholders,
employees, agents and affiliates from and against any and all loss, damage,
liability, cost and expense (including reasonable attorneys' fees) arising out
of or relating to a breach by the Purchaser of any of the representations,
warranties or covenants herein contained. The Company does hereby agree to
indemnify and hold harmless the Purchaser from and against any and all loss,
damage, liability, cost and expense (including reasonable attorneys' fees)
arising out of or relating to a breach by the Company of any of the
representations, warranties or covenants herein contained.
5. VALIDITY AND BINDING NATURE OF AGREEMENT. This Agreement and
the subscription herein contained shall not be binding upon the Company until
accepted by the Company by execution of this Agreement by the Company. This
Agreement and the subscription herein contained shall be valid and binding upon
and irrevocable as to the Purchaser during the period commending on the date
hereof and terminating upon the acceptance or rejection of this subscription by
the Company.
39
<PAGE> 6
EXHIBIT 10.29 PAGE 6 OF 7
6. TRANSFERABILITY. Neither this Agreement, nor the rights,
benefits, duties or obligations of the Purchaser hereunder can be transferred,
sold, assigned or conveyed by the Purchaser without the express written consent
of the Company in each instance, which consent may be given or withheld in the
sole and absolute discretion of the Company.
7. CLOSING. The date of each issuance and sale of the Shares shall
be within five (5) business days after the acceptance of this executed Agreement
by the Company. The exact date and place of the closing shall be determined by
the mutual agreement of the parties hereto.
8. MISCELLANEOUS TERMS. This Agreement sets forth the entire
agreement between the parties hereto with respect to the subject matter herein
contained and shall be governed and construed in accordance with the laws of the
State of New York applicable to contracts made and to be fully performed
therein, without regard to conflicts of laws, cannot be altered, amended,
modified, terminated, or rescinded except by a writing executed by the Purchaser
and the Company, or as herein otherwise provided; and shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
transferees, heirs, assigns and beneficiaries. There are no third party
beneficiaries of this Agreement except as expressly provided herein.
40
<PAGE> 7
EXHIBIT 10.29 PAGE 7 OF 7
IN WITNESS WHEREOF, the Purchaser has executed this Subscription
Agreement as of this 1st day of August, 1996.
Montmelian Investisements LImited
By: /s/ Emmanuel Vernet
------------------------------
Name: Emmanuel Vernet
Address: 20 rue du Conseille Generale
1205 Geneva, Switzerland
Accepted as of this 1st day of August, 1996
ADVANCED MEDIA, INC.
By: /s/ Hans J. Kaemmlein
-------------------------
Name: Hans J. Kaemmlein
Title: Chairman and Chief Executive Officer
41
<PAGE> 1
EXHIBIT 10.30 PAGE 1 OF 1
RELEASE
-------
FOR AND IN CONSIDERATION of the issuance by ADVANCED MEDIA, INC., a
Delaware corporation ("Advanced Media") to Montmelian Investisements Limited, an
offshore corporation (releasor) of 1,000,000 shares of common stock, par value
$.0001 per share (the "Common Stock") of Advanced Media, the receipt and
adequacy of which is hereby acknowledged, the undersigned releasor, for itself
and on behalf of its present and former officers, directors, agents, employees,
representatives, trustees, affiliates, parents, stockholders, subsidiaries,
general and limited partners, members, heirs, attorneys, accountants and
financial advisors and their respective successors, assigns, hereby fully,
finally and forever waives, remits, releases and discharges Advanced Media, its
present and former officers, directors, agents, employees, representatives,
trustees, affiliates, parents, stockholders, subsidiaries, general and limited
partners, members, heirs, attorneys, accountants and financial advisors and
their respective successors and assigns, of and from any and all manner of
action, claims, liens, demands, liabilities, causes of action, charges,
complaints, suits (judicial, administrative, or otherwise), damages, debts,
demands, obligations of any other nature, past or present, known or unknown,
suspected or unsuspected, whether in law or in equity, whether direct, indirect
or derivative, whether fixed or contingent, whether founded upon contract
(expressed or implied), tort, statute or regulation (State, Federal or local),
common law and/or any other theory or basis, from the beginning of the world to
the date hereof, including, but not limited to, any claim that Releasor has
asserted, now asserts or could have asserted in respect of a finder's or other
fee pursuant to that certain letter agreement between Advanced Media and
Releasor dated June 6, 1995.
This release shall be governed by and construed in accordance with
the laws of the United States of America and the laws of the State of New York
applicable to contracts to be performed entirely within such state.
IN WITNESS WHEREOF, the undersigned Releasor has executed this
Release as of this 1st day of August, 1996.
MONTMELIAN INVESTISEMENTS
LIMITED
/s/ Emmanuel Vernet
---------------------
By: Emmanuel Vernet
Its: Director
Sworn to before me this
1st day of August, 1996
- ----------------------------
Notary Public
42
<PAGE> 1
EXHIBIT 10.31 PAGE 1 OF 7
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OF SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 FORMING A PART OF A
REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS EFFECTIVE
UNDER SAID ACT, OR UNLESS IN THE OPINION OF COUNSEL TO THE CORPORATION, SUCH
OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
W A R R A N T
For the Purchase of Common Stock, Par Value $.0001 per Share of
ADVANCED MEDIA, INC.
(Incorporated under the Laws of the State of Delaware)
VOID AFTER 5 P.M. December 31, 1997
No. D-2 Warrant to Purchase
250,000 Shares
THIS IS TO CERTIFY that, for value received, the undersigned is
entitled, subject to the terms and conditions set forth herein, to purchase the
number of shares set forth above of Common Stock, par value $.0001 per share
(the "Common Stock"), of ADVANCED MEDIA, INC., a Delaware corporation (the
"Corporation") at a purchase price per share of $.10, for the period commencing
December 13, 1996 [the date which is 135 days following the execution and
delivery by Montmelian Investisements Limited of a Subscription Agreement
between the undersigned and the Corporation] and ending at or before 5 P.M., New
York City time, on December 31, 1997, but not thereafter, from the Corporation,
if and to the extent this Warrant is exercised, in whole or in part, during the
period this Warrant remains in force, and to receive a certificate or
certificates representing the shares of Common Stock so purchased, upon
presentation and surrender to the Corporation of this Warrant, with the form of
exercise notice attached hereto as Exhibit A (the "Exercise Notice") duly
executed, and accompanied by payment of the purchase price of each share
purchased either in cash or by certified or bank cashier's check payable to the
order of the Corporation.
43
<PAGE> 2
EXHIBIT 10.31 PAGE 2 OF 7
1. The Corporation covenants and agrees that all shares of Common
Stock may be delivered upon the exercise of this Warrant and will, upon
delivery, be fully paid and non-assessable. The Corporation covenants and agrees
that it will from time to time take all such action as may be requisite to
assure that the par value per share of the Common Stock is at all times equal to
or less than the then current Warrant purchase price per share of the Common
Stock issuable upon exercise of this Warrant.
2. Subject to the availability of a sufficient number of authorized
and unissued shares of Common Stock, the rights represented by this Warrant are
exercisable at the option of the holder hereof in whole at any time, or in part
from time to time, within the period above specified at the prices specified in
Section 1 hereof.
3. The holder hereof agrees that the Warrants and shares of Common
Stock will not be offered or sold (1) unless at the time of such offer or sale,
there is delivered a prospectus meeting the requirements of the Securities Act
of 1933, as amended, forming a part of an applicable post-effective amendment to
the Registration Statement, or forming a part of a new registration statement
with respect to such offer and sale, or (2) unless in the opinion of counsel to
the Corporation satisfactory to the holder hereof, such offer and sale is exempt
from the provisions of Section 5 of the Act. Subject to the foregoing, this
Warrant may be transferred by the holder hereof to any person(s) or entity(ies).
Any such transfer shall be effected by the holder hereof by surrender of this
Warrant for cancellation to the Company accompanied by a certificate signed by
the holder hereof stating that such holder has authorized such transfer and
indicating for each such person and entity the number of shares of Common Stock
to be purchasable by each such person; whereupon the Company shall issue in the
name or names specified by the holder hereof (including himself) a new Warrant
or Warrants of like tenor and representing in the aggregate rights to purchase
same number of shares of Common Stock as are purchasable hereunder.
4. (a) Subject to paragraph 2 above, as promptly as practicable (but
in any event within ten [10] business days) after the receipt of an Exercise
Notice and payment of the exercise price as aforesaid, the Company shall issue
and deliver to the holder, issued in the name of such holder or such other
person or persons as such holder may reasonably request, a certificate or
certificates for the number of full shares of Common Stock issuable upon the
exercise of this Warrant (or specified portion thereof). Such exercise shall be
deemed to have been effected as of the close of business on the date on which
such Exercise Notice shall have been received by the Company, and at such time
the rights of the Holder (or specified portion thereof) as such Holder shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such exercise
shall be deemed to have become the Holder or Holders of record of the shares of
Common Stock represented thereby.
(b) No payment or adjustment shall be made upon any exercise on
account of any cash dividends declared for payment as of a record date prior to
the date of exercise of this Warrant. In the case of any Warrant which is
exercised in part only, the Company shall, upon such exercise, execute and
deliver to the Holder thereof, at the expense of the Company a new Warrant in
amount equal to the unexercised portion of the Warrant surrendered and otherwise
of like tenor therewith. No
44
<PAGE> 3
EXHIBIT 10.31 PAGE 3 OF 7
fractional shares of Common Stock shall be issued upon exercise of this Warrant,
but if the exercise results in a fraction, an amount equal to such fraction
multiplied by the applicable exercise Price shall be paid in cash to the Holder
of the Warrant being exercised.
The Exercise Price and the number of shares deliverable hereunder
shall be adjusted from time to time as hereinafter set forth.
A. Stock Dividends, Subdivisions and Combinations. If after the date
hereof the Company shall:
(1) pay a dividend or make a distribution in shares of Common
Stock to holders of its capital stock of any class, or
(2) subdivide the outstanding shares of its Common Stock into a
larger number of shares, or
(3) combine the outstanding shares of its Common Stock into a
smaller number of shares, or
(4) issue by reclassification of its shares of Common Stock any
shares of Common Stock of the Company.
then the Exercise Price shall be adjusted to that price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction (I) the numerator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately prior to such event, and (ii)
the denominator of which shall be the total number of outstanding shares of
Common Stock of the Company immediately after such event. An adjustment made
pursuant to this paragraph A shall become effective immediately after the record
date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
B. Minimum Adjustment. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than one cent ($.01) per
share. Any adjustment of less than one cent ($.01) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to one cent ($.01) per share or more. However, upon
exercise of this Warrant, the Company shall make all necessary adjustments (to
the nearest cent) not theretofore made to the Exercise Price up to and including
the date upon which this Warrant is exercised.
C. Notice of Adjustments. Whenever the Exercise Price shall be
adjusted pursuant to this Section 4, the Company shall promptly deliver a
certificate signed by the President or Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company,
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the
45
<PAGE> 4
EXHIBIT 10.31 PAGE 4 OF 7
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Company made any
determination hereunder), by first class mail postage prepaid to each Holder.
(c) In the case of any consolidation or merger of the Company with
another entity, or the sale of all or substantially all of its assets to another
entity, or any reorganization or reclassification of the Common Stock or other
equity securities of the Company (except a split-up, combination or
reclassification, provision for which is made in paragraph A of Section 4(c)
hereof), then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the Common Stock
immediately theretofore receivable upon exercise of this Warrant, such shares of
stock, securities, assets or cash as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of Common Stock immediately theretofore so
receivable hereunder had such consolidation, merger, sale, reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the Holder to the end
that the provisions of this Section 4 (including, without limitation, provisions
for adjustment of the per share Exercise Price) shall thereafter be applicable
as nearly as may be, in relation to any shares of stock, securities, assets or
cash thereafter deliverable upon exercise of this Warrant.
(d) The right to exercise this Warrant shall not be suspended
during any period while the stock transfer books of the Company for its Common
Stock may be closed. The Company shall not be required, however, to deliver
certificates of its Common Stock upon such exercise while such books are duly
closed for any purpose, but the Company may postpone the delivery of the
certificates for the Common Stock until the opening of such books, and they
shall, in such case, be delivered forthwith upon the opening thereof, or as soon
as practicable thereafter.
5. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a shareholder of the Corporation, or to any other
rights whatsoever except the rights herein expressed, and no dividends shall be
payable or accrue in respect of this Warrant or the interest represented hereby
or the shares purchasable hereunder until or unless, and except to the extent
that, this Warrant shall be exercised.
6. This Warrant is exchangeable upon the surrender hereof by the
holder hereof to the Corporation for new Warrants of like tenor representing in
the aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the holder hereof at the time of such
surrender.
7. The Corporation will transmit to the holder of this Warrant such
information, documents and reports as are generally distributed to shareholders
of the Corporation concurrently with the distribution thereof to such
shareholders.
46
<PAGE> 5
EXHIBIT 10.31 PAGE 5 OF 7
8. Notices to be given to the holder of this Warrant shall be deemed
to have been sufficiently given if delivered or mailed, addressed in the name
and at the address of such holder appearing in the records of the Corporation,
and if mailed, sent first class registered or certified mail, postage prepaid.
The address of the Corporation is 80 Orville Drive, Bohemia, New York 11716, and
the Corporation shall give written notice of any change of address to the holder
hereof.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by the signature of its Chairman of the Board and its seal affixed and
attested by its Assistant Secretary.
Dated: As of August 1, 1996
ADVANCED MEDIA, INC.
By: /s/ Hans J. Kaemmlein
-------------------------
Chairman of the Board
[Corporate Seal]
ATTEST:
By: /s/ Alan W. Schoenbart
-------------------------
Alan W. Schoenbart
Assistant Secretary
47
<PAGE> 6
EXHIBIT 10.31 PAGE 6 OF 7
Exhibit A
---------
[FORM OF]
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise __________
of the Warrants represented by this Warrant and to purchase the shares of Common
Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:
(NAME)
(ADDRESS, INCLUDING ZIP CODE)
(SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER)
DELIVER TO:
(NAME)
at
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant, the undersigned requests that a new
Warrant representing the number of full Warrants not exercised be issued and
delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_________ by certified check or money order payable in United States currency
to the order of the Company.
Dated ____________________, 19__
Name of Warrant Holder: ______________________________________________________
Address: _____________________________________________________________________
_______________________________________________________________________________
Signature: ___________________________________________________________________
48
<PAGE> 7
EXHIBIT 10.31 PAGE 7 OF 7
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant, with respect to the number of Warrants set
forth below:
Name of Assignee Address No. of Warrants
and does hereby irrevocably constitute and appoint ___________ Attorney to make
such transfer on the books of Advanced Media, Inc. maintained for that purpose,
with full power of substitution in the premises.
Dated:, 199_.
Signature
SIGNATURE(S) GUARANTEED
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
Signature
NOTICE: The signature(s) on this assignment must correspond with the name(s) as
written upon the face of the Certificate, in every particular, without
alteration or enlargement or any change whatever.
49
<PAGE> 1
EXHIBIT 10.32 PAGE 1 OF 9
August 23, 1996
Mr. Greg Horn
Senior Vice President
General Nutrition, Inc.
921 Penn Avenue
Pittsburgh, PA 15222
Dear Greg:
Please find enclosed the revised proposal for the re-implementation of the
BioNutritional Encyclopedia system. For your convenience, we have prepared this
document in the following sections:
- - Section 1 - Executive Overview - A brief narrative stating the goals and
objectives of this project.
- - Section 2 - Application Specification - including current system
storyboards.
- - Section 3 - Implementation - Timelines and major GNC and AMI/PCI milestones.
- - Section 4 - Pricing Recap.
Several issues have been raised and are reflected in this document or addressed
here. Those issues are:
- - Change "Systems Management Server" to "appropriate network management
server" - revised;
- - Specify Surface Acoustic Wave (SAW) touchscreens for the BNE - AMI/PCI does
this as a default. This approach to using best-of-breed technology is
reflected in every design decision we make. The systems we have just
installed for you contain SAW technology for the VitaPak and the BNE, the
hardware in those systems as well the hardware selected for the BackOffice
Servers and Order Fulfillment Systems substantially exceed the
specifications in our original contract; and, you can be assured that all of
our design decisions and recommendations will continue to reflect this
approach. At the time that we enter into a contract for a roll-out, we will
gladly specify SAW technology in the Hardware Specification for those
systems.
Include operations documentation and knowledge transfer to GNC personnel - The
proposal includes 120 man-hours of a Technical Writer's time to create the
design document for this application. This document details the database
architecture and
50
<PAGE> 2
EXHIBIT 10.32 PAGE 2 OF 9
assume maintenance of the application. This can be extended, on a time and
materials basis, to include application maintenance, database maintenance,
communications management, or on-site training for skills transfer at any time.
- - HTML HyperText should be included in the base cost of the application - the
base cost of the application includes an appropriate technical design for the
existing BNE which does not have HyperText; therefore, the cost of providing
this additional feature was not included in that bid. This is an option that
we feel should be in the application because it greatly enhances the
usability of the application.
- - Conversion to NT should be included in the base cost of the application -
The application will run under NT today. The difference is that it is not a
true 32-bit native NT application. There is no multimedia development tool
available today which is a true NT application; however, AMI/PCI is migrating
all development tools and BackOffice applications, including MediaMaster
Professional, to this platform at our sole expense. The effort to port an
existing application, such as the VitaPak or the BNE, to this new platform is
expected to be minimal yet can only be quantified at the time that those
tools exist. Today, you have our commitment to do that at the lowest cost
possible.
Greg, we hope that the enclosed document meets with your approval. Please call
us to discuss at your earliest convenience. Once we have reached agreement on a
go forward plan, we will draw up the appropriate software schedule for this
project, which will be governed by our current master agreement. Both AMI and
PCI are once again looking forward to working with you and your staff to insure
successful completion and implementation. Should questions arise, please feel
free to call.
Sincerely,
/s/ Hans J. Kaemmlein /s/ Michael F. Cavotta
- ---------------------- ---------------------------
Hans J. Kaemmlein Michael F. Cavotta
Advanced Media, Inc. Performance Concepts, Inc.
MS/MFC:wks
Enclosures
51
<PAGE> 3
EXHIBIT 10.32 PAGE 3 OF 9
SECTION 1
EXECUTIVE OVERVIEW
Based upon your Request For Proposal and our subsequent meetings with GNC,
AMI/PCI has reviewed the current implementation of the BioNutritional
Encyclopedia software. AMI/PCI is pleased to present the following items for
your consideration:
1. Re-authoring of the BNE to run on the 16 pilot VitaPak/BNE kiosks as well as
the rollout systems. All systems operate in the Windows environment and have
17" monitors.
2. Modification of this re-authored application to run on GNC's existing I-386 &
I-486 Free Information Systems which operate in DOS with a 14" monitor.
3. Provide a database update utility for the researchers to easily add and
change the master database of information for the BNE system on a regular
monthly basis. Note: The ability to distribute this database, and any
additional updates, assumes that AMI, or GNC, implements an appropriate
network management system which supports unattended software distribution.
Any updates installed manually, either on-site or on-line remotely, would be
performed by AMI/PCI personnel on a time and material basis.
It is our understanding that the following list represents the primary goals and
objectives of the re-authoring of the BioNutritional Encyclopedia software:
- - The system response time to touches must be immediate.
When a user touches a selection on the screen, an audible sound should be
heard followed by immediate transfer to the next screen. This will give
the users confidence in navigation and alleviate the confusion associated
with the current system's slow response and skipping screens due to double
touches.
- - The software should be database driven and remotely updatable.
All of the information in the system which is subject to frequent changes
and additions will be contained in a database format which will allow
remote updating. This will make the system more responsive to change,
allow for more frequent updates and be more cost-effective than the
current system.
The software should be written in a generally accepted and available
language.
To ensure long term viability of the product, the system will be
programmed in Media Master Professional (the same language as the VitaPak
software) and will run in the Windows 3.11 for Workgroups environment,
which will be transferable to WindowsNT should this be desired for the
rollout. This environment will
52
<PAGE> 4
EXHIBIT 10.32 PAGE 4 OF 9
ensure the long-term viability of the application and the availability of
alternate resources to maintain the system should that be necessary.
- - The look and feel of the kiosk should remain "encyclopedia-like" in nature,
but be interesting to use as well.
More color will be introduced into the design, as well as additional
artistic elements to make the system more interesting to use, but maintain
its research-type information style. This will give GNC the "best of both
worlds" -- an exciting and easy-to-use kiosk that still conforms to the
research setting desired by the institute.
- - Text fonts used should be easy to read.
Larger, bolder fonts, as well as a larger viewing area will be used to
display information. This will enable the user to more easily read the
research.
- - Access to information should be easily accomplished by the user.
Access to information will be simplified so that the user doesn't get lost
when trying to find information. This will create a more enjoyable and
beneficial experience for the user, allowing him to access just the
information he wants in a timely manner.
In addition to the goals and objectives outlined above, several other ideas were
generated by AMI/PCI staff as options which you may wish to include in the
re-implementation. These are costed separately in the pricing recap in Section
4. These include:
- - Usage statistics could be tracked and made available on a regular basis for
management review.
Counts could be maintained for which symptoms, vitamins, minerals,
research, etc. have been accessed by users. These counts could be made
available to corporate on a weekly or monthly basis, at their discretion.
This will allow management to analyze how the BNE is being used, what
supplements are being viewed most often, and how much of the actual
research is being viewed by the users.
- - HTML HyperText links could be provided as an effective means to use the
glossary.
When the research is being viewed, all terms which are defined in the
glossary section could be highlighted with a specific color indicating that
more information is available. When a user touched a highlighted word, the
glossary definition could "pop up" allowing instant access to the
definition at the time when it is needed most. This could support a much
expanded glossary from what currently exists if it is available from the
institute.
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EXHIBIT 10.32 PAGE 5 OF 9
- - Animation's and other creative tools could be added which would make the
system even more engaging for the user.
Picture the main menu with a book shelf containing several volumes. When a
volume is chosen, the book "comes to life", rotates on the screen and
opens up to the next screen with a page turn. The front-end loop could
show a book with pages turning to reveal the questions and answers which
are currently in the attract loop segment. Similar tasteful creative
additions could be added if the creative time and resources are made
available.
- - Question and Answer section could be more interesting and easier to use.
By segregating the questions and answers into categories, the user could
choose a particular subject he might be interested in, and then view all
the questions and answers in that section. This would require an analysis
of how many and what types of questions are currently in the system, and
may require the compilation of additional questions from the institute to
make this feasible.
In responding to GNC's wishes to accomplish these tasks as soon as possible, we
are providing a timetable that is very aggressive and must rely on frequent and
prompt communications between AMI, PCI and GNC management personnel to achieve.
The timetable can be found in Section 3.
A summary cost table is provided in Section 4. Our software costs are based on
the storyboards and detailed specifications contained herein. As mentioned
previously, the optional software features are quoted separately for your
consideration.
SECTION 2
APPLICATION SPECIFICATION
FRONT END LOOP
The objective of the front end loop is to attract customers to touch the screen
on the kiosk.
The front end sequence will be made up of a random series of questions, similar
in nature to the current BNE implementation. Should you choose, some additional
creative work could be done here to make it more entertaining, like turning the
pages of a book to reveal the questions and answers.
Upon touching the screen, the user will be required to review the company logos
and the text on the disclaimer screens similarly to the current implementation.
The customer will then be handed off to the main menu.
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EXHIBIT 10.32 PAGE 6 OF 9
MAIN MENU
The objective of the Main Menu is to assist the user in navigating through the
desired options. It should provide simple and straightforward choices to the
user. We propose a screen with three books on a shelf entitled as follows:
1. [BioNutritional Encyclopedia] - This selection will lead the user to the
"Search Screen" and allow access of all the research data by substance, body
system or concern.
2. [Tell Me More About the Institute] - This option will move to the "Tell Me
More Screen" and will allow the user to touch one of the six icons on the
left (including the institute logo and five doctor's portraits). When
selected, the appropriate bio text will appear in the scrolling window on the
right.
3. [Questions and Answers] - This selection will move to the "General
Information Screen" where the user can touch a question Optionally, these can
be categorized for easier access for the user. Upon selecting a question, the
appropriate text window would pop up. Once again, some animation in this
section could be done to create more interesting effects.
These books could be animated to "come to life" when they are touched and
could automatically turn the page to reveal the next screen. There is also a
hidden option for GNC store personnel to access touchscreen recalibration, as
well as future administrative functions as may be defined later.
NAVIGATIONAL BUTTONS
Each screen will contain the same navigational buttons. Buttons which are not
active at any point will be shadowed. The buttons are as follows:
1. [Help] - Assistance messages designed to aid the user in kiosk use.
2. [Bye] - This button would be pressed when a user is finished with the
system.
3. [Main Menu] - Would always return the user to the main menu.
4. [Search] - Would take the user to the search menu.
5. [Glossary] - Would allow the user to access the glossary directly.
6. [About the Institute] - Would lead to the "Tell Me More About the Institute"
screen.
7. [Questions & Answers] - Would access the question & answer section.
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EXHIBIT 10.32 PAGE 7 OF 9
BNE SEARCH SCREEN
This is the screen where all of the claims and research are viewed. Upon
entering this section, the user could touch one of the following areas:
1. [Body Systems] - If the user touches [Body Systems] they are presented with a
selection screen of the available body system options. A selection is made of
a particular body system, at which time a Search Result screen displays all
the search results ordered by color coding for all Dietary/Supplements. The
user can then touch the Dietary/Supplements they wish to view research on.
Upon choosing a Dietary/Supplements, a HTML document (Research Results) will
display all of the claims related to that substance. A text sensitive
hyper-link is established for any text that is bolded and underlined, and
will display the glossary definitions.
2. [Dietary/Supplements] - If the user touches [Dietary/Supplements] they are
presented with a selection screen of all the available Supplements. A
selection is made of a particular Supplement, at which time a Search Result
screen displays all the search results of Body Systems and Concerns related
to that Supplement. The user can then touch either the Body System or Concern
search result which will then display the Research Screen related to their
selection. Upon making their selection, a HTML document (Research Results)
will display all of the claims related to that Supplement and either Concern
or Body System as selected by the user. A text sensitive hyper-link is
established for any text that is bolded and underlined, and will display the
glossary definitions
3. [Concerns] - If the user touches [Concerns] they are presented with a
selection screen of the available concerns selections. A selection is made of
a particular concern, at which time a Search Result screen displays all the
search results ordered by color coding for all Dietary/Supplements. The user
can then touch the substance they wish to view research on. Upon choosing a
substance, a HTML document (Research Results) will display all of the claims
related to that substance. A text sensitive hyper-link is established for any
text that is bolded and underlined, and will display the glossary definitions
for that text.
TELL ME MORE ABOUT THE INSTITUTE
This screen will show six icons (Institute logo and 5 doctors) which can be
touched for more information. Upon touching an icon, the appropriate bio text
will appear in a scrolling window.
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EXHIBIT 10.32 PAGE 8 OF 9
GENERAL INFORMATION - QUESTIONS & ANSWERS
Questions could be categorized for easier access and when a question is touched,
the appropriate answer would be displayed in text form on a pop up window. This
could optionally be provided in an animated fashion to make it more
entertaining.
GLOSSARY
The glossary screen would display a keyboard allowing the user to type the first
character of the word they are looking for. The text displayed in the scrolling
window would indicate all the words that begin with the character entered. A
text sensitive hyper-link is established for any text that is bolded and
underlined, and will display the glossary definitions.
SECTION 3
IMPLEMENTATION
Please refer to the attached timelines for more detail on the individual
implementation steps involved with this project. This timetable leaves little
room for delay. We need to maintain an approval process consistent with that
experienced during the VitaPak software project to ensure maintenance of this
schedule.
PROJECT TEAM
Project teams have been selected for the re-implementation of the BioNutritional
Encyclopedia project. The AMI/PCI members of this team will be assembled from
the following areas:
Project Management - Wendy K. Sayer of PCI will perform Project Management
responsibilities for the duration of the project. GNC's project manager to be
determined.
Research & Development - the proposed database design, authoring tool
enhancements and communications aspects of this project will require the
experience of the combined AMI and PCI development teams. AMI's and PCI's staff
will work closely on the database design aspects of the re-authoring. AMI's team
will be primarily responsible for the authoring tool enhancements,
communications aspects, and development of the Windows based application. PCI's
team will be primarily responsible for modification for use in the DOS
environment.
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EXHIBIT 10.32 PAGE 9 OF 9
Creative Services - AMI/PCI will assign personnel on a predetermined project
resource plan that will provide graphic design and application authoring.
Customer Support - AMI/PCI personnel will be assigned to complete user
documentation, training material and trouble shooting guides for your store
personnel. AMI/PCI will provide ongoing customer support for both your internal
support staff as well as store personnel. GNC will have full access to AMI/PCI's
Help Desk located in Mentor, Ohio.
SECTION 4
PRICING RECAP
<TABLE>
<S> <C>
Re-Authoring BNE for rollout $250,000.00
Modification to run on current machines $ 58,000.00
Database Utility for Researchers $ 40,000.00
TOTAL $348,000.00
OPTIONAL FUNCTIONS
Usage Statistics w/ Corporate Analysis Function $ 27,500.00
Estimate: Final depends on specification of reporting needs
HyperText Links to access glossary $ 25,000.00
Additional Creative Work including animation's $ 45,000.00
Question & Answers in categories $ 7,500.00
</TABLE>
58
<TABLE> <S> <C>
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0
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