SCHEDULE 14C AND 14F- INFORMATION
(Rule 14c-10 & Rule 14f-10)
Information Statement Pursuant to Section 14(c) and Section 14(f) of the
Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for use of the
[X] Definitive Information Statement Commission only (as permitted
by Rule 14c-5(d)(2))
DOMINIX, INC.
(Name of Registrant as Specified in Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
1
DOMINIX, INC.
95 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
Information Statement pursuant to Sections 14(C) and 14(F) of the Securities and
Exchange Act of 1934
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This information statement is being mailed on or about May 14, 2004 to the
holders of record at the close of business on April 15, 2004 of the shares of
common stock, $.001 par value per share of Dominix, Inc., in connection with its
merger with Jade Entertainment Group, Inc., a New York corporation and the
appointment of certain persons to its Board of Directors other than at a meeting
of the shareholders.
This information statement is also being mailed to Dominix's shareholders in
connection with a proposed action by written consent to authorize and approve:
1. An amendment and restatement of its Certificate of Incorporation which:
o changes its name to "110 Media Group, Inc.";
o reverse splits the outstanding shares of its common stock
one-for-two hundred;
o changes the number of shares of common stock the company is
authorized to issue to 50,000,000; and
o increases the number of shares of preferred stock, no par value, it
is authorized to issue from 5,000,000 to 10,000,000.
2. The adoption of Dominix's 2003 Equity Incentive Plan.
The amendment and restatement of our Certificate of Incorporation is being made
to effectuate the merger with Jade Entertainment Group, Inc.
We have obtained all necessary corporate approvals in connection with the
foregoing actions and your consent is not required and is not being solicited in
connection with the approval of the foregoing actions. Section 228 of the
Delaware General Corporation Law and our bylaws provide that any action required
or permitted to be taken at a meeting of the stockholders may be taken without a
meeting if stockholders holding at least a majority of the voting power sign a
written consent approving the action. Dissenting stockholders do not have any
statutory appraisal rights as a result of the action taken. On November 25,
2003, stockholders that owned 19,231,410 shares of our common stock, and holders
of our Series A Preferred Stock owning 2,824,999 shares this class and entitled
to vote 564,999,800 shares of the Common Stock which in combination constituted
66% of the outstanding shares entitled to vote, executed written consents to
approve the foregoing actions. The corporate action will be effective 20 days
after the mailing of this information statement.
We are distributing this information statement pursuant to the requirements of
Sections 14(c) and 14(f) of the Securities Exchange Act of 1934.
The entire cost of furnishing this information statement will be borne by
Dominix. We have requested brokerage houses, nominees, custodians, fiduciaries
and other like parties to forward this information statement to the beneficial
owners of our common stock held of record by them and will reimburse such
persons for their reasonable charges and expenses in connection therewith.
Expenses in connection with the distribution of this information statement will
be paid by us and are anticipated to be less than $10,000.
2
SUMMARY OF MERGER WITH JADE ENTERTAINMENT GROUP, INC.
The following summary highlights the material terms of the merger with Jade
Entertainment Group, Inc. ("Jade"). This summary does not contain all of the
information that may be important for you to consider in evaluating the merger.
You should read this entire information statement and the other documents
attached to this information statement in their entirety to fully understand the
merger and its consequences to you.
Since its inception in July 2001, Jade has been developing its technology,
marketing its website to advertisers and building consumer awareness of its
website and services. Jade operates AskJade.com, a specialty search engine for
the adult entertainment industry. Its search engine allows Internet users to
enter a word, phrase of plain English query describing what they want to locate
on the Internet. Jade's search engine then displays a selection of websites
related to that query. Advertisers can determine exactly where on the results
page their website link will appear for any given query. Jade recognizes its
website revenue based on the affiliate/referral program. An affiliate/referral
program is revenue sharing agreements, which are set up by companies selling
products and services. As a website and search engine owner, Jade puts companies
advertisement banners on its website. When a customer clicks on an affiliate
company's banner or hyperlink located on Jade's website, they are sent to that
affiliate company's website. If the customer purchases products or services on
our affiliate company's website, we are entitled to a percentage of that
purchase. At the time of purchase, the payment is transmitted to a third party
processing center who in turn distributes the payment, net of their commissions,
to Jade and our affiliate. The percentage of the purchase price we receive
varies from customer to customer and ranges from 5% to 10% of the purchase price
of the goods or services sold. We recognize revenue once the product/services
has been purchased.
Jade also recently commenced a new business line of selling proprietary adult
content on DVD format culled from a foreign film library that it recently
acquired. In February 2004, Jade entered into an agreement with a third party
distributor to sell the DVD's to both wholesalers and retailers and in April
2004, the first title was shipped. Jade expects to release between six and eight
videos in 2004, however, the time frame of these releases is subject to change.
PURCHASE PRICE
We acquired Jade in a merger by issuing 82,167 shares of our Series B Preferred
Stock and 85,000,000 shares of our common stock to the stockholders of Jade.
Jade merged into our wholly owned subsidiary, Jade Acquisition Corp. Each share
of Series B Preferred Stock converts into 9,506.74 shares of our common stock or
781,140,000 shares of pre-split common stock. Accordingly, Jade stockholders
will own an aggregate of 4,330,700 shares or approximately 50% of the issued and
outstanding shares of our common stock after taking into account the following:
o 1 for 200 reverse split;
o conversion of Series A Preferred Stock; o conversion of Series B
Preferred Stock; and
o reserve of 330,000 shares to settle approximately $265,000 of
outstanding claims against Dominix.
The 330,000 shares will be used to settle the following matters:
o In July 2002 Robert Fierman, Esq., a former attorney for the Company
commenced an action against Dominix seeking payment of legal fees in
the amount of $22,230.52. In full settlement of all claims of Mr.
Fierman against Dominix, we agreed to issue Mr. Fierman 10,000
post-split shares of common stock.
o In September 2003, Dominix entered into three settlement agreements
with five investors who invested an aggregate of $112,000 into
Dominix in exchange for convertible debentures. Dominix agreed to
issue an aggregate of 189,000 post-split shares of common stock to
five such investors.
o There remains outstanding $130,000 principal amount of convertible
Debentures which we seek to settle for 131,000 post-split shares of
common stock.
3
The following table illustrates the ownership of our common stock before and
after the reverse split and issuance of common stock upon conversion of both
classes of outstanding preferred stock, conversion of the notes issued in the
private offering and issuance of shares under the equity plan and issuance of
shares as part of settlement of certain claims against Dominix.
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Number of Percentage of Number of Percentage of
Pre-Split Pre-Split Post-Split Post-Split
Name of Group Shares Ownership Shares Ownership
- -------------------------------------- ---------------- ----------------- -------------- -------------------
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Existing unaffiliated stockholders 112,140,105 56.9% 560,700 5.8%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Equity grant recipients -0- N/A 500,000 5.2%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Note holders -0- N/A 575,000 6.0%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Series A shareholders -0- N/A 3,439,999 35.8%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Jade shareholders 85,000,000 43.1% 4,330,700 45.1%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Recipient's of settlement shares -0- N/A 199,000(1) 2.1%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
Total 197,140,105 100% 9,605,399 100%
- -------------------------------------- ---------------- ----------------- -------------- -------------------
(1) The issuance of these shares will be used to settle approximately $135,000
of claims and indebtedness against us. There remains approximately $130,000 of
additional indebtedness that we intend to settle by issuing up to an additional
131,000 shares of our post-split common stock.
FINANCING
As a condition to the merger with Jade, Dominix agreed to provide funding for
Jade in a minimum amount of $500,000. In furtherance of this condition, Mr.
Edward W. Gordon, an unaffiliated accredited investor, loaned Dominix $50,000 on
October 1, 2003. These monies were advanced to Jade for working capital as part
of the $500,000 commitment. On December 1, 2003 we completed a private offering
of our 7% convertible notes in the principal amount of $525,000. Mr. Gordon
agreed to convert his loan into the 7% convertible note thereby increasing the
principal amount of these notes to $575,000. We received net proceeds of
$522,500. The offering was made to the following six unaffiliated accredited
investors (including Mr. Gordon):
Capital Growth Equity Fund I, LLC $100,000
Nicholas Romano $100,000
Lawrence Wiener $200,000
Andrew Sirlin $ 25,000
Edward W. Gordon $ 50,000
Fenway Advisory Group Pension
& Profit Sharing Plan $100,000
--------
Total $575,000
The principal and accrued interest of the notes are convertible into units of
our securities. For each $1.00 converted, the investor will receive one (1)
share of post-reverse split common stock and one-half of a warrant to purchase
our common stock for a two year period at an exercise price of $1.75 per share.
Accordingly, the aggregate principal amount of the notes converts into a total
of 575,000 shares of post-reverse split common stock and 287,500 warrants.
We used the net proceeds of the private offering of $522,500 to pay outstanding
indebtedness of Dominix of approximately $20,000 and the balance was used to
fund the operations of Jade.
PLACEMENT AGENT
Adelphia Capital LLC acted as placement agent for the private offering. Adelphia
received a gross commission of $52,500 for placing the notes, a portion of which
was paid to a sub-placement agent CGF Securities, LLC. Additionally, we issued
CGF Securities LLC as a selling agent commission 10,000 warrants to purchase our
4
post-split common stock at an exercise price of $1.00 per share, exercisable for
five years and 5,000 warrants to purchase our post-split common stock at $1.75
per share, exercisable for three years.
APPROVAL OF SHAREHOLDERS IS NOT NECESSARY
The acquisition of Jade was structured so that the principals of Jade would have
enough control and voting power to be able to approve, without a vote of
disinterested stockholders all of the corporate actions required for the
transactions described in this information statement. The amendment to our
certificate of incorporation is necessary under the terms of the merger
agreement between Dominix and Jade because we do not have enough authorized
common shares to complete the merger. Such amendment has been approved by
consent and you cannot prevent these actions from occurring.
INFORMATION RELATING TO THE COMPANY'S VOTING STOCK
The shares of Common Stock and the shares of Series A Preferred Stock and a
newly created Series B Preferred Stock issued to the shareholders of Jade in
connection with the Jade Merger are the only classes of voting securities
currently outstanding. The Company is authorized to issue 200,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. Each share of Common Stock
is entitled to one vote per share on all matters submitted to a vote of the
shareholders. Each share of Series A Preferred Stock is entitled to two hundred
(200) votes per share on all matters submitted to a vote of the shareholders.
Each share of Series B Preferred Stock is entitled to approximately 9,506.74
votes per share on all matters submitted to a vote of the shareholders. As of
April 15, 2004, the Company had 197,140,105 shares of Common Stock outstanding,
which is the same number of votes this class is entitled to cast, 3,439,999
shares of Series A Preferred Stock outstanding, which entitles this class to
have an aggregate of 687,999,800 votes cast and 82,167 shares of Series B
Preferred Stock outstanding, which entitles this class to have an aggregate of
781,140,000 votes cast on Stockholder Matters.
CHANGES OF CONTROL OF THE COMPANY
Effective with the closing of our merger with Jade on December 5, 2003, Raymond
Barton and Timothy Schmidt, management of Jade, were appointed by our sole
director as Dominix's Chief Executive Officer and President, respectively. Ten
days after the mailing of this information statement, the sole director, Mr.
Andrew J. Schenker, will nominate and elect Messrs. Schmidt and Barton to our
Board of Directors and he will resign all his positions with us. Based on
Dominix's Bylaws, the number of directors constituting the Board shall never be
less than one and shall be determined by the Board. Furthermore, vacancies and
newly-created directorships resulting from any increase in the number of
directors may be filled by a majority of the directors then in office, or by the
sole director. Based on the foregoing, Mr. Schenker has full authority to
appoint Messrs. Schmidt and Barton to the Company's Board of Directors without
shareholder approval and Mr. Schenker decided not to seek shareholder approval.
There are no other understandings or arrangements between Mr. Schenker and the
new management team.
Prior to the merger with Jade, we had no significant assets and were a "shell"
company with no operations. As a result of the merger with Jade, the
shareholders of Jade received our newly created Series B Preferred Stock
convertible into 781,140,000 shares of common stock, which together with the
issuance of 85,000,000 shares of our common stock equals approximately fifty
percent (50%) of the company's common stock on a fully diluted basis as of the
date of the closing of that transaction. As of the merger with Jade, Messrs.
Barton and Schmidt became "control persons" of the company, as that term is
defined in the Securities Act of 1933, as amended. Pursuant to Rule 405 of the
Securities Act, the term (control including the terms "controlling", "controlled
by" and "under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether though ownership of voting securities, by contract or
otherwise. Mr. Schenker delivered his letter of resignation as President of
Dominix effective upon such appointments and intends to deliver a letter of
resignation as a member of Dominix's Board of Directors effective 10 days after
the mailing of this information statement.
5
BOARD OF DIRECTORS
GENERAL
Management of the company, prior to the merger with Jade is set forth below:
NAME AGE POSITION
---- --- --------
Andrew J. Schenker 44 President, Treasurer, Secretary and Sole Director
Mr. Schenker was appointed Director, President and Secretary of the Company on
April 30, 2002. Mr. Schenker became the sole director of the Company in April
2003. Since January 2002, Andrew J. Schenker has also been the President of
CDKnet.com, Inc. where he has also been a director since May, 1998. Effective
November, 2003, Mr. Schenker became the Senior Vice President and Chief
Financial Officer of Genio Group, Inc. Prior to November 2003, Mr. Schenker was
a Director of Genio Group, Inc. since October 2002 when it was known as National
Management Consulting, Inc. From November 1986 to May 2001, he held several
financial management positions at Symbol Technologies, Inc., most recently at
the position of General Manager for Education Marketing-Worldwide at Symbol
Technologies, Inc. He is also the trustee for several trusts and a public
foundation, as well as an executive committee member of the Smithtown Central
School District Industry Advisory Board. Mr. Schenker is a graduate of Hofstra
University where he received a Bachelor of Arts Degree in Accounting in 1982.
Ten days after mailing this information statement, Mr. Schenker will resign as
our sole director and will nominate and elect the following individuals to our
Board of Directors:
NAME AGE POSITION
---- --- --------
Raymond Barton 33 CEO
Timothy Schmidt 32 President
Raymond Barton and Timothy Schmidt co-founded Jade Entertainment Group, Inc. Mr.
Barton has served as the Chairman of the Board of Directors and Chief Executive
Officer of Jade Entertainment Group, Inc. since inception Mr. Barton also serves
as Chairman of the Board of Directors and President of MarketShare Recovery,
Inc. since inception in November 2000. Prior to co-founding Jade Entertainment
Group, Inc. and MarketShare Recovery, Inc., Mr. Barton was a stock broker at
Meyers Pollock Robbins from March 1997 to December 1997, and at Continental
Broker Dealers from December 1996 to March 1997 where he served as a retail
broker. Mr. Barton also served as Business Development Manager with PcQuote,
Inc. from September 1997 to February 1999 and was in charge of developing
business contacts and negotiating joint ventures. Mr. Barton served as Executive
Vice President of Financialweb.com from February 1999 to September 1999, where
his responsibilities included managing the production of online content. Mr.
Barton served as the CEO/President of Thinkersgroup, Inc., a mobile wireless
software developer, from September 1999 to November 2000 where he developed the
Company's business. Mr. Barton attended the State University of New York at
Farmingdale, and received a Bachelor of Arts Degree in criminal justice from New
York City Police Academy in 1991.
Timothy Schmidt has served as the President and as a Director of Jade since its
inception. Mr. Schmidt also serves as the Vice President and a director of
MarketShare Recovery, Inc. since its inception in November 2000. Prior to these
positions, Mr. Schmidt served as Chief Operating Officer for Thinkersgroup,
Inc., a wireless developer of software applications, from September 1999 to
November 2000 where he managed company operations, administration and human
resources. Mr. Schmidt attended the State University of New York at Farmingdale
where he studied Business Administration from 1989 through 1991.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 15, 2004, information with respect
to the securities holdings of all persons which we, pursuant to filings with the
Securities and Exchange Commission, have reason to believe may be deemed the
beneficial owners of more than 5% of our outstanding common stock, Series A
6
Preferred Stock and Series B Preferred Stock Also set forth in the table is the
beneficial ownership of all shares of our outstanding stock, as of such date, of
all officers and directors, individually and as a group.
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Percent of
Beneficial
Ownership &
Voting Power
Before After Before After After
Jade Jade Reverse Reverse Reverse
Name and Address Class (1) (2) Acquisition Acquisition Split Split Split (6)
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Andrew Schenker Common -- -- -- 150,000(6) 1.56%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Director Series A Preferred Shares 100,000 100,000 100,000 --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
c/o Dominix, Inc. Series B Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
95 Broadhollow Rd.
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Melville, NY 11747
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Ray Barton Common -- 39,022,921 39,022,921 2,027,088(6) 21.1%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Chief Executive Officer Series A Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
c/o Dominix, Inc. Series B Preferred Shares -- 37,796.82 37,796.82 --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
95 Broadhollow Rd.
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Melville, NY 11747
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Timothy Schmidt Common -- 19,512,558 19,512,558 1,031,050(6) 10.73%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
President Series A Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
c/o Dominix, Inc. Series B Preferred Shares -- 18,898.41 18,898.41 --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
95 Broadhollow Rd.
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Melville, NY 11747
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Alan Cohen (3) Common -- 0 0 120,000(6) 1.25%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Chief Financial Officer Series A Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
c/o Dominix, Inc. Series B Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
95 Broadhollow Rd.
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Melville, NY 11747
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Steven A. Horowitz (4) Common 4,500,000 4,500,000 4,500,000 756,166(6) 7.87%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
c/o Morritt Hock Series A Preferred Shares 693,666 693,666 693,666 --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Hamroff & Horowitz Series B Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
400 Garden City Plaza
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Suite 202
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Garden City, NY 11530
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
Snapper Partners LLC (5) Common 4,500,000 4,500,000 4,500,000 567,500 5.9%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
545 Madison Avenue Series A Preferred Shares 545,000 545,000 545,000 --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
6th Floor Series B Preferred Shares -- -- -- --
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
New York, NY 10022
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
All Officers and Directors Common 3,328,138 34.64%
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
as a Group (4 persons)
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
- -------------------------------- ---------------------------- ------------ ------------ ------------ --------------- --------------
(1) Holders of Series A Preferred Stock are each entitled to 200 votes per
share and holders of Series B Convertible Preferred Stock are entitled to
9,506.74 votes per share.
(2) Series A and B Preferred Shares are converted to common stock effective
upon the reverse split.
(3) The shares, provided Mr. Cohen is still employed by us, vest according to
the following schedule: 40,000 shares vesting and deliverable post the
effectiveness of the reverse split and an aggregate of 60,000 shares
vesting upon the twelve (20,000), eighteen (20,000) and twenty-four
(20,000) month anniversaries of the effective date of his employment.
(4) Does not include 100,000 shares of Series A Preferred Stock held by the
law firm of Morrit Hock Hamroff & Horowitz, of which Mr. Horowitz is a
partner. Also does not include 4,500,000 pre-split shares of common stock
and 50,000 shares of Series A Preferred Stock held by CDKNet.com, Inc. a
company in which Mr. Horowitz is a shareholder and a director and officer.
(5) Does not include 165,000 shares of Series A Preferred Stock each held by
Peter Christos and Arnold Kling, individually, the managing members of
Snapper Partners, LLC and 4,500,000 pre-split shares of common stock held
by Mr. Kling.
(6) Includes shares to be issued under the 2003 Equity Incentive Plan.
7
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND DIRECTORS
For the fiscal year ended December 31, 2003, Dominix did not pay any
compensation to any officers or directors, except that Raymond Barton and
Timothy Schmidt each received $5,769 in compensation from Dominix in December
2003. In addition, in the fiscal year ended December 31, 2002, we did not pay
any compensation to any officers or directors.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered to Dominix in all capacities for the fiscal years ended
December 31, 2001, 2002 and 2003. Other than as set forth herein, no executive
officer's salary and bonus exceeded $100,000 in any of the applicable years. The
following information includes the dollar value of base salaries, bonus awards,
the number of stock options granted and certain other compensation, if any,
whether paid or deferred.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------- --------------------------------------------- -----------------
Long Term
Annual Compensation Compensation
- --------------------------------------------------- --------------------------------------------- -----------------
Fiscal Year
Ended Options/SARS
Name and Principal Position December 31 Salary ($) Bonus ($) (#)
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Andrew J. Schenker (1) 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Former President and Director 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
James W. Zimbler (2) 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Former Chairman and Chief Executive Officer 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Enrique J. Abreu (3) 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Former Chairman and Chief Executive Officer 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $175,000 (4) $0 1,000,000 (5)
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Ric Cmiel (6) 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Former Director 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 1,000,000 (5)
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Raymond Barton (7) 2003 $5,769 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Chief Executive Officer 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Timothy Schmidt(8) 2003 $5,769 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
President 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Alan Cohen (9) 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Chief Financial Officer 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
(1) Mr. Schenker became a director of Dominix in April 2002 and in April 2003
he became Chairman of the Board of Directors and President of Dominix. On
December 5, 2003 Mr. Schenker resigned as President of Dominix.
(2) Mr. Zimbler resigned from his positions as Chairman and Chief Executive
Officer of Dominix effective April 8, 2003.
(3) Mr. Abreau resigned as Chairman and Chief Executive Officer of Dominix in
April 2002.
(4) His salary was accrued but not paid during this period.
8
(5) Represents restricted stock awards issued April 29, 2002 and is
pre-Reverse Split.
(6) Mr. Cmiel resigned his position as a Director of Dominix in April 2002.
(7) Mr. Barton became Dominix's Chief Executive Officer on December 5, 2003.
(8) Mr. Schmidt became Dominix's President on December 5, 2003.
(9) Mr. Cohen became Dominix's Chief Financial Officer on December 8, 2003.
SUMMARY COMPENSATION TABLE - JADE
The Summary Compensation Table shows certain compensation information for
services rendered to Jade in all capacities for the fiscal years ended December
31, 2001, 2002 and 2003. Other than as set forth herein, no executive officer's
salary and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------- --------------------------------------------- -----------------
Long Term
Annual Compensation Compensation
- --------------------------------------------------- --------------------------------------------- -----------------
Fiscal Year
Ended Options/SARS
Name and Principal Position December 31 Salary ($) Bonus ($) (#)
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Timothy Schmidt 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
President and Chief Executive Officer 2002 $13,750 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Ray Barton 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Chief Technology Officer, Chief Operating 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Officer and Chairman of the Board 2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Alan Cohen (1) 2003 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
Chief Financial Officer 2002 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
2001 $0 $0 -0-
- --------------------------------------------------- ---------------- -------------- ------------- -----------------
(1) Mr. Cohen became Jade's Chief Financial Officer on December 8, 2003.
9
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
INDIVIDUAL GRANTS
% of Total
Options/SARs
Granted to Exercise or
Fiscal Options/SARs Employees in Base Price Expiration
Name Year Granted (#) Fiscal Year ($/Sh) Date
- ------------------------------------- --------- ---------------- ---------------- ------------- -------------
Enrique Abreu 2002 -0-(1) 0.0% -0- -
Former Chairman of the Board and
Chief Executive Officer
James W. Zimbler 2002 -0-(1) 0.0% -0- -
Former Chairman of the Board and
Chief Executive Officer
Andrew J. Schenker 2002 -0-(1) 0.0% -0- -
President and Director
Ric Cmiel 2002 -0-(1) 0.0% -0- -
Director
(1) No options were granted during fiscal year 2002.
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUE
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End ($)(1)
Fiscal Acquired on Realized Exercisable / Exercisable /
Name Year Exercise (#) ($) Unexercisable Unexercisable
- ------------------------------------- ------- ------------- --------- --------------------- -----------------
Enrique Abreu 2002 -0- -0- (E) -0- / (U) -0- (E)$0 / (U)$0
Former Chairman of the Board and
Chief Executive Officer
James W. Zimbler 2002 -0- -0- (E)-0- /(U)-0- (E)$0 / (U)$0
Former Chairman of the Board and
Chief Executive Officer
Andrew J. Schenker 2002 -0- -0- (E) -0- (U) -0- (E)$0 / (U)$0
President and Director
Ric Cmiel 2002 -0- -0- (E) -0- (U) -0- (E)$0 / (U)$0
Former Director
(1) There were no outstanding options held by any of our officers or
directors during the fiscal year ended December 31, 2003. Based upon the closing
price of our common stock of $.02 per share as reported on the NASDAQ OTC
Bulletin Board as of December 31, 2003.
In addition to the foregoing, the Board of Directors and a majority of our
shareholders approved the 2003 Equity Incentive Plan. Additional
information concerning the Equity Incentive Plan is set forth under the
caption "Approval of the 2003 Equity Incentive Plan," below.
10
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
At present, we are authorized to issue 200,000,000 shares of common stock and
5,000,000 shares of preferred stock. Our Sole Director approved an amendment and
restatement of our Certificate of Incorporation to:
o change the corporate name to "110 Media Group, Inc.";
o reverse split the outstanding shares of common stock one-for-two
hundred;
o change the number of shares we are authorized to issue after the
reverse split to 50,000,000;
o and increase the number of shares of preferred stock, no par value
to 10,000,000.
Among the factors we considered in determining the size of the reverse split was
a target price range of $2.00 and $2.50 and avoiding the loss of a significant
number of stockholders owning at least 100 shares of our common stock. Based on
the most recent bid price of $.01 per share, a one-for-two hundred reverse split
would theoretically result in a price per share of $2.00. The sole member of the
board of directors determined that a one-for-two hundred reverse split
adequately balanced these objectives. The theoretical price ranges should not be
interpreted as an estimate of value or a prediction of any market price. A copy
of the restated and amended Certificate of Incorporation substantially in the
form it will be filed with the Secretary of the State of Delaware is attached
hereto as Appendix A.
CHANGE OF CORPORATE NAME
Our name change to "110 Media Group, Inc." will be effective upon the filing
with the Secretary of State of Delaware an amendment and restatement to our
Certificate of Incorporation. We believe the new name better describes the new
direction and focus of the company.
REVERSE SPLIT
The reverse split will become effective upon filing with the Secretary of State
of Delaware an amendment and restatement to our Certificate of Incorporation.
The closing bid price of our common stock on April 15, 2004 was $.007.
Each share of common stock outstanding at the effective date of the reverse
split, will automatically become one-two hundredth of a share. Presently, each
share of Series B Preferred Stock is convertible into approximately 9,506.74
shares of common stock. Upon the reverse split each share of Series B Preferred
Stock will convert into 47.543 shares of common stock. At present, each share of
Series A Preferred Stock is convertible into 200 shares of common stock. Upon
the reverse split each share of Series A Preferred Stock will convert into one
share of common stock.
The table below sets forth, as of the record date the following information both
before and after the proposed reverse split:
o the number of issued and outstanding shares of common stock;
o the number of shares of common stock reserved for issuance;
o the number of authorized but unissued and unreserved shares of
common stock.
11
PRE-REVERSE SPLIT POST-REVERSE SPLIT
Number of issued and outstanding shares of
common stock 197,140,105 9,605,399
Number of shares of common stock reserved for
issuance 1,810,539,800 433,500
Number of authorized but unissued and
unreserved shares of common stock 0 39,961,101
Total 50,000,000
PRINCIPAL EFFECTS OF THE REVERSE SPLIT
The principal effects of the Reverse Split will be as follows:
Based upon the 197,140,105 shares of common stock outstanding on the record
date, the reverse split would decrease the outstanding shares of Common Stock by
200% or to approximately 985,700 shares. Upon the effectiveness of the reverse
split and the completion of the merger with Jade, the conversion of the Series A
Preferred Stock and the conversion of the Series B Preferred Stock, the issuance
of 575,000 post-split shares to the investors in our private placement, and the
issuance of 199,000 post-split shares to settle certain claims against us and
500,000 shares to be issued under the 2003 Equity Incentive Plan, there will be
9,605,399 shares of common stock issued and outstanding.
The Company will obtain a new CUSIP number for the common stock at the time of
the reverse split. Following the effectiveness of the reverse split, every 200
shares of common stock presently outstanding, without any action on the part of
the stockholder, will represent one share of common stock.
Subject to the provisions for elimination of fractional shares, as described
below, consummation of the reverse split will not result in a change in the
relative equity position or voting power of the holders of common stock.
PURPOSES OF THE REVERSE STOCK SPLIT
The reverse split will decrease the number of shares of common stock outstanding
and presumably increase the per share market price for the common stock.
Theoretically, the number of shares outstanding should not, by itself, affect
the marketability of the stock, the type of investor who acquires it, or the
Company's reputation in the financial community, but in practice this is not
necessarily the case, as many investors look upon a stock trading at or under
$1.00 per share as unduly speculative in nature and, as a matter of policy,
avoid investment in such stocks.
Many leading brokerage firms are reluctant to recommend lower-priced securities
to their clients and a variety of brokerage house policies and practices
currently tend to discourage individual brokers within firms from dealing in
lower-priced stocks. Some of those policies and practices pertain to the payment
of brokers' commissions and to time-consuming procedures that make the handling
of lower priced stocks unattractive to brokers from an economic standpoint. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of lower priced stocks. This is because the brokerage
commission on a sale of a lower priced stock generally represents a higher
percentage of the sales price than the commission on a relatively higher priced
issue.
In addition, there are not a sufficient number of authorized but unissued shares
of common stock to consummate the merger with Jade. The sole director believes
that the reverse split and the merger with Jade are in Dominix's best interests
and its shareholders because the acquisition will provide shareholders with an
operating business with the potential for rapid growth. The reverse split is a
post closing condition to the Jade transaction. If the reverse split is not
consummated, the merger with Jade may be reversed, and in such case, we will
remain a shell company with no significant assets and no business. Additionally,
the reverse stock split would reduce the number of shares of its common stock
outstanding to amounts that the sole director believes are more reasonable in
light of its size and market capitalization. We require additional capital for
Jade's operations and do not believe we will be able to raise the necessary
12
capital unless the price of our common stock is higher than its current price
levels. However, no assurance can be given that the reverse split will result in
any increase in the common stock price or that we will be able to complete any
financing following the reverse split.
EXCHANGE OF CERTIFICATE AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
On the date of the reverse split, shares of common stock will automatically be
combined and changed into one share of common stock. No additional action on our
part or any shareholder will be required in order to effect the reverse split.
Shareholders will be requested to exchange their certificates representing
shares of common stock held prior to the reverse split for new certificates
representing shares of common stock. Shareholders will be furnished the
necessary materials and instructions to effect such exchange promptly following
the effective date of the reverse split. Shareholders should not submit any
certificates until requested to do so. In the event any certificate representing
shares of common stock outstanding prior to the reverse split is not presented
for exchange upon request by the company, any dividends that may be declared
after the date of the reverse split with respect to the common stock represented
by such certificate will be withheld by the company until such certificate has
been properly presented for exchange. At such time, all such withheld dividends
which have not yet been paid to a public official pursuant to relevant abandoned
property laws will be paid to the holder thereof or his designee, without
interest.
No fractional shares of post-reverse split common stock will be issued to any
shareholder. Accordingly, shareholders of record who would otherwise be entitled
to receive fractional shares of post-split common stock, will, upon surrender of
their certificates representing shares of pre-split common stock, receive a cash
payment in lieu thereof equal to the fair value of such fractional share.
Holders of less than 200 shares of common stock prior to the reverse split will,
on the effective date of the reverse split, no longer be shareholders of
Dominix. The Board of Directors had determined that the fair value of the common
stock will be based on the closing price of the common stock on the OTC-Bulletin
Board on the date immediately prior to the effective date of the reverse split
or, if there are no reported sales on that date, the average of the last
reported high bid and low ask price on the last date of reported sales shall be
used.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The combination of 200 shares of pre-split common stock into one share of
post-split common stock should be a tax-free transaction under the Internal
Revenue Code of 1986, as amended, and the holding period and tax basis of the
pre-split common stock will be transferred to the post-split common stock.
Generally, cash received in lieu of fractional shares will be treated as a sale
of the fractional shares (although in unusual circumstances such cash might
possibly be deemed a dividend). Shareholders will recognize gain or loss based
upon the difference between the amount of cash received and the basis in the
surrendered fractional share.
This discussion should not be considered as tax or investment advice, and the
tax consequences of the reverse split may not be the same for all shareholders.
Shareholders should consult their own tax advisors to know their individual
Federal, state, local and foreign tax consequences.
CHANGE IN AUTHORIZED CAPITAL STOCK
The sole director has approved an amendment to our Certificate of Incorporation
which would change the number of authorized shares of common stock, and the par
value to $.001 per share. The number of authorized common shares post reverse
split would be increased to 50,000,000 shares. In addition, the amendment will
increase the number of authorized shares of preferred stock from 5,000,000 to
10,000,000 shares post reverse split. As of the record date there were 3,439,999
shares of Series A Preferred Stock outstanding and 82,167 shares of Series B
Preferred Stock outstanding. See the tables on page 10 to see how many shares of
stock will be available for issuance as a result of all pending transactions.
DISCUSSION OF THE AMENDMENT
Under our Certificate of Incorporation, the Board of Directors has authority to
issue shares of common and preferred stock without obtaining shareholder
approval. The holders of our common stock and preferred stock do not have
preemptive rights. The Board of Directors has broad authority to issue shares of
preferred stock in one or more series and to determine such matters as the
dividend rate and preference, voting rights, conversion privileges, redemption
provisions, liquidation preferences and other rights of each series. Each share
13
of common stock is entitled to one vote. The holders of any series of preferred
stock issued in the future will be entitled to such voting rights as may be
specified by the Board of Directors.
In connection with the merger with Jade, we issued 82,167 shares of our newly
created Series B Preferred Stock. The Series B Preferred Stock contains certain
rights, that may affect the rights of the holders of Common Stock including:
o restrictions on the payment of dividends to the holders of the
common stock;
o dilution of voting power to the extent that the holder of the
preferred stock are given voting rights;
o dilution of the equity interests and voting powers if the preferred
stock is convertible into common stock; and
o restrictions upon any distribution of assets to the holders of the
common stock upon liquidation or dissolution and until the
satisfaction of any liquidation preference granted to the holders of
preferred stock.
Because of the broad powers granted to the Board of Directors to issue shares of
preferred stock and determine the rights, preferences and privileges of the
holders of such series, the Board of Directors has the power to issue shares of
preferred stock in a manner which could be used as a defensive measure against a
hostile takeover or to keep the Board of Directors in power. However, the Board
of Directors has no present plans to issue shares for such purpose.
Upon the filing of the amendment we will be authorized to issue 50,000,000
shares of common stock of which approximately 9,605,399 shares will be issued
and outstanding after the closing of the merger with Jade, including the
conversion of the Notes issued in the private placement and any issuances in
connection with stock grants pursuant to our equity incentive plan discussed
below. The issuance of additional shares of common stock will dilute
shareholders equity interests and voting power in the company. Our Board of
Directors believes it will benefit the shareholders to have additional
unreserved shares available for issuance in order that adequate shares may be
available for the possible financing of our business or an acquisition. Except
as discussed herein, we have no plans, arrangements, understanding or
commitments to issue any additional shares of preferred or common stock.
APPROVAL REQUIRED
The approval of a majority of the outstanding stock entitled to vote will be
necessary to approve the proposed amendment. As discussed above, holders of our
common stock and holders of our Series A Preferred Stock who combined hold
approximately 66% of the votes of our voting securities have consented to this
amendment. They have executed a written consent voting those shares in favor of
the proposed amendment. Our sole director of does not intend to solicit any
proxies or consents from any other shareholders in connection with this action.
APPROVAL OF THE COMPANY'S
2003 EQUITY INCENTIVE PLAN
Our sole director adopted the 2003 Equity Incentive Plan. Holders of our common
stock and holders of our Series A Preferred Stock holding approximately 66% of
the votes of the outstanding voting securities have consented to the plan. The
plan designates the Board of Directors the authority to grant or award to
eligible participants of the company and its subsidiaries and affiliates, until
November 17, 2013, stock options, stock appreciation rights, restricted stock
performance stock awards and bonus stock awards for up to 3,000,000 shares of
our post-reverse split common stock. It is difficult to estimate the number of
persons eligible to participate in the plan. We are a development stage company
and we anticipate that we will need to hire additional personnel and hire
consultants as our business expands. We estimate that the number of eligible
persons will not exceed twenty over the next twelve months. On November 17,
2003, the Board of Directors awarded 500,000 post-split shares of bonus stock
for future services to the following individuals effective upon the closing of
the merger with Jade and the effectiveness of the reverse split. A complete copy
of the plan is attached hereto as Appendix B.
14
Steven A. Horowitz 40,000
Arnold P. Kling 60,000
Kirk M. Warshaw 15,000
Andrew J. Schenker 50,000
Mark Scharbo 55,000
John R. D'Angelo 35,000
Herbert Sommer 25,000
Joel Schneider 25,000
John Moran 35,000
Raymond Barton 35,000
Timothy Schmidt 35,000
Epifanio Almodovar 35,000
Ramona Lanner 10,000
Michael Krome 5,000
Alan Cohen 20,000
Adam Laufer 20,000
------
TOTAL 500,000
-------
The following is a general description of certain features of the equity plan:
1. Eligibility. Officers, other key employees and consultants of Dominix, its
subsidiaries and its affiliates who are responsible for the management, growth
and profitability of the business of Dominix, its subsidiaries and its
affiliates are eligible to be granted stock options, stock appreciation rights,
and restricted or deferred stock awards under the equity plan. Directors are
eligible to receive stock options.
2. Administration. The equity plan is administered by our Board of Directors.
The Board of Directors has full power to select, from among the persons eligible
for awards, the individuals to whom awards will be granted, to make any
combination of awards to any participants and to determine the specific terms of
each grant, subject to the provisions of the equity plan.
3. Stock Options. The equity plan permits the granting of non-transferable
stock options that are intended to qualify as incentive stock options under
section 422 of the Internal Revenue Code of 1986 and stock options that do not
qualify. The option exercise price for incentive stock options covered by an
option shall be determined by the Board of Directors, but shall not be less than
100% of the fair market value of a share on the date of grant. The exercise
price at which non-qualified options may be granted shall be determined by the
Board of Directors, but in no event lower than the par value of our common
stock. The term of each option will be fixed by the Board of Directors, but may
not exceed 10 years from the date of the grant in the case of an incentive stock
option or 10 years and two days from the date of the grant in the case of a
non-qualified stock option. In the case of 10% stockholders, no incentive stock
option shall be exercisable after the expiration of five (5) years from the date
the option is granted.
4. Stock Appreciation Rights. Non-transferable stock appreciation rights may
be granted in conjunction with options, entitling the holder upon exercise to
receive an amount in any combination of cash or unrestricted common stock (as
determined by the Board of Directors), not greater in value than the increase
since the date of grant in the value of the shares covered by such right. Each
stock appreciation rights will terminate upon the termination of the related
option.
5. Restricted Stock. Restricted shares of common stock may be awarded by the
Board of Directors subject to such conditions and restrictions as they may
determine. The Board of Directors shall also determine whether a recipient of
restricted shares will pay a purchase price per share or will receive such
restricted shares without, any payment in cash or property. No restricted stock
award may provide for restrictions beyond ten (10) years from the date of grant.
6. Performance Stock. Performance shares of common stock may be awarded
without any payment for such shares by the Board of Directors if specified
performance goals established by the Board are satisfied. The designation of an
employee eligible for a specific performance stock award shall be made by the
Board in writing prior to the beginning of the period for which the performance
is based. The Board shall establish the maximum number of shares to stock to be
issued to a designated employee if the performance goal or goals are met. The
Board reserves the right to make downward adjustments in the maximum amount of
15
an award if, in its discretion unforeseen events make such adjustment
appropriate. The Board must certify in writing that a performance goal has been
attained prior to issuance of any certificate for a performance stock award to
any employee.
7. Bonus Stock. The Board of Directors may award shares of common stock to
eligible persons, without any payment for such shares and without any specified
performance goals. The employees eligible for bonus stock awards are our senior
officers and consultants and such other employees designated by the Board.
8. Transfer Restrictions. Grants under the plan are not transferable except,
in the event of death, by will or by the laws of descent and distribution.
9. Termination of Benefits. In certain circumstances such as death,
disability, and termination without cause, beneficiaries in the plan may
exercise options, stock appreciation rights and receive the benefits of
restricted stock grants following their termination or their employment or
tenure as a Director as the case may be.
10. Change of Control. The plan provides that (a) in the event of a "Change of
Control," as defined in the plan, unless otherwise determined by the Board of
Directors prior to such Change of Control, or (b) to the extent expressly
provided by the Board of Directors at or after the time of grant, in the event
of a "Potential Change of Control," as defined in the plan,
o all stock options and related SAR's (to the extent outstanding for
at least six months) will become immediately exercisable;
o the restrictions and deferral limitations applicable to outstanding
restricted stock awards and deferred stock awards will lapse and the
shares in question will be fully vested; and
o the value of such options and awards, to the extent determined by
the Board of Directors, will be cashed out on the basis of the
highest price paid (or offered) during the preceding 60-day period,
as determined by the Board of Directors.
The Change of Control and Potential Change of Control provisions may serve as a
disincentive or impediment to a prospective acquirer of Dominix and, therefore,
may adversely affect the market price of our common stock.
11. Amendment of the Plan. The plan may be amended from time to time by
majority vote of the Board of Directors provided as such amendment may affect
outstanding options without the consent of an option holder nor may the plan be
amended to increase the number of shares of common stock subject to the plan
without stockholder approval.
INFORMATION CONCERNING THE PLAN AND OTHER COMPANY EQUITY COMPENSATION PLANS
The following table sets forth information concerning the number of post-reverse
split securities which may be issued under all of our equity compensation plans
existing as of December 31, 2003:
16
- -------------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plan Information
- -------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
Number of securities
remaining available for future
Number of securities to Weighted-average issuance under equity
be issued upon exercise exercise price of compensation plans
of outstanding options, outstanding options, (excluding securities reflected
Plan Category warrants and rights warrants and rights in column (a))
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
Equity compensation plans approved
by shareholders -0- N/A 2,500,000
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
Equity compensation plans not
approved by shareholders -0- N/A -0-
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
TOTAL -0- N/A 2,500,000
- -------------------------------------- --------------------------- ---------------------- -------------------------------------
Shareholders should note that certain disadvantages may result from the adoption
of the equity incentive plan. Pursuant to the equity incentive plan we are
reserving the right to issue up to 3,000,000 shares of our post-reverse split
common stock and we have already awarded 500,000 shares of bonus stock for
future services under the equity incentive plan. Future issuances may be made at
prices below the then current market price of our common stock or at the time or
exercise the exercise price may be below current market prices of our common
stock. Accordingly, the sale of these shares may adversely affect the market
price of our common stock. The issuance of shares upon the exercise of stock
options may also result in substantial dilution to the interests of other
stockholders. Additionally, the issuance of shares under the equity incentive
plan will result in the reduction of shareholder's interest with respect to
earnings per share, voting, liquidation and book value per share.
APPROVAL OF THE JADE MERGER
Our sole director has approved the merger with Jade, a development stage
company. There is no requirement that the merger with Jade be approved by our
stockholders, however, both the reverse split and the amendment of our
Certificate of Incorporation are conditions of the above mentioned transactions.
INFORMATION ABOUT THE MERGER AND PRIVATE OFFERING
BACKGROUND
We became a shell corporation as a result of the sale of our sole operating
business, ICON in April 2002. During the period from April 2002 through
September 2003 we explored other opportunities. On April 8, 2003 we entered into
a letter of intent to acquire Dalian Xindian Chitin Co., a Republic of China
company engaged in the business of developing and manufacturing products derived
from the natural resource chitin for a variety of industries. We encountered
difficulties during the due diligence process due to communication problems and
our inability to complete a thorough due diligence investigation of this foreign
company. Management realized that the acquisition of a Chinese entity would not
be in our best interest and we let the letter of intent terminate by its terms
on May 31, 2003.
We see the adult entertainment industry as an industry with a large potential
for growth. To that end, on July 22, 2003, we entered into a letter of intent
with Jade and Blu-TV, Inc., a New York corporation ("Blu") involved in the
distribution of adult content through cable and pay per view channels. We
initiated contact with both Blu-TV and Jade. On September 10, 2003, we received
a letter from Blu terminating the letter of intent with respect to their
participation. Our sole director Andrew Schenker determined to go forward with
the proposed acquisition of Jade and on September 22, 2003, we executed an
amended letter of intent with Jade which was subsequently further amended on
September 26, 2003 to include the acquisition of the business and operations of
MarketShare Recovery, Inc., a New York corporation ("MarketShare"). Mr.
Schenker, together with a principal shareholder Steven A. Horowitz participated
in the material negotiations with management of Jade regarding the Jade
acquisition and private offering. Neither company engaged any third parties in
connection with the merger. On March 30, 2004, we entered into a termination
17
agreement with MarketShare Recovery Inc., canceling our proposed acquisition of
MarketShare and simultaneously Jade entered into a database license agreement
with MarketShare. This result we believe enables our shareholders to receive the
benefit from utilizing MarketShare's proprietary database which was one of the
primary considerations in the transaction with MarketShare, without having to
acquire MarketShare which would have caused our shareholders additional dilution
to their ownership interest. MarketShare and Jade are related parties in that
they have the same management. Dominix is not a party to the database agreement.
During the year ended December 31, 2003, Jade made cash advances to MarketShare.
As of December 31, 2003, MarketShare was indebted to Jade in the amount of
$46,000. These advances were unsecured and no interest was accrued. On March 30,
2004 Jade forgave repayment of the $46,000 as consideration for the database
agreement.
Jade has a month-to-month marketing agreement with MarketShare that called for
payment to MarketShare of $5,000 per month, which terminated during 2002. Jade
paid approximately $26,000 during 2002 relating to this agreement.
Jade also had a month-to-month sub-lease agreement with MarketShare that
provided for the use of office space, office equipment, telephone, internet
access and other amenities as needed. The amount of monthly rent was not to
exceed $1,800 per month. This agreement terminated during 2002. Jade paid
approximately $9,000 during 2002 relating to this sub-lease agreement.
JADE MERGER
We acquired Jade in a merger by issuing 82,167 shares of our newly created
Series B Preferred Stock and 85,000,000 shares of common stock to the
stockholders of Jade and merging Jade into our wholly-owned subsidiary. The
85,000,000 shares of common stock and the 82,167 shares of Series B Preferred
Stock, which convert into common stock, together will represent approximately
50% of the shares of common stock outstanding as of the effective date of the
reverse split before the conversion of notes issued in the private offering and
before the issuance of 500,000 shares under our 2003 Equity Plan. After the
issuance of the shares to the private placement investors and to the grantees
under our equity incentive plan, the Jade shareholders will own approximately
45% of our issued and outstanding common stock. There are no federal or state
regulatory requirements that must be complied with, nor are there any regulatory
approvals required to consummate this transaction. The basis of the exchange of
our Series B Preferred Stock and common stock for Jade's common stock was the
result of arm's-length negotiations between us and Jade. There were no specific
methods used to value either our common stock or Series B Preferred Stock or the
common stock of Jade.
EMPLOYMENT AGREEMENTS
As a condition to the merger with Jade, each of Messrs. Raymond Barton, Timothy
Schmidt and Alan Cohen entered into employment agreements with Dominix. The
following discussions summarize the material terms of their respective
employment agreements.
Mr. Barton's agreement is for an initial period of three years, ending on
December 8, 2006. The agreement is automatically extended for up to two
additional twelve month terms unless either party gives the other 60 days prior
notice that it elects not to extend the agreement. Under the Agreement, Mr.
Barton receives a base salary of $100,000 per year. In addition to his base
salary, Mr. Barton is entitled to a quarterly bonus of 2% of the company's
revenues, to a maximum of $20,000 per quarter. Mr. Barton is also entitled to
participate in any management bonus plan and entitled to such benefits, health
insurance and vacations which are to be provided to other senior executives of
the company. As part of the agreement, Mr. Barton has agreed to not disclose
material information of the company, agreed not to compete with us, not to
solicit our employees and to protect our confidential information.
Mr. Schmidt's agreement is for an initial period of three years, ending on
December 8, 2006. The agreement is automatically extended for up to two
additional twelve month terms unless either party gives the other 60 days prior
notice that it elects not to extend the agreement. Under the agreement, Mr.
Schmidt receives a base salary of $100,000 per year. In addition to his base
salary, Mr. Schmidt is entitled to a quarterly bonus of 2% of the Company's
revenues to a maximum of $20,000 per quarter. Mr. Schmidt is also entitled to
participate in any management bonus plan and entitled to such benefits, health
insurance and vacations which are to be provided to other senior executives of
18
the company. As part of the agreement, Mr. Schmidt has agreed to not disclose
material information of the company, agreed not to compete with us, not to
solicit our employees and to protect our confidential information.
Mr. Cohen's agreement is for an initial period of two years, ending on December
8, 2005. The agreement is automatically extended for up to two additional twelve
month terms unless either party gives the other 30 days prior notice that elects
not to extend the agreement. Under the agreement, Mr. Cohen receives a base
salary of $70,000 per year. In addition, upon signing the company agreed to
issue Mr. Cohen 100,000 post-split shares, subject to the following vesting
schedule:
o 40,000 shares vesting upon the effectiveness of the reverse split;
and
o 20,000 shares each shall vest respectively upon Mr. Cohen staying
employed by us for twelve months, eighteen months and twenty-four
months.
Mr. Cohen's bonus, if any, will be determined by the board of directors. Mr.
Cohen is entitled to participate in any management bonus plan and entitled to
such benefits, health insurance and vacations which are to be provided to the
other senior executives of the company. As part of the agreement, Mr. Cohen has
agreed to not disclose material information of the company, agreed not to
compete with us, not to solicit our employees and to protect our confidential
information.
Aside from the employment agreements, the shares of stock obtained upon the
merger and the shares to be issued under the equity incentive plan, the officers
and directors of Jade have no other interest in the merger.
Mr. Schenker received registration rights from Dominix relative to the 100,000
shares of common stock underlying his Series A Preferred Stock.
PRIVATE OFFERING
On December 1, 2003 we completed a private offering of our 7% convertible notes
in the aggregate principal amount of $575,000. We received net proceeds of
$522,500. The principal and accrued interest of the notes are convertible into
units of our securities, whereby for each $1.00 converted the investor will
receive one (1) share of post-split common stock and one-half of a warrant to
purchase our common stock for a two-year period at an exercise price of $1.75
per share. The notes may be redeemed by us, in whole or in part, on a pro-rata
basis, upon not less than ten (10) days nor more than twenty (20) days notice
for 120% of the principal amount. By their terms, the notes were to
automatically convert into the above described units, however, the issuance of
the units cannot occur until after we reverse split our common stock.
Adelphia Capital, LLC acted as placement agent for the private offering.
Adelphia received a gross cash commission of $52,500 for its services in
connection with this offering, a portion of which was paid to a sub-placement
agent CGF Securities, LLC. In addition, we issued to CGF Securities LLC as a
selling agent commission 10,000 warrants to purchase our post-split common stock
at an exercise price of $1.00 per share, exercisable for five years and 5,000
warrants to purchase our post-reverse split common stock at $1.75 per share.
These warrants are exercisable for three years from the date of issuance.
The private offering was made to the following six unaffiliated accredited
investors. There were no other offers made to any other potential investors.
Capital Growth Equity Fund I, LLC $100,000
Nicholas Romano $100,000
Lawrence Wiener $200,000
Andrew Sirlin $ 25,000
Edward W. Gordon $ 50,000
Fenway Advisory Group Pension
& Profit Sharing Plan $100,000
-------
Total $575,000
Our sole director authorized the issuance of these securities because, as a
condition to the merger with Jade, we agreed to fund Jade with a minimum of
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$500,000. We used the majority of the net proceeds to fund the operations of
Jade. The funds were necessary for Jade to operate and grow its business. Jade
in turn funded MarketShare Recovery, Inc., in the amount of approximately
$46,000, an entity which has similar management to Jade. Because we no longer
are acquiring MarketShare, we have agreed with MarketShare that these funds
represent our payment to MarketShare in connection with a database license
agreement entered into between Jade and MarketShare on March 30, 2004. This
agreement entitles Jade to license proprietary software of MarketShare necessary
for Jade to operate its website.
INFORMATION ABOUT JADE
Jade Entertainment Group, Inc. was incorporated on July 5, 2001 under the laws
of the State of New York and is a development stage business. It's principal
executive office is located at 95 Broadhollow Road, Suite 101, Melville, New
York 11747. It's telephone number is (631) 385-0007. Jade since inception has
been developing its technology, marketing its website to potential advertisers
and building consumer awareness of Jade's website and services.
Jade operates AskJade.com a specialty search engine for the adult entertainment
industry. Its search engine allows Internet users to enter a word, phrase or
plain English query describing what they want to locate on the Internet. Jade's
search engine then displays a selection of web sites related to that query.
Advertisers can determine exactly where on the results page their web site link
will appear for any given query.
Jade's plan of operations for the next twelve months is to become a leading
internet portal for adult oriented content and to benefit from additional
advertising and sponsorship opportunities and expanded e-commerce offerings.
Jade seeks to recruit advertisers to utilize its services primarily through
direct sales efforts. Jade targets adult entertainment e-commerce businesses and
advertisers who it locates through online and off-line research An introduction
to its service is made directly to the potential advertiser, utilizing e-mail.
Jade recognizes its website revenue based on the affiliate/referral program. An
affiliate/referral program is revenue sharing agreements, which are set up by
companies selling products and services. As a website and search engine owner,
Jade places third-party companies' advertisement banners on its website. When a
consumer clicks on an affiliate company's banner or hyperlink located on Jade's
website, they are sent to that affiliate company's website. When the customer
pays via credit card they have the ability to purchase products and services.
Only when products are purchased or services are provided is when revenue is
recognized. The revenue is then transmitted to a third party processing center
who in turn distributes the payment in accordance with the agreement between
Jade and its affiliate. The percentage of the purchase price we receive varies
from customer to customer and ranges from 5% to 10% of the purchase price of the
goods or services sold. Our services are designed to connect consumers who are
most likely to purchase specific goods and services to businesses that provide
those goods and services.
Search is a large and growing market. In the United States alone, hundreds of
millions of searches each day are conducted on the Internet. Jade believes a
substantial portion of these searches are commercial in nature. Commercial
search queries, we believe, are best served by paid search, which Jade defines,
generally, as targeted advertising paid pr lead. It believes that paid search is
one of the fastest growing segment of Internet search. In its view, improvements
in the quality, relevance, breadth and depth of paid listings will likely drive
growth of paid introductions on commercial inquiries.
In addition, Jade also believes that the price per paid introduction that
advertisers pay will continue to grow. Relative to alternatives, a lead on
AskJade.com at an average price of $.03 is less expensive, yet more targeted and
measurable than other direct sales methods.
Jade believes that paid search is a relatively untapped market for many
advertisers. Pay-For-Performance search has only been introduced recently and we
believe that there are many large advertisers that still have not contributed
portions of their marketing budget to Internet advertising and more specifically
paid search, but will as the Internet becomes a more acceptable medium for
advertising goods and services.
Jade also believes that its business will continue to experience growth outside
of the United States as Internet usage and e-commerce development continue to
grow in other countries.
Jade's objective is to expand advertiser participation and increase business and
consumer transactions through our AskJade.com search engine. Jade believes that
if it builds a solid foundation of active bidders and users, it will stimulate
growth which should increase the efficiency of its service. A large and active
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base of advertisers will enable it to generate more relevant search results for
consumers, which in turn should increase the number of consumers utilizing its
services.
Jade seeks to attract advertisers who want to drive highly targeted leads to
their Web sites. Advertisers utilize Jades self-service tools to open and manage
accounts online through our automated Web-based account management tool that
offers several tracking, bid management and measurement features. By automating
the sales and maintenance of many of its advertiser accounts, Jade gives
businesses greater control over the advertising process, while leveraging the
scalable nature of its business.
Potential advertisers find AskJade.com directly, through third-party referral
programs, through our direct sales efforts and through a variety of direct
marketing activities.
Jade makes its services available to consumers and businesses, affiliates and
advertisers through a combination of its own proprietary technology and
commercially available technology from industry providers. Jade also relies upon
third parties to provide hosting services, including hardware support and
service and network coordination.
Any disruption in Internet access or other services provided by third parties
could have a material adverse effect on our business. Jade is undertaking
initiatives to develop and implement business continuity, improve data
retention, create backup and recovery processes and systems and standardize
technology platforms.
Jade seeks to protect its copyrights, service marks, trademarks and trade
secrets through a combination of laws and contractual restrictions. For example,
we attempt to register our trademarks and service marks in the United States and
other countries throughout the world. However, effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our services are made available online.
DISTRIBUTION
Jade employs a broad based affiliate program which drives traffic to the
AskJade.com site and also functions as an online branding program, by placing
the AskJade.com logo on numerous sites around the web. Any website owner can
become an affiliate simply by placing a uniquely generated computer generated
tag on their website which forwards the user to the AskJade.com website. We
currently have 50 affiliates in our affiliate program that have signed up
through our website. These affiliates generate revenue either on a per search
basis or through revenue sharing on paid click-throughs. Furthermore Jade plans
to establish other affiliate programs to link our advertisers to consumers who
may not otherwise use the AskJade.com search engine. We also plan to develop
affiliate relationships with other heavily trafficked sites, browsers, community
portals and Internet service providers. Central to our Internet- based marketing
is an additional affiliate program that allows other web sites to place the
AskJade.com search interface on their web pages in the form of small boxes or
banners.
Jade plans to utilize traditional media strategies to generate unique users for
the AskJade.com search engine. To build brand awareness with consumers and drive
traffic to the AskJade.com web site, we use off-line media including:
o public relations;
o telemarketing;
o radio; and
o outdoor advertising in key markets.
Jade has also recently acquired an adult foreign film library with over fifty
titles. In February 2004, Jade entered into a distribution agreement with a
third party distributor to sell this content in a DVD format through both the
wholesale and retail channels and recently commenced shipping its first title
from such film library. Jade believes the expansion of its business into content
ownership of specialized adult film content offers a complementary revenue
stream for its on-line adult search engine business.
COMPETITION
Jade faces competition in three principal areas:
21
o distribution of its services;
o demand for its services on its affiliates Web sites; and
o usage of its services by advertisers.
It competes with companies that provide both mainstream and specialty adult
oriented affiliate/referral advertising services that are similar to Jades. In
addition, we cannot assure you that another search service will not successfully
offer a competitive affiliate/referral advertising service. We believe it is
likely that there will be additional entrants to the affiliate/referral search
market. These competitors will compete against Jade for affiliate arrangements.
This competition could cause Jade to enter into affiliate agreements with less
favorable terms or lose affiliates or potential affiliates. This could reduce
our number of paid introductions, increase the amount of revenue shared with
affiliates, and reduce total revenues and thereby have a material adverse effect
on our business, operating results and financial condition.
Our affiliates face competition for user traffic within the search marketplace,
which affects the number of paid introductions on our service. If the users of
these affiliates prefer the services offered by the affiliates competitors with
whom we do not have a relationship, the businesses of our affiliates may suffer.
This may in turn have a material adverse effect on our business, operating
results and financial condition. In addition, many of our affiliates compete
with one other, and this may make it difficult for us to develop some affiliate
relationships.
We also compete with providers of pay-per-click search services and other search
services, Internet service providers, other Web sites and advertising networks
such as DoubleClick, Inc. and 24/7 Media, Inc., as well as traditional offline
media such as television, radio and print and direct marketing companies, for a
share of advertisers total advertising budgets. Accordingly, Jade may face
increased pricing pressure for the sale of advertisements and direct marketing
opportunities. We may also face a decrease in demand for the Askjade.com
service. This could have a material adverse effect on our business, operating
results and financial condition.
Many of our competitors, as well as potential entrants into our market, have
longer operating histories, larger customer or user bases, greater brand
recognition and greater financial, marketing and other resources than we do.
Many current and potential competitors can devote substantially greater
resources to promotion, Web site and systems development than we can. In
addition, as the use of the Internet and other online services increases,
larger, well-established and well-financed entities may continue to acquire,
invest in or form joint ventures with providers of Web directories, search and
information services or advertising solutions. Existing providers of Web
directories, search and information services or advertising solutions may
continue to consolidate.
ANTICIPATED ACCOUNTING TREATMENT
This transaction has been accounted for as a reverse merger with Jade as the
acquirer of Dominix. The reverse merger was accounted for as a recapitalization
and the stockholders' equity was retroactively restated to the inception of
Jade, July 5, 2001.
FEDERAL TAX CONSEQUENCES
We were not required to provide for a provision for income taxes for the years
ended December 31, 2003 and 2002, as a result of net operating losses during
those periods. As of December 31, 2003, we have available approximately
$3,032,000 of net operating losses, plus a capital loss of approximately
$3,013,000 available for income tax purposes that may be carried forward to
offset future taxable income, if any. These carryforwards expire in various
years through 2023. At December 31, 2003, we had a deferred tax asset of
approximately $2,418,000 representing the benefits of its net operating loss and
capital loss carryforwards. Our deferred tax asset has been fully reserved by a
valuation allowance since realization of its benefit is uncertain. Due to a
change in ownership the net operating loss carryforwards ("NOL's") may be
limited pursuant to section 382 of the Internal Revenue Code of 1986. NOL's may
also be limited due to the introduction of new members into the consolidated
group. Generally the NOL's of the existing group may not offset income generated
by new members unless both the loss and income are recognized in the same tax
year.
22
GOVERNMENT REGULATION AND INDUSTRY STANDARDS
There are an increasing number of laws and regulations in the United States and
abroad pertaining to communications and commerce on the Internet. In addition, a
number of legislative and regulatory proposals are under consideration by
federal, state, local and foreign governments. Laws or regulations may be
adopted with respect to the Internet relating to liability for information
retrieved from or transmitted over the Internet, user privacy, taxation and the
quality of products and services. Moreover, the application to the Internet of
existing laws governing issues such as intellectual property ownership and
infringement, pornography, obscenity, libel, gaming, employment and personal
privacy is uncertain and developing. Any such legislation or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet in general, prevent us from delivering our content in
different parts of the world and increase Jade's costs of selling products or
otherwise operating our business.
Several federal, state and foreign statutes prohibit the transmission of
indecent, pornographic, obscene or offensive content over the Internet to
particular groups or persons. The extent to which these laws apply to us is
limited due to the fact that we do not own or display photographic/pictorial
content, other than advertising banners that appear on our site, though we have
acquired a foreign adult film library. We will use discretion in determining
what graphical advertisements will be allowed on our website and what type of
adult film content we will acquire in order to avoid legal scrutiny. Furthermore
we have taken measures, principally the consent form/disclaimer at the entry
page to Jade's website to discourage and put users on notice of the adult
oriented content of Jade's website in an effort to re-direct users who may be
sensitive to certain sexual depictions which may be viewed on our website. In
addition some private legal actions have been brought or threatened against
libraries and various public facilities that offer unfiltered Internet access.
If these statutes are deemed to apply to us and our activities, if new laws or
regulations are adopted which are found to apply to Jade's activities, or if
caselaw establishes broad limitations on distribution, we may be limited in the
types of content and advertisements we make available on our Web sites. In such
case we would be compelled to moderate the nature of the contents of the
advertising we permit on the site, which may result in a decrease in traffic; if
users decide that we are no longer able to serve their personal preferences with
respect to the sexual nature of the content and the facility with which they
will be able to locate those websites which makes that content available. In
addition, some foreign countries, such as Singapore and China, entirely restrict
access to our Web sites throughout their countries. If other countries decide to
adopt similar policies, our business and financial results may be harmed.
Furthermore, legislation regulating online content could limit the growth in use
of the Internet generally and decrease the acceptance of the Internet as an
advertising and e-commerce medium.
Web sites typically place identifying data, or cookies, on a user's hard drive
without the user's knowledge or consent. Our company and many other Internet
companies use cookies for a variety of different reasons, including the
collection of data derived from the user's Internet activity. Any reduction or
limitation in the use of cookies could limit the effectiveness of our sales and
marketing efforts. Most currently available Web browsers allow users to remove
cookies at any time or to prevent cookies from being stored on their hard drive.
Some privacy advocates and governmental bodies have suggested limiting or
eliminating the use of cookies. In addition, the European Union and many
countries within the EU have adopted privacy directives or laws that strictly
regulate the collection and use of information regarding Internet users that is
identifiable to particular individuals. Privacy legislation has been proposed in
the U.S. as well, and the U.S. Federal Trade Commission has taken action against
Web site operators that do not comply with state privacy policies. These and
other governmental efforts may limit our ability to target advertising or
collect and use information regarding the use of our Web sites. Fears relating
to a lack of privacy could also result in a reduction in the number of our users
and subscribers which could harm our business and financial results.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On December 5, 2003, the Company acquired Jade by way of merger through the
Company's newly formed wholly-owned subsidiary, Jade Acquisition Corp., by
issuing 82,167 shares of its Series B Convertible Preferred Stock and 85,000,000
shares of its common stock to the stockholders of Jade.
Jade Entertainment Group, Inc. began operations in 2001 as a development stage
business. Jade, since its inception, has been developing its technology,
marketing its website to potential advertisers and building consumer awareness
of Jade's website and services. Jade's revenue to date has been from website
revenue through which Jade operates Askjade.com, a specialty search engine for
23
the adult entertainment industry. Its search engine allows internet users to
enter a word, phrase or plain English query describing what they want to locate
on the internet. As a website owner Jade is paid a commission and is rewarded
for sending customers to the companies website.
In December of 2003 Jade purchased fifty digitally mastered tapes containing
adult content. Each tape contains approximately two hours of raw footage which
Jade intends to convert into a DVD format. In April 2004 Jade plans to release
the first of fifty movies on DVD format which will be sold to distributors at
the wholesale level as well as stores at the retail level. Jade expects to
release between six to eight videos in 2004.
We expect an increase in revenue beginning in 2004 due to the expected sales of
the DVD's and from the new websites being created which will give the viewer an
opportunity to view scenes of the videos for a fee.
As a result of purchasing the video library we expect our selling, general, and
administrative expenses, and video production costs to increase in 2004 and 2005
as we hire new personnel (web designers) and start to put more videos into
production and get them ready for distribution. We therefore expect that our net
losses will increase in 2004 to be offset to a limited degree by revenue from
the sale of our videos and increased traffic to our website.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the related disclosures. A summary of those accounting
policies can be found in the footnotes to the consolidated financial statements
included elsewhere in this report. Certain of our accounting policies are
considered critical as they are both important to the portrayal of our financial
condition and results of operations and require judgments on the part of
management about matters that are uncertain. We have identified the following
accounting policies that are important to the presentation of our financial
condition and results of operations.
VIDEO LIBRARY
During 2003 we acquired fifty digitally mastered tapes containing adult content,
which we intend to convert into DVD format and other adult media entertainment.
These costs will be amortized proportionately with revenue recognition related
to the distribution of the products and licensing revenues. Management believes
that this method provides a reasonable matching of expenses with total estimated
revenues over the periods that revenues associated with films and programs are
expected to be realized. Film and program amortization will be adjusted
periodically to reflect changes in the estimates of amounts of related future
revenues. Film and program costs are stated at the lower of unamortized cost or
estimated net realizable value as determined on a specific identification basis.
No films were produced as of December 31, 2003.
REVENUE RECOGNITION
Revenue recognized by Jade through December 31, 2003 represents revenue from its
search engine. Jade receives a fee when its search engine is used to complete an
online purchase. The revenue is recognized upon completion of the transaction.
Revenue to be generated under the sale of its DVD's and other media
entertainment will be recognized upon shipment of the merchandise.
RESULTS OF OPERATIONS
The following table includes consolidated statements of operations data for the
years ended December 31, 2003 and 2002 expressed as dollar amounts and as a
percentage of revenues.
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Years Ended Years Ended
December 31, December 31,
2003 2002 2003 2002
---------------- ---------------
Revenues
Website Revenue $ 6,878 $ 12,595 100.00 100.00
---------- ---------- -------- --------
Total Revenue $ 6,878 $ 12,595 100.00 100.00
Cost of Revenue
Affiliate Costs 2,461 0 36.00 00.00
Website Hosting 1,873 9,335 27.00 74.00
---------- ---------- -------- --------
Total cost of revenues 4,334 9,335 63.00 74.00
Operating Expenses
Selling, general and administrative 127,883 108,521 1859.00 862.00
Depreciation 119 0 2.00 0.00
Stock Based Compensation 0 7,294 00.00 58.00
---------- ---------- -------- --------
Total operating expenses 128,002 115,815 1861.00 920.00
Operating Loss (125,458) (112,555)
Other Income (Expense)
Interest 55,497 0 (807.00) 00.00
Financing Costs 5,000 0 (73.00) 00.00
---------- ---------- -------- --------
Total other income (expense) 60,497 0 (880.00) 00.00
---------- ----------
Net Loss $(185,955) $(112,555)
The following discussion relates to the historical financial statements of Jade
an should be read in conjunction with the consolidated financial statements and
related notes and the pro forma balance sheet included elsewhere in this
information statement.
COMPARISON OF YEARS ENDED DECEMBER 31, 2003 AND 2002
REVENUES - Our total revenues were $6,878 for the year ended December 31, 2003 a
decrease of $5,717 or 45% from the corresponding period in 2002. All of our
revenue during the years ended December 31, 2003 and 2002 were derived from our
website. We believe revenues generated by Jade's website will increase in 2004
due to the increased volume of adult content, which a subscriber can pay for
which shows scenes from Jade's upcoming video releases. The decrease in website
revenue was the result of increased internet competition, lack of new adult
content on Jade's website, and a decrease in spending on marketing and
advertising campaigns.
COST OF REVENUES - Our cost of revenues were $4,334 for the year ended December
31, 2003, a decrease of $5,001 or 54% from the corresponding period of 2002. The
decrease was due to less affiliate payouts as a result of decreasing website
traffic flow to the affiliate websites.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses were $127,883 for the year ended December 31, 2003, an increase of
$19,362 or 17.8% over the corresponding period in 2002. The increase in selling,
general and administrative expenses resulted primarily from increased salaries
for employees hired in the fourth quarter 2003.
NET LOSS - Our net loss was $185,955 for the year ended December 31, 2003, an
increase of $73,400 over the corresponding period in 2002. The increase in net
loss was in part the result of interest and financing costs relating to
shareholders of Dominix who held convertible debentures that in turn decided not
to convert their notes into common stock and decided to hold the notes,
therefore accruing interest. In addition a full time receptionist, and computer
administrator were hired in the fourth quarter of 2003.
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COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 2001
REVENUES - Our revenues were $12,595 for the year ended December 31,2002 an
increase of $12,060 or 2,354% from the corresponding period in 2001. All of our
revenue during the year derived from our website as well as traffic to our
affiliate's websites in which we earn a fee every time an individual uses our
askjade.com search engine and purchases a product or service from our affiliate.
COST OF REVENUES - Our cost of revenue was $9,335 for the year ended December
31,2002, an increase of $9,335 or 100% from the corresponding period of 2001.
The increase was due to the fact that in 2001 Jade did not have a hosting
facility in place to run its website. In 2002 Jade had a website host and
subsequently started to incur costs.
SELLING GENERAL AND ADMINISTRATIVE - Selling, general and administrative
expenses were $108,521 for the year ended December 31, 2002, an increase of
$59,832 or 110% over the corresponding period in 2001. The increase in selling,
general, and administrative expenses resulted from increased costs associated
with marketing and promoting the company as well as office costs needed to meet
the company's everyday demands such as rent, payroll, office expenses etc.
NET LOSS - Our net loss was $112,555 for the year ended December 31,2002 an
increase of $57,107 over the corresponding period in 2001. The increase in net
loss was due to the costs associated with the promoting, marketing,
implementing, as well as everyday business expenses needed to make a company
grow.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, our cash and cash equivalents totaled $314,875, as
compared with $2,240 at December 31, 2002. This increase in cash was primarily
due to $500,000 received in the private placement from sales to private
investors net of placement fees in the fourth quarter of 2003. Dominix granted
two year warrants to purchase a total of 287,500 post-split shares of its common
stock at an exercise price of $1.75 per share. These warrants were issued in
connection with the placement of $575,000, 7% convertible notes.
Net cash used in operating activities was $132,997 for the year ended December
31, 2003 compared to $104,318 for the year ended December 31, 2002. The increase
in the net cash used in operating activities was principally due to the purchase
of the video library in the amount of $50,000 which was offset by the
amortization of deferred financing costs and debt discount totaling $54,900 as
well as an increase in accrued liabilities in the amount of $50,986.
In 2003 Jade purchased various components of computer equipment totaling $6,845.
The additional computers were purchased to accommodate the hiring of computer
graphic designers whose contributions should facilitate an increase in traffic
flow to Jade's website and should increase our revenue as a result of the
increased traffic and awareness.
Net cash provided in investing activities was $489,699 for the year ended
December 31, 2003 compared to net cash provided in investing activities of $0
for the year ended December 31, 2002. The net cash provided was a result of
funding from investors who received 7% convertible notes which are convertible
into units of securities, net of the purchase of computer equipment.
Net cash used from financing activities was $44,067 for the year ended December
31, 2003 as compared to net cash used in financing activities of $0 for the year
ended December 31, 2002. The major financing activities, which took place over
the two years, included the gross proceeds of $525,000 from the sale of our
convertible debentures which was advanced to Jade to be used as working capital.
In November 2003, Dominix completed the sale of 7% convertible debentures
resulting in gross proceeds of $575,000. The proceeds were allocated 64.05% or
$368,270 to the notes and 35.95% or $206,730 to the warrants. The amount
allocated to the warrants of $206,730 and the beneficial conversion in the
amount of $368,270 were both recorded as a deferred debt discount and are being
charged to interest expense over the term of the notes.
26
In connection with its private placement of the 7% convertible debentures
Dominix issued to the placement agents warrants to purchase a total of 3,000,000
pre-split shares of the Dominix's common stock valued at $23,000 and incurred
$60,000 of debt issuance costs associated with the offering. The $60,000 is
being recorded as deferred financing costs and is being charged to interest
expense over the term of the loan.
As of December 31, 2003 Dominix, Inc and subsidiaries had an increase in accrued
expenses and liabilities in the amount of $197,157. This increase is made up of
Interest expense, professional fees, and other miscellaneous expenses. From the
$197,157 Dominix, Inc actually paid $50,986 to its creditors in 2004 resulting
in an add back to cash flows from operating activities for the year ended
December 31,2003. The remaining difference in the amount of $146,171 is being
included in the recapitalization of Dominix and is disclosed in the supplemental
part of the statement of cash flows.
In view of our accumulated deficit and recurring losses, our auditors have added
an explanatory paragraph to their report on our financial statements stating
that there is substantial doubt about our ability to continue as a going
concern. In this regard management is adopting a plan for the development of our
video and website product lines as well as seeking additional capital through
the private sale of our debt or equity securities. There is no assurance that we
will complete any financing or that we will achieve profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We expect to fund development expenditures and incur losses until we are able to
generate sufficient income and cash flows to meet such expenditures and other
requirements. We do not currently have adequate cash reserves to continue to
cover such anticipated expenditures and cash requirements. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern.
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to income tax and marketing related agreements with our affiliates. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
FORWARD-LOOKING STATEMENTS; MARKET DATA
The discussion in this information statement contains forward-looking statements
that involve risks and uncertainties. The statements contained in this Report
that are not purely historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements regarding our
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ materially from
those described in our forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, our unproven
business model and a limited operating history in a new and rapidly evolving
industry; our ability to implement our business plan; and our ability to manage
our growth, retain and grow our customer base and expand our service offerings.
We make forward-looking statements in the "Management's Discussion and Analysis
of Financial Condition and, Results of Operations" above. These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions and other statements that
are not historical facts. We generally intend the, words "expect", "anticipate",
"intend", "plan", "believe", "seek", "estimate" and similar expressions to
identify forward-looking statements.
This information statement contains certain estimates and plans related to us
and the industry in which we operate, which assumes certain events, trends and
activities will occur and the projected information based on those assumptions.
We do not know that all of our assumptions are accurate. In particular, we do
not know what level of growth will exist in our industry, if any, and
27
particularly in the foreign markets in which we operate, have devoted resources
and in which we shall seek to expand. If our assumptions are wrong about any
events, trends and activities, then our estimates for future growth for our
business may also be wrong. There can be assurances that any of our estimates as
to our business growth will be achieved.
HISTORICAL FINANCIAL INFORMATION
The Historical Financial Statements required by item 310(c) of Regulation S-B
pertaining to Jade for the last two fiscal years are part of our consolidated
financial statements and are included in this information statement.
PRO FORMA INFORMATION
The Pro Forma Financial Information required by Item 310(d) of Regulation S-B
showing the effect on the Dominix and Jade of the merger with Jade are part of
this information statement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. The Registration Statement and such reports and
other information may be inspected without charge at the Public Reference Room
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Office located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549, at prescribed rates. Information on the operation
of the Public Reference Room is available by calling the Commission at
1-800-SEC-0330. In addition, the Commission maintains an Internet site where the
Registration Statement and other information filed with the Commission may be
retrieved, and the address of such site is http://www.sec.gov. Statements made
in this information statement concerning the contents of any document referred
to herein are not necessarily complete.
Andrew J. Schenker, Sole Director
May 14, 2004
ATTACHMENTS:
Appendix A - Form of Amended and Restated Certificate of Incorporation
Appendix B - 2003 Equity Incentive Plan
28
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity (Deficiency) 4
Consolidated Statements of Cash Flows 5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-21
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Dominix, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Dominix, Inc. and
Subsidiaries a development-stage company (the "Company") as of December 31, 2003
and the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years ended December 31, 2003 and 2002 and
for the period from inception (July 5, 2001) through December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dominix, Inc. and
Subsidiaries at December 31, 2003 and the results of their operations and their
cash flows for the years ended December 31, 2003 and 2002 and for the period
from inception (July 5, 2001) through December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. For the years ended December
31, 2003 and 2002 and for the period from inception (July 5, 2001) through
December 31, 2003, the Company has incurred losses of approximately $186,000,
$113,000 and $354,000, respectively. In addition, the Company is in default on
several convertible notes payable. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Marcum & Kliegman LLP
New York, New York
March 12, 2004
1
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 2003
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 314,875
Prepaid expenses and other current assets 1,247
---------
Total Current Assets 316,122
PROPERTY AND EQUIPMENT, Net 6,726
OTHER ASSETS
Video library 50,000
Due from affiliate 45,567
Deferred financing costs, net 76,000
---------
TOTAL ASSETS $ 494,415
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Convertible debentures, net of deferred
debt discount of $527,100 $ 289,900
Accrued expenses and other current liabilities 197,157
Due to stockholders and affiliates 9,445
---------
TOTAL CURRENT LIABILITIES 496,502
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock - $.001 par value; 5,000,000 shares authorized
Series A Cumulative Convertible - 3,439,999 shares issued
and outstanding, liquidation preference of $258,000 3,440
Series B Convertible - 82,167 shares issued
and outstanding, liquidation preference of $6,163 82
Common stock - $0.001 par value; 200,000,000 shares
authorized; 197,140,105 shares issued and outstanding 197,140
Additional paid in capital 151,209
Deficit accumulated during development stage (353,958)
---------
TOTAL STOCKHOLDERS' DEFICIENCY (2,087)
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 494,415
=========
The accompanying notes are an integral part of these
consolidated financial statements.
2
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Cumulative Period
For the Years Ended July 5, 2001 to
December 31, December 31,
2003 2002 2003
-----------------------------------------------------
REVENUE $ 6,878 $ 12,595 $ 20,008
----------- ----------- -----------
COSTS AND EXPENSES
Cost of revenue 4,334 9,335 13,669
Compensatory element of stock transactions -- 7,294 8,694
Depreciation 119 -- 119
Selling and administrative expenses 127,883 108,521 290,987
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 132,336 125,150 313,469
----------- ----------- -----------
OPERATING LOSS (125,458) (112,555) (293,461)
----------- ----------- -----------
OTHER EXPENSES
Interest 55,497 -- 55,497
Financing costs 5,000 -- 5,000
----------- ----------- -----------
TOTAL OTHER EXPENSES 60,497 -- 60,497
=========== =========== ===========
NET LOSS $ (185,955) $ (112,555) $ (353,958)
=========== =========== ===========
Basic and Diluted Net Loss Per Share $0.00 $0.00
===== =====
Weighted Average Number of Common
Shares Outstanding - Basic and Diluted 92,988,062 66,647,469
=========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For The Years Ended December 31, 2003 And 2002 And
The Period From Inception (July 5, 2001) Through December 31, 2003
- --------------------------------------------------------------------------------
Preferred Stock Preferred Stock
Common Stock Series A Series B
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------
BALANCE - July 5, 2001 -- $ -- -- $ -- -- $ --
- -------
Stock issued for services 19,588,124 19,588 -- -- -- --
Sale of stock 46,854,793 46,855 -- -- 82,167 82
Net loss -- -- -- -- -- --
------------ ---------- ---------- -------- ------- -----
BALANCE - December 31, 2001 66,442,917 66,443 -- -- 82,167 82
- -------
Stock issued for services 16,642,030 16,642 -- -- -- --
Sale of stock 1,915,053 1,915 -- -- -- --
Net loss -- -- -- -- -- --
------------ ---------- ---------- -------- ------- -----
BALANCE - December 31, 2002 85,000,000 85,000 -- -- 82,167 82
Shares issued to stockholders of Dominix, Inc. 112,140,105 112,140 3,439,999 3,440 -- --
Net Loss -- -- -- -- -- --
------------ ---------- ---------- -------- ------- -----
BALANCE - December 31, 2003 197,140,105 $ 197,140 3,439,999 $ 3,440 82,167 $ 82
============ ========== ========== ======== ======= =====
Accumulated
Deficit
Additional During
Paid-In Development
Capital Stage Total
---------------------------------------
BALANCE - July 5, 2001 $ -- $ -- $ --
- -------
Stock issued for services (18,188) -- 1,400
Sale of stock 51,163 -- 98,100
Net loss -- (55,448) (55,448)
--------- --------- ---------
BALANCE - December 31, 2001 32,975 (55,448) 44,052
- -------
Stock issued for services (9,348) -- 7,294
Sale of stock 59,734 -- 61,649
Net loss -- (112,555) (112,555)
--------- --------- ---------
BALANCE - December 31, 2002 83,361 (168,003) 440
Shares issued to stockholders of Dominix, Inc. 67,848 -- 183,428
Net Loss -- (185,955) (185,955)
--------- --------- ---------
BALANCE - December 31, 2003 $ 151,209 $(353,958) $ (2,087)
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
4
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Cumulative Period
For the Years Ended July 5, 2001 to
December 31, December 31,
2003 2002 2003
---------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (185,955) $(112,555) $ (353,958)
---------- --------- ----------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Amortization of deferred financing costs 7,000 -- 7,000
Amortization of deferred debt discount 47,900 -- 47,900
Depreciation 119 -- 119
Compensatory element of stock transactions -- 7,294 8,694
Changes in operating assets and liabilities:
Video library (50,000) -- (50,000)
Prepaid expenses and other current assets (1,247) -- (1,247)
Deferred revenue (1,800) 943 --
Accrued expenses and other current liabilities 50,986 -- 50,986
---------- --------- ----------
TOTAL ADJUSTMENTS 52,958 8,237 63,452
---------- --------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (132,997) (104,318) (290,506)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of computer equipment (6,845) -- (6,845)
Cash received in recapitalization 496,544 -- 496,544
---------- --------- ----------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 489,699 -- 489,699
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock -- 61,649 159,749
Advances to affiliate (44,067) -- (44,067)
---------- --------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES $ (44,067) $ 61,649 $ 115,682
---------- --------- ----------
The accompanying notes are an integral part of these
consolidated financial statements.
5
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
- --------------------------------------------------------------------------------
Cumulative Period
For the Years Ended July 5, 2001 to
December 31, December 31,
2003 2002 2003
---------------------------------------------------
NET INCREASE (DECREASE) IN CASH $ 312,635 $ (42,669) $ 314,875
CASH - Beginning 2,240 44,909 --
--------- --------- ---------
CASH - Ending $ 314,875 $ 2,240 $ 314,875
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the years
for:
Interest $ -- $ -- $ --
Taxes $ -- $ -- $ --
Non-cash investing and financing activities:
Cash received in recapitalization:
Deferred financing costs $ (83,000) $ -- $ (83,000)
Convertible debentures, net of deferred debt
discount of $575,000 242,000 -- 242,000
Accounts payable and accrued expenses 146,171 -- 146,171
Due to stockholder 3,921 -- 3,921
Due to affiliate 4,024 -- 4,024
--------- --------- ---------
313,116 -- 313,116
Equity - issuance of common stock 183,428 -- 183,428
--------- --------- ---------
Cash received from capitalization $ 496,544 $ -- $ 496,544
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
6
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - Business and Reverse Merger
On December 5, 2003, Dominix Inc., a publicly - traded company with no
active business listed on the electronic bulletin board, ("Dominix")
acquired 100% of Jade Entertainment Group, Inc. ("Jade"), a
privately-held New York Corporation. Jade and Dominix collectively are
referred to as "the Company". Jade is a development stage company engaged
in the business of operating various adult Internet web-site's including
a search engine for adult entertainment. Pursuant to the Merger, the
stockholders of Jade received 85,000,000 shares of Dominix's common stock
and 82,167 of Dominix's Series B preferred stock convertible into
781,140,000 shares of Dominix's common stock. After the issuance of
common stock pursuant to various pending conversions including: (i) notes
plus accrued interest into 64,000,000 shares of Dominix's common stock,
(ii) conversion of accounts payable and accrued interest into 2,000,000
shares of Dominix's common stock, (iii) conversion of series A Preferred
Stock into 687,999,800 shares of Dominix's common stock and (iv) the
conversion of series B Preferred Stock into 781,140,000 shares of
Dominix's common stock, the shareholders of Jade will own approximately
50% of the common stock of Dominix. After the merger, the two largest
shareholders of Jade assumed the two highest executive positions of
Dominix and effective 10 days from the mailing of Dominix's information
statement to its stockholders they become members of the board of
directors of Dominix.
Accordingly, this transaction has been accounted for as a reverse merger
with Jade as the acquirer of Dominix. The reverse merger was accounted
for as a recapitalization of Jade and the stockholders' equity of Jade
were retroactively restated to its inception on, July 5, 2001.
The board of directors of Dominix has approved a one-for-two hundred
reverse stock split, which is to become effective upon 20 days after the
mailing of an information statement to its stockholders, see note 9.
Jade since inception has been developing its technology, marketing its
website to potential advertisers and building consumer awareness of the
Jade's website and services. Jade's website, AskJade.com, is a specialty
search engine for the adult entertainment industry. Its search engine
allows Internet users to enter a word, phrase or plain English query
describing what they want located on the Internet. Its search engine then
displays a selection of websites related to that query. In addition, Jade
intends to distribute its video library of adult content through both the
wholesale and retail channels throughout the United States in 2004. None
of its planned principal operations have generated any substantial
revenue through December 31, 2003.
Background of public shell (Dominix)
The public company was incorporated under the laws of the state of
Colorado on July 30, 1987 as Apache Investments, Inc. In 1995, Apache
Investments Inc. changed its name to Medical Management Systems, Inc.
("MMSI"). In June 2000, MMSI completed a stock exchange with
Bookdigital.com, Inc. ("BookDigital"), where MMSI acquired over 99.7% of
the stock of BookDigital. In July of 2000, MMSI reincorporated in
Delaware, pursuant to a merger with Dominix, a newly-formed Delaware
corporation.
7
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - Business and Reverse Merger, continued
Background of Public Shell (Dominix), continued
During 2000, Dominix's business was operated through BookDigital.
BookDigital is a Delaware corporation formed in March of 1999 and was a
development-stage company engaged in certain areas of web commerce. In
2001, due to the decline of the internet industry, Bookdigital.com halted
development of its www.Bookdigital.com, www.bookdigitalschools.com and
www.Lawxpress.com web sites and ceased operations. Through the year ended
December 31, 2003, BookDigital has generated no revenues.
In January of 2001, Dominix acquired approximately 98% of International
Controllers, Inc. ("ICON"), a privately-held Delaware corporation, in
exchange for shares of its common stock. ICON is a provider of
telecommunications services under various ethnics' marketing clubs. In
April 2002, the stock of the ICON subsidiary, including all of its
operating assets and liabilities, was foreclosed by a related party note
holder as full satisfaction of promissory notes and related accrued
interest due such related party by ICON. As a result, Dominix had no
active business during the period April 2002 through the merger date with
Jade.
NOTE 2 - Going Concern and Managements Plans
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United
States of America, assuming that the Company will continue as a going
concern. For the years ended December 31, 2003 and 2002 and for the
period from inception (July 5, 2001) through December 31, 2003, the
Company had incurred losses of approximately $186,000, $113,000 and
$354,000, respectively. The Company is in default on certain convertible
notes payable, see note 7. These factors raise substantial doubt about
the Company's ability to continue as a going concern. In November 2003,
Dominix received proceeds of $575,000 from the sale of Convertible
Debentures. The balance of cash at the merger date with Jade amounted to
approximately $497,000. The Company's ability to continue as a
going-concern is dependent upon obtaining additional financing,
restructuring its existing liabilities, and the successful completion of
its business plan. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
No assurance can be provided that the Company will be successful in
locating additional financing or completing its business plan.
NOTE 3 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Jade from
inception (July 5, 2001) to December 31, 2003 and Dominix and BookDigital
from the date of merger, December 5, 2003 to December 31, 2003,
collectively (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
8
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Video Library
During 2003 the Company acquired fifty digitally mastered tapes
containing adult content, which they intent to convert into DVD format
and other media entertainment. These costs will be amortized
proportionately with revenue recognized related to the distribution of
the products and licensing revenues. Management believes that this method
provides a reasonable matching of expenses with total estimated revenues
over the periods that revenues associated with films and programs are
expected to be realized. Film and program amortization will be adjusted
periodically to reflect changes in the estimates of amounts of related
future revenues. Film and program costs are stated at the lower of
unamortized cost or estimated net realizable value as determined on a
specific identification basis. No films were produced as of December 31,
2003.
Property and Equipment
Property and equipment are recorded at cost. The costs of additions and
betterments are capitalized and expenditures for repairs and maintenance
are expensed in the period incurred. When items of property and equipment
are sold or retired, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is include in income. For
financial reporting, depreciation is provided for under the straight-line
method, based upon the estimated useful lives of the respective assets.
For tax purposes, depreciation is provided for under the accelerated
method based upon the estimated useful lives of the respective assets.
The estimated useful life of computer equipment is three years.
Revenue Recognition
Revenue recognized by Jade through December 31, 2003 represents revenue
from its search engine. Jade receives a fee when its search engine is
used to complete an online purchase. The revenue is recognized upon
completion of the transaction. Revenue to be generated under the sale of
its DVD's and other media entertainment will be recognized upon shipment
of the merchandise.
Banner advertisement revenue takes place when an affiliate member places
an advertisement banner on the ASKJADE.COM search engine. When a customer
clicks on the banner or "flag" the customer is then taken to that
affiliate's website. Revenue is only recognized when the customer
purchases a product or service from the affiliate, only then does Jade
Entertainment Group, Inc earn revenue.
9
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
Website Development Costs
The Company recognizes the costs associated with developing a website in
accordance with the American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use".
Relating to website development costs the Company follows the guidance
pursuant to the Emerging Issues Task Force (EITF) No. 00-2, "Accounting
for Website Development Costs". Internal costs related to the development
of website content are expensed as incurred. As of December 31, 2003
there are no capitalized website development costs.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December
31, 2003 and 2002 and for the period from inception (July 5, 2001)
through December 31, 2003, advertising expense were $4,600, $3,336 and
$9,736, respectively.
Income Taxes
The Company was not required to provide for a provision for income taxes
for the years ended December 31, 2003 and 2002, as a result of net
operating losses incurred during those periods. As of December 31, 2003,
the Company had available approximately $3,032,000 of net operating
losses ("NOL") plus a capital loss of approximately $3,013,000 available
for income tax purposes that may be carried forward to offset future
taxable income, if any. These carryforwards expire in various years
through 2023. At December 31, 2003, the Company has a deferred tax asset
of approximately $2,418,000 representing the benefits of its net
operating loss and capital loss carryforwards. The Company's deferred tax
asset has been fully reserved by a valuation allowance since realization
of its benefit is uncertain. The difference between the statutory tax
rate of 40% and the Company's effective tax rate (0%) is due to the
increase in the valuation allowance of $74,000. The Company's ability to
utilize its carryforwards may be subject to an annual limitation in
future periods pursuant to Section 382 of the Internal Revenue Code of
1986, as amended and separate return limitation year ("SRLY") rules.
Loss Per Share
Basic net loss per common share has been computed based on the weighted
average number of shares of common stock outstanding during the periods
presented. Common stock equivalents, consisting of warrants, convertible
debentures and preferred stock discussed in the notes to the consolidated
financial statements, were not included in the calculation of the diluted
loss per share because their inclusion would have had the effect of
decreasing the loss per share otherwise computed.
10
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
Fair Value of Financial Instruments
The consolidated financial statements include various estimated fair
value information at December 31, 2003 as required by Statement of
Financial Accounting Standards 107, "Disclosures about Fair Value of
Financial Instruments." Such information, which pertains to the Company's
financial instruments, is based on the requirements set forth in that
Statement and does not purport to represent the aggregate net fair value
to the Company.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
Accounts Payable: The carrying amounts approximate fair value because of
the short maturity of those instruments.
Convertible Debentures: The carrying amounts plus related unamortized
deferred debt discount of the debentures approximate fair value due to
the length of the maturities, the interest rates being tied to market
indices and/or due to the interest rates not being significantly
different from the current market rates available to the Company.
All of the Company's financial instruments are held for purposes other
than trading.
Stock-Based Compensation
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes accounting and reporting
standards for stock-based employee compensation plans. This statement
allows companies to choose between the fair value-based method of
accounting as defined in this statement and the intrinsic value-based
method of accounting as prescribed by Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
The Company has elected to continue to follow the accounting guidance
provided by APB 25, as permitted for stock-based compensation relative to
the Company's employees. Stock and options granted to other parties in
connection with providing goods and services to the Company are accounted
for under the fair value method as prescribed by SFAS 123.
In December 2002, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of SFAS Statement No. 123". This statement
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value-based method of accounting for
stock-based employee compensation. In addition, SFAS No.148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS No. 148 also requires that those
effects be disclosed more prominently by specifying the form, content,
and location of those disclosures. The Company adopted the increased
disclosure requirements of SFAS No. 148 during the year ended December
31, 2003.
11
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
Stock-Based Compensation, continued
Cumulative
Period July 5,
For the Years Ended 2001 to
December 31, December 31,
2003 2002 2003
------------------------------------------------------
Net loss attributable to common stockholders,
as reported $(171,769) $(121,555) $(339,772)
Add: stock-based employee compensation
expense included in reported net loss
applicable to common stockholders -- -- --
Less: total stock-based employee
compensation expense determined
under the fair value-based method of
all awards -- -- --
--------- --------- ---------
Proforma net loss attributable to common
stockholders $(171,769) $(121,555) $(339,772)
========= ========= =========
Basic and Diluted Net Loss Attributable to
Common Stockholders:
As reported $0.00 $0.00 $0.00
===== ===== =====
Proforma $0.00 $0.00 $0.00
===== ===== =====
Impact of Recently Issued Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections". SFAS No. 145
requires that gains and losses from extinguishment of debt be classified
as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part
of an entity's recurring operations from those that are unusual and
infrequent that meets the criteria for classification as an extraordinary
item. The adoption of SFAS No. 145 did not have a material impact on the
Company's financial position and results of operations.
12
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
Impact of Recently Issued Accounting Standards, continued
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)". SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after March
31, 2003, with early application encouraged. The Company adopted this
statement on January 1, 2002.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires a
company, at the time it issues a guarantee, to recognize an initial
liability for the fair value of obligations assumed under the guarantee
and elaborates on existing disclosure requirements related to guarantees
and warranties. The initial recognition requirements of FIN 45 are
effective for guarantees issued or modified after March 31, 2003 and
adoption of the disclosure requirements are effective for the Company
during the first quarter ending January 31, 2003. The adoption of FIN 45
did not have a material impact on the Company's financial position and
results of operations.
In January 2003, the FASB issued Interpretation Number 46, "Consolidation
of Variable Interest Entities" ("FIN No. 46"). This interpretation of
Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial
Statements," provides guidance for identifying a controlling interest in
a variable interest entity ("VIE") established by means other than voting
interests. FIN No. 46 also requires consolidation of a VIE by an
enterprise that holds such a controlling interest. In December 2003, the
FASB completed its deliberations regarding the proposed modification to
FIN No. 46 and issued Interpretation Number 46(R), "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN No.
46(R)"). The decisions reached included a deferral of the effective date
and provisions for additional scope exceptions for certain types of
variable interests.
13
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - Summary of Significant Accounting Policies, continued
Impact of Recently Issued Accounting Standards, continued
Application of FIN No. 46(R) is required in financial statements of
public entities that have interests in VIEs or potential VIEs commonly
referred to as special-purpose entities for periods ending after December
15, 2003. Application by public small business issuers' entities is
required in all interim and annual financial statements for periods
ending after December 15, 2004. The adoption of FIN No. 46(R) is not
expected to have an impact on the Company's consolidated financial
position, results of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." The statement amends
and clarifies accounting for derivative instruments, including certain
derivatives instruments embedded in other contracts and for hedging
activities under SFAS No. 133. This statement is effective for contracts
entered into or modified after June 30, 2003, except as stated below and
for hedging relationships designated after June 30, 2003 the guidance
should be applied prospectively. The provisions of this statement that
relate to SFAS No. 133, Implementation Issues, that have been effective
for fiscal quarters that began prior to June 15, 2003, should continue to
be applied in accordance with respective effective dates. In addition,
certain provisions relating to forward purchases or sales of when-issued
securities or other securities that do not yet exist, should be applied
to existing contracts as well as new contracts entered into after June
30, 2003. The adoption of SFAS No. 149 is not expected to have an impact
on the Company's financial position and results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity". SFAS No. 150 establishes standards for classification and
measurement in the statement of financial position of certain financial
instruments with characteristics of both liabilities and equity. It
requires classification of a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified after May
31, 2003 and, otherwise, is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company adopted SFAS
No. 150 in the quarter ended September 30, 2003. The adoption did not
have an impact on the condensed financial statements.
14
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - Property and Equipment
Property and equipment consists of the following at December 31, 2003:
Computer equipment $6,845
Less: accumulated depreciation (119)
------
Property and Equipment, Net $6,726
======
Depreciation expense for the years ended December 31, 2003 and 2002 was
$119 and $--, respectively.
NOTE 5 - Deferred Financing Cost
Deferred financing cost consists of the following at December 31, 2003:
Deferred financing cost $83,000
Less: accumulated amortization (7,000)
-------
Deferred Financing Cost, Net $76,000
=======
Amortization of the deferred financing cost for the years ended December
31, 2003 and 2002 was $7,000 and $--, respectively, see Note 7.
NOTE 6 - Due from Affiliate
The Company advanced amounts to a public company MarketShare Recovery,
Inc ("MarketShare"), related by virtue of common management during the
year ended December 31, 2003. The amount due as of December 31, 2003 of
approximately $46,000 is unsecured and non-interest bearing. In March
2004, Jade forgave repayment of the amount due in exchange for the use
through a sublicense to use MarketShare's database for a term of ten
years to be used to operate its website, see note 12.
15
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - Convertible Debentures
Convertible debentures at December 31, 2003 consist of the following:
a) Convertible debenture (default), due on demand,
bearing interest at 8% per annum. The debenture
contains a provision for conversion at the
holder's option including accrued interest, into
the Company's common stock at a conversion price
equal to 70% of the average closing bid price per
share of common stock for the five-day period
prior to such conversion. The related beneficial
conversion feature has been fully charged to
interest expense by Dominix in prior years. $100,000
b) Convertible debentures (default), due on demand,
bearing interest at 12% per annum. The debentures
contain a provision for conversion, at the
holder's option including accrued interest, into
the Company's common stock at a conversion price
equal to 70% of the average closing bid price per
share of common stock for the five-day period
prior to such conversion, subject to maximum
conversion prices of $.10 to $.40 per share. The
related beneficial conversion feature has been
fully charged to interest expense by Dominix in
prior years.
142,000
c) Convertible debentures, due November 30, 2004,
bearing interest at 7% per annum. The debentures
contain a provision for conversion, at the
holder's option including accrued interest on a
one for one basis, into units of securities
comprising of common stock and warrants to
purchase one-half share of common stock at $.00875
per share for two years from the date of issuance,
net of deferred debt discount of $527,100. 47,900
--------
Total Convertible Debentures 289,900
Less: current portion 289,900
--------
Long-Term Debt, Net of Current Portion $ --
========
b) The Company entered into agreements with six holders of 12%
convertible debentures totaling $112,000 who agreed to convert their
debentures for a total of 189,000 shares of common stock to be
delivered following any reverse stock split of the Company's
outstanding common stock.
16
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - Convertible Debentures, continued
c) In November 2003, Dominix completed the sale of 7% Convertible
Debentures resulting in gross proceeds of $575,000. The gross
proceeds were allocated 64.05% or $368,270 to the notes and 35.95% or
$206,730 to the warrants. The conversion price of the debentures was
below the market price of the Company's common stock at December 31,
2003, which resulted in a beneficial conversion feature of $368,270.
The debentures may be redeemed by Dominix, on a pro-rata basis for
120% of the principal amount and are automatically convertible into
common stock upon completion of the reverse stock split.
The conversion price and market price of common stock at the date of
issuance was $.005 and $.01, respectively. In connection with this
private placement, Dominix issued to the placement agents warrants to
purchase a total of 3,000,000 shares of the Dominix's Common Stock
valued at $23,000 and incurred $60,000 of other debt issuance costs.
Such amount was recorded as deferred financing costs and is being
charged to interest expense over the term of the loan.
In accordance with EITF 00-27 the amount allocated to the beneficial
conversion feature was limited to the net proceeds of the offering
less the value allocated to the warrants issued to the purchasers.
The amount allocated to the warrants of $206,730 and the total amount
of the beneficial conversion features of $368,270 were both recorded
as a deferred debt discount and are being charge to interest expenses
over the term of the notes.
NOTE 8 - Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 2003 consist of
the following:
Interest $ 86,960
Litigation claims 52,230
Professional fees 50,479
Other 7,488
--------
$197,157
========
NOTE 9 - Stockholders' Deficiency
During 2002 and 2001, Jade issued 424,799 and 500,000 shares of its
common stock for services valued at $7,294 and $1,400, respectively.
These shares were retroactively restated at one share of Jade's common
stock for 39.18 shares of Dominix's common stock in accordance with the
accounting for the recapitalization.
17
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - Stockholders' Deficiency, continued
During 2002 and 2001 Jade sold 48,883 and 1,196,000 shares of its common
stock for $61,249 and $98,100, respectively. These shares were
retroactively restated at one share of Jade's common stock for 39.18
shares of Dominix's common stock in accordance with the accounting for
the recapitalization.
Series A Cumulative Convertible Preferred
Each share has rights including; cumulative dividend rights without
stated amount, liquidation preference of $.075 per share, voting rights
of 200 votes per share, piggy back registration and is convertible into
200 shares of common stock. Each share is automatically convertible into
common stock upon 20 days after the mailing of the information statement
to the stockholders, which has not yet been mailed.
Series B Convertible Preferred
Each share has rights including; liquidation preference of $.075 per
share, voting rights of 9,507 votes per share, and is convertible into
common stock at a ratio of 1 to 9,507. Each share is automatically
convertible into common stock upon 20 days after the mailing of the
information statement to the stockholders, which has not yet been mailed.
Warrants Granted
Dominix granted warrants to purchase for two years from the date of
issuance a total of 57,500,000 shares of its common stock at an exercise
price of $.00875 of Dominix's Common Stock in connection with the
placement of $575,000, 7% convertible debentures, see note 7.
Changes in Capital Structure
On December 16, 2003, Dominix filed with the SEC an information statement
notifying the stockholders of the Company that written consents from
principal stockholders, who collectively own in excess of 50% of the
Company's common stock, were obtained and approved an amendment and
restatement of its Certificate of Incorporation, which: (i) changes its
name to "110 Media Group", (ii) reverse splits the outstanding shares of
its common stock one-for-two hundred; (iii) changes the number of shares
of common stock the Company is authorized to issue to 50,000,000, (iv)
increases the number of shares of preferred stock, no par value, it is
authorized to issue from 5,000,000 to 10,000,000, and the adoption of
Dominix's 2003 Equity Incentive Plan. These actions will not become
effective until 20 days after the mailing of the information statement to
the stockholders, which has not yet been mailed.
On December 18, 2003, Dominix filed with the SEC a registration statement
registering 100,000,000 shares of its common stock, $.001 par value, to
be issued pursuant to the corporation's 2003 Equity Incentive Plan equal
to 500,000 shares of post reverse split common stock, which shall not be
issued until the effectiveness of the reverse split of the common stock
of the Company.
18
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - Stockholders' Deficiency, continued
2003 Equity Incentive Plan
Dominix has a "2003 Equity Incentive Plan" for key employees, consultants
and stockholders by providing them with additional incentives and an
opportunity to obtain or increase their proprietary interest in the
Company, thereby encouraging them to continue in the employ of the
Company or any of its affiliates. The plan designates the Board of
Directors the authority to grant or award to eligible participants of the
company and its subsidiaries and affiliates, until November 17, 2013,
stock options, stock appreciation rights, restricted stock performance
stock awards and bonus stock awards for up to 600,000,000 shares of
Dominix's common stock. On November 17, 2003, the Board of Directors
awarded 100,000,000 shares (500,000 post reverse stock split) of bonus
stock for future services to several individuals effective upon any
reverse split of Dominix's common stock.
Earnings Per Share
Securities that could potentially dilute basic earnings per share ("EPS")
in the future that were not included in the computation of diluted EPS
because to do so would have been anti-dilutive for the periods presented
consist of the following:
Pre-Split Post-Split
Convertible debentures and accrued interest 179,000,000 895,000
Accounts payable and accrued interest 2,000,000 10,000
Convertible Series `A' preferred stock 687,999,800 3,439,999
Convertible Series `B' preferred stock 781,140,000 3,905,700
Equity grant recipients 100,000,000 500,000
Warrants to purchase common stock - deferred financing 3,000,000 15,000
Warrants to purchase common stock - debentures 57,500,000 287,500
------------- ----------
Total as of December 31, 2003 1,810,639,800 9,053,199
============= ==========
NOTE 10 - Commitments and Contingencies
Marketing Agreement - related party
Jade had a marketing agreement with MarketShare on a month to month basis
that called for payments of $5,000 per month, which terminated during
2002. Jade paid approximately $26,000 during 2002 relating to this
agreement.
Sublease Agreement - related party
Jade had a sub-lease agreement with MarketShare that provided for the use
of office space, office equipment, telephone, internet access and other
amenities as needed. The amount of monthly rent paid was not to exceed
$1,800 per month and the agreement was month to month and terminated
during 2002. Jade paid approximately $9,000 during 2002 relating to this
agreement.
19
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - Commitments and Contingencies, continued
Other Contingencies
As indicated in Note 1, the operations of Jade are concentrated in the
facilitation of electronic identification and distribution of adult
content. There may be laws or regulations in the United States or other
countries that may affect the operations of the Company.
Lease Obligations
Dominix abandoned office space during 2001 under three separate lease
agreements, which provide for average minimum monthly lease payments
remaining under the lease agreements ranging from approximately $3,000 to
$22,000 per month expiring in various years through 2007. Dominix is
contingently liable for liquidating damages for the failure to observe
covenants contained in the leases and any deficiency between the rent
commitments and the net amount of any rents collected by the landlords
for the demised premises for each month of the period, which would
otherwise have constituted the balance of the term of the leases,
including expenses incurred by the landlords in connection with
re-letting the space. The estimated liquidating damages for the re-let
space as of December 31, 2003 approximate the security deposits retained
by the landlords in accordance with these lease agreements.
Employment Agreements
The Company has employment contracts with three key employees through
June 2007 that provide for minimum annual salary, adjusted for
cost-of-living changes, bonus, certain reimbursed expenses, with an
automatic two year extension period.
Future minimum payments under the contracts are as follows:
For the Years Ending
December 31, Amount
-------------------------------------------------------
2004 $270,000
2005 270,000
2006 200,000
---------
Total $740,000
=========
The Company agreed to issue, after its pending 1 for 200 reverse stock
split 100,000 shares of its restricted common stock to a key employee
that will vest according to the following schedule: 40,000 shares vesting
and deliverable post the effectiveness of a reverse split and 20,000
shares vesting upon the, twelve, eighteen and twenty-four month
anniversaries of the effective date of his employment.
20
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - Commitments and Contingencies, continued
Litigation
An attorney, Robert Fierman, Esq., served a summons and is seeking the
payment of legal fees in the amount of $22,230, plus interest. Dominix
and Mr. Fierman entered into an agreement whereby in full settlement of
all claims of Mr. Fierman against Dominix, Dominix agreed to issue 10,000
shares of its common stock to be delivered following any reverse stock
split of the Company's outstanding common stock. These shares have not
been issued as of December 31, 2003.
In addition, at December 31, Dominix has $30,000 accrued for several
legal judgments outstanding. It is reasonably possible that Dominix may
settle these claims for an amount different than what has been accrued.
NOTE 11 - Terminated Proposed Acquisitions
MarketShare Recovery, Inc.
In September 2003 Dominix entered into an amended letter of intent (the
"Amended LOI") relating to the proposed acquisition by the Company of
certain assets of MarketShare Recovery Inc., a Delaware corporation
("MarketShare"). MarketShare is an on-line advertising and marketing
company and is a publicly reporting company (OTC BB: MSRY). In March
2004, Dominix entered into a termination agreement with MarketShare
Recovery Inc., canceling the proposed acquisition of MarketShare and
simultaneously entered into a database license agreement between Jade and
MarketShare (see note 12).
NOTE 12 - Subsequent Events
License Agreement
In March 2004, Jade entered into a database license agreement with
MarketShare to use and to sublicense the use of its database for a term
of ten years and forgave the repayment of approximately $46,000 of
advances made to MarketShare by Jade.
Sub-Lease Agreement
Jade and MarketShare sub agreed to share the expense of office facilities
occupied by them jointly under a lease held by MarketShare beginning
January 1, 2004.
21
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 2003 (UNAUDITED)
The following UNAUDITED pro forma consolidated balance sheet of DOMINIX, INC.
AND SUBSIDIARIES ("DOMINIX") includes the historical audited consolidated
balance sheet of DOMINIX as of December 31,2003 adjusted for the effects of the
debt and preferred stock Conversions , the reverse stock split and issuances of
shares under the 2003 Equity Incentive Plan all of which are to be effectuated
upon the mailing of the Information Statement to the shareholders of Dominix
These proposed transactions are individually accounted for in the accompanying
eight pro forma adjustments.
The pro forma consolidated balance sheet should be read in conjunction with the
separate historical financial statements of Dominix.
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
PROFORMA CONSOLIDATED BALANCE SHEET
December 31, 2003
- --------------------------------------------------------------------------------
ASSETS
Proforma
Audited J/E's Adjustments Proforma
----------- ----- ----------- -----------
CURRENT ASSETS
Cash $ 314,875 $ -- $ 314,875
Prepaid expenses and other current assets 1,247 -- 1,247
----------- ----------- -----------
Total Current Assets 316,122 -- 316,122
PROPERTY AND EQUIPMENT, Net 6,726 -- 6,726
OTHER ASSETS
Video library 50,000 -- 50,000
Due from affiliate 45,567 -- 45,567
Deferred financing costs, net 76,000 -- 76,000
----------- ----------- -----------
TOTAL ASSETS $ 494,415 $ -- $ 494,415
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Convertible debentures, net of deferred
debt discount of $527,100 $ 289,900 3,5,7 $ (289,900) $ --
Accrued expenses and other current liabilities 197,157 3,4,5 (105,836) 91,321
Due to stockholders and affiliates 9,445 -- 9,445
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 496,502 (395,736) 100,766
----------- ----------- -----------
STOCKHOLDERS' DEFICIENCY
Series A cumulative convertible 3,440 2 (3,440) --
Series B convertible 82 6 (82) --
Common stock 197,140 1-8 (187,403) 9,737
Additional paid in capital 151,209 1,3-8 1,363,761 1,514,970
Unearned consulting fees -- 8 (250,000) (250,000)
Deficit accumulated during development stage (353,958) 7 (527,100) (881,058)
----------- ----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (2,087) 395,736 393,649
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 494,415 $ -- $ 494,415
=========== =========== ===========
DOMINIX, INC. AND SUBSIDIARIES
(A Development Stage Company)
PROFORMA ADJUSTMENTS
December 31, 2003
- --------------------------------------------------------------------------------
SHARES
-------------------------------------
PREFERRED SERIES
------------------------
J/E Account Dr Cr Common A B
- -------------------------------------------------------------------------------------------------------------------
Outstanding at 12/31/03 197,140,105 3,439,999 82,167
1 Common stock 196,154 (196,154,404)
Additional paid-in capital 196,154
(TO RECORD COMMON STOCK SPLIT ONE FOR TWO HUNDRED)
2 Common stock 3,440
Preferred stock - Series A Cumulative Convertible - 3,440 3,439,999 (3,439,999)
(TO RECORD CONVERSION OF PREFERRED TO COMMON)
3 Convertible debentures (default) 12% 112,000
Accrued expenses and other current liabilities 43,122
Common stock 189 189,000
Additional paid-in capital 154,933
(TO RECORD CONVERSION OF DEBENTURES INTO
189,000 SHARES OF COMMON STOCK)
4 Accrued expenses and other current liabilities 22,230
Common stock 10 10,000
Additional paid-in capital 22,220
(TO RECORD FIERMAN SETTLEMENT, ISSUANCE OF
10,000 SHARES OF COMMON)
5 Convertible debenture (default) 8% 100,000
Convertible debentures (default) 12% 30,000
Accrued expenses and other current liabilities 40,484
Common stock 131 131,000
Additional paid-in capital 170,353
(TO RECORD CONVERSION OF DEBENTURES INTO
131,000 SHARES OF COMMON)
6 Common stock 3,906
Additional paid-in capital 3,824
Preferred stock - Series B 82 3,905,700 (82,167)
(TO RECORD CONVERSION OF PREFERRED SERIES B TO
COMMON)
7 Deficit accumulated during development stage 527,100
Convertible debentures 7% 575,000
Convertible debentures 7% 527,100
Additional paid in capital 574,425
Common Stock 575 575,000
(TO RECORD CONVERSION OF DEBENTURES INTO
575,000 SHARES OF COMMON STOCK)
8 Unearned consulting fees 250,000
Additional paid in capital 249,500
Common stock 500 500,000
(TO RECORD EQUITY GRANT RECIPIENTS FOR FUTURE SERVICES)
--------------------------------------
GRAND TOTAL 9,736,400 -- --
======================================
Appendix A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DOMINIX, INC.
Dominix, Inc., a corporation organized and existing under the State of
Delaware, hereby certifies as follows:
1. The name of the corporation is Dominix, Inc. The date of filing of
its original Certificate of Incorporation with the Secretary of State was June
1, 2000 and on April 26, 2001 the corporation restated its Certificate of
Incorporation.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of this
corporation by:
(a) combining each 200 outstanding shares of common stock, $.001
par value into one share of new common stock and reducing the resulting par
value of such stock to $.001.
(b) increasing the number of authorized shares of common stock,
$.001 par value, to 50,000,000;
(c) increasing the number of authorized shares of preferred stock,
$.001 par value, from 5,000,000 to 10,000,000; and
(d) setting forth certain matters relating to the designation of
the relative rights, powers and preferences of qualification, limitations and
restrictions of one or more series of preferred stock
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth in
full:
"ARTICLE 1
The name of this corporation is 110 Media Group, Inc.
ARTICLE 2
The address of its registered offices in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
1
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE 4
The total number of shares of stock of all classes which the Corporation
has authority to issue is 60,000,000 shares, of which 50,000,000 shares shall be
common stock, with a par value of $.001 per share ("Common Stock"), and
10,000,000 shares shall be preferred stock, with a par value of $.001 per share
("Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of stock
are as follows:
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of Directors
as shares of one or more series. Subject to the provisions hereof and the
limitations prescribed by law, the Board of Directors is hereby vested with the
authority and is expressly authorized, prior to issuance, by adopting
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series and, if and to the extent from time
to time required by law, by filing a certificate pursuant to the General
Corporation Law of the State of Delaware (or other law hereafter in effect
relating to the same or substantially similar subject matter), to establish or
change the number of shares to be included in each such series and to fix the
designation and powers, preferences and rights and the qualifications and
limitations or restrictions thereof relating to the shares of each such series,
all to the maximum extent permitted by the General Corporation Law of the State
of Delaware as in effect on the date hereof or as hereafter amended. The vested
authority of the Board of Directors with respect to each series shall include,
but not be limited to, the determination of the following:
(a) the distinctive serial designation of such series and the
number of shares constituting such series (provided that the aggregate
number of shares constituting all series of Preferred Stock shall not
exceed 10,000,000);
(b) the annual dividend rate, if any, on shares of such series and
the preferences, if any, over any other series (or of any other series
over such series) with respect to dividends, and whether dividends shall
be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon and after which such shares shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
2
(d) the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or purchase fund
and, if so, the terms of such obligation;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes, any stock
of any series of the same class or any other class or classes or any
evidence of indebtedness and, if so, the terms and conditions of such
conversion or exchange, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights, including, without limitation, whether such shares
shall have the right to vote with the Common Stock on issues on an equal,
greater or lesser basis;
(g) the rights of the shares of such series in the event of a
voluntary or involuntary liquidation, dissolution, winding up or
distribution of assets of the Corporation;
(h) whether the shares of such series shall be entitled to the
benefit of conditions and restrictions upon (i) the creation of
indebtedness of the Corporation or any subsidiary, (ii) the issuance of
any additional stock (including additional shares of such series or of any
other series) or (iii) the payment of dividends or the making of other
distributions on the purchase, redemption or other acquisition by the
Corporation or any subsidiary of any outstanding stock of the Corporation;
and
(i) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof, including, but not
limited to, any that may be determined in connection with the adoption of
any stockholder rights plan after the date hereof, relating to any such
series.
Except where otherwise set forth in the resolution or resolutions adopted
by the Board of Directors providing for the issuance of any series of Preferred
Stock, the number of shares comprising such series may be increased or decreased
(but not below the number of shares then outstanding) from time to time by like
action of the Board of Directors.
Shares of any series of Preferred Stock that have been redeemed (whether
through the operation of a sinking fund or otherwise) or purchased by the
Corporation, or which, if convertible or exchangeable, have been converted into,
or exchanged for, shares of stock of any other class or classes or any evidences
of indebtedness shall have the status of authorized and unissued shares of
Preferred Stock and may be reissued as a part of the series of which they were
originally a part or may be reclassified and reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors or as part of any other series of Preferred Stock, all subject to the
conditions or restrictions on issuance set forth in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of any
series of Preferred Stock and to any filing required by law.
3
COMMON STOCK
Subject to all of the rights of the Preferred Stock, and except as may be
expressly provided with respect to the Preferred Stock herein, by law or by the
Board of Directors pursuant to this Article 4:
(a) dividends may be declared and paid or set apart for payment
upon Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends and may be payable in cash, stock
or otherwise;
(b) the holders of Common Stock shall have the exclusive right to
vote for the election of directors (other than in the case of newly
created directorships and vacancies, which shall be filled solely by the
remaining directors as set forth in Article 6 hereof) and on all other
matters requiring stockholder action, each share being entitled to one
vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of Common Stock in accordance with
their respective rights and interests.
DENIAL OF PREEMPTIVE RIGHTS AND CUMULATIVE VOTING
No holder of any stock of the Corporation shall be entitled as such, as a
matter of right, to subscribe for or purchase any part of any new or additional
issue of stock of any class whatsoever of the Corporation, or of securities
convertible into stock of any class whatsoever, whether now or hereafter
authorized, or whether issued for cash or other consideration or by way of
dividend.
No holder of any stock of the Corporation shall have the right of
cumulative voting at any election of directors or upon any other matter.
ARTICLE 5
The Corporation is to have perpetual existence.
ARTICLE 6
All power of the Corporation shall be vested in and exercised by or under
the direction of the Board of Directors except as otherwise provided herein or
required by law.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further creation, definition, limitation and regulation
of the power of the Corporation and of its directors and stockholders, it is
further provided:
4
A. ELECTIONS OF DIRECTORS. Elections of Directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
B. NUMBER, ELECTION AND TERMS OF DIRECTORS. Except as otherwise fixed
pursuant to the provisions of Article 4 hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors under
specified circumstances, the number of directors of the Corporation shall be
fixed from time to time pursuant to the Bylaws. The directors, other than those
who may be elected by the holders of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation, shall hold
office until the next annual meeting at which their successors are elected and
qualified or until their earlier resignation or removal.
C. REMOVAL OF DIRECTORS. Subject to the rights of any class or series
of stock having preference over Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, at any regular meeting or
special meeting called expressly for that purpose, any director or the entire
Board of Directors may be removed with or without cause and a successor or
successors appointed by vote of the holders of in excess of fifty percent (50%)
of the shares then issued and outstanding and entitled to vote at an election of
directors.
Except as may otherwise be provided by law, cause for removal shall be
construed to exist only if during a director's term as a director of the
Corporation: (a) the director whose removal is proposed has been convicted of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal; (b) such director has been adjudicated by a court of
competent jurisdiction to be liable for gross negligence, recklessness or
misconduct in the performance of his or her duty to the Corporation in a manner
of substantial importance to the Corporation and such adjudication is no longer
subject to direct appeal; or (c) such director has been adjudicated by a court
of competent jurisdiction to be mentally incompetent, which mental incompetence
directly affects his or her ability as a director of the Corporation, and such
adjudication is no longer subject to direct appeal.
D. STOCKHOLDER ACTION. Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly called annual or
special meeting of such holders or by consent in writing of the holders required
to take such action. Except as otherwise required by law and subject to the
rights of holders of any class or series of stock having a preference over
Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Chairman of the Board,
the Chief Executive Officer or the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors.
E. BYLAW AMENDMENTS. The Board of Directors shall have the power to
make, alter, amend and repeal the Bylaws (except so far as the Bylaws adopted by
the stockholders shall otherwise provide). Any Bylaws made by the Board of
Directors under the powers conferred hereby may be altered, amended or repealed
by the directors or by the stockholders.
5
F. LIABILITY OF DIRECTORS.
1. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; provided that this Article 6 shall not eliminate
or limit the liability of a director of the Corporation: (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
2. If the General Corporation Law of the State of Delaware
hereafter is amended to authorize the further elimination or limitation of the
liability of directors of the Corporation, then the liability of a director of
the Corporation shall be limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended, and such limitation of
liability shall be in addition to, and not in lieu of, the limitation on the
liability of a director of the Corporation provided by the provisions of this
Section F of this Article 6.
3. Any amendment, repeal or modification of this Section F of
this Article 6 shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment, repeal or modification.
4. The Corporation shall be obligated at all times to maintain
the effectiveness of Bylaw provisions providing for the mandatory
indemnification of the directors of the Corporation to the maximum extent
permitted by the General Corporation Law of the State of Delaware.
ARTICLE 7
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation."
4. This Amended and Restated Certificate of Incorporation was
duly adopted by written consent of the stockholders in accordance with the
applicable provisions of Section 228, 242 and 245 of the General Corporation Law
of the State of Delaware and written notice of the adoption of this Amended and
Restated Certificate of Incorporation has been given as provided by Section 228
of the General Corporation Law of the State of Delaware to every stockholder
entitled to such notice.
5. As of the date of this Certificate, there are outstanding
197,140,105 shares of common stock, $.001 par value, 3,439,999 shares of Series
A Preferred Stock, $.001 par value and 82,167 shares of Series B Preferred Stock
outstanding. Upon filing of this Certificate of Amendment and Restatement, each
share of common stock, $.001 par value, outstanding shall be converted into
one-two hundredths of a share of new common stock, $.001 par value, each share
6
of Series A Preferred Stock shall be converted into one share of new common
stock, $.001 par value and each share of Series B Preferred Stock shall be
converted into 60.71497 shares of new common stock, $.00 par value.
IN WITNESS WHEREOF, said Dominix, Inc. has caused this Certificate to be
signed by Timothy Schmidt, its President this ___ day of May, 2004.
DOMINIX, INC.
By:
------------------------------------
Name: Timothy Schmidt
Title: President
7
Appendix B
DOMINIX, INC.
2003 EQUITY INCENTIVE PLAN
ARTICLE I - PLAN
1.1 PURPOSE. This Plan is a plan for key Employees (including
officers and employee directors) and Consultants of the Company and its
Affiliates and is intended to advance the best interests of the Company, its
Affiliates, and its stockholders by providing those persons who have substantial
responsibility for the management and growth of the Company and its Affiliates
with additional incentives and an opportunity to obtain or increase their
proprietary interest in the Company, thereby encouraging them to continue in the
employ of the Company or any of its Affiliates.
1.2 RULE 16B-3 PLAN. The Plan is intended to comply with all
applicable conditions of Rule 16b-3 (and all subsequent revisions thereof)
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act"). To the extent any provision of the Plan or action by the Board of
Directors or Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee. In addition,
the Board of Directors may amend the Plan from time to time as it deems
necessary in order to meet the requirements of any amendments to Rule 16b-3
without the consent of the shareholders of the Company.
1.3 EFFECTIVE DATE OF PLAN. The Plan shall be effective November
17, 2003 (the "Effective Date"), provided that within one year of the Effective
Date, the Plan shall have been approved by at least a majority vote of
stockholders. No Incentive Option, Nonqualified Option, Stock Appreciation
Right, Restricted Stock Award or Performance Stock Award shall be granted
pursuant to the Plan ten years after the Effective Date.
ARTICLE II - DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
1
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "AWARD" means each of the following granted under this Plan:
Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted
Stock Award or Performance Stock Award.
2.3 "BONUS STOCK AWARD" means an Award of Bonus Stock.
2.4 "BOARD OF DIRECTORS" means the board of directors of the
Company.
2.5 "CHANGE IN CONTROL" shall mean and include the following
transactions or situations:
(a) A sale, transfer, or other disposition by the Company through
a single transaction or a series of transactions of securities of the Company
representing thirty (30%) percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this definition,
the term "Person" shall mean and include any individual, partnership, joint
venture, association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act). For purposes of this
definition, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company; provided however, a sale to underwriters in
connection with a public offering of the Company's securities pursuant to a firm
commitment shall not be a Change of Control.
(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(c) A change in the ownership of the Company through a single
transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least thirty (30%) percent of the combined voting power of the Company's then
outstanding securities. For purposes of this definition, the term "Beneficial
Owner" shall have the same meaning as given to that term in Rule 13d-3
promulgated under the 1934 Act, provided that any pledgee of voting securities
is not deemed to be the Beneficial Owner thereof prior to its acquisition of
voting rights with respect to such securities.
(d) Any consolidation or merger of the Company with or into an
Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the beneficial owners of securities of the surviving
corporation representing at least fifty (50%) percent of the combined voting
power of the surviving corporation's then outstanding securities.
2
(e) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
(f) A change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the 1934 Act, or any successor regulation of similar
importance, regardless of whether the Company is subject to such reporting
requirement.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
2.7 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are both
Disinterested Persons and Outside Directors or by the Board of Directors in its
entirety.
2.8 "COMPANY" means Dominix, Inc.
2.9 "CONSULTANT" means any person, including an advisor, engaged
by the Company or Affiliate to render services and who is compensated for such
services.
2.10 "DISINTERESTED PERSON" means a "disinterested person" as that
term is defined in Rule 16b-3 under the 1934 Act.
2.11 "ELIGIBLE PERSONS" shall mean, with respect to the Plan, those
persons who, at the time that an Award is granted, are (i) key personnel
(including officers and directors) of the Company or Affiliate, or (ii)
Consultants or independent contractors who provide valuable services to the
Company or Affiliate as determined by the Committee.
2.12 "EMPLOYEE" means a person employed by the Company or any
Affiliate to whom an Award is granted.
2.13 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date on the
principal securities exchange on which the Stock is listed; or (b) if the Stock
is not listed on a securities exchange, the average of the high and low sale
prices of the Stock on that date as reported on the Nasdaq National Market
System; or (c) if the Stock is not listed on the Nasdaq National Market System,
the average of the high and low bid quotations for the Stock on that date as
reported by the National Quotation Bureau Incorporated; or (d) if none of the
foregoing is applicable, an amount at the election of the Committee equal to
(x), the average between the closing bid and ask prices per share of Stock on
the last preceding date on which those prices were reported or (y) that amount
as determined by the Committee in good faith.
3
2.14 "INCENTIVE OPTION" means an option to purchase Stock granted
under this Plan which is designated as an "Incentive Option" and satisfies the
requirements of Section 422 of the Code.
2.15 "NONQUALIFIED OPTION" means an option to purchase Stock
granted under this Plan other than an Incentive Option.
2.16 "OPTION" means both an Incentive Option and a Nonqualified
Option granted under this Plan to purchase shares of Stock.
2.17 "OPTION AGREEMENT" means the written agreement by and between
the Company and an Eligible Person which sets out the terms of an Option.
2.18 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies Section 162(m) of the Code.
2.19 "PLAN" means the Dominix, Inc. 2003 Equity Incentive Plan, as
set out in this document and as it may be amended from time to time.
2.20 "PLAN YEAR" means the Company's fiscal year.
2.21 "PERFORMANCE STOCK AWARD" means an award of shares of Stock to
be issued to an Eligible Person if specified predetermined performance goals are
satisfied as described in Article VII.
2.22 "RESTRICTED STOCK" means Stock awarded or purchased under a
Restricted Stock Agreement entered into pursuant to this Plan, together with (i)
all rights, warranties or similar items attached or accruing thereto or
represented by the certificate representing the stock and (ii) any stock or
securities into which or for which the stock is thereafter converted or
exchanged. The terms and conditions of the Restricted Stock Agreement shall be
determined by the Committee consistent with the terms of the Plan.
2.23 "RESTRICTED STOCK AGREEMENT" means an agreement between the
Company or any Affiliate and the Eligible Person pursuant to which the Eligible
Person receives a Restricted Stock Award subject to Article VI.
2.24 "RESTRICTED STOCK AWARD" means an Award of Restricted Stock.
2.25 "RESTRICTED STOCK PURCHASE PRICE" means the purchase price, if
any, per share of Restricted Stock subject to an Award. The Restricted Stock
Purchase Price shall be determined by the Committee. It may be greater than or
less than the Fair Market Value of the Stock on the date of the Stock Award.
2.26 "STOCK" means the common stock of the Company, $.001 par value
or, in the event that the outstanding shares of common stock are later changed
into or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.
4
2.27 "STOCK APPRECIATION RIGHT" and "SAR" means the right to
receive the difference between the Fair Market Value of a share of Stock on the
grant date and the Fair Market Value of the share of Stock on the exercise date.
2.28 "10% STOCKHOLDER" means an individual who, at the time the
Option is granted, owns Stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any Affiliate. An
individual shall be considered as owning the Stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and Stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its stockholders, partners,
or beneficiaries.
ARTICLE III - ELIGIBILITY
The individuals who shall be eligible to receive Awards shall be
those Eligible Persons of the Company or any of its Affiliates as the Committee
shall determine from time to time. However, no member of the Committee shall be
eligible to receive any Award or to receive Stock, Options, Stock Appreciation
Rights or any Performance Stock Award under any other plan of the Company or any
of its Affiliates, if to do so would cause the individual not to be a
Disinterested Person or Outside Director. The Board of Directors may designate
one or more individuals who shall not be eligible to receive any Award under
this Plan or under other similar plans of the Company.
ARTICLE IV - GENERAL PROVISIONS RELATING TO AWARDS
4.1 AUTHORITY TO GRANT AWARDS. The Committee may grant to those
Eligible Persons of the Company or any of its Affiliates as it shall from time
to time determine, Awards under the terms and conditions of this Plan. Subject
only to any applicable limitations set out in this Plan, the number of shares of
Stock to be covered by any Award to be granted to an Eligible Person shall be
determined by the Committee.
4.2 SHARES SUBJECT TO PLAN. The total number of shares of Stock
set aside for Awards may be granted under the Plan shall be 3,000,000 shares.
The shares may be treasury shares or authorized but unissued shares. The maximum
number of shares subject to options or stock appreciation rights which may be
issued to any eligible person under the plan during each plan year shall be
determined by the Committee. The maximum number of shares subject to restricted
stock awards which may be granted to any eligible person under the plan during
each plan year shall be determined by the Committee. The maximum number of
shares subject to performance stock awards which may be granted to any eligible
person during each plan year shall be determined by the Committee. The number of
shares stated in this Section 4.2 shall be subject to adjustment in accordance
with the provisions of Section 4.5. In the event that any outstanding Award
5
shall expire or terminate for any reason or any Award is surrendered, the shares
of Stock allocable to the unexercised portion of that Award may again be subject
to an Award under the Plan.
4.3 NON-TRANSFERABILITY. Awards shall not be transferable by the
Eligible Person otherwise than by will or under the laws of descent and
distribution, and shall be exercisable, during the Eligible Person's lifetime,
only by him. Restricted Stock shall be purchased by and/or become vested under a
Restricted Stock Agreement during the Eligible Person's lifetime, only by him.
Any attempt to transfer an Award other than under the terms of the Plan and the
Agreement shall terminate the Award and all rights of the Eligible Person to
that Award.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell
or issue any Stock under any Award if issuing that Stock would constitute or
result in a violation by the Eligible Person or the Company of any provision of
any law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option or pursuant to any
Award, the Company shall not be required to issue any Stock unless the Committee
has received evidence satisfactory to it to the effect that the holder of that
Option or Award will not transfer the Stock except in accordance with applicable
law, including receipt of an opinion of counsel satisfactory to the Company to
the effect that any proposed transfer complies with applicable law. The
determination by the Committee on this matter shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register any
Stock covered by this Plan pursuant to applicable securities laws of any country
or any political subdivision. In the event the Stock issuable on exercise of an
Option or pursuant to an Award is not registered, the Company may imprint on the
certificate evidencing the Stock any legend that counsel for the Company
considers necessary or advisable to comply with applicable law. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or vesting under an Award, or the issuance of shares
pursuant thereto, to comply with any law or regulation of any governmental
authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options or Awards shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Stock or its rights, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. If the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a Stock dividend, or other increase or reduction of the number of
shares of the Stock outstanding, without receiving compensation for it in money,
services or property, then (a) the number, class, and per share price of shares
of Stock subject to outstanding Options under this Plan shall be appropriately
adjusted in such a manner as to entitle an Eligible Person to receive upon
exercise of an Option, for the same aggregate cash consideration, the equivalent
total number and class of shares he would have received had he exercised his
6
Option in full immediately prior to the event requiring the adjustment; and (b)
the number and class of shares of Stock then reserved to be issued under the
Plan shall be adjusted by substituting for the total number and class of shares
of Stock then reserved, that number and class of shares of Stock that would have
been received by the owner of an equal number of outstanding shares of each
class of Stock as the result of the event requiring the adjustment.
(b) If the Company is merged or consolidated with another
corporation and the Company is not the surviving corporation, or if the Company
is liquidated or sells or otherwise disposes of substantially all its assets
while unexercised Options remain outstanding under this Plan:
(i) subject to the provisions of clause (c) below, after the
effective date of the merger, consolidation,
liquidation, sale or other disposition, as the case may
be, each holder of an outstanding Option shall be
entitled, upon exercise of the Option, to receive, in
lieu of shares of Stock, the number and class or classes
of shares of stock or other securities or property to
which the holder would have been entitled if,
immediately prior to the merger, consolidation,
liquidation, sale or other disposition, the holder had
been the holder of record of a number of shares of Stock
equal to the number of shares as to which the Option
shall be so exercised;
(ii) the Board of Directors may waive any limitations set out
in or imposed under this Plan so that all Options, from
and after a date prior to the effective date of the
merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Board
of Directors, shall be exercisable in full; and
(iii) all outstanding Options may be canceled by the Board of
Directors as of the effective date of any merger,
consolidation, liquidation, sale or other disposition,
if (i) notice of cancellation shall be given to each
holder of an Option and (ii) each holder of an Option
shall have the right to exercise that Option in full
(without regard to any limitations set out in or imposed
under this Plan or the Option Agreement granting that
Option) during a period set by the Board of Directors
preceding the effective date of the merger,
consolidation, liquidation, sale or other disposition
and, if in the event all outstanding Options may not be
exercised in full under applicable securities laws
without registration of the shares of Stock issuable on
exercise of the Options, the Board of Directors may
limit the exercise of the Options to the number of
shares of Stock, if any, as may be issued without
registration. The method of choosing which Options may
be exercised, and the number of shares of Stock for
which Options may be exercised, shall be solely within
the discretion of the Board of Directors.
(c) After a merger of one or more corporations into the Company or
after a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each Eligible Person shall be
7
entitled to have his Restricted Stock and shares earned under a Performance
Stock Award appropriately adjusted based on the manner the Stock was adjusted
under the terms of the agreement of merger or consolidation.
(d) In each situation described in this Section 4.5, the Committee
will make similar adjustments, as appropriate, in outstanding Stock Appreciation
Rights.
(e) The issuance by the Company of shares of stock of any class,
or securities convertible into shares of stock of any class, for cash or
property, or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe for them, or upon conversion of shares or
obligations of the Company convertible into shares or other securities, shall
not affect, and no adjustment by reason of such issuance shall be made with
respect to, the number, class, or price of shares of Stock then subject to
outstanding Awards.
4.6 ELECTION UNDER SECTION 83(B) OF THE CODE. No Employee shall
exercise the election permitted under Section 83(b) of the Code without written
approval of the Committee. Any Employee doing so shall forfeit all Awards issued
to him under this Plan.
ARTICLE V - OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 TYPE OF OPTION. The Committee shall specify at the time of
grant whether a given Option shall constitute an Incentive Option or a
Nonqualified Option. Incentive Stock Options may only be granted to Employees.
5.2 OPTION PRICE. The price at which Stock may be purchased under
an Incentive Option shall not be less than the greater of: (a) 100% of the Fair
Market Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted.
The Committee in its discretion may provide that the price at which shares of
Stock may be purchased under an Incentive Option shall be more than 100% of Fair
Market Value. In the case of any 10% Stockholder, the price at which shares of
Stock may be purchased under an Incentive Option shall not be less than 110% of
the Fair Market Value of the Stock on the date the Incentive Option is granted.
The price at which shares of Stock may be purchased under a Nonqualified Option
shall be such price as shall be determined by the Committee in its sole
discretion but in no event lower than the par value of the shares of Stock on
the date the Option is granted.
5.3 DURATION OF OPTIONS AND SARS. No Option or SAR shall be
exercisable after the expiration of ten (10) years from the date the Option or
SAR is granted. In the case of a 10% Stockholder, no Incentive Option shall be
exercisable after the expiration of five years from the date the Incentive
Option is granted.
5.4 AMOUNT EXERCISABLE -- INCENTIVE OPTIONS. Each Option may be
exercised from time to time, in whole or in part, in the manner and subject to
the conditions the Committee, in its sole discretion, may provide in the Option
Agreement, as long as the Option is valid and outstanding, and further provided
that no Option may be exercisable within six (6) months of the date of grant,
8
unless otherwise stated in the Option Agreement. To the extent that the
aggregate Fair Market Value (determined as of the time an Incentive Option is
granted) of the Stock with respect to which Incentive Options first become
exercisable by the optionee during any calendar year (under this Plan and any
other incentive stock option plan(s) of the Company or any Affiliate) exceeds
$100,000, the portion in excess of $100,000 of the Incentive Option shall be
treated as a Nonqualified Option. In making this determination, Incentive
Options shall be taken into account in the order in which they were granted.
5.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the
delivery of written notice to the Committee setting forth the number of shares
of Stock with respect to which the Option is to be exercised, together with:
(a) cash, certified check, bank draft, or postal or express money
order payable to the order of the Company for an amount equal to the option
price of the shares,
(b) Stock at its Fair Market Value on the date of exercise, (if
approved in advance by the Committee),
(c) an election to make a cashless exercise through a registered
broker-dealer (if approved in advance by the Committee),
(d) an election to have shares of Stock, which otherwise would be
issued on exercise, withheld in payment of the exercise price (if approved in
advance by the Committee), and/or
(e) any other form of payment which is acceptable to the
Committee, including without limitation, payment in the form of a promissory
note, and specifying the address to which the certificates for the shares are to
be mailed.
As promptly as practicable after receipt of written notification and
payment, the Company shall deliver to the Eligible Person certificates for the
number of shares with respect to which the Option has been exercised, issued in
the Eligible Person's name. If shares of Stock are used in payment, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Eligible Person, at the address specified
by the Eligible Person.
Whenever an Option is exercised by exchanging shares of Stock owned
by the Eligible Person, the Eligible Person shall deliver to the Company
certificates registered in the name of the Eligible Person representing a number
of shares of Stock legally and beneficially owned by the Eligible Person, free
of all liens, claims, and encumbrances of every kind, accompanied by stock
powers duly endorsed in blank by the record holder of the shares represented by
the certificates (with signature guaranteed by a commercial bank or trust
company or by a brokerage firm having a membership on a registered national
stock exchange). The delivery of certificates upon the exercise of Options is
9
subject to the condition that the person exercising the Option provide the
Company with the information the Company might reasonably request pertaining to
exercise, sale or other disposition.
5.6 STOCK APPRECIATION RIGHTS. All Eligible Persons shall be
eligible to receive Stock Appreciation Rights. The Committee shall determine the
SAR to be awarded from time to time to any Eligible Person. The grant of an SAR
to be awarded from time to time shall neither entitle such person to, nor
disqualify such person, from participation in any other grant of awards by the
Company, whether under this Plan or any other plan of the Company. If granted as
a stand-alone SAR Award, the terms of the Award shall be provided in a Stock
Appreciation Rights Agreement.
5.7 STOCK APPRECIATION RIGHTS IN TANDEM WITH OPTIONS. Stock
Appreciation Rights may, at the discretion of the Committee, be included in each
Option granted under the Plan to permit the holder of an Option to surrender
that Option, or a portion of the part which is then exercisable, and receive in
exchange, upon the conditions and limitations set by the Committee, an amount
equal to the excess of the Fair Market Value of the Stock covered by the Option,
or the portion of it that was surrendered, determined as of the date of
surrender, over the aggregate exercise price of the Stock. The payment may be
made in shares of Stock valued at Fair Market Value, in cash, or partly in cash
and partly in shares of Stock, as the Committee shall decide in its sole
discretion. Stock Appreciation Rights may be exercised only when the Fair Market
Value of the Stock covered by the Option surrendered exceeds the exercise price
of the Stock. In the event of the surrender of an Option, or a portion of it, to
exercise the Stock Appreciation Rights, the shares represented by the Option or
that part of it which is surrendered, shall not be available for reissuance
under the Plan. Each Stock Appreciation Right issued in tandem with an Option
(a) will expire not later than the expiration of the underlying Option, (b) may
be for no more than 100% of the difference between the exercise price of the
underlying Option and the Fair Market Value of a share of Stock at the time the
Stock Appreciation Right is exercised, (c) is transferable only when the
underlying Option is transferable, and under the same conditions, and (d) may be
exercised only when the underlying Option is eligible to be exercised.
5.8 CONDITIONS OF STOCK APPRECIATION RIGHTS. All Stock
Appreciation Rights shall be subject to such terms, conditions, restrictions or
limitations as the Committee deems appropriate, including by way of illustration
but not by way of limitation, restrictions on transferability, requirement of
continued employment, individual performance, financial performance of the
Company or payment of any applicable employment or withholding taxes.
5.9 PAYMENT OF STOCK APPRECIATION RIGHTS. The amount of payment to
which the Eligible Person who reserves an SAR shall be entitled upon the
exercise of each SAR shall be equal to the amount, if any by which the Fair
Market Value of the specified shares of Stock on the exercise date exceeds the
Fair Market Value of the specified shares of Stock on the date of grant of the
SAR. The SAR shall be paid in either cash or Stock, as determined in the
discretion of the Committee as set forth in the SAR agreement. If the payment is
in Stock, the number of shares to be paid shall be determined by dividing the
amount of such payment by the Fair Market Value of Stock on the exercise date of
such SAR.
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5.10 EXERCISE ON TERMINATION OF EMPLOYMENT. Unless it is expressly
provided otherwise in the Option or SAR agreement, Options and SAR granted to
Employees shall terminate one day less than three months after severance of
employment of the Employee from the Company and all Affiliates for any reason,
with or without cause, other than death, retirement under the then established
rules of the Company, or severance for disability. Whether authorized leave of
absence or absence on military or government service shall constitute severance
of the employment of the Employee shall be determined by the Committee at that
time.
5.11 DEATH. If, before the expiration of an Option or SAR, the
Eligible Person, whether in the employ of the Company or after he has retired or
was severed for disability, or otherwise dies, the Option or SAR shall continue
until the earlier of the Option's or SAR's expiration date or one year following
the date of his death, unless it is expressly provided otherwise in the Option
or SAR agreement. After the death of the Eligible Person, his executors,
administrators or any persons to whom his Option or SAR may be transferred by
will or by the laws of descent and distribution shall have the right, at any
time prior to the Option's or SAR's expiration or termination, whichever is
earlier, to exercise it, to the extent to which he was entitled to exercise it
immediately prior to his death, unless it is expressly provided otherwise in the
Option or SAR's agreement.
5.12 RETIREMENT. Unless it is expressly provided otherwise in the
Option Agreement, before the expiration of an Incentive Option, the Employee
shall be retired in good standing from the employ of the Company under the then
established rules of the Company, the Incentive Option shall terminate on the
earlier of the Option's expiration date or one day less than one year after his
retirement; provided, if an Incentive Option is not exercised within specified
time limits prescribed by the Code, it will become a Nonqualified Option by
operation of law. Unless it is expressly provided otherwise in the Option
Agreement, if before the expiration of a Nonqualified Option, the Employee shall
be retired in good standing from the employ of the Company under the then
established rules of the Company, the Nonqualified Option shall terminate on the
earlier of the Nonqualified Option's expiration date or one day less than one
year after his retirement. In the event of retirement, the Employee shall have
the right prior to the termination of the Nonqualified Option to exercise the
Nonqualified Option, to the extent to which he was entitled to exercise it
immediately prior to his retirement, unless it is expressly provided otherwise
in the Option Agreement. Upon retirement, an SAR shall continue to be
exercisable for the remainder of the term of the SAR agreement.
5.13 DISABILITY. If, before the expiration of an Option or SAR, the
Employee shall be severed from the employ of the Company for disability, the
Option or SAR shall terminate on the earlier of the Option's or SAR's expiration
date or one day less than one year after the date he was severed because of
disability, unless it is expressly provided otherwise in the Option or SAR
agreement. In the event that the Employee shall be severed from the employ of
the Company for disability, the Employee shall have the right prior to the
termination of the Option or SAR to exercise the Option, to the extent to which
he was entitled to exercise it immediately prior to his retirement or severance
of employment for disability, unless it is expressly provided otherwise in the
Option Agreement.
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5.14 SUBSTITUTION OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in this Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
5.15 RELOAD OPTIONS. Without in any way limiting the authority of
the Board of Directors or Committee to make or not to make grants of Options
hereunder, the Board of Directors or Committee shall have the authority (but not
an obligation) to include as part of any Option Agreement a provision entitling
the Eligible Person to a further Option (a "Reload Option") in the event the
Eligible Person exercises the Option evidenced by the Option Agreement, in whole
or in part, by surrendering other shares of Stock in accordance with this Plan
and the terms and conditions of the Option Agreement. Any such Reload Option (a)
shall be for a number of shares equal to the number of shares surrendered as
part or all of the exercise price of such Option; (b) shall have an expiration
date which is the greater of (i) the same expiration date of the Option the
exercise of which gave rise to such Reload Option or (ii) one year from the date
of grant of the Reload Option; and (c) shall have an exercise price which is
equal to one hundred percent (100%) of the Fair Market Value of the Stock
subject to the Reload Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Reload Option which is an Incentive Option and
which is granted to a 10% Stockholder, shall have an exercise price which is
equal to one hundred ten percent (110%) of the Fair Market Value of the Stock
subject to the Reload Option on the date of exercise of the original Option and
shall have a term which is no longer than five (5) years.
Any such Reload Option may be an Incentive Option or a Nonqualified
Option, as the Board of Directors or Committee may designate at the time of the
grant of the original Option; provided, however, that the designation of any
Reload Option as an Incentive Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on exercisability of Incentive
Stock Options described in the Plan and in Section 422(d) of the Code. There
shall be no Reload Options on a Reload Option. Any such Reload Option shall be
subject to the availability of sufficient shares under Section 4.2 herein and
shall be subject to such other terms and conditions as the Board of Directors or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
5.16 NO RIGHTS AS STOCKHOLDER. No Eligible Person shall have any
rights as a stockholder with respect to Stock covered by his Option until the
date a stock certificate is issued for the Stock.
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ARTICLE VI - RESTRICTED STOCK AWARDS
6.1 RESTRICTED STOCK AWARDS. The Committee may issue shares of
Stock to an Eligible Person subject to the terms of a Restricted Stock
Agreement. The Restricted Stock may be issued for no payment by the Eligible
Person or for a payment below the Fair Market Value on the date of grant.
Restricted Stock shall be subject to restrictions as to sale, transfer,
alienation, pledge or other encumbrance and generally will be subject to vesting
over a period of time specified in the Restricted Stock Agreement. The Committee
shall determine the period of vesting, the number of shares, the price, if any,
of Stock included in a Restricted Stock Award, and the other terms and
provisions which are included in a Restricted Stock Agreement.
6.2 RESTRICTIONS. Restricted Stock shall be subject to the terms
and conditions as determined by the Committee, including without limitation, any
or all of the following:
(a) a prohibition against the sale, transfer, alienation, pledge
or other encumbrance of the shares of Restricted Stock, such prohibition to
lapse (i) at such time or times as the Committee shall determine (whether in
annual or more frequent installments, at the time of the death, disability or
retirement of the holder of such shares, or otherwise);
(b) a requirement that the holder of shares of Restricted Stock
forfeit, or in the case of shares sold to an Eligible Person, resell back to the
Company at his cost, all or a part of such shares in the event of termination of
the Eligible Person's employment during any period in which the shares remain
subject to restrictions;
(c) a prohibition against employment of the holder of Restricted
Stock by any competitor of the Company or its Affiliates, or against such
holder's dissemination of any secret or confidential information belonging to
the Company or an Affiliate;
(d) unless stated otherwise in the Restricted Stock Agreement,
(i) if restrictions remain at the time of severance of
employment with the Company and all Affiliates, other
than for reason of disability or death, the Restricted
Stock shall be forfeited; and
(ii) if severance of employment is by reason of disability or
death, the restrictions on the shares shall lapse and
the Eligible Person or his heirs or estate shall be 100%
vested in the shares subject to the Restricted Stock
Agreement.
6.3 STOCK CERTIFICATE. Shares of Restricted Stock shall be
registered in the name of the Eligible Person receiving the Restricted Stock
Award and deposited, together with a stock power endorsed in blank, with the
Company. Each such certificate shall bear a legend in substantially the
following form:
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"The transferability of this certificate and the shares
of Stock represented by it is restricted by and subject
to the terms and conditions (including conditions of
forfeiture) contained in the [Company] 2002 Equity
Incentive Plan, and an agreement entered into between
the registered owner and the Company. A copy of the Plan
and agreement is on file in the office of the Secretary
of the Company."
6.4 RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of
the Plan, each Eligible Person receiving a certificate for Restricted Stock
shall have all the rights of a stockholder with respect to the shares of Stock
included in the Restricted Stock Award during any period in which such shares
are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such shares. Dividends paid with respect to shares
of Restricted Stock in cash or property other than Stock in the Company or
rights to acquire stock in the Company shall be paid to the Eligible Person
currently. Dividends paid in Stock in the Company or rights to acquire Stock in
the Company shall be added to and become a part of the Restricted Stock.
6.5 LAPSE OF RESTRICTIONS. At the end of the time period during
which any shares of Restricted Stock are subject to forfeiture and restrictions
on sale, transfer, alienation, pledge, or other encumbrance, such shares shall
vest and will be delivered in a certificate, free of all restrictions, to the
Eligible Person or to the Eligible Person's legal representative, beneficiary or
heir; provided the certificate shall bear such legend, if any, as the Committee
determines is reasonably required by applicable law. By accepting a Stock Award
and executing a Restricted Stock Agreement, the Eligible Person agrees to remit
when due any federal and state income and employment taxes required to be
withheld.
6.6 RESTRICTION PERIOD. No Restricted Stock Award may provide for
restrictions continuing beyond ten (10) years from the date of grant.
ARTICLE VII - PERFORMANCE STOCK AWARDS
7.1 AWARD OF PERFORMANCE STOCK. The Committee may award shares of
Stock, without any payment for such shares, to designated Eligible Persons if
specified performance goals established by the Committee are satisfied. The
terms and provisions herein relating to these performance based awards are
intended to satisfy Section 162(m) of the Code and regulations issued
thereunder. The designation of an employee eligible for a specific Performance
Stock Award shall be made by the Committee in writing prior to the beginning of
the period for which the performance is measured (or within such period as
permitted by IRS regulations). The Committee shall establish the maximum number
of shares of Stock to be issued to a designated Employee if the performance goal
or goals are met. The Committee reserves the right to make downward adjustments
in the maximum amount of an Award if in its discretion unforeseen events make
such adjustment appropriate.
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7.2 PERFORMANCE GOALS. Performance goals determined by the
Committee may be based on specified increases in cash flow, net profits, Stock
price, Company, segment or Affiliate sales, market share, earnings per share,
return on assets, and/or return on stockholders' equity.
7.3 ELIGIBILITY. The employees eligible for Performance Stock
Awards are the senior officers (i.e., chief executive officer, president, vice
presidents, secretary, treasurer, and similar positions) of the Company and its
Affiliates, and such other employees of the Company and its Affiliates as may be
designated by the Committee.
7.4 CERTIFICATE OF PERFORMANCE. The Committee must certify in
writing that a performance goal has been attained prior to issuance of any
certificate for a Performance Stock Award to any Employee. If the Committee
certifies the entitlement of an Employee to the Performance Stock Award, the
certificate will be issued to the Employee as soon as administratively
practicable, and subject to other applicable provisions of the Plan, including
but not limited to, all legal requirements and tax withholding. However, payment
may be made in shares of Stock, in cash, or partly in cash and partly in shares
of Stock, as the Committee shall decide in its sole discretion. If a cash
payment is made in lieu of shares of Stock, the number of shares represented by
such payment shall not be available for subsequent issuance under this Plan.
ARTICLE VII - BONUS STOCK AWARDS
8.1 AWARD OF BONUS STOCK. The committee may award shares of Stock
to Eligible Persons, without any payment for such shares and without any
specified performance goals. The Committee reserves the right to issue such
amount of shares to Eligible Persons as the Committee deems fit.
8.2 ELIGIBILITY. The Employees eligible for Bonus Stock Awards are
the senior officers (i.e., chief executive officer, chief operating officer,
chief financial officer, president, vice presidents, secretary, treasurer, and
similar positions) and consultants of the Company and its Affiliates, and such
other employees of the Company and its Affiliates as may be designated by the
Committee.
ARTICLE IX - ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Awards shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. This Plan shall be
administered in such a manner as to permit the Options which are designated to
be Incentive Options to qualify as Incentive Options. In carrying out its
authority under this Plan, the Committee shall have full and final authority and
discretion, including but not limited to the following rights, powers and
authorities, to:
15
(a) determine the Eligible Persons to whom and the time or times
at which Options or Awards will be made,
(b) determine the number of shares and the purchase price of Stock
covered in each Option or Award, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Option
and Award, which need not be identical,
(d) accelerate the time at which any outstanding Option or SAR may
be exercised, or Restricted Stock Award will vest,
(e) define the effect, if any, on an Option or Award of the death,
disability, retirement, or termination of employment of the Employee,
(f) prescribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions
deemed necessary, appropriate, or advisable for the proper administration of
this Plan.
The actions of the Committee in exercising all of the rights,
powers, and authorities set out in this Article and all other Articles of this
Plan, when performed in good faith and in its sole judgment, shall be final,
conclusive and binding on all parties.
ARTICLE X - AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or
suspend this Plan at any time, in its sole and absolute discretion; provided,
however, that to the extent required to qualify this Plan under Rule 16b-3
promulgated under Section 16 of the Securities Exchange Act of 1934, as amended,
no amendment that would (a) materially increase the number of shares of Stock
that may be issued under this Plan, (b) materially modify the requirements as to
eligibility for participation in this Plan, or (c) otherwise materially increase
the benefits accruing to participants under this Plan, shall be made without the
approval of the Company's stockholders; provided further, however, that to the
extent required to maintain the status of any Incentive Option under the Code,
no amendment that would (a) change the aggregate number of shares of Stock which
may be issued under Incentive Options, (b) change the class of employees
eligible to receive Incentive Options, or (c) decrease the Option price for
Incentive Options below the Fair Market Value of the Stock at the time it is
granted, shall be made without the approval of the Company's stockholders.
Subject to the preceding sentence, the Board of Directors shall have the power
to make any changes in the Plan and in the regulations and administrative
provisions under it or in any outstanding Incentive Option as in the opinion of
counsel for the Company may be necessary or appropriate from time to time to
16
enable any Incentive Option granted under this Plan to continue to qualify as an
incentive stock option or such other stock option as may be defined under the
Code so as to receive preferential federal income tax treatment.
ARTICLE XI - MISCELLANEOUS
11.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set
aside nor shall a trust fund of any kind be established to secure the rights of
any Eligible Person under this Plan. All Eligible Persons shall at all times
rely solely upon the general credit of the Company for the payment of any
benefit which becomes payable under this Plan.
11.2 NO EMPLOYMENT OBLIGATION. The granting of any Option or Award
shall not constitute an employment contract, express or implied, nor impose upon
the Company or any Affiliate any obligation to employ or continue to employ any
Eligible Person. The right of the Company or any Affiliate to terminate the
employment of any person shall not be diminished or affected by reason of the
fact that an Option or Award has been granted to him.
11.3 FORFEITURE. Notwithstanding any other provisions of this Plan,
if the Committee finds by a majority vote after full consideration of the facts
that an Eligible Person, before or after termination of his employment with the
Company or an Affiliate for any reason (a) committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in the course
of his employment by the Company or an Affiliate, which conduct damaged the
Company or Affiliate, or disclosed trade secrets of the Company or an Affiliate,
or (b) participated, engaged in or had a material, financial or other interest,
whether as an employee, officer, director, consultant, contractor, stockholder,
owner, or otherwise, in any commercial endeavor in the United States which is
competitive with the business of the Company or an Affiliate without the written
consent of the Company or Affiliate, the Eligible Person shall forfeit all
outstanding Options and all outstanding Awards, and including all exercised
Options and other situations pursuant to which the Company has not yet delivered
a stock certificate. Clause (b) shall not be deemed to have been violated solely
by reason of the Eligible Person's ownership of stock or securities of any
publicly owned corporation, if that ownership does not result in effective
control of the corporation.
The decision of the Committee as to the cause of an Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of an
Eligible Person's competitive activity shall be final. No decision of the
Committee, however, shall affect the finality of the discharge of the Employee
by the Company or an Affiliate in any manner.
11.4 TAX WITHHOLDING. The Company or any Affiliate shall be
entitled to deduct from other compensation payable to each Eligible Person any
sums required by federal, state, or local tax law to be withheld with respect to
the grant or exercise of an Option or SAR, lapse of restrictions on Restricted
Stock, or award of Performance Stock. In the alternative, the Company may
require the Eligible Person (or other person exercising the Option, SAR or
receiving the Stock) to pay the sum directly to the employer corporation. If the
Eligible Person (or other person exercising the Option or SAR or receiving the
Stock) is required to pay the sum directly, payment in cash or by check of such
17
sums for taxes shall be delivered within 10 days after the date of exercise or
lapse of restrictions. The Company shall have no obligation upon exercise of any
Option or lapse of restrictions on Stock until payment has been received, unless
withholding (or offset against a cash payment) as of or prior to the date of
exercise or lapse of restrictions is sufficient to cover all sums due with
respect to that exercise. The Company and its Affiliates shall not be obligated
to advise an Eligible Person of the existence of the tax or the amount which the
employer corporation will be required to withhold.
11.5 WRITTEN AGREEMENT. Each Option and Award shall be embodied in
a written agreement which shall be subject to the terms and conditions of this
Plan and shall be signed by the Eligible Person and by a member of the Committee
on behalf of the Committee and the Company or an executive officer of the
Company, other than the Eligible Person, on behalf of the Company. The agreement
may contain any other provisions that the Committee in its discretion shall deem
advisable which are not inconsistent with the terms of this Plan.
11.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS.
With respect to administration of this Plan, the Company shall indemnify each
present and future member of the Committee and the Board of Directors against,
and each member of the Committee and the Board of Directors shall be entitled
without further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the expenses,
including, without limitation, matters as to which he shall be finally adjudged
in any action, suit or proceeding to have been found to have been negligent in
the performance of his duty as a member of the Committee or the Board of
Directors. However, this indemnity shall not include any expenses incurred by
any member of the Committee and/or the Board of Directors in respect of matters
as to which he shall be finally adjudged in any action, suit or proceeding to
have been guilty of gross negligence or willful misconduct in the performance of
his duty as a member of the Committee and the Board of Directors. In addition,
no right of indemnification under this Plan shall be available to or enforceable
by any member of the Committee and the Board of Directors unless, within 60 days
after institution of any action, suit or proceeding, he shall have offered the
Company, in writing, the opportunity to handle and defend same at its own
expense. This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and the Board of
Directors and shall be in addition to all other rights to which a member of the
Committee and the Board of Directors may be entitled as a matter of law,
contract, or otherwise.
11.7 GENDER. If the context requires, words of one gender when used
in this Plan shall include the others and words used in the singular or plural
shall include the other.
11.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
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11.9 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
11.10 OTHER OPTIONS OR AWARDS. The grant of an Option or Award shall
not confer upon the Eligible Person the right to receive any future or other
Options or Awards under this Plan, whether or not Options or Awards may be
granted to similarly situated Eligible Persons, or the right to receive future
Options or Awards upon the same terms or conditions as previously granted.
11.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Delaware.
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